Kulczyk Oil Ventures Inc.
WARSAW : KOV

Kulczyk Oil Ventures Inc.

May 16, 2013 04:55 ET

Kulczyk Oil Announces Q1 2013 Financial & Operating Results

CALGARY, ALBERTA--(Marketwired - May 16, 2013) - 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 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 ("KUB-Gas"), a subsidiary in which KOV has a 70% effective ownership interest. All dollar amounts are expressed in United States currency.

Q1 HIGHLIGHTS

Financial

  • 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.

Operational

  • 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.

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.

KOV filed its first quarter operating and financial results on 15 May 2013 in Canada by filing on SEDAR (www.sedar.com) and in Poland by filing on ESPI (www.gpwinfostefa.pl) and has posted them on its website at www.kulczykoil.com.

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 Ukraine, Brunei and Syria 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 Ukraine, KOV owns an effective 70% interest in KUB-Gas LLC. The assets of KUB-Gas consist of 100% interests in five licences near to the City of Lugansk in the northeast part of Ukraine. Four of the licences are gas producing.

In Brunei, KOV owns a 90% working interest in a production sharing agreement which gives the Company the right to explore for and produce oil and natural gas from Block L, a 1,123 square kilometre area covering onshore and offshore areas in northern Brunei.

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 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.

KOV announced on 25 April that it had entered into an agreement to acquire Winstar Resources Ltd. ("Winstar"), a company with producing and development properties in Tunisia and an exploration block in Romania, subject to the approval of its shareholders. The transaction is expected to close near to the end of June 2013 at which time KOV, while continuing to be listed on the WSE, would list its shares for trading on the TSX.

The main shareholder of the Company is Kulczyk Investments S.A., an international investment house founded by Polish businessman Dr. Jan Kulczyk.

For further information, please refer to the Kulczyk Oil website (www.kulczykoil.com)

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 KOV and of KUB-Gas and related to the five license areas (Vergunskoye, Krutogorovskoye, Makeevskoye, North Makeevskoye and Olgovskoye) in Ukraine owned by KUB-Gas and to certain wells drilled within those licence 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.

Canada
Suite 1170, 700-4th Avenue S.W., Calgary, Alberta, Canada
Telephone: +1-403-264-8877
Facsimile: +1-403-264-8861
Dubai
Al Shafar Investment Building, Suite 123, Shaikh Zayed Road,
Box 37174, Dubai, United Arab Emirates
Telephone: +971-4-339-5212
Facsimile: +971-4-339-5174
Poland
Nowogrodzka 18/29
00-511 Warsaw, Poland
Telephone: +48 (22) 414 21 00
Facsimile: +48 (22) 412 48 60

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