--Successful listing on the AIM market in April 2006, raising £23 million before expenses --Construction of the Tetoil transhipment oil terminal on schedule --Tetoil operational management team strengthened --ZNG has secured three new licenses in the Kurgan region of Siberia --Extensive Gas Seismic Program on two ZNG blocks through Exotrad; encouraging results with ECL (part of RPS Group) confirming multiple leads --Acquisition of Baltic Top, a Kaliningrad based domestic refined product terminal for $3.35 million, including 38 experienced employees --Strengthened Board with the appointment of Stan Buck and Fred Hodder as non-executive directors.
Simon Escott, CEO of Baltic Oil Terminals commented:
"In light of the good progress we have made in both Tetoil and ZNG, the board believes the Group prospects to be very promising. Tetoil is on schedule and on budget and we are confident that our exploration play in Kurgan will show further encouraging results in the last quarter of the year.
"As a result the board is increasingly confident of Baltic's propsects."
Non-Executive Chairman's & Chief Executive's Statement
The year to date, in which we have taken several major steps towards achieving the overall business objectives, has been a very significant period in the evolution of the company. Most importantly, we are pleased to present our first set of results as a quoted company.
On 27 April 2006 the company successfully listed on AIM, raising £23.0 million by means of an issue of 16,428,571 new shares at £1.40. RAB Capital simultaneously sold 6 million shares at the same price, allowing the total placing of 22,428,571 shares. Prior to this the Company had successfully raised £2.3 million in a private placement in March 2006.
The Board of Baltic Oil Terminals is fully cognizant of the trust placed in it by the new investors and will strive to the maximum to ensure that the program outlined in the Admission Document is adhered to.
On 10 June 2006 Baltic moved its finance and administration functions to Milton Keynes and reduced the size of the London office.
In line with the strategy set out in the Admission Document, Baltic acquired, on 3 August 2006, Baltic Top, a small profitable, domestic refined products terminal in Kaliningrad for a total cash consideration of $3.35 million. The terminal, which is located less than 2 kms from the Tetoil site, stores gasoline and diesel delivered by rail for storage and onward delivery to customers in the Kaliningrad region.
On 7 August 2006 the Board was strengthened by the appointment of two new Non Executive Directors: Stan Buck and Fred Hodder. Stan is a former Chairman and Managing Director of Dow Chemical UK Limited and Fred was Chief Financial Officer of Nelson Resources Limited. The Board is confident that their specialised knowledge and experience will prove to be of great benefit to the company.
The Board now consists of:
The group's principal asset is its 58.35% equity interest in Tetoil, a company which is constructing an oil export transhipment terminal in Kaliningrad, a sovereign Russian territory located on the Baltic Sea between the EU states of Poland and Lithuania, which is Russia's only ice-free port on the Baltic Sea.
The terminal will have a throughput capacity of up to 480,000 tonnes per month ("tpm"), or 5.8 million tonnes per annum. Tetoil is targeting the demand for new transhipment facilities in strong Russian light crude and oil products export markets. The site includes 1 km of river frontage and has a fully constructed tanker jetty.
The construction of the Tetoil terminal commenced as planned on 17 July 2006. The main engineering contractors are on schedule and the first tank orders have been placed in Latvia and Estonia. The Railway spur line routing has been approved by the Kaliningrad Railways and construction will start, again on schedule, in September 2006.
Baltic has recruited two expatriate UK personnel, being a Project Manager and Project Planner, working out of Kaliningrad. Both individuals bring great experience to the project team and have worked with the existing operations management previously. We now have the foundations in place in terms of team, contractors and partners to ensure that we remain on budget and on schedule.
Polex, a vessel cleansing business based in Kaliningrad in which the group holds a 50% associate interest, is performing in accordance with expectations and generating modest revenues.
ZNG – Kurgan Exploration Project
Following the award of three new licenses in May and June, South Voskresensky, Petukhovsky and Lebyazhevsky, ZNG Limited (of which Baltic has a 50% equity interest and is the operator) now has exploration rights to around 1 million acres in the Kurgan Oblast, in Western Siberia.
In accordance with the work program, ZNG has been running an extensive Gas Seismic Program on two blocks (Privolny and Mokrousovsky). We commissioned Exotrad to carry out the work, as this company is now recognised as the world leader for this type of research and survey work. The results have been most encouraging, potentially indicating significant resources and our UK Geological and Engineering nominated contractor, ECL (part of the RPS Group), has recently confirmed that we have identified well defined geochemical leads in these two blocks.
Our next move will be to carry out high definition 2D seismic across the grids made by the Gas Seismic Program. The company plans to commence work in Privolny and Mokrousovsky imminently using Bazneftgeophisica. The results of the seismic, following processing and interpretation to be carried out in the UK by ECL, are expected to be available by the end of October for Privolny and by the end of the year for Mokrousovsky.
In light of the good progress we have made in both Tetoil and ZNG, the board believes the group prospects to be very promising.
Tetoil is on schedule and on budget, and we are confident that our exploration play in Kurgan will show further encouraging results in the last quarter of the year.
The progress we have made would not have been possible without the major efforts of all of our employees, for which the board is very grateful.
The cost of the terminal construction project remains in line with budget expectations, with the overall cost of both phases of capital development expected to reach, collectively, around $40 million (£22 million) by the second half of 2008.
Since revenue from transhipment throughput at the terminal is not expected before 2007, there has been no operational income in the six months ended 30 June 2006. However, £0.1 million of interest income has been derived from funds placed on deposit. To hedge future currency fluctuations, of the £21 million (net) raised at IPO, $17 million and Euro 6 million were purchased and placed on deposit.
The financial statements include a modest income of £20,000, being the group's share of the net results of its associate, Polex, since its acquisition in March 2006.
An operating loss of £2.7 million, and a loss per share of 8.04p per share were generated in the period. Operating overheads were in line with budget, although the loss is after charging for unrealised foreign exchange differences of £0.6 million resulting from the translation of foreign currencies to sterling at the balance sheet date. The cash balance at the half year was £18.9 million.
In addition, the group has charged £0.5 million to the profit and loss account representing the charge from the group's policy of writing off exploration expenditure and £0.3 million representing associated administrative costs of the ZNG subsidiary. Such expenditure is in line with the plan at the time of the IPO.
Finally, the group introduced at IPO long term incentive plans ("LTIP") for staff and directors. This is in addition to the options in existence for the group's founding shareholders. In line with International Financial Reporting Standards in which the accounting cost of these LTIP options is allocated over the life of the option, the group has charged £0.1 million, representing the proportionate charge for the period. The charge for the founders' options for the period is £0.5 million.
In accordance with our policy at IPO, the company will not be declaring a dividend for the period.
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