Petroneft Resources Share Discussion Threads

[steelwatch] 01/7/2014 09:16

PetroNeft Russian regulatory approval received

Post the release of FY13 results on Friday PetroNeft provided confirmation yesterday that it has received regulatory approval from the Russian Authorities for the 50% equity farm-down in Licence 61 to Oil India (OIL). Approval effectively completes the transaction and enables the payment of all Macquarie and Arawak debt from the initial proceeds of $35m agreed under the farm-down.

Aside from the initial payment, total investment by OIL (up to $85m) includes a further $45m of exploration and development expenditure on Licence 61 and a $5m performance bonus, contingent upon average production from the Sibkrayevskoye field reaching 7,500 bopd within the next five years. The infusion of new funds will enable the recommencement of drilling activity, which is scheduled to start with the first horizontal well to be drilled by PetroNeft on the Tungolskoye field.

Completion of the farm-down (albeit having ceded 50% of Licence 61) provides a second chance for PetroNeft to prove that it can increase production from a base level of less than 2.5 kbopd over the past three years towards current processing capacity of c.14.8 kbopd.

Recommendation: Buy
Closing Price: £0.07
Gerry Hennigan
[phone]
[e-mail]

[steelwatch] 01/7/2014 09:12

Russian regulatory approval leads to completion of Oil India deal

DAVY VIEW

Satisfying the last condition for completion of the Oil India farm-in to Licence 61 in western Siberia is significant and important for Petroneft. While it has had to reduce its interest by 50% in Licence 61, it will regain balance sheet independence and a substantial carry over the next two years. This should allow the reserve and production opportunity in Licence 61 to be realised through increased exploration, appraisal and development activity.

Debt retired and material carry on expenditure

The metrics of the farm-in deal mean that the group's $30m debt (at end-2013) can be repaid immediately. Oil India will pay Petroneft $35m of cost recovery and fully finance a $45m work programme (a $5m* bonus payment also exists). The work programme means that Petroneft will be carried for up to two years of exploration and appraisal work. This means that the slow pace of activity in the last 18 months will be completely reversed. Petroneft will also remain operator.

Drilling to restart this summer

The work programme will re-commence in July with a well to be drilled on the Tungolskoye Field (T-5). This will initially be a vertical section followed by a lateral well (the first on the licence). The remainder of the Arbuzovskoye field development wells (up to five) will be drilled after Tungolskoye is completed. This will be followed by high resolution 2D seismic across the remaining larger fields and prospects in the northern part of Licence 61. An important aspect of the group at present is that the drilling and development of the Linenoye and Arbuzovskoye fields were not without their problems. However, as a consequence of solving and understanding these problems, there is now a considerable level of knowledge and experience (as well as infrastructure) that can be applied to the remaining fields and prospects on the block.

Valuation thoughts

Obviously, the farm-in leads to a reduction in the P2 reserves attributable to Petroneft (50% of 2P 116m bls on Licence 61). However, the debt reduction and the freedom to pursue the other targets in the licence provide the platform to recover these reserves. On a straight numbers basis, the farm-in suggests a value of 5.6p per share for Petroneft. However, we suspect that the main weight of the consideration was based on the existing fields given the general aversion to paying for exploration and upside at present. Our valuation of Petroneft's producing assets is 4.7p per share with an additional 5p per share for the development opportunities (several substantial fields). The net financial benefit of the deal adds another 1.6p per share, bringing our total core value to 11.3p per share. For the brave, exploration can be valued at another 2.9p per share. Regardless of the actual numbers, however, the Oil India deal provides a platform for a second pass at the West Siberian licences.



* corrected

[steelwatch] 30/6/2014 16:54

The Bazhenov Formation is present throughout both Licence 67 and Licence 61. The Bazhenov Formation is the organic rich source rock that sourced 85% of the conventional oil fields in the West Siberian Basin. The Bazhenov has similarities to major US tight oil plays (Bakken and Eagle Ford) and is currently the subject of Joint Venture studies with major Russian and Foreign companies to determine if the US technology (horizontal wells with multiple fracs) is applicable in Russia. Recent legislation adopted in July 2013 provides for zero MET for 15 years for Bazhenov Formation production.

In Licence 67 oil shows were described in Bazhenov core samples in two of the prior wells. Given the attractive fiscal incentives, we are carefully following efforts within the industry to commercialise the potential of this resource.

[steelwatch] 30/6/2014 16:47

2014 3D Seismic

In the first half of 2014 PITC Geophysical Company acquired 156 km2 of 3D seismic data across the Ledovoye and Cheremshanskoye oil fields. The data is currently being processed and interpreted and will be available in the second half of 2014. Once the interpretation is complete we will review with our partner Arawak and assess the next steps.

[currypasty] 30/6/2014 16:27

10p by Friday lol

[seangwhite] 30/6/2014 16:24

Well at least they got the RNS on approval out in June - just!!.
Lets see how the drilling goes which the BOD have said is arranged to commence tout de suit.
Any sort of decent result from this first will see the share price rise and we will see the BB praising the BOD for their skills.

GLTA

[spudders] 30/6/2014 15:52

Bodes well for a rerate ;)

[steelwatch] 30/6/2014 15:51

Well, that's a relief! First well scheduled for the month ahead is the next focus.

[currypasty] 30/6/2014 15:50

-- All Russian Regulatory Approvals received
-- Completion of transaction expected in the coming days
-- All debt to be repaid
-- Drilling to re-commence at Licence 61

[el1te] 30/6/2014 15:47

Regulatory approvals received


El1te

[dbarr0n] 30/6/2014 13:08

JimBim

At 1 January 2013 LLC Stimul-T had loans of $ 101,924,207
(See page 24 of the results)


The net loss for the year increased to US$9,158,726 from US$4,566,143 in 2012. The increase in the loss for the year before taxation can be attributed to a foreign exchange loss of US$6,189,735 (2012: gain of US$4,538,236) on US Dollar-denominated loans from PetroNeft to its wholly owned subsidiary, Stimul-T, whose functional currency is the Russian Rouble.

[jimbim] 29/6/2014 17:48

Denis
Difference between minimum of usd/rub rates in 2012 to max 2014 was around 25% ,from 29 rub/usd to 37rub/usd. To loose 6189735 usd on exchange rates- loan to Stimul-T has to be around usd 24 756 000.Do you think it's realistic? By the way we not only didn't get current production rate, but also Lineynoye N 9 flow rates as well since January. If you are really interesting to understand what's going on and are not lazy, read carefully all operational updates RNS from 04.04.11 until now. There are about 12 of them. Pay attention on their promises and excuses . I'm sure you will be surprised.

[denis black gold] 28/6/2014 23:55

I don't believe they are in any way crooked either, but you must admit that this FX loss is just crazy stuff. I mean we shareholders were diluted by approx' 50% in the recent past in order to raise similar amounts of cash..... Just not good enough....!!!! Nite all....

[seangwhite] 28/6/2014 23:26

Hi DenisPlease calm down we will see soon enough how the BOD are doingI dont believe DF or PD are 'crooks" and I am willing to wsit and see!GLTA

[denis black gold] 28/6/2014 13:29

Does it not bother anybody at all that this Co. which massively diluted investors in order to raise a few lousy million just to stay afloat can now sooooo casually announce that it has just gone and lost this cash again by way of intra Co loans and currency fluctuations..????? Is this in any way acceptable as I read that there are ways of mitigating these currency risks....???

[theprior] 28/6/2014 09:25

'Turnaround' for PetroNeft as revenue is up by 12pc Today, 8:26 AM

[trawl] 28/6/2014 01:51

production figures were always important
maybe management are hiding till sign off
after all the shenanigans with natlata
more information for shareholders is required
here we get less info

[sif12] 27/6/2014 20:46

as for production figures, from the update in march it was 2400.. therefore maybe just a simple oversight and so either at 2400 or not far from it..

the update seemed to be positive... 'aggressive' drilling campaign and first results Q3 for T5. 'significant production potential'.. not sure what constitutes significant..:)

Admin expenses seem high (including 170 staff!!) , but have been for a while

sif

[sif12] 27/6/2014 19:58

Oil India pay $85m for 50% ie £50m... and yet the whole business has a mcap of £40m...

its a funny ol' game :)

[denis black gold] 27/6/2014 16:07

Curious no mention of current flow rates...!!!!! Hmmmmmm

[woodpecker25] 27/6/2014 15:57

Fair point chris cat.

Prod figs not as relevant as before, but it should be up to us to decide that and not the BOD to omit this information.