* Income from oil sales amounted to TSEK 21,470 (24,155)
* The net result after tax for the period was TSEK -118,448 (-812)
* EPS was SEK -0.35 (-0.00) for the report period
* Malka Oil proposes and carries out the financial restructuring
* Convertible bond holders accept a proposal for early conversion and
an Extraordinary general meeting in Malka Oil AB approves the board
of director's decision for a rights issue and an early conversion
of the convertible bonds which were executed at the end of April
MD's Report
Dear Shareholders,
Please allow me to start with mentioning two circumstances that are
both positive for Malka. Firstly, after having completed a
financial reconstruction and a subsequent rights issue our interest
bearing debt burden has decreased significantly and resulted in a
high solidity which, if we act wisely, can give the Company larger
freedom of action for the future. Secondly, the ongoing operational
efficiency program has resulted in that we for the first time in
April and under normal operational conditions, i.e. before the
recent disturbing actions in the oil fields and an international
oil price above USD 45 per barrel, have a positive cash flow in the
Company.
However, on the other side the inflamed owner conflict that has
been going on lately has consumed significant resources and a lot
of management focus which has been diverted from running the
business. The non-sanctioned actions that have been conducted on
the oil fields have also disturbed production which has fallen to
around 1,000 barrels per day from earlier 2,500. Intensive work is
being made to reach a solution that enables a normalisation of the
business.
The main reason behind this unfortunate development is related to
the largely completed debt restructuring in Russia. Provocative and
destructive actions have caused Malka damage and are not, according
to our opinion, in conjunction with good business practices.
Instead, the negotiation table would have been a better arena to
establish a constructive solution. Malka is, as earlier
communicated, in progress of fulfilling its part of an already
concluded agreement. This is now happening step by step and
depending on the reactions from other parties involved, it is our
wish to return to "business as usual" as soon as possible.
On a macro level, there are also external lights in the dark,
primarily the recovery of the oil price and to a certain extent of
the Russian financial markets. These two factors were against us
during the second half of last year and even as late as in January
this year we experienced a negative contribution per barrel as a
consequence of a domestic Russian oil price at around USD 10 per
barrel. The price of oil has since then gradually increased during
the spring and Brent was traded at levels above USD 60 per barrel
in May. This development is of course both unsure and volatile and
therefore it is fundamentally important to continue to focus on
increasing the efficiency of the production and the activities in
the oil fields and on cost control throughout the Company.
Unfortunately we also have to accept that the production and the
increase of reserves have not met our earlier established targets.
With an increasing oil price it will be a priority to increase
production from existing wells. We are continuously monitoring the
profitability of each well. Currently, nine wells are producing and
the others put into conservation.
With existing wells we have a technical capacity of up to 4,000
barrels per day when all wells are performing and producing. For
further production increases we need to drill new wells and
therefore the drilling program is being reviewed. Important factors
in this review are the new seismic report from the north and middle
part of the license block as well as the knowledge we have gained
through existing drilled wells and production data.
An updated independent western reserve report by the American
petroleum consulting company DeGolyer and MacNaughton (D&M) which
is taking into account these new factors is planned to be produced
latest during the third quarter this year.
Due to the delays in both production and reserve development since
spring 2008 in combination with new data, we are also planning to
review the long term targets of the Company both related to
production and reserves and their timing.
Our earlier communicated operational plan is still valid - as we
await higher oil prices we will minimise exploration drilling and
optimize production to levels that still comply with license
obligations. The aim is to maximize the existing positive cash flow
based on existing production and connect more wells step by step
when profitability can be shown.
Generally speaking we also see a big value in doing what has to be
done to achieve normal and peaceful working conditions in the
Company. At times this can seem complex but also necessary to be
able to focus all resources on what is beneficial for us all - to
find, produce and sell oil.
Stockholm May 29, 2009
Fredrik Svinhufvud
Managing Director Malka Oil AB
Comment on the Group's result and financial position
Turnover and result
Operating income for the report period amounted to TSEK 21,489
(TSEK 26,579), of which revenues from oil sales were TSEK 21,470
(TSEK 24,155).
Gross profit amounted to TSEK -8,588 (TSEK -323). This amount
includes an amortization charge of TSEK 6,383 (TSEK 2,277).
Selling and distribution expenses were TSEK -966 TSEK (TSEK
-5,878). These expenses have decreased significantly compared to
earlier report periods following the conclusion in early 2009 of a
new contract with Tomskayaneft for treatment and pumping of
produced oil into Transneft's system. As a result of the new
contract, the volume based charge paid to Tomskayaneft has been
significantly decreased.
Operating profit for the quarter amounted to TSEK -28,378 (TSEK
-13,393).
Transaction costs of TSEK -1,429 (TSEK -450) relating to new share
issues in previous report periods have been booked directly against
equity.
Net financial items for the period January-March 2009 were TSEK
-78,084 (TSEK 14,824).
The predominant proportion of the calculated net financial items
amount consists of currency exchange rate losses with no impact on
cash flow. Exchange rate developments have had a negative impact on
net financial items during the period both as a result of the
depreciation of SEK versus USD and as a result of the depreciation
of RUR versus USD. Exchange rate losses have arisen on the
outstanding USD denominated convertible loans due to the
depreciation of SEK versus USD. Exchange rate losses have also
arisen on the USD lending to the Group's Russian subsidiaries due
to the exchange of these loans into RUR whose depreciation versus
the USD has been even larger than the depreciation of SEK versus
USD. During the quarter, the SEK depreciated versus the USD by
approximately 4.5 % while the RUR depreciated versus the USD by
approximately 11.1 %.
The tax cost for the period amounted to TSEK -11,986 (TSEK -2,243).
This amount includes a dissolution of deferred tax assets in the
Russian subsidiaries of TSEK 12,527 which has impacted the Group's
result negatively. This dissolution does not have any impact on
cash flow.
The Group reports a net result after tax for the 1 January - 31
March 2009 period of TSEK
-118,448 (TSEK -812), equivalent to an earnings per share of SEK
-0.35 (SEK 0,00).
Investments
Investments in tangible and intangible fixed assets in the Group
during the period January - March 2009 amounted to TSEK 9 271 (122
579 TSEK), of which investments in intangible fixed assets
represented TSEK 6 268 (TSEK 119 580 TSEK). The limited investment
activity during the quarter reflects the company's difficult
financial situation during the period as a result of the dramatic
fall in the oil price and the problems in the financial markets in
Russia and globally.
Financing and liquidity
In the beginning of 2009, the company's financial situation was
very difficult and the board of directors made a proposal for a
financial restructuring as a way to solve the financing
requirements of the Group.
The proposal consisted of two parts:
- an offer to holders of convertible bonds of early conversion into
shares of the two outstanding convertible bond loans of nominally
MUSD 80;
- a new rights issue under the special condition that the
convertible bond owners must accept their offer in full for the
rights issue to go through.
The convertible bond holders accepted the offer of early conversion
at the convertible bond holders' meeting on February 27. This meant
that Malka Oil's outstanding convertible bond debt of a total
amount of MUSD 80 would be converted into Malka Oil shares
conditional of an approval of the proposal at an extraordinary
general meeting of shareholders and under the condition that the
upcoming rights issue would be fully subscribed.
At an extraordinary general meeting of shareholders on March 17,
the proposal regarding early conversion of the company's
convertible bond debt into shares was approved. In addition, it was
decided to execute a rights issue which would provide the company
with an amount of approximately MSEK 141 before issue expenses.
The conversion of the convertible bond loan and the rights issue
would according to the decisions be executed in April 2009.
See further below in "Major business events following the end of
the report period".
Cash balances in the Group amounted to TSEK 5,377 (TSEK 57,124) as
of March 31, 2009.
Legal disputes
Malka Oil's Russian subsidiary, OOO STS-Service, is involved in
legal disputes with local suppliers. Negotiations regarding these
disputes are going on between the parties and the board of
directors in Malka Oil sees no need for further provisions due to
these disputes.
Employees
The number of employees in Group companies at the end of the report
period was 223 (99) persons, of which 35 (11) were women and 188
(88) were men.
Operations
Summary
Malka Oil AB is an independent Swedish oil and gas company within
exploration and production active in Tomsk region in western
Siberia in Russia. The subsidiary OOO STS-Service owns an oil
licence valid for 25 years as from April 2005, which gives the
company the right to extract all hydrocarbons found within the
Tomsk licence block during the licence period. The licence block
measures just over 1,803 square kilometres, corresponding to an
area of approximately 30 times 60 kilometres and is located in the
very active oil and gas producing north-western part of the Tomsk
region. The licence block is surrounded by a large number of
established producing oil and gas fields.
Drilling on the licence block commenced during the Soviet era. The
Soviet authorities drilled four boreholes, three of which were
discovered to produce hydrocarbons, i.e. oil, gas and gas
condensate. A vast amount of 2D seismic data was collected which
indicated a volume of approximately one million tons (which is
about eight million barrels) of recoverable oil reserves classified
in accordance with Russian categories "Proven" (C1) and "Probable"
(C2).
Besides the three oilfields that are currently establish in the
licence block, Malka Oil has, based on existing seismic data,
identified another seven structures, i.e. potential oil fields. A
further important dimension that indicates additional potential in
Malka Oil's licence block is that there was no seismic data for
approximately a third of the licence block and the data acquisition
for this area was completed during spring 2008. After two seasons
of seismic data gathering and interpretation, Sibneftegeofizika, a
reputable Siberian oil service company has presented a seismic
report covering Malka Oil's license block nr 87 in the Tomsk
region. This new report demonstrates four new potential oil bearing
structures in addition to the seven communicated earlier. These
will be subject to exploration drilling over the next few years.
For further information, please contact:
Fredrik Svinhufvud, MD, tel +46 8 5000 7811, mobile +46 708 708 708
Jan-Olov Olsson, CFO, tel +46 8 5000 7812, mobile +46 768 51 86 92
For further information on Malka Oil AB, see the website
www.malkaoil.se
(for complete report see attached file)
