MALKA OIL: INTERIM REPORT JANUARY - SEPTEMBER 2009
(Thomson Reuters ONE) - * Turnover for the 3rd quarter amounted to TSEK 37,716 (TSEK 57,857)* Operating profit for the 3rd quarter amounted to TSEK -36,653 (TSEK -21,470)* Result after financial items for the 3rd quarter amounted to TSEK -65,566 (TSEK -90,351)* The net result after tax for the 3rd quarter amounted to TSEK -62,982 (TSEK -85,883)* Turnover for the January-September period amounted to TSEK 97,730 (TSEK 129,787)* Operating profit for the January-September period amounted to TSEK -93,256 (TSEK -44,969)* The net result after tax for the January-September period amounted to TSEK -450,023 (TSEK -120,699)* Earnings Per Share for the January-September period was SEK -0.18 (SEK -0.41)MD's ReportDear Shareholders,During the third quarter, we have continued to stabilize thesituation in the company. We put the highest priority on reopeningthe pipeline in order to be able to increase production and to avoidcostly oil deliveries by truck. By mid September, all necessarypermits had been obtained and the pipeline could be reopened. We havealso reviewed all other infrastructure to ensure that the necessarypermits are valid.We are working actively to make our production process more efficientand cost effective. During the autumn, we have installed three newbeam pumps. The efficiency work has resulted in savings and I canmention that production cost expressed in SEK per produced barrel ofoil was approximately 30% lower during the first nine months 2009 ascompared to the same period 2008.When commenting upon our result, I am far from satisfied but I wouldlike to highlight a few negative factors that the company has beenunable to influence.Obviously the oil price development has been detrimental this year ascompared to 2008. In USD terms, the average sale price realized byour subsidiary in Tomsk during January-September this year wasapproximately 27 USD/barrel of oil as compared to a price ofapproximately 54 USD/barrel during the same period 2008.Furthermore, our result has been exposed to large fluctuations in theexchange rates of the USD and Russian rouble in 2009. Out of thefinancial costs of 110 million SEK in the January-September period,only 10 million SEK were interest paid with a cash flow impact. Inour report for the second quarter, we described the specific one-offfinancial cost of approximately 225 million SEK which arose in theaccounts as a result of the revised terms for the early conversion ofconvertible bond loans.Finally, the company has taken a number of one-off costs andwrite-downs linked to financial and other problems that arose during2008.On the other hand, if we analyze the trends in our operations we seeimprovements. I already mentioned the decrease in our productioncosts. We have also seen a dramatic reduction in our selling anddistribution expenses in 2009 as compared to in 2008 and from a cashflow perspective, the company had a positive cash flow from currentoperations in the third quarter.Another positive development is that the company has obtained SwedishVAT registration and during the third quarter received a refund ofall Swedish VAT paid since 2005. Going forward, this will reducecosts in the parent company.I feel that all the efforts by our employees have led to concreteresults and that we now have a stronger company than when I joined asManaging Director half a year ago. We now have a good base to startfrom when we engage in the work to develop our business plan for thecoming year.Maks GrinfeldManaging Director Malka Oil ABComment on the Group's result and financial positionTurnover and resultTurnover for the January-September period amounted to TSEK 97,730(TSEK 129,787), of which revenues from oil sales were TSEK 97,370(TSEK 127,083).Gross profit amounted to TSEK 475 (TSEK 7,268). This amount includesan amortization charge of TSEK 12,803 (TSEK 11,141).Selling and distribution expenses were TSEK -2,986 (TSEK -18,659).These expenses have decreased significantly compared to earlierreport periods following the conclusion of a new more advantageouscontract with Tomskayaneft for treatment and pumping of produced oilinto Transneft's system.Administrative costs and other operating expenses amounted in totalto TSEK -90,745 (TSEK -33,578). A number of one-off costs related tothe company's financial difficulties and the debt restructuringprocess have been booked as other operating expenses. Specifically,damages and fees amounting to TSEK 18,780 arose in the second quarterand in the third quarter, a provision of approximately TSEK 18,000was made for a doubtful receivable from OOO Kupir.Operating profit for the January-September period amounted to TSEK-93,256 (TSEK -44,969).Net financial items for the January-September period amounted to TSEK-334,169 (TSEK-77,879). Part of this amount is a financial cost of TSEK -225,549which has arisen in the accounts during the second quarter as aresult of the revised terms for early conversion of the convertiblebond loans. This cost is shown as a separate financial cost and doesnot have any impact on the cash flow. This cost also does not impactthe reported equity capital of the company. The predominantproportion of the remaining financial costs amounting to TSEK-110,377 consists of currency exchange rate losses with no impact oncash flow. The amount of interest paid with an effect on cash flowduring the January-September period was only TSEK 9,775. Thefinancial costs during the third quarter amounting to TSEK -29,990were exclusively attributable to currency exchange rate losses.The tax cost for the period amounted to TSEK -22,598 (TSEK -2,149).This amount includes a dissolution of deferred tax assets in theRussian subsidiaries of TSEK 23,381 which has impacted the Group'sresult negatively. This dissolution, which does not have any impacton cash flow, has been made based on the assessment that the lossescarried-forward accumulated in the subsidiaries during earlierperiods not will be fully usable in future periods.The Group reports a net result after tax for the period 1 January-30September 2009 of TSEK -450,023 (TSEK -120,699), equivalent to anearnings per share of SEK -0.18 (SEK -0.41).InvestmentsInvestments in tangible and intangible fixed assets in the Groupduring the period January - September 2009 amounted to TSEK 24,363(TSEK 331,951), of which investments in intangible fixed assetsrepresented TSEK 24,086 (TSEK 327,009).Valuation of assetsIn line with what has been earlier communicated the company is in theprocess of evaluating its strategic opportunities. In this process,the company is looking at possibilities to acquire other companies ornew licences or as an alternative to sell companies. The outcome ofthis evaluation process may influence the valuation of the company'sassets. A detailed impairment test will be made at the time of theannual report for 2009.VAT- registrationDuring the 3rd quarter, the company applied for VAT registration andafter it was granted applied for and received retroactively a refundof all VAT paid by the parent company during the whole period of itsactivity.Financing and liquidityIn the beginning of 2009, the company's financial situation was verydifficult and the board of directors made a proposal for a financialrestructuring as a way to solve the financing requirements.The proposal consisted of two parts:- an offer to holders of convertible bonds of early conversion intoshares of the two outstanding convertible bond loans of nominallyMUSD 80;- a new rights issue under the special condition that the convertiblebond owners must accept their offer in full for the rights issue togo through.The proposal was accepted by the convertible bond holders andshareholders and the conversion of the convertible bond loan and therights issue were according to the decisions executed in April 2009which led to a reduction of the company's interest bearing debt ofapproximately 640 million SEK. As a result of these actions, theGroup balance sheet has been significantly strengthened and the Groupdoes not as of 30 September have any outstanding long- term interestbearing debt.The new board of directors immediately started a process to determinethe long-term financing needs of the company. This work is stillon-going.Cash balances in the Group amounted to TSEK 3,779 (TSEK 134,386) asof September 30, 2009. The company has a commitment from one of themajor shareholders concerning a temporary bridge financing if thereshould be a need for this in the short term.Legal disputesMalka Oil's Russian subsidiary, OOO STS-Service, is as of todayinvolved in legal disputes with two local suppliers: OOO Kupirconcerning construction work and OOO EERB concerning drilling work.Since the last quarterly report, these suppliers have presented newclaims, all of which are disputed by OOO STS-Service. Malka Oil inits annual report for 2008 made a provision concerning its totaloutstanding receivable from OOO EERB amounting to approximately 270million RUR corresponding to approximately 70 million SEK. Since OOOKupir now is in a procedure of bankruptcy, it has been necessary tomake a provision also concerning the receivable from OOO Kupir. Thismeans that the company's income statement during the 3rd quarter hasbeen charged with a cost of approximately 75 million RURcorresponding to approximately 18 million SEK.Legal disputes with other suppliers are regulated by settlementagreements and the board of directors in Malka Oil sees no need forfurther provisions due to these disputes.EmployeesThe number of employees in Group companies at the end of the reportperiod was 172 (239), of which 39 (35) were women and 133 (204) weremen. The comparative figures from the previous year include personnelworking for Group companies but formally employed in Managementcompany Malca.Major events during the report periodCEO-letter to shareholders was published on July 10, 2009Newly appointed CEO together with the Board of Directors conductingan audit of the company's reserves, production targets and the futureorganization. Sergey Sedunov is re-employed as CEO for Malka Oilssubsidiary "STS Management" and Elena Alatartseva is appointed asvice president of "STS Management". A constructive dialogue withauthorities and creditors is entered and the new management goesthrough existing disputes and debts in order to regulate these.CEO-letter to shareholders was published on August 17, 2009The Board of Directors and management in Tomsk continue to strengthenthe company's position. The company is working on obtaining allnecessary permits for the pipeline that was built for connection toTomskayaneft without necessary authorization. Meanwhile the technicalinspection of the pipeline was carried out in order to prepare it foroperation, which is expected to occur during the middle of September.A new contract was renegotiated and signed with SIBNINP (Thegovernmental engineering office in Tyumen) on the amount of 89million rubles, which corresponds to approximately 20 million SEKaccording to the today exchange rate. 31 million rubles of thisamount are already paid. Their work is expected to be complete by theyear-end 2009.Ministry of Natural Resources conducted an audit of all licensesissued in Tomsk region which is used to happen every six months andno objections were noted on STS-service license.During autumn it is planned to complete the work on well 210 which islocated between Zapadno-Luginetskoye and Lower Luginetskoye (ZL andLL) oil fields in order to confirm that these two fields areconnected into one large oil deposit which would lead to higherreserve estimates for these two fields.The company is currently producing oil from 10 wells, of which sevenare equipped with submersible electric pumps and three are workingunder self-pressure that must be built up intermittently. It is not aprofitable way to extract oil, therefore it has been invested intothree new land located pumps. These pumps and other equipment will bedelivered during the autumn and then installed. Oil production intotal is estimated to 2,300 barrels per day by the year-end 2009.Malka Oil's subsidiary, STS-Service engaged a law firm in Tomsk toassist with legal expertise. Their work aims to review all agreementswith two key suppliers "EERB" and "Kupir". Other suppliers havesigned new contracts with and STS-Service completes the instalmentplan without any delay.Malka Oil: The pipeline is in operationAfter the intensive and demanding work performed by our personnel atSTS-Service in Tomsk the extensive documentation has been completedand submitted to the authorities for issuing of construction andoperating permissions. All documents have been approved and signed byall the authorities concerned and as of September 18, 2009 thepipeline is back into operation. All oil is now transported by thepipeline to Tomskayaneft and then is shipped into the Russianpipeline system, Transneft.Work with production improvements, cost savings and updating ofreserves is going intensively and more details about this will bepresented later.OperationsSummaryMalka Oil AB is an independent Swedish oil company within explorationand production active in Tomsk region in western Siberia in Russia.The subsidiary OOO STS-Service owns an oil licence valid for 25 yearsas from April 2005, which gives the company the right to extract allhydrocarbons found within the Tomsk licence block during the licenceperiod. The licence block measures just over 1,803 square kilometres,corresponding to an area of approximately 30 times 60 kilometres andis located in the very active oil and gas producing north westernpart of the Tomsk region. The licence block is surrounded by a largenumber of established producing oil and gas fields.Drilling on the licence block commenced during the Soviet era. TheSoviet authorities drilled four wells, three of which discoveredhydrocarbons, i.e. oil, gas and gas condensate. A vast amount of 2Dseismic data was collected which indicated a volume of approximatelyone million tons (which is about eight million barrels) ofrecoverable oil reserves classified in accordance with Russiancategories "Proven" (C1) and "Probable" (C2).Besides the four oilfields that are currently establish in thelicence block, Malka Oil has, based on existing seismic data,identified another seven structures, i.e. potential oil fields. Afurther important dimension that indicates additional potential inMalka Oil's licence block is that there was no seismic data forapproximately a third of the licence block and the data acquisitionfor this area was completed during spring 2008. After two seasons ofseismic data gathering and interpretation, Sibneftegeofizika, areputable Siberian oil service company has presented a seismic reportcovering Malka Oil's license block nr 87 in the Tomsk region. Thisnew report identifies four new potential oil bearing structures inaddition to the seven communicated earlier. These will be subject toexploration drilling over the next few years.For further information, please contact:Maks Grinfeld, MD, tel; +46 768 077 614Sven-Erik Zachrisson, Chairman of the Board of Directors, tel: +46 841 05 45 96For further information on Malka Oil AB, see the websitewww.malkaoil.se(for complete report see attached file)http://hugin.info/138739/R/1358163/330595.pdfThis announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 30.11.2009 - 18:12 Uhr
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