RNS Number:0432O
Urals Energy Public Company Limited
18 December 2006
Urals Energy Public Company Limited
("Urals Energy" or "the Company")
Adjustment to Interim Results to 30 June 2006
The Company announces that following consultation with its auditors,
PricewaterhouseCoopers, it is adjusting a non-cash item relating to the
Company's previously reported results for the period ended 30 June 2006, and
which will result in a reduction of the reported net income for the period. This
adjustment arises out of new treatment of previously issued warrants.
In connection with raising debt financing in January 2006, Urals Energy issued
warrants to purchase two million common shares for #3.03 per share. The Company
denominated the exercise price in Sterling for the convenience of the holders,
as it is the currency in which the Company's shares are traded. In the interim
condensed consolidated financial information as originally issued on 4 September
2006, the Company and its auditors determined that the correct treatment was to
classify the warrants within equity in the consolidated balance sheet.
After further consultation with its auditors, the Company has concluded that the
correct accounting treatment under IFRS requires warrants issued with an
exercise price in a currency different than that of the Company's functional
currency (the Russian Rouble) be recorded at its fair value within liabilities
and that changes in its fair value be recorded within the income statement. As
a result, the Company is reissuing its interim condensed consolidated financial
statements as of and for the six months ended 30 June 2006 to properly reflect
this non-cash adjustment. The revised interim condensed consolidated financial
statements are set out below, along with the review report of its independent
auditors, PricewaterhouseCoopers, and can also be found on the Company's website
(uralsenergy.com).
There is no impact on operating profit as a result of this non-cash adjustment
and it also has no impact on EBITDA. As of 30 June 2006, share premium was
reduced by $1,750,000 to $398,601,000, warrants classified as liabilities were
recorded at $5,064,000 and retained earnings was reduced by $3,314,000 to
$3,100,000. Profit attributable to shareholders of Urals Energy Public Company
Limited was reduced by $3,314,000 to $386,000 for the six months ended 30 June
2006.
These warrants will continue to be adjusted to fair value each reporting period
through the statement of income until such time as they are exercised or expire.
Given the non-cash nature of this accounting treatment, the Company intends to
provide an earnings measure in future which adjusts for this effect and which it
believes more accurately reflects the underlying financial position of the
Company.
18 December 2006
Enquiries
Pelham PR
James Henderson +44(0) 207 743 6673/+44(0) 777 4444 163
Gavin Davis +44(0) 207 743 6677/+44(0) 791 0104 660
INTERIM CONDENSED CONSOLIDATED BALANCE SHEET AT (unaudited)
Note 30 June 2006 31 December 2005
Assets
Current assets
Cash and cash equivalents 68,747 32,334
Accounts receivable and prepayments 32,210 23,788
Inventories 17,899 12,641
Total current assets 118,856 68,763
Non-current assets
Property, plant and equipment 513,421 287,485
Other non-current assets 2,093 2,098
Total non-current assets 515,514 289,583
Total assets 634,370 358,346
Liabilities and equity
Current liabilities
Accounts payable and accrued expenses 15,110 7,932
Taxes payable 14,555 11,487
Short-term borrowings and current 9 22,656 34,117
portion of long-term borrowings
Advances from customers 670 523
Amounts due for acquisition of subsidiaries 8,000 -
Total current liabilities before 60,991 54,059
warrants classified as liabilities
Warrants classified as liabilities 9 5,064 -
Total current liabilities 66,055 54,059
Long-term liabilities
Long-term borrowings 9 51,135 47,005
Long-term finance lease obligations 1,395 1,357
Dismantlement provision 881 813
Deferred tax liability 98,846 51,100
Other long term liabilities 663 580
Total liabilities 218,975 154,914
Equity
Share capital 6 633 460
Share premium 6 398,601 201,355
Translation difference 11,695 (2,296)
Retained earnings 3,100 2,714
Equity attributable to shareholders of 414,029 202,233
Urals Energy Public Company Limited
Minority interest 1,366 1,199
Total equity 415,395 203,432
Total liabilities and equity 634,370 358,346
MEMORANDUM NOTE:
Total equity 415,395 203,432
Warrants classified as liabilities 9 5,064 -
420,459 203,432
Approved on behalf of the Board of Directors on 15 December 2006
____________________________ ___________________________
W.R. Thomas S. M. Buscher
Chief Executive Officer Chief Financial Officer
INTERIM CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)
Note Six months ended 30 June:
2006 2005
Revenues
Gross revenues 78,444 27,279
Less: excise taxes and export duties (20,006) (6,047)
Net revenues 58,438 21,232
Operating Costs
Cost of sales 7 (40,134) (12,732)
Selling, general and administration expenses 8 (13,527) (5,137)
Total operating costs (53,661) (17,869)
Operating profit (loss) 4,777 3,363
Finance costs 9 (3,485) (3,217)
Foreign currency gains/(losses), net 4,319 (192)
Change in fair value of warrants classified as 9 (3,314) -
liabilities
Result before tax 2,297 (46)
Income tax (charge) benefit (1,821) (754)
Net result 476 (800)
- Attributable to minority shareholders 90 86
- Attributable to shareholders of the parent 386 (886)
company
Basic weighted average number of shares 91,891,653 45,143,468
Diluted weighted average number of shares 93,390,285 45,143,468
Basic earnings per share (USD) 0.004 (0.02)
Diluted earnings per share (USD) 0.004 (0.02)
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (unaudited)
Six months ended 30 June:
2006 2005
Cash flow from operating activities
Result before tax 2,297 (46)
Total adjustments 12,922 3,944
Operating cash flow before changes in working capital 15,219 3,898
Changes in working capital (3,810) (17,894)
Cash flow from/(used in) operations 11,409 (13,996)
Interest paid (4,949) (1,377)
Income tax paid (1,177) (297)
Net cash flow from/(used in) operating activities 5,283 (15,670)
Cash flow used for investments
Acquisition of subsidiaries, net of cash acquired (142,735) (4,500)
Purchase of property, plant and equipment (18,958) (4,348)
Net cash used in investing activities (161,693) (8,848)
Cash flow from financing activities
Proceeds from loans 12,000 35,001
Repayment of loans (17,165) (30,053)
Proceeds from issuance of ordinary shares, net of associated 197,988 26,215
costs
Contributions from shareholders 881
Net cash from financing activities 192,823 32,044
Effect of exchange rate changes - (50)
Net increase in cash and cash equivalents 36,413 7,476
Cash and cash equivalents at beginning of the period 32,334 1,421
Cash and cash equivalents at end of the period 68,747 8,897
Urals Energy Public Company Limited
(presented in US$ thousands)
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)
Note Share Share Unpaid Translation Retained Equity Minority Total
capital premium capital difference earnings attributable to interest equity
(accumulated Shareholders of
deficit) Urals Energy
Public Company
Limited
Balanceat 31 December 209 42,172 (11,324) 1,236 (4,341) 27,952 1,327 29,279
2004
Issue of shares 6 50 24,950 - - - 25,000 - 25,000
Contribution from - - 11,324 - - 11,324 - 11,324
shareholders
Translation difference - - - (2,061) - (2,061) (45) (2,106)
for the period
Net result for the - - - - (886) (886) 86 (800)
period
Balance at 30 June 2005 259 67,122 - (825) (5,227) 61,329 1,368 62,697
Balance at 31 December 460 201,355 - (2,296) 2,714 202,233 1,199 203,432
2005
Issue of shares 6 173 194,961 - - - 195,134 - 195,134
Share-based payments - 2,285 - - - 2,285 - 2,285
Translation difference - - - 13,991 - 13,991 77 14,068
for the period
Net result for the - - - - 386 386 90 476
period
Balance at 30 June 2006 633 398,601 - 11,695 3,100 414,029 1,366 415,395
SELECTED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
(unaudited)
Note 1: Activities
Urals Energy Public Company Limited ("Urals Energy" or the "Company") was
incorporated as a limited liability company in Cyprus on 10 November 2003. Urals
Energy and its subsidiaries (the ''Group'') are primarily engaged in oil and gas
exploration and production in the Russian Federation and processing of crude oil
for distribution on both the Russian and international markets.
The Group operates in one business segment which is crude oil exploration and
production. The Group assesses its results of operations and makes its
strategic and investment decisions based on the analysis of its profitability as
a whole. The Group operates within one geographical segment, which is the
Russian Federation.
The registered office of Urals Energy is at 31 Evagorou Avenue, Suite 34,
CY-1066, Nicosia, Cyprus. In
July 2005, the Company changed its name to Urals Energy Public Company Limited.
The Group's primary office in Russia is located at 6 Oktyabrskaya Ul. Moscow,
127018, Russian Federation.
At 30 June 2006, the Group comprises the following significant subsidiaries:
Entity Nature Jurisdiction Economic interest
at 30 June 2006
ZAO Petrosakh Exploration & production Sakhalin 97.2 percent
ZAO Arcticneft Exploration & production Nenetsky 100.0 percent
OOO CNPSEI Exploration & production Komi 100.0 percent
ZAO Chepetskoye NGDU Exploration & production Udmurtia 100.0 percent
OOO Dinyu Exploration & production Komi 100.0 percent
OOO Oil Company Dulisma Exploration & production Irkutsk 100.0 percent
OOO Michayuneft Exploration & production Komi 100.0 percent
OOO Lenskaya Transportnaya Exploration & production Irkutsk 100.0 percent
Kompaniya
OOO Urals Energy Management Moscow 100.0 percent
OOO Urals-Nord Exploration Nenetsky 100.0 percent
Urals Energy (UK) Limited Corporate Services UK 100.0 percent
UENEXCO Limited Trading Cyprus 100.0 percent
Note 2: Seasonality
The Group's largest producing subsidiaries, ZAO Petrosakh and ZAO Arcticneft,
operate on Sakhalin and Kolguev Islands, respectively, and are not connected to
the State owned pipeline monopoly, Transneft. Accordingly, the majority of
their production is exported by tanker. Due to severe weather conditions,
shipping tankers can only load during the period of June through early December.
Outside this period, oil is either stored or processed and sold on the local
market. During the period under review, Petrosakh and Arcticneft had produced
74.5 and 23.8 thousand tons of crude oil, respectively, and sold 66.0 and 22.0
thousand tons of crude oil and oil products. The crude oil export sales took
place in June 2006. Additionally, Arcticneft sold 8.6 thousands tons of
purchased crude oil. Most of the crude oil in stock was sold in June; however
13,900 tons of crude oil remained in stock at 30 June 2006 in Petrosakh.
Note 3: Basis of Presentation
Reissuance of accounts. Management has withdrawn the previously issued
consolidated interim condensed financial information which was issued on 4
September 2006 in order to correct the classification of warrants issued in
January 2006 (Note 9). In the originally issued consolidated interim condensed
financial information, these warrants were recorded within equity at their fair
value on the date they were issued. Management has concluded that IFRS requires
that such instruments be classified as liabilities and that changes in the fair
value of such instruments be recorded in the statement of income. As a result
of this adjustment, at 30 June 2006, share premium was reduced by $1,750,000,
warrants classified as liabilities were recorded at $5,064,000 (representing the
estimated fair value of the warrants on 30 June 2006) and retained earnings was
reduced by $3,314,000. Profit attributable to shareholders of Urals Energy
Public Company Limited was reduced by $3,314,000 for the six months ended 30
June 2006. These warrants will continue to be adjusted to fair value each
reporting period through the statement of income until such time as they are
exercised or expire.
The consolidated interim condensed financial information has been prepared in
accordance with International Accounting Standard No. 34, Interim Financial
Reporting ("IAS 34"). This consolidated interim condensed financial information
should be read in conjunction with the Company consolidated financial statements
as of and for the year ended 31 December 2005 prepared in accordance with
International Financial Reporting Standards ("IFRS"). The 31 December 2005
interim condensed consolidated balance sheet data has been derived from audited
financial statements.
Use of estimates. The preparation of consolidated interim condensed financial
information in conformity with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements preparation and the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities during the reporting period. Estimates have principally been made in
respect to fair values of assets and liabilities, impairment provisions and
deferred income taxes. Actual results may differ from such estimates.
Exchange rates. The official rate of exchange of the Russian rouble to the US
dollar ("USD") at 30 June 2006 and 31 December 2005 was 27.0789 and 28.7825
Russian roubles to USD 1.00, respectively. Any translation of Russian rouble
amounts to US dollars or any other hard currency should not be construed as a
representation that such Russian rouble amounts have been, could be, or will in
the future be converted into hard currency at the exchange rate shown or at any
other exchange rate.
Through early 2006, the Russian rouble was not a convertible currency in most
countries outside of the former Soviet Union and, further, the Group was
required to convert 10 percent of its hard currency proceeds into Russian
roubles. During the first half of 2006, substantially all restrictions for hard
currency transactions were lifted and the rights of the government of the
Russian Federation and those of the Central Bank of the Russian Federation to
impose such restrictions were waived.
Reclassifications. Certain reclassifications have been made to the first half
of 2005 amounts to conform them to the first half of 2006 presentation. For the
period ended 30 June 2005, selling, general and administrative expenses were
decreased and cost of sales was increased by $416 thousand, primarily to record
other taxes of exploration and production entities. For the period ended 30 June
2005, selling, general and administrative expenses were decreased and other
non-operating gains were decreased by $23 thousand.
Note 4: Accounting Policies
Except as discussed below, the principal accounting policies followed by the
Group are consistent with those disclosed in the financial statements for the
year ended 31 December 2005.
Certain new standards and interpretations have been published that are mandatory
for the Group's accounting periods beginning on or after 1 January 2007 or later
periods and which the Group has not early adopted.
These new standards and interpretations are not expected to significantly affect
the Group's financial statements when adopted: IFRS 7, Financial Instruments:
Disclosures and a Complementary Amendment to IAS 1 Presentation of Financial
Statements - Capital Disclosures (effective from 1 January 2007); IFRIC 7,
Applying the Restatement Approach under IAS 29 (effective for annual periods
beginning on or after 1 March 2006); IFRIC 8, Scope of IFRS 2 (effective for
annual periods beginning on or after 1 May 2006); and IFRIC 9 Reassessment of
Embedded Derivatives (effective for annual periods beginning on or after 1 June
2006); and IFRIC 10, Interim Financial Reporting and Impairment (effective for
annual periods beginning on or after 1 November 2006).
New or amended standards and interpretations effective for the Group from 1
January 2006 are discussed below.
None of the adoptions had a material impact on the Group's financial position or
results of operations.
IFRIC 4, Determining whether an Arrangement contains a Lease ("IFRIC 4"). IFRIC
4 provides guidance on how to determine whether an arrangement contains a lease
as defined in IAS 17, Leases, on when the assessment or reassessment of an
arrangement should be made and on how lease payments should be separated from
any other elements in the arrangement.
IAS 39 (Amendment), The Fair Value Option; IAS 39 (Amendment), Cash Flow Hedge
Accounting of Forecast Intragroup Transactions; IAS 39 (Amendment), Financial
Guarantee Contracts. The amendments to IAS 39 clarified the use of the fair
value through profit or loss category of financial instruments and clarified the
accounting for financial guarantees as either insurance contracts or financial
instruments.
IAS 19 (Amendment), Employee Benefits. The amendment to IAS 19 introduces an
additional recognition option for actuarial gains and losses in post-employment
defined benefit plans.
IFRS 1 (Amendment), First-time Adoption of International Financial Reporting
Standards and IFRS 6 (Amendment), Exploration for and Evaluation of Mineral
Resources. The amendments to IFRS 1 and IFRS 6 provided limited relief to
first-time adopters of IFRS with respect to the provisions of IFRS 6.
IFRIC 5, Rights to Interests arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds ("IFRIC 5"). IFRIC 5 provides guidance on the
accounting for interests in decommissioning funds.
IFRIC 6, Liabilities arising from Participating in a Specific Market - Waste
Electrical and Electronic Equipment ("IFRIC 6"). IFRIC 6 addresses the
accounting for liabilities under an EU Directive on waste management for sales
of household equipment.
Note 5: Acquisition of OOO Dulisma and OOO LTK
In April 2006, the Group acquired a 100 percent stake in OOO Oil Company Dulisma
("Dulisma") and OOO Lenskaya Transportnaya Kompaniya ("LTK") for $135 million
net of debt at amount of $15 million. Dulisma holds exploration and production
licenses in Irkutsk. Net losses of $0.3 million associated with Dulisma were
included in the Group's results for the six months ended 30 June 2006. No
goodwill was recognized in relation to the acquisition of Dulisma and LTK.
The table below presents the preliminary fair values of 100 percent of Dulisma's
and LTK's assets and liabilities as of the date of acquisition. No information
on the IFRS carrying values before the acquisition is available as Dulisma and
LTK did not prepare IFRS financial statements prior to the acquisition.
Fair
values at
acquisition
Cash and cash equivalents 61
Accounts receivable and prepayments 2,216
Other current assets 2,474
Oil and gas properties and equipment 194,297
Short-term borrowings and current portion of long-term borrowings (399)
Other current liabilities (18,507)
Deferred income tax liability, non-current (44,378)
Net assets 135,764
Less: minority interest -
Share in net assets acquired less minority interest 100%
Purchase consideration share in net assets acquired 135,764
Excess of the Group's share in -
net assets over purchase consideration
Included within oil and gas properties and equipment acquired with Dulisma and
LTK are property acquisition costs with a fair value of $113.7 million that are
not subject to depletion pending the results of management's assessment of the
economic viability of the properties. Additionally, included within oil and gas
properties and equipment acquired with Dulisma and LTK are property acquisition
costs with a fair value of $26.7 million that are being depleted over total
proved reserves.
Group Dulisma Adjustments Summary
results and and combined
LTK elimination
Total revenues 78,444 2,389 (991) 79,842
Profit (loss) for the period 3,790 (747) 332 3,375
Note 6: Equity
Share activity. In May 2006, the Group's shareholders approved a resolution
increasing the authorized shares be 130 million to 250 million. Also in May
2006, the Group completed a private placement of its shares. Proceeds from the
issuance totalled $195.1 million, net of associated expenses of $14.0 million.
Share activity for the six months ending 30 June 2006 is outlined in the table
below.
Number of shares Share capital Share premium
outstanding
(thousands) $ thousands $ thousands
At 31 December 2005 86,911 460 201,355
Private placement 31,089 173 194,961
At 30 June 2006 118,000 633 396,316
Share-based payments. In February 2006, the Group's Board of Directors approved
a Restricted Stock Plan (the "Plan") authorizing the Compensation Committee of
the Board of Directors to issue restricted stock of up to five percent of the
outstanding shares of the Group. Upon adoption, the Group issued 1,332,330
shares of restricted stock. The vesting schedule for the restricted stock
varies by individual award and, of the February 2006 grant, 811,080 shares,
260,625 shares and 260,625 shares vest on 1 January 2007, 2008 and 2009,
respectively.
The total cost associated with the award was $6.58 million. Such cost will be
recognized over the vesting periods of the grants. During the six months ended
30 June 2006, the Group recognized $2.29 million in compensation expense
associated with the Plan. Such amount was recognized within selling, general
and administrative expenses in the interim consolidated condensed statement of
operations.
Note 7: Cost of Sales
Period ended 30 June:
2006 2005
Unified production tax 16,744 5,588
Depreciation and depletion 7,784 2,706
Wages and salaries including payroll taxes 7,046 2,270
Cost of purchased production 2,324 -
Materials 2,702 1,088
Other taxes 968 416
Other 2,566 664
Total cost of sales 40,134 12,732
Note 8: Selling, General and Administrative Expenses
Period ended 30 June:
2006 2005
Wages and salaries 4,248 2,224
Audit and professional consultancy fees 2,024 223
Office rent and other expenses 596 89
Transport and storage services 2,277 365
Loading services 240 445
Loss on disposal of assets 202 -
Share-based payments 2,285 -
Other expenses 1,655 1,791
Total selling, general and administrative expenses 13,527 5,137
Note 9: Borrowings
All borrowings outstanding at 30 June 2006 and 31 December 2005 were denominated
in US Dollars.
Short-term borrowings. Short-term borrowings and current portion of long-term
borrowings were as follows at
30 June 2006 and 31 December 2005.
30 June 31 December
2006 2005
Current portion of long-term borrowings 22,656 34,117
Total short-term borrowings and 22,656 34,117
current portion of long-term borrowings
Long-term borrowings. Long-term borrowings were as follows at 30 June 2006 and
31 December 2005.
30 June 31 December
2006 2005
BNP Paribas Subordinated Loan 10,395 -
BNP Paribas Reserve Based Loan Facility 62,835 69,000
Bank Zenit - 12,000
Other 561 122
Subtotal 73,791 81,122
Less: current portion of long-term borrowings (22,656) (34,117)
Total long-term borrowings 51,135 47,005
Note 9: Borrowings (Continued)
Subordinated Loan. In January 2006, the Group obtained a $12.0 million
subordinated loan from BNP Paribas (the "Subordinated Loan"). The Subordinated
Loan bears interest at LIBOR plus 5.0 percent and is repayable over five years
in one payment on 10 November 2010. Attached to the Subordinated Loan were
warrants to purchase up to two million of the Group's common stock for #3.03.
The warrants are exercisable at any time and expire in November 2010. The Group
used the proceeds from the Subordinated Loan to repay its debt to bank Zenit of
$12.0 million.
Management estimated the value of the warrants to be $1.75 million at the time
of issue. As the exercise price of the warrants is denominated in a currency
other than the Group's functional currency, IFRS requires that they be
classified as a liability in the Group's balance sheet and adjusted to fair
value at each reporting date, with the change in fair value recorded within the
statement of income. As the warrants are exerciseable at any time, this amount
was originally recorded within current liabilities in the Group's consolidated
balance sheet, with a corresponding reduction in the carrying value of the
Subordinated Loan. The difference between the carrying value and the face value
of the Subordinated Loan is accreted over the term to maturity as interest
expense at the effective interest rate of the debt.
Interest expense. Interest expense for the periods ended 30 June 2006 and 2005
comprised the following:
Period ended 30 June:
2006 2005
Short-term borrowings
Alfa Eco M - 923
Related party borrowings - 559
Related party borrowings converted into equity - 540
Nimir - 490
BNP Paribas Pre-export Loan - 410
Zenit 127 62
Other short-term borrowings 466 202
Total interest expense associated with short-term borrowings 593 3,186
Long-term borrowings
BNP Paribas Subordinated Loan
- interest at coupon rate 492 -
- amortisation of issuance costs and discount associated with warrants 174 -
BNP Paribas Reserve Based Loan Facility
- interest at coupon rate 3,330 -
- amortisation of issuance costs 374 -
Total interest expense associated with long-term borrowings 4,370 -
Financial leasing 80 156
Capitalized interest expense (793) (125)
Interest income
JP Morgan Liquidity Fund (466) -
Related party loans issued (64) -
Bank deposit (235) -
Total interest income (765) -
3,485 3,217
Total finance costs
Note 10: Related-Party Transactions
For the purposes of the interim consolidated financial information, parties are
considered to be related if one party has the ability to control the other
party, is under common control, or can exercise significant influence over the
other party in making financial or operational decisions as defined by IAS 24,
Related Party Disclosures. In considering each possible related party
relationship, attention is directed to the substance of the relationship, not
merely the legal form.
Below are the related party transactions for the six months ended 30 June 2006
and 2005:
Six months ended 30
June:
2006 2005
- 4,399
Sales of crude oil on export markets
Associated volumes, tons - 13,580
Interest expense/(income), net (64) 1,099
Office rent paid (included in selling, general and administrative expense) 242 172
Other expenses 17 -
Sales of crude oil to related parties. Through September 2005 the Group entered
into transactions in the ordinary course of business with ZAO NC Urals, Urals
ARA NV and Nafta (B) NV which all are controlled by major shareholders. These
transactions included sales and purchases of crude oil and petroleum products.
Such transactions substantially ended beginning September 2005.
Interest expense. In first half of 2005 of the $1,099 of interest expense $559
was paid in cash to UEN Trading and the rest relates to shareholders' loans
which were converted into equity in August 2005.
Compensation to senior management. The Group's senior management team comprises
12 people whose compensation totaled $6.778 million, including salary and
bonuses of $4.493 million, and stock compensation of $2.285 million.
Below are the related party balances as of 30 June 2006 and 31 December 2005:
30 June 31 December
2006 2005
Accounts and notes receivable 1,474 1,474
Loans receivable 1,251 1,251
Interest receivable 141 77
Trade advances received 92 3
Other payables and accrued expenses 74 74
Note 11: Contingencies, Commitments and Operating Risks
Operating environment. The Russian Federation continues to display some
characteristics of an emerging market. These characteristics include, but are
not limited to, the existence of a currency that is not yet full convertible in
most countries outside of the Russian Federation, and relatively high inflation.
The tax and customs legislation within the Russian Federation is subject to
varying interpretations and changes that can occur frequently.
The future economic direction of the Russian Federation is largely dependent
upon the effectiveness of economic, financial and monetary measures undertaken
by the Government, together with tax, legal, regulatory, and political
developments.
Sales and royalty commitments. In accordance with the sale purchase agreement
to acquire Petrosakh, the Group agreed to pay a perpetual royalty to the
previous shareholders of $0.25 per ton of crude oil produced from the currently
unproved off-shore licensed area. There was no production from the area in
2006. This amount will be recognized within selling, general and administrative
expenses within the consolidated statement of operations when first production
starts.
Oilfield licenses. The Group is subject to periodic reviews of its activities
by governmental authorities with respect to the requirements of its oil field
licenses. Management of the Group correspond with governmental authorities to
agree on remedial actions, if necessary, to resolve any findings resulting from
these reviews. Failure to comply with the terms of a license could result in
fines, penalties or license limitations, suspension or revocations.
The Group's management believes any issues of non-compliance will be resolved
through negotiations or corrective actions without any materially adverse effect
on the financial position or the operating results of the Group.
In January 2006, an extension of the Pogranichnoye License area offshore
Sakhalin Island was granted by the Russian Federal Agency for Natural Resources.
Under the terms of the grant, the license period was extended to 1 February
2011. The terms of the amended license require a total of five exploration
wells to be drilled during the period 2005-2010. The East Okruzhnoye No. 1 well
spudded in 2005 will qualify as the first of the five exploration wells required
by the amended license.
Urals Nord has five geological studies licenses which expire in January 2008.
According to the license agreement terms Urals Nord is required to drill
exploration wells and perform seismic works.
Management currently does not believe that any of its significant exploration or
production licenses are at risk of being withdrawn by the licensing authorities.
Additionally, management currently plans to complete all the required
exploration or development work, as appropriate, within the timetables
established in the licenses.
Taxation. Russian tax, currency and customs legislation is subject to varying
interpretations, and changes, which can occur frequently. Management's
interpretation of such legislation as applied to the transactions and activity
of the Group may be challenged by the relevant regional and federal authorities.
Recent events within the Russian Federation suggest that the tax authorities may
be taking a more assertive position in their interpretation of the legislation
and assessments, and it is possible that transactions and activities that have
not been challenged in the past may be challenged. As a result, significant
additional taxes, penalties and interest may be assessed. Fiscal periods remain
open to review by the authorities in respect of taxes for three calendar years
preceding the year of review. Under certain circumstances reviews may cover
longer periods.
Management believes that its interpretation of the relevant legislation is
appropriate and the Group's tax, currency and customs positions will be
sustained. Where management believes it is probable that a position cannot be
sustained, an appropriate amount has been accrued for in these financial
statements.
Note 11: Contingencies, Commitments and Operating Risks (Continued)
Insurance policies. At 30 June 2006, the Group held limited insurance policies
in relation to its assets, operations, or in respect of public liability or
other insurable risks. Since the absence of insurance alone does not indicate an
asset has been impaired or a liability incurred, no provision has been made in
these financial statements. In August the company insured all of its major
assets, including oil in stock, for a total value of $ 90 million. Also, a
liability insurance policy was put in place, including environmental liability,
with a total limit of $ 7.8 million.
Restoration, rehabilitation and environmental costs. The Group companies have
operated in the upstream and refining oil industry in the Russian Federation for
many years and its activities have had an impact on the environment. The
enforcement of environmental regulations in the Russian Federation is evolving
and the enforcement posture of government authorities is continually being
reconsidered. The Group periodically evaluates its obligation related thereto.
The outcome of environmental liabilities under proposed or future legislation,
or as a result of stricter enforcement of existing legislation, cannot
reasonably be estimated at present, but could be material. Under the current
levels of enforcement of existing legislation, management believes there are no
significant liabilities in addition to amounts which are already accrued and
which would have a material adverse effect on the financial position of the
Group.
Legal proceedings. The Group is involved in a number of court proceedings (both
as a plaintiff and a defendant) arising in the ordinary course of business. In
the opinion of management, there are no current legal proceedings or other
claims outstanding, which could have a material effect on the result of
operations or financial position of the Group and which have not been accrued or
disclosed in these consolidated financial statements.
Other capital commitments. At 30 June 2006, the Company had no significant
contractual commitments for capital expenditures.
ZAO PricewaterhouseCoopers Audit
Kosmodamianskaya Nab. 52, Bld. 5
115054 Moscow
Russia
Telephone +7 (495) 967 6000
Facsimile +7 (495) 967 6001
www.pwc.com
REVIEW REPORT OF THE AUDITORS
To the Shareholders and Board of Directors of Urals Energy Public Company
Limited
1. We have reviewed the accompanying condensed consolidated interim
balance sheet of Urals Energy Public Company Limited and its subsidiaries (the "
Group") as at 30 June 2006, and the related condensed consolidated interim
statements of income, cash flows and of changes in equity for the six months
then ended as presented on pages 1 through 14. This condensed consolidated
interim financial information is the responsibility of the Group's management.
Our responsibility is to issue a report on this condensed consolidated interim
financial information based on our review.
2. We conducted our review in accordance with the International Standard
on Review Engagements 2400. This Standard requires that we plan and perform the
review to obtain moderate assurance about whether the condensed consolidated
interim financial information is free of material misstatement. A review is
limited primarily to inquiries of company personnel and analytical procedures
applied to financial data and thus provides less assurance than an audit. We
have not performed an audit and, accordingly, we do not express an audit
opinion.
3. Based on our review, nothing has come to our attention that causes us
to believe that the accompanying condensed consolidated interim financial
information has not been properly prepared, in all material respects, in
accordance with International Accounting Standard 34, Interim Financial
Reporting.
4. Without qualifying our report, we draw your attention to Note 3 to the
interim condensed consolidated financial information. Management has withdrawn
the previously issued interim condensed consolidated financial information on
which we issued an audit report dated 4 September 2006 due to an error
identified by management related to the classification and valuation of warrants
to purchase the Group's shares. The interim condensed consolidated financial
information as previously reported by the Group have been revised to adjust for
this matter.
Moscow, Russian Federation
15 December 2006
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EELFFQLBEFBK
Urals Energy (LSE:UEN)
Historical Stock Chart
From Jun 2024 to Jul 2024
Urals Energy (LSE:UEN)
Historical Stock Chart
From Jul 2023 to Jul 2024
