Urals Energy, the independent exploration and production company with operations in Russia, provides the following updates in respect of the Company’s investment in the Kholmsk commercial seaport (the “Kholmsk Port”) and other matters.
On 6 August 2018 the Company announced that, among other things, its Petrosakh subsidiary had acquired a 23% voting interest in the Kholmsk Port. On 10 September 2018 the Company announced that, in conjunction with support from other shareholders in the Kholmsk Port, the Company had secured the election of five of the Company’s representatives as directors to the Kholmsk Port’s board (out of a total board of seven directors).
The Board of Urals Energy (the “Board”) has recently become aware that an unauthorised loan of approximately US$1.5 million has been made to a third party using the Group’s funds (the “Loan”). The Board believes that the Loan was authorised by Mr S Kononov, a representative of his family’s interest in 44 per cent of the Company’s ordinary shares, in his role as a director of the Company’s Petrosakh subsidiary, without the Board’s knowledge or approval. The Board further believes that the Loan was made to allow an individual connected with the Group’s Petrosakh operations to purchase an additional share interest in the Kholmsk Port. Furthermore, the Board understands that Mr Kononov has made an unapproved disposal of part of the Group’s original shareholding in the Kholmsk Port to a third party, on deferred payment terms.
The funds of approximately US$1.5 million used for the Loan were originally earmarked by the Board for working capital purposes. As a consequence, the Group’s working capital position will be significantly constrained until the Loan is repaid, and the intended dividend referred to in the announcement dated 28 September 2018 will not be payable until the Loan is repaid. The Board have sought to initiate discussions with Mr Kononov regarding the repayment of the Loan but at this time there can be no certainty that the Loan will be repaid in the near future.
The Board are of the opinion that if the Loan is not repaid, or alternative financing is not secured, by the end of the month then the Board will have to take steps to protect the interests of the Group’s creditors.
Shareholders should also be aware that the proceeds from the planned tanker shipment from Arcticneft in November of this year will be of critical importance to the Group’s shorter to medium-term working capital position. The estimated volume to be shipped from Arcticneft based on the current volume of crude left in stock and expected levels of production is around 20,000 tons (equivalent to 157,400 barrels).
The Board is considering its options in respect of the unauthorised granting of the Loan and is taking advice regarding what actions should be taken. In particular the Board will pursue the repayment of the Loan as soon as possible, examine the terms of the disposal of part of the Group’s shareholding in the Kholmsk Port and investigate any related breaches of law or regulation. As the above matters are at an early stage, further announcements will be made in due course.