The 1H2017 production of Nostrum Oil and Gas met expectations

Altynay IbraimovaAugust 01, 2017

Yesterday, Nostrum Oil and Gas published the operational results for 1H2017. According to the data, Nostrum succeeded in topping the 2017 planned average daily volumes of oil production of 44ths boepd, achieving the 46ths bnes level in 1H2017, owing to the higher volumes in 1Q2017 (48.7ths boepd). The average daily volume of oil production in 2Q2017, also in accordance to the plan, amounted to 44.6ths boepd.

The Company continues building the third Gas Treatment Unit (“GTU-3”) “in accordance with the forecast” and is expecting the completion of construction before end of this year.

The Company also confirmed the forecast on production for upcoming 2 years, expecting more than 44ths boepd in 2017, 50-80ths boepd in 2018, and 80-100ths boepd in 2019.

As written above, in 2Q2017 Nostrum had completed the connection to the KazTransOil pipeline, which gave them the opportunity to perform export sales through international export pipeline Atyrau – Samara.

The preliminary financial indicators show an increase in revenue from $163.5mn in 1H2016 to more than $210mn in 1H2017.

According to the press release, the Company’s debt is $962mn, the net debt - $864mn. As mentioned before (written above), the Company has issued senior bonds due to 2022, for a total of $725mn with an effective interest rate of 8%. The proceedings were partially used for refinancing existing bonds for the amount of $607mn, with a due date in 2019.

Our view

The news that Nostrum has achieved the planned levels of production of 44.6ths boepd is perceived as neutral as it is in line with our expectation of 44ths boepd for the whole 2017. Considering increasing oil prices in 1H2017 to $52.75/bbl (+28 yoy) we believe that the increase in revenue to $210mn in 1H2017 (+28%) is quite justified. On the whole, we do not register any deviations of operational results from our expectations (forecast) and considering that the company keeps its forecast of production, we maintain “Hold” recommendation for Nostrum shares.