Zoltav, the Russia-focused oil and gas exploration and production company, announces results for the six months ended 30 June 2021.

Financial Summary

• Revenues increased by 37% to RUB 755 million (Н1 2020: RUB 552 million), due to the increase in production (21%) and the positive impact of gas prices
• Total cost of sales increased by 10% to RUB 421 million (Н1 2020: RUB 381 million)
• Operational and G&A costs increased by 18% to RUB 125 million (Н1 2020: RUB 106 million), mainly due to increases in staff costs
• Operating profit increased by 232% to RUB 289.1 million (Н1 2020: RUB 87.2 million), mainly due to the revenue increase, decreases in depreciation and lower impairment charge 
• Profit before tax increased by 1,131% to RUB 230.2 million (Н1 2020: RUB 18.7 million)
• Net cash generated from operating activities decreased by 16% to RUB 221 million (Н1 2020: RUB 262.5 million, mostly due to the impact of tax credits being received in 2020 in relation to COVID-19 and debts due in 2019 from Mezhregiongaz being received in 2020
• Total cash at the end of the period was RUB 90 million (Н1 2020: RUB 31 million)

Shareholder Loan

• The Company has been unable to repay or refinance the shareholder loan (announced on 14 July 2020 and extended most recently on 21 June 2021) and therefore will convene a General Meeting to seek authority to issue new ordinary shares pursuant to the agreed conversion terms of 27 pence per share (if such conversion is requested)

Operational Summary

• Programme of technical works on the West Bortovoy fields continued in H1 2021
• Further progress made on East Bortovoy project development including in contractor and equipment selection and technical planning
• Project final investment decision remains subject to financing

Average net daily production (sold to customers) in Н1 2021 was:

• 29.7 mmcf/d (0.84 mmcm/d) of gas (Н1 2020: 24.3 mmcf/d (0.69 mmcm/d))
• 221.2 bbls/d (28.2 t/d) of oil and condensate (Н1 2020: 215 bbls/d (27.5 t/d))

Lea Verny, Independent Non-executive Chairman, commented:
"Average production for sale from the Bortovoy Licence increased by 21% in H1 2021, as a result of the rolling programme of technical works on the West Bortovoy fields. This positive operational performance is reflected in the Company's improved revenues.

The Company made further progress on the East Bortovoy project and is in the advanced stages of negotiations for project finance with two major Russian banks. The Board believes a development of the East Bortovoy fields is essential to ensuring the long-term financial security of the Company.

It should be noted that the terms of both project finance packages potentially available to the Company include conditions which are likely to restrict intra group transfers and cash outflows from the Group's main operating subsidiary, Diall Alliance. As a consequence, the Company would be unable to maintain the listing of its ordinary shares on AIM on an ongoing basis. Further updates will be provided in due course."

Review of Operations

Production
Production for sale from the Bortovoy Licence, Saratov, averaged 5,178 boepd (706 toepd) during H1 2021, a 21% increase when compared to 4,257 boepd (581 toepd) in H1 2020.

Average net daily production (sold to customers) during H1 2021 was 29.7 mmcf/d (0.84 mmcm/d) of gas and 221 bbls/d (28.2 t/d) of oil and condensate (H1 2020: 24.3 mmcf/d (0.69 mmcm/d) of gas and 215 bbls/d (27.5t/d) of oil and condensate).

Overall, in H1 2021, the Company produced approximately:

• Natural gas: 5.4 bcf (152 mmcm) or 0.9 mmboe (122 mtoe) (H1 2020: 4.4 bcf (125 mmcm) or 0.7 mmboe (100 mtoe))
• Oil and condensate: 40,040 bbls (5,101 t) (H1 2020: 39,216 bbls (4,996 t))

The Western Gas Plant continued to operate efficiently throughout H1 2021 with no shutdowns.

Operations at the plant have continued throughout the COVID-19 global pandemic without interruption. Additional measures to mitigate the risk of infection, including additional cleaning and personal protective equipment, remain in place.

Development

West Bortovoy
The well stock producing from the two currently producing Permian fields (Zhdanovskoye and Karpenskoye) consists of 16 gas wells and two oil wells working via artificial lift. A programme of technical works continued in H1 2021:

• Karpenskoye Well 52 underwent workovers in February and June 2021 to transition to the overlying horizon
• Karpenskoye Well 17 underwent workovers in March and May 2021 to transfer to the overlying horizon
• Karpenskoye Well 117 had repair and installation works undertaken in March 2021, and underwent a workover in May 2021 to transition to the underlying horizon
• Karpenskoye Well 13 had repair and insulation works undertaken in March 2021

Works continued post period end:

• Karpenskoye Well 18D and 21D were spudded in July and August, and are scheduled to be put on production in September and October 2021
• Karpenskoye Well 12D saw the replacement of an electrically driven centrifugal pump in July, which has supported production from the well since August 2021 
• Preparatory work has been completed at Zhdanovskoye Well 103 ahead of bottomhole treatment, which the Company hopes will improve production rates from the well

Daily production of Zhdanovskoye Well 106 and 105 (put on production in July and September 2020 respectively) exceeded planned volumes. These, together with the two standalone vertical wells, and 7.2 km looping pipe to avoid bottlenecking, which were completed in 2020, are contributing to the improved production performance.

East Bortovoy
During H1 2021, the Company made further progress on the East Bortovoy project following the completion of the feasibility study which was undertaken in 2020, including in contractor and equipment selection and technical planning. Should the Company ultimately take a positive final investment decision, subject to financing, the progress which is being made on project development is expected to improve project implementation timelines.

A project final investment decision is subject to successful negotiations of binding terms for project finance from major Russian banks. Considering the natural decline in production from the West Bortovoy fields and the substantial capital required to maintain a rolling programme of technical works and development drilling, management believes a development of the East Bortovoy fields is essential to ensuring the long-term financial security of the Company.

The Company is in the advanced stages of negotiations for project finance with two major Russian banks and will provide a further update in due course.

Koltogor
The Koltogor Licences in the Khantiy Mansisk Autonomous Okrug, Western Siberia are not currently a focus of investment, however management continues to seek out potential routes to monetise these licences.

KeyFacts Energy: Zoltav Resources Russia country profile