(for full report, please see attached file)
Operating margin 7% despite significantly lower oil prices
* Total revenue for the period: SEK 19 (32) million
* Operating result for the period: SEK 1 (9) million
* Operating margin: 7% (29%)
* Basic earnings per share: SEK 0.04 (0.55)
* Diluted earnings per share: SEK 0.04 (0.53)
| Oil production | Q1 2015 | Q1 2014 | 2014 | 2013 | 2012 |
| Barrels | 71,760 | 84,760 | 321,377 | 248,870 | 177,850 |
| Barrels per day | 797 | 942 | 880 | 682 | 486 |
Statement from the CEO
During the first quarter, Shelton Petroleum produced approximately 800
barrels per day. The company recorded a turnover of SEK 19 million and
an operating result of SEK 1 million, equivalent to an operating margin
of 7%. Both the turnover and the profit were lower than in previous
quarters, which is mainly due to the rapid and significant drop in the
oil price that has affected the whole sector. The oil industry is
currently adapting to the new market conditions. This is especially true
for the high-cost North American shale oil industry, where the rig count
has fallen from 1,600 to 700 active rigs.
Since the middle of the first quarter, the oil price, and as a result
also Shelton Petroleum’s profitability, have recovered. Shelton
Petroleum, compared with several other oil companies, has relatively low
production costs and can therefore post profits despite the fact that
the company’s fields in Russia have not been developed even close to
their ultimate potential. Shelton Petroleum’s production in Russia
amounts to 455 barrels per day, whereas the 2P potential amounts to more
than 5,000 barrels per day solely on the already producing field
according to the recent reserves report. As the production volumes
increase, Shelton Petroleum will raise its profitability both in
absolute terms and per barrel.
Shelton Petroleum has through successful drillings proven its reserves
base and demonstrated that the oil can be extracted and sold under sound
profitability. In the latest reserves update, the Russian 2P reserves
increased from 1 to 23 million barrels of oil. The group’s total 2P
reserves amount to 34 million barrels. The company is currently making
investments into a seismic program in order to delineate the promising
structures that it has previously identified. Shelton Petroleum has
built considerable value in its oil assets.
Ukraine is implementing a program to modernize and deregulate the
country and its economy. Shelton Petroleum’s production in Ukraine is
stable,and, due to its geographic location, unaffected by the unrest
that still exists, although on a lower level during the past few months,
in the eastern parts of the country. The accounts receivable from the
sale of oil in Ukraine continue to be high and it is the company’s
objective to more swiftly turn them into cash flow. It is however
important to note that the operator of the Lelyaki field continuously
receives payments, although delayed, for the oil it has sold. During the
past three months Shelton Petroleum’s wholly owned Canadian subsidiary
has received dividends from the operator.
Shelton Petroleum has a shareholding in Petrogrand that carried a market
value of SEK 53 million at the end of the first quarter. This is an
important asset and the company is evaluating the holding to determine
how it can be used to create most value for the shareholders.
How will Shelton Petroleum create new value for its shareholders? One
key element is to convert the oil reserves to production by drilling new
wells on the oil fields in Russia. How will this be financed? Shelton
Petroleum is able to finance current investments through cash flow from
the oil it sells, but lacks sufficient funds for a full-scale
development program. It is however important to note that the company
holds two substantial assets – the shareholding in Petrogrand as well as
receivables on a customer in Ukraine. If one or both of these were to be
converted to cash, then Shelton Petroleum would be able to finance a
drilling program to significantly enhance production in Russia. Shelton
Petroleum is also considering industrial partnerships on the asset and
corporate level and is exploring farm-out options where drillings would
be financed by a partner that would earn into the field. It is also
important to note that the company is free from interest-bearing debt.
The players in the oil industry have not yet fully adapted to the new
market conditions, and as they do, new opportunities will open up for
Shelton Petroleum to find solutions to realize the significant value in
the oil reserves that the company has established.
In summary, Shelton Petroleum has through persistent and successful work
established producing oil fields and I am looking forward to realize the
value that is substantially higher than current production volumes show.
Robert Karlsson
January - March 2015
Financial development
Revenue from oil sales amounted to SEK 19 (32) million. During the
period, Shelton Petroleum sold 70,700 (74,370) barrels of oil and
produced 71,760 (84,760) barrels of oil. The production has decreased in
both Russia and Ukraine compared to the same period last year. The
prices of oil in USD in both Russia and Ukraine were lower compared to
the same period in 2014.
The average daily production during the period amounted to 797 barrels
compared to 942 barrels in 2014, 519 barrels in 2013 and 455 barrels in
2012.
The company reported an operating result for the period January to March
2015 of SEK 1 (9) million, equivalent to an operating margin of 7%. The
operating result was negatively affected by the lower oil prices in the
quarter compared to last year. In the first quarter of 2015 the average
price of Brent oil was USD 54 per barrel compared to USD 108 per barrel
in the first quarter of 2014. The Brent oil price has strengthened and
during the second quarter to date the average price amounts to USD 61
per barrel.
The group held SEK 13 million in cash and cash equivalents at the end of
the period. Cash flow from operations during the quarter was SEK 3
million, whereas cash flow from investing activities was SEK -4 million,
all related to the oil and gas operations. The company is free from
interest-bearing debt.
The accounts receivable balance, included in Other short term
receivables in the balance sheet, amounted to SEK 37 million as of 31
March 2015 compared to SEK 54 million at 31 December 2014. The
receivable has been confirmed by the counterparty in writing. As has
been described in previous reports, the customer who acquires the oil in
Ukraine is making payments on a regular basis but with delays. During
January to April, payments received for oil sales in Ukraine amounted to
SEK 15 million. The company believes that the receivables will be
settled in full. However, to reflect the cost of interest on older
receivables the company has increased the reserve that was booked at
year end by SEK 0.7 million and the reserve amounts to SEK 1.8 million.
The company continues to monitor the situation closely and has a
continuous dialogue with the customer on settling the outstanding
amounts as they become due.
The operator of the Lelyaki oil field, Kashtan Petroleum, has during the
first quarter recommenced to pay dividends to Shelton Petroleum’s wholly
owned Canadian subsidiary. During the period January to April,
approximately SEK 2.5 million has been received.
Investments in exploration and development activity amounted to a total
of SEK 4 (8) million for the period.
Non-current financial assets amounted to SEK 53 million at the end of
the period compared to SEK 48 million at 31 December 2014, and consisted
of shares in Petrogrand. The stock price of Petrogrand increased in the
first quarter 2015.
Shareholders\' equity per share at 31 March 2015 was SEK 14.94 (21.25)
and the equity to assets ratio was 85 (83) %.
The Russian and Ukrainian currencies continued to be volatile during the
first quarter. The Russian ruble strengthened by 9 per cent against the
Swedish krona compared to the year-end rate 2014 while the Ukrainian
hryvnia weakened by 27 per cent against the Swedish krona. As a result
of the fluctuations in the exchange rates the company reports
translation differences in other comprehensive income of SEK -13 (-52)
million. The translation differences arise when the income statements
and balance sheets of foreign operations are translated from local
currency to Swedish krona. The translation differences mainly relate to
intra-group loans and fixed assets and do not affect cash flow. See note
7 for a table of exchange rates that have been used.
Russian operations
Shelton Petroleum’s production of oil in Russia during the first quarter
amounted to 40,960 (51,500) barrels. Production per day amounted to 455
(572) barrels. The decrease is due to the natural depletion that all
wells are subject to as oil is extracted. Revenue in the first quarter
for the Russian segment amounted to SEK 6.3 (11.9) million and operating
profit to SEK 1.3 (5.0) million, corresponding to an operating margin of
20% (42%). The lower operating profit and margin compared to previous
periods is due to a significantly lower oil price, a higher production
tax rate and lower volumes compared to the same period last year.
Despite the lower oil prices the Russian segment posted a healthy profit
during the first quarter. In addition, Shelton Petroleum’s assets have
not yet been developed to a stage where they are close to their ultimate
potential. The current production level is about one tenth of the 2P
potential of over 5,000 barrels per day according to the recent reserves
report. As production volumes increase, Shelton Petroleum will raise its
profitability both in absolute terms and per barrel.
Ukrainian operations
Production in the first quarter amounted to 30,800 (33,260) barrels.
Production per day amounted to 342 (370) barrels. Revenue in the first
quarter in the Ukrainian segment amounted to SEK 13.1 (19.6) million and
operating profit to SEK 2.7 (8.0) million, corresponding to an operating
margin of 21% (41%). The lower operating profit and margin is due to a
significantly lower oil price, higher production tax rate and lower
volumes compared to the same period last year. As is the case with the
Russian segment, the Ukrainian segment is also able to show sound
profitability despite the lower oil prices. The average Brent oil price
so far during the second quarter is USD 61 per barrel, which is USD 7
higher than the average price in the first quarter.
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 support production volumes through a program consisting
of new wells, sidetracks and workovers.
Significant events occurring after the reporting period
On 29 April 2015 Shelton Petroleum announced that an additional 142
kilometers of seismic data has been collected on the Suyanovskoye oil
field to further delineate three promising structures that had been
identified in 2014. The results of the processing and interpretation of
the data will be published later in 2015.
The parent company
The parent company\'s total assets as at the period end amounted to SEK
411 (402) million. Cash and cash equivalents amounted to SEK 3 (22)
million. The result after tax January – March 2015 was SEK 2 (7)
million. The total assets have increased by approximately SEK 53 million
since year end. In preparation for the extra general meeting in January
2015, which were to resolve on the dissolution of the cross-ownership
with Petrogrand, the company transferred its shares in Petrogrand to a
wholly owned subsidiary in Cyprus. The shares have since been
transferred back to Shelton Petroleum as a loan.
Risk factors and uncertainties
A detailed account of the risks facing the company can be found in the
2014 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 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 May
2015 at 08:15 CET.
This report has not been reviewed by the Company’s auditors.
(For full report, please see attached file)
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
