Nostrum Oil and Gas announced its 9M2017 operating results

Altynay IbraimovaNovember 01, 2017

Yesterday, Nostrum Oil and Gas announced its 9M2017 operating results. According to the press release, the average daily production in 3Q2017 was 41.3ths boepd, which is lower than in 2Q2017 by 7%. In this case, the average daily production for 9M2017 exceeds the level of the same period last year by 15%.

The sales volume in the reporting period amounted to 36.6ths boepd, an increase of 2%.

Preliminary financial indicators imply the Company's revenue for 9M2017 is more than $303mn, which exceeds the income for 9M2016 ($242mn). The Company's debt, according to the press release, is $1,057mn at the end of 3Q2017.

Previously, Nostrum reported the delay to the GTU3 tie-in due to the inability to be able to complete hydro-testing prior to the winter period as a result of the non-delivery of critical equipment. Against this backdrop, the Company is revising its production forecasts and, according to the press release, the Company does not expect to achieve an average daily production above 40ths boepd by the end of this year.

Gradual increase in production is expected only in 2H2018. Nevertheless, a revised production plan will be provided by the end of the year, when the drilling program for 2018 will be adopted and will be in the implementation phase. The Company revised the production plan for 2019 from the previous 80-100ths boepd to 60-80 ths boepd, leaving unchanged the plans to reach a production level of 100 ths boepd by 2020.

Our opinion

Operating results for 9M2017 are within our expectations and do not bring changes in our 2017FY forecasts.  The revised schedule for 2019-2020 fits our forecasts, since the risk of delay of UPG-3 is already taken into account when calculating our target price. We expect neutral financial results for 9M2017 and maintain our BUY recommendation with 12M TP GBp502/share.