REG-Zhaikmunai LP Interim Results - Part 2
Released: 01/09/2009
Part 2 : For preceding part double-click [nRn1A2713Y]
(unaudited) 2008 (audited)
Current Non-current Current Non-current
Credit line due to BNP Paribas 367,804 - 365,439 -
367,804 - 365,439 -
Facility agreement with BNP Paribas
On December 12, 2007 the Partnership entered into a US$ 550 million senior
secured facility agreement between BNP Paribas ("Facility agreement"), as a
facility agent, and the Partnership, as a borrower, and Zhaikmunai LP as
guarantor. The Partnership drew down on March 7, 2008 approximately US$ 291
million for (inter alia) the purpose of fully refinancing the BTA Facility and
fully refinancing the loan from Blavin. The Partnership used the further
proceeds of the BNP Paribas Facility to finance the construction of a gas
treatment facility and otherwise towards developing the field. Initially, the
BNP Paribas Facility comprised three tranches of US$ 200 million, US$ 200
million and US$ 150 million. Drawdowns above US$ 450 million are subject to
certain conditions relating to syndication by BNP Paribas which have not been
satisfied as of the date of this publication. As of June 30, 2009 the
Partnership had drawn down US$ 381,677 million.
The rate of interest payable on outstanding amounts under each tranche are LIBOR
plus mandatory cost plus, under tranche 1, a margin of 3%, under tranche 2, a
margin of 4% and under tranche 3, a margin of 5%.
The total amount outstanding is repayable in accordance with the schedule,
reducing the total commitments to zero by December 31, 2014. In addition, the
BNP Paribas Facility is mandatorily prepayable to the extent of the proceeds of
any material disposals, debt offerings and a cash sweep of 50% of the
Partnership collected revenue (in excess of US$ 25 million). The Partnership is
also entitled to voluntarily prepay the amounts outstanding. The Partnership is
required to give customary representations and warranties, repeated periodically
and certain covenants relating to profitability.
In accordance with the BNP Paribas Facility, the Partnership maintains a hedging
programme under which it hedges the fixed volume of production at Brent crude
oil price of US$ 50 per bbl (Note 10). The Partnership is additionally required
to maintain and fund a debt service reserve account with a balance equal to at
least 5% of the amount outstanding under the BNP Paribas Facility. Lastly, the
Partnership is required to maintain annual oil and gas off-take contracts (gas
sales to be commenced in 2010) with off-takers required to purchase 80% of total
production and 100% of production available for export. The Partnership's
obligations under the BNP Paribas Facility are secured by various forms of
security, including, (i) a pledge over 100% of the participatory interests in
the Partnership; (ii) pledges over its bank accounts; (iii) the assignment of
rights under the off-take contracts; (iv) assignment of all guarantees or
performance bonds issued in connection with the contract with KSS for the gas
treatment facility; and (v) assignment of the benefit of the Partnership's
relevant existing and future insurance policies.
As a result of lower than anticipated EBITDA at June 30, 2009 and December 31,
2008 the Partnership was in breach of the covenant related to its EBITDA to
interest expense and total indebtness ratios. Consequently, BNP Paribas,
pursuant to the loan agreement, has confirmed to the Partnership that they will
not distribute the balance of US$ 69 million at this time. However, the
Partnership believes BNP Paribas will not call the loan as a result of the
breach and the Partnership has entered into an agreement with BNP Paribas on
August 27, 2009 for the waiver of such breach, subject to the satisfaction of
certain conditions.
The total Partnership's debt service reserve account, classified as restricted
cash under the terms of the BNP Paribas Facility amounted to US$ 19,078 thousand
as at June 30, 2009.
In thousands of US Dollar June 30, December 31, 2008
2009
Principal amount as at December 31 381,677 381,677
Fees incurred on arrangement of BNPP facility (19,943) (19,943)
Amortization of arrangement fees 5,882 3,705
Interest payable 188 -
367,804 365,439
As a result of the breach, the loan was classified as current liabilities.
Further, all export sale proceeds are paid into the Partnership's account held
with a member of the syndicate, and withdrawals from such account may be made in
accordance with the Partnership's approved cashflow plan.
5. COST OF SALES
Six months ended June 30,
In thousands of US dollars 2009 (unaudited) 2008 (unaudited)
Depreciation and amortization 7,162 4,161
Repair, maintenance and other services 2,911 3,128
Payroll and related taxes 2,310 1,677
Royalties 2,303 2,400
Management fees 1,015 972
Materials and supplies 878 2,587
Other transportation services 822 751
Environmental levies 544 1,117
Government profit share 442 710
Well workover costs - 4,006
Rent and operation of oil separation units - 1,479
Other 318 172
18,705 23,160
6. GENERAL AND ADMINISTRATIVE EXPENSES
Six months ended June 30,
In thousands of US dollars 2009 (unaudited) 2008 (unaudited)
Professional services 5,227 2,547
Management fees 4,081 925
Equity option plan 1,267 871
Payroll and related taxes 1,339 1,099
Training 1,065 1,313
Other 228 410
Bank charges 158 264
Communication 195 166
Insurance fees 165 177
Lease payments 128 122
Social program 130 100
Sponsorship 78 192
Business trip 70 127
Materials and supplies 53 70
14,184 8,383
7. FINANCE COSTs
Six months ended June 30,
In thousands of US dollars 2009 (unaudited) 2008 (unaudited)
Interest income - (244)
Interest expense on borrowings 3,036 5,731
Loss on hedge contract 15,433 1,321
Unwinding of discount on Due to Government 247 488
Unwinding of discount on Abandonment and Site Restoration 215 52
Liability
18,931 7,348
8. INCOME TAX EXPENSE
The income tax expense consisted of the following:
Six months ended June 30,
In thousands of US dollars 2009 (unaudited) 2008 (unaudited)
Income tax expenses comprise:
- current income tax expense 8,882 5,094
- deferred income tax (benefit) / expense (11,626) 7,941
Total income tax expense (benefit) / expense (2,744) 13,035
The Group's profits are assessed for income taxes only in the Republic of
Kazakhstan. A reconciliation of income tax expense applicable to profit before
income tax using the Kazakhstani tax rate, applicable to the license, of 30% to
income tax expense as reported in the Group's consolidated financial statements
for the periods ended June 30 is as follows:
In thousands of US Dollar 2008 2007
Profit before income tax (22,845) 30,602
Statutory tax rate 30% 30%
Expected tax provision (6,854) 9,181
Non-deductible interest expense on borrowings 2,246 2,412
Income taxed at different rate (4,050) -
Foreign exchange loss / (gain) 3,787 234
Difference arising on Abandonment and Site Restoration 325 210
liability and payables Due to Government
Other non-deductible expenses 1,802 998
Income tax (benefit) / expense reported in the accompanying (2,744) 13,035
financial statements
Deferred tax balances are calculated by applying the Kazakhstani statutory tax
rates in effect at the respective balance sheet dates to the temporary
differences between the tax and the amounts reported in the financial statements
and are comprised of the following at June 30, 2009 and December 31, 2008:
In thousands of US Dollar 2009 2008
Deferred tax asset:
Accruals for expenses which are to be deductible when paid 777 1,413
777 1,413
Deferred tax liability:
Crude oil inventory not recognized as an asset for tax (448) (551)
purposes
Hedging contract at fair value not recognized as an asset (472) (18,877)
for tax purposes
Capitalized interest and abandonment and site restoration (45,171) (38,925)
included into cost of property, plant and equipment
Net deferred tax liability (45,314) (56,940)
As at December 31, the movements in the deferred tax liability were as follows:
In thousands of US Dollar June 30, December 31,
2009 (unaudited) 2008 (audited)
Balance at January 1, (56,940) (26,191)
Current year charge / (benefit) to translation reserve - 246
Current year charge to statement of income 11,626 (30,995)
Balance at June 30 December 31, (45,314) (56,940)
9. TRADE PAYABLES
In thousands of US Dollars June 30, December 31,
2009 (unaudited) 2008 (audited)
Tenge denominated trade payables 17,429 41,679
US dollar denominated trade payables 102,822 18,617
Trade payables denominated in other currencies 4,518 657
124,769 60,953
US Dollar denominated trade payables as at June 30, 2009 include US$ 74,641
thousand payable to KSS in respect to construction of a gas treatment facility
(December 31, 2008: US$ 16,290 thousand included in Tenge denominated trade
payables).
10. HEDGING CONTRACT
Pursuant to the terms of the BNP Paribas facility (Note 4) in 2008 the
Partnership has entered, at nil cost, into a hedging contract covering oil
export sales commencing March 2008 through till December 2013 which was sold
before expiration on March 31, 2009.
On March 31, 2009, the Partnership entered into a new hedging contract at cost
of US$ 7,700 thousand covering oil export sales of 967,058 bbl and 596,766 bbl
in 2009 and 2010, respectively. The put strike price for Brent crude oil is
fixed at a price of US$ 50 per bbl. There is no call strike price under this
contract.
Gains and losses on the hedge contracts, which do not qualify for hedge
accounting, are taken directly to income statement.
Six months ended June 30,
In thousands of US Dollar 2009 (unaudited) 2008 (unaudited)
Hedging contract fair value at December 31 62,923 -
Proceeds from sale of hedging contract (48,200) -
Loss on disposal of hedging contract (14,723) -
Purchase of hedging contract 7,700 -
Unrealized hedging loss (6,127) (1,321)
Hedging contract at fair value at June 30 1,573 (1,321)
11. RELATED PARTY TRANSACTIONS
For the purpose of these interim condensed consolidated financial statements
related parties transactions include mainly balances and transactions between
the Group and the participants and/or their subsidiaries or associated
companies.
Balances with related parties at the balance sheet dates and transactions with
related parties for the respective periods follow.
In thousands of US dollars June 30, December 31,
2009 (unaudited) 2008 (audited)
Advances paid
Probel Capital Management B.V. - 1,620
Prolag BVBA 170 -
Total 170 1,620
The balance represents advances paid for future services.
In thousands of US dollars June 30, December 31,
2009 (unaudited) 2008 (audited)
Trade payables
Probel Capital Management B.V. 1,084 163
Amersham Oil LLP 103 108
Prolag BVBA 541 -
Total 1,728 271
Six months ended June 30,
In thousands of US dollars 2009 (unaudited) 2008 (unaudited)
Operating Expenses, Selling and General and Administrative
Expenses incurred
Probel Capital Management B.V. 4,349 1,219
Frans Van Der Schoot B.V. - 4,408
Prolag BVBA 1,180 -
Amersham Oil LLP 555 644
Total 6,084 6,271
All related parties are companies indirectly controlled by Frank Monstrey, who
ultimately indirectly controls the Group through Thyler Holdings Limited.
12. CONTINGENT LIABILITIES AND COMMITMENTS
Operating environment
Kazakhstan continues economic reforms and development of its legal, tax and
regulatory frameworks as required by a market economy. The future stability of
the Kazakhstan economy is largely dependent upon these reforms and developments
and the effectiveness of economic, financial and monetary measures undertaken by
the Government.
The Kazakhstan economy is vulnerable to market downturns and economic slowdowns
elsewhere in the world. The ongoing global financial crisis has resulted in
capital markets and commodity price instability, significant deterioration of
liquidity in the banking sector and tighter credit conditions within Kazakhstan.
Consequently, the Kazakhstan Government has introduced a range of stabilization
measures aimed at providing liquidity and supporting finance for Kazakhstan
banks and companies.
While management believes it is taking appropriate measures to support the
sustainability of the Partnership's business in the current circumstances,
unexpected further deterioration in the areas described above could negatively
affect the Partnership's results and financial position in a manner not
currently determinable.
Legal actions
In the ordinary course of business, the Partnership is subject to legal actions
and complaints. Management believes that the ultimate liability, if any, arising
from such actions or complaints will not have a material adverse effect on the
financial condition or the results of future operations of the Partnership.
The Partnership assesses the likelihood of material liabilities arising from
individual circumstances and makes provision in its consolidated financial
statements only where it is probable that actual events giving rise to a
liability will occur and the amount of the liability can be reasonably
estimated. No provision has been made in these interim condensed consolidated
financial statements for any of the contingent liabilities mentioned above.
Taxation
Kazakhstan's tax legislation and regulations are subject to ongoing changes and
varying interpretations. Instances of inconsistent opinions between local,
regional and national tax authorities are not unusual. The current regime of
penalties and interest related to reported and discovered violations of
Kazakhstan's tax laws are severe. Penalties are generally 50% of the taxes
additionally assessed and interest is assessed at the refinancing rate
established by the National Bank of Kazakhstan multiplied by 2.5. As a result,
penalties and interest can amount to multiples of any assessed taxes. Fiscal
periods remain open to review by tax authorities for five calendar years
preceding the year of review. Under certain circumstances reviews may cover
longer periods. Because of the uncertainties associated with Kazakhstan's tax
system, the ultimate amount of taxes, penalties and interest, if any, may be in
excess of the amount expensed to date and accrued at June 30, 2009. As at June
30, 2009 management believes that its interpretation of the relevant legislation
is appropriate and that it is probable that the Partnership's tax positions will
be sustained.
Abandonment and site restoration (decommissioning)
As Kazakh laws and regulations concerning site restoration and cleanup evolve,
the Partnership may incur future costs, the amount of which is currently
indeterminable. Such costs, when known, will be provided for as new information,
legislation and estimates evolve.
Environmental obligations
The Partnership may also be subject to loss contingencies relating to regional
environmental claims that may arise from the past operations of the related
fields in which it operates. As Kazakh laws and regulations evolve concerning
environmental assessments and site restoration, the Partnership may incur future
costs, the amount of which is currently indeterminable due to such factors as
the ultimate determination of responsible parties associated with these costs
and the Government's assessment of respective parties' ability to pay for the
costs related to environmental reclamation. However, depending on any
unfavorable claims or penalties assessed by the Kazakh regulatory agencies, it
is possible that the Partnership's future results of operations or cash flow
could be materially affected in a particular period.
Capital commitments
As at June 30, 2009 the Partnership had contractual capital commitments in
amount of US$ 114,888 thousand.
Operating leases
The Partnership entered into a cancellable lease agreement for the main
administrative office in Uralsk in October 2007 for a period of 20 years for US$
15 thousand per month.
Social and education commitments
As required by the Contract with the Government, the Partnership is obliged to
spend: (i) US$ 300 thousand per annum to finance social infrastructure and (ii)
one percent from the capital expenditures incurred during the year for education
purposes of the citizens of Kazakhstan on an annual basis until the end of the
Contract.
Zhaikmunai LP
Consolidated Financial Statements
Year ended December 31, 2008
With Independent Auditors' Report
CONTENTS
Independent Auditors' Report
Consolidated Financial Statements
Consolidated Balance Sheet
Consolidated Income Statement
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Independent Auditors' Report
To the Partners of Zhaikmunai LP:
We have audited the accompanying consolidated financial statements of Zhaikmunai
LP and its subsidiaries ("the Group"), which comprise the consolidated balance
sheet as at 31 December 2008 and 2007, and the consolidated income statement,
consolidated statement of changes in equity and consolidated statement of cash
flows for the years then ended, and a summary of significant accounting policies
and other explanatory notes.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with International Financial
Reporting Standards. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation
of consolidated financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting
policies; and making accounting estimates that are reasonable in the
circumstances.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditors' judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Group as at 31 December 2008
and 2007, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards.
Emphasis of Matter
Without qualifying our opinion, we draw your attention to Note 2 in the
consolidated financial statements which describes that the Group breached a loan
covenants as of 31 December 2008 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$ 363,451 thousand as of 31
December 2008. 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.
30 April 2009
CONSOLIDATED BALANCE SHEET
As at December 31, 2008
In thousands of US Dollars
Note 2008 2007
ASSETS
Non-Current Assets
Property, plant and equipment 4 513,491 289,533
Hedging contract at fair value 19 62,923 -
Advances for equipment and construction works 75,385 70,475
651,799 360,008
Current Assets
Restricted cash 7 21,078 -
Inventories 3,589 2,496
Trade receivables 5 1,084 9,530
Prepayments and other current assets 6 28,081 14,351
Income tax prepayment 5,386 -
Cash and cash equivalents 7 11,887 7,360
71,105 33,737
TOTAL ASSETS 722,904 393,745
EQUITY AND LIABILITIES
Partnership capital and Reserves
Partnership capital 8 92,072 -
Retained earnings and translation reserve 129,595 66,819
221,667 66,819
Non-Current Liabilities
Long term borrowings 9 - 203,982
Abandonment and site restoration liabilities 10 3,411 1,299
Due to Government of Kazakhstan 11 6,330 6,317
Deferred tax liability 18 56,940 26,191
66,681 237,789
Current Liabilities
Trade payables 12 60,953 36,066
Current portion of long term borrowings 9 365,439 45,521
Current portion of Due to Government of Kazakhstan 11 1,031 2,062
Other current liabilities 13 7,133 5,488
434,556 89,137
TOTAL EQUITY AND LIABILITIES 722,904 393,745
The accounting policies and explanatory notes on pages 5 through 29 are an integral part of these
consolidated financial statements.
Chief Executive Officer of the General Partner of Zhaikmunai
LP
Kai-Uwe Kessel
Chief Financial Officer of the General Partner of Zhaikmunai
LP
Jan-Ru Muller
coNSOLIDATED Income Statement
For the year ended December 31, 2008
In thousands of US Dollars
Note 2008 2007
Sales of crude oil 135,912 108,490
Cost of sales 14 (44,610) (37,401)
Gross Profit 91,302 71,089
General and administrative expenses 16 (20,299) (12,542)
Selling and oil transportation expenses 15 (24,212) (6,793)
Gain on hedging contract 19 64,780 -
Interest income 604 -
Finance costs 17 (13,171) (6,841)
Foreign exchange (loss) / gain (1,527) 6,247
Other income 1,189 820
Profit before income tax 98,666 51,980
Income tax expense 18 (35,188) (15,650)
Net income 63,478 36,330
The accounting policies and explanatory notes on pages 5 through 29 are an integral part of
these consolidated financial statements.
Chief Executive Officer of the General Partner of Zhaikmunai
LP
Kai-Uwe Kessel
Chief Financial Officer of the General Partner of Zhaikmunai
LP
Jan-Ru Muller
CoNSOLIDATED Statement of cash flows
For the year ended December 31, 2008
Note 2008 2007
Cash flow from operating activities:
Profit before income tax 98,666 51,980
Adjustments for:
Depreciation and amortization 8,045 6,126
Borrowing expenses 11,918 6,454
Interest income (604) -
Unrealized gain on hedging contract 19 (63,184) -
Unwinding of discount on due to Government of Kazakhstan 17 992 964
Revision of contractual obligation to Government of Kazakhstan 11 - (679)
Unrealized foreign exchange loss / (gain), net 3,649 (6,560)
Unwinding of discount on abandonment and site restoration 17 261 102
liability
Write-off of property, plant and equipment 4 443 685
Operating profit before working capital changes 60,186 59,072
Changes in working capital:
(Increase) / decrease in inventories (789) 739
Decrease / (increase) in trade receivables 8,444 (3,641)
Increase in prepayments and other current assets (13,843) (8,036)
Increase in trade payables 1,827 3,347
Payment of obligation to Government of Kazakhstan 11 (2,062) -
Increase in other current liabilities 1,673 3,151
Cash generated from operations 55,436 54,632
Income tax paid (9,617) (6,399)
Net cash flows from operating activities 45,819 48,233
Cash flow from investing activities:
Purchases of property, plant and equipment (195,800) (173,105)
Interest income received 604 -
Net cash used in investing activities (195,196) (173,105)
Cash flow from financing activities:
Repayment of borrowings (246,353) (3,966)
Interest paid (32,344) (18,312)
Proceeds from issue of Global Depositary Receipts 8 100,000 -
Transaction costs paid 8 (7,928) -
Proceeds from borrowings 9 381,677 151,444
Fees paid on arrangement of BNPP facility 9 (19,943) -
Net cash provided by financing activities 175,109 129,166
Effects of exchange rate changes on cash and cash equivalents (127) 234
Net increase in cash and cash equivalents 25,732 4,294
Cash and cash equivalents at the beginning of the year 7,360 2,832
Cash and cash equivalents at the end of the year 8 32,965 7,360
The accounting policies and explanatory notes on pages 5 through 29 are an integral part of these consolidated
financial statements.
Chief Executive Officer of the General Partner of Zhaikmunai
LP
Kai-Uwe Kessel
Chief Financial Officer of the General Partner of Zhaikmunai
LP
Jan-Ru Muller
CoNSOLIDATED Statement of changes in equity
For the year ended December 31, 2008
Partnership Retained Translation reserve Total
More to follow, for following part double-click [nRn3A2713Y]