Report for the quarter and year ended 31 December 2012

Quarter ended 31 December 2012

• Revenue of MUSD 908.7, up 10% from Q4 2011.
• EBITDA of MUSD 169.2, down 28% from Q4 2011.
• Profit before tax of MUSD 167.8, up 6% from Q4 2011.
• Profit for the period of MUSD 129.9, up 9% from Q4 2011.

Year ended 31 December 2012

• Revenue of MUSD 3,445.2, up 12% from 2011.
• EBITDA of MUSD 734.1, up 6% from 2011.
• Profit before tax of MUSD 544.4, up 26% from 2011.
• Profit for the period of MUSD 420.8, up 28% from 2011.

• The profit before tax for the quarter and the year was positively affected by a MUSD 58.7 reversal of impairment of oil and gas assets.

• Acquisition of gas reserves and launch of gas production in Tomsk region.
• 7 oil and gas licenses added in Timano-Pechora.
• 2P[1] oil and gas reserves increased to 733 mboe[2], up 13% from 2011.
• Transactions completed to form joint venture with Repsol.
• Preference share issue raised MUSD 202.
• The board proposes a dividend of SEK 30 per share for preference shares and no dividend for ordinary shares.

Dear Shareholders,

In 2012, Alliance Oil Company demonstrated great performance with the highest operational and financial results in the Company’s history. The macro environment supported our operations with
the Urals price around USD 110 per barrel and improved oil product prices both domestically and internationally. In the fiscal system, MET and excise taxes were up while export duties remained within the 60-66-90 framework.

Alliance Oil’s crude oil production increased by 10% year-on-year to 19.7 million barrels, and refining throughput increased by 9% year-on-year to 29.3 million barrels. Consolidated Revenue and EBITDA grew by 12% and 6% respectively, compared to 2011. The consolidated EBITDA reached all-time high USD 734 million for the year, and the profit before tax exceeded USD 500 million.

In the upstream segment, production growth resulted in higher sales at 19.3 mbbl (17.5 mbbl in 2011). Segment EBITDA improved by 25% year-on-year, partially due to increased MET exempt production. The upstream segment generated positive free cash flow to fully cover the capital expenditures for the year. The Company drilled 89 production and 4 exploration wells in 2012.

In the fourth quarter, the Company expanded into the Russian gas business through the strategic acquisition of two licenses with sizable gas and condensate reserves and attractive resource potential in the Tomsk region. Gas production commenced in February 2013 with the initial 4,500 boepd. 

As of December 31, 2012 Alliance Oil’s 1P reserves increased to 331 mboe, 2P reserves - to 733 mboe and total 3P reserves - to 1,206 mboe. Moreover, in 2012 the Company added 7 new exploration and production licenses in the Timano-Pechora region with prospective resources of about 560 mboe under Russian classification system (D1+D2).

Alliance Oil and Repsol have completed the transactions to form the upstream joint venture AR Oil and Gas BV (AROG) with a total asset base of approximately USD 885 million and 278 mboe of 2P reserves. Alliance Oil has contributed Volga-Urals upstream subsidiaries to obtain a 51% participation in AROG and received net cash of USD 117 million. Repsol has contributed EuroTEK gas fields and paid in cash to Alliance Oil for 49% participation in AROG.

In the downstream segment, consolidated revenue increased by 12% year-on-year on the back of sales volume growth. The Company sold 29.9 million barrels of oil products in 2012 compared to 27.6 million barrels in 2011.

The refinery capacity utilization was record high in 2012 due to strong demand for oil products both domestically and internationally. The refining capacity was extended to 90,000 bopd, and 7 new units with upgraded utilities and infrastructure were launched at the Khabarovsk refinery. Bunkering and retail segment performance improved further.

Late in 2012, the Company introduced a new class of dividend paying preference shares which were successfully placed to raise equity of SEK 1,350 million (USD 202 million) before transaction costs. The Company’s debt portfolio remained well balanced and primarily long-term. Net Debt remained stable with cash on balance exceeding USD 400 million as of December 31, 2012.

Outlook

For 2013, upstream CAPEX are expected at USD 250-290 million, fully funded from the segment’s positive free cash flow. The Company plans to drill 64 production and 4 exploration wells.

In the downstream segment, a new hydroprocessing complex will be launched into test operations in the third quarter of 2013. Currently, the project progress is estimated at above 95% in engineering and procurement, and 83% in construction works. Refining capacity is planned to reach 100,000 bopd. 

The Company has started constructing a connection from the East Siberia Pacific Ocean (ESPO) to the Khabarovsk refinery. The first crude oil supplies to the refinery by ESPO-pipeline are scheduled for early 2014 with 40,000 bopd capacity, and then will gradually extend to 100,000 bopd by 2015. Total downstream capital expenditures are planned at USD 430-490 million and will be funded from the segment’s operating cash flow, existing cash and debt sources.

Upon completion of the modernization project, adding new refining capacity and ESPO connection in 2013, we expect significantly reduced capital expenditures and improved operational performance of the refinery with better oil product quality, better yields and better profitability.

Alliance Oil Company’s strategic target for the upstream segment is to maintain double digit growth in hydrocarbon production and reserves in coming years. Upstream segment economics continue to benefit from rising netbacks, MET exemptions and new gas production. The solid hydrocarbon reserve and resource base support our growth oriented targets in the upstream segment. The Company aims at realizing exploration and development potential in Timano-Pechora, expanding in the highly attractive Russian gas industry and progressing the upstream joint venture with Repsol.  

Arsen Idrisov, Managing Director

For further information:
Arsen Idrisov, Managing Director, Alliance Oil Company Ltd, telephone +7 (495) 777 18 08.
Eric Forss, Chairman of the Board, telephone +46 8 611 49 90.

Conference call

Date: Thursday, 21 February 2013
Time: 10.00 CET

To participate in the conference call you may choose one of the following options:

Telephone

Dial one of the following numbers a few minutes before the conference starts: 

Conference ID: 4600963

Web

The conference call will be webcasted live at www.allianceoilco.com.  

A replay of the conference call will be available at www.allianceoilco.com.  

Alliance Oil Company Ltd is a leading independent oil company with vertically integrated operations in Russia and Kazakhstan. Alliance Oil has substantial oil and gas reserves and downstream operations that include the Khabarovsk refinery and the leading network of gas stations and wholesale oil products terminals in the Russian Far East. Alliance Oil's depository receipts are traded on the NASDAQ OMX Nordic under the symbol AOIL.

[1] Proved and probable.

^[2] Million barrels of oil equivalent.