* Petrogrand is an independent Swedish oil company within exploration and
production previously active in oil production in the Tomsk region in
western Siberia in Russia through its subsidiary STS-Service. On 5 February
2010, Russian Authorities registered the transfer of ownership of the
production subsidiary STS-Service to Gazprom Neft Vostok.
* In the 4(th) quarter, Petrogrand made its first investment in line with the
new business plan by acquiring the Nizhne-Paninsky license are in the Tomsk
region.
* During the 4(th) quarter 2010 the Group had no operating income (TSEK
38,847). Financial income in the 4(th) quarter amounted to TSEK 12,405.
* Net result after tax for the( )4th quarter amounted to TSEK -1,758 (TSEK
-330,680) of which TSEK -2,964 (TSEK -326,410) was attributable to the
discontinued operations.
* Petrogrand produced oil only in January. Production amounted to 63,998
barrels. Operating income for the financial year 2010 amounted to TSEK
26,521 (TSEK 136,577) of which TSEK 12,499 (TSEK 136,577) was attributable
to the discontinued operations. Financial income during 2010 amounted to
TSEK 25,527.
* Since a major part of the company's financial assets is held in RUB, while
the company's reporting currency is SEK, the result for the year was
impacted by the strengthening of the SEK versus the RUB, which took place
primarily during the 3(rd )quarter. This resulted in a non-realised exchange
loss on financial investments amounting to TSEK -58,603, of which TSEK -522
in the 4(th) quarter.
* Net result after tax for the financial year 2010 amounted to TSEK -56,790
(TSEK -780,703) of which TSEK -9,195 (TSEK -765,780) was attributable to the
discontinued operations
* Earnings Per Share for the financial year 2010 amounted to SEK -0.02 (SEK
-0.27) of which SEK -0.00 (SEK -0.27) attributable to the discontinued
operations. Earnings Per Share is calculated using the average number of
shares outstanding for the respective period.
MD's report
Dear Shareholders,
During the past year we have devoted a lot of time restructuring the
organization for the future. After the sale of STS-Service, the closing of our
old operations has required extensive resources and has led to the liquidation
of two subsidiaries. This also includes the dismissal of approximately 165
people, all in accordance with Russian regulations.
Following the extraordinary general meeting of shareholders on 27 April 2010,
when our new business plan was approved, the work of finding new investment
opportunities in the Russian market started. The process of finding interesting
investments involves the preparation of documentation for licensing, ownership
and oil reserves, etc. This is to secure accurate production- and financial
estimates. During the year, approximately 145 license areas and some 40 oil
producing companies have been reviewed and evaluated, on a number of these due
diligence has been carried out. The investigations have covered a widespread
geographic area that extends over the regions of Tomsk, Komi, Orenburg, Saratov,
Samara, Tyumen and Khanty-Mansiysk.
In line with the business plan, the Board in June decided to move most of our
excess liquidity in to Russian Roubles (RUB). This decision was based on the
fact that our current activities will be carried out in roubles. During the
fourth quarter, the ratio of SEK/RUB has been stable, which means that the
previously reported unrealized foreign exchange loss has only changed marginally
in the fourth quarter. The return on the financial investment has been
approximately 10%. The fourth quarter produced a return of about 50 million RUB,
this covers by far the administration costs in Russia of around 15 million
RUB, as well as the Swedish administrative expenses.
An object that we found very interesting is Nizhne-Paninsky, a license area with
reserves amounting to 8.7 million tons under the Russian classification of C3
(about 65.2 million barrels). The Board decided to participate in an auction
after a thorough analysis of the project including a budget- and production
plan. Petrogrand won the auction on the 10(th) of December, and thereby acquired
the license area located in the Tomsk region. Since the acquisition, the work on
seismic surveys has been initiated and will continue throughout the winter and
spring. A preliminary interpretation of the results is expected in late May,
early June.
Another project, which the Board has decided to participate in, is Muromskij-2.
We are now part of the allocation process concerning the license area. The
authorities will, within 30 days, verify all applications and confirm their
validity. The license area has reserves amounting to 39.4 million tones,
according to the Russian classification of C3 (about 287.8 million barrels).
In addition to reviewing various license areas, we also examined a number of oil
producing companies. In two of these cases the board has decided to proceed with
the acquisition process.
Gazprom Neft Vostok (GPN) received during the year several claims from former
suppliers to STS- Service. Decision was taken on a joint working group of
lawyers and economists from both LLC Petrogrand and GPN who have examined all
the claims against GPN/STS-Service. The working group concluded that potential
environmental claims from the authorities could fall upon Petrogrand. Therefore
the board decided to contribute 19 million RUB in order to resolve any potential
issues that might have existed, and also to secure, on Petrogrand's part, a
total closure of all commitments related to the sale of STS-Service. An
agreement has been reached between Petrogrand and GPN where the total cost to
exclude Petrogrand from any future claims amounts to 54 million RUB. This also
includes the previously made provision of 35 million RUB.
As reported earlier, the dispute between Petrogrand and Tardan Gold was resolved
in our favor this year. We have received full payment, including interest. This
amounted to a total of about 75 million RUB as fully incorporated in the 2010
results.
During the year we have built up an efficient organization with a very good
understanding of the Russian market, where we have presented ourselves as a
long-term player. We have also created a good interface with authorities and
banks in the different regions and we are today regarded as a serious investor
by brokers as well as the owners of interesting objects. A lot of work remains
but we look forward with confidence to the coming year.
Maks Grinfeld
Managing Director
Petrogrand AB
Comment on the Group's result and financial position
Turnover and result
In early February 2010, the sale of the subsidiary STS-Service to Gazprom Neft
Vostok was completed. As a consequence of the sale, continuing and discontinued
operations are separated in the Group income statement and in 'Turnover and
result' continuing and discontinued operations are therefore described
separately.
4(th) quarter 2010
Continuing operations during the 4(th) quarter 2010
The company had no operating income during the quarter (-).
Administration costs and Other operating expenses amounted to TSEK -10,236 (TSEK
-4,315) in total. Other operating expenses of TSEK -4,416 (TSEK -3,194) include
expenses for external consultants working with evaluations of potential new
investments.
The Operating result for the quarter amounted to TSEK -10,236 (TSEK -4,315).
Net financial items amounted to TSEK 11,441 (TSEK 46). Net financial items
include profits and losses from financial investments involving the company's
excess liquidity assets, see below in the section Financing and liquidity.
Result after financial investments amounted to TSEK 1,206 (TSEK -4,269).
Discontinued operations during the 4(th) quarter 2010
The result from the discontinued operations is an effect of the closing of the
subsidiary STS Management which took place in December 2010. The net result
after tax for the discontinued operations amounted to TSEK -2,964 (TSEK
-326,410).
The Group in total during the 4(th) quarter 2010
For the 4(th) quarter, the Group in total reports a Net result after tax of TSEK
-1,758
(TSEK -330,680), equivalent to an earnings per share of SEK -0.04 (SEK -0.08).
Financial year 2010
Continuing operations during 2010
Operating income for the year amounted to TSEK 14,022 (-). This amount
represents payments from Central Asia Gold AB's Russian subsidiary Tardan Gold
to cover a receivable in the form of a bill of exchange. In the annual accounts
for 2009, Petrogrand AB wrote off this receivable.
Administration costs and Other operating expenses amounted to TSEK -27,886 (TSEK
-15,011) in total.
The Operating result for 2010 amounted to TSEK -13,864 (TSEK -15,011).
Net financial items amounted to TSEK -33,730 (TSEK 88). Financial income
includes interest income on bank accounts. Financial income also includes an
amount of TSEK 2,200 in received interest from Tardan Gold on the bill of
exchange receivable. Net financial items for 2010, in addition, includes profits
and losses from financial investments in RUB of the company's excess liquidity
assets, see below in the section Financing and liquidity. Result after financial
investments amounted to TSEK -47,595 (TSEK -14,922).
The continuing operations were not charged with any tax during the year and
consequently, the Net result amounted to TSEK -47,595 (TSEK -14,922).
Discontinued operations during 2010
In December 2009, an agreement involving the sale of the production subsidiary
STS-Service was signed and in February 2010, the sale was completed. Result and
cash flow effects arising from the sale of STS-Servies were included in the
accounting for financial year 2009 and were thus reported in Petrogrand's annual
report for 2009.
Operating income during 2010 amounted to TSEK 12,499 (TSEK 136,577), of which
revenues from oil sales were TSEK 12,485 (TSEK 136,052). Production costs
amounted to TSEK -9,602 (TSEK -113,988) during the year. Income as well as costs
reflect the fact that the sale of the production subsidiary STS-Service was
completed in early February.
Gross profit amounted to TSEK 2,721 (TSEK 4,973). This amount includes an
amortization charge of TSEK -176 (TSEK -17,616).
Selling and distribution expenses amounted to TSEK -96 (TSEK -3,481).
Administration costs
amounted to TSEK -2,441 (TSEK -25,746). Other operating expenses amounted to
TSEK -9,199 (TSEK -120,846). This item includes a provision of TSEK -11,932 made
in order to cover warranty claim and ecology related commitments as a result of
the agreement with Gazprom Neft Vostok, see further in the section Legal
disputes.
The Operating result for the year amounted to TSEK -9,015 (TSEK -145,100).
Net financial items amounted to TSEK -82 (TSEK -312,752). Result after financial
investments amounted to TSEK -9,097 (TSEK -457,853).
The tax item for 2010 amounted to TSEK -98 (TSEK 34,681).
The Net result after tax for the discontinued operations for 2010 amounted to
TSEK -9,195 (TSEK -765,780), equivalent to an Earnings Per Share of SEK 0.00
(SEK -0.27).
The Group in total during 2010
For the financial year 2010, the Group in total reports a Net result after tax
of TSEK -56,790
(TSEK -780,703), equivalent to an Earnings Per Share of SEK -0.02 (SEK -0.27).
Investments
The Group's investments in tangible and intangible fixed assets in 2010 amounted
to TSEK 46,550 (TSEK 32,096), of which investments in immaterial assets were
TSEK 45,140 (TSEK 31,318).
Financing and liquidity
In anticipation of future investments, a re-allocation of the major part of the
company's excess liquidity assets was made by exchanging MSEK 500 into 2 billion
RUB in the beginning of the 3(rd) quarter. The move into RUB was motivated by
the fact that the company's main activities shall be to make investments in oil
related operations in Russia.
1 billion RUB were placed in a fixed-rate investment in a Russian bank and 1
billion RUB were placed for asset management in another Russian bank. The asset
management mandate is executed within strict limits defined by the Board of
Petrogrand and the investments are mainly made into bonds.
In the 4(th) quarter, the amount of the fixed-rate investment was reduced by
386 million RUB.
185.9 million RUB were used to finance the acquisition of the Nizhne-Paninsky
license area, see below. 203 million RUB were transferred to the asset
management mandate within the same limits as previously defined.
During the 3(rd) and 4(th) quarter of 2010, the investments through the Russian
banks resulted in a total return of approximately 90 million RUB. This amount
more than covers the total administration costs for Petrogrand's units in
Russia, amounting to 5-6 million RUB per month, and the surplus also covers the
administrative expenses for the Swedish head office.
In the company's reporting currency SEK, the result of the asset management is
reported as a "Change in real value of assets under external management"
amounting to TSEK 12,400. The result of the fixed-rate investment is reported as
an "Interest and currency effect on short financial loan" amounting to TSEK
7,552, of which the interest was TSEK 7,815 and the currency effect on this
interest was TSEK -263.
The major strengthening of SEK versus the RUB primarily during the 3(rd) quarter
resulted in a non-realised exchange rate loss on financial investments in RUB
amounting to TSEK -58,603 during the financial year, of which TSEK -522 in the
4(th) quarter. This amount is reported in the income statement as an "Exchange
rate effect on financial investments".
Liquid assets in SEK in the Group amounted to TSEK 178,410 (TSEK 6,075) as of
31 December 2010. In addition, assets placed in RUB in the fixed-rate investment
amounted to TSEK 140,591 and the assets in asset management amounted to TSEK
278,155 as of 31 December 2010.
Legal disputes
Tardan Gold
Since the end of 2009, Petrogrand was involved in a legal dispute with Central
Asia Gold AB's Russian subsidiary Tardan Gold concerning a bill of exchange
receivable. In its annual accounts for 2009, Petrogrand AB made a provision
concerning this receivable amounting to TSEK 14,046. In the second quarter of
2010, an agreement with an installment plan was made with Tardan Gold. As of 31
December, Petrogrand AB had received all payments according to the installment
plan amounting to TSEK 14,022 to cover the bill of exchange receivable which
have had a positive impact on the Group's result. In addition to the repayment
of the receivable, Petrogrand received interest amounting to TSEK 2,200 from
Tardan Gold which is included in Financial income.
Gazprom Neft Vostok
During 2010, Gazprom Neft Vostok (GPN) received several claims from previous
suppliers and sub-contractors of STS-Service. GPN on its part addressed
Petrogrand with claims relating to alleged violations of warranties defined in
the agreement covering the sale of STS-Service. In the 3(rd) quarter, a
provision amounting to TSEK -7,739, representing the value in SEK of 35 million
RUB, was made in order to cover potential costs relating to this issue.
Since then, a joint working group with legal and financial experts from
Petrogrand and GPN has evaluated all claims. This work has also involved
environmental claims from the authorities which previously had not been under
discussion. The assessment is that some of these environmental claims from the
authorities may fall upon Petrogrand. Therefore, the Board decided to contribute
19 million RUB in order to resolve any potential issues that might have existed,
and also to secure, on Petrogrand's part, a total closure of all commitments
related to the sale of STS-Service. An agreement has been reached between
Petrogrand and GPN where the total cost to exclude Petrogrand from any future
potential claims related to the sale of STS-Service amounts to a total of 54
million RUB.
The total provision according to this financial report is thus an increase of
the previous provision of 35 million RUB by 19 million RUB to a total of 54
million RUB, corresponding to a value in SEK of TSEK -11,932. This amount is
reported as "Liabilities directly associated with assets classified as held for
sale" in the Group Balance sheet.
Employees
The number of employees in Group companies as of 31 December 2010 was 28 (170),
of which 16 (41) were women and 12 (129) were men.
Comments on the Parent Company - Full year 2010
Other operating income in the income statement represents the payments received
from Tardan Gold to cover the bill of exchange receivable for which previously a
provision was made. Financial income includes the interest received from Tardan
Gold.
Other operating expenses include the provision of TSEK -11,932 made in order to
cover costs according to the agreement with Gazprom Neft Vostok, see above in
the section Legal disputes. In the balance sheet, this amount is included in
Accrued costs and prepaid income.
The result of the parent company has been charged with a write-down of loans
given to the Russian subsidiary 'STS-Management' amounting to TSEK 13,270. These
loans have been given during 2010 in order to cover expenses linked to the
subsidiary's liquidation which was completed in the 4(th) quarter. The amount is
included in Other financial costs in the income statement.
Transactions with related parties
The company in the fourth quarter of 2009 used a commitment from one of the
major shareholders concerning short-term bridge financing at market conditions
in order to meet its liquidity needs until receipt of payment from the buyer of
STS-Service. After receiving payment from the buyer in early February 2010, the
short-term credit including interest was repaid.
Major events during the 4(th) quarter
Acquisition of license area Nizhne-Paninsky
On 10 December, Petrogrand reported that its subsidiary Petrogrand Exploration &
Production LLC (Petrogrand EP) was the winner in an auction in Tomsk organized
by the government concerning the Nizhne-Paninsky license area in the Tomsk
region. The final price was 185.9 million RUB. The license area was discovered
in the 1960's and the State Committee for Natural Resources has determined that
the reserves amount to 8.7 million tons, according to the Russian classification
C3 (ca 65.2 million barrels).
Operations
Petrogrand is an independent Swedish oil company within exploration and
production previously active in oil production in the Tomsk region in western
Siberia in Russia through its subsidiary STS-Service.
On 5 February 2010, Russian Authorities registered the transfer of ownership of
the production subsidiary STS-Service to Gazprom Neft Vostok in line with the
resolution by the extraordinary general shareholders' meeting on 17 December
2009 to sell STS-Service to Gazprom Neft Vostok.
Following the transaction, the board of Petrogrand AB has developed a new
business plan for future operations. The business plan was approved by the
shareholders at an extraordinary general shareholders' meeting on 27 April
2010. Petrogrand's general business concept is to carry on oil production
through acquired Russian oil companies and oil licenses. Petrogrand will also
manage, enhance the value of and sell Russian oil assets. The goal is to become
one of Sweden's leading oil companies on the Russian market by means of
investments in the Russian oil sector.
The first investment in line with the new business plan is the Nizhne-Paninsky
license area in the Tomsk region. The license was acquired in an auction
organized by the Russian authorities on 10 December 2010. Petrogrand's Russian
subsidiary Petrogrand Exploration & Production LLC (Petrogrand EP) participated
in the auction and is thus the formal owner of the license. The price paid was
185.9 million RUB. The license area was discovered in the 1960's and the State
Committee for Natural Resources has determined the reserves at 8.7 million tons,
according to the Russian classification C3 (approximately 65.2 million barrels).
Following the acquisition, Petrogrand has appointed Integra-Geophysics to
perform seismic evaluation work on the license area.
Production
Petrogrand produced oil only in January and production amounted to 63,998
barrels. As a result of the completion of the sale of STS-Service to Gazprom
Neft Vostok in early February, the company did not produce any oil during the
remainder of the report period.
Major events following the end of the report period
Contract with Integra-Geophysics for seismic work
On 25 January, Petrogrand reported that an agreement had been signed with
Integra-Geophysics involving seismic work on the Nizhne-Paninsky license area
which was acquired in an auction on 10 December 2010. The contract was signed as
the result of an open tender process in which several well qualified companies
participated. The seismic surveys will be carried out during winter and spring
and a preliminary interpretation of the results will be performed by the end of
May - beginning of June 2011. The result will lay the ground for exploration
drilling which will take place during the winter season 2011/12.
Employment of a Financial Manager
On 28 January, Petrogrand reported that a financial manager had been employed in
order to strengthen the organisation ahead of future acquisitions and in order
to reach higher efficiency and control in the financial administration. Lars
Vilhelmson born in 1957, worked for shipping group NYKCool, where he was
employed for 25 years, most recently as CFO. Lars has through NYKCool worked for
world-leading shipping-groups such as NYK (Japan), Lauritzen (Denmark), Høegh
(Norway). Profile areas are business development, change management,
financial/business control, cash management and IT alongside the financial
managerial role. Lars has a bachelor degree in economics from the University of
Stockholm.
Interest for the Muromskij-2 license area
On 10 February, Petrogrand reported that its Russian subsidiary Petrogrand
Invest LLC submitted an application to obtain the right to perform geological
surveys on the Muromskij-2 license area in the Tomsk region. The authorities
will decide within 30 days whether an auction will be arranged or if one of the
applicants free of charge will be granted the right to perform geological
surveys on the Muromskij-2 license area.
Share data
Since the time of the rights issue and the conversion of the convertible bonds
in April 2009, the share capital of Petrogrand AB amounted to SEK 268,410,272
divided into 4,026,589,880 outstanding shares, each with a par value of SEK
0.0667.
At the AGM on 21 June 2010, it was resolved in favour of a consolidation of
shares 1:100 by which one hundred (100) old shares would be consolidated into
one (1) new share. The Board of the company then decided on 10 August that the
record date for the consolidation of shares would be Friday 20 August 2010.
As a result of the consolidation, the share capital of Petrogrand AB at the time
of the publishing of this report amounts to SEK 268,410,272 divided into
40,265,898 outstanding shares, each with a par value of SEK 6.67
In addition, there is a latent dilution due to an Incentive Program 2010/2013
which was approved at the AGM on 21 June. Company employees and board members
are included in the incentive program. Within the program, a total of 211
million subscription warrants have been issued and at the time of the publishing
of this report, 108 million have been subscribed and purchased. 100 warrants
give the right to subscibe for 1 share. The remaining options may be offered to
existing and future employees and board members up until the AGM of 2011.
Assuming full exercise of all subscription warrants, the share capital will
increase by no more than 14,065,144.22 SEK, equivalent to a dilution of about
4.98 per cent of share capital and voting rights.
Additional information
Proposal concerning distribution of profits
The Board will propose to the Annual General Meeting of shareholders that no
dividend will be paid for the financial year 2010.
Accounting policy
Basis for the preparation of the interim report
This interim report has been prepared in accordance with IAS 34, Interim
reporting. The consolidated group accounting has been prepared in accordance
with International Financial Reporting Standards (IFRS) as approved by EU and
the Annual Accounts Act.
Discontinued operations
In December 2009, Petrogrand AB and Gazprom Neft Vostok signed a sale and
purchase agreement concerning the sale of Petrogrand's subsidiary STS-Service.
Consequently, Petrogrand has based this interim report according to IFRS 5, Non-
current Assets Held for Sale and Discontinued Operations. In the Group income
statement, continued and discontinued operations are thus reported separately
and in the balance sheet, assets and liabilities held for sale are reported as
separate items. In the income statement for discontinued operations, all income
and costs, including financial items that are directly attributable to the
divested subsidiary are included.
Parent company
The interim report for the parent company has been prepared in accordance with
the Annual Accounts Act and the Securities Market Act, which is in accordance
with the rules in RFR 2
Accounting for Legal Entities.
Future reporting dates
Annual report 2010: To be published 23 May 2010 on the company's website
January - March 2011 interim report: To be published May 31, 2011
Annual general meeting 2011: To be held 15 June 2011
January - June 2011 interim report: To be published August 31, 2011
January - September 2011 interim report: To be published November 30, 2011
Company information
The full name of the parent company is Petrogrand AB (publ). It is a public
limited company with head offices in Stockholm and the corporate registration
number 556615-2350. The address of the parent company is Birger Jarlsgatan
41A, 111 45 Stockholm. Its telephone number is +46 8 5000 7810 and fax number is
+46 8 5000 7815. Internet web site: www.petrogrand.se
Certified Adviser
Certified Adviser First North: Mangold Fondkommission AB
This report has not been subject to review by the company's auditors.
Stockholm, 28 February 2011
The Board of Petrogrand AB (publ)
For further information, please contact:
Maks Grinfeld, MD, tel; +46 8 5000 7810
Sven-Erik Zachrisson, Chairman of the Board of Directors, tel: +46 8 41 05 45 96
For further information on Petrogrand AB, see the website www.petrogrand.se
Reasonable caution notice: The statement and assumptions made in the company's
information regarding Petrogrand AB's ("Petrogrand") current plans, prognoses,
strategies, concepts and other statements that are not historical facts are
estimations or "forward looking statements" concerning Petrogrand's future
activities. Such future estimations comprise but are not limited to statements
that include words such as "may occur", "concerning", "plans", "expects",
"estimates", "believes", "evaluates", "prognosticates" or similar expressions.
Such expressions reflect the management of Petrogrand's expectations and
assumptions made on the basis of information available at that time.
These statements and assumptions are subject to a large number of risks and
uncertainties. These, in their turn, comprise but are not limited to i) changes
in the financial, legal and political environment of the countries in which
Petrogrand conducts business, ii) changes in the available geological
information concerning the company's projects in operation, iii) Petrogrand's
capacity to continuously guarantee sufficient financing to perform their
activities as a "going concern", iv) the success of all participants in the
group, or of the various interested companies, joint ventures or secondary
alliances, v) changes in currency exchange rates, in particular those relating
to the RUR/USD rate. Due to the background of the many risks and uncertainties
that exist for any oil-prospecting venture and oil production company in its
initial stage, Petrogrand's actual future development may significantly deviate
from that indicated in the company's informative statements.
[HUG#1493122]
