TIDMUEN
RNS Number : 0414Q
Urals Energy Public Company Limited
14 February 2019
Dissemination of a Regulatory Announcement that contains inside
information according to REGULATION (EU) No 596/2014 (MAR).
14 February 2019
Urals Energy Public Company Limited
("Urals Energy", the "Company" or the "Group")
Shareholder update, resignation of nominated adviser
and
suspension of trading on AIM
The board of Urals Energy PCL ("Board") (AIM: UEN), the
independent oil and gas exploration and production company with
operations in Russia, is providing an update for its shareholders
in respect of the Group's operational and financial position, the
resignation of the Company's nominated adviser and the suspension
of trading in the Company's shares on AIM.
Trading update
The Company's production in January 2019 averaged 1,690 bbls/day
(annual average of 1,794 bbls/day over 2018), of which Arcticneft
averaged 873 bbls/day (annual 875 bbls/day over 2018) and Petrosakh
averaged 817 bbls/day (annual average of 919 bbls/day over 2018).
Production has decreased during the start of the current year
primarily due to a lack of funds being available to invest in
measures to maintain the Group's production and general working
capital constraints. In the case of Petrosakh, some improvement in
production may be possible as local temperatures improve in the
Spring of 2019 and through on-going work to improve pressure in the
producing wells, funding permitting. Operations at South Dagi,
which were originally intended to offset the production decline at
Petrosakh, are on hold due to a lack of working capital being
available to proceed with removal of the blockage in Well No 1 at
South Dagi.
Working capital position
As detailed in the Company's recent announcements, the Group
continues to suffer a substantial deficit of working capital,
primarily due to a number of loans being advanced to third parties
by the Company's subsidiary, JSC Petrosakh ("Petrosakh") on the
instructions of Sergey Kononov (the President of Petrosakh) without
the approval of the Board. Further details of the loans that were
not approved by the Board have been included in the Company's
recent announcements. Notwithstanding that some small loans to
employees of Petrosakh have been repaid, Crowe Russaudit, in its
independent review commissioned by the Board, observed it is
unlikely that these loans will be recovered from the borrowers.
Increases in Excise Taxes have not been covered by the increases
in the market prices for refined products. This, combined with the
effect of lower production at the start of 2018, is likely to
further reduce the Group's future cash flow. As a consequence, the
local management has been forced to delay the payment of salaries
to some of the Group's employees, and of amounts due to
contractors.
As previously announced, Articneft relies on annual or bi-annual
tanker shipments to monetise its oil production and therefore does
not generate regular operating cash inflows. Articneft's
obligations, including its accumulating mineral extraction tax
obligations, are normally financed by the Group at points
throughout the year. Articneft's obligations are key challenges for
the Group given the current Group working capital position.
It is clear that the Group requires a substantial injection of
working capital in the near future and the Board continues to seek
a solution. The Board are in discussions with a third party about a
working capital facility. Discussions are at an early stage and
there can be no guarantee that such a working capital facility will
be made available, or on what terms, or in what timeframe. The
third party has indicated to the board that should the resolutions
be passed at the forthcoming extraordinary general meeting they
will cease discussions with regard to this possible working capital
facility.
Recent cash advance to Sergey Kononov
The Board understands that Sergey Kononov was recently advanced
Russian Roubles 5 million (equivalent to approximately US$75,000)
from Petrosakh, without the approval of the Board (the "Advance").
Sergey Kononov has claimed that the Advance was made in error.
Following an urgent requirement of the Board for Mr Kononov to
repay the Advance, the full amount has now been returned to
Petrosakh.
The making of the Advance, whether made deliberately or in
error, is, in the opinion of the Board, a breach of:
a) a letter of instruction to Sergey Kononov from the Board that
all out of the ordinary course of business transactions by
Petrosakh must be approved by the Board, whatever their scale;
and
b) an undertaking ( the "Undertaking") given by Sergey Kononov
in January 2019 to the Board and Allenby Capital Limited, the
Company's nominated adviser, that, inter alia, he would not, in his
capacity as the President of Petrosakh, cause or allow Petrosakh,
or any other subsidiary of the Company to enter into any
transaction, loan, asset sale, contract or commitment which is, or
could reasonably be considered to be, outside of the ordinary
course of the Group's oil production business in Russia (unless
such loan or commitment or transaction has received the approval in
writing by the Board).
In view of his earlier actions that were not authorised by the
Board and the failure to repay or refinance the other loans made by
Petrosakh which were not authorised by the Board, compounded by the
making of this Advance, ignoring the Board's clear instructions and
Company procedures, it remains the Board's position that Mr Kononov
should resign immediately and have no further role in the affairs
of the Group.
Extraordinary general meeting
As shareholders are aware there is to be an extraordinary
general meeting of the Company held on 22 February 2019 in Cyprus
(the "EGM") at which Adler Impex SA has proposed resolutions to
remove the three current directors and replace them with four
proposed directors (the "Proposed Directors").
The Proposed Directors have been given access to certain
financial information on the Company but have not as yet provided
information as to their strategy for the Group (including
addressing the Company's significant working capital challenges)
should the resolutions be passed at the EGM.
The Board remind shareholders that if they wish to vote at the
EGM, they will need to complete a proxy instruction if they are not
able to attend in person.
The Board recommend that shareholders vote against all the
resolutions proposed by Adler Impex SA at the EGM for the reasons
set out in the circular dated 28 December 2018.
Nominated adviser resignation and suspension of trading in the
Company's shares on AIM
The making of the Advance was as a result of an override of the
Group's procedures and controls and a breach of the Undertaking. As
a consequence Allenby Capital Limited has informed the Board that
it can no longer continue to act as the Company's nominated adviser
and has therefore resigned as the Company's nominated adviser and
broker with immediate effect.
Trading in the Company's shares on AIM has been suspended today.
If the Company is unable to appoint a new nominated adviser within
one month, then trading in the Company's shares on AIM will be
cancelled.
Allenby Capital will remain as the Company's financial adviser
to assist the Board with its discussions with the provider of the
potential working capital facility referred to above.
- Ends -
For further information, please contact
Urals Energy Public Company Limited
Andrew Shrager, Chairman Tel: +357 22 451686
Leonid Dyachenko, Chief Executive Officer
Allenby Capital Limited
Financial Adviser
Nick Naylor / Alex Brearley Tel: +44 (0) 20 3328
5656
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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