Interim Results for the Half Year Ended 30 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 Licence 67 on 5^th 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 29^th 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*[1]	$/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*[2]	$/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.

Click here for Interim Report: /investor-relations/financial-reports/Interim Results for Half Year Ended 30 June 2021.pdf

For further information, contact:

David Sturt, CEO, PetroNeft Resources plc                                        +353 1 647 0280

John Frain/Ciara O'Mongain, Davy (NOMAD and Broker)              +353 1 679 6363

Joe Heron/Douglas Keating, Murray Consultants                            +353 1 498 0300

 The information contained in this announcement has been reviewed and verified by Mr. David Sturt, Chief Executive Officer and Executive Director of PetroNeft, for the purposes of the Guidance Note for Mining and Oil & Gas Companies issued by the London Stock Exchange in June 2009. Mr. Sturt holds a B.Sc. Degree in Earth Sciences from Kingston University and an MSc. in Exploration Geophysics from The University of Leeds. He is a member of the Petroleum Exploration Society Great Britain and has over 35 years’ experience in oil and gas exploration and development.

Glossary

bopd           Barrels of oil per day

M                 Million

                               

[2] * Cash operating costs - non-IFRS measure representing operating costs of each operating asset on a stand-alone basis, excluding holdings’ overheads, Minerals Extraction Tax, depreciation, depletion and amortization and other non-EBITDA items.