Carcetti Capital Corp V.CART.H

Excellent Q3, balance sheet improvement, caped to increase

[TheRock07]

 

Cub Energy earns $2.19-million (U.S.) in Q3 2016

 

2016-11-16 16:15 ET - News Release

 

Mr. Mikhail Afendikov reports

CUB ENERGY INC. ANNOUNCES Q3 2016 FINANCIAL AND OPERATIONAL RESULTS

Cub Energy Inc. has released its unaudited interim financial and operating results for the third quarter of 2016. All dollar amounts are expressed in U.S. dollars. This update includes results from KUB-Gas LLC, in which Cub has a 35-per-cent equity ownership interest (increased from 30 per cent, effective Feb. 8, 2016), and Tysagaz LLC, Cub's 100-per-cent-owned subsidiary.

Mikhail Afendikov, chairman and chief executive officer of Cub, said: "The third quarter results highlight the improving financial condition of the company. The working capital of $800,000 and cash position of $3.6-million at Sept. 30, 2016, is the best financial position of the company in over two years. Also significant is the receipt of $300,000 in dividends from KUBGAS Holdings Ltd. subsequent to the third quarter of 2016, which is the first dividend the company received from Ukraine since the National Bank of Ukraine (NBU) implemented restriction on cross-border dividends in 2014. The company expects to continue to repatriate dividends to the extent possible and allowed by the NBU, although there are no assurances the NBU will continue to ease restrictions into 2017."

Operational highlights:

 

• Royalty rates for natural gas in Ukraine declined from 55 per cent to 29 per cent, effective Jan. 1, 2016, which materially improved the company's netbacks and net income;
• Production averaged 1,171 barrels of oil equivalent per day (98 per cent natural gas) for the quarter ended Sept. 30, 2016, which decreased 13 per cent as compared with the 1,350 barrels of oil equivalent per day in the comparative 2015 quarter, and relatively flat as compared with an average of 1,185 barrels of oil equivalent per day for the second quarter ended June 30, 2016. The decrease in production as compared with 2015 was a result of the temporary suspension of production at the RK field due to the termination of a gas blending contract. The company hopes to resume the RK field production in the first quarter of 2017;
• Achieved average natural gas price of $5.48 per thousand cubic feet and condensate price of $63.99 per barrel during the quarter ended Sept. 30, 2016, as compared with $6.58 per thousand cubic feet and $43.01 per barrel for the comparative 2015 quarter, and $5.55 per thousand cubic feet and $52.89 per barrel for the second quarter of 2016;
• On July 8, 2016, the company entered into a share purchase agreement (SPA) and shareholders' agreement with a third party, whereby the third party earns a 50-per-cent interest in the company's newly formed subsidiary, CNG Holdings Netherlands BV, which, in turn, owns CNG LLC (Ukraine LLC), 100 per cent owner of the Uzhgorod production licence in western Ukraine. Pursuant to the terms of the SPA, the third party is to:
  1. Pay Cub 1.5 million euros ($1.6-million) upon transfer of the 50 per cent of shares (paid);
  2. Finance a 100-square-kilometre 3-D seismic survey within 20 months of closing;
  3. Finance the drilling of first three wells within four years of closing;
  4. Finance the tie-in costs of the first three wells up to a maximum of 200,000 euros ($200,000) per well within four years of closing;
• In October, 2016, the used nitrogen rejection unit (NRU) arrived in western Ukraine and was tested on site at the RK field. For the NRU to become fully operational, the NRU requires two compressors, which have been ordered and are expected to be delivered in late 2016. The company expects the NRU to be fully operational in the first quarter of 2017;
• In November, 2016, the company received dividends of approximately $300,000 from KUBGAS Holdings Ltd., which owns 100 per cent of KUB-Gas. The NBU eased certain capital controls by allowing limited dividends;
• The Makeevskoye-23 (M-23) well was drilled by KUB-Gas to the target depth of 2,550 metres. The well drilled multiple objectives, and three targeted reservoirs appeared to be gas saturated based on electric log evaluation. The B-7 reservoir tested gas in a tight sand formation, and KUB-Gas recently performed a fracture stimulation on the reservoir, with the results pending;
• In Nov. 30, 2016, the company signed a new Pelicourt line of credit agreement that will be effective at the expiring of the current agreement, being Jan. 31, 2017. The line of credit will be the $2-million currently outstanding with no additional amount available to be drawn down. The interest rate was amended from the current 9 per cent to 12 per cent. The due date was extended from Jan. 31, 2017, to Jan. 31, 2019, and the interest will continue to be paid semi-annually. In addition, Pelicourt was granted security over Gastek, which indirectly owns the 35-per-cent interest in KUB-Gas. The security is available on an event of default and limited only to the amount owing on the line of credit including principal and interest. The security component of the agreement is subject to approval, including regulatory approval, and may be subject to minority shareholder approval.

 

Financial highlights:

 

• Netbacks of $20.89 per barrel of oil equivalent or $3.48 per thousand cubic feet equivalent for the quarter ended Sept. 30, 2016, as compared with netback of $14.88 per barrel of oil equivalent or $2.48 per thousand cubic feet equivalent for the comparative 2015 quarter. In addition, netbacks were $18.20 per barrel of oil equivalent or $3.03 per thousand cubic feet equivalent for the second quarter of 2016. Netbacks in 2016 improved as a result of the reduced royalty rate effective Jan. 1, 2016, but somewhat offset by lower natural gas prices;
• Revenue from hydrocarbon sales for the three months ended Sept. 30, 2016, was zero due to temporary suspension of the RK field from April 1, 2016 ($700,000 in 2015);
• Revenue from hydrocarbon sales by KUB-Gas for the three months ended Sept. 30, 2016, was $10.4-million ($14.2-million in 2015), of which the company's 35-per-cent (30 per cent in 2015) share was $3.6-million ($4.2-million in 2015);
• The total pro rata revenue from hydrocarbon sales, a non-IFRS (international financial reporting standards) measure combining the company's revenue and 35 per cent of the allocated KUB-Gas revenue, totalled $3.6-million ($4.9-million in 2015) for the three months ended Sept. 30, 2016;
• The company's net income from its 35-per-cent equity investment in KUB-Gas for the quarter ended Sept. 30, 2016, was $1.5-million ($800,000 in 2015), which improved as a result of the reduced natural gas royalty rate;
• Commencing August, 2016, the company's 100-per-cent-owned subsidiary, Tysagaz, began taking possession of its 35-per-cent ownership of gas produced at KUB-Gas. Tysagaz purchased the gas from KUB-Gas at the same price that KUB-Gas sold its gas to an affiliate of the majority shareholder of KUB-Gas. The company agreed to this arrangement so it could attempt to earn additional net income over the gas sales price sold to the affiliate of the majority shareholder. During three months ended September, 2016, the company recorded $2.2-million in gas sales and $2.1-million in cost of the sales for a net profit from gas trading of $100,000, as compared with no such transactions during 2015;
• The net income for the company for the three months ended Sept. 30, 2016, was $2.2-million or one cent per share ($200,000 net loss or zero cent per share in 2015);
• There were $300,000 in capital expenditures for the quarter ended Sept. 30, 2016 (none in 2015) related to the acquisition of the NRU. The pro rata capital expenditures, a non-IFRS measure combining the company's capital expenditures and 35 per cent of the allocated KUB-Gas capital expenditures, were $1.3-million for the quarter ended Sept. 30, 2016 ($400,000 in 2015);
• During the three months ended Sept. 30, 2016, the company's Ukrainian subsidiaries received proceeds of $3-million from KUB-Gas pursuant to unsecured, non-interest-bearing loan agreements between the parties. The loans are due and payable on May 31, 2019, and July 31, 2019;
• With the current limited working capital, temporary suspension of the RK field, dividend restrictions, currency fluctuations, reliance on a limited number of customers and impact on carrying values, the company may not have sufficient cash to continue the exploration and development activities. These matters raise significant doubt about the ability of the company to continue as a going concern and meet its obligations as they become due.

 

 

  (in thousands of U.S. dollars, except per-share amounts or otherwise indicated) Three months ended Sept. 30, Nine months ended Sept. 30, 2016 2015 2016 2015 Petroleum and natural gas revenue $ - $ 655 $ 1,456 $ 3,287 Pro rata petroleum and natural gas revenue 3,634 4,919 13,410 17,317 Revenue from gas trading 2,122 - 2,122 - Net income (loss) 2,199 (214) 4,239 (2,088) Income (loss) per share basic and diluted 0.01 (0.00) 0.01 (0.01) Funds generated from operations (921) (391) (1,996) (949) Pro rata funds generated from operations 1,821 752 5,362 775 Capital expenditures 301 - 463 127 Pro rata capital expenditures 1,310 379 1,647 4,332 Pro rata netback ($/boe) 20.89 14.88 21.71 12.64 Pro rata netback ($/mcfe) 3.48 2.48 3.62 2.11 Sept. 30, 2016 Dec. 31, 2015 Working capital (deficit) $ 822 $ (1,722) Cash and cash equivalents 3,611 1,360 Long-term debt 5,198 2,000 

 

Outlook

The company has reinitiated material capital expenditures in 2016 in light of the recently reduced royalty rate of 29 per cent effective Jan. 1, 2016. The company expects KUB-Gas to drill one new well in the first quarter of 2017, which will be self-financed by KUB-Gas. In western Ukraine, the company expects to perform the RK-1 recompletion in the fourth quarter of 2016 and to purchase and ship the compressors for the NRU. The goal is to resume production at the RK field in the first quarter of 2017. Also in western Ukraine, CNG expects to shoot a 118-square-kilometre 3-D seismic program when weather conditions permit.