RPO results – gas sales provides the path to immediate cash flow production

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Well, it looks like my “friend” Mr Caaaawkwell will have something of a respite this morning as RPO pull a ace out of the pack wtth regards to monetising gas sales from their Siberian fields. The signing of terms with OJSC Fortum in which they will supply dry gas for eight years with a sales value of up to US$700 million from the second half of 2014 is resolutely good news for shareholders and provides a clear underpinning to the refinancing of the company.

Similarly, an increase in proved reserves to 234m boe and 2P reserves of 1604m boe – a rise of 17% was not expected by the market. We have highlighted previously the extremely low EV/2P reserves which is almost in Gulfsands Pet territory (where sanctions in Syria prevent GPX from receiving cash flows) and todays figures bolster this.

Management remain in negotiations with their lenders on the debt refinancing, stating the Company is in discussions with existing lenders as to additional financing and the extension of debt maturity beyond May 2015”. And which sounds encouraging re its eventual resolution, particularly given the value of the gas sales to the company.

The comment re the Mineral Extraction Tax (‘MET’) for condensate being approximately US$20 less per barrel than for crude oil struck me as interesting.  According to the company – “this lower fiscal burden nearly doubled the Well Head Revenue (‘WHR’) of production on a per barrel basis. The combination of the higher flow rates and the much lower rate of MET currently makes condensate far more cash generative to produce and sell than crude oil.”

All in all, we think a meaningful rebound in the stock into the early/mid 30’s likely.

Highlights – 

97% increase in revenues year on year at US$76.23 million (net of export duty) 

Full year EBITDA of -negative US$6.2 million, EBITDA for Q4 2012 positive at US$2.4 million 

Proved reserves up 35% to 234 million boe (31 December 2012). Including 32 million boe increase in oil and condensate reserves and 29 million boe of commercial gas reserves

Proved and probable gas reserves of 153 million boe 

Average 2012 production up 81% over 2011 at 4,639 boepd 

Net debt of US$335.9 million at year end, with US$34.4 million of cash 

Post-period update

Current production at 6,374 boepd, of which 1,335 boepd is condensate 

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