1st Apr 2016 09:33
LONDON (Alliance News) - Volga Gas PLC shares fell on Friday after it said the fall in oil prices, the devaluation of the rouble, higher rates of tax and disruptions in the local gas market in Russia caused the company to swing to a loss in 2015 following a steep decline in revenue.
Volga also scrapped its dividend for 2015, only a year after adopting its maiden dividend policy.
Volga shares were trading down 6.5% to 36.0 pence per share on Friday morning.
The company, named after the Volga region of Russia where it operates, sunk into the red in 2015 after reporting a USD4.6 million pretax loss after swinging from the USD16.3 million profit made in 2014.
The main cause of the loss was the drop in revenue to only USD17.8 million from USD39.4 million a year earlier, representing a 54% fall, which pushed its gross profit down to USD2.2 million from USD16.9 million.
Net operating cashflow fell at an even steeper rate of 93% to USD1.2 million from USD16.3 million.
Although general and administrative costs fell by around USD780,000 during the year, Volga booked USD319,000 in selling costs, USD635,000 of exploration expenditure and a USD3.0 million write-off against its development assets - all of which were not present in the previous year.
Adding to that, other net gains in 2015 only amounted to USD306,000 in 2015 compared to the USD3.3 million gain booked in 2014.
Breaking those other net gains down, Volga booked a USD942,000 gain on foreign exchange compared to the USD3.3 million gain in the year before, but also lost USD727,000 from "unauthorised bank transfers."
Those unauthorised transfers relate to withdrawals of cash from bank accounts held by its operating subsidiaries in Russia, but Volga did not provide any further details on the matter.
The company still managed to squeeze out earnings before interest, tax, depreciation and amortisation of USD900,000 in the year, but that is a 95% decline from the USD17.4 million booked in 2014.
Volga's cash at the end of 2015 stood at USD6.8 million after declining from the USD15.8 million balance at the end of 2014, but Volga still remains debt free.
The company emphasised that its capital expenditure commitments moving forward are expected to be less than its cashflow generation, meaning it can continue to fund itself despite the ongoing headwinds. Commitments in 2016 only amount to around USD1.5 million.
"With the majority of the current capital programme executed, the group should be able to benefit from its increased production capacity and has a solid base from which to grow its production," said Chief Executive Andrey Zozulya.
However, it added it may consider securing additional debt facilities to fund longer-term growth and development of its existing licences and facilities.
Cash decreased in 2015 following a rise in capital expenditure and because it paid the final dividend related to the 2014 financial year during 2015.
Capital expenditure rose to USD10.4 million in the year, rising from only USD5.6 million the year before. Of that expenditure, USD9.8 million was spent on producing assets whilst the remainder was incurred on exploration activities.
All of its expenditure in 2014 was on producing assets, signalling a step up in its exploration efforts in 2015.
The most significant components of capital expenditure in 2015 related to the successful drilling on the VM field with additional sums spent on unsuccessful drilling on the Uzenskoye and Sobolevskoye fields, and on the Yuzhny Mironovskaya exploration prospect.
Volga adopted its first dividend policy back in July, committing to a payout equal to 50% of its consolidated net profit after tax, leading to a 5.0 cent per share dividend being paid for the 2014 financial year. That dividend cost the company a total of USD4.0 million, with the final dividend totalling USD1.0 million being paid during 2015.
However, the weaker performance in 2015 means that dividend was short-lived.
"In light of the material reduction in the oil price, adverse financial conditions prevailing in Russia and the losses incurred, the board is not recommending a dividend in respect of the year ended 31 December 2015," said Volga.
Although Volga said the fall in oil and gas prices hit its results in 2015, that was exacerbated by a 23% year-on-year fall in production to 3,278 barrels of oil equivalent per day from 4,244 barrels a day.
However, production is now considerably higher than 2015 and 2014 levels following the new wells being drilled late in 2015, alongside the increase in throughput at its gas plant late in the year.
Volga has four licences in Russia, three of which are producing. Volga said production from the VM and Dobrinskoye fields was negatively impacted by disruption in the local market for condensate during early and mid-2015.
Volga said the local condensate market was "effectively closed" during January, February and May, which meant production of gas and condensate was suspended for six weeks of the year.
To put the effect of that disruption into perspective, production from those two fields fell to 2,876 barrels a day from 3,459 barrels a day, representing a 17% decline. Notably, Volga said production from both fields was "exactly as planned" during periods when the local market was functioning as normal, but conceded its third producing field is facing natural declines too.
In addition, two new wells were drilled on the VM field, pushing up its capacity, whilst a third well was drilled toward the end of the year, which led to an immediate increase of 50% in gas and condensate production from the field, it said.
Unfortunately, the impact of those new wells didn't come in time to boost its performance in 2015, meaning the benefit should be felt this year.
The gas plant used to process production from various fields, which is based on the Dobrinskoye licence, also saw its throughput rise 50% to 750,000 cubic metres of gas per day, or 26.5 million standard cubic feet, once the last new well came online in December, which will also benefit the company in 2016.
Importantly, Volga said it believes it can maintain production this year that is around 25% higher than the plant's current capacity, and said it may consider reconfiguring the plant to suit capacity and to reduce costs, but that would come at a cost of around USD8.0 million.
Alongside lower production, the average gas sales price that Volga achieved was the equivalent of USD1.51 per thousand cubic feet, a 30% fall from the USD2.15 achieved in 2014 whilst the average condensate sale price fell by 46% to USD23.89 from USD44.11.
Production costs were slightly lower in the year thanks to the devaluation of the rouble, but not enough to absorb the lost revenue from those price falls. Production costs fell to USD5.06 per barrel from USD6.49, meaning Volga still has an incredibly healthy margin even at subdued prices.
Following the challenges in 2015 and the work carried out late in the year, Volga said production is currently running at around 6,000 barrels of oil equivalent per day - 83% higher than the average in 2015 and 41% higher than the average in 2014.
However, the average rate of production in January and February was slightly lower at 5,632 barrels a day due a slow seasonal start to the year.
Volga added that, although the weakness in oil prices and the rouble is persisting, it is expecting to report a much better set of financial results this year.
By Joshua Warner; [email protected]; @JoshAlliance
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