PetroNeft Resources plc (LON:PTR), an oil & gas exploration and production company, operating in the Tomsk Oblast, Russian Federation, and 90% owner and operator of Licence 67 and 50% owner and operator of Licence 61, has announced its unaudited financial and operating results for the half-year period ended 30th June 2021.
David Sturt – Chief Executive Officer commented,
“Following the considerable challenges faced by the Company in 2020, I am very pleased to report significant progress during the first half of 2021; production has increased, strict cost control has been maintained, operating cash flows have been significantly increased and the capital structure of the Group has been improved.
It is particularly pleasing to see such an immediate impact from Licence 67 where we increased our interest during the reporting period. This asset has been operationally profitable during the period, especially during Q2 once the C-4 well had been opened up. We see significant potential for growth in this asset due to the large number of additional drilling locations with very low OPEX costs and reduced tax rate.
Thanks largely to the technical progress made by our Tomsk team over the last two years, the outlook for the company has been transformed. A decline in production was first arrested and now reversed. Our corporate strategy has moved on from asset divestment to asset enhancement. While there is much more to be done, we are now in a position where the Company is moving forward with strength and confidence. We have also brought Licence 67 on stream and have increased our share in this asset. It is now realistic to view this as a growing business. As society opens again, I relish the prospect of more contact with our shareholders and further informing them of our progress.”
Year to date highlights
Strategic
- Strategic focus on building a financially sustainable company to drive value creation through organic growth.
- Increased the ownership interest in Licence 67 to 90% by completing the acquisition of an additional 40% interest in L icence 67 on 5th March 2021.
- Established year-round production from Cheremshanskoye field (Licence 67).
- Refreshed and strengthened the board, Alastair McBain, former CEO of Arawak Energy and currently a significant shareholder of the Company, became Non-Executive Chairman 29th January 2021,
- Successfully raised $4.6M through issuance of convertible loans with $1.7M used for the acquisition of Licence 67.
- Substantial debt retired under three historic loan agreements, with loan principal amounts declining from $5.9M to $3.044M and then further reduced after the reporting period to $2.379M. The conversion pricings, when agreed under the respective agreements, were at a significant premium to the then market share price.
- Significant improvement in operating cash flows at both Licence 67 and Licence 61, covering investment activities including the Licence 61 fracking program and all-season road at the Cheremshanskoye field.
- Independent reserves report commissioned (Miller and Lents), nearing completion.
Operations
- Gross production increased 25.1% rising to 1,967 bopd (H1 2020: 1,573 bopd) and 41.5% quarter over quarter during the first 6 months of 2021, and to Q2 2,091 bopd from (Q2 2020: 1,476 bopd)
| Gross Production per L61 and L67 | H1 2021 | H1 2020 | Q2 2021 | Q2 2020 |
| Total Production (bopd) | 1,967 | 1,573 | 2,091 | 1,476 |
| Net to PetroNeft Resources plc | 1,065 | 790 | 1,166 | 739 |
| Licence 61 | H1 2021 | H1 2020 | Q2 2021 | Q2 2020 |
| Total gross production | 319,511 | 285,020 | 162,936 | 133,496 |
| Gross bopd | 1,765 | 1,566 | 1,791 | 1,467 |
| Net to PetroNeft Resources plc 50% share bopd | 883 | 787 | 896 | 739 |
| Licence 67 | H1 2021 | H1 2020 | Q2 2021 | Q2 2020 |
| Total gross production | 36,586 | 1,200 | 27,307 | 0 |
| Gross bopd | 202 | 7 | 300 | 0 |
| Net to PetroNeft Resources plc 90% share bopd from Q1 2021 (2020: 50%) | 182 | 3 | 270 | 0 |
- Stable production performance at the new Cheremshanskoye field, in production since February 2021 and currently > 300 bopd natural flow with no appreciable decline.
- Highly successful fracking campaign at Licence 61 (wells’ S-373 & L-115), production at both wells significantly exceeding expectations
- Stable production performance from legacy fields at Licence 61.
- Mini Oil Processing unit operational under test regime producing sufficient diesel to meet all the Group’s internal needs and to supply excess volumes to the local market, thereby reducing costs and providing a valuable additional revenue stream.
Financial performance of Licences
| Licence 61 (100% basis) | Units | H1 2021 | H1 2020 | Q2 2021 | Q2 2020 |
| Revenue | $’000 | 14,412 | 8,043 | 7,954 | 2,709 |
| Cost of Sales | $’000 | (14,356) | (8,987) | (7,384) | (3,598) |
| Gross Profit | $’000 | 56 | (944) | 570 | (889) |
| Administrative Expenses | $’000 | (1,623) | (1,533) | (805) | (759) |
| Operating Profit / (Loss) | $’000 | (1,567) | (2,496) | (235) | (1,648) |
| Average realized price | $/bbl | 44.3 | 27.2 | 47.3 | 19.3 |
| Cash operating costs* | $/bbl | 15.6 | 16.0 | 14.0 | 13.8 |
| Licence 67 (100% basis) | Units | H1 2021 | H1 2020 | Q2 2021 | Q2 2020 |
| Revenue | $’000 | 1,629 | – | 1,305 | – |
| Cost of Sales | $’000 | (1,287) | – | (928) | – |
| Gross Profit | $’000 | 342 | – | 342 | – |
| Administrative Expenses | $’000 | (171) | (0.2) | (136) | – |
| Operating Profit / (Loss) | $’000 | 171 | (0.2) | 206 | – |
| Average realized price | $/bbl | 44.5 | 35.8 | 47.7 | n/a |
| Cash operating costs* | $/bbl | 8.5 | 162.2 | 5.7 | n/a |
Group Financial Results
- Consolidated revenue $2.5M (H1 2020: $1M), for the first time including Crude oil revenues of $1.6M following the consolidation of Russian BD Holdings B.V. (Licence 67) in March 2021. These sales show a subsequent month over month increase through to the end of June 2021.
- Consolidated gross profit: $0.647M (H1 2020: $0.192M) and an improved Gross margin driven by a strong performance in Russian BD Holdings BV’s operations.
- Consolidated loss for the period – $2.2M (H1 2020: $2.7M), a significant improvement in bottom line reported results in a very busy corporate activity period for the Company. The reported results include one off accounting adjustments both for the extra 40% acquisition and the convertible debt retirement programs. Excluding these adjustments consolidated earnings for the interim period were $2.0M (H1 2020: $2.7), which demonstrates continued operational improvements across all subsidiaries and the Licence 61 joint venture.
- Consolidated cash balance: $1.1M (31 December 2020: $0.1M). Improvements in cash generation from existing operations and funding through the convertible debt program.
- Gross Debt: $7.76M (31 December 2020: $4.15M). During the Period, the Group raised $4.6M from convertible loans issuances and then reduced the debt by retiring $2.9M of the convertible loans through the issuance of shares.
Outlook
- Evaluating options to develop the significant portfolio of low-risk appraisal/development opportunities including the Cheremshanskoye and Ledovoye fields in Licence 67 and the Northern Hub (Sibkrayevskoye and, West Lineynoye fields and Emtorskaya structure) in Licence 61
- Further production enhancement operations being planned to include: an expanded fracking campaign, further waterflood optimization, and re-working Tungolskoye wells to try to re-establish commercial production.
- Growing confidence in the fundamentals of the industry whilst operating within a supportive regulatory and fiscal regime.
