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Kulczyk Sees Deep Gas Discovery Onshore Ukraine
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Kulczyk Oil Ventures Inc. has reported its financial and operating results for the quarter ended 31 March 2013.
All of the Company's production and revenue is derived from four licences in Ukraine owned and operated by KUB-Gas LLC, a subsidiary in which KOV has a 70% effective ownership interest. All dollar amounts are expressed in United States currency.
Operational Highlights:
- Natural gas production, net to KOV, increased to more than 18.1 million cubic feet per day (MMcf/d) as an average for the three months ended March 31, 2013 compared to an average of 13.0 MMcf/d in Q1 2012;
- Condensate production for the quarter, net to KOV, averaged 140 barrels per day;
- Combined average of 18.9 million cubic feet per day of gas equivalent (MMcfe/d) represents a 36% increase when compared to Q1 2012;
- Ukraine K-7 gas discovery flow tested in January at rate of more than 5.9 MMcf/d;
- Ukraine O-15 well spud in mid-March;
- Brunei - drilling contract award in early February and ETP-03 drilling rig has moved to Brunei to drill two wells on Block L.
Highlights Since March 31, 2013
- Ukraine - new deep gas discovery at M-16 tests gas at 4.3 MMcf/d; and
- Announced agreement to acquire Winstar Resources, a company with producing assets in Tunisia and exploration assets in Romania.
Financial Highlights:
- Gross revenue from hydrocarbon sales by KUB-Gas increased 31% to $28.7 million (2012: $21.8 million) of which KOV's 70% share would amount to $20.1 million (2012: $15.3 million);
- KOV's funds from operations $9.5 million compared to $8.6 million in Q1 2012;
- Average prices received during Q1 2013 of $11.61 per thousand cubic feet (Mcf) for natural gas and $95.69 per barrel for condensate;
- In Q1 2013, KOV's earnings before income taxes were $5.69 million, an increase of 15% when compared to $4.94 million in Q1 2012;
- In Q1 2013, dividends were successfully paid out to KOV and the minority shareholder in the Ukraine assets of which KOV's portion of the dividend was $7.0 million;
- Natural gas netback (after royalty and production expenses) decreased by 23% to $6.52 per Mcf from $8.45 per Mcf in Q1 2012 due to an increase in the royalty payable from 18% to 25%; and
- Condensate netback increased 5% to $59.22 per barrel from $56.45 per barrel in Q1 2012.
Tim Elliott, President and Chief Executive Officer of KOV, commented: "The first quarter of 2013 has seen substantial growth in production volumes and financial performance in Ukraine when compared to the prior year, a tribute to the diligence and competence of both KOV and KUB-Gas personnel. Financial performance would have been even better had the royalty on Ukraine production not increased.
"The recent success at M-16 opens up a new play for us in deeper horizons and, in addition to our continued development drilling, we will work on expanding production from these new zones.
"Additional interesting times are ahead for KOV as we move forward to close the recently announced acquisition of Winstar - hopefully before the end of the second quarter and gear up for the spud of two exploration wells in Brunei, the first of which will spud shortly."
Production
All of KOV's production is presently from Ukraine. Production volumes have increased for the first quarter of 2013 compared to the same period in 2012.
Production, net to the 70% interest of KOV, increased to 18.905 MMcfe/d, an increase of more than 36% year-on-year (13.865 MMcfe/d in Q1 2012). Gas production for Q1 2013, net to KOV, averaged more than 18.067 MMcf/d compared to an average of 13.018 MMcf/d for Q1 2012, an increase of 39% year-on-year.
The major contributor to the substantial production growth quarter over quarter production was production from the Makeevskoye-20 well (M-20) which was tied-in for commercial production in November 2012. The M-20 well is currently producing natural gas at a rate of 6 MMcf/d (4.2 MMcf/d net to KOV).
Financial Performance
Revenue from hydrocarbon sales increased by 32% in Q1 2013 compared to Q1 2012. The 70% share of sales revenue attributable to KOV, net of royalties, increased to $14.8 million (100% interest: $21.2 million) in Q1 2013. 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 $120.7 million.
The prices received for natural gas continued to be strong during the first quarter of 2013 at $11.16 per Mcf, a slight decrease over the $11.62 per Mcf received during the Q4 2012 and 1% lower than the $11.76 per Mcf realized during the three months ended 31 March 2012. The condensate price was $95.69 per barrel during the first quarter, up from the $95.19 per barrel realized in the same period in 2012.
Increased royalty rates and lower realized natural gas prices resulted in a decreased netback per Mcf of $6.68 during Q1 2013 compared to $7.99 during the same period in 2012.