Alliance Oil Company Ltd: Interim report for the quarter and six months ended 30 June 2013

Transcription

1 Alliance Oil Company Ltd: Interim report for the quarter and six months Revenue of MUSD 906.6, up 11% from Q EBITDA of MUSD 173.1, up 30% from Q Profit before tax of MUSD 59.3, up 102% from Q Currency exchange loss of MUSD 19.8 negatively affected profit before tax. Profit for the period of MUSD 40.0, up 108% from Q Eurobond offering of MUSD 500 completed in May Preference shares issue raised MUSD 100 in June Revenue of MUSD 1,788.9, up 10% from six months EBITDA of MUSD 324.0, down 8% from six months Profit before tax of MUSD 122.9, down 41% from six months Profit for the period of MUSD 84.1, down 47% from six months Transactions completed to form joint venture with Repsol. Launch of gas production in Tomsk region and Khanty-Mansiysk region. Consolidated crude oil and gas production, boepd 61,773 53,546 58,749 54,968 Refining volume, bopd 85,026 78,404 85,980 76,673 Revenue, MUSD , ,632.3 EBITDA, MUSD Profit before tax, MUSD Profit for the period, MUSD Basic earnings per ordinary share, USD Diluted earnings per ordinary share, USD Alliance Oil Company Ltd is a leading independent oil company with vertically integrated operations in Russia and Kazakhstan. Alliance Oil has substantial oil and gas reserves and downstream operations that include the Khabarovsk refinery and the leading network of gas stations and wholesale oil products terminals in the Russian Far East. Alliance Oil's depository receipts are traded on the NASDAQ OMX Nordic under the symbol AOIL.

2 Dear Shareholders, Alliance Oil Company demonstrated solid financial and operational performance in the second quarter of The macro environment remained supportive despite a slight decrease in international crude prices and depreciation of the RUB against the USD. Consolidated Revenue and EBITDA grew by 3% and 15% respectively compared to the previous quarter. Net income was negatively affected by currency exchange losses. Consolidated daily production of hydrocarbons increased by 11% quarteron-quarter, as the Сompany recorded its first full quarter of gas operations, following the production launch in February. Refining volumes were almost flat in the reporting period. In the upstream segment, production growth was primarily driven by gas and gas liquids in the Tomsk and in the Khanty-Mansiysk regions. Total production, including non-consolidated equity interests, increased by almost 16% quarter-on-quarter. In the downstream segment, the refinery average daily run-rate remained near capacity despite the scheduled maintenance works in April The Company sold 8.3 million barrels of oil products in the second quarter of 2013 compared to 7.6 million barrels in the previous quarter. The downstream segment s margin recovered quarter-on-quarter. During the quarter the Company successfully placed 7-year unsecured Eurobonds for a total amount of MUSD 500 and Preference shares for a total amount of almost MUSD 100. While total debt increased, the net debt to EBITDA ratio improved from 2.7 in the first quarter to 2.5 in the reporting period. Outlook In July 2013 the total hydrocarbon production reached 67,200 barrels of oil equivalent per day, including about 5,300 boepd from the joint venture with Repsol. The Company is well on track to meet its double digit production growth target this year supported by the expanding gas operations and the development of joint venture operations. In the downstream segment, the market environment is traditionally strong. In July, the refinery runrate exceeded 95,000 bopd and remains near these levels. Despite high demand for oil products, the unprecedented water flooding in the Russian Far East might affect the sales volumes and operational performance in the current quarter. The Khabarovsk refinery modernisation program is in the final stages with several new units near completion and scheduled for testing in coming months. The actual progress in the construction works during this summer and weather related issues will somewhat postpone the launch dates for the hydroprocessing complex and the connection to the ESPO-pipeline. Currently the modernised refinery and ESPO connection are still expected to be fully tested and operational early next year. The completion of the refinery modernisation project and the ESPO connection mark the end of the current investment cycle through which Alliance Oil has significantly upgraded the foundation for operating in the Far Eastern oil products markets. Arsen Idrisov, Managing Director 2

3 Financial Highlights (Expressed in USD thousands) 31 March 2013 Revenue 906, ,283 1,788,918 1,632,259 Cost of sales -667, ,520-1,326,843-1,169,148 Operating income 113,190 91, , ,180 Finance costs -34,367-29,620-63,987-45,382 Profit for the period 40,032 44,078 84, ,870 EBITDA 1 173, , , ,928 Operating cash flows before changes in working capital 179, , , ,132 Total cash generated from/(used in) operating activities 195,239-25, , ,199 Total debt (at the end of the period) 2,158,714 1,985,380 2,158,714 1,747,953 Liquidity position (including restricted cash) (at the end of the period) 398, , , ,422 Net debt (at the end of the period) 1,760,433 1,809,068 1,760,433 1,625,531 Total equity (at the end of the period) 2,928,594 3,003,545 2,928,594 2,091,563 Revenue for the quarter amounted to MUSD (Q2 2012: MUSD ) and MUSD 1, for the six months period (six months 2012: MUSD 1,632.26). Revenue includes sales of crude oil and gas, oil products and other sales. Cost of sales for the quarter amounted to MUSD (Q2 2012: MUSD ) and MUSD 1, for the six months period (six months 2012: 1,169.15). Cost of sales includes production costs of crude oil and gas and oil products, depletion and depreciation of oil and gas and refining assets and cost of other sales. Finance costs for the quarter amounted to MUSD (Q2 2012: MUSD 23.25) and MUSD for the six months period (six months 2012: MUSD 45.38). Currency exchange loss for the quarter amounted to MUSD (Q2 2012: MUSD 25.89) and MUSD for the six months period (six months 2012: MUSD 6.97). Average for the quarter Average for the quarter Average for the six months Average for the six months At 30 June 2013 At 31 December 2012 Exchange rates of the Russian Rouble (RUB) to the USD For the quarter, the Group s profit attributable to the owners of the Parent company amounted to MUSD corresponding to basic earnings per ordinary share of USD 0.11 (Q2 2012: MUSD and USD 0.11 per ordinary share). The profit attributable to the owners of the Parent company for the six months period amounted to MUSD corresponding to basic earnings per ordinary share of USD 0.26 (six months 2012: MUSD and USD 0.91 per ordinary share). On 28 February 2013, dividends on preference shares of SEK 7.50 per share (in the total amount of MSEK or MUSD 5.82 as of the date of cash transfer) were paid. On 28 May 2013, dividends on preference shares of SEK 7.50 per share (in the total amount of MSEK or MUSD 5.65 as of the date of cash transfer) were paid. 1 In its own analysis of the Group s results, the Group uses EBITDA as a key performance indicator which is not a measure determined in accordance with IFRS. Please refer to section Key financial ratios and data definitions for details of EBITDA calculation. 3

4 Exploration and Production (Upstream) The Group operates upstream assets in three Russian regions: Timano-Pechora, Volga-Urals, Tomsk and in Kazakhstan. Consolidated revenue from sales of crude oil and gas for the quarter amounted to MUSD (including revenue from sales of gas and gas liquids of MUSD 12.10), which was in line with the second quarter of 2012 (Q2 2012: MUSD ). Consolidated revenue from sales of crude oil and gas for the six months period amounted to MUSD (including revenue from sales of gas and gas liquids of MUSD 17.36), which was in line with the six months 2012 (six months 2012: MUSD ). Consolidated revenue from sales of crude oil and gas for the quarter was in line with the first quarter of 2013 (Q1 2013: MUSD , including revenue from sales of gas and gas liquids of MUSD 5.27). Crude oil sales volumes, excluding intragroup sales, in the quarter are presented as follows: 60% was exported (Q2 2012: 70%), 15% was sold in the CIS market (Q2 2012: 3%) and 25% was sold in the domestic market (Q2 2012: 27%). All gas was sold in the domestic market. Crude oil and gas sales volumes and prices for export and domestic markets, excluding intragroup sales, are presented in the tables below: Crude oil Export CIS Domestic Total Sold volume (barrels) 1,583, , ,329 2,639,296 Gross price (USD/barrel) Net price (USD/barrel) Selling expenses (USD/barrel) Netback price (USD/barrel) Revenue from sales of crude oil (TUSD) 82,420 22,745 34, ,887 Gas and gas liquids Gas Gas liquids thousand cubic barrels of oil barrels of oil tonnes metres equivalent equivalent Sold volume 104, ,885 12, ,248 Gross price (USD/unit) Net price (USD/unit) Revenue from sales of gas and gas liquids (TUSD) 7,825 7,825 4,271 4,271 Crude oil Export CIS Domestic Total Sold volume (barrels) 2,089,256 80, ,856 2,974,613 Gross price (USD/barrel) Net price (USD/barrel) Selling expenses (USD/barrel) Netback price (USD/barrel) Revenue from sales of crude oil (TUSD) 98,256 3,513 40, ,076 4

5 Crude oil Export CIS Domestic Total Sold volume (barrels) 3,346, ,093 1,236,738 5,345,901 Gross price (USD/barrel) Net price (USD/barrel) Selling expenses (USD/barrel) Netback price (USD/barrel) Revenue from sales of crude oil (TUSD) 186,500 47,317 63, ,636 Gas and gas liquids Gas Gas liquids thousand cubic barrels of oil barrels of oil tonnes metres equivalent equivalent Sold volume 148, ,403 16, ,000 Gross price (USD/unit) Net price (USD/unit) Revenue from sales of gas and gas liquids (TUSD) 11,337 11,337 6,025 6,025 Crude oil Export CIS Domestic Total Sold volume (barrels) 3,868,343 95,818 1,656,886 5,621,047 Gross price (USD/barrel) Net price (USD/barrel) Selling expenses (USD/barrel) Netback price (USD/barrel) Revenue from sales of crude oil (TUSD) 212,825 4,483 88, ,736 The net prices are calculated by deducting VAT (for Russian domestic sales) or export duty (for export and certain CIS countries sales) from the gross prices. The netback prices are calculated by deducting VAT, railway and pipeline transportation costs (for Russian domestic sales) or transportation, export duty, brokers commission and certain other costs (for export sales) or transportation, brokers commission and certain other costs (for CIS countries sales) from the gross price. Consolidated oil and gas production costs for the quarter amounted to MUSD 97.17, representing 10% increase in comparison with the second quarter of 2012 (Q2 2012: MUSD 88.48). Consolidated oil and gas production costs for the six months period amounted to MUSD , representing 12% increase in comparison with the six months 2012 (six months 2012: MUSD ). The increase for the quarter and six months period was primarily due to launch of the Ust-Silginskoye gas field. Consolidated oil and gas production costs for the quarter were in line with the first quarter of 2013 (Q1 2013: MUSD ). Production and other taxes for the quarter amounted to MUSD (Q2 2012: MUSD 57.60) and MUSD for the six months period (six months 2012: MUSD ). The increase was primarily due to lower production at the Kolvinskoye oil field and therefore decrease in the share of crude oil exempt from production tax. The depletion charge for upstream assets for the quarter amounted to MUSD (Q2 2012: MUSD 36.18) and MUSD for the six months period (six months 2012: MUSD 78.18). Oil and gas assets are depleted based on 2P 2 reserves; the base for depletion includes management's best estimates of future development costs. The increase of the depletion charge for the quarter and six months period was primarily due to increase in sales volumes and future development costs based on the updated independent reserve engineer report. 2 Proved and probable. 5

6 The upstream segment operational data is presented below: Sales volume (barrels of oil equivalent) 5,565,037 4,831,258 10,529,034 9,712,933 to external customers 3,421,429 2,974,613 6,444,304 5,621,047 to intragroup companies 2,143,608 1,856,645 4,084,730 4,091,886 Revenue per barrel sold (USD/barrel) Total production costs of crude oil and gas per barrel sold (USD/barrel) Production costs Production and other taxes Depreciation, depletion and amortisation Selling, administrative and other income/expenses, net (USD/barrel) EBITDA per barrel sold (USD/barrel) The upstream segment operational data is calculated on the basis of total volume of crude oil and gas sold both to external customers and intragroup companies. Crude oil operational data is presented below: Sales volume (barrels) 4,782,904 4,831,258 9,430,631 9,712,933 to external customers 2,639,296 2,974,613 5,345,901 5,621,047 to intragroup companies 2,143,608 1,856,645 4,084,730 4,091,886 Revenue per barrel sold (USD/barrel) Total production costs of crude oil per barrel sold (USD/barrel) Production costs Production and other taxes Depreciation, depletion and amortisation Selling, administrative and other income/expenses, net (USD/barrel) EBITDA per barrel sold (USD/barrel) Gas and gas liquids operational data is presented below: Sales volume (barrels of oil equivalent) 782,133-1,098,403 - to external customers 782,133-1,098,403 - to intragroup companies Revenue per barrel sold (USD/barrel) Total production costs of gas and gas liquids per barrel sold (USD/barrel) Production costs Production and other taxes Depreciation, depletion and amortisation Selling, administrative and other income/expenses, net (USD/barrel) EBITDA per barrel sold (USD/barrel) The upstream segment EBITDA 3 for the second quarter amounted to MUSD (Q2 2012: MUSD ) and MUSD for the six months period (six months 2012: MUSD ). 3 EBITDA is based on IFRS financial information. 6

7 The Group s oil and gas reserves and production by regions are presented in the table below: (Expressed in barrels of oil equivalent) 2P oil and gas reserves 31 December 2012 Crude oil and gas production Timano-Pechora region 394,885,000 1,693,996 2,057,481 3,465,728 4,523,123 Volga-Urals region 162,824,000 1,930,070 1,861,792 3,762,486 3,637,811 Tomsk region 166,779,000 1,757, ,050 2,946,287 1,496,033 Kazakhstan 8,148, , , , ,136 Total 732,636,000 5,621,381 4,872,726 10,633,523 10,004,103 Equity interest in joint venture with Repsol 79,279, , ,687 - Gas reserves and production are presented in the table below: 2P gas reserves Gas production 31 December 2012 thousand thousand barrels of oil equivalent cubic metres tonnes barrels of oil equivalent cubic metres tonnes barrels of oil equivalent Gas 95,506, , , , ,800 Gas liquids 15,415,768-15, ,639-22, ,672 Total 110,922, ,261 1,167,472 The consolidated average production for the quarter amounted to 61,773 boepd 4 (Q2 2012: 53,546 bopd 5 ) and 58,749 boepd for the six months period (six months 2012: 54,968 bopd). The Group s equity interest in joint venture average production for the quarter amounted to 4,544 boepd and 3,114 boepd for the six months period. 44% of oil production for the quarter (Q2 2012: 50%) and 46% of oil production for the six months period (six months 2012: 52%) was exempt from production tax. The decrease in tax exempt production was primarily due to lower production at the Kolvinskoye oil field. Timano-Pechora region 3 production wells were drilled at the Kolvinskoye oil field. 1 production well was placed into production. Drilling of 3 more production wells was in progress at the end of the second quarter. 1 exploration well was drilled at the West-Osoveiskoye oil field. Volga-Urals region 13 production wells were drilled and placed into production: 10 wells at the Stepnoozerskoye oil field, 1 well at the Elginskoye oil field, 1 well at the Solnechnoye oil field and 1 well at the South- Solnechnoye oil field. Drilling of 2 more production wells was in progress at the Stepnoozerskoye oil field at the end of the second quarter. 2 exploration wells were drilled at the Kovalevskoye and West-Solnechnoye oil fields. 1 well was placed into production. Drilling of 1 more exploration well was in progress at the Kultashihskoye oil field at the end of the second quarter. Tomsk region 2 exploration wells were drilled at the North-Silginskoye gas field. Drilling of 1 more exploration well was in progress at the end of the second quarter. 4 Barrels of oil equivalent per day. 5 Barrels of oil per day. 7

8 Alliance Oil Company completed infrastructure development and commenced gas production at the Ust-Silginskoye gas field in February Kazakhstan 9 production wells were drilled and placed into production at the Zhanatalap oil field. Drilling of 1 more production well was in progress at the end of the second quarter. The average consolidated oil and gas production for July 2013 amounted to 61,842 boepd. The Group s equity interest in joint venture average production for July 2013 amounted to 5,325 boepd. Joint venture with Repsol In January 2013, Repsol and Alliance Oil Company completed the formation of the joint venture company AR Oil and Gaz BV (AROG) in which Alliance Oil Company holds 51% and Repsol 49%. Repsol contributed its subsidiary, OJSC Eurotek, to the joint venture. OJSC Eurotek owns two gas exploration and production licenses. In March 2013, OJSC Eurotek commenced commercial gas production in the Khanty-Mansiysk region in Russia. Following the transactions, AROG had 2P oil and gas reserves of approximately 318 mboe 6, out of which 163 mboe were included in the Group s consolidated oil and gas reserves, and equity interest amounted to approximately 79 mboe. Refining and marketing (Downstream) The Group operates the Khabarovsk Oil Refinery, the Alliance Oil Company gas station network, a network of wholesale oil products terminals and a sea terminal, all located in the Russian Far East and Eastern Siberia. Consolidated revenue from sales of oil products for the quarter amounted to MUSD , representing 11% increase in comparison with the second quarter of 2012 (Q2 2012: MUSD ). Consolidated revenue from sales of oil products for the six months period amounted to MUSD 1, representing 11% increase in comparison with the six months 2012 (six months 2012: MUSD 1,299.92). The increase for the quarter and six months period was primarily due to higher volumes for export (rising bunkering activity). Consolidated revenue from sales of oil products for the quarter was in line with the first quarter of 2013 (Q1 2013: MUSD ). External oil products sales volumes in the quarter are presented as follows: 60% of oil products were exported (Q2 2012: 51%), 26% of oil products were sold in the domestic wholesale market (Q2 2012: 33%) and 14% were sold through the Group s retail network (Q2 2012: 16%). External oil products sales volumes and prices for export and domestic markets are presented in the tables below: Export Wholesale market Retail market Total Sold volume (barrels) 4,936,893 2,193,640 1,155,412 8,285,945 Net price (USD/barrel) Revenue from sales of oil products (TUSD) 336, , , ,489 6 Million barrels of oil equivalent. 8

9 Export Wholesale market Retail market Total Sold volume (barrels) 3,827,713 2,529,707 1,199,474 7,556,894 Net price (USD/barrel) Revenue from sales of oil products (TUSD) 249, , , ,148 Export Wholesale market Retail market Total Sold volume (barrels) 9,527,790 3,988,840 2,327,317 15,843,947 Net price (USD/barrel) Revenue from sales of oil products (TUSD) 676, , ,592 1,440,772 Export Wholesale market Retail market Total Sold volume (barrels) 7,279,957 4,220,953 2,499,824 14,000,734 Net price (USD/barrel) Revenue from sales of oil products (TUSD) 545, , ,072 1,299,923 Refining volumes at the Khabarovsk Oil Refinery for the quarter amounted to 7.74 million barrels (Q2 2012: 7.13 million barrels) and million barrels for the six months period (six months 2012: million barrels). The average refining volumes for the quarter amounted to 85,026 bopd (Q2 2012: 78,404 bopd) and 85,980 bopd for the six months period (six months 2012: 76,673 bopd). Consolidated production costs of oil products for the quarter amounted to MUSD , which was in line with the second quarter of 2012 (Q2 2012: MUSD ). Consolidated production costs for the six months period amounted to MUSD 1, representing 13% increase in comparison with the six months 2012 (six months 2012: MUSD ). The main cost driver was increased sales volumes. Consolidated production costs of oil products for the quarter were in line with the first quarter of 2013 (MUSD ). Purchases of crude oil from third parties, included in the consolidated production costs, for the quarter amounted to MUSD (Q2 2012: MUSD ) and MUSD for the six months period (six months 2012: MUSD ). Total downstream segment purchases of crude oil from third parties and from the upstream segment for the quarter amounted to MUSD (Q2 2012: MUSD ) and MUSD for the six months period (six months 2012: MUSD ). The cost of oil products purchased for re-sale, included in the production costs of oil products, for the quarter amounted to MUSD (Q2 2012: MUSD 64.54). The increase was primarily due to increase of purchases of gasoline in order to prevent shortages caused by scheduled maintenance works at the Khabarovsk Oil Refinery. The cost of oil products purchased for re-sale, included in the production costs of oil products, for the six months period amounted to MUSD (six months 2012: MUSD ). Taxes other than income tax, included in the production costs of oil products, for the quarter amounted to MUSD (Q2 2012: MUSD 32.70) and MUSD for the six months period (six months 2012: MUSD 63.55). The decrease was primarily due to lower sales volumes for the main markets of excisable oil products (wholesale and retail markets) and therefore decrease in excise tax. Transportation costs, included in the production costs of oil products, for the quarter amounted to MUSD (Q2 2012: MUSD ) and MUSD for the six months period (six months 2012: MUSD ). Higher sales volumes and tariffs were the primary reasons for the increased transportation costs for the quarter and six months period. 9

10 The cost of crude oil refining, excluding depreciation, for the quarter amounted to MUSD (Q2 2012: MUSD 16.72) and MUSD for the six months period (six months 2012: MUSD 33.40). The main cost drivers were increased costs of additives used for light oil products production and increased refining volumes. The depreciation charge for refining assets for the quarter amounted to MUSD (Q2 2012: MUSD 6.47) and MUSD for the six months period (six months 2012: MUSD 12.27). The increase was primarily due to putting significant refining assets into operation in December 2012 and June The depreciation charge for marketing and other assets for the quarter amounted to MUSD 5.01 (Q2 2012: MUSD 4.68) and MUSD for the six months period (six months 2012: MUSD 9.29). The downstream segment operational data is presented below: Sales volume to external customers (barrels) 8,285,945 7,556,894 15,843,947 14,000,734 Revenue per barrel sold (USD/barrel) Production costs per barrel sold (USD/barrel) Cost of refining Transportation of crude oil for refining Cost of crude oil purchased for refining Cost of oil products purchased for re-sale Taxes Depreciation of refining assets Selling, administrative and other income/expenses, net (USD/barrel) EBITDA per barrel sold (USD/barrel) The downstream segment operational data is calculated on the basis of total volume of oil products sold. The increase in downstream segment EBITDA per barrel sold for the quarter was primarily due to higher intragroup purchases of crude oil and decrease in market crude oil prices. The downstream segment EBITDA 7 for the quarter amounted to MUSD (Q2 2012: MUSD 28.07) and MUSD for the six months period (six months 2012: MUSD ). The modernisation of the Khabarovsk Oil Refinery progressed further and is in the final stages with several new units near completion and scheduled for testing in coming months. Currently, the overall project progress is estimated at above 97%. Refining capacity is planned to reach 100,000 bopd in The average refining volumes for July 2013 amounted to 95,408 bopd. 7 EBITDA is based on IFRS financial information. 10

11 Investments, Financing and Liquidity Investments Investments in oil and gas assets for the quarter amounted to MUSD (Q2 2012: MUSD 89.82) and were split by regions as follows: Timano-Pechora MUSD (Q2 2012: MUSD 69.63), Tomsk MUSD (Q2 2012: MUSD 7.26), Volga-Urals MUSD (Q2 2012: MUSD 9.85) and Kazakhstan MUSD 4.92 (Q2 2012: MUSD 3.08). For the six months period total investments in oil and gas assets amounted to MUSD (six months 2012: MUSD ). Investments in refining assets for the quarter amounted to MUSD (Q2 2012: MUSD 92.87) and MUSD for the six months period (six months 2012: MUSD ). Investments in marketing and other assets for the quarter amounted to MUSD 7.24 (Q2 2012: MUSD 20.65) and MUSD for the six months period (six months 2012: MUSD 28.26). Capitalised and paid interest on loans and borrowings for the quarter amounted to MUSD 4.51 (Q2 2012: MUSD 2.96) and MUSD for the six months period (six months 2012: MUSD 35.89). Financing In May 2013, Alliance Oil Company completed the issue of MUSD 500 seven-year Eurobond maturing on 4 May 2020, with a fixed coupon of 7% per annum. The bonds are listed and traded on the Irish Stock Exchange regulated market. In June 2013, 2,280,000 preference shares (Swedish Depository Receipts) were issued with a subscription price of SEK 280 raising MSEK before issue costs (MUSD as of transaction date). The financing raised after issue costs amounted to MUSD as of transaction date and MUSD as of the date of cash transfer on 3 July Preference share dividends were set SEK 30 per share per year. The preference shares have 1/10 vote each and can be redeemed by the Group at any time at a fixed redemption price of SEK 351. Following the transaction the total number of shares amounts to 178,808,414. Liquidity At and 31 December 2012, the Group s liquidity position amounted to MUSD and MUSD , including restricted cash of MUSD 0.49 and MUSD 26.89, respectively. At 20 August 2013, the Group s liquidity position amounted to MUSD During the quarter, the Group repaid loans in the amount of MUSD At, the Group had access to financing facilities, the total unused amount of which was MUSD Key financial ratios EBITDA 1 for the last twelve months,tusd 707, ,906 Return on shareholders equity 2 12% 16% Return on capital employed 3 12% 15% Debt/equity ratio 4 74% 84% Equity ratio 5 50% 47% Risk-bearing capital 6 54% 51% Interest-coverage ratio Debt coverage ratio Debt/EBITDA Net debt/ebitda EBITDA, net profit and interest expenses for the last twelve months are used for calculation of the key financial ratios. 11

12 Parent company The Parent company s net loss for the quarter amounted to MUSD (Q2 2012: MUSD 15.35) and MUSD for the six months period (six months 2012: MUSD 22.34). At and 31 December 2012, the liquidity position of the Parent company amounted to MUSD and MUSD , respectively. Organisation The Board of directors consists of Mr. Eric Forss (Chairman), Mr. Arsen E Idrisov (Director and Managing Director), Mr. Claes Levin, Mr. Fred Boling, Mr. Fernando Martinez-Fresneda, Mr. Raymond Liefooghe and Mr. Isa Bazhaev. Share capital At, share capital of the Parent company amounted to MUSD represented by 171,528,414 common shares and 7,280,000 preference shares with a par value of USD 1 per share (31 December 2012: MUSD represented by 171,528,414 common shares and 5,000,000 preference shares). 12

13 Key financial ratios and data definitions 1. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) is defined as the Group s operating result plus depletion, depreciation and amortisation, impairment of oil and gas assets and goodwill less reversal of impairment, gain on disposal of shares in subsidiaries and other significant oneoff items in the consolidated statement of profit or loss. 2. Return on shareholders equity is defined as the Group s result divided by total equity at the end of the financial period. 3. Return on capital employed is defined as result before tax plus interest expenses, plus/less currency exchange gain/loss, divided by average total capital employed (the average total assets less non-interest bearing liabilities over the financial period). 4. Debt/equity ratio is defined as loans and borrowings, as shown in the consolidated statement of financial position, in relation to the total equity. 5. Equity ratio is defined as the proportion of the Group s total equity (including non-controlling interests) to total assets. 6. The percentage of risk-bearing capital is defined as the sum of total equity (including non-controlling interests) and deferred tax liabilities, divided by total assets. 7. Interest-coverage ratio is defined as result before tax plus interest expenses, plus/less currency exchange gain/loss, divided by interest expense (both capitalised and expensed in the consolidated statement of profit or loss). 8. Debt-coverage ratio is defined as the Group s EBITDA divided by interest expense (both capitalised and expensed in the consolidated statement of profit or loss). 9. Debt/EBITDA ratio is defined as loans and borrowings, as shown in the consolidated statement of financial position, divided by EBITDA. 10. Net debt/ebitda ratio is defined as loans and borrowings, as shown in the consolidated statement of financial position, less liquidity position, divided by EBITDA. 11. Liquidity position is defined as the sum of cash, cash equivalents and restricted cash. Operational data definitions Crude oil and gas Revenue per barrel is defined as revenue from sale of crude oil and gas divided by volume of crude oil and gas sold both intragroup and to external customers. Production costs per barrel are based on volume of crude oil and gas sold both intragroup and to the external customers excluding crude oil and gas purchased for re-sale. Selling, administrative and other income/expenses, net per barrel include transportation costs and other selling expenses, administrative expenses and other operating income/expenses divided by volume of crude oil and gas sold both intragroup and to external customers. Oil products Revenue per barrel is defined as revenue from sale of oil products divided by volume of oil products sold both intragroup and to external customers. Production costs per barrel are defined as operating costs (including purchases of crude oil and other services from intragroup companies) divided by volume of oil products sold both intragroup and to external customers. Selling, administrative and other income/expenses, net per barrel include transportation costs of oil products and other selling expenses, administrative expenses and other operating income/expenses divided by volume of oil products sold both intragroup and to external customers. 13

14 Condensed consolidated interim financial information STATEMENT OF PROFIT OR LOSS (Expressed in USD thousands) Revenue Note Revenue from sales of crude oil and gas 151, , , ,736 Revenue from sales of oil products 734, ,148 1,440,772 1,299,923 Revenue from other sales 20,163 14,915 33,148 26,600 Cost of sales 906, ,139 1,788,918 1,632,259 Production costs of crude oil and gas -97,170-88, , ,382 Production costs of oil products -508, ,191-1,005, ,817 Cost of other sales -6,264-6,865-11,425-11,495 Depletion and depreciation of oil and gas and refining assets -54,942-42, ,745-90,454 Gross profit 239, , , ,111 Selling expenses -90,528-79, , ,183 Administrative expenses -21,624-20,870-44,060-43,865 Depreciation and amortisation of marketing and other assets -5,011-4,683-10,258-9,294 Other operating expenses, net -6,673-3,306-14,688-4,619 Share of (losses)/profits of associates and joint venture -2, , Operating income 113,190 85, , ,180 Interest income 3,404 3,442 7,205 6,855 Finance costs 7-34,367-23,245-63,987-45,382 (Loss)/gain on derivatives classified as held for trading, net -3,199-10,767-3,645 1,070 Currency exchange loss, net -19,773-25,891-21,635-6,966 Profit before tax 59,255 29, , ,757 Current tax expense -21,500-7,530-37,231-44,029 Deferred tax benefit/(expense) 2,277-2,569-1,586-3,858 Profit for the period 40,032 19,209 84, ,870 Attributable to: Owners of the Company 26,710 18,336 57, ,526 Non-controlling interests 13, ,215 3,344 40,032 19,209 84, ,870 Earnings per share Basic (USD per share) Diluted (USD per share)

15 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (Expressed in USD thousands) Profit for the period 40,032 19,209 84, ,870 Other comprehensive loss Items that will not be reclassified subsequently to profit or loss: Currency exchange differences on translating foreign operations -43,121-3,431-54, ,121-3,431-54, Items that may be reclassified subsequently to profit or loss: Currency exchange differences on intercompany loans -59,737-83,361-77, Currency exchange differences on translating foreign operations -89, , ,715-59,683 Income tax relating to currency exchange differences on intercompany loans 10,569 11,803 12, , , ,323-60,877 Other comprehensive loss for the period, net of income tax -182, , ,848-61,560 Total comprehensive (loss)/income for the period -142, , ,738 97,310 Attributable to: Owners of the Company -112, , ,428 94,649 Non-controlling interests -29,799-2,558-28,310 2,661 15

16 STATEMENT OF FINANCIAL POSITION (Expressed in USD thousands) Note 31 December 2012 ASSETS Non-current assets Property, plant and equipment 4 4,355,062 4,474,599 Intangible assets Goodwill 18,937 20,394 Investments in associates and joint venture 181, ,191 Deferred tax assets 34,205 28,531 Other assets 2,849 2,991 4,593,006 4,714,577 Current assets Inventories 214, ,991 Trade and other accounts receivable 8 268, ,368 Value added tax and other taxes receivable 244, ,236 Income tax receivable 20,509 13,811 Advances paid and prepaid expenses 9 91, ,262 Other financial assets 25,036 49,821 Restricted cash ,887 Cash and cash equivalents 397, ,933 1,262,871 1,277,309 TOTAL ASSETS 5,855,877 5,991,886 EQUITY AND LIABILITIES Capital and reserves Share capital 6 178, ,528 Additional paid-in capital 1,389,683 1,296,210 Translation reserve on intercompany loans -194, ,496 Translation reserve on foreign operations -357, ,145 Option premium on convertible bonds 22,271 22,271 Retained earnings 1,670,842 1,638,943 Equity attributable to owners of the Company 2,709,640 2,787,311 Non-controlling interests 218, ,699 TOTAL EQUITY 2,928,594 3,033,010 Non-current liabilities Loans and borrowings 7 1,774,935 1,669,014 Deferred tax liabilities 243, ,002 Provision for decommissioning and site restoration costs 85,505 73,195 Advances received 10-26,309 Retirement benefit obligation 9,147 8,728 2,113,154 2,042,248 Current liabilities Loans and borrowings 7 383, ,606 Trade and other accounts payable 135, ,864 Advances received and accrued expenses , ,065 Income tax payable 10,121 10,199 Other taxes payable 72,928 72,913 Derivatives classified as held for trading 9,074 5, , ,628 TOTAL LIABILITIES 2,927,283 2,958,876 TOTAL EQUITY AND LIABILITIES 5,855,877 5,991,886 16

17 STATEMENT OF CHANGES IN EQUITY (Expressed in USD thousands) Share capital Additional paid-in capital Attributable to owners of the Company Translation reserve on intercompany loans Translation reserve on foreign operations Option premium on convertible bonds Retained earnings Total Noncontrolling interests Balance at 1 January ,528 1,104, , ,302 22,271 1,159,946 1,955,450 37,983 1,993,433 Profit for the period , ,526 3, ,870 Other comprehensive loss, net of income tax ,194-59, , ,560 Total comprehensive (loss)/income for the period ,194-59, ,526 94,649 2,661 97,310 Total equity Changes in ownership of subsidiaries Share option plan (Note 6) Balance at 171,528 1,104, , ,985 22,271 1,316,294 2,050,923 40,640 2,091,563 Profit for the period , ,307 14, ,900 Other comprehensive income, net of income tax , , ,730 7, ,689 Total comprehensive income for the period , , , ,037 22, ,589 Issue of preference shares, net of issue costs 5, , , ,272 Disposal of non-controlling interests ,156-80,265 95, , ,993 Dividends on preference shares ,768-5, ,768 Changes in ownership of subsidiaries , Share option plan Balance at 31 December ,528 1,296, , ,145 22,271 1,638,943 2,787, ,699 3,033,010 Profit for the period ,895 57,895 26,215 84,110 Other comprehensive loss, net of income tax , , ,323-54, ,848 Total comprehensive (loss)/income for the period , ,715-57, ,428-28, ,738 Issue of preference shares, net of issue costs 2,280 95, ,345-97,345 Disposal of non-controlling interests ,443 3,443-3,443 Dividends on preference shares ,567-30, ,567 Changes in ownership of subsidiaries - -1, ,592 1, Share option plan (Note 6) ,128 1,128-1,128 Balance at 178,808 1,389, , ,860 22,271 1,670,842 2,709, ,954 2,928,594 17

18 STATEMENT OF CASH FLOWS (Expressed in USD thousands) Operating activities Profit before tax 122, ,757 Adjustments for: Depreciation, depletion and amortisation 119,003 99,748 Interest income -7,205-6,855 Finance costs 63,987 45,382 Loss/(gain) on derivatives classified as held for trading, net 3,645-1,070 Currency exchange loss, net 21,635 6,966 Share of losses/(profits) of associates and joint venture 5, Loss on disposal of assets 1,689 1,874 Other non-cash items 10,634 12,360 Operating cash flows before changes in working capital 341, ,132 Movements in working capital Increase in inventories -1,148-56,568 Decrease/(increase) in accounts receivable, advances paid and prepaid expenses 31,323-16,434 (Decrease)/increase in accounts payable, advances received and accrued expenses -106,136 12,828 Cash generated from operations 265, ,958 Interest paid -50,724-39,855 Income tax paid -45,094-60,904 Total cash generated from operating activities 169, ,199 Investing activities Investments in oil and gas assets -147, ,425 Investments in refining assets -119, ,841 Investments in marketing and other assets -11,242-28,258 Interest capitalised and paid -41,416-35,892 Proceeds from disposal of assets 4,946 1,325 Interest received 8,914 5,755 Loans provided -26,777-15,605 Loans repaid 13,883 11,608 Investments in promissory notes - -15,621 Short-term deposits placed -22,687 - Proceeds from deposits withdrawn 56,218 - Dividends received from associate Total cash used in investing activities -284, ,954 18

19 STATEMENT OF CASH FLOWS (CONTINUED) (Expressed in USD thousands) Financing activities Proceeds from loans and borrowings 671, ,232 Repayment of loans and borrowings -536, ,034 Proceeds from joint venture formation (Note 5) 3,826 - Acquisition of non-controlling interest in subsidiaries ,069 Dividends on preference shares -11,493 - Total cash generated from financing activities 127, ,129 Effect of exchange rate changes on cash balances held in foreign currencies ,799 Translation difference -26,133 1,046 Change in cash, cash equivalents and restricted cash -13,539-65,379 Cash, cash equivalents and restricted cash at beginning of the period 411, ,801 Cash, cash equivalents and restricted cash at end of the period 398, ,422 19

20 SELECTED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION Note 1 Accounting principles The condensed consolidated interim financial information for the six months was prepared in accordance with IAS 34 Interim Financial Reporting. The condensed consolidated interim financial information does not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group s annual financial statements for the year 31 December 2012, which have been prepared in accordance with International Financial Reporting Standards ( IFRS ). The accounting principles used in this condensed consolidated interim financial information were the same as those used in the annual consolidated financial statements for the year 31 December 2012, except as indicated in the following paragraph. A number of revised and am Standards and Interpretations which became effective for the reporting period, have been adopted for the preparation of the condensed consolidated interim financial information. The impact of adoption of these Standards and Interpretations in the preparation of condensed consolidated interim financial information was assessed by management as insignificant. Reclassifications In prior reporting periods certain transportation costs were presented within Selling expenses. Beginning in the fourth quarter of 2012, transportation costs were reclassified and presented as part of Production costs of oil products. Comparative information for the quarter and six months has been reclassified to achieve consistency with the method of presentation adopted. Reclassifications were based upon management s decision to enhance disclosure of the Group s results of operations through presentation of transportation costs related to oil products purchased for re-sale in accordance with their substance. Before reclassification After reclassification Effect Production costs of oil products -481, ,191-3,673 Selling expenses -83,084-79,411 3,673 Production costs of oil products -878, ,817-9,000 Selling expenses -163, ,183 9,000 - Note 2 Segment information For management purposes, the Group is organised into separate reporting segments based on the nature of the Group s operations. There are two business segments: the upstream segment, which includes crude oil and gas exploration, extraction and production, and the downstream segment, which includes oil refining, transportation and sales of oil products. Management reviews and evaluates the performance of these segments on a regular basis. Operations of the Parent company and subsidiaries involved in non-core activities are disclosed as Other companies, none of which meet the criteria for separate reporting. The CODM assesses the performance of the operating segments based on segment EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). Segment financial information provided to the CODM is prepared using the management accounts and includes segment EBITDA as the measure of profitability used by the CODM to allocate finance and make operational decisions. Segment EBITDA is prepared on a basis that does not directly align with IFRS. The explanations of differences to IFRS are included below, as a reconciliation of segment EBITDA (on a non-ifrs basis) to EBITDA (on an IFRS basis), which in turn is reconciled to profit before tax. 20

21 Business segment assets and liabilities are not reviewed by the CODM and therefore are not disclosed in this condensed consolidated interim financial information. Financial information by reportable segments is presented below: (Expressed in USD thousands) Upstream Downstream Other companies Intersegment eliminations Reconciling items Total segment revenue 251, ,747 19, ,518 1, ,635 Less inter-segment revenue -98,340-18,081-19, , Revenue from external customers 153, , , ,635 Total Segment EBITDA 116,072 74,313-8, , ,143 (Expressed in USD thousands) Upstream Downstream Other companies Intersegment eliminations Reconciling items Total segment revenue 230, ,807 11, ,871-3, ,139 Less inter-segment revenue -83,989-29,561-11, , Revenue from external customers 146, , , ,139 Total Segment EBITDA 108,499 27,608-8, , ,101 (Expressed in USD thousands) Upstream Downstream Other companies Intersegment eliminations Reconciling items Total segment revenue 513,639 1,508,469 31, ,048 1,964 1,788,918 Less inter-segment revenue -195,451-39,703-31, , Revenue from external customers 318,188 1,468, ,964 1,788,918 Total Segment EBITDA 236, ,928-19, , ,992 (Expressed in USD thousands) Upstream Downstream Other companies Intersegment eliminations Reconciling items Total segment revenue 513,610 1,440,254 23, ,639-6,976 1,632,259 Less inter-segment revenue -198, ,859-23, , Revenue from external customers 314,840 1,324, ,976 1,632,259 Total Segment EBITDA 265, ,467-17, , ,928 Upstream and downstream segment revenue includes revenue from sales of crude oil and gas and oil products, respectively, and income from other non-core activities. Upstream and downstream segment EBITDA is based on management accounts. 21

22 The reconciliation of segments EBITDA (on a non-ifrs basis) to EBITDA on an IFRS basis includes the following reconciling items: elimination of unrealised gains/losses on intra-segment operations; currency exchange differences on intercompany loans treated as ext investments and classified within the consolidated statement of profit or loss and other comprehensive income; capitalised interest on loans and borrowings; effect of difference in exchange rates applied; tax effect on the above mentioned adjustments. Reconciliation of the segments EBITDA to EBITDA on an IFRS basis to profit before tax is presented below: (Expressed in USD thousands) EBITDA of reportable segments 190, , , ,637 EBITDA of other companies -8,419-8,104-19,845-17,905 Inter-segment eliminations Effect of reconciling items -8,959 5,061-2,152-3,288 EBITDA (on an IFRS basis) 173, , , ,928 Depreciation, depletion and amortisation -59,953-47, ,003-99,748 Interest income 3,404 3,442 7,205 6,855 Finance costs -34,367-23,245-63,987-45,382 (Loss)/gain on derivatives classified as held for trading, net -3,199-10,767-3,645 1,070 Currency exchange loss, net -19,773-25,891-21,635-6,966 Profit before tax 59,255 29, , ,757 Note 3 Earnings per share Basic earnings per share Profit attributable to owners of the Company 26,710 18,336 57, ,526 Preference dividends for cumulative preference shares required for the period -8, ,898-18,563 18,336 43, ,526 Weighted average number of ordinary shares in issue 171,528, ,528, ,528, ,528,414 Basic earnings per share Diluted earnings per share Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of dilutive potential ordinary shares. The Company has the following categories of potential dilutive ordinary shares: convertible bonds and share options. For the quarter and six months, convertible bonds and share options had no potentially dilutive effect. 22