By Amy McLellan
Zoltav Resources has travelled a long way in the two years since it made its first oil and gas acquisition, when it paid US$26 million for the Koltogor licence in Western Siberia. Since that deal in May 2013 there has been a further material acquisition, this time of the Bortovoy Licence in the Saratov Oblast for US$180 million, a further fundraise and the ramp-up of production operations ahead of schedule.
This week’s release of its 2014 results signal just what a turning point this was, with the AIM-quoted company, which is 40 per cent owned by Arkadiy Abramovich, generating revenues of US$20 million from 196 days of production from the Western Fields on the Bortovoy Licence.
Since November, the West Bortovoy gas plant has been operating at full capacity of 48.4 million cf/d. There is much more to come here, with the fields in the east of the licence having the potential to materially surpass the existing output.
The company is developing its appraisal strategy for these fields, one of which, the Nepriakhinskoye field in the far east of the licence, contains potentially company-making 3P reserves of 899 BCF.
The Koltogor licence is also highly prospective, with last year’s 3D seismic survey enabling the company to remap the reservoir distribution of the oilfield, which now looks to be a significantly bigger asset than anticipated.
Indeed, there have been substantial upgrades of its Russian standard C1+C2 reserves at Koltogor, where there are now over one billion barrels. An updated CPR will be commissioned during 2015.
While the low oil price and Russia’s economic woes are inevitably creating headwinds for the stock, executive chairman Alastair Ferguson is clear that this is creating significant opportunities for “a company with Zoltav’s specific characteristics” – no doubt a reference to the company’s powerful backers.
“While we undertake the work to develop our existing portfolio and review the acquisition opportunities available to the company we have set out to live within our means and focus on operational excellence,” said Ferguson.
The AIM company, which ended 2014 with US$10.7 million in cash, will certainly need to tap further financing to develop its asset base but, given the operational track record displayed over the past year, investors would have confidence in the highly capable management team and the quality of its asset base.
Analysts at SP Angel Corporate Finance certainly like what they see, noting that with around 210 million boe of 2P reserves, the current market valuation of around US$100 million “is not a fair reflection of the current portfolio, even allowing for the proportion of gas and geopolitical risk”.
Despite the need to raise further funds and the red flags raised by the geo-political risks of Russia, the analysts said Zoltav is in one of the strongest positions to emerge from the current environment in a stronger position than can be expected for a company of a comparable size and location”.