Nov 2015
Interim report January-September 2015

(for full report, please see attached file)

January – September 2015 Continuing Operations*

  • Total revenue: SEK 23 (36) million
  • Operating result: SEK 1 (2) million
  • Operating margin: 2% (6%)
  • Basic and diluted earnings per share: SEK -2.58 (0.11)

January – September 2015 Russian and Ukrainian Operations**

  • Revenue: SEK 62 (93) million
  • Operating result: SEK 9 (23) million
  • Operating margin: 15% (24%)


Financial result Russian and Ukrainian Operations excluding one-off items






Amounts in SEK th













Capitalized work












Operating result






Operating margin



















Operating result






Operating margin






Parent company






Total operating result






Total operating margin








Q1-Q3 2015


Oil production























Total barrels
























Total barrels per day








On 17 November 2015 Shelton Petroleum issued a press release stating that the interim report will include several non-recurring adjustments of values and reclassifications. These items are described in detail in this interim report in the section “Adjustments and reclassifications” and note 6. In order to facilitate comparison of the development of the Russian and Ukrainian Operations with previous periods, the table above includes financial data excluding one-off adjustments and reclassifications.

* Continuing Operations fully reflect the financial statements in this report and include the Russian and parent company operations. They are not fully comparable with those in previous interim reports as they include one-off items posted in Q3 2015.

** Russian and Ukrainian Operations are fully comparable with the financial statements in previous interim reports. The one-off adjustments and reclassifications reflected in Continuing Operations are not included in the Russian and Ukrainian Operations. The Russian and Ukrainian Operations include the Russian, Ukrainian and parent company operations.

Statement from the CEO Robert Karlsson

During the third quarter, Shelton Petroleum produced 758 barrels per day. The Russian and Ukrainian Operations recorded a turnover of SEK 19 million and an operating result of SEK 4 million. The operating margin in the third quarter increased to 22% from 15% in the first half of the year.

The oil price continues to be volatile. The average Brent oil price during the first nine months this year was USD 55 per barrel, which is almost 50% below the same period last year. We see that the oil industry is adapting to the new economic environment. Onshore US rig count has reached a five year low and we are starting to see a decline in production of unconventional oil. Drastic budget cuts on the conventional side are being announced by the oil and gas industry. In the long run we expect to see a significant growth in world oil demand. The factors are there to evidence a recovery of the oil price. The timing of such recovery is however uncertain. In the midst of this, Shelton Petroleum is positioning itself in terms of cost controls but also in order to take advantage of the business opportunities that arise.

On 9 November the shareholders of Shelton Petroleum and Petrogrand approved a transaction between the two companies to enter into a business combination. An enlarged oil group with Russian oil assets with 32 million barrels 2P oil reserves and a daily net production of 1,350 barrels will be formed. The combined businesses will benefit from an attractive license portfolio and an improved position on the financial markets. Synergies will be achieved within operational management, oil sales, purchasing power as well as central administration. In addition, the transaction will dissolve the cross-ownership between the companies, which in turn will directly facilitate future development. One of the objectives of the transaction is to accelerate drilling activity and increase production. The new combined board of directors will be in a position to communicate strategic direction and activities following closing of the transaction planned for December this year. In short, the transaction is the definitive end to the cross-ownership and marks the beginning of new opportunities in terms of further drillings, increased production, stronger financial position and growth opportunities.

Prior to the transaction with Petrogrand, Shelton Petroleum will distribute its Ukrainian operations to its shareholders. Due to the geopolitical development in the region, it is the opinion of the board that it is best to manage the Russian and Ukrainian operations as separate entities. The Ukrainian operations produced over 300 barrels per day and recorded a turnover of almost SEK 40 million, an operating profit of SEK 9 million and an operating margin of 22% for the first nine months of 2015. Despite the relatively strong financial results, the carrying value of the Ukrainian operations has been written down to reflect the volatility in the oil price and the geopolitical environment.

In summary, the combined entity will have an attractive license portfolio with proven and producing fields. A new drilling program could potentially boost production significantly. The lower oil prices post challenges to the oil industry, but also open up new possibilities to expand and to pursue new opportunities and ventures.

January - September 2015

Financial development of the Russian and Ukrainian Operations

In order to facilitate a comparison with previous periods, this section contains comments to the financial development of the Russian and Ukrainian Operations accounted for according to the same principles as in previous periods. One-off items are therefore not included. It is recommended that the section “Adjustments and reclassifications” and note 6 below are read in parallel as they cover important items in the Condensed consolidated statement of comprehensive income and Condensed consolidated statement of financial position.

Revenue from oil sales in the Russian and Ukrainian Operations amounted to SEK 62 (93) million. During the period, Shelton Petroleum sold 208,590 (236,810) barrels of oil and the production in the period amounted to 210,410 (245,537) barrels of oil. The price of oil in USD in both Russia and Ukraine was significantly lower in the first nine months 2015 compared to the same period last year.

The average daily production during the first nine months 2015 amounted to 771 barrels compared to 899 barrels the same period in 2014.

The Russian and Ukrainian Operations, excluding one-off items, reported an operating result for the period January - September 2015 of SEK 9 (23) million, equivalent to an operating margin of 15% (24%). The operating result was negatively affected by the lower oil prices in the period compared to last year. In January to September 2015, the average price of Brent oil was USD 56 per barrel compared to USD 107 per barrel the same period last year.

The Russian and Ukrainian Operations held SEK 14 million in cash and cash equivalents at the end of the period compared to SEK 14 million at 31 December 2014. Cash flow from operations during the period was SEK 7 million, whereas cash flow from investing activities was SEK -9 million, all related to the oil and gas operations. Cash flow from financing activities was SEK 4 million, reflecting a loan from Pareto Securities. The company’s shareholding in Petrogrand has been pledged for this loan.

The accounts receivable balance in the Ukrainian operations amounted to SEK 57 million as of 30 September 2015 compared to SEK 54 million at 31 December 2014. During January to September, payments received for oil sales in Ukraine amounted to SEK 32 million. The counterparties have confirmed the receivables in writing. Despite the fact that the operator in Ukraine has sold its produced oil to new customers in the second and third quarter, that is to other companies than the one that previously has acquired the vast majority of the oil, payments are still made with delays, although on a regular basis. 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 2.4 million and the reserve amounts to SEK 3.0 million. The company monitors the situation closely and has a continuous dialogue with the customers on settling the outstanding amounts as they become due.

In the first quarter the operator of the Lelyaki oil field, Kashtan Petroleum, recommenced to pay dividends to Shelton Petroleum’s wholly owned subsidiary. During the period January to September, approximately SEK 10 million has been received.

Investments in exploration and development activity in the Russian and Ukrainian Operations amounted to a total of SEK 9 (19) million for the period.

Non-current financial assets amounted to SEK 35 million at the end of the period compared to SEK 48 million at 31 December 2014, and consisted of shares in Petrogrand. The lower value is due to lower price of the Petrogrand share.

Shareholders' equity per share at 30 September 2015 was SEK 11.61 (19.54) and the equity to assets ratio was 81 (85) %.

The Russian and Ukrainian currencies continued to be volatile during the period. The Russian ruble strengthened by 7 per cent against the Swedish krona compared to the year-end rate 2014 while the Ukrainian hryvnia weakened by 21 per cent against the Swedish krona. See note 6 for details regarding exchange differences that affects the condensed financial statements.

Adjustments and reclassifications

On 17 November 2015 Shelton Petroleum issued a press release stating that the interim report will include several non-recurring adjustments of values and reclassificiations as a result of the recent shareholder approval of the agreement between Shelton Petroleum and Petrogrand, the development on the oil and gas market, depreciation of the Ukrainian currency and share price development in Petrogrand. These items are described below and in note 6.

Ukrainian operations

Due to the distribution of the Ukrainian operations to the Shelton Petroleum shareholders, now also approved by the shareholders at an extraordinary general meeting, these operations are in accordance with IFRS 5 accounted for as discontinued operations in the financial reporting starting from the third quarter 2015. The Ukrainian operations are therefore reported as discontinued operations below those of continuing operations in the Condensed consolidated statement of comprehensive income.

As mentioned above, the Ukrainian operations continue to show profitability despite the drop in the oil price. For the period January-September 2015, these operations recorded revenue of SEK 39 million and an operating profit of SEK 9 million, equivalent to an operating margin of 22%. Despite that, the board has decided to adjust the group’s value attributed to the Ukrainian operations from SEK 78 million to SEK 35 million. It is the opinion of the company that the oil price and the geopolitical situation in Ukraine will continue to be volatile. A downward adjustment of the value of approximately SEK 43 million has therefore been reported within discontinued operations.

Furthermore, the weakening of the Ukrainian currency is no longer regarded as temporary. Accumulated adjustments (amounting to SEK -84 million as of 30 September) of the value of the Ukrainian operations due to the depreciation of the Ukrainian currency will therefore be reported in discontinued operations following the distribution of the Ukrainian operations. In the press release on 17 November 2015 (“Update regarding the interim report for January-September 2015”) it was anticipated that this reclassification would take place in the third quarter 2015. However, the company now expects to reclassify this item in the fourth quarter when the distribution of the Ukrainian operations approved by the shareholders meeting is planned to be executed.

Shares in Petrogrand

Shelton Petroleum is Petrogrand’s largest shareholder and holds 11,585,308 shares equivalent to approximately 29% of the capital. Due to the development in the Petrogrand share price, Shelton Petroleum has in previous interim reports written down the book value of the shareholding by SEK 38 million in other comprehensive income. The third quarter has evidenced a further drop by SEK 11 million. It is the opinion of the company that the share price development is no longer temporary. Adjustments made in previous quarters and in the third quarter of the value of the shares in Petrogrand amounting to approximately SEK 49 million are reported in financial items in the group’s income statement, of which SEK 36 million is a reclassification from other comprehensive income in continuing operations.


In June 2015 the exercise period for 320,000 warrants issued in 2012 expired. The warrants were not exercised as the subscription price for the shares exceeded the market price.

The annual general meeting in May 2015 approved the issue of 320,000 warrants with a subscription period during the first two weeks of July 2015. Management was unable to subscribe to the warrants due to insider rules, as at that time the transaction with Petrogrand was being negotiated but had not yet been disclosed to the markets, and the warrants have therefore expired.

July - September 2015

Russian operations

Shelton Petroleum’s production of oil in Russia during the quarter amounted to 39,430 (49,470) barrels. Production per day amounted to 429 (538) barrels. The decrease is due to the natural depletion that all wells are subject to as oil is extracted. Revenue in the quarter for the Russian operations amounted to SEK 7.2 (12.0) million and operating profit to SEK 2.5 (4.9) million, corresponding to an operating margin of 35% (41%). The lower operating profit and margin compared to the same period last year is due to a significantly lower oil price, a higher production tax rate and lower volumes compared to the same period last year.

Shelton Petroleum has processed and is currently interpreting an additional 142 kilometers of seismic data that has been collected on the Suyanovskoye oil field to further delineate three promising structures that were identified in 2014. Seismic has also been collected on the Rustamovskoye field in order to determine the next drilling locations.

Ukrainian operations

Production in the quarter amounted to 30,350 (29,630) barrels. Production per day amounted to 330 (322) barrels. Revenue in the quarter in the Ukrainian segment amounted to SEK 12.1 (17.2) million and operating profit to SEK 3.7 (5.6) million, corresponding to an operating margin of 31% (32%). 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.

As the Lelyaki license expires in May 2016, the holder and operator of the license (Kashtan Petroleum) has recently filed a license extension application, including an extensive geological study of the field, to the Geological Service of Ukraine, which is part of the Ministry of Ecology.

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 9 November 2015 extraordinary shareholder meetings in both Shelton Petroleum and Petrogrand approved the agreement by the two companies to enter into a business combination and dissolve the cross-ownership. The transaction consists of the following steps: (i) Distribution of Shelton Petroleum’s Ukrainian operations, (ii) Acquisition of the shares in Sonoyta, containing USD 4 million as well as 49% of the Komi assets for a consideration of 17,500,000 B shares, (iii) Cancellation of the approximately 6,000,000 Shelton Petroleum B shares that the company receives when Petrogrand distributes its shareholding in Shelton Petroleum and (iv) Election of a new board of directors consisting of Björn Lindström (chairman), Hans Berggren, David Sturt, Sven-Erik Zachrisson and Dmitry Zubatyuk, subject to closing of the transaction. More information on the transaction is available on www.sheltonpetroleum.com under the Investor Relations section.

Since the transaction has not yet been completed Shelton Petroleum cannot present a preliminary purchase price allocation of the acquisition of Sonoyta in this report.

The parent company

The parent company's total assets as at the period end amounted to SEK 316 (358) million. Cash and cash equivalents amounted to SEK 2 (7) million. The result after tax January-September 2015 was SEK -78 (-27) million. The negative result is mainly due to write down of the value of Petrogrand shares and a write-down of the value of shares in subsidiaries, which is related to the decision to adjust the value of the Ukrainian operations.

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

Year-end Report January – December 2015 26 February 2016

Annual report 2015 April 2016

Interim Report January – March 2016 20 May 2016

Interim Report April – June 2016 24 August 2016

Interim Report July – September 2016 18 November 2016

Annual General Meeting 2015 24 May 2016

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 November 2015 at 08:00 CET.

This is an English translation of the Swedish original. In case of discrepancies, the Swedish original shall prevail.

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