Cub Energy earns $3.07-million (U.S.) in 2018

2019-03-27 07:21 MT - News Release

Mr. Mikhail Afendikov reports

CUB ENERGY ANNOUNCES NET EARNINGS OF US $3.1 MILLION OR US $0.01 PER SHARE FOR FISCAL 2018

Cub Energy Inc. has released its audited financial and operating results for the year ended Dec. 31, 2018. All dollar amounts are expressed in United States dollars unless otherwise noted. This update includes results from KUB-Gas LLC, of which Cub has a 35-per-cent equity ownership interest, Tysagaz LLC, Cub's 100-per-cent-owned subsidiary, and CNG LLC, of which Cub has a 50-per-cent equity ownership interest.

Mikhail Afendikov, chairman and chief executive officer of Cub, said: "We wish to report net income $3.1-million or one cent per share during the year ended Dec. 31, 2018, and receipt of $5.7-million in dividends from its eastern Ukraine investment. Kub-Gas maintained deliverability over 14 million cubic feet per day by successfully recompleting two wells in the Olgovskoye licence during 2018 and Kub-Gas is continuing other recompletions in 2019. In western Ukraine, Cub and its partner plan to drill our first three wells on the jointly owned Uzhgorod licence in 2019, which costs are expected to be incurred 100 per cent by our partner."

Operational highlights:

• In the fourth quarter of 2018, Kub-Gas successfully recompleted the Olgovskoye-3 well to a "behind pipe pay" zone designated as the Bashkirian-1b (B1b). The well initially tested at higher rates and put into production at a stabilized rate of 1.4 million cubic feet per day (MMcf/d).
• This followed the other successful recompletion, the Olgovskoye-9 (O-9) well to the zone designated as the Bashkirian-3 (B3). During a standard multirate test, the zone was tested up to 2.5 million cubic feet per day and was put into production at a stable rate of 1.7 MMcf/d.
• The price of natural gas averaged $7.94 per thousand cubic feet (Mcf) and condensate price of $70.47/barrel during the year ended Dec. 31, 2018, as compared with $6.50/Mcf and $69.56/bbl for 2017.
• Production averaged 836 barrels of oil equivalent per day (boe/d) (97 per cent weighted to natural gas and the remaining to condensate) for the year ended Dec. 31, 2018, as compared with 977 boe/d for 2017.
• On Jan. 1, 2018, royalties on new wells drilled in Ukraine after Jan. 1, 2018, were reduced to 12 per cent from 29 per cent for a minimum period of five years.
• On March 1, 2018, a new law was passed in Ukraine intended to simplify regulatory procedures for the oil and gas sector, which should increase the speed and efficiency of approvals.
• The new nitrogen rejection unit (NRU) is planned to be operational in 2019. However, due to continued construction delays, on Nov. 19, 2018, the company filed a claim with American Arbitration Association, seeking $300,000 (plus interest and attorney fees) from the NRU manufacturer in contractual delay damages.
• The company and its partner plan to start a three-well exploration program at Uzhgorod in mid-2019. The well costs are expected to be incurred 100 per cent by the company's partner.

Financial highlights:

• The company reported net income of $3.1-million during the year ended Dec. 31, 2018, as compared with a net loss of $14.3-million in 2017 when the company recorded one-time impairment charges.
• Netbacks of $29.33/boe or $4.88/Mcfe for the year ended Dec. 31, 2018, as compared with netback of $25.19/boe or $4.20/Mcfe for 2017.
• During the year ended Dec. 31, 2018, the company received $5.7-million in dividends from KUB Holdings as compared with $4.1-million in dividends in 2017.
• The company repaid $1.1-million of its loan to KUB-Gas during the year ended Dec. 31, 2018, in conjunction with its maturity.

                                        (in thousands of U.S. dollars)

                                                                    Three months ended,                      Year ended,
                                                   Dec. 31, 2018         Dec. 31, 2017    Dec. 31, 2018   Dec. 31, 2017

Petroleum and natural gas revenue                             74                     -              142              24
Pro rata petroleum and natural gas revenue (1)             4,385                 3,609           14,864          14,285
Revenue from gas trading (2)                               6,831                 3,957           20,428          13,099
Net income (loss)                                            570               (15,290)           3,078         (14,342)
Income per share -- basic and diluted                       0.00                 (0.05)            0.01           (0.05)
Funds generated from operations (3)                        2,353                 2,832            2,690           2,519
Capital expenditures (5)                                       2                   637              221           1,678
Pro rata capital expenditures (5)                            222                   596            1,682           4,320
Pro rata netback ($/boe)                                   35.28                 27.29            29.33           25.19
Pro rata netback ($Mcfe)                                    5.88                  4.55             4.88            4.20

                                                   Dec. 31, 2018         Dec. 31, 2017

Working capital (deficit)                                  3,798                  (478)
Cash and cash equivalents                                  7,236                 6,190
Long-term debt                                             5,591                 5,451

Notes: 
(1) Pro rata petroleum and natural gas revenue is a non-international financial reporting standards measure that adds 
the company's petroleum and natural gas revenue earned in the respective periods to the company's 35-per-cent equity 
share of the KUB-Gas natural gas sales that the company has an economic interest in.
(2) During the three months and year ended Dec. 31, 2018, the company recorded $6,831,000 (2017 -- $3,957,000) and 
$20,428,000 (2017 -- $13,099,000) in revenue for gas trading and $6,276,000 (2017 -- $3,767,000) and $19.15-million 
(2017 -- $12,767,000) for the cost of the sales for a net profit from gas trading of $555,000 (2017 -- $56,000) and 
$1,278,000 (2017 -- $233,000), respectively.
(3) Funds from operations is a non-IFRS measure and is defined as cash flow from operating activities, excluding changes
in non-cash working capital.
(4) Pro rata funds from operations is a non-IFRS measure that adds the company's funds from operations in the respective
periods to the company's 35-per-cent equity share of the KUB-Gas and 50-per-cent equity share of CNG Holdings funds from
operations that the company has an economic interest in.
(5) Capital expenditures includes the purchase of property, plant and equipment, and the purchase of exploration and 
evaluation assets. Pro rata capital expenditures are a non-IFRS measure that add the company's capital expenditures in 
the respective periods to the company's 35-per-cent equity share of the KUB-Gas and 50-per-cent equity share of CNG 
Holdings capital expenditures that the company has an economic interest in.

Outlook

The company is participating with KUB-Gas to complete additional recompletion operations given the success of the O-3 and O-9 recompletions, one of which is under way at the time of this report with another three in the permitting phase. Kub-Gas may drill one additional well in 2019 and kick off a 3-D seismic program on the WO licence to delineate known structures found from 2-D seismic.

In western Ukraine, the company is purchasing a new NRU with a plan to resume production at the RK field in 2019. The company and its partner plan to start a three-well exploration program in the Uzhgorod licence in mid-2019 on structures defined by 3-D seismic. The well costs are expected to be incurred 100 per cent by the company's partner.

Supporting documents

Cub's complete quarterly reporting package, including the unaudited interim financial statements and associated management's discussion and analysis, has been filed on SEDAR and has been posted on the company's website.

About Cub Energy Inc.

Cub Energy is an upstream oil and gas company, with a proven record of exploration and production cost-efficiency in Ukraine. The company's strategy is to implement Western technology and capital, combined with local expertise and ownership, to increase value in its undeveloped land base, creating and further building a portfolio of producing oil and gas assets within a high pricing environment.

We seek Safe Harbor.

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