CALGARY, ALBERTA — (Marketwire) — 03/20/12 — Kulczyk Oil Ventures Inc. (WARSAW: KOV) (“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 year ended 31 December 2011. All dollar amounts are expressed in United States currency.
HIGHLIGHTS
Financial
Operational
2012 Outlook
Tim Elliott, President and Chief Executive Officer of KOV stated that:
“2011 was a successful year for KOV with the Company gaining significant momentum as the year progressed. During 2011, we clearly demonstrated our operating expertise which has manifested itself in continued increases in net production and revenues. This trend is continuing in 2012 with our 70% share of production reaching 14 MMcf/d in the last few days. In the current year we plan to drill up to six more wells in Ukraine and to start on a five well drilling program in Brunei. The Company is well positioned for future growth in production, cash flow and reserves and we look forward to sharing our operating results with investors in the coming months.”
Production
All of KOV–s production is from Ukraine. Production volumes have increased significantly both for the full year and for the fourth quarter of 2011 when compared to the same period in 2010. In 2011; five new wells were drilled with four of them already brought onto production.
Production, net to KOV, increased to 1,056 boe/d (6.337 MMcfe/d), an increase of 65% year-on-year. Gas production for 2011, net to KOV, averaged more than 6 MMcf/d compared to an average of 3.7 MMcf/d for the six months ended 31 December 2010, an increase of 62% year-on-year.
Production increased relatively steadily throughout the year. As of 31 December 2011 the Company has recorded seven consecutive quarters of oil and gas revenue increases dating back to the second quarter of 2010. This trend has continued into the first quarter of 2012 with production having reached 20 MMcf/d (14 MMcf/d net to KOV) in the few days prior to this release. Major contributors to the production growth have been: 1) the M-19 well which went on production at a gross rate of 5 MMcf/d (3.5 MMcf/d net to KOV) in July and is currently producing at 7 MMcf/d (4.9 MMcf/d net to KOV); 2) the O-9 well which was drilled in the first half of 2011 and was producing at a rate of 1.9 MMcf/d (1.34 MMcf/d net to KOV) at the end of the year; and 3) the O-7 well which was producing 1.6 MMcf/d (1.13 MMcf/d net to KOV) as of year-end. Since the end of the year production growth has continued with two wells which were fracture stimulated in October, the O-6 and O-8 wells, and the O-18 well which was drilled in 2011 all now producing and contributing to the production gains so far in the first quarter of 2012.
Financial performance
Revenue from hydrocarbon sales increased by 32% in Q4 2011 compared to Q3 2011 and by 227% when compared with Q4 2010. Since the KUB-Gas acquisition in June 2010, KUB-Gas has generated $44.2 million of gross production revenue, with KOV–s 70% share being $30.9 million.
The price received for natural gas during the fourth quarter of 2011 was $11.75 per Mcf, 38% higher than the $8.49 per Mcf received during the first half of 2011 and 53% higher than the $7.66 per Mcf realized during the three months ended 31 December 2010. Condensate price was $96.81 per barrel during the fourth quarter, up substantially from the $74.64 per barrel realized in the same period in 2010.
Increased sales volumes and the improved selling price for natural gas contributed to an increase in the netback per Mcfe to $6.39 during year ended 31 December 2011 compared to $1.41 during the same period in 2010 and $4.52 in the first half of 2011.
At December 31, 2011, the Company evaluated the situation in Syria, including the escalating crisis in the country as well as the strict sanctions imposed by the United States, Canada, the European Union and the Arab League and concluded that indicators of impairment existed. Consequently, the Company has fully impaired the value of the exploration asset in Syria as well as its financial investment in Ninox, an Australian private company whose sole asset was an interest in Syria Block 9. The impairment of the exploration asset of $8.7 million and the write-off of the investment of $1.5 million were both recorded at 31 December 2011.
In May 2011, KUB-Gas finalized an agreement for a loan facility of up to $40 million from the European Bank for Reconstruction and Development (“EBRD”). The proceeds of the loan are to be used to fund development of the licenses in Ukraine. At December 31, 2011, $23.0 million of loan proceeds had been drawn. The Company also signed debenture agreements with Kulczyk Investment S.A. (“KI”) and Radwan Investments GmBH (“Radwan”). The total amount available under the debentures is $23.5 million and is expected to be converted to common shares at a future date. At 31 December 312011, $10.5 million of the debentures, $9.9 million from KI and $0.6 million from Radwan, had been drawn.
Operational
During the year ended 31 December 31 2011 the Company incurred $39.8 million in capital expenditures on exploration and evaluation assets and on property, plant and equipment, including costs incurred on the following projects:
The Company was awarded an additional exploration license (North Makeevskoye) adjacent to the Makeevskoye and Olgovskoye licenses. KOV believes that the North Makeevskoye license is prospective for gas production from multiple zones within the Muscovian and Bashkirian sedimentary sections. A 2D seismic program over this license was completed in Q2 2011 and the first exploration well is expected to spud in late March or early April of 2012.
In Brunei KOV experienced material changes in both Blocks L and M. In Block L, the acquisition in December 2011 of AED Southeast Asia enabled KOV to increase its ownership position to 90% and become the operator. In addition, the exploration period of the production sharing agreement was extended by 12 months to August 2013, providing more time to complete the on-going 3D seismic acquisition program and to drill the two remaining commitment wells. In Block M, a third party acquired the company operating the block and the new operator is currently seeking a rig to commence a three well drilling program, scheduled for 2012, although timing remains unpredictable given rig availability issues. Brunei is located in one of the world–s most prolific hydrocarbon provinces and, despite a lack of commercial success so far, we believe our perseverance will ultimately be rewarded with success.
Outlook for 2012
KOV intends to drill up to six new wells, undertake its first dual-completion, investigate further frac–ing operations, and construct pipelines to tie-in wells as needed. Management forecasts that the Company will exit the 2012 year with a production rate higher than the 2011 year-end exit rate as a result of these projects.
In Brunei, one well is planned to start drilling in the second or third quarter of 2012 in Block L and drilling of up to two additional wells are planned in 2012 in Block M. In Block M KOV expects to have met all commitments under Phase 1 and to have progressed on its commitments under Phase 2 of the exploration program. The Company expects to seek extensions on Block M in order to complete the work commitments. In Block L, the Company is currently undertaking a seismic acquisition program and the Company expects to be close to initiating its Phase 2 drilling programme, scheduled to follow the drilling activity in adjacent Block M by the end of 2012.
KOV filed its year-ended operating and financial results on 20 March 2012 in Canada by filing on SEDAR () and in Poland by filing on ESPI () and has posted them on its website at .
Cautionary Statement
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 Brunei, Syria and Ukraine 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 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 2,220 square kilometre (550,000 acre) area covering onshore and offshore areas in northern Brunei and a 36% working interest in Block M, a 3,011 square kilometre (744,000 acre) area onshore in southern Brunei.
In Ukraine, KOV owns an effective 70% interest in KUB-Gas LLC. The assets of KUB-Gas consist of 100% interests in five licenses near to the City of Lugansk in the northeast part of Ukraine. Four of the licenses are gas producing.
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 (2.48 million acre) 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.
In Nigeria, KOV has an option until 31 March 2012 to participate for a 9% net indirect interest in OML 42, an 814 km2 license area in the Niger Delta with oil production and shut-in oil and gas producing capability.
The main shareholder of the Company, Kulczyk Investments S.A. owns 44.3 % 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 KUB-Gas and related to its five license areas (Vergunskoye, Krutogorovskoye, Makeevskoye, North Makeevskoye and Olgovskoye) in Ukraine and to certain wells drilled within those license 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.
Contacts:
Kulczyk Oil Ventures Inc. – Canada
Norman W. Holton
Vice Chairman
+1-403-264-8877
Kulczyk Oil Ventures Inc. – Poland
Jakub J. Korczak
Vice President Investor Relations & Managing Director CEE
+48 22 414 21 00