January-December 2014
* Total revenue for the period: SEK 113 (109) million
* Operating result for the period: SEK 16 (30) million
* One-off items during the year affected the operating result by SEK -12
(0) million
* Operating margin excluding one-off items: 25% (28%)
* Basic earnings per share: SEK 0.76 (1.14)
* Diluted earnings per share: SEK 0.76 (1.13)
October-December 2014
* Revenue during the quarter: SEK 20 (37) million
* Operating result during the quarter: SEK 1 (11) million
* Operating margin 3% (29%)
* Basic earnings per share: SEK 0.06 (0.91)
* Diluted earnings per share: SEK 0.06 (0.84)
| Oil production | Q4 2014 | Q4 2013 | Q4 2012 | Q1-Q4 2014 | Q1-Q4 2013 |
Q1-Q4 2012 | Q1-Q4 2011 |
| Barrels | 75,840 | 92,060 | 49,150 | 321,377 | 248,870 | 177,850 | 77,300 |
| Barrels per day | 824 | 1,001 | 534 | 880 | 682 | 486 | 212 |
Statement from CEO Robert Karlsson
Production during 2014 reached 880 barrels per day, which is an increase
of 29 per cent compared to the previous year. The operating result in
2014, excluding one-off items in the second and third quarters, amounted
to SEK 28 million, equivalent to an operating margin of 25 per cent.
In other words, Shelton Petroleum continued to deliver strong financial
results during 2014. It has however become clear that the oil and gas
sector will face a more challenging environment this year. The drop in
the oil price, changes in fiscal regimes and complex geopolitics in
Russia and Ukraine have brought a degree of instability to the market.
OPEC’s measures are putting pressure on the whole industry, and
especially on the North American high cost shale oil producers.
In order to adapt to the new market conditions, Shelton Petroleum has
reviewed its cost base and investment program. The company is taking
measures to significantly reduce the general and administrative expenses
in 2015. Although Shelton Petroleum has relatively low production costs,
new capital expenditures will be assessed carefully until the oil market
has stabilized.
Although the environment we operate in is challenging, it is important
to remember that Shelton Petroleum ended the year with a strong reserves
report where the Russian oil reserves increased from 6 to 41 million
barrels. In addition, we produced almost 900 barrels per day in 2014.
The company is free from interest-bearing debt and relative to several
peers our production costs are low, which is an advantage at current oil
price levels. Furthermore, the depreciation of the Russian and Ukrainian
currencies give support to operating margins as sales are based in
dollars and several cost items are denominated in local currencies. On a
final note, it is worth pointing out that the current oversupply of oil
is only about 2 per cent of demand and it is therefore reasonable that
it will fade away and that oil prices will recover in the medium to long
term.
January - December 2014
Financial development
Revenue from oil sales amounted to SEK 113 (109) million. During the
year, Shelton Petroleum sold 318,180 (229,280) barrels of oil and
produced 321,377 (248,870) barrels of oil. The production has increased
in Russia, but decreased slightly in Ukraine compared to last year. The
prices of oil in USD in both Russia and Ukraine in 2014 were lower
compared to 2013.
The average daily production during 2014 amounted to 880 barrels,
compared to 682 barrels in 2013, 486 barrels in 2012 and 212 barrels in
2011.
The company reported an operating result for the period January –
December 2014 of SEK 16 (30) million. One-off items for a write-down of
exploration assets in Crimea by SEK 7 million and expenses for legal
advice of SEK 5 million related to the dispute with Petrogrand had a
significantly negative impact on the operating result. Excluding these
one-off items, the underlying oil and gas business generated an
operating profit of SEK 28 million and operating margin of 25 per cent.
The company held SEK 14 million in cash and cash equivalents at the end
of the period. Cash flow from operations during the year was SEK 12
million, whereas cash flow from investing activities was SEK -29
million, of which SEK -24 million were related to the oil and gas
operations. As of 31 December 2013, the accounts receivable amounted to
SEK 49 million. All of these receivables have been settled through
payments from the customers during the year. As of 31 December 2014 the
company’s accounts receivable, included in other current receivables in
the balance sheet, amounted to SEK 54 (49) million. SEK 53 million of
the accounts receivable balance at the end of December is related to
sale of oil from the Lelyaki field, where the buyer of the oil makes
payments with delays. The validity of the receivables and the
outstanding amount as of 31 December 2014 has been confirmed by the
counterparty. Although the company believes that the receivables will be
settled in full, the company has booked a reserve of SEK 1.4 million to
reflect the cost of interest on older receivables. The company monitors
the situation closely and has a continuous dialogue with the customer on
settling the outstanding amounts as they become due.
During 2014 Shelton Petroleum received approximately SEK 9 million in
dividends from Kashtan Petroleum, operator of the Lelyaki field in
Ukraine. The funds 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 24 (57) million in the period.
Non-current financial assets consisting of shares in Petrogrand amounted
to SEK 48 million at the end of the period compared to SEK 0 million at
31 December 2013. As of 31 December 2014 Shelton Petroleum held
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 31 December 2014 was SEK 15.34
(26.20) and the equity to assets ratio was 85 (55) per cent. The
improved ratio is due to the repayment of a convertible bond issued to
Petrogrand.
As of 31 December 2014 the Ukrainian Hryvnia had weakened by 38% and the
Russian Ruble weakened by 31% against the Swedish Krona compared to the
exchange rate at 31 December 2013. As a result of the weakened
currencies Shelton Petroleum reports translation differences in other
comprehensive income of SEK -110 (-10) million during 2014. 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. The depreciation of the Russian and Ukrainian
currencies gives support to operating margins as sales are based in
dollars and several cost items are denominated in local currencies.
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. Due to the political developments in Crimea
described in previous interim reports, Shelton Petroleum perceives an
increased risk regarding future financial benefit from the JIA. The
value of these assets was therefore adjusted in the third quarter, which
affected the operating result by SEK -7 million and tax by SEK 1
million. The JIA accounted for 0 per cent of Shelton Petroleum’s revenue
in the period January – December 2014. The JIA’s carrying value net of
deferred taxes was SEK 2 million as of 31 December 2014, equivalent to
approximately 1 per cent of total assets in the balance sheet as of 31
December 2014.
In the fourth quarter 2014, two licenses in the JIA, Biryucha and North
Kerchenskoye, expired. The license holder CNG has applied for extension
of both licenses. Biryucha is on Ukrainian territorial waters and CNG is
currently submitting required documents to the authorities, which have
informed CNG that the license will be renewed later this year. Due to
the geographical location of North Kerchenskoye in the Kerch Strait
between Russia and Crimea as well as the limited resource number of 4
million barrels of oil equivalent, the prolongation of this license will
not be prioritized and it is uncertain whether the license will be
extended during the year.
Impairment test
The company has in accordance with IFRS performed its annual impairment
test and concluded that no adjustment of the carrying value of the
assets is required. The main assumptions used in the test were a Brent
oil price of USD 50 per barrel for 2015 and USD 70 per barrel for
periods after 2015, 2P reserves of 23 million barrels in Russia and 8
million barrels in Ukraine and a discount rate of 17% in Russia and
Ukraine. Calculations based on lower oil prices and higher discount
rates show significant headroom in the impairment test and justify the
carrying values of the company’s oil and gas assets.
Agreement with Petrogrand
On 26 June 2014 Shelton Petroleum announced that it had entered into an
agreement with Petrogrand that would facilitate for the companies to
negotiate a breakup of the cross-ownership, which in turn would 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.
The agreement expired on 30 September 2014 and was not extended. The
companies have discussed various solutions and in December the companies
reached an agreement to dissolve the cross-ownership, subject to
approval on extraordinary general meetings in both companies. The
extraordinary general meeting in Shelton Petroleum, held in January
2015, did not approve the proposal to dissolve the cross-ownership.
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.
October – December 2014
Russian operations
Shelton Petroleum’s production of oil in Russia during the fourth
quarter amounted to 45,740 (58,500) barrels. Production per day amounted
to 497 (636) barrels. Workovers led to fewer production days and lower
production in the fourth quarter of 2014. Revenue in the fourth quarter
for the Russian segment amounted to SEK 8.4 (14.3) million and operating
profit to SEK 2.8 (7.0) million, corresponding to an operating margin of
33% (48%). The drop in the oil price negatively affected revenue and
operating profit.
In November 2014 new production taxes and export duties on oil were
approved by the Russian parliament and signed into law by the Russian
President. Changes in the fiscal regime have been implemented as of 1
January 2015. The export tax has been reduced whilst the production tax
has been increased. The domestic price, at which Shelton Petroleum is
selling oil, is determined by the export equivalent netback, which all
things equal should increase due to the reduced export tax. The
theoretical net effect of the change in both taxes on profitability for
Shelton Petroleum works out to approximately USD -2 per barrel, however
the domestic oil industry have yet to adapt to the new market conditions
and the effects have yet to crystallize.
Ukrainian operations
Production in the fourth quarter amounted to 30,100 (33,560) barrels.
Production per day amounted to 327 (365) barrels. Revenue in the fourth
quarter in the Ukrainian segment amounted to SEK 11.9 (23.0) million and
operating profit to SEK 1.9 (8.9) million, corresponding to an operating
margin of 16% (38%). Revenue and operating profit were negatively
affected by the falling prices on oil and a reserve has been booked to
reflect the cost of interest on late payments of receivables.
The emergency law passed in July 2014 by the Ukrainian Parliament
entailing an increase of the production tax on oil and gas has been
extended to 2015.
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.
Ukraine’s new Cabinet of Ministers and President remain dedicated to
implementing reforms to modernize the country. Although a cease-fire has
recently been signed, unrest in eastern Ukraine will likely continue for
some time. Shelton Petroleum’s production is, due to its geographical
location in central Ukraine, however stable and unaffected by the recent
events.
For information regarding the JIA with CNG, please see the section
Financial Development above.
Significant events occurring after the reporting period
An extraordinary general meeting on 26 January 2015 did not approve the
board’s proposal to dissolve the cross-ownership with Petrogrand.
The parent company
The parent company\'s total assets as at the period end amounted to SEK
353 (513) million. The decrease in total assets is due to the repayment
of a convertible loan issued to Petrogrand. Cash and cash equivalents
amounted to SEK 7 (26) million. The result after tax January – December
2014 was SEK -50 (-6) million. The negative result is an effect of
non-recurring costs for legal advice during the period January –
December and an adjustment to fair value of the shares in Petrogrand.
Annual General Meeting and dividend
The annual general meeting will be held on 21 May 2015 in Stockholm. The
Board proposes that no dividend is paid for the financial year 2014.
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
Annual report
2014 April
2015
Interim Report January – March 2015 20
May 2015
Interim Report April – June 2015
21 August 2015
Interim Report July – September 2015 20
November 2015
Annual General Meeting 2015
21 May 2015
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 20
February 2015 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
