REG-Zhaikmunai LP Interim Results - Part 1
Released: 01/09/2009
com:20090901:RnsA2713Y
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RNS Number : 2713Y
Zhaikmunai LP
01 September 2009
1 September 2009
Good progress in difficult trading environment
Zhaikmunai L.P. (LSE: ZKM) ('Zhaikmunai'), the independent oil and gas
enterprise operating in northwestern Kazakhstan, today announces its interim
results for the six months to 30 June 2009.
Operational highlights
- Average daily production increased to 7,271 barrels per day (1H08: 4,930 bbls
per day)
- Increase in number of producing wells from 9 to 16
- Production volumes up by 48.8 per cent to 1,326,980 bbls (1H08: 892,000 bbls)
- End June 2009 daily oil production up to 6,967 bbls per day
- Completion of a residential building containing 90 flats in the city of
Uralsk, part of the village relocation
programme
Financial highlights
- Revenue down 41.9 per cent to US$44.7 million (1H08: US$76.9 million)
- EBITDA down to US$32.5 million (1H08: US$42.1 million)
- Net cash flows from operating activities down 27.1 per cent to US$13.8 (1H08:
US$19.0 million)
- Net (loss)/ profit of US$(20.1) million (1H08: US$17.6 million) due to loss on
hedge (US$15.4 million) and
foreign exchange loss (US$12.6 million).
- Average realised oil price on domestic and export sales of US$31.32/bbl (1H08:
US$91.92/bbl)
Key developments
- Obtained approvals from the ZKR (Central Committee of Field Development) of
Zhaikmunai's oil deposit and
gas-condensate development plans, thereby putting all of Zhaikmunai's
reserves under approved development
plans.
- Extension of Zhaikmunai's gas flaring permit from 31 October 2009 to 30 June
2010
Post H1 update
- On 29 July 2009 Zhaikmunai announced its intention to raise US$300 million
through the sale of new common
units (the "Placing"). Zhaikmunai has signed an underwritten placing
agreement with ING Bank, Mirabaud
Securities, Renaissance Capital and First Energy Capital Corp. for a
placing of US$180 million in common
units to investors, and Claremont Holdings Limited, the current 90% owner
of Zhaikmunai, has agreed to
subscribe for US$120 million in common units, in each case subject to
certain conditions including the waiver
by the Republic of Kazakhstan of its statutory pre-emption rights.
- On 19 August 2009 the issuance of common units in connection with the Placing
was approved at a special
general meeting of Zhaikmunai's limited partners.
- On 27 August 2009 Zhaikmunai signed an amendment agreement with BNP Paribas
pursuant to which
Zhaikmunai's existing loan facility will be amended and the outstanding
defaults under the facility will be
waived, subject to the satisfaction of certain conditions including
completion of the Placing.
- Zhaikmunai today also publishes the audit report relating to its year-end
results for 2008 and 2007,
re-issued by its auditors to clarify that the report covers the company's
consolidated results in respect of both
financial years ended 31 December 2008 and 2007, respectively. The
financial results of Zhaikmunai for these
periods have not been restated or amended in any manner whatsoever. The
re-issue and publication of
the audit report is made solely to satisfy certain regulatory requirements
applicable to the company.
Commenting on the results, Kai-Uwe Kessel, Chief Executive, said:
"Notwithstanding the much lower oil prices compared to last year, we had an
encouraging first half thanks to the increase in production which resulted from
the company's successful drilling activities. Moreover, good progress has been
made in the construction of the Gas Treatment Unit and other infrastructure
associated with the Chinarevskoye field, notably the 90-apartment residential
building in the city of Uralsk which is now complete. Good progress has also
been made in securing additional equity financing with the announcement at the
end of July of the US$300m Placing. We expect that the conditions will be met to
complete the Placing during the month of September, providing the company with
the financing necessary to implement its growth strategy."
CHAIRMAN AND CHIEF EXECUTIVE'S REVIEW
Zhaikmunai has increased production, averaging 7,271 barrels per day during the
first half of 2009 compared to 4,930 barrels per day during the first half of
2008. We now have 16 producing wells compared to 9 producing wells as at end
June 2008.
In addition to increasing production, the partnership has also progressed its
various construction projects. Notably the apartment building in Uralsk was
completed, providing for a new home for 90 families participating in the village
relocation program. Furthermore, in August, the tie-in to the Orenburg-Novopskov
gas pipeline has been realised.
Revenues for the first half of 2009 were 41.9% lower than for the comparable
period in 2008, directly related to the lower oil price. The average realised
price for the first half of 2009 was US$31.32/bbl versus US91.92/bbl during the
first half of 2008.
On 29 July 2009 Zhaikmunai announced its intention to raise US$300 million
through the sale of new common units (the "Placing"). Zhaikmunai has signed an
underwritten placing agreement with ING Bank, Mirabaud Securities, Renaissance
Capital and First Energy Capital Corp. for a placing of US$180 million in common
units to investors, and Claremont Holdings Limited, the current 90% owner of
Zhaikmunai, has agreed to subscribe for US$120 million in common units, in each
case subject to certain conditions including the waiver by the Republic of
Kazakhstan of its statutory pre-emption rights. We expect that the Placing will
be completed during September 2009.
At present Zhaikmunai is not in compliance with certain financial covenants
under the BNP Paribas facility. As a result, although Zhaikmunai's lenders have
not requested early repayment of the loans under the BNP Paribas facility, under
applicable accounting rules borrowings under such facility are classified as
short-term debt. However, on 27 August 2009 Zhaikmunai signed an agreement with
BNP Paribas to amend the facility and obtain a waiver for its defaults, with the
grant of the waiver being subject to the satisfaction of certain conditions,
including the completion of the Placing. Upon satisfaction of those conditions
the company's borrowings under the facility would be reclassified as long term
debt.
FINANCIAL RESULTS
Revenue
Revenues from Oil Sales for the first 6 months of 2009 were $44.7 million, down
41.9% on the corresponding period (1H 08: $76.9 million). Sales volumes for the
first 6 months of 2009 were 1,294,247 bbls, up 54.6% (1H08: 837,275 bbls) partly
reflecting lower shipments in the second quarter of 2008 owing to temporary
interruption in the supply of rail cars.
Net price received
The weighted average Brent crude oil price on which Zhaikmunai based its sales
for the first 6 months of 2009 was US$51.62/bbl (1H08: US$105.55/bbl). The
discount, accounting for the trader's costs and fees, was US$15.40/bbl for the
first 6 months of 2009 (1H08: US$13.63/bbl). Accordingly, the average netback
for export crude oil sales on FOB Uralsk basis during the first 6 months of 2009
was US$36.22/bbl (1H08: US$91.92/bbl).
Capex
Total net cash used for capital expenditures for the first 6 months of 2009
amounted to US$24.9 million, as compared to US$90.8 million for the first 6
months of 2008.
Hedging contract
On 30 March the existing hedging contract pursuant to the terms of the facility
agreement with BNP Paribas was sold and a new contract entered into. The sale of
the hedge resulted in a realised loss of $14.7 million. Under the new contract,
which ends 30 June 2010, the Company hedges a portion of its production with a
floor of US$50.00/bbl. An unrealized loss of $6.1 million on the hedging
contract has been recorded which stems from the fair market value of the
Company's hedging position as at 30 June 2009.
Foreign Exchange Loss
On 4 February Kazakhstan's central bank devalued the tenge by 18 percent. The
foreign exchange loss of US$12.6 million stems from the recalculation of
monetary items like prepaid income tax, VAT receivable and advances paid.
OPERATIONAL REVIEW
Production
Production volumes increased 48.8 per cent for the first 6 months of 2009 to
1,326,980 barrels, compared to 892,000 barrels for the first 6 months of 2008.
Daily crude oil production increased to 7,271 barrels per day during the first
six months of 2009 in comparison to an average of 4,930 barrels per day in first
half of 2008.
At the end of June 2009, there were 16 producing wells, an increase from 9
producing wells at the end of June 2008. Oil production on 30 June 2009 was
6,967 barrels per day.
Drilling
In June 2009, Zhaikmunai employed 2 heavy drilling rigs (operated by Saipem and
UNGG). After the completion of well 63 and 65 in February 2009, the Saipem rig
started to drill well 119, which is now 90% completed.
During the period under review, Zhaikmunai employed 2 work over rigs (operated
by UNGG). Work over operations has been carried out for wells 27, 31,33.and
121.
Exploration
In relation to the work program, two Zhaikmunai projects have been reviewed on
June 11, 2009 by the ZKR (Central Committee of Field Development):
The test production plan of the Mullinski oil accumulation in the Southern
part of the Chinarevskoye field.
Test production project of the Tournasian oil accumulation in the Western part
of the Chinarevskoye field.
Both projects were approved by ZKR on June 30, 2009. As such, the test
production of well 32 started on June 18, 2009 and in well 33 (Tournasian West)
test production has started in the beginning of July.
Engineering & construction
The construction work on the GTU has progressed further. The overall project is
currently 50% complete. In addition to the GTU, the main other ongoing
engineering & construction projects are:
the gas pipeline (from the field to the Intergas Central Asia Gas pipeline),
infield pipelines and roads, and
construction of a reservoir pressure maintenance system
The construction of a residential building containing 90 flats in the city of
Uralsk has been completed over the course of Q2 2009 and was officially
commissioned in July 2009. The relocation of the village residents started on
August 4, 2009 and will continue through Q3 2009.
FINANCIAL STATEMENTS
As from January 1, 2009, the Group has changed its functional currency from the
Kazakhstani Tenge ("Tenge" or "KZT") to the United States Dollar (the US Dollar
or "US$") as a result of increased purchases of materials and other costs from
foreign suppliers which were denominated in US$. Moreover, the Group now has all
of its financing in US Dollars.
The reviewed consolidated financial statements for the period through to 30 June
2009 are appended to this release.
The audit report published today for the year-end results for 2008 and 2007 is
also appended to this release.
CONFERENCE CALL
Zhaikmunai's management team will be holding a conference call for analysts and
investors to discuss this development at 2pm BST on 2 September 2009. Dial in
details for the conference call and the replay facility, which will be available
for one week, are below.
Participants International Dial In: +44 (0) 1452 561 371
Conference ID 27563465
Replay Details:
International Dial In: +44 (0) 1452 55 00 00
Replay Access Number: 27563465#
For further information please visit our website www.zhaikmunai.com or contact:
Zhaikmunai info@zhaikmunai.com
Analysts/Investors
Frank Monstrey, Chairman +44 1624 682 179
Kai-Uwe Kessel, CEO
Jan-Ru Muller, CFO
Media
Brunswick Group LLP:
Michael Harrison +44 207 404 5959
Carole Cable
Notes to Editors
Zhaikmunai is an independent oil and gas enterprise engaged in the exploration,
production and sale of crude oil and gas condensate in northwestern Kazakhstan.
The Company's license area is the Chinarevskoye field, which is located in the
northern part of the oil-rich Pre-Caspian Basin. Zhaikmunai entered into a
Production Sharing Contract with the Republic of Kazakhstan in 1997. Based on a
reserve report prepared by Ryder Scott Company L.P., Zhaikmunai's estimated
gross proven plus probable hydrocarbon reserves as at 1 July 2008 were 534
million boe. Zhaikmunai's GDRs are listed on the London Stock Exchange under the
ticker symbol 'ZKM'.
Forward looking statements
In the interests of providing current and potential investors with information
regarding the Company, including the Company's assessment of its and its
subsidiaries' future plans and operations, certain statements included in this
press release may constitute forward-looking information or forward looking
statements (collectively, "forward-looking statements"). All statements
contained herein that are not clearly historical in nature are forward-looking,
and the words "anticipate", "believe", "expect", "estimate" and similar
expressions are generally intended to identify forward-looking statements. Many
factors could cause the Company's actual results to differ materially from those
expressed or implied in any forward-looking statements made by, or on behalf of,
the Company. These forward-looking statements made as of the date hereof
disclaim any intent or obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or results or
otherwise.
Zhaikmunai LP
Interim Condensed Consolidated Financial Statements (Unaudited)
For the six months ended June 30, 2009
CONTENTS
Report on Review of Interim Condensed Consolidated Financial Statements
Interim Condensed Consolidated Financial Statements (unaudited)
Interim Condensed Consolidated Statement of Financial Position (unaudited)
Interim Condensed Consolidated Statement of Comprehensive Income (unaudited)
Interim Condensed Consolidated Statement of Cash Flows (unaudited)
Interim Condensed Consolidated Statement of Changes in Equity (unaudited)
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
Report On Review Of Interim Condensed Consolidated Financial Statements
To the participants of Zhaikmunai LP:
We have reviewed the accompanying interim condensed consolidated statement of
financial position of Zhaikmunai LP and its subsidiaries ("the Group") as at 30
June 2009 and the related interim condensed consolidated statements of
comprehensive income, changes in equity and cash flows for the six-month period
then ended and explanatory notes. Management is responsible for the preparation
and presentation of these interim condensed consolidated financial statements in
accordance with International Financial Reporting Standard IAS 34, Interim
Financial Reporting ("IAS 34"). Our responsibility is to express a conclusion on
these interim condensed consolidated financial statements based on our review.
Scope of Review
We conducted our review in accordance with the International Standard on Review
Engagements 2410, Review of Interim Financial Information Performed by the
Independent Auditor of the Entity. A review of interim financial statements
consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing and consequently does not enable us to
obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the accompanying interim condensed consolidated financial statements are
not prepared, in all material respects, in accordance with IAS 34.
Emphasis of Matter
Without qualifying our opinion, we draw your attention to Note 2 in the interim
condensed consolidated financial statements, which describes that the Group
breached loan covenants as at 30 June 2009 and management's plans to restructure
the Group's debt. Because of the breach in covenants the loan is classified in
current liabilities, which exceed current assets by US$ 411,459 thousand as at
30 June 2009. The Company's dependence on refinancing its debt indicates the
existence of a material uncertainty, which may cast a significant doubt about
the Group's ability to continue as a going concern.
27 August 2009
Interim Condensed Consolidated Statement of Financial Position
In thousands of US dollars
Note June 30, December 31,
2009 (unaudited) 2008 (audited)
ASSETS
Non-Current Assets
Property, plant and equipment 3 634,406 513,491
Hedging contract at fair value 10 1,573 62,923
Advances for equipment and construction works 35,471 75,385
671,450 651,799
Current Assets
Restricted cash 4 19,078 21,078
Inventories 3,320 3,589
Trade receivables 7,677 1,084
Prepayments and other current assets 22,134 28,081
Income tax prepayment - 5,386
Cash and cash equivalents 40,196 11,887
92,405 71,105
TOTAL ASSETS 763,855 722,904
EQUITY AND LIABILITIES
Partnership capital and Reserves
Partnership capital 92,072 92,072
Translation reserve 3,299 3,299
Retained earnings 106,195 126,296
201,566 221,667
Non-Current Liabilities
Abandonment and site restoration provision 5,477 3,411
Share option plans at fair value 1,573 516
Due to Government of Kazakhstan 6,061 6,330
Deferred tax liability 45,314 56,940
58,425 67,197
Current Liabilities
Trade payables 9 124,769 60,953
Current portion of long term borrowings 4 367,804 365,439
Income tax payable 2,443 -
Current portion of Due to Government of Kazakhstan 1,289 1,031
Other current liabilities 7,559 6,617
503,864 434,040
TOTAL EQUITY AND LIABILITIES 763,855 722,904
The accounting policies and explanatory notes on pages 5 through 13 are an integral part of these interim
condensed consolidated financial statements
Chief Executive Officer of Zhaikmunai LP Kai Uwe Kessel
Chief Financial Officer of Zhaikmunai LP Jan-Ru Muller
Interim Condensed Consolidated Statement of Comprehensive Income (unaudited)
Six months ended June 30
Notes 2009 2008
(unaudited) (unaudited)
Sales of crude oil 44,680 76,939
Cost of sales 5 (18,705) (23,160)
Gross profit 25,975 53,779
General and administrative expenses 6 (14,184) (8,383)
Selling and oil transportation expenses (2,847) (6,450)
Finance costs 7 (18,931) (7,348)
Foreign exchange loss (12,624) (780)
Other loss (234) (216)
(Loss) / Profit before Income Tax (22,845) 30,602
Income tax expense 8 2,744 (13,035)
Net (Loss) / Income (20,101) 17,567
Translation difference - (343)
Total comprehensive income, net of tax (20,101) 17,224
The accounting policies and explanatory notes on pages 5 through 13 are an integral part
of these interim condensed consolidated financial statements
Chief Executive Officer of Zhaikmunai LP Kai Uwe Kessel
Chief Financial Officer of Zhaikmunai LP Jan-Ru Muller
Interim Condensed Consolidated Statement of Cash Flows (unaudited)
In thousands of US dollars
Six months ended June 30
Notes 2009 (unaudited) 2008 (unaudited)
Cash flow from operating activities:
(Loss) / Profit before income tax (22,845) 30,602
Adjustments for:
Depreciation and amortization 7,162 4,514
Interest expense on borrowings 7 3,036 5,731
Unwinding of discount on amounts due to Government of 247 488
Kazakhstan
Unwinding of discount on abandonment and site restoration 215 52
facility
Unrealized foreign exchange gain on non-operating activities - 792
Loss on hedging contract at fair value 10 15,433 -
Operating profit before working capital changes 3,248 42,179
Changes in working capital:
Decrease/(increase)in inventories 269 (1,813)
Increase in trade receivables (6,593) (6,835)
Decrease/(increase) in prepayments and other current assets 5,947 (1,373)
Increase / (decrease) in trade payables 10,503 (13,280)
Increase in other current liabilities 1,744 4,573
Payment of obligation to Government of Kazakhstan (258) (1,289)
Cash generated from operations 14,860 22,162
Income tax paid (1,024) (3,184)
Net cash flows from operating activities 13,836 18,978
Cash flow from investing activities:
Purchases of property, plant and equipment 3 (24,918) (90,842)
Net cash used in investing activities (24,918) (90,842)
Cash flow from financing activities:
Repayment of borrowings - (245,872)
Proceeds from sale of hedging contract 10 48,200 -
Purchase of hedging contract (7,700) -
Realized hedging gain 10 5,417
Interest paid (8,526) (17,859)
Transfer from / (to) restricted cash 2,000 (16,270)
Proceeds from borrowings - 324,381
Proceedings from Initial Public Offering - 91,822
Net cash provided by financing activities 39,391 136,202
Effects of exchange rate changes on cash and cash equivalents - (145)
Net increase in cash and cash equivalents 28,309 64,338
Cash and cash equivalents at the beginning of period 11,887 7,344
Cash and cash equivalents at the end of period 40,196 71,537
The accounting policies and explanatory notes on pages 5 through 13 are an integral part of these interim condensed
consolidated financial statements
Chief Executive Officer of Zhaikmunai LP Kai Uwe Kessel
Chief Financial Officer of Zhaikmunai LP Jan-Ru Muller
Interim Condensed Consolidated Statement of Changes in Equity (unaudited)
In thousands of US dollars
Partnership Retained Translation reserve Total
capital earnings
As of December 31, 2007 - 64,261 3,979 68,240
Translation difference - - (343) (343)
Proceeds from initial public offering 91,822 - - 91,822
Profit for the period - 17,567 - 17,567
As of June 30, 2008 91,822 81,828 3,636 177,286
As of December 31, 2008 92,072 126,296 3,299 221,667
Loss for the period - (20,101) - (20,101)
As of June 30, 2009 92,072 106,195 3,299 201,566
The accounting policies and explanatory notes on pages 5
through 13 are an integral part of these interim
condensed consolidated financial statements
Chief Executive Officer of Zhaikmunai LP Kai Uwe Kessel
Chief Financial Officer of Zhaikmunai LP Jan-Ru Muller
Notes to the Interim Condensed Consolidated Financial Statements (unaudited)
1. General
Zhaikmunai LP is a Limited Partnership formed on 29 August 2007 pursuant to the
Partnership Act 1909 of the Isle of Man. The Partnership is registered in the
Isle of Man with registered number 295P.
The interim condensed consolidated financial statements includes the results of
the operations of Zhaikmunai L.P. ("Zhaikmunai LP") and its wholly owned
subsidiaries Frans Van Der Schoot B.V. ("FVDS"), Claydon Industrial Limited
(BVI) ("Claydon"), Jubilata Investments Limited (BVI) ("Jubilata"), Zhaikmunai
LLP ("the Partnership") and Condensate Holdings LLP ("Condensate"). Zhaikmunai
LP and its subsidiaries are hereinafter referred to as "the Group". The Group's
operations are primarily conducted through its oil and gas producing entity
Zhaikmunai LLP located in Kazakhstan. The Group is ultimately indirectly
controlled through Thyler Holdings Limited, by Frank Monstrey. The General
Partner of Zhaikmunai LP is Zhaikmunai Group Limited, which is responsible for
the management of the Group.
The Partnership was established in 1997 for the purpose of exploration and
development of the Chinarevskoye oil and gas condensate field in the Western
Kazakhstan Region. The Partnership carries out its activities in accordance with
the Contract for Additional Exploration, Production and Production-Sharing of
Crude Hydrocarbons in the Chinarevskoye oil and gas condensate field (the
"Contract") dated October 31, 1997 in accordance with the license MG No. 253D
(the "License") for the exploration and production of hydrocarbons in
Chinarevskoye oil and gas condensate field between the State Committee of
Investments of the Republic of Kazakhstan and the Partnership.
On March 28, 2008 Zhaikmunai LP listed 10,000,000 Global Depository Receipts
('GDRs') at US$10 per GDR, representing 9.09% of the participating rights of the
Group, on the London Stock Exchange ('LSE').
The Group was formed through a reorganization of entities under common control
on March 28, 2008 to enable the listing of GDRs on the LSE. These interim
condensed consolidated financial statements was been prepared using the pooling
of interest method and, as such, the financial statements have been presented as
if the transfers of the Group interests in Frans Van Der Schoot B.V., Claydon,
Jubilata, Zhaikmunai LLP and Condensate had occurred from the beginning of the
earliest period presented.
The registered address of the Zhaikmunai L.P. is: Anglo International House,
Lord Street, Douglas, IM1 4LN.
These interim condensed consolidated financial statements were authorized for
issue by Kai-Uwe Kessel, Chief Executive Officer of the General Partner of
Zhaikmunai LP and by Jan-Ru Muller, Chief Financial Officer of the General
Partner of Zhaikmunai LP on August 27, 2009.
Licence terms
The term of the license of the Partnership originally included a 5 year
exploration period and a 25 year production period. The exploration period was
initially extended for additional 4 years and then for further 2 years according
to the supplements to the Contract dated January 12, 2004 and June 23, 2005,
respectively. In accordance with the supplement dated June 5, 2008, Tournaisian
North reservoir entered into production period as at January 1, 2007. Following
additional commercial discoveries during 2008, the exploration period under the
license, other than for the Tournasian horizons, was extended for an additional
3 year period with a new expiry on May 26, 2011.
The extensions to the exploration periods have not changed the license term,
which will expire in 2031.
2. BASIS OF PREPARATION
These interim condensed consolidated financial statements for the six months
ended June 30, 2009 have been prepared in accordance with IAS 34 and on a
historical cost basis, except for financial instruments, and should be read in
conjunction with the Group's consolidated annual financial statements for the
year ended December 31, 2008.
Going Concern
The interim condensed consolidated financial statements have been prepared on
the basis that the Group is a going concern, which assumes continuity of normal
business activities and realization of assets and settlement of liabilities in
the ordinary course of business.
As at both December 31, 2008 and June 30, 2009, with respect to the senior
secured facility ('Facility Agreement') (Note 4), the Partnership was in breach
of the covenants related to its EBITDA to interest expense and EBITDA to total
indebtedness ratios. As at the date of approval of these interim condensed
consolidated financial statements, BNP Paribas has not waived their right to
demand immediate repayment of the loans under the Facility Agreement, which as
at June 30, 2009 amounted to US$ 368 million. The Group would not have
sufficient funds to repay the loan in the event the lenders exercise this right,
which indicates a material uncertainty which may cast significant doubt on the
entity's ability to continue as a going concern and, therefore, it may be unable
to realize its assets and discharge its liabilities in the normal course of
business.
Management believes the going concern basis of preparation to be appropriate as
the Group has reached an agreement with the lenders of the initial $550 million
syndicated facility for the amendment of the facility and the waiver of defaults
thereunder, subject to certain conditions. As at August 26, 2009, US$382
million remains outstanding under this facility, which amount is classified
under IFRS as a short-term liability in the Group's unaudited financial
statements for the six months ended June 30, 2009. On August 26, 2009, an
amendment agreement was concluded with BNP Paribas (as facility agent for the
lenders) providing for a waiver of the existing defaults, conditional, amongst
other things, upon completion of the US$300 million placement (as announced by
the Group on 29 July 2009) and in consideration for, inter alia, the lenders
agreeing to reduce the size of the syndicated facility to US$382 million and
increasing the rate of interest to LIBOR plus 7%. The US$300 million placement
is conditional upon, inter alia, the receipt of a waiver from the Government of
Kazakhstan in respect of its pre-emptive right under Article 71 of the Subsoil
Law. However, Management expects the placing will become unconditional by no
later than mid-September. As at the date hereof, the lenders have not exercised
their rights to demand early repayment under the facility.
Under these scenarios, cashflow forecasts prepared by the Group indicate the
Group will be able to pay its debts as and when they fall due.
Functional Currency
The functional currency of Zhaikmunai LLP until 1 January 2009 was the
Kazakhstani Tenge ("Tenge" or "KZT") which reflected the economic substance of
the underlying events and circumstances of the enterprise at the time.
Commencing January 1, 2009, Zhaikmunai LLP has changed its functional currency
to the United States Dollar (the US Dollar" or "US$") as a result of increased
purchases of materials and other costs from foreign suppliers which were
denominated in US$. Moreover, the Group now has all of its financing in US
Dollars. The increased volume of US$ denominated transactions was treated as a
change in circumstances surrounding the Partnership's operating environment and
the functional currency in accordance with IAS 21 "The Effects of Changes in
Foreign Exchange Rates". As other Group companies represent an extension of
Zhaikmunai LLP operations, their functional currencies has been also changed to
US$.
The Group applied the translation procedures applicable to the new functional
currency prospectively from the date of change. Accordingly, all items in the
balance sheet as of January 1, 2009 have been translated into US$ using the
exchange rate as of that date, i.e. US$ 1 = KZT 150.41. The resulting translated
amounts for non-monetary items are treated as their historical cost.
Accounting Policies
The accounting policies applied in preparation of these interim condensed
consolidated financial statements are consistent with those applied in
preparation of the annual consolidated financial statements for the year ended
December 31, 2008, except as discussed below.
The following new standards and amendments to standards are mandatory for the
first time for the financial year beginning January 1, 2009:
o IAS 1 (revised), Presentation of financial statements.
The revised Standard separates owner and non-owner changes in equity. The
statement of changes in equity includes only details of transactions with
owners, with non-owner changes in equity presented as a single line. In
addition, the Standard introduces the statement of comprehensive income: it
presents all items of recognised income and expense, either in one single
statement, or in two linked statements. The Group has elected to present one
statement of comprehensive income.
o IFRS 2 (amendment), Share-based payment.
The Standard has been amended to clarify the definition of vesting conditions
and to prescribe the accounting treatment of an award that is effectively
cancelled because a non-vesting condition is not satisfied. The adoption of this
amendment did not have any impact on the financial position or performance of
the Group.
o IFRS 7 (amendement), Improving Disclosures about Financial Instruments
The amended Standard requires additional disclosure about fair value measurement
and liquidity risk. Fair value measurements are to be disclosed by source of
inputs using a three level hierarchy for each class of financial instrument. In
addition, a reconciliation between the beginning and ending balance for Level 3
fair value measurements is now required, as well significant transfers between
Level 1 and Level 2 fair value measurements. The amendments also clarify the
requirements for liquidity risk disclosures. As these additional disclosures are
not material for an understanding of the Group's interim condensed financial
statements, they were not presented.
o IFRS 8, Operating segments;
This Standard requires disclosure of information about the Group's operating
segments and replaces the requirement to determine primary (business) and
secondary (geographical) reporting segments of the Group. The adoption of this
Standard did not have any effect on the financial position or performance of the
Group.
The following new standards, amendments to standards and interpretations are
mandatory for the first time for the financial year beginning 1 January 2009,
but are not currently relevant for the Partnership.
o IAS 32 (amendment), Financial instruments: Presentation;
o IFRIC 13, Customer loyalty programmes;
o IFRIC 15, Agreements for the construction of real estate;
o IFRIC 16, Hedges of a net investment in a foreign operation; and
o IFRIC 9, Reassessment of Embedded Derivatives and IAS 39 (amendment),
Financial instruments:
Recognition and measurement.
In May 2008 the IASB issued its first omnibus of amendments to its standards,
primarily with a view to removing inconsistencies and clarifying wording.
The Partnership expects that the adoption of the pronouncements listed above
have or will have no material impact on the Group's results of operations and
financial position.
3. PROPERTY, PLANT AND EQUIPMENT
During the six months ended June 30, 2009, the Group had additions of property,
plant and equipment of US$ 128,253 thousand. These additions included
capitalised interest of US$ 8,020 thousand and abandonment and site restoration
assets of US$ 1,851 thousand.
4. BORROWINGS
In thousands of US dollars June 30, 2009 December 31,
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