Kulczyk Oil Announces Q1 2012 Financial & Operating Results
Kulczyk Oil Ventures Inc. (“Kulczyk Oil”, “KOV” or the “Company”), an international upstream oil and gas exploration and production company, is pleased to announce its financial and operating results for the quarter ended 31 March 2012. All of the Company’s production and revenue is derived from four licences in Ukraine owned and operated by KUB-Gas LLC (“KUB-Gas”), a subsidiary in which KOV has a 70% effective ownership interest. All dollar amounts are expressed in United States currency.
- Gross revenue from hydrocarbon sales by KUB-Gas increased more than 350% to $21.8 million (2011: $4.8 million) of which KOV’s 70% share would amount to $15.3 million (2011: $3.4 million).;
- KOV’s net operating cash flow was $10.83 million compared to $1.95 million in Q1 2011;
- Natural gas netback (after royalty and production expenses) increased by 88% to $8.45 per thousand cubic feet (“Mcf”) from $4.50 per Mcf in Q1 2011;
- Condensate netback increased 47% to $56.45 per barrel from $38.29 per barrel in Q1 2011;
- Average prices received during Q1 2012 of $11.76 per Mcf for natural gas and $95.19 per barrel for condensate;
- In Q1 2012, KOV’s earnings before income taxes amounted to $4.94 million.
- Natural gas production, net to KOV, increased to more than 13 million cubic feet per day (“MMcf/d”) as an average for the three months ended March 31, 2012 compared to an average of 4.23 MMcf/d in Q1 2011;
- Condensate production for the quarter, net to KOV, averaged 141 barrels per day;
- Combined average of 13.8 million cubic feet per day of gas equivalent (“MMcfe/d”) is a 211% increase when compared to Q1 2011;
- Olgovskoye Licence converted from a 5-year exploration license to a 20-year production licence;
- M-21 cased to total depth (“TD”) - two potential gas-bearing zones identified and ready for testing;
- O-6 and O-8 wells fracture stimulated in late 2011, and were both tied-in for commercial production;
- O-18 well tied-in for commercial production;
- Brunei Block L term extension granted until 27 August 2013.
Tim Elliott, President and Chief Executive Officer of KOV, commented:
“The first quarter of 2012 has seen continued growth in production volumes in Ukraine, with commodity prices for both natural gas and condensate remaining strong throughout the period. The combined effect of price and production volumes has resulted in positive earnings and significant cash flow being generated from operating activities. With the conversion of the Olgovskoye and Makeevskoye licences to 20-year production licences, the ceiling on production levels has been removed, and perhaps more importantly, we now have the certainty that comes from much longer license terms.
At the time of our IPO on the Warsaw stock exchange in May 2010, gross production from our licenses in Ukraine totalled approximately 5 MMcf/d (3.5 MMcf/d net to KOV) and our target was to increase production to 18.6 MMcf/d (13 MMcf/d net to KOV) by 2015. As of the end of March 2012, gross production from the Ukraine licenses was 21.4 MMcf/d (15 MMcf/d net to KOV) and future production from M-21 will add to this. While the results of our work in Ukraine speak for themselves, it is worth highlighting the fact that we are not only running three years ahead of schedule, we have significantly exceeded forecasts and expectations on this project. One of the reasons for this acceleration is that we have had exploration success, something which is perhaps not properly appreciated. We fully expect to continue to exceed expectations on this project as we go forward. Our Ukrainian assets provide a strong and stable production base, and balance the higher risk/higher reward exploration assets in Brunei which provide an opportunity for potentially very meaningful asset growth in the future.”
All of KOV’s production is from Ukraine. Production volumes have increased significantly for the first quarter of 2012 compared to the same period in 2011. During the first three months of 2012, four wells on the Olgovskoye Licence have been tied-in and brought onto production and one new well (M-21) was drilled on the Makeevskoye Licence.
Production, net to the 70% interest of KOV, increased to 13.866 MMcfe/d, an increase of more than 210% year-on-year (4.460 MMcfe/d in Q1 2011). Gas production for Q1 2012, net to KOV, averaged more than 13 MMcf/d compared to an average of 4.23 MMcf/d for Q1 2011, an increase of 208% year-on-year.
Production has increased by approximately 55% as compared to the prior quarter when production averaged 8.97 MMcfe/d.
Major contributors to the substantial production growth in the first quarter have been:
- the O-12 well which went on production at a gross rate of 4.6 MMcf/d (3.2 MMcf/d net to KOV) in early January;
- the O-6 well which was fracture stimulated in Q3 2011 and is now producing at a gross rate of approximately 1 MMcf/d;
- the O-8 and O-18 wells which were tied-in for commercial production at gross rates of more than 1 MMcf/d of natural gas from each well.
Revenue from hydrocarbon sales increased by 53% in Q1 2012 compared to Q4 2011 and by 350% when compared with Q1 2011. The 70% share of sales revenue attributable to KOV, net of royalties, increased to $12.3 million (100% interest: $14.5 million) in Q1 2012. Since the acquisition of its 70% interest in KUB-Gas in June 2010, KOV’s share in KUB-Gas generated gross production revenue has amounted to $46.2 million.
The prices received for natural gas continued to be strong during the first quarter of 2012 at $11.76 per Mcf, a slight increase over the $11.75 per Mcf received during the Q4 2011 however 46% higher than the $8.03 per Mcf realized during the three months ended 31 March 2011. The condensate price was $95.19 per barrel during the first quarter, up from the $84.53 per barrel realized in the same period in 2011.
Increased sales volumes and the improved selling price for natural gas contributed to an increase in the netback per Mcf to $8.45 during Q1 2012 compared to $4.50 during the same period in 2011.
During the first three months of 2012 the Company completed the following projects in Ukraine:
- Tie-in of the O-12, O-6, O-8 and O-18 wells which has resulted in more than a 50% increase in total production;
- Drilling of the M-21 well to a TD of 2,210 metres with two potential gas-bearing zones which are expected to be tested in Q2 2012;
- Conversion of the Olgovskoye Licence from a five-year exploration licence to a 20-year production licence; and
- Completion of a 223 km2 3D seismic survey over the North Makeevskoye Exploration Licence.
KOV filed its first quarter operating and financial results on 4 May 2012 in Canada by filing on SEDAR (www.sedar.com) and in Poland by filing on ESPI (www.gpwinfostefa.pl) and has posted them on its website at www.kulczykoil.com.
Production information is commonly reported in units of barrel of oil equivalent (“boe” or “BOE”) or in units of natural gas equivalent (“Mcfe”). However, BOEs or Mcfes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 barrel, or an Mcfe conversion ratio of 1 barrel:6 Mcf, is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
About Kulczyk Oil
Kulczyk Oil is an international upstream oil and gas exploration company with a diversified portfolio of projects in Ukraine, Brunei and Syria and with a risk profile ranging from exploration in Brunei and Syria to production and development in Ukraine. The common shares of Kulczyk Oil trade on the Warsaw Stock Exchange under trading symbol “KOV”.
In Ukraine, KOV owns an effective 70% interest in KUB-Gas LLC. The assets of KUB-Gas consist of 100% interests in five licences near to the City of Lugansk in the northeast part of Ukraine. Four of the licences are gas producing.
In Brunei, KOV owns working interests in two production sharing agreements which gives the Company the right to explore for and produce oil and natural gas from Block L and Block M. KOV owns a 90% working interest in Block L, a 1,123 square kilometre area covering onshore and offshore areas in northern Brunei and a 36% working interest in Block M, a 1,505 square kilometre area onshore in southern Brunei.
In Syria, KOV holds a participating interest of 50% in the Syria Block 9 production sharing contract which provides the right to explore for and, upon fulfilment of certain conditions, to produce oil and gas from Block 9, a 10,032 square kilometre area in northwest Syria. The Company has an agreement to assign a 5% in ownership interest to a third party which is subject to the approval of Syrian authorities, and which, if approved, would leave the Company with a remaining effective interest of 45% in Syria Block 9.
The main shareholder of the Company, Kulczyk Investments S.A., owns approximately 44% of the issued common shares. Kulczyk Investments S.A. is an international investment house founded by Polish businessman Dr Jan Kulczyk.
Translation: This news release has been translated into Polish from the English original.
Forward-looking Statements This release contains forward-looking statements made as of the date of this announcement with respect to future activities of KOV and of KUB-Gas and related to the five license areas (Vergunskoye, Krutogorovskoye, Makeevskoye, North Makeevskoye and Olgovskoye) in Ukraine owned by KUB-Gas and to certain wells drilled within those licence areas that are not historical facts and to future activities of the Company in Brunei. Although the Company believes that its expectations reflected in the forward-looking statements are reasonable as of the date hereof, any potential results suggested by such statements involve risk and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Various factors that could impair or prevent the Company from completing the expected activities on its projects include that the Company's projects experience technical and mechanical problems, there are changes in product prices, failure to obtain regulatory approvals, the state of the national or international monetary, oil and gas, financial , political and economic markets in the jurisdictions where the Company operates and other risks not anticipated by the Company or disclosed in the Company's published material. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties and actual results may vary materially from those expressed in the forward-looking statement. The Company undertakes no obligation to revise or update any forward-looking statements in this announcement to reflect events or circumstances after the date of this announcement, unless required by law.
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