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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Urals EN. | LSE:UEN | London | Ordinary Share | CY0107130912 | ORD USD0.126 (DI) |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 35.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
RNS Number:6610R Urals Energy Public Company Limited 23 September 2005 Urals Energy Public Company Limited Interim Results for the period ended 30 June 2005 Urals Energy Public Company Limited ("Urals Energy") a leading independent exploration and production company with operations in Sakhalin Island, Timan Pechora, Komi Republic and the Republic of Udmurtia, Russia, today announces its interim results for the half year ended 30 June 2005. These interim results are prepared under International Financial Reporting Standards ('IFRS'), Highlights Operational Highlights *Successfully listed on AIM August 2005 raising $131.1 million (gross) at a price of #2.40 *Increased production rate from 950 BOPD to 4,200 BOPD. Group oil production has since increased to 5,600 BOPD from acquisitions *Integrated Petrosakh acquisition and initiated 14 well development drilling programme *Successful acquisition of ZAO Arcticneft and OOO Urals Nord *Nefedovskoye Field drilling programme completed on time and under budget Financial Highlights *Loss before tax $689 thousand *EBITDA $5.997 million *Net loss of $1.145 million due to seasonal lag in oil sales from largest producing asset Outlook *Appraisal drilling programme targeted at increasing production to c. 11,000 BOPD in the medium term *Forward focus on exploitation and exploration of asset base targeting 226 MMBOE of risked reserve potential and 943 MMBOE of unrisked reserve potential *$41 million exploitation and exploration programme underway *Current proved and probable reserves of 89.7 MMBOE *Exploration drilling campaign to test offshore Sakhalin Island license area with first well due to spud by mid December 2005 *Opportunities for workforce rationalisation and streamlining of acquisitions *New senior management hires plus the appointment of Charles Pitman, well respected and experienced international oil executive, as non-executive director *Ongoing opportunities to capitalise on rationalisation in Russia and the CIS William R. Thomas, Chief Executive Officer, commented: "Following our successful IPO, we are in a strong position to fully exploit our existing asset base and to build the group organically and by acquisition into a leading player within Russia and the CIS. The outlook is very positive and we will continue to create long term growth and value for shareholders." ENQUIRIES: PELHAM PR James Henderson Managing Director +44-20-7743-6670 TO OUR SHAREHOLDERS: We are very pleased to issue our first report to you as a public company and look forward to reporting to you in the future as together we build a leading independent oil company in Russia and the CIS. The first half of 2005 was a remarkable period of growth for Urals Energy. Having just completed the acquisition of ZAO Petrosakh in December 2004, we set out in January to complete several key objectives: (i) to integrate Petrosakh into Urals Energy and prepare for its development and exploration drilling programs; (ii) to refinance and pay the deferred acquisition payments for Petrosakh; (iii) to acquire ZAO Arcticneft and OOO Urals Nord; and (iv) to prepare and launch our Initial Public Offering on the London Stock Exchange's AIM market. I am pleased to report we accomplished all of the above and are now positioned to fully exploit both the organic growth potential of our current asset base as well as the increasingly active M&A marketplace in Russia and the CIS. Our share price has also risen by 20% to #2.87 buoyed by not only high oil prices but also the underlying strength of the business. The offering of our shares on the AIM resulted in gross proceeds of $131.1 million before fees and expenses. We sold approximately 35% of our equity capital to new institutional investors principally in Europe. We sincerely appreciate the support of our new shareholders and pledge to do our very best to achieve the goals and strategy we discussed during the IPO process. The consolidated financial performance of the Company for the period ending 30 June 2005 was sound with loss before tax of $689 thousand. Gross revenues from oil and oil product sales totalled $28 million and we finished the period with a solid and improving cash position of $8.9 million. EBITDA excluding extraordinary gains and foreign currency losses for the period was $5.997 million. Although we do not have consolidated mid-year results from 2004 to provide a comparison, we are encouraged by the results we achieved in the first half of 2005. Group oil production for the first six months increased by approximately 3,250 BOPD and averaged approximately 5,600 BOPD including our most recent acquisition, ZAO Arcticneft. Excluding Arcticneft, production averaged approximately 4,200 BOPD. We sell our crude oil into three principal markets, Russian domestic refineries, other CIS countries (the "Near Abroad"), and world export markets in Europe and the Far East (the "Far Abroad"). We also sell refined products to local end-users on Sakhalin Island where we operate the island's only refinery. For the period, crude export prices realized by the group averaged $49.23 per barrel, crude Near Abroad prices averaged $28.90 per barrel, domestic crude prices averaged $21.36 per barrel, and domestic product prices averaged $48.43 per barrel. The combined average price for crude oil and products net of the cost of transportation, export taxes, VAT and other levies, was approximately $27.80 per barrel. Prices in all three crude markets and the domestic product market since the end of June 2005 have continued to rise and we expect to report a significant improvement in our netback prices at the end of the year based on current market conditions. Operations ZAO Petrosakh Petrosakh's operations comprise integrated oil producing, processing, refining and transportation facilities. The on-shore, producing field, Okruzhnoye, currently produces oil from 14 wells, and has two injection wells, one water and one gas injection. Five wells are flowing producers and nine are produced with gas-lift. For the six months ended June 2005, the field's average daily oil production was 2,388 BOPD. Oil quality is light, sweet crude with a gravity of approximately 36degrees API (0.84 g/ cm3), sulphur content of 0.28% and produced water of 3%. At Petrosakh, we initiated a 14 well development drilling program for the Okruzhnoye Field and completed the first well, No. 43, during early September. The well encountered two pay zones in the Pileng horizon. The upper Pileng pay zone is approximately 136 meters in gross thickness, and the lower pay zone is 137 meters thick with evidence of improved reservoir characteristics as compared to prior wells. The lower Pileng pay zone only was perforated on September 3-6 and is flowing at approximately 360 barrels per day. The bottom six meters of the upper Pileng zone is currently being perforated and incremental production is anticipated from this zone. The flow rate from the lower Pileng zone of 360 BOPD is consistent with the total well rate assumed by our independent engineers, DeGolyer and MacNaughton, in its evaluation of the Okruzhnoye Field for Pileng development wells, i.e. Well No. 43. The second well in our Okruzhnoye Field development drilling program, Well No. 44, has also now been drilled to a total depth of 1,856 meters. The well encountered the Pileng producing horizon at a depth of approximately 1,546 meters and based on wireline electric logs appears to be oil bearing from 1,554 to 1,740 meters for a gross oil column of 186 meters. Preparations for well perforating and testing have begun. After completion of Well No. 44, further development drilling of the Okruzhnoye Field will now be deferred until we have completed the acquisition and interpretation of an onshore 3D seismic program which is scheduled to begin shooting over the Okruzhnoye Field in November 2005. We have also decided to upgrade and convert Petrosakh's Gregory Wilson 120T workover rig for use as a drilling rig for future development wells. This rig conversion should result in significant cost savings over the life of the program. We have initiated the purchase of the necessary equipment and expect development drilling to re-commence in the second quarter of 2006. In addition, we are working to evaluate the potential effects of fracture stimulation of the Pileng and Borsky formations. Another important project for Petrosakh now underway is the mobilization of drilling equipment for the exploration of the Pogranichny Block offshore Sakhalin Island. We have modified our plans to include two drilling rigs, the Deutag T-2000 rig and a local Russian rig owned by a Sakhalin-based drilling contractor. This second rig is now being upgraded with improved mud cleaning equipment, new diesel engines and cement pumps. With this rig, we intend to drill two wells to test the East Okruzhnoye prospect which DeGolyer and MacNaughton estimates contains unrisked potential resources of approximately 49 million barrels of oil. By using an upgraded Russian rig, we expect to reduce mobilization and drilling times and cut well drilling costs significantly. Mobilization of the rig to location will start by 1 October 2005 and the first well is scheduled to spud by early December 2005. The Deutag T-2000 rig is now being mobilized to Sakhalin Island. Approximately 70%of the 165 rail cars carrying the rig components are now enroute by railroad or already at the Port of Vostochny on the Pacific Coast of Russia. From Port Vostochny, the rig will be shipped by barge and ferry to Sakhalin Island and the Okruzhnoye Field site. First deliveries are expected in mid-October 2005 and mobilization of the T-2000 should be completed by mid-November 2005. The T-2000 will be used first to drill the Vitnitskaya prospect from a well-site approximately 40 kilometres south of the Okruzhnoye Field. Petrosakh has completed about 80% of a 40 kilometre temporary road with bridge crossings along the coastline to the drilling location. DeGolyer and MacNaughton estimate the Vitnitskaya prospect contains unrisked potential resources of approximately 51 million barrels. Drilling this prospect requires a large land rig like the T-2000. The Vitnitskaya prospect is located approximately 3.5 kilometres from the shoreline and total measured depth for the well is expected to be approximately 5,000 meters. Depending on the results of the Pogranichny Block exploration program, and following the drilling of the Vitnitskaya prospect, we intend to move the T-2000 north to a position approximately 15 kilometres south of the Okruzhnoye Field to test the Severo Rymnikskaya prospect. This prospect has a DeGolyer and MacNaughton estimated unrisked potential resource of approximately 196 million barrels. The advantages of adding a second rig to our exploration program include overall cost savings, the assurance that we can meet our license drilling requirements, and deploying our equipment where it is best utilized. The logistics of mobilizing the T-2000 rig have been a challenge for both us and our contractors. Our project team's performance has been superb and we fully expect to deliver the rig in time for this year's drilling season. Chepetskoye NGDU ZAO Chepetskoye NGDU was created in 1993 as a stand-alone production company for the purpose of developing three discovered fields in the Northwestern area of the Udmurtia Republic, Nefedovskoye, Zotovskoye and Potapovskoye. Development activities began for these three fields in 2000. On 4 October 2004, the Company acquired a 100% interest in Chepetskoye from one of its principal shareholders. For the six months ended June 2005, Chepetskoye's average daily oil production was 846 BOPD. Oil quality produced is a sweet crude with a gravity of approximately 29 API. At Chepetskoye NGDU, the 2005 drilling program for the Nefedovskoye Field was finished on time and under budget resulting in new oil production of approximately 361 BOPD. Acquisition of the 3D seismic program for the Potapovskoye Field is underway and should be completed by the end of the year. Following the interpretation of the 3D program, development drilling of the Potapovskoye Field is scheduled to begin in the second quarter 2006. ZAO Arcticneft At ZAO Arcticneft, we have moved quickly to integrate this new acquisition into Urals Energy. Shortly after closing the deal, we installed new management at Arcticneft and secured control over operations at both the administrative office in Murmansk and the oilfield located on Kolguyev Island in the Barents Sea. One of our first actions was to evaluate the power supply for the field and work camp and order a two megawatt Caterpillar gas-electric generator set so that Arcticneft can cease burning refined diesel products. The generator is expected to arrive in November. We are moving forward with a workforce rationalization at Arcticneft to streamline the organization and reduce costs. This reduction in force is expected to be completed by the end of the third quarter. We are planning to boost production at the Peschanoozerskoye Field through a combination of improved pressure maintenance, artificial lift installation, well workovers, development drilling and, eventually, fracture stimulation. Artificial lift equipment for six wells has been purchased and is being shipped to Kolguyev Island. Prior to the commencement of our drilling program, we plan to complete a comprehensive geologic model and reservoir study of the field to high grade development well locations. We expect the drilling program to commence early in the third quarter next year. As was disclosed during the IPO process, we entered a settlement agreement with OOO Start to resolve certain outstanding litigation and the return of property of Arcticneft. All payments under this agreement have been made and the final court orders are now being executed by the relevant government agencies. New Acquisitions & Corporate Finance We have used some of the proceeds of the IPO to pay down certain debt and deferred acquisition payments resulting in a net debt reduction of $46.5 million. Total group debt has consequently been reduced to $26 million. To maintain balance sheet flexibility and ensure we have adequate financial capacity for future acquisitions, we are continuing negotiations with lenders for a stand-by corporate revolving debt facility. We expect this to be in place by the end of the year. The Russian and CIS M&A marketplace continues to be very active, and assets that would have a meaningful impact to Urals Energy are continuing to become available. We are evaluating several such opportunities and intend to pursue those that meet our investment criteria. Corporate As our Chairman has announced separately, we are very pleased that Charles Pitman has agreed to join the Board of Directors. Charles is a highly experienced oil executive with an international reputation and adds considerable depth to the board. He is the former President and Chairman of Amoco Eurasia Petroleum Company, and Regional President - BP Amoco Caspian/Middle East/Egypt/ India. Today, Charles also serves as a member of the board of directors of Apache Corporation. We have significantly strengthened our senior management team since the IPO. Two of our most important appointments are Henry A. Wolski as Senior Vice President - Exploration & Production and Grigory B. Kazakov as Vice President - Finance & Accounting. Henry Wolski has 14 years operating experience in Russia and Kazakhstan and speaks fluent Russian. Most recently he was responsible for operations with PetroKazakhstan. He is well-prepared to manage our very active drilling and production operations. Since his arrival in July, he has enhanced our existing operating group with several new managers with whom he has worked before and who collectively represent the kind of professionals we seek: Russians with training and skills that meet international standards. Grigory Kazakov is a CPA with several years of experience at both YUKOS and PricewaterhouseCoopers responsible for accounting functions, systems implementation and transaction services. Grigory is leading the effort to upgrade our accounting and management reporting systems and provide world-class MIS capabilities for our Russian activities. While ensuring that we continue to create a highly skilled and appropriately resourced management team, we continue to focus on strict control of G&A costs. Stephen Buscher, Senior Vice President and CFO, will report on our progress on managing G&A costs at the end of the year. As we move forward from our IPO, the outlook for Urals Energy and its shareholders is very positive with development activities proceeding as planned and an exciting exploration drilling campaign now in preparation on Sakhalin Island. Our balance sheet is strong and production and cash flow are increasing. We have excellent assets and an outstanding management team - together they make us unique and should create long term growth and value for our shareholders. William R. Thomas Chief Executive Officer 23 September 2005 Urals Energy Public Company Limited Management's Discussion and Analysis of Results of Operations for the Six Months Ended June 30, 2005 The following management discussion and analysis of operations and financial results for Urals Energy should be read in conjunction with the unaudited interim consolidated financial statements for the first six months ended June 30, 2005. The information contained herein is derived from the management statements prepared in accordance with International Financial Reporting Standards and International Accounting Standard No. 34, Interim Financial Reporting. Key methods of our financial reporting are described within the notes accompanying the financial statements. There are certain forward looking statements contained herein, however investors are warned that actual results may differ. Overview Activities 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. Urals Energy Holdings Limited (''Urals Energy'', or the ''Company'') was incorporated as a limited liability company in Cyprus on 10 November 2003. The Company was formed to act as a holding company for the shareholders' investments in the Russian oil and gas exploration and production sector. 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. At 30 June 2005, the Group employed approximately 585 people, and comprised the following subsidiaries: Entity Nature Jurisdiction Economic interest at 30 June 2005 ZAO Petrosakh Exploration & Sakhalin 97.2% production OOO CNPSEI Exploration & Komi 100.0% production ZAO Chepetskoye Exploration & Udmurtia 100.0% NGDU production OOO Urals Energy Management Moscow 100.0% OOO Urals-Nord Exploration Nenetsky 100.0% Urals Energy (UK) Corporate Services UK 100.0% Limited Operations of Group Subsidiaries ZAO Petrosakh Petrosakh was founded in 1991 as a Russian-U.S. joint venture to develop the Okruzhnoye field on the Eastern coast of Sakhalin Island. In 1993 and subsequently in 1997, Petrosakh was licensed to produce oil from the Okruzhnoye field for a period of 20 years. The Administration of Sakhalin Oblast currently controls a 2.84% minority ownership interest in Petrosakh which is held by its wholly-owned subsidiary, Sakhalin Oil Company. The Company acquired full control of the other 97.16% ownership interest in Petrosakh on 19 November 2004 from Alfa Eco. As part of the agreement to acquire Petrosakh, the Company agreed to pay to the seller, Alfa, a perpetual royalty payment for any commercial quantities of oil produced and landed from the currently non-producing offshore areas covered by the license for the Pogranichniy Block equal to $0.25 per tonne ($0.03 per barrel). Petrosakh's operations comprise integrated oil producing, processing, refining and transportation facilities. Most production facilities and equipment were imported from the United States and Canada. Petrosakh also has a rail terminal facility at Pervomaisk and its operational centre is located at the Okruzhnoye field site. Oil is transported by infield pipelines to a central processing plant with a capacity of 8,200 BOPD. Following processing, oil is either sent to export oil storage tanks or to Petrosakh's refinery directly adjacent to the processing plant. Crude oil is exported by means of a pipeline which runs from the export tank farm to the sea bed and marine loading facility located approximately half a kilometre offshore. Marine exports from the Okruznhoye field site are seasonal depending on the presence of pack-ice which accumulates during the winter months. The typical navigation season is June through November. The refinery has a capacity of 4,100 BOPD of diesel, gasoline, kerosene and fuel oil (mazut). It was originally designed and built by Russell Industries Inc. of Tulsa, Oklahoma and then re-constructed at the Okruzhnoye field site with Hudson Engineering of Houston, Texas as primary contractor. To transport refined products for sale to local markets, Petrosakh owns a fleet of 12 tanker trucks and a gravel-surfaced road that connects Okruzhnoye to the Pervomaisk rail terminal. At Pervomaisk, Petrosakh has a tank farm with product storage of 5,000 barrels, and rail loading racks to transfer products onto railcars for shipment to its customers, primarily located in Yuzhno-Sakhalinsk. The on-shore, producing field, Okruzhnoye, currently produces oil from 14 wells, and has two injection wells, one water and one gas injection. Five wells are flowing producers and nine are produced with gas-lift. For the six months ended June 2005, the field's average daily oil production was 2,388 BOPD. Oil quality is light, sweet crude with a gravity of approximately 36degrees API (0.84 g/ cm3), sulphur content of 0.28% and produced water of 3%. ZAO Chepetskoye NGDU ZAO Chepetskoye NGDU was created in 1993 as a stand-alone production company for the purpose of developing three discovered fields in the Northwestern area of the Udmurtia Republic, Nefedovskoye, Zotovskoye and Potapovskoye. Development activities began for these three fields in 2000. On 4 October 2004, the Company acquired a 100% interest in Chepetskoye NGDU from one of its principal shareholders. For the six months ended June 2005, Chepetskoye NGDU's average daily oil production was 846 BOPD. Oil quality produced is a sweet crude with a gravity of approximately 29 API. Because Chepetskoye sells its oil into the Transneft system, all sales volumes are effectively considered as Urals Blend or approximately 32.8 API. For the six months ended 30 June 2005, the Nefedovskoye field produced at an average rate of 292 BOPD from 11 producing wells. Since January 2005, three wells have been re-perforated and three new development wells drilled, producing at a sustained rate of between 100 to 150 BOPD and cost an average of approximately $400,000. The field's daily production has increased to approximately 550 BOPD as of 30 June 2005. For the six months ended 30 June 2005, the Zotovskoye field produced at an average rate of 520 BOPD from 13 producing wells. The Company does not have any plans for further development drilling at this time. Only one well is currently producing at the Potapovskoye field, and for the six months ended 30 June 2005, produced at an average rate of 33 BOPD. The Potapovskoye field has significant undeveloped potential and the Company estimates that a development drilling programme could increase Potapovskoye field production to a peak rate of approximately 3,000 BOPD by 2010. Chepetskoye sells its oil into three primary markets as directed by the Company's marketing coordinator in Moscow: domestic Russian refineries (Moscow and Ryazan refineries), near-abroad countries (Belarus and Ukraine) and export destinations (far-abroad) such as Germany and the Black Sea. For 2004, approximately 55% was sold domestically, 10% to near-abroad destinations, and 35% to export markets. OOO CNPSEI OOO CNPSEI was formed in 1990 and is headquartered in Ukhta, Komi Republic, approximately 750 kilometers northeast of Moscow. Its two subsoil licenses were re-issued in 2002 for the Yuzhno-Tebukskoye and the Sosnovskoye fields. Urals Energy acquired control over 100% of the stock of CNPSEI in October 2004. Management of the Company has substantial operational experience in the Komi Republic and is confident that further opportunities to expand in the region will become available to complement its operations at CNPSEI. For the six months ended June 2005, CNPSEI's average daily oil production was 1,015 BOPD. Oil produced is a sweet crude with a gravity of approximately 35 API. Because CNPSEI sells its oil into the Transneft system, all sales volumes are effectively considered as Urals Blend or approximately 32.8 API. CNPSEI sells its oil into three primary markets: domestic Russian refineries (Moscow and Ryazan refineries), near-abroad countries (Belarus and Ukraine) and export destinations (far-abroad) such as Germany and the Black Sea. For 2004, approximately 55% was sold domestically, approximately 10% to near-abroad destinations, and approximately 35% to export markets. The Company controls the marketing of oil from CNPSEI as part of its overall oil marketing programme from the central office in Moscow in order to achieve the highest available price. The Company believes the Yuzhno-Tebukskoye field to be fully developed and is working to improve production and recovery factors by optimising the placement and stroke rate of downhole pumping units and maximizing water injection rates. For the six months ended 30 June 2005, the field produced an average rate of approximately 600 BOPD. For the six months ended 30 June 2005, the Sosnovsky field produced at an average rate of approximately 415 BOPD. The Company believes the field to be developed fully and is working to improve production and recovery factors by optimising the placement and stroke rate of downhole pumping units, and maximizing water injection rates. The Company's goal through such methods is to maximise current oil production rates and to increase the overall recovery factor, thereby increasing the value of the field. OOO Urals Nord Urals Nord is a Russian limited liability company that holds geological study licenses to five blocks in the Northern part of the Timan Pechora Basin: Alfinsky, Nadezhdinsy, West Sorokin, Fakel and Belugin. The Company acquired 100% of OOO Urals Nord via two separate acquisitions of 50% in March and April 2005. The Company is currently processing and evaluating seismic surveys to determine its future exploration programme. A significant amount of 2D seismic data is available over all blocks. In 2004, the Company re-processed and re-interpreted a total of 490 kilometres of existing 2D seismic over the Alfinsky block. Based upon the re-mapping of the structure a quantitative risk analysis and resource potential calculation is being conducted. During February 2005, 198 kilometres of new 2D seismic was acquired over the Nadezhdinsky block. Structure maps are expected to be completed in early summer which will be used to carry out a risk assessment with the view to drilling an exploration well in 2006. Production and Sales Urals Energy's financial position is dependent on oil prices, both international where most of the Group production is sold and to a lesser extent domestic and the Company's ability to produce and sell oil. Export prices realized by the Group averaged $49.23 per barrel in the first half of 2005. Near abroad crude prices realized by the Company averaged $28.90 per barrel for the first half of the 2005, while domestic crude averaged $21.36. Domestic refined product prices averaged $48.43 per barrel for the same period. Production of barrels of crude oil by production company for the first six months ended 30 June 2005 were: Entity Production (Bbls) Petrosakh 432,158 CNPSEI 183,230 Chepetskoye NGDU 153,950 Volumes of refined products at Petrosakh, revenues and prices recieved per barrel for the first months ended 30 June 2005 were: Sales Volumes Revenues Revenues (Bbls) ($ thousands) ($/Bbls) Fuel Oil 75,375 1,617 21.46 Diesel 22,950 1,458 63.54 Kerosene 24,000 1,214 50.57 Gasoline H-80 16,050 936 58.31 Gasoline B-1 4,350 213 48.98 Gasoline B-2 9,900 501 50.59 Sales of oil and oil products for the first six months of 2005 in thousands of barrels were: Entity Crude Crude Near Crude Products Crude and Export Abroad Domestic Domestic Product Total Petrosakh 210.2 - 23.0 152.6 385.8 CNPSEI 70.1 5.8 105.2 - 181.1 CNGDU 54.6 7.3 88.6 - 150.5 Total 334.9 13.1 216.7 152.6 717.4 Oil and oil products gross revenues for the first six months of 2005 in $ thousands were: Entity Crude Crude Crude Products All Crude Export Near Abroad Domestic Domestic and Product Petrosakh 11,050 - 744 7,391 19,186 CNPSEI 3,023 162 2,073 - 5,259 CNGDU 2,416 218 1,812 - 4,445 Total 16,489 380 4,629 7,391 28,889 Oil and oil products average gross revenues per barrel for the first six months of 2005 were: Entity Crude Crude Near Crude Products All Crude Export Abroad Domestic Domestic and Product Petrosakh 52.56 - 32.42 48.43 49.73 CNPSEI 43.14 27.77 19.71 - 29.04 CNGDU 44.25 29.79 20.45 - 29.54 Total 49.23 28.90 21.36 48.43 40.27 Oil and oil products average net-backs per barrel for the first six months of 2005 were: Entity Crude Crude Near Crude Products All Crude Export Abroad Domestic Domestic and Product Petrosakh 33.57 - 25.41 34.95 33.63 CNPSEI 27.26 26.04 16.70 - 29.04 CNGDU 27.51 16.18 17.33 - 29.54 Total 31.26 20.56 17.88 34.95 27.81 Financial Performance for the Six Months Ending June 2005 Investments in Operations For the period, the Company had gross revenues of $28.0 million, and net revenues of $22.0 million. The gross margin, net revenues minus the cost of production, was $8.4 million, or 38.3% of net revenues. Earnings before interest, corporate income taxes, depreciation, depletion and amortisation expenses (adjusted for extraordinary gains and foreign currency loss) was $6.0 million, or 27.3% of net revenues. Operating income was $2.2 million, 10% of net revenues, resulting in a loss before taxes of $689 thousand. The net loss for the period was $1.1 million. For the period, the company had negative cash flow from operations of $14 million plus an additional cost of $1.7 million for interest and taxes, resulting in a net cash flow used in operations of negative $15.7 million. The negative cash flow from operations was primarily due to a working capital mismatch of revenues with cash payments in Petrosakh of $12 million and seasonality in Petrosakh which resulted in an increase in crude oil inventory at 30 June 2005 of $ 1 million. The remainder relates to changes in prepaid expenses, accounts payable and other. Net capital expenditures during the period amounted to $4.3 million and were primarily related to the development work at Petrosakh and Chepetskoye. Acquisitions Expenditures for acquisitions, excluding interest charged to deferred payments, amounted to $14.4 million, related to the Petrosakh, Urals Nord and Arctineft acquisitions. The Company agreed to acquire 97.16% of Petrosakh on 19 November 2004. As part of the sale-purchase agreement the Company agreed to certain deferred payment obligations including a deferred payment for the purchase of shares for $9.9 million and the guarantee of loans from the seller to Petrosakh of $11.1 million. On 27 April the Company paid $6 million, and on 31 May the Company paid $3.9 million and with that payment satisfied all remaining obligations to the sellers. On 28 March the Company acquired 50% of the participation interests in OOO Urals Nord from an affiliate of one of the shareholders as part of the contribution by such shareholder to the equity of the Company pursuant to a shareholders agreement dated 28 July 2004. On 25 April the Company acquired the remaining 50% interest in OOO Urals Nord from certain third parties for an agreed consideration of $14.9 million payable in cash by 27 October 2005. $1.5 million was paid toward this purchase on 6 June, and the remaining amount was paid in two tranches of $9.5 and $3 million on 23 August 2005 and 2 September 2005, respectively. The Group incurred $837 thousand of additional cost due to seismic interpretation work of the reserves. Urals Nord holds five exploration licenses for Beluginisky, Zapadno-Sorokinskiy, Fakelniy, Nadezhdinskiy and Alfinskiy oil fields. The Company, OAO Arkhangelskgeoldobycha and OOO LUKoilkaliningradmorneft entered into an agreement on 11 July 2005 for the acquisition of shares in Arcticneft by the Company. In order to secure an exclusive right to this acquisition, the Company entered into an agreement with LUKoil on 24 May, at which time it paid the seller a deposit of $3.0 million. On 11 July, $16.5 million was paid to the seller. On 25 August an additional $10.3 million was paid into Arcticneft to refinance its indebtedness to LUKoil. A final payment of $7.2 million must be repaid on or before 1 October. Liquidity and Capital Resources The net figure of negative $34.7 million from net cash flow from operations combined with capex plus cash paid in support of acquisitions was offset by increased borrowings of $32.0 million and cash received for the sale of equity in the amount of $18.4 million. In March Chepetskoye NGDU and CNPSEI borrowed a combined $12.0 million from Bank Zenit. The loan is a 5-year bullet amortization loan secured against certain physical assets of Chepetskoye NGDU and CNPSEI. In June ZAO Petrosakh borrowed an additional $20.0 million from BNP Paribas. The loan matures on December 31, 2006, and is a pre-payment secured against the export receipts of ZAO Petrosakh. In May the Company issued 23,585 shares to Nafta (B) NV for a total consideration of $25 million. The share issuance was settled with a cash contribution of $18,4 million and a conversion of $6,6 million in existing debt of the Company to Nafta (B) NV. Taxes The Company pays a variety of taxes, these include export duties, excise taxes, unified production taxes, VAT, Pension, Federal Income and Others. For the first six months ended 30 June 2005, the taxes paid and accrued in $ thousands were: Tax Item Accrued First 6 Months Paid First 6 Months 2005 2005 Export Duties 6,047 6,047 Excise Tax 321 388 Value Added Tax 1,834 1,850 Unified Petroleum Tax 5,588 5,357 Pension Fund, Other Social 467 436 Other 201 429 Federal Income 895 317 TOTAL TAXES 15,353 14,824 Export duties are set according to a regressive tax schedule and applied to the export of all crude oil. For the first six months, the average export duties for the Company was 36.7%. Excise taxes on domestic refined products sold averaged 4.35%. Accrued income tax expenses for the period are primarily due to income tax accrued at Petrosakh and Chepetskoye NGDU on standalone bases. The effective tax rate for those entities is a result of the application of the Russian Federal statutory income tax rate of 24%. However, due to the consolidation of other entities having net losses in their individual accounts, plus additional accrual of expenses related to purchase accounting (primarily revaluing of oil and gas properties to fair value, resulting in additional depletion charges to the income statement), there was a loss before taxes. Therefore, for the period there exists a positive accrual of federal income taxes applied to a net loss before tax figure. 23 September 2005 CONSOLIDATED BALANCE SHEET AT (unaudited) in US $ thousands 30 June 31 December 2005 2004 Cash and cash equivalents 8,897 1,421 Accounts receivable and prepayments 15,563 3,706 Inventories 3,511 2,247 TOTAL CURRENT ASSETS 27,971 7,374 Property, plant and equipment 114,210 100,622 Other non-current assets 4,254 292 TOTAL NON-CURRENT ASSETS 118,464 100,914 TOTAL ASSETS 146,435 108,288 Accounts payable and accrued expenses 2,389 3,019 Taxes payable 2,446 1,917 Short-term borrowings and current portion 20,776 38,815 of finance lease obligations Advances from customers 135 5,102 Amounts due for acquisition of 12,460 9,899 subsidiaries TOTAL CURRENT LIABILITIES 38,206 58,752 Long-term finance lease obligations and 25,446 1,556 borrowing Dismantlement provision 920 950 Deferred tax liability 17,961 17,751 TOTAL LONG TERM LIABILITIES 44,327 20,257 TOTAL LIABILITIES 82,533 79,009 TOTAL EQUITY 63,902 29,279 TOTAL EQUITY AND LIABILITIES 146,435 108,288 Appoved on behalf of the Board of Directors on 23 September 2005 William R. Thomas Stephen M. Buscher Chief Executive Officer Chief Financial Officer CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) in US $ thousands 1 January to 30 June 2005 Revenues Gross revenues 28,002 Less: excise taxes and export duties (6,047) Net revenues 21,955 Operating Cost Cost of production (13,544) Selling expenses (1,966) General and administration expenses (4,238) Operating result 2,207 Finance costs (2,727) Foreign currency losses, net (192) Other non-operating gains, net 23 Result before tax and minority interests (689) Income tax (charge)/benefit (456) Net result (1,145) Attributable to minority shareholders 77 Attributable to Group shareholders (1,222) Earnings per share (USD)- basic (0.02) Diluted earnings per share (USD) (0.02) CONSOLIDATED STATEMENT OF CASH FLOW (unaudited) in US $ thousands 1 January to 30 June 2005 Cash flow from operating activities Result before tax and minority interest (689) Total Adjustments 4,724 Operating cash flow before changes in 4,035 working capital Changes in working capital (18,031) Cash flow from/(used in) operations (13,996) Interest paid (1,377) Income tax paid (297) Net Cash flow used in operating activities (15,670) Cash flow used for investments Acquisition of subsidiaries (4,500) Purchase of property, plant and equipment (4,348) Net Cash Inflow/ (Outflow) from Investing (8,848) Activities Cash flow from financing activities Proceeds from loans 35,001 Repayment of loans (30,053) Proceeds from issuance of ordinary shares 26,215 Contributions from shareholders 881 Net Cash Inflow from Financing Activities 32,044 Effect of exchange rate changes (50) Net increase in cash and cash equivalents 7,476 Cash and cash equivalents at beginning of 1,421 the period Cash and cash equivalents at end of the 8,897 period CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited) Attributable to shareholders of the Group Minority Interest in US$ thousands Note Share Share Unpaid Translation Accumulated Total capital premium capital difference deficit equity At 31 December 209 42,172 (11,324) 1,236 (4,341) 1,327 29,279 2004 Issue of shares 5 50 24,950 25,000 Contribution from 11,324 11,324 shareholders Translation (511) (45) (556) difference for the period Net result for the (1,222) 77 (1,145) period 1 January 2005-30 June 2005 At 30 June 2005 259 67,122 0 725 (5,563) 1,359 63,902 NOTES TO THE INTERIM FINANCIAL INFORMATION (unaudited) Note 1 Urals Energy Public Company Limited (''Urals Energy'', or the ''Company'') was incorporated as a limited liability company in Cyprus on 9 November 2003. The Company was formed to act as a holding company for the shareholders' investments in the Russian oil and gas exploration and production sector. Pursuant to a Shareholder Agreement dated 28 July 2004, the Shareholders contributed certain assets including ZAO Chepetskoye NGDU to the Company. On 26 October 2004, the Company acquired OOO CNPSEI and on 19 November 2004, acquired ZAO Petrosakh. In April 2005, the Company acquired the remaining 50 percent of OOO Urals Nord. In July 2005, the Company completed the acquisition of ZAO Arcticneft. On 9 August 2005, the Company completed an initial public offering on the London Alternative Investment Market (AIM). 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. At 31 December 2004, the Group employed approximately 585 people. The Group comprises of the following subsidiaries: Entity Nature Jurisdiction Economic interest at 30 June 2005 ZAO Petrosakh Exploration & Sakhalin 97.2% production OOO CNPSEI Exploration & Komi 100.0% production ZAO Chepetskoye Exploration & Udmurtia 100.0% NGDU production OOO Urals Energy Management Moscow 100.0% OOO Urals-Nord Exploration Nenetsky 100.0% Urals Energy (UK) Corporate Services UK 100.0% Limited Note 2 The nature of business operations The Group's largest producing subsidiary, ZAO Petrosakh, operates on Sakhalin Island and is not connected to the State owned pipeline monopoly - Transneft, and accordingly, the majority of its production is exported by tanker. Due to severe weather conditions, shipping tankers can only load during the period of June through early November. Outside this period, oil is either stored or processed and sold on the local market. During the period under review Petrosakh had produced 56 thousand tons of crude oil and sold only 29 thousand tons of crude oil in late June 2005. The remaining crude oil will be shipped during the second half of the year. Note 3 Basis of presentation 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 2004 prepared in accordance with International Financial Reporting Standards ("IFRS"). The 31 December 2004 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, restrictions and controls. The United States Dollar (''US dollar or US$'') is the presentation currency for the Company's operations as the majority of the Company's operations is conducted in US dollars and management have used the US dollar accounts to manage the Company's financial risks and exposures, and to measure its performance. Financial statements of the Russian subsidiaries are measured in Russian Roubles and presented in US dollars in accordance with SIC 30 ''Reporting currency-Translation of Measurement Currency to Presentation Currency''. Balance sheet items denominated in foreign currencies have been remeasured using the exchange rate at the respective balance sheet date. Exchange gains and losses resulting from foreign currency translation are included in the determination of net income or loss. The US dollar to Russian Rouble exchange rates were 28.67 and 27.75 as of 30 June 2005 and 31 December 2004, respectively. Comparative information for the first half of 2004 was not provided as the Company was not operating at that time. Note 4 Accounting policies Except as discussed below, the principal accounting policies followed by the Company are consistent with those disclosed in the financial statements for the year ended 31 December 2004. New accounting developments. In December 2003, the International Accounting Standards Board ("IASB") released 15 revised International Accounting Standards ("IAS"s) and withdrew one IAS standard. In 2004, the IASB published five new standards, two revisions and two amendments to existing standards. In addition, the IFRIC issued six new interpretations in 2004. Significant changes relevant to the Group are discussed below. The revisions to IAS 1, Presentation of Financial Statements, clarify certain presentation requirements. Most significantly, the revised standard requires that minority interest be presented within equity. The Company has retroactively reflected the revised presentation standard for equity in the consolidated interim condensed financial information. IAS 24, Related Party Disclosures, as revised, requires the disclosure of compensation of key management personnel and clarifies that such personnel include non-executive directors. Other revised and amended standards effective on 1 January 2005 are as follows: IAS 2, Inventories; IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors; IAS 10, Events after the Balance Sheet Date; IAS 16, Property, Plant and Equipment; IAS 17, Leases; IAS 19, Employee Benefits; IAS 21, The Effects of Changes in Foreign Exchange Rates; IAS 27, Consolidated and Separate Financial Statements; IAS 28, Investments in Associates; IAS 31, Investments in Joint Ventures; IAS 32, Financial Instruments: Disclosure and Presentation; IAS 33, Earnings per Share; IAS 36, Impairment of Assets; IAS 38, Intangible Assets: and IAS 39, Financial Instruments: Recognition and Measurement. The adoption of these revised and amended standards has not had a material effect on the Group's financial position, statements of income or of cash flows. Accounting policies significant to the Group that were adopted or modified on 1 January 2005 are discussed below. Business combinations. The Company accounts for business combinations in accordance with the provisions of IFRS 3, Business Combinations ("IFRS 3"). IFRS 3 applies to accounting for business combinations where the agreement date is on or after 31 March 2004. Upon acquisition, the Group initially measures both its share and the share of any minority shareholders in the acquiree's identifiable assets, liabilities and contingent liabilities at their fair values as at the acquisition date. For business combinations where the agreement date is on or after 31 March 2004, goodwill is not amortized but rather tested for impairment annually at the cash generating unit level unless an event occurs during the year which requires the goodwill to be tested more frequently. Intangibles with indefinite useful lives acquired in those business combinations are not amortized and are tested annually for impairment to ensure the carrying value does not exceed the recoverable amount regardless of whether an indicator of impairment is present. Non-current assets held for sale and discontinued operations. The Group accounts for non-current assets held for sale and discontinued operations in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. IFRS 5 replaced IAS 35, Discontinuing Operations. Assets or disposal groups that are classified as held for sale are presented separately on the balance sheet and are carried at the lower of the carrying amount and fair value less costs to sell. Additionally, the results of discontinued operations are shown separately on the face of statement of income. On 1 January 2005, the Group early-adopted IFRS 6, Exploration for and Evaluation of Mineral Resources. This standard provides guidance on accounting for costs incurred in the exploration for and evaluation of mineral resources. Adoption of the standard did not have a material effect on the Group and did not result in changes of the Group's accounting policies. Note 5 Issue of shares Number of Share capital Share premium shares US$ thousands US$ thousands At 31 December 2004 40,000,000 209 42,172 Issuance of shares to Nafta 9,434,000 50 25,950 B - 15 June 2005 At 30 June 2005 49,434,000 259 67,122 Subsequent to 30 June 2005 Conversion of shareholder 3,650,480 19 9,654 loans to equity - 2 August 2005 Placement under the initial 26,666,700 143 113,636 public offering - 9 August 2005 Placement under RP Explorer 2,929,651 16 9,984 Master Fund - 9 August 2005 Placement under Green shoe 4,000,050 22 17,305 arrangements - 17 August 2005 At 23 September 2005 86,681,183 459 217,701 All share numbers are presented after the effect of a 1 for 400 share split approved on 18 July 2005. In June 2005, the Company issued 9,434,000 ordinary shares to Nafta (B) NV, a company owned by one of the shareholders for total consideration of $ 25,000 thousand. The share issuance was settled with a cash contribution of $ 18,380 thousand and conversion of $ 6,620 thousand in existing debt of Nafta B. In July 2005, the Company entered into a convertible preferred note agreement with RP Explorer Master Fund for up to $ 15.0 million. The Company has issued $ 10.0 million, 10.0 percent subordinated, unsecured ''A'' notes. The notes are issued at 100.0 percent and accrete daily up to 117.0 percent on maturity. On 9 August 2005 these notes were converted into 2,929,651 ordinary shares at a 20.0 percent discount to the IPO issue price. On 2 August 2005, the Company converted its loans with Radwood Business Inc., Polaris Business Limited, Citara International Limited, Fantin Finance Limited and Texas Oceanic Petroleum LLC (who collectively at 31 December 2004, provided $ 9.3 million, Libor plus 2.0 percent unsecured notes to the Company,) to 3,650,480 ordinary shares. On 9 August 2005 the Company placed 26,667,000 new ordinary shares at an issue price of 240 pence per share on an Alternative Investment Market operated by the London Stock Exchange ("AIM"). On 17 August 2005 Morgan Stanley Securities Limited, the Company's stabilising manager fully exercised the over-allotment option in the amount of 4,000,050 new shares. As a result of the exercise, the free float of shares in the Company has increased from 32% to 35% (upon the expiration of RP Capital's lock-up and orderly markets restriction, 39%) and the issued share capital of the Company has increased to a total of 86,681,183 shares. The gross proceeds of the placing now total approximately $131 million. Note 6 Segment information 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. Note 7 Acquisition of subsidiaries On 25 April 2005, the Company acquired the remaining 50.0% interest in OOO Urals Nord ("Urals Nord") for the total consideration of $14,837 thousand. On that date $1,500 thousand was paid immediately in cash and $12,500 thousand is payable in October 2005. The Group incurred $837 thousand of additional cost related to seismic review of the license areas. Urals Nord holds 5 exploration licenses for Beluginisky, Zapadno-Sorokinskiy, Fakelniy, Nadezhdinskiy and Alfinskiy oil fields. Urals Nord has been consolidated from the date of acquisition, the purchase price being assigned to unproved oil and gas property including in property, plant and equipment. Note 8 Pledged assets and changes in contingent liabilities The dismantlement provision represents the net present value of the estimated future obligation for dismantlement, abandonment and site restoration costs which are expected to be incurred at the end of the production lives of the oil and gas fields. The discount rate used to calculate the net present value of the dismantling liability was 13.0 percent. Environmental regulations and their enforcement are under development by governmental authorities. Consequently, the ultimate dismantlement, abandonment and site restoration obligation may differ from the estimated amounts and this difference could be significant. Note 9 Cost of sales 1 January 2005 to 30 June 2005 Unified production tax 5,588 Depreciation and depletion 3,790 Wages and salaries including payroll 2,270 taxes Materials 1,088 Other taxes 416 Exploration expense 251 Other 662 (Reverse)/ write down of inventories (521) Total cost of sales 13,544 Within the exploration expense line $251 thousand represents a write-off of the geological and geophysical works performed by Chepetskoye in 2003 and 2004, which were recorded at 31 December 2004 in the books as a deferred expenses within the line "Non-current assets". Note 10 Borrowings and loans Short term loans Name of bank Borrower Interest rate Currency 30 June 31 December 2005 2004 Related party loans UEPCL LIBOR +2% $ 12,300 27,493 Current portion of Petrosakh 8.16% fixed 8,000 - long term debt Alfa Eco M Petrosakh 9.8% fixed RR - 10,993 Current portion of Petrosakh 13% fixed RR 111 105 finance lease liability Accrued interest 365 224 Total 20,776 38,815 Long term debt Name of bank Borrower Interest Maturity Currency 30 June 31 December rate date 2005 2004 BNP Paribas Petrosakh 8.16% fixed December $ 20,000 - 2006 Less current (8,000) - portion of BNP Paribas Zenit Chepetskoe 11% fixed March 2010 $ 10,000 - NGDU Zenit CNPSEI 11% fixed March 2010 $ 2,000 - Long term finance Petrosakh 13% fixed 1,557 1,661 lease liability Less current Petrosakh (111) (105) portion of lease liability Total 25,446 1,556 In June 2005, Petrosakh entered into an 18-month US$ denominated credit facility for US$ 20,000 thousand with ZAO BNP Paribas Bank to finance Petrosakh for certain repayment of loans from Alfa-Eco M and fund working capital and various capital projects of Petrosakh. This variable interest debt facility bears interest at LIBOR plus 5.0 percent and is repayable through December 2006. The loan is collateralised by pledge of Petrosakh shares to ZAO BNP Paribas Bank, assignment of crude oil export contract and a floating pledge over Petrosakh's crude oil inventories. Further, the facilities contain cross default provisions. This facility is repayable with the proceeds of the committed export contracts. As of the date of release of this management statement, the remaining principal amount due under this loan is US$ 14.2 million. In March 2005, Chepetskoye NGDU obtained a US$ 10,000 thousand, 5-year US dollar, denominated, 11.0 percent fixed interest loan from OAO Bank Zenit and CNPSEI obtained a US$ 2,000 thousand, 5-year US dollar denominated 11.0 percent fixed loan from OAO Bank Zenit. The bank loans are for funding working capital and certain capital projects. The loans are secured by liens on various assets of these subsidiaries and the facilities contain cross default provisions. Note 11 Capital commitments Exploration licenses-investment commitments In accordance with the Pogranichnoye off-shore license agreement, Petrosakh must conduct certain exploratory work, which includes, but is not limited to, performing seismic prospecting and drilling two exploratory wells by February 2006. Management currently estimate such expenditure to approximate $ 19,000 thousand. In accordance with the Pogranichnoye on-shore license agreement, Petrosakh must conduct exploratory works including drilling two exploration wells in 2007 and 2008. Other capital commitments At 30 June 2005, the Company had no other significant contractual commitments for capital expenditures. Note 12 Related party transactions At 30 June 2005 the Group has received unsecured borrowings from shareholders and companies controlled by shareholders at market rates. The loans form shareholders were received to purchase Petrosakh. Name of party Relationship 30 June 31 December Currency Interest Date of 2005 2004 rate repayment Nafta B NV Controlled by - 6,822 EURO 10% February 2005 shareholder Nafta B NV Controlled by 3,000 - $ 10% August shareholder 2005 Radwood Business Shareholder 500 500 $ LIBOR plus August Inc. 2% 2005 Polaris Business Shareholder 300 300 $ LIBOR plus August Limited 2% 2005 Citara International Shareholder 5,000 5,000 $ LIBOR plus August Limited 2% 2005 Fantin Finance Shareholder 3,000 3,000 $ LIBOR plus August Limited 2% 2005 Texas Oceanic Shareholder 500 1,500 $ LIBOR plus August Petroleum LLC 2% 2005 UEN Trading Ltd Controlled by - 8,660 $ 10-15% March-December shareholder 2005 Other accounts Controlled by 848 1,381 $ payable shareholder Loans payable 12,300 27,493 Interest payable 365 117 Other accounts 848 payable Total related party 13,513 27,610 borrowings Nafta B NV loan at 30 June 2005 was repaid on 17 August 2005 and other loans from shareholders were converted into equity on 2 August 2005. The Nafta B NV loan at 31 December 2004 was converted to equity (see Note 5). Other transactions and balances with companies controlled by shareholders are as follows: 30 June 31 December 2005 2004 Balances with related parties Accounts receivable Loans receivable 1,230 723 Accounts payable Other payable and accrued expenses 61 61 Operations with related parties 1 January 2005 to 30 June 2005 Oil sales Sales of crude oil 4,399 Associated volumes, tons 13,580 Selling, general and admin expenses Interest expense - net 559 Management fees received 214 Rental fees paid included in selling, general and 172 administrative expense Note 13 Subsequent evenets On 29 July 2005 the Company made a deposit of $5.25 million to KCA Deutag to secure the T-2000 rig. On 11 July 2005, the Company concluded the acquisition of a 100.0 percent equity interest in ZAO Arcticneft from OAO LUKOil for approximately $ 32.5 million. An advance of $ 3.0 million was paid on 24 May 2005 (in accordance with the preliminary term sheet), $16.5 million was paid on completion and the remaining $13.0 million is payable before September 2005. As part of this acquisition, approximately $7.6 million in payables of Arcticneft to LUKoil must be repaid by October 2005. In addition, the Company reached an agreement to settle a dispute between ZAO Arcticneft and OOO Start, whereby the Company will acquire certain operating assets from Start for $3.0 million, and Start will cease any litigation against Arcticneft. Arcticneft is an oil and gas exploration and production company located on the Kolguyev Island in the Nenetsky autonomous region of northern Russia. Arcticneft operates the Peschanoozerskoye onshore oil field. During 2004, it produced 73,136 tons of crude oil. Management are currently reviewing their fair value allocations for this transaction, and consequently believe it is not practicable to disclose such balances at this time. On 6 September 2005 the Company paid Petraco $10.0 million plus accrued interest to settle an outstanding loan. 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 2005, and the related condensed consolidated interim statements of operations, cash flows and changes in equity for the six months then ended presented on pages 13 through 24. 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". PricewaterhouseCoopers Moscow, Russian Federation 23 September 2005 This information is provided by RNS The company news service from the London Stock Exchange END IR UUAORVRRKUUR
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