May 2015
Interim report January – March 2015

(for full report, please see attached file)

Operating margin 7% despite significantly lower oil prices

  • Total revenue for the period: SEK 19 (32) million
  • Operating result for the period: SEK 1 (9) million
  • Operating margin: 7% (29%)
  • Basic earnings per share: SEK 0.04 (0.55)
  • Diluted earnings per share: SEK 0.04 (0.53)   

Oil production














Barrels per day






Statement from the CEO

During the first quarter, Shelton Petroleum produced approximately 800 barrels per day. The company recorded a turnover of SEK 19 million and an operating result of SEK 1 million, equivalent to an operating margin of 7%. Both the turnover and the profit were lower than in previous quarters, which is mainly due to the rapid and significant drop in the oil price that has affected the whole sector. The oil industry is currently adapting to the new market conditions. This is especially true for the high-cost North American shale oil industry, where the rig count has fallen from 1,600 to 700 active rigs.

Since the middle of the first quarter, the oil price, and as a result also Shelton Petroleum’s profitability, have recovered. Shelton Petroleum, compared with several other oil companies, has relatively low production costs and can therefore post profits despite the fact that the company’s fields in Russia have not been developed even close to their ultimate potential. Shelton Petroleum’s production in Russia amounts to 455 barrels per day, whereas the 2P potential amounts to more than 5,000 barrels per day solely on the already producing field according to the recent reserves report. As the production volumes increase, Shelton Petroleum will raise its profitability both in absolute terms and per barrel.

Shelton Petroleum has through successful drillings proven its reserves base and demonstrated that the oil can be extracted and sold under sound profitability. In the latest reserves update, the Russian 2P reserves increased from 1 to 23 million barrels of oil. The group’s total 2P reserves amount to 34 million barrels. The company is currently making investments into a seismic program in order to delineate the promising structures that it has previously identified. Shelton Petroleum has built considerable value in its oil assets.

Ukraine is implementing a program to modernize and deregulate the country and its economy. Shelton Petroleum’s production in Ukraine is stable,and, due to its geographic location, unaffected by the unrest that still exists, although on a lower level during the past few months, in the eastern parts of the country. The accounts receivable from the sale of oil in Ukraine continue to be high and it is the company’s objective to more swiftly turn them into cash flow. It is however important to note that the operator of the Lelyaki field continuously receives payments, although delayed, for the oil it has sold. During the past three months Shelton Petroleum’s wholly owned Canadian subsidiary has received dividends from the operator.

Shelton Petroleum has a shareholding in Petrogrand that carried a market value of SEK 53 million at the end of the first quarter. This is an important asset and the company is evaluating the holding to determine how it can be used to create most value for the shareholders.

How will Shelton Petroleum create new value for its shareholders? One key element is to convert the oil reserves to production by drilling new wells on the oil fields in Russia. How will this be financed? Shelton Petroleum is able to finance current investments through cash flow from the oil it sells, but lacks sufficient funds for a full-scale development program. It is however important to note that the company holds two substantial assets – the shareholding in Petrogrand as well as receivables on a customer in Ukraine. If one or both of these were to be converted to cash, then Shelton Petroleum would be able to finance a drilling program to significantly enhance production in Russia. Shelton Petroleum is also considering industrial partnerships on the asset and corporate level and is exploring farm-out options where drillings would be financed by a partner that would earn into the field. It is also important to note that the company is free from interest-bearing debt.

The players in the oil industry have not yet fully adapted to the new market conditions, and as they do, new opportunities will open up for Shelton Petroleum to find solutions to realize the significant value in the oil reserves that the company has established.

In summary, Shelton Petroleum has through persistent and successful work established producing oil fields and I am looking forward to realize the value that is substantially higher than current production volumes show.

Robert Karlsson

January - March 2015

Financial development

Revenue from oil sales amounted to SEK 19 (32) million. During the period, Shelton Petroleum sold 70,700 (74,370) barrels of oil and produced 71,760 (84,760) barrels of oil. The production has decreased in both Russia and Ukraine compared to the same period last year. The prices of oil in USD in both Russia and Ukraine were lower compared to the same period in 2014.

The average daily production during the period amounted to 797 barrels compared to 942 barrels in 2014, 519 barrels in 2013 and 455 barrels in 2012.

The company reported an operating result for the period January to March 2015 of SEK 1 (9) million, equivalent to an operating margin of 7%. The operating result was negatively affected by the lower oil prices in the quarter compared to last year. In the first quarter of 2015 the average price of Brent oil was USD 54 per barrel compared to USD 108 per barrel in the first quarter of 2014. The Brent oil price has strengthened and during the second quarter to date the average price amounts to USD 61 per barrel.

The group held SEK 13 million in cash and cash equivalents at the end of the period. Cash flow from operations during the quarter was SEK 3 million, whereas cash flow from investing activities was SEK -4 million, all related to the oil and gas operations. The company is free from interest-bearing debt.

The accounts receivable balance, included in Other short term receivables in the balance sheet, amounted to SEK 37 million as of 31 March 2015 compared to SEK 54 million at 31 December 2014. The receivable has been confirmed by the counterparty in writing. As has been described in previous reports, the customer who acquires the oil in Ukraine is making payments on a regular basis but with delays. During January to April, payments received for oil sales in Ukraine amounted to SEK 15 million. The company believes that the receivables will be settled in full. However, to reflect the cost of interest on older receivables the company has increased the reserve that was booked at year end by SEK 0.7 million and the reserve amounts to SEK 1.8 million. The company continues to monitor the situation closely and has a continuous dialogue with the customer on settling the outstanding amounts as they become due.

The operator of the Lelyaki oil field, Kashtan Petroleum, has during the first quarter recommenced to pay dividends to Shelton Petroleum’s wholly owned Canadian subsidiary. During the period January to April, approximately SEK 2.5 million has been received.

Investments in exploration and development activity amounted to a total of SEK 4 (8) million for the period.

Non-current financial assets amounted to SEK 53 million at the end of the period compared to SEK 48 million at 31 December 2014, and consisted of shares in Petrogrand. The stock price of Petrogrand increased in the first quarter 2015.

Shareholders' equity per share at 31 March 2015 was SEK 14.94 (21.25) and the equity to assets ratio was 85 (83) %.

The Russian and Ukrainian currencies continued to be volatile during the first quarter. The Russian ruble strengthened by 9 per cent against the Swedish krona compared to the year-end rate 2014 while the Ukrainian hryvnia weakened by 27 per cent against the Swedish krona. As a result of the fluctuations in the exchange rates the company reports translation differences in other comprehensive income of SEK -13 (-52) million. The translation differences arise when the income statements and balance sheets of foreign operations are translated from local currency to Swedish krona. The translation differences mainly relate to intra-group loans and fixed assets and do not affect cash flow. See note 7 for a table of exchange rates that have been used.

Russian operations

Shelton Petroleum’s production of oil in Russia during the first quarter amounted to 40,960 (51,500) barrels. Production per day amounted to 455 (572) barrels. The decrease is due to the natural depletion that all wells are subject to as oil is extracted. Revenue in the first quarter for the Russian segment amounted to SEK 6.3 (11.9) million and operating profit to SEK 1.3 (5.0) million, corresponding to an operating margin of 20% (42%). The lower operating profit and margin compared to previous periods is due to a significantly lower oil price, a higher production tax rate and lower volumes compared to the same period last year.

Despite the lower oil prices the Russian segment posted a healthy profit during the first quarter. In addition, Shelton Petroleum’s assets have not yet been developed to a stage where they are close to their ultimate potential. The current production level is about one tenth of the 2P potential of over 5,000 barrels per day according to the recent reserves report. As production volumes increase, Shelton Petroleum will raise its profitability both in absolute terms and per barrel.

Ukrainian operations

Production in the first quarter amounted to 30,800 (33,260) barrels. Production per day amounted to 342 (370) barrels. Revenue in the first quarter in the Ukrainian segment amounted to SEK 13.1 (19.6) million and operating profit to SEK 2.7 (8.0) million, corresponding to an operating margin of 21% (41%). The lower operating profit and margin is due to a significantly lower oil price, higher production tax rate and lower volumes compared to the same period last year. As is the case with the Russian segment, the Ukrainian segment is also able to show sound profitability despite the lower oil prices. The average Brent oil price so far during the second quarter is USD 61 per barrel, which is USD 7 higher than the average price in the first quarter.

Shelton Petroleum (Zhoda 2001 Corporation) and its partner Ukrnafta, Ukraine’s largest oil and gas company continue the field development program on the Lelyaki field. The objective is to step by step enhance productivity and support production volumes through a program consisting of new wells, sidetracks and workovers.

Significant events occurring after the reporting period

On 29 April 2015 Shelton Petroleum announced that an additional 142 kilometers of seismic data has been collected on the Suyanovskoye oil field to further delineate three promising structures that had been identified in 2014. The results of the processing and interpretation of the data will be published later in 2015.

The parent company

The parent company's total assets as at the period end amounted to SEK 411 (402) million. Cash and cash equivalents amounted to SEK 3 (22) million. The result after tax January – March 2015 was SEK 2 (7) million. The total assets have increased by approximately SEK 53 million since year end. In preparation for the extra general meeting in January 2015, which were to resolve on the dissolution of the cross-ownership with Petrogrand, the company transferred its shares in Petrogrand to a wholly owned subsidiary in Cyprus. The shares have since been transferred back to Shelton Petroleum as a loan.

Risk factors and uncertainties

A detailed account of the risks facing the company can be found in the 2014 annual report. During the period, there has been no major change in material risk factors or uncertainties for the group or the parent company. Risks include exploration risk, oil price risk, exchange rate risk, liquidity risk, credit risk, interest rate risk and political risk, among others.

Upcoming financial reporting

Interim Report April – June 2015 21 August 2015

Interim Report July – September 2015 20 November 2015

Annual General Meeting 2015 21 May 2015

Publication under Swedish law

Shelton Petroleum is publishing this information in accordance with the Swedish Financial Markets Act (Sw. Lag om värdepappersmarknaden) and/or the Swedish Financial Trading Act (Sw. Lag om handel med finansiella instrument). This information was released for publication on 20 May 2015 at 08:15 CET.

This report has not been reviewed by the Company’s auditors.

(For full report, please see attached file)

For more information, please contact:

Robert Karlsson, CEO, +46-709565141


Shelton Petroleum AB

Swedish corporate identity number: 556468-1491

Hovslagargatan 5B

SE-111 48 Stockholm

Tel: +46 8407 18 50