INTERIM REPORT JANUARY-MARCH 2011
PETROGRAND AB (publ)
* During the 1(st) quarter, the Group had no operating income (TSEK 12,261).
The operating result for the 1(st) quarter amounted to TSEK -8,161 (TSEK
-4,922).
* Financial income in the 1(st) quarter amounted to TSEK 15,020 (-).
* Net result after tax for the 1(st) quarter amounted to TSEK 4,515 (TSEK
-9,099).
* Earnings Per Share for the 1st quarter amounted to SEK 0.11 (SEK 0.00).
Earnings Per Share is calculated using the average number of shares
outstanding for the respective period.
MD's report
Dear Shareholders,
As our annual report in time coincides with the first quarter interim report, I
will only touch on the highlights so far in 2011.
Nizhnepaninsky
Following the acquisition of the Nizhnepaninsky license area in the end of last
year, we have compiled and evaluated the seismic material during the first
quarter of 2011. The experience of neighboring oil fields is good and therefore
we believe that Nizhnepaninsky offers exciting opportunities to find oil.
Muromsky-2
A second license area, Muromsky-2, also in the Tomsk region, was obtained free
of charge in April 2011. The reserves of the license area are estimated at 39.4
million tons, according to the Russian classification C3.
The agreement gives us the right to carry out seismic surveys in the license
area during a 5 year period. After exploration drilling and subject to a
confirmation of the oil reserves, Petrogrand will apply for a 20-year oil
production license. It is now vitally important that we intensify our efforts to
update and complete the surveys, so that we can begin exploration drilling in
the license area in the winter of 2011/2012.
Oil-producing company
In April 2011, we also signed a letter of intent for the acquisition of a
Russian oil producer in the Orenburg region, in southeastern Russia. We are now
in a "due diligence" process and if the information from the seller is verified,
we have the right to use the purchase option, and we will acquire the company.
This work will be completed during the month of July, which is the time when we
will make the final decision on the acquisition.
This is an attractive opportunity to acquire an asset with proven oil reserves,
current oil production and significant development potential. The Orenburg
region is known for its large reserves of high quality oil. Therefore, oil from
this region tends to attract a better market price. The license area is
estimated to have reserves amounting to 29.5 million tons, according to the
Russian classification C3.
Financial Activities
The placement of our excess liquid assets in rubles, partly in a fixed-rate
deposit and partly in discretionary asset management, during the first four
months of 2011 generated a return of 70 million rubles or 15.6 million SEK.
In April, we appointed a new CFO, Lars Vilhelmson. Lars comes from the shipping
group NYKCool, where he was employed for 25 years, most recently as CFO.
Capital Market day
Because we as a company have undergone our "Glasnost" and have a positive view
on transparency and information exchange, we have decided to arrange a Capital
Market Day in Stockholm on 30 May. We will then present ourselves and our future
plans. Our experts will provide information on our activities in Russia, and to
illustrate the business environment in which we operate, we have also invited
representatives of our partners in Sberbank and Renaissance Capital.
We are continuing unabated in developing our projects in accordance with our
established business plan and we will hold our Annual General Meeting of
shareholders on 15 June in Stockholm.
Maks Grinfeld
Managing Director Petrogrand AB
Comment on the Group's result and financial position per 31 March 2011
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, Petrogrand during 2010
presented its financial reports according to IFRS 5, Non-current Assets Held for
Sale and Discontinued Operations. In the Group income statement, continued and
discontinued operations were thus reported separately. Of the comparative
figures within parenthesis for the respective period in 2010, the first figure
represents the continuing operations and the second figure represents the
discontinued operations.
The Group had no operating income during the 1st quarter ( - / TSEK 12,261) and
also did not have any production related operating expenses ( - / TSEK
-6,613).
Administration costs amounted to TSEK -7,449 (TSEK -5,370 / -4,280) and Other
operating expenses were TSEK -712 ( - / TSEK -920).
The Operating result for the 1(st) quarter amounted to TSEK -8,161 (TSEK -5,370
/ 448).
Financial income amounted to TSEK 15,020 ( - / - ). Net financial items amounted
to TSEK 12,675 (TSEK -398 / -3,679). Net financial items include profits
and losses from financial investments involving the company's excess liquidity
assets, see below in section Financing and liquidity.
Result before tax amounted to TSEK 4,515 (TSEK -5,768 / -3,231). There was no
tax charged in the quarter ( - / TSEK -100).
For the 1st quarter 2011, the Group reports a Net result after tax of TSEK
4,515 (TSEK -5,768 / -3,331), equivalent to an Earnings per share of SEK 0.11
(SEK 0.00 / 0.00).
Investments
The Group's investments in tangible and intangible fixed assets during the
1(st) quarter 2011 amounted to TSEK 20,212 (TSEK 1,674), of which investments in
intangible fixed assets represented TSEK 19,439 (TSEK 1,674). The investments in
intangible fixed assets relate to the seismic surveys performed in the
Nizhnepaninsky license area.
Financing and liquidity
The major part of the Group's excess liquidity assets is still placed in RUB in
the two leading Russian banks Sberbank and Renaissance Capital. The return in
RUB terms during the 1(st) quarter corresponds to a level of return of
approximately 11 per cent per annum.
In order to finance the initial investments in the Nizhnepaninsky license area
and in order to pay the amount of TRUB 54,933 to Gazprom Neft Vostok according
to the agreement dated March 1, se below in section Legal disputes, an amount of
TRUB 72,000, equal to TSEK 15,968, was withdrawn from the discretionary
management account in Sberbank.
There was no change in the amount placed in the fixed-rate investment in
Renaissance Capital during the 1(st) quarter.
In the company's reporting currency SEK, the result of the asset management in
Sberbank is reported as a "Change in real value of assets under discretionary
management" amounting to TSEK 10,470. The result of the fixed-rate investment is
reported as an "Interest and currency effect on short financial loan" amounting
to TSEK 4,353, of which the interest was TSEK 4,336 and the currency effect on
this interest was TSEK 17.
Liquid assets in SEK in the Group amounted to TSEK 167,188 (TSEK 754,436) as of
31 March 2011. In addition, assets placed in RUB in the fixed-rate investment
including accrued interest amounted to TSEK 145,364 and the assets in
discretionary management amounted to TSEK 269,963. Available assets in total
thus amounted to TSEK 582,515 as of 31 March 2011.
Legal disputes
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 its accounts for full year
2010, a provision amounting to TSEK 11,932, representing the value in SEK of
TRUB 54,000, was made in order to cover expected costs related to this issue.
On 1 March 2011, an agreement was signed by Petrogrand and GPN according to
which the total cost to exclude Petrogrand from any future potential claims
related to the sale of STS-Service amounted to TRUB 54,933. Immediately
following the signing of the agreement, Petrogrand paid the agreed amount to GPN
which means that there is no longer any dispute between the two companies.
Employees
The number of employees in Group companies at the end of the 1(st )quarter was
28 (17), of which 16 (12) were women and 12 (5) were men.
Comment on the Parent Company
In the balance sheet item Financial fixed assets the loans given to the Russian
subsidiaries to cover acquisitions of and investments in oil license areas are
reported.
Transactions with related parties
There were no transactions with related parties during the 1(st) quarter 2011.
Major events during 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 Nizhnepaninsky 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 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 Muromsky-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 Muromsky-2 license area in the Tomsk region.
Operations
Petrogrand AB is an independent Swedish oil company within exploration and
production which previously operated only in the Tomsk region in western Siberia
in Russia. Following the sale of its production subsidiary STS-Service early in
2010, a new business plan for future operations was developed. 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 first investment in line with the new business plan is the Nizhnepaninsky
license area in the Tomsk region. 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). During winter and spring, seismic surveys are carried out
in the license area and the results will lay the ground for exploration drilling
which will take place during the winter season 2011/12.
Another project regarded as particularly interesting is the Muromsky-2 license
area, also in the Tomsk region. The license area has reserves supposedly
amounting to 39.4 million tons, according to the Russian classification of C3
(about 287.8 million barrels). Petrogrand will evaluate the status and quality
of seismic work previously carried out in the license area and further update
and finalize the surveys so that exploration drilling can take place during the
winter season 2011/2012.
Production status as of 31 March 2011
The Petrogrand Group did not produce any oil during the 1(st) quarter 2011.
Major events following the end of the report period
Letter of intent involving a Russian oil company
Petrogrand on 6 April 2011 signed a Letter of Intent concerning the acquisition
of a Russian oil company in the Orenburg region, in southeast Russia. After a
due diligence period of up to two months, Petrogrand can exercise its option to
acquire the company.
Petrogrand is granted the rights to the Muromsky-2 license area
On 14 April, Petrogrand reported that its Russian subsidiary Petrogrand Invest
LLC, free of charge had been granted the rights to the Muromsky-2 license
area.
New CFO appointed
On 28 April, Petrogrand reported that its Financial Manager Lars Vilhelmson had
been appointed as new CFO.
Share data
The share capital of Petrogrand AB amounts to SEK 268,410,272 divided into
40,265,898 outstanding shares, each with a par value of SEK 6.67. The number of
shares is the result of a consolidation of shares 1:100 with record date 20
August 2010.
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 subscribe 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.
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.
The interim report does not include all the information and notes included in
the annual report.
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 the financial reports during 2010 according
to IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. In the
Group income statement for the comparative periods in 2010, continued and
discontinued operations are thus reported separately and in the balance sheet,
assets and liabilities held for sale are reported on separate lines. 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 general meeting 2011: To be held 15 June 2011
January - June interim report: To be published 31 August 2011
January - September interim report: To be published 30 November 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, 30 May 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#1519735]
