News 2014

28 Aug 2014

H1 2014 Results: Nostrum Oil & Gas Posts Record Financial and Operational Results

Amsterdam, 28 August 2014 – Nostrum Oil & Gas plc (LSE:NOG) (“Nostrum”, or the “Company” and together with its subsidiaries, the “Group”), an independent oil and gas company engaging in the production, development and exploration of oil and gas in the pre-Caspian Basin, today announces record results in respect of the six months ended 30 June 2014. 

Highlights from the six months to 30 June 2014

  • Total average daily production of 46,569 boepd, up 0.4% compared to FY 2013 (FY 2013: 46,178 boepd; H1 2013: 46,370 boepd), above average annual target of 45,000 boepd
  • Record revenue of US$445.0 million, up 0.6% compared to H1 2013 (US$442.5 million)
  • Record EBITDA [1] of US$312.7 million, up 9.6% compared to H1 2013 (US$285.2 million)
  • Total Cash Positionof [2] US$458.2 million, an increase of US$218.3 million compared to FY 2013 (US$239.9 million)
  • Total Net Debt [3] of US$483.6 million at 30 June 2014, an increase of US$95.1 million compared to FY 2013 (US$388.5 million)
  • Net Debt to LTM EBITDA [4] ratio 0.8x
  • Third consecutive annual distribution of US$0.35 per common unit paid on 6 June 2014, representing 29.4% of net income
  • Repayment of remaining portion of 2015 Notes in April 2014 
  • Premium Listing on the London Stock Exchange completed in June
  • Long-term off-take agreement for gas condensate with Trafigura

[1] Defined as profit before tax before non-recurring expenses, finance costs, foreign exchange loss/gain, ESOP fair value adjustment, depreciation, interest income, other income and expenses.

[2] Defined as cash and cash equivalents including current and non-current investments

[3] Defined as total debt (comprising of principal amount of outstanding notes and accrued but not paid interest) less Total Cash Position

[4] EBITDA for the twelve month period to 30 June 2014

 

Kai-Uwe Kessel, Chief Executive Officer of Nostrum, commented: 

“Nostrum has continued to deliver strong operational and financial results in the first half of 2014, with total average daily production of 46,569 boepd exceeding our yearly production target of 45,000 boepd. This operational outperformance, in conjunction with a supportive oil price environment, has put us in a very strong position. We are now progressing towards the completion of the third gas treatment facility at Chinarevskoye, on time and on budget, to deliver production of 100,000 boepd by the end of 2016. The repayment ahead-of-schedule of our 2015 Notes in April, together with continued strong cash generation, means that the Company is conservatively leveraged and fully financed to achieve our growth ambitions. Furthermore, the successful completion of the Company’s Premium Listing marks a significant milestone in our vision to become the leading independent oil and gas exploration and production company in the region.”

 

H1 2014: NOSTRUM FINANCIAL RESULTS 

In millions of US$  (unless mentioned otherwise)

H1 2014

H1 2013

Variance

Variance in %

Revenue

445.0

442.5

+2.5

0.6%

EBITDA 

312.7

285.2

+27.5

9.6%

EBITDA margin

70.3%

64.5%

Cash Position

458.2

239.9

+218.3

91.0%

Net Debt 

483.6

388.5

+95.1

24.5%


Revenue, EBITDA and Profit for the period

Revenue from sales of crude oil, stabilised condensate, LPG and dry gas stood at US$445.0 million, with EBITDA at US$312.7 million. The EBITDA margin increased to 70.3% from 64.5% in H1 2013.  Profit for the period decreased to US$91.8 million.  

Cost of Sales

Cost of sales decreased by US$36.8 million to US$98.5 million for the six months ended 30 June 2014 (H1 2013 US$135.3 million). The decrease is primarily due to a decrease in depreciation, depletion and amortisation, royalties, government profit share, repair, maintenance and other services, materials and supply expenses. However, this was partially offset by an increase in payroll and related taxes, well workover costs and other expenses.

Depreciation, depletion and amortisation decreased by US$6.5 million to US$56.7 million for the six months ended 30 June 2014 (H1 2013: US$63.2 million). This is mainly due to an increase in proved developed reserves starting from 31 August 2013, which was partially offset by an increase of production volumes. Repair, maintenance and other services decreased by US$6.8 million to US$17.9 million for the six months ended 30 June 2014 (H1 2013 US$24.8 million). This includes maintenance expenses related to the gas treatment facility and other Group facilities, and engineering and geophysical study expenses. 

Royalty costs, which are calculated on the basis of production and market prices for the different products, decreased by US$7.6 million to US$10.4 million for the six months ended 30 June 2014 (US$18.0 million). This decrease resulted from the reversal of royalty expenses from prior periods amounting to US$5.8 million. The reversal was due to new assumptions used to calculate royalty costs on account of new information. Government profit share costs decreased by US$12.2 million to a credit of US$8.0 million for the six months ended 30 June 2014 (H1 2013 US$4.2 million charge). The decrease resulted from the reversal of government profit share expenses from prior periods amounting to US$22.2 million. This decrease resulted from new assumptions used to calculate government profit share on account of new information.

On a boe basis, the cost of sales decreased marginally by US$4.7 to US$12.1 in the first six months of 2014 (H1 2013 US$16.8). Cost of sales net of depreciation, depletion and amortisation per boe decreased by US$3.8 to US$5.0 in the first six months of 2014 (H1 2013 US$8.9).

Cash

The Total Cash Position at the end of H1 2014 was US$458.2 million, which includes US$25.0 million of current investments (FY 2013 US$239.9 million).

 

PRODUCTION SUMMARY

  • Total average daily production for H1 2014 was 46,569 boepd (FY2013: 46,178 boepd; H1 2013: 46,370 boepd)
  • H1 2014 total average daily production was above the 2013 guidance of 45,000 boepd
  • The product split for H1 2014 was as follows:

PRODUCTS

H1 2014 Average Production

H1 2014 Product Mix %

Crude Oil & Stabilised Condensate

19,484 boepd

42%

LPG (Liquefied Petroleum Gas)

4,739 boepd

10%

Dry Gas

22,346 boepd

48%

TOTAL

46,596 boepd

100%


DRILLING 

Production & Appraisal

  • 15 oil wells and 15 gas condensate wells are currently producing at the Chinarevskoye field.
  • 3 gas condensate wells (204, 208 and 222) were completed during H1 2014. Well 222 is currently undergoing well tests, well 204 is waiting for fracking equipment and well 208 is temporarily closed awaiting well testing.
  • 1 gas condensate well (219) is currently being drilled, with completion expected before the end of Q3 2014.
  • 2 crude oil wells (123, 124) are expected to be completed and tested by the end of Q3 2014.
  • The above 4 gas condensate wells and 2 crude oil wells will complete the planned production wells drilling scheduled for 2014.
  • Multi-target appraisal well (724) is under way, and will target two more layers in the Lower Permian reservoir. The well is scheduled to complete testing all targets by the end of Q3 2014 

Exploration

Exploration well (40) tested successfully in the Borikovski horizon. A commercial discovery was announced in May 2014. With limited test information, the volume of oil in place was estimated at 8 MMbbl. An extension to the exploration licence has been submitted and further testing of the well will take place if the licence is extended. 

Exploration & Appraisal of Rostoshinskoye, Darjinskoye and Yuzhno-Gremyachenskoye

The 3D seismic processing of the three additional adjacent fields has been completed. The re-interpretation of the data will now take place over Q3 and Q4 of 2014. In addition, the tender process for the first wells on the three licences has started. One well is scheduled for completion by the end of 2014. 

Progress on development of GTU3

On 28 July 2014, Nostrum announced that the Group has entered into a contract with JSC “OGCC KazStroyService” for the construction of the third unit of the Group’s gas treatment facility for a consideration of US$150 million (the “Construction Contract”), in line with the budget for the GTU3 project. As the Contractor is an affiliate of KazStroyService Global B.V., which currently owns approximately 26.6% of the Company’s ordinary shares, the Construction Contract is a related party transaction for the purposes of the Listing Rules.  Accordingly, the Construction Contract is subject to the requirements of the Listing Rules and is conditional, inter alia, upon approval by the shareholders of the Company. The GTU3 project remains on budget, at under US$500m, and on time to allow for the doubling of production by the end of 2016.

Off-take agreement with Trafigura

In May 2014, Nostrum announced that it had signed an agreement to supply gas condensate to Trafigura, one of the leading global commodities trading houses. The contract provides for the sale of approximately 720,000 tons of gas condensate to Trafigura over the next 24 months. 

Current product destinations

The current export destinations for Nostrum’s products are concentrated around the following destinations:

  • Crude oil - Finland
  • Condensate - Black Sea port of Taman
  • LPG – Russian Black Sea ports

Premium Listing completed

The Directors were delighted to announce that on 20 June 2014, the ordinary share capital of the Company was admitted to the premium listing segment of the Official List of the Financial Conduct Authority and to trading on the London Stock Exchange Group's main market for listed securities under the ticker "NOG". The Premium Listing replaced the previous GDR listing, and the shares replaced the GDRs as the listed securities in Nostrum. The GDRs are scheduled to be cancelled in Q3 2014.  

Following the move to the Main Board, Nostrum Oil & Gas plc will no longer be providing EBITDA estimates in the operational updates.

Kazakhstan Legal Proceedings 

Below is an updated summary of recent developments in legal proceedings in Kazakhstan, to which Nostrum’s wholly-owned operating subsidiary Zhaikmunai LLP (“Zhaikmunai”) is a party. 

The appeal process in relation to the tax audit of Zhaikmunai for the period 2009-2011 undertaken by the Tax Authority in 2013 (as per the operational update of 31 July 2014) is ongoing. These proceedings do not affect Zhaikmunai's ongoing operations, which continue uninterrupted. 

In relation to the environmental proceedings brought against Zhaikmunai in the Uralsk Administrative Court by the West Kazakhstan Environmental Department (as per the operational Update of 31 July 2014), on 30 May 2014, the West Kazakhstan Regional Administrative Court reversed the 28 February 2014 judgment of the Uralsk Administrative Court. Two penalties were cancelled (KZT 3,298,705,769) in favour of Zhaikmunai and six penalties were affirmed (KZT 559,005). 

Distribution

In May 2014, the board of the General Partner of Nostrum announced a distribution of US$0.35 per common unit would be made by the Partnership to the holders of common units representing limited partnership interests. The distribution was paid by the Partnership on 6 June 2014 to common unit holders on Nostrum's register of partners and interests at the close of business on 30 May 2014.  This is the third consecutive annual distribution paid by Nostrum and is in line with current Company policy of distribution payment of not less than 20% of the Company’s consolidated net profit. This policy reflects the Company’s desire to recognize the growth and cash generation inherent in the business. 

Repayment of 2015 outstanding Notes

In March, Nostrum Oil & Gas LP announced that it had issued instructions to the trustee to redeem the outstanding US$92,505,000 of its 10.5% Senior Notes due in 2015 (the "Notes"). Nostrum exercised its right of optional redemption under the Notes. The redemption price was 105.25%, plus accrued and unpaid interest. The redemption date was 14 April 2014. 

CONFERENCE CALL 

Nostrum’s management team will be available for a Q&A session with analysts and investors today at 14.00 BST, 28th August. Please click on the following link to register for the call: Conference call registration 

A presentation will be available in advance on our website.  http://www.nog.co.uk

PUBLICATIONS

In addition to publishing its 2014 H1 reviewed financial statements the Company today also publishes 2014 Q2 unreviewed financial statements for purposes of compliance with ongoing reporting obligations in its bond documentation.

Download: Nostrum's 2014 Half-Year Results Presentation

Download: Nostrum's 2014 Half-Year Interim Management Report and Reviewed Financial Statements

Download: Nostrum's 2014 Second-Quarter Interim Management Report and Unreviewed Financial Statements


Further information
For further information please visit www.nog.co.uk 
Further enquiries:
Nostrum Oil & Gas plc– Investor Relations
Kirsty Hamilton-Smith
Bruno G. Meere
ir@nog.co.uk     
+ 44 (0) 203 740 7430

Instinctif Partners - UK
Tony Friend
David Simonson
Anca Spiridon
Catherine Wickman
+ 44 (0) 207 457 2020

Promo Group Communications - Kazakhstan
Asel Karaulova
+ 7 (727) 264 67 37

About Nostrum Oil & Gas
Nostrum Oil & Gas PLC is an independent oil and gas Company currently engaging in the production, development and exploration of oil and gas in the pre-Caspian Basin. Its shares are listed on the London Stock Exchange (ticker symbol: NOG). The principal producing asset of Nostrum Oil & Gas PLC is the Chinarevskoye field, in which it holds a 100% interest and is the operator through its wholly-owned subsidiary Zhaikmunai LLP. In addition, Nostrum Oil & Gas holds a 100% interest in and is the operator of the Rostoshinskoye, Darinskoye and Yuzhno-Gremyachenskoye oil and gas fields through the same subsidiary. Located in the pre-Caspian basin to the north-west of Uralsk, these exploration and development fields are situated approximately 60 and 120 kilometres respectively from the Chinarevskoye field. 

Forward-Looking Statements
Some of the statements in this document are forward-looking. Forward-looking statements include statements regarding the intent, belief and current expectations of the Group or its officers with respect to various matters. When used in this document, the words "expects," "believes," "anticipates," "plans," "may," "will," "should" and similar expressions, and the negatives thereof, are intended to identify forward-looking statements. Such statements are not promises or guarantees, and are subject to risks and uncertainties that could cause actual outcomes to differ materially from those suggested by any such statements.

No part of this announcement constitutes, or shall be taken to constitute, an invitation or inducement to invest in the Company or any other entity, and shareholders of the Company are cautioned not to place undue reliance on the forward-looking statements. Save as required by the Listing Rules and applicable law, the Company does not undertake to update or change any forward-looking statements to reflect events occurring after the date of this announcement.