TIDMVGAS
RNS Number : 5198K
Volga Gas PLC
10 July 2017
10 July 2017
Volga Gas plc
("Volga Gas", the "Company" or the "Group")
Operational Update
Volga Gas plc, the oil and gas exploration and production group
operating in the Volga Region of Russia, is pleased to provide the
following update on its activities and operations:
Highlights
-- Successful introduction of Redox based gas sweetening process
at the Dobrinskoye gas plant to increase profitability and reduce
waste
-- Processing throughput set to rise back to the planned 1
million cubic metres per day of gas
-- Construction of the LPG equipment has commenced and expected to complete in September 2017
-- Drilling continues on the Uzen 101 horizontal production well
after a short exploration sidetrack of the well discovered a
previously unproven small but commercial oil accumulation
-- Realised prices after adjusting for export taxes and
transport costs, increased to $34.43 per barrel during the first
four months of 2017 (H1 2016: US$23.84)
-- Group's cash position decreased from $19.7 million on 31
December 2016 to $13.8 million on 30 June 2017 after payment of
US$5.0 million in dividends and US$7.0 million in capital
expenditure. Total debt is unchanged at US$4.2 million
Production
As announced on 4 July 2017, Group production in H1 2017
averaged 6,168 boepd (H1 2016: 5,933 boepd). The underlying
productive capacity of the existing production wells remains in
excess of 8,000 boepd but the throughput at the gas processing
plant was reduced during the transition to the new Redox based gas
sweetening process as described below.
In addition, during the period January to April 2017, as a
result of another abnormally mild winter, ground conditions close
to the Group's oil field resulted in the routes used by our
customers' oil tanker trucks being unpassable, leading to
significant periods in which the oil production was shut in and
actual output was below management's expectations. Given the minor
proportion of the Group's production this represents, the impact on
total production was not significant.
Realisations
In spite of some recent softening in international oil prices,
the domestic sales prices achieved by Volga Gas for oil and
condensate have been stable throughout H1 2017 at approximately
US$34.43 per barrel of oil). Currently the domestic market netbacks
are higher than would be achieved from exports after taking into
account export taxes and transportation costs. The average
realisation in H1 2016 for oil and condensate was US$23.84 per
barrel.
The change in our gas sales arrangements in 2017, with sales
being made directly to Gazprom's distribution system, led to
improved sales prices in Ruble terms to approximately RUR 3,856 per
thousand cubic metres excluding VAT (2016: RUR 3,559). Combined
with the recovery of the Ruble, the average selling price for gas
for H1 2017 was the equivalent of US$2.04 per mcf (H1 2016:
US$1.44/mcf).
Field development operations
The main field development activity under way is on the
producing oil field, Uzenskoye. Drilling of the new horizontal well
#101 commenced as planned on 27 April 2017. Although mainly being
drilled to develop the proved but currently undeveloped Albian
reservoir in the Uzen field, the well was initially sidetracked to
investigate potential unproven structures. While one possible
target was dry, a second oil accumulation was encountered. Initial
estimates put the potential additional reserves at between 250,000
and 500,000 barrels of recoverable oil. This would be a useful
addition to the oil reserves which as at 31 December 2016 were 5.4
million barrels, but only a minor increment at the Group level.
Drilling operations are expected to continue for the next 3-4
weeks and the results of this operation are expected to be
available during August 2017. As a result of these activities, the
oil production capacity is expected to increase from approximately
800 bpd to over 1,500 bpd, depending on the actual results of the
horizontal well #101.
Gas plant development
The Dobrinskoye Gas Plant has been running consistently at close
to the maximum processing rate of 1 million m(3) per day of gas
since July 2016.
Following successful industrial testing during May 2017, in June
2017 the gas processing plant switched entirely to Redox-based gas
sweetening. While the change in process did not require extensive
new construction at the plant, minor modifications and additional
items of equipment are required, and while these were installed,
production capacity has been temporarily reduced. This had a
particular impact on output in June 2017 when gas throughput
averaged 230,000 m(3) /day. Output has currently risen back to
350,000 m(3) /day and is planned to be back up to 750,000 m(3) /day
by the end of July 2017.
The key benefits of the Redox-based gas sweetening process are
significantly reduced cost of consumables and effective elimination
of the need to dispose of bulky spent chemicals.
The other key development at the gas plant is the construction
of cryogenic separation of liquid petroleum gases ("LPG"), which is
currently either flared as part of the condensate stabilization
process or included with the sales gas. The majority of long lead
items of equipment have been delivered and construction has
commenced. The LPG project is expected to be commissioned during Q4
2017. The LPG project will provide an additional product stream
which is expected to increase total sales volumes by approximately
10% and to enhance profitability. The project is expected to be
completed within the budgeted capital cost of US$5.0 million.
Finance
Mainly as a result of higher production rates and development of
condensate exports which have enabled continuous production through
periods of disrupted domestic markets, the Group's revenue and
EBITDA numbers in H1 2017 are materially ahead of those experienced
in the equivalent period in 2016.
In addition, net of cash outflows on capital expenditure of
approximately US$7.0 million during H1 2017 and the payment in May
2017 of US$5.0 million in dividends, the cash position decreased to
US$13.8 million compared to US$19.7 million as at 31 December 2016.
Total debt is unchanged in RUR terms but with the revaluation of
the Ruble currently stands at US$4.2 million.
Andrey Zozulya, Chief Executive of Volga Gas commented:
"I am delighted at the initial results from our switch to
Redox-based gas sweetening and aim to bring the production back up
to our planned rate within the coming months. I am also excited
about the prospect of delivering a healthy increase to oil
production when we complete the #101 horizontal well on Uzen.
"Apart from delivering further increases to the Group's
production management is aiming to improve profitability through
the successful completion of ongoing projects, to maximising the
potential of the Group's assets."
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
For further information, please contact:
Volga Gas plc
+7 495 721
Andrey Zozulya, Chief Executive 1233
Officer
Vadim Son, Chief Financial Officer +44 (0)7824
Tony Alves, Investor Relations Consultant 884 342
+44 (0)20 3470
S.P. Angel Corporate Finance LLP 0470
Richard Redmayne, Richard Morrison,
Richard Hail
+44 (0)20 3727
FTI Consulting 1000
Edward Westropp, Alex Beagley
Editors' notes:
Volga Gas is an independent oil and gas exploration and
production company operating in the Volga region of Russia. The
company has 100% interests in its four licence areas.
The information contained in this announcement has been reviewed
and verified by Mr. Andrey Zozulya, Director and Chief Executive
Officer of Volga Gas plc, for the purposes of the Guidance Note for
Mining, Oil and Gas companies issued by the London Stock Exchange
in June 2009. Mr. Andrey Zozulya holds a degree in Geophysics and
Engineering from the Groznensky Oil & Gas Institute and is a
member of the Society of Petroleum Engineers.
Glossary
bbl Barrel
bopd Barrels of oil per day
bpd Barrels per day
boepd Barrels of oil equivalent per day, in which 6,000 cubic
feet of natural gas is equated to one barrel of oil
mcf thousand cubic feet
mmcfd Millions of standard cubic feet per day
This information is provided by RNS
The company news service from the London Stock Exchange
END
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