Page 5 - FSUOGM Week 04 2020

FSUOGM COMMENTARY FSUOGM
Nostrum fails to find buyer, shifts focus
Once considered a trailblazer in Kazakhstan, Nostrum Oil & Gas is now struggling with falling production and ballooning debt
KAZAKHSTAN
WHAT:
Nostrum has failed to find a buyer for its business after a seven-month search.
WHY:
The company’s focus now is on utilising spare gas processing capacity and cutting costs.
WHAT NEXT:
Production is set to continue falling this year.
KAZAKHSTAN-FOCUSED Nostrum Oil & Gas has failed to secure any takeover bids follow- ing a seven-month search for a buyer, it reported on January 22, while also announcing a major shift in its strategy.
Once seen as the best-performing inde- pendent producer in Kazakhstan, Nostrum has struggled in recent years with drilling disap- pointments, delays to the completion of a new gas-processing plant and other operational set- backs. As a result, the company has witnessed a steady slide in production, prompting its man- agement to launch a strategic review of the busi- ness in June last year.
Nostrum said at the time that the options on the table included a sale or partial sale of the company.
“The company continues to work with Gold- man Sachs on the formal sales process; however, to-date the company has not received any bind- ing offer for the company or its assets,” Nostrum said in a statement last week.
The London-listed company is one of the largest independent producers working in the Kazakh oil industry – a sector dominated by international majors and large Chinese state companies. Its only producing asset is the Chin- arevskoye oilfield in the west of the country, but it also operates some exploration acreage in the area.
As part of its strategic review, Nostrum said it would now shift its focus to commercialising the spare gas-processing capacity it has as a result of production losses, along with lower-risk reser- voir management and cost reduction.
Nostrum finally completed a third gas treat- ment unit at Chinarevskoye in late 2019 – three years behind schedule – raising its gas-process- ing capacity to 4.2bn cubic metres per year. The company plans to handle more third-party gas to utilise this capacity. It has already reached a deal to process 500mn cubic metres of gas delivered by local producer Ural Oil & Gas, and is in talks on taking gas from other suppliers as well.
After experiencing difficulties with well pro- ductivity, Nostrum announced it would cancel all drilling plans this year “whilst it carries out further analysis to identify viable technologies to mitigate sub-surface risk.” The company also warned it would downgrade some of its proven and probable (2P) reserves to contingent resources. It did not specify the size of the revi- sion, but said it would be “significant.”
Nostrum’s 2P reserves stood at 410.4mn bar- rels of oil equivalent at the end of 2018, down from 488.3mn boe a year earlier.
The producer also said it would review its planned acquisition of Kazakh company Positive Invest, which operates the Stepnoy oil and gas concessions, as part of its focus on cost control.
Nostrum expects to produce 20,000 barrels of oil equivalent per day in 2020, down from 28,877 boepd in the first nine months of last year, 31,300 boepd in 2018 and an average of 40,000 boepd between 2015 and 2017. As recently as two years ago the company had targeted a production rate of 100,000 boepd in 2020.
“Following a period of intense review of all aspects of our business on how to maximise value for all stakeholders, we have embarked on a strategy to transform the business by seeking to commercialise our world-class infrastruc- ture, adopting a lower-risk sub-surface work programme and an aggressive approach to cost management,” Nostrum chairman Atul Gupta commented. “Whilst continuing to explore a full sale of the company, we see significant value in our unique infrastructure and we also recognise the need to prudently manage risk and liquidity.”
Nostrum’s former CEO, Kai-Uwe Kessel, stepped down in December and was replaced by non-executive director Kaat van Hecke.
The company’s financial position is pre- carious. On January 28, ahead of reporting its financial results for 2019, it said it expected its net debt to clock in at up to $1.044bn at the end of December. Meanwhile its revenues for 2019 are forecasts at a mere $322mn. ™
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