January - June 2014
• Total revenue for the period: SEK 63 (46) million
• Operating result for the period: SEK 15 (11) million
• Operating margin: 23% (23%)
• Convertible bond of SEK 22 million fully converted into shares making the
company debt-free
• Basic and diluted earnings per share: SEK 0.70 (-0.44)
April - June 2014
• Revenue during the quarter: SEK 32 (23) million
• Operating result during the quarter: SEK 6 (5) million
┌───────────────┬───────┬───────┬──────────┬──────────┬───────┬───────┬──────┐
│ │ │ │ │ │ │ │ │
│Oil production │Q2 2014│Q2 2013│Q1-Q2 2014│Q1-Q2 2013│ │ │ │
│ │ │ │ │ │2013 │2012 │2011 │
├───────────────┼───────┼───────┼──────────┼──────────┼───────┼───────┼──────┤
│Barrels │81,677 │52,360 │166,437 │99,110 │248,870│177,850│77,300│
├───────────────┼───────┼───────┼──────────┼──────────┼───────┼───────┼──────┤
│Barrels per day│898 │575 │920 │548 │682 │486 │212 │
└───────────────┴───────┴───────┴──────────┴──────────┴───────┴───────┴──────┘
Statement from the CEO Robert Karlsson
The production during the second quarter of approximately 900 barrels per day
generated revenues significantly higher than last year and in line with the
first quarter this year. The underlying profitability in our production and
sale of oil remains strong. The customary operating margin of approximately 30%
was however reduced to 18% in the second quarter due to non-recurring legal
costs of SEK 4 million. Following the agreement signed with Petrogrand in June,
we expect these costs and the operating margin to normalize in the coming
months.
The production at the Lelyaki field is stable and unaffected by the ongoing
geopolitical events in Ukraine. There is no doubt that Ukraine is going through
a strenuous transition. However, it is also important to note that the newly
elected President Poroshenko has launched a campaign to modernize and
deregulate the legal system and business environment. Developing the country’s
oil and gas reserves in order to reduce energy dependency has never been more
important for the country. In the wake of this, Shelton Petroleum has
identified several business opportunities including new licenses with
production and significant oil and gas reserves. The company’s deal flow has
never been larger than it is today.
We have previously highlighted the very encouraging implications of the latest
#12 well drilled on the Rustamovskoye oil field in Russia in 2013. Shelton
Petroleum has taken several steps to prepare for the next drilling campaign. A
new well design for horizontal wells has been developed and it is currently
going through approval processes with the authorities. A study to determine
optimal drilling locations is underway.
The Rustamovskoye field has justifiably received much attention during the last
year. I would however also like to highlight the seismic program on the
company’s adjacent Suyanovskoye license, which is approximately six times
larger than Rustamovskoye. The first round of seismic on this field has been
collected and is currently being processed and interpreted. I am looking
forward to disclosing the results when the work has been completed sometime in
the next coming months.
As a debt-free company with a strong operational track record, Shelton
Petroleum has many opportunities ahead.
January - June 2014
Financial development
Revenue from oil sales amounted to SEK 63 (46) million. During the period,
Shelton Petroleum sold 167,960 (95,600) barrels of oil and the production in
the period amounted to 166,437 (99,110) barrels of oil. The production has
increased in both Russia and Ukraine compared to last year. The price of oil,
in USD, in both Russia and Ukraine were lower in the first six months 2014
compared to the same period last year.
The average daily production during the first six months 2014 amounted to 920
barrels compared to 548 barrels the same period in 2013.
(For graph, please see attached file)
The company reported an operating result for the period January – June 2014 of
SEK 15 (11) million. The result includes expenses for legal advice related to
the dispute with Petrogrand and to Shelton Petroleum’s public offer to acquire
all the outstanding shares in Petrogrand. The legal fees affecting the profit
amounted to approximately SEK 5 million in the first six months. Excluding the
legal expenses the operating result and operating margin would have been
significantly higher.
The company held SEK 23 million in cash and cash equivalents at the end of the
period. Cash flow from operations was SEK 10 million whereas cash flow from
investing activities was SEK -19 million, of which SEK -14 million were
invested into oil and gas operations. As of 31 December 2013 the accounts
receivable amounted to SEK 49 million of which SEK 2 million is outstanding as
of 21 August 2014. As of 30 June 2014 the company’s accounts receivable,
included in other current receivables in the balance sheet, amounted to SEK 49
(40) million. SEK 47 million of the accounts receivable balance at the end of
June is related to sale of oil from the Lelyaki field, where the buyer of the
oil makes payments with delays. The validity of the receivable and the
outstanding amount as of 30 June 2014 have been confirmed by the counterparty.
Management believes that the receivables will be settled in full and continues
to monitor the situation closely.
Shelton Petroleum’s wholly owned Canadian subsidiary has received approximately
SEK 8 million in dividends from Kashtan Petroleum, operator of the Lelyaki
field, during the period January – June 2014 that can be used freely within the
Shelton Petroleum group for investments and working capital.
Investments in exploration and development activity amounted to a total of SEK
14 (24) million for the period.
Non-current financial assets amounted to SEK 71 million at the end of the
period compared to SEK 0 million at 31 December 2013, and consisted of shares
in Petrogrand. As of 30 June 2014 Shelton Petroleum had acquired 11,585,308
shares in Petrogrand, see below.
In May 2014 Shelton Petroleum acquired SEK 9.5 million of the convertible bond
2013/2014 in exchange for 593,750 shares of series A. The remainder of the
convertible bond, SEK 12.9 million, was converted into 806,875 shares of series
B in June 2014. Following the acquisition and conversion Shelton Petroleum does
not have any interest-bearing debt.
Shareholders' equity per share at 30 June 2014 was SEK 20.08 (26.47) and the
equity to assets ratio was 87 (81) per cent.
As of 30 June 2014 the Ukrainian Hryvnia weakened by 30% against the Swedish
Krona compared to the exchange rate at 31 December 2013. As a result of the
weakened Ukrainian Hryvnia Shelton Petroleum reports translation differences in
other comprehensive income of SEK -42 (-1) million January - June. The
translation differences arise when the income statement and balance sheet of
foreign entities are translated from local currency to SEK. The translation
differences, which do not affect cash flow, mainly relate to intra-group loans
and fixed assets. See note 7 for a table of exchange rates that have been used.
Shelton Petroleum’s wholly owned subsidiary Shelton Canada Corp is party to a
Joint Investment Agreement (JIA) with Chornomornaftogaz (CNG) regarding three
licenses in the Azov Sea and Black Sea to which CNG is the license holder.
Following a referendum on 16 March 2014, Crimea declared independence from
Ukraine and requested to be part of the Russian Federation, which has been
granted by the Russian President and the Russian Parliament. The new Crimean
Prime-minister has declared that the CNG interests on Crimea have been
nationalized by the Crimean Republic. It has been reported that private
interests and agreements will be respected. Neither the referendum nor the
nationalization of CNG, which is in violation of the Ukrainian constitution,
has been recognized by the government in Kiev or the Western community.
Due to the events described above, the board of directors of Shelton Petroleum
perceives an increased risk regarding potential future financial benefit from
the JIA with CNG. The company will continue to closely monitor the developments
and believes that a potential adjustment of the values can be made only when
the situation has normalized. The JIA accounted for 0 per cent of Shelton
Petroleum’s revenue and profit in the period January – June 2014 and
approximately 2 per cent of total assets in the balance sheet as of 30 June
2014. The JIA’s carrying value net of deferred taxes was SEK 10 million as of
30 June 2014.
Agreement with Petrogrand
On 26 June 2014 Shelton Petroleum announced that it had entered into an
agreement with Petrogrand that will facilitate for the companies to negotiate a
breakup of the cross-ownership, which in turn will enable the companies to
focus on the development of their operations and license portfolios. Following
the signing of the agreement, neither company used its voting rights at the
shareholders’ meetings in June. In addition, Shelton Petroleum has held a
continued dialog with Petrogrand and its shareholders.
Public offers
In January 2014 Shelton Petroleum announced a public offer to the shareholders
of Petrogrand. Initially Shelton Petroleum offered 0.30 shares of series B in
Shelton Petroleum for each share in Petrogrand. The offer was subsequently
raised to 0.34 and finally to 0.44 shares. On 14 April 2014 Shelton Petroleum
completed the offer. On the completion date Shelton Petroleum had received
11,585,308 shares, equal to 28.8% in Petrogrand, and in exchange for those
shares issued 5,097,534 shares of series B in Shelton Petroleum.
On 21 March, Petrogrand announced an offer to the shareholders of Shelton
Petroleum. Petrogrand’s offer expired on 1 July 2014 and only 248,901 shares,
or 1.33% of the total number of shares, had accepted the offer. Petrogrand
announced that they would not complete the offer.
April - June 2014
Russian operations
Shelton Petroleum’s production of oil in Russia during the second quarter
amounted to 49,526 (20,530) barrels. Production per day amounted to 544 (226)
barrels, which is an increase of almost 141 per cent compared to the same
quarter last year. Revenue in the second quarter for the Russian segment
amounted to SEK 11.9 (5.0) million and operating profit to SEK 6.2 (1.5)
million, corresponding to an operating margin of 52% (29%). This marks a
significant increase in the operating margin compared to the prior year due to
the increased operational efficiency achieved as fixed costs can be distributed
on a larger production base.
The very encouraging implications of the latest #12 well drilled on the
Rustamovskoye oil field in Russia in 2013 have been highlighted in previous
interim reports. The company has taken several steps to prepare for the next
drilling campaign. A new well design for horizontal wells has been developed
and it is currently going through approval processes with the authorities. A
study to determine optimal drilling locations is underway.
Shelton Petroleum is currently performing a seismic program on the Suyanovskoye
license, which is approximately six times larger than Rustamovskoye and located
directly to the east. The first round of seismic on this field has been
collected and is currently being processed and interpreted. The company is
expecting to disclose the results when the work has been completed sometime in
the next coming months.
Ukrainian operations
Production in the second quarter amounted to 32,151 (31,830) barrels.
Production per day amounted to 353 (350) barrels. Revenue in the second quarter
in the Ukrainian segment amounted to SEK 19.9 (18.0) million and operating
profit to SEK 8.1 (6.9) million, corresponding to an operating margin of 41%
(38%).
Shelton Petroleum (Zhoda 2001 Corporation) and its partner Ukrnafta, Ukraine’s
largest oil and gas company continue the field development program on the
Lelyaki field. The objective is to step by step enhance productivity and
increase production volumes.
The production at the Lelyaki field is stable and unaffected by the ongoing
geopolitical events in Eastern Ukraine. Ukraine is going through a strenuous
transition. However, it is also important to note that the newly elected
President Poroshenko has launched a campaign to modernize and deregulate the
legal system and business environment. He has also declared that developing the
country’s oil and gas reserves in order to reduce energy dependency is at the
top of the country’s agenda. This creates new business opportunities for
Shelton Petroleum. The company has identified several targets stemming from
both public auctions and private companies with licenses with production and
significant oil and gas reserves. The company’s deal flow has never been larger
than it is today.
As a result of the geopolitical events in Ukraine the Parliament has approved
emergency laws, one of them being a temporary increase of the production taxes
on oil scheduled to be effective from August to December 2014, negatively
affecting Shelton Petroleum’s Ukrainian operations by approximately SEK 1
million per quarter.
Significant events occurring after the reporting period
There are no significant events to report.
Change of number of shares
In April 2014 Shelton Petroleum issued 674,693 shares of series B under the
public offer to the shareholders of Petrogrand AB. In May 2014 Shelton
Petroleum acquired part of the outstanding convertible bond 2013/2014 in
exchange for shares of series A. As a result the company issued 593,750 shares
of series A.
In June, a total of 806,875 shares of series B were issued in relation to the
conversion of all of the outstanding SEK 12,910,000 convertible bond 2013/2014.
Following the issues of shares of series A and series B the total number of
shares in Shelton Petroleum amounts to 18,661,247, divided into 764,330 of
series A and 17,896,917 of series B. The total number of votes in the company
amounts to 25,540,217. The share capital in Shelton Petroleum amounts to SEK
93,306,235.
The parent company
The parent company's total assets as at the period end amounted to SEK 382
(301) million. Cash and cash equivalents amounted to SEK 17 (26) million. The
result after tax January – June 2014 was SEK -24 (-1) million. The negative
result is an effect of non-recurring costs for legal advice during the period
January – June and an adjustment to fair value of the shares in Petrogrand.
Risk factors and uncertainties
A detailed account of the risks facing the company can be found in the 2013
annual report. During the period, there has been no major change in material
risk factors or uncertainties for the group or the parent company. Risks
include exploration risk, oil price risk, exchange rate risk, liquidity risk,
credit risk, interest rate risk and political risk, among others.
Upcoming financial reporting
Interim Report July – September 2014 21 November
2014
Publication under Swedish law
Shelton Petroleum is publishing this information in accordance with the Swedish
Financial Markets Act (Sw. Lag om värdepappersmarknaden) and/or the Swedish
Financial Trading Act (Sw. Lag om handel med finansiella instrument). This
information was released for publication on 22 August 2014 at 08:30 CET.
This report has not been reviewed by the Company’s auditors.
For more information, please contact:
Robert Karlsson, CEO, +46-709 565 141
robert.karlsson@sheltonpetroleum.com
Shelton Petroleum AB
Swedish corporate identity number: 556468-1491
Hovslagargatan 5B
SE-111 48 Stockholm
Tel: +46 8 407 18 50
www.sheltonpetroleum.com
info@sheltonpetroleum.com
(For full report, please see attached file)
