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KrisEnergy releases 2Q16 and 1H16 financials

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Oilfield Technology,

KrisEnergy Ltd., an independent upstream oil and gas company, has announced its unaudited results for the second quarter and first half ended 30 June 2016 and provides an operational update.

Trading conditions remained difficult in 2Q16 with continued volatility in global oil markets and a reduction in the realised gas price in Thailand as adjustments to the gas price formula tracked the six-month trailing average for fuel oil, which captured the lows seen in the first quarter of the year.

Market volatility and the low oil price environment, coupled with general negative sentiment towards the oil and gas sector, have put a strain on the company’s revenues and share price, which, in turn, has greatly reduced the Group’s ability to access capital. In reaction to these external pressures, we have enacted a series of cost reductions, cut staff levels where possible and reduced capital expenditure to the lowest levels since the company was established in 2009.

Despite these steps, the company’s balance sheet remains challenged. Transfer of the revolving credit facility to DBS Bank Ltd in June 2016 was the first in a series of actions to optimise the Company’s capital structure. The company’s primary focus is to evaluate all viable options to not only satisfy future obligations, but to find the best solution that balances the interests of all stakeholders.

Jeffrey S. MacDonald, Interim Chief Executive Officer, commented: “The near-term outlook for the E&P sector remains challenged. The uptick in oil prices from the lows at under US$30/bbl at the beginning of the year has provided a modicum of relief but equity prices have remained severely depressed. Looking at the forward curve, oil prices show a gradual recovery to the mid-US$50s out to 2019.

“In the near term, there is a risk that certain of our covenants under existing debt instruments may come under stress. The company continues to review our financial condition and we have engaged external parties to review all available opportunities to strengthen the Group’s capital structure. These measures may entail a form of issuance of equity or an equity-linked instrument, a refinancing of our capital structure, and/or the divestment or farm-out of assets. Any material developments regarding KrisEnergy’s financing will be announced in a timely and transparent manner.”

On 30 June 2016, the Group’s US$108.3 million revolving credit facility was transferred to DBS from the previous lenders The HongKong and Shanghai Banking Corporation Limited, Australia and New Zealand Banking Group Limited and The Commonwealth Bank of Australia. As a result of the transfer, the full amount has been reclassified from Current Liabilities to Non-Current Liabilities. Subsequently on 11 July 2016, the company and DBS agreed to increase the Facility size from US$108.3 million to US$148.3 million.

Owing to debt commitments in the short term, the Group’s working capital position was negative as at 30 June 2016 due to the reclassification of a tranche of USS$130.0 million 6.25% notes due on 9 June 2017 to Current Liabilities from Non-Current Liabilities.

Unused sources of liquidity as at 30 June 2016 amounted to US$30.2 million and the Group’s gearing was 45.7%.

Operations remain bright

For 1H16, Group working interest production was up more than 133.0% from a year ago at 17 812 boe/d due to additional crude oil streams from the Wassana and Nong Yao fields in the Gulf of Thailand, which commenced production in the third quarter and second quarter of 2015, respectively. However, 2Q16 average working interest production of 16 611 boe/d was 12.6% below the preceding quarter (1Q16: 19 014 boe/d) primarily due to lower production rates from five development wells in the Wassana field. Investigations to definitively identify the cause of the problem are ongoing. Results thus far suggest that the problem is mechanical rather than a reservoir issue and plans are being developed to remedy the issue.

Production at the Group’s four other fields – B8/32, B9A and Nong Yao in the Gulf of Thailand and the Bangora gas field in Block 9 onshore Bangladesh – outpaced expectations in the first half of the year. Production in B8/32 and B9A has significantly benefitted from wireline zonal completions and seven infill wells drilled in the second quarter.

Revenue in 1H16 amounted to US$63.8 million, almost triple a year ago (1H15: US$23.1 million) due to the higher production and in spite of the steep decline in oil and gas prices. EBITDAX for the first six months to 30 June 2016 was US$31.6 million and US$11.9 million for the second quarter 2016 isolated. EBITDAX in 1H15 was lifted by non-recurring gains on the recognition of the sale or transfer of assets.

The Group’s average realised oil price in 1H16 was US$26.33/bbl, a drop of 54.2% from a year ago (1H16: US$57.46/bbl). The 2Q16 realised oil price improved to US$32.90/bbl from US$20.85/bbl in 1Q16 during which benchmark oil prices hit multiple-year lows below US$30/bbl.

The average realised gas price from the Bangora gas field in Block 9 onshore Bangladesh remained constant throughout the reporting period at US$2.32 per thousand ft3. However in Thailand, the realised gas price associated with the B8/32 and B9A fields reduced in 2Q16 to US$3.33/ thousand ft3 following the six-month adjustment to the formula price. In 1Q16, the average Thai gas price was US$4.11 per thousand ft3.

Higher production led to an increase in the Group’s non-cash depreciation, depletion and amortisation expenses, which together with non-recurring finance costs related to the transfer of the Group’s Facility, resulted in a net loss after tax in 2Q16 of US$25.2 million. For 1H16, the total net loss after tax amounted to US$45.2 million.

Adapted from a press release by David Bizley

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