Petrogrand AB: INTERIM REPORT JANUARY- SEPTEMBER 2011
Third quarter of 2011
– During the 3rd quarter, the Group had no operating income (TSEK 14,022). The operating result for the 3rd quarter amounted to TSEK -6,965 (-3,861).
– The change in real value of assets under discretionary management amounted to TSEK -11,909 (5,177) of which the main part was unrealized.
– Net financial items in the 3rd quarter amounted to TSEK -33,159 (-43,564), including currency effect of TSEK -22,778 (-58,081)
– Net result after tax for the 3rd quarter amounted to TSEK -40,124 (-39,702).
January – September 2011
– During the first nine months, the Group had no operating income (TSEK 26,521). The operating result for the period amounted to TSEK -24,034 (-9,674).
– Net financial items for the period amounted to TSEK -1,710 (-45,255), including currency effect of TSEK -12,297 (-58,081) and the change in real value of assets under discretionary management amounted to TSEK -2,241 (5,177)
– Net result after tax for the period amounted to TSEK -25,745 (-55,029).
– Earnings Per Share for the period amounted to SEK -0.64 (SEK -1,37).
During the third quarter we have continued the preparations to drill three exploration wells (two wells at Nizhnepaninsky and one well at Muromsky-2). A lot of work has been done in order to prepare and apply for all the necessary permits that are required to implement a complete drilling program. Parallel to this we have finalized the negotiations with the drilling companies who will drill and evaluate if our blocks contains hydrocarbons. We have put a lot of effort into ensuring that we have the right drilling contractors by applying a comprehensive tender procedure where we proceeded into a step two phase with the ones that satisfied the standards and specifications set. We are confident that we have negotiated attractive terms and competitive prices for the wells we are going to drill.
I have definitely good reasons to be optimistic when it comes to our upcoming drilling campaign, lately strengthened by the update on Nizhnepaninsky we sent out in the beginning of September. This update showed a substantial increase in our C3-resources as a result of reinterpretation of vintage seismic, new seismic and analysis of vintage well logs. The final report that was recently submitted to Tomsknedra showed an increase in the resources from the initial 8.7 million tons to 54.8 million tons (411 mmbbl) distributed over the license area.
It is also pleasing to see that our company is getting more public attention, e.g. through the recent article in the Swedish business magazine Veckans Affärer. With spud date approaching I both hope and believe that more investors will start following our company.
The negotiation regarding the sale of 5% of our subsidiary Petrogrand Exploration and Production to a strategic partner is still in progress and we will be back with more information when the negotiations are completed.
Financial position and result
Our financial strength is good and our equity amounts to MSEK 596 (SEK 14.79 / share) of which MSEK 527 is current assets (SEK 13.08 / share). Our net result for the first nine months amounted to MSEK -26 (SEK -0.64/share).
No one can have avoided noticing the turbulence in the financial markets. Petrogrand is also exposed to this and we have actively worked together with Sberbank to reduce the exposure towards the stock market and optimize our bond portfolio in order to match the upcoming capital need in our investment budget for the drilling program. During the third quarter we reported a change in real value of our portfolio of MSEK -11.9 which to a big extent is unrealized value changes. In total the investment in excess liquidity in Rubles during the first nine months generated MSEK 7.3. In addition to this, the result includes negative accumulated currency effects amounting to MSEK -12.3 as an effect of changes in the SEK / RUB exchange rate.
Our liquidity is very good and we stand well prepared to meet the capital needs for the coming drilling program. We estimate that the expense for this program will amount to around 30% of our cash balance.
We have decided to drill two exploration wells on this license during the first half of 2012. Work has begun building winter roads in the region where we will build winter roads totalling some 50 km to reach our drilling locations in addition to using the federal roads. These roads are what allow us to transport the heavy equipment we have ordered to the drill sites. We estimate that we can spud the wells in end of February / beginning March. The fact that we will not be ready to move the heavy equipment prior to the ground frost disappears in the spring means that we will not be able to drill any more wells during this year. When new winter roads are in place during the winter 2012/2013 we will be able to move the drilling rigs to new locations.
During 2012 we will drill one exploration well in Muromsky-2. We will build winter roads here as well, although less than in the Nizhnepaninsky license area. We expect spud date to be in the second half of February. Depending on how the drilling goes and if the weather is on our side we might decide to drill a second well in the Muromsky-2 license block.
I would like to conclude by thanking you shareholders for your attention and interest and I promise that we work diligently with the implementation of our drilling program on our two very promising license areas. Petrogrand is entering into a very exciting phase this winter! With Christmas approaching I would like to wish you all a Merry Christmas and a Happy New Year!
CEO, Petrogrand AB
Comment on the Group’s result and financial position per 30 September 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 first three quarters of 2011 (TSEK 14,022 / 12,499) and also did not have any production related operating expenses ( – / TSEK -9 778).
The Group did not have any costs for sales and distribution during the period ( – /TSEK -96). Administration costs amounted to TSEK -22,787 (-17,650 / -4,329) and other operating expenses were TSEK -1,247 ( – / -4,342 ).
The Operating result for the first nine months amounted to TSEK -24,034 (-3,628 / -6,046).
Financial income amounted to TSEK 3,317 (3,799 / – ). Net financial items amounted to TSEK -1,710 (-45,171 / -84) which includes currency effects amounting to TSEK -12,297 ( -58,081 / – ). Net financial items include the result from financial investments involving the company’s excess liquidity, see below in section Financing and liquidity.
Result before tax amounted to TSEK- 25,745 (-48,799 / -6,130). There was no tax charged in the quarter ( – / TSEK -100).
For the first three quarters of 2011, the Group reports a net result after tax of TSEK -25,745
(-48,799 / -6,230), equivalent to an earnings per share of SEK -0.64 (-1.22 / -0,15).
The Group’s investments in tangible and intangible fixed assets during the first three quarters of 2011 amounted to TSEK 39,594 (1,708), of which investments in intangible fixed assets represented TSEK 38,334 (56). The investments in intangible fixed assets are mainly related 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 leading Russian bank Sberbank. The fixed-rate investment in Renaissance Capital matured during the quarter. The fixed-rate investment has generated an interest income amounting to TSEK 9,514 (4,146) in 2011. The balance has been transferred to Sberbank asset management.
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
-2,241 (5,177) for the first three quarters of 2011. The negative result is a consequence of unrealized gains and losses from financial positions which has been revalued to market value and derives from a negative trend in the financial markets during the third quarter. It is the view of the board and management that the current market value of bonds makes it financially advantageous for us to hold our assets to maturity which is enabled by our strong liquidity. Partial value recovery of the portfolio is expected to occur as the bonds mature and are redeemed at nominal value.
The Groups’ liquid assets in SEK amounted to TSEK 177,385 (183,771) as of 30 September 2011. In addition, assets placed in RUB in discretionary management amounted to TSEK 338,777 (226,275). Available assets in total thus amounted to TSEK 516,162 as of 30 September 2011.
The number of employees in Group companies at the end of the period was 36 (28), of which 18 (18) were women and 18 (10) 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 third quarter 2011.
Major events during the report period
Fixed-rate investment with Renaissance Capital
The agreement with Renaissance Capital expired on 1 July 2011. As a result, the account was closed and the balance transferred to Sberbank asset management.
Petrogrand strengthened its organization within business development and investor relations by employing Joakim Kindahl from September 1st.
Estimated C3 resources in the Nizhnepaninsky license block substantially increased
Petrogrand reported that following the interpretation of the new seismic data acquired last winter, coupled with re-interpretation and analysis of vintage seismic data and well logs, the conclusion is that the estimate on C3 resources present in the Nizhnepaninsky block have increased from 8.7 million tons (65 mmbbl) to 54.8 million tons (411 mmbbl).
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 54.8 million tons, according to the Russian classification C3 (approximately 411 mmbbl). During winter and spring, seismic surveys were carried out in the license area and the results will lay the ground for exploration drilling which will take place during the winter season 2011/2012.
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 mmbbl). 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 30 September 2011
The Petrogrand Group did not produce any oil during the third quarter 2011.
Major events following the end of the report period
There are no major events to report following the end of the report period
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 2010. Company employees and board members are included in the incentive program. Within the program, 108 million have been subscribed and purchased. 100 warrants give the right to subscribe for 1 share.
The AGM on 15 June 2011 resolved in accordance with the Board’s proposal to implement an incentive programme 2011/2014 through issue and transfer of not more than 1 030 000 subscription warrants. Each warrant entitles the holder to subscribe for one new share in the Company. The remaining options may be offered to existing and future employees up until the AGM of 2012. The company’s employees have currently applied to purchase 476,000 warrants within the program.
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.
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.
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.
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
Full year report 2011: To be published 29 February 2012
Interim report Q1 2012: To be published 4 May 2012
Interim report Q2 2012: To be published 22 August 2012
Interim report Q3 2012: To be published 31 October 2012
The AGM 2012 will be held in Stockholm on 10 May 2012.
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, SE-111 45 Stockholm. The telephone number is +46 8 5000 7810 and fax number is +46 8 5000 7815. Internet web site: www.petrogrand.se
Certified Adviser First North: Mangold Fondkommission AB
This report has not been subject to review by the company’s auditors.
Stockholm, 29 November 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