Cub Energy Inc. Q1 2019 Results. Financials + MD&A – All Information Found On Sedar

Stock Symbols: KUB – Canada & TPNEF – USA

Price: $0.065
Common Shares: 314,215,355
Insider/Institutional Holdings: 172,466,105 or 55% of common shares
Options: 15.3 million
2019 Company Pres: cubenergyinc.com
2019 Fact Sheet: cubenergyinc.com

Financials – All Numbers Are Expressed In US Dollars. Ending March 31st 2019

ASSETS
Cash: $6,958,000
Dividend Receivable: $1,684,000
Prepaid Expenses: $702,000
Trade & Other Receivables: $644,000
Equity Investments: $8,049,000
Property & Equipment: $3,749,000
Non-Current Receivables: 587,000
Total Assets: $22,373,000

LIABILITIES
Trade & Other Payables: $4,382,000
Loan From KUB-Gas(100% Owned Subsidiary): $ 5,229,000
Shareholder Loan(current portion): $250,000
Shareholder Loans (total): $2,000,000
Provisions: $484,000
Total Liabilities: $12,345,000

Asset/Debt Ratio: 1.81

2017-2019 Performance

2017 – All USD
Gas Sales: $24,000
Gas Trading: $13,099,000
Royalty Expense: ($7,000)
Income From Equity Investment: $6,767,000
Operating Expenses (Total): $34,218,000 - $16 million one time impairment included
Loss: $14,869,000 – Should have been a profit with one time expense removed

2018 – All USD
Gas Sales: $142,000
Gas Trading: $20,428,000
Royalty Expense: ($38,000)
Income From Equity Investment: $6,121,000
Operating Expenses (Total): $23,573,000
Income Tax Expense: $2,000
Foreign Currency Gain: $52,000
Income: $ 3,130,000

2019 Q1 – All USD
Gas Sales: $49,000
Gas Trading: $4,479,000
Royalty Expense: ($14,000)
Income From Equity Investment: $1,522,000
Operating Expenses (Total): $5,074,000
Net Income: $962,000
Foreign Currency Gain: $437,000
Income: $1,399,000

2019 Earnings: $1,399,000 X 1.30(CDN Exchange) / 314,215,355 = $0.00578 or $0.006 cents earnings
*Must convert USD to CDN to get real stock value of KUB.V(Canadian listed)

Management Discussion Highlights

Highlights

• The Company reported income from equity investment of $1,522,000 during the three months ended March 31, 2019 as compared to income of $1,706,000 in the comparative 2018 quarter.
• The Company reported net income of $962,000 or $0.00 per share during the three months March 31, 2019 as compared to net income of $779,000 or $0.00 per share during the same period in 2018.
• The Company recorded $1,684,000 in dividends during the three months March 31, 2019 compared with $1,054,000 in dividends in the first quarter of 2018.
• Production averaged 895 boe/d (97% weighted to natural gas and the remaining to condensate) for the three months March 31, 2019 as compared to 837 boe/d for the 2018 first quarter.
• Netbacks of $24.49/boe or $4.08/Mcfe were achieved for the three months March 31, 2019 as compared to netback of $25.93/Boe or $4.32/Mcfe for the comparative 2018 period.
• Achieved average natural gas price of $7.11/Mcf and condensate price of $42.57/bbl during the three months March 31, 2019 as compared to $7.16/Mcf and $60.60/bbl for the first quarter of 2018.
• Kub-Gas recompleted the Olgovskoye-7 (“O-7”) well during 2019 and it is currently being tested.
  
  
• The Company and its partner plan to drill a three-well exploration program at Uzhgorod in mid 2019, dependent on timing of permitting and weather conditions. To date, the long-lead items for drilling have been delivered and road construction to the drill pads has commenced. The cost of for the first three wells are financed 100% by our partner.

Eastern Ukraine KUB-Gas Assets (35%)

Kub-Gas recompleted the O-7 well in 2019 and is awaiting testing. There are approximately ten other wells with “behind pipe pays” that may be attractive recompletion opportunities in the Olgovskoye License. As the currently producing intervals deplete, the production team can recomplete these additional zones in the existing wells. Opportunities such as these generate above average returns for shareholders, particularly given the current gas price in Ukraine. Kub-Gas is also contemplating drilling a new well on the Makeevskoye Licence later in 2019. The Company expects to commence a 3D seismic program later this year should improve the probability of success of future exploration wells.

Western Ukraine Tysagaz Assets (100% Interest)

The RK field was temporarily suspended on April 1, 2016 because the nitrogen concentration exceeded the allowable limit stipulated by the gas pipeline operator. The Company is currently selling a modest amount of rich gas from a deep well to evaluate the Mesozoic formation on the RK field. Subsequent to the three months ended March 31, 2019, due to continued delays in the completion of the NRU, the Company and the NRU manufacturer entered into a mutual release agreement, including the release of the arbitration claim, in exchange for the Company taking physical possession of the NRU “as is”. The NRU has been relocated to another manufacturer in the Houston, Texas area and will undergo an evaluation and testing during the summer of 2019 to determine what is required to complete the NRU.

Western Ukraine CNG Assets (50% Interest)

The Company and its partner plan to drill a three-well exploration program at Uzhgorod in mid 2019, dependent on timing of permitting and weather conditions. To date, the long-lead items for drilling have been delivered and road construction to the drill pads has commenced. The cost of for the first three wells are financed 100% by our partner.

Ukraine Gas Prices and Currency

The Ukrainian exchange, the Hryvnya (“UAH”) rate versus the USD was 27.25 UAH/USD at March 31, 2019, which was relatively flat as compared to the 27.76 UAH/USD at December 31, 2018. During the three months ended March 31, 2019, gas prices realized were $7.11/Mcf which was relatively flat compared to the comparative 2018 price of $7.16/Mcf. The future of natural gas prices in Ukraine is currently subject to a high degree of uncertainty and it is unknown what the future prices the Company will receive on its Ukraine production.

Commencing August 2016, the Company’s wholly owned subsidiary, Tysagaz, began taking possession of its 35% ownership of gas produced at KUB-Gas. Tysagaz purchased the gas from KUB-Gas at the same price that KUB-Gas sold its gas to an affiliate of the majority shareholder of KUB-Gas. The Company agreed to this arrangement so it could attempt to earn additional net income on the gas sales price sold to majority shareholder’s affiliate. There were impairment charges that impacted net losses in 2017. During the quarter ended December 31, 2017, the Company recorded impairment charges due to the carrying value of its petroleum and natural gas assets exceeding the net present value of expected future cash flows using a discount rate of 26%. The high discount rate relates to the local discount rate in Ukraine and related country risk at that time. During the fourth quarter of 2017, the Company took a $5,300,000 impairment charge relating to the RK field and an impairment on its equity investment in Kub Holdings of $10,700,000.

Revenue from Gas Sales, Net of Royalty

The Company began selling a modest amount of rich gas from the RK field in western Ukraine from a deep well (RK-1) in the Mesozoic formation resulting in revenue during the three months ended March 31, 2019 of $49,000 as compared to $nil in the comparative 2018 period.

Revenue from Gas Trading, Net of Cost of Sales for Gas Trading

Commencing August 2016, the Company’s wholly owned subsidiary, Tysagaz, began taking possession of some of its 35% ownership of gas produced at KUB-Gas. Tysagaz purchased the gas from KUB-Gas at the same price that KUB-Gas sold its gas to an affiliate of the majority shareholder of KUB-Gas. The Company agreed to this arrangement so it could attempt to earn additional net income from the gas sales price sold to the majority owner’s affiliate. During the three months ended March 31, 2019, the Company recorded $4,479,000 in gas trading revenue and $4,240,000 for the cost of the gas trading for a net profit of $239,000 as compared to $5,670,000 in gas sales and $5,516,000 for the cost of the sales for a net profit from gas trading of $154,000 during the comparative 2018 quarter.

Income from Equity Investments

The Company accounts for its 35% indirect ownership in KUB Holdings and 50% ownership of CNG Holdings as investments under the equity method. During the three months ended March 31, 2019, KUB-Gas generated gross revenues of approximately $9,724,000 (2018 - $9,791,000) and had net income of $4,349,000 (2018 – $4,872,000). This resulted in a net income to the Company from its equity investment for the quarterly period of $1,522,000 (2018 – $1,706,000). The net income at CNG Holdings was $30,000 (2018 – $8,000) during the three months ended March 31, 2019. Net income in both periods primarily related to finance income, net of finance expense, on intercompany loans and the effects of foreign exchange to funds the exploration activities in Ukraine. The Company only records income/losses in its consolidated financial statements from its equity investment in CNG Holdings to the extent of interest in the equity investment which amounted to nil as at March 31, 2019 and December 31, 2018.

Outlook

In eastern Ukraine, Kub-Gas is focused on additional recompletion operations given the success of the O-3 and O-9 recompletions in 2018. The O-7 recompletion was performed in 2019 and is awaiting testing. Three other recompletion opportunities are in the permitting phase. Kub-Gas may drill one additional well in late 2019 on the Makeevskoye Licence and kickoff a 3D seismic program on the WO licence to delineate known structures found from 2D seismic.

In western Ukraine, the Company and its partner plan to start a three well exploration program in the Uzhgorod license in mid 2019 on structures defined by 3D seismic. The three-well program is to be financed 100% by our partner