NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION
Amsterdam, 21 January 2016
Fourth Quarter and Full Year 2015 Operational Update
Nostrum Oil & Gas PLC (LSE: NOG) ("Nostrum", or "the Company"), an independent oil and gas company engaging in the production, development and exploration of oil and gas in the pre-Caspian Basin, today announces its operational update for the twelve month period ended 31 December 2015. This update is being issued in advance of the release of Nostrum's audited and consolidated accounts for the same period. The information contained in this update remains subject to review by the independent auditors.
Strategic focus for 2016:
· Minimise exposure to low oil prices:
o A new hedge of 15,000 bopd with a strike price of US$49.16 per barrel has been purchased
o The cost of the hedge was paid entirely from the sale of the Company's previous hedge for US$92m
o The new hedge has 24 month tenor, maturing in December 2017, and cash settles on a quarterly basis
o The current value of the new hedge is in excess of US$150m
· Preserve liquidity position:
o We plan to phase payments on GTU3 over a period until mid- 2017 in order to preserve our cash position during 2016
o We will reduce the 2016 drilling programme to three new production wells in order to maintain flat production and the completion of an appraisal well on the Rostoshinskoye field
o We are finalising definitive documentation for a new US$200m facility with VTB and expect to be able to enter into the facility prior to the end of Q1
· Further reduction of operating costs:
o While our current cash operating break-even is at US$20 per barrel, we aim to reduce this to below US$20 per barrel by mid-2016
o We will also look to reduce drilling capex per well by more than 20% during 2016
Highlights:
Operational
· Average daily production for the year of 40,402 boepd. This was somewhat below targeted production due to unexpected repair work carried out during October by Intergas Central Asia ("ICA") on the export gas pipeline operated by ICA that Nostrum uses to transport its gas
· GTU3 progress payments will now be phased across 2016 and 2017 to allow for prolonged cash preservation in the current low oil price environment. Mechanical completion of GTU3 is therefore now expected to occur in mid-2017
· Our 2016 drilling programme will initially be set targeting the addition of three new production wells and the completion of an appraisal well on the Rostoshinskoye field. This will allow production to be maintained at approximately 45,000 boepd during 2016. The drilling programme is reviewed on a quarterly basis and can be scaled up at short notice
Financial
· Full year 2015 revenue is expected to be in excess of US$445m
· Cash position in excess of US$170m (including short-term deposits), total debt remains at US$960m and net debt of approximately US$790m as at 31 December 2015
· New hedge on 15,000 bopd entered in to on December 14th 2016 with a strike price of US$49.16
· US$200m credit facility with VTB on track to be completed prior to end of Q1 2016
Kai-Uwe Kessel, Chief Executive Officer of Nostrum Oil & Gas, commented:
"With the continued fall in the oil price and the increased belief that the low oil prices will last beyond Q1 2016 we have taken steps to ensure Nostrum is well positioned to prosper under any oil price environment through 2016 and 2017. First, we have purchased a new hedge using the proceeds of the sale of our previous hedge, with a strike price of US$49.16, covering almost all our exported liquids for 2016 and 2017. This new hedge currently has a market value of over US$150m, which is significantly higher than the value of our previous hedge, which had a value of US$92m and was only two months from maturity. In addition we have decided to preserve the existing cash on our balance sheet for as long as possible by phasing GTU3 payments across 2017 and by reducing drilling in 2016 to three production wells in order to maintain current production levels. These steps will ensure that Nostrum has a stable financial base during any prolonged downturn in oil prices. Furthermore we have ensured that Nostrum has the flexibility to react extremely quickly to any increase in the oil price whereby drilling can be increased to allow for a quicker ramp up in GTU3."
Production Split
The product split for FY 2015 was as follows:
PRODUCTS |
FY 2015 Average Production (boepd) |
FY 2015 Product Mix (%) |
Crude Oil & Stabilised Condensate |
16,877 |
42 |
LPG (Liquid Petroleum Gas) |
4,335 |
11 |
Dry Gas |
19,191 |
47 |
TOTAL |
40,402 |
100 |
Current product destinations
Nostrum's primary export destinations remain as follows:
· Crude Oil - Neste Oil's and Socar's refineries in Finland and Azerbaijan
· Condensate - Russian Black Sea port of Taman
· LPG - Russian Black Sea ports and Bulgaria
· Dry Gas - 75% export and 25% domestic
The Company has no current plans to change any of these export destinations.
Drilling
2016 & 2017 base case drilling overview
· 21 oil wells and 18 gas condensate wells are currently producing at the Chinarevskoye field
· The base case drilling programme is to drill three production wells during the first half of 2016 which will allow for the maintenance of production at approximately 45,000 boepd for 2016
· We will drill the first three wells using three drilling rigs which will ensure we have the flexibility to increase drilling quickly should oil prices undergo a sustained recovery
· In addition to the production wells we will complete the appraisal well on Rostoshinskoye
· Our 2016 drilling capex will consequently be reduced by US$50m from US$100m to US$50m including work over on existing wells
Production schedule
Based on the current drilling programme stated above and taking into account the current oil price we can provide the following production guidance. Should oil prices deviate materially the production guidance will be updated accordingly:
· 2016 - Approximately 45,000 boepd
· 2017 - Approximately 45,000 - 60,000 boepd
· 2018 - Approximately 60,000 - 100,000 boepd
Progress on development of GTU3
Nostrum continues to make steady progress on GTU3. Following the continued fall in the oil price Nostrum has taken the decision to phase the payments of GTU3 over 2016 and 2017. Mechanical completion will now be mid 2017. The phasing of payments will involve no additional cost for Nostrum and the total budget remains at US$500m. The phasing of the payments will allow for a continued preservation of cash on Nostrum's balance sheet during this period of low oil prices.
The below figures reflect all cash payments made and future cash payments excluding VAT.
GTU3 Cash Spent (excl VAT) |
as at 31 December 2015 |
Expenditure to date |
US$256m |
Expenditure in 2016 |
US$162m |
Expenditure in 2017 |
US$80m |
Other corporate activity
Nostrum continues to work on the documentation for the proposed US$200m VTB facility. The facility is on schedule to be closed prior to the end of Q1. The facility will allow Nostrum the flexibility to ramp up drilling more quickly should oil prices recover whilst also allowing Nostrum to have additional liquidity resources should it wish to take advantage of any value accretive M&A opportunities.
Further to the announcement made in the 9M financial results, Nostrum confirms that it has received payment of principal and accrued interest under the US$5m loan agreement dated 10 August 2015 between Nostrum as lender and Tethys Petroleum Ltd. as borrower.
Further information
For further information please visit www.nog.co.uk
Further enquiries
Nostrum Oil & Gas PLC - Investor Relations
Kirsty Hamilton-Smith
Bruno G. Meere
Rachel Pescod
+44 203 740 7430
[email protected]
Instinctif Partners - UK
David Simonson
+ 44 (0) 207 457 2020
Promo Group Communications - Kazakhstan
Asel Karaulova
+ 7 (727) 264 67 37
About Nostrum Oil & Gas
Nostrum Oil & Gas PLC is an independent oil and gas company currently engaging in the production, development and exploration of oil and gas in the pre-Caspian Basin. Its shares are listed on the London Stock Exchange (ticker symbol: NOG). The principal producing asset of Nostrum Oil & Gas PLC is the Chinarevskoye field, in which it holds a 100% interest and is the operator through its wholly-owned subsidiary Zhaikmunai LLP. In addition, Nostrum Oil & Gas holds a 100% interest in and is the operator of the Rostoshinskoye, Darinskoye and Yuzhno-Gremyachenskoye oil and gas fields through the same subsidiary. Located in the pre-Caspian basin to the north-west of Uralsk, these exploration and development fields are situated approximately 60 and 120 kilometres respectively from the Chinarevskoye field.
Forward-Looking Statements
Some of the statements in this document are forward-looking. Forward-looking statements include statements regarding the intent, belief and current expectations of the Partnership or its officers with respect to various matters. When used in this document, the words "expects," "believes," "anticipates," "plans," "may," "will," "should" and similar expressions, and the negatives thereof, are intended to identify forward-looking statements. Such statements are not promises or guarantees, and are subject to risks and uncertainties that could cause actual outcomes to differ materially from those suggested by any such statements.
No part of this announcement constitutes, or shall be taken to constitute, an invitation or inducement to invest in the Company or any other entity, and shareholders of the Company are cautioned not to place undue reliance on the forward-looking statements. Save as required by the Listing Rules and applicable law, the Company does not undertake to update or change any forward-looking statements to reflect events occurring after the date of this announcement.
