Annual Report & Accounts 2014

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Annual Report & Accounts 2014 & ACCOUNTS 2014 ANNUAL REPORT ANNUAL Max Petroleum Plc Annual Report & Accounts 2014 Max Petroleum’s strategy is to maximise reserves, production and cash flow from its shallow, post-salt discoveries in its Blocks A&E Licence area in the Pre-Caspian Basin, while continuing to pursue the higher impact exploration potential of its pre-salt portfolio. Contents 1 Highlights Governance Additional information 2 Company Overview 29 Board of Directors 93 Supplemental Disclosure – 30 Directors’ Report Oil and Gas Reserves Strategic report 34 Directors’ Remuneration Report (unaudited) 5 Chairman’s Statement 38 Corporate Governance Report 94 Glossary 6 Business Review 97 Corporate Directory 16 Liquidity and Capital Resources Financial Statements 99 AGM notice 18 Key Performance Indicators 41 Independent Auditors’ Report 20 Financial Review 43 Consolidated and Company 24 Principal Risks and Financial Statements Uncertainties 49 Notes to the Financial 26 Corporate and Social Statements Responsibility www.maxpetroleum.com — Revenue of US$100.4 million during the year ended 31 March 2014, up 8% compared to US$93.3 million during HIGHLIGHTS the year ended 31 March 2013. — Average daily production of 3,899 bopd, up 17% on the previous year. — Drilled 35 post-salt wells during the year ended 31 March 2014, taking the total to 103 wells drilled between August 2006 and August 2014. — 2P reserves2 of 9.5 mmboe at 31 March 2014, down 13% from 10.9 mmboe at 31 March 2013, up 11% from 8.6 mmboe at 30 September 2013. — Impaired the book value attributed to post-salt exploration assets by US$64.6 million, reflecting the limited remaining post-salt exploration potential of the Blocks A&E Licence. US$100 million — Commenced a cost-cutting initiative that is expected to generate recurring annual savings of approximately oil sales revenue for the year US$4.0 million in administrative costs. Provision for one-off ended 31 March 2014 restructuring costs of US$3.8 million recognised at 31 March 2014. — Commissioned a new oil pipeline and associated terminal facility in June 2014 that will result in a reduction of transport costs of approximately US$4.0 per barrel for production from the Zhana Makat, Borkyldakty, Sagiz Average daily production (bopd) West and East Kyzylzhar I fields. — The Asanketken field is expected to be granted full field development status by the end of 2014. 2014 3,899 — Current production of approximately 3,400 bopd from fields in continuous production (Zhana Makat, Borkyldakty 2013 3,346 and Asanketken), generating over US$8.0 million revenue per month. — Production for the four months ended 31 July 2014 averaged approximately 4,250 bopd including test production from several appraisal wells at Sagiz West and East Kyzylzhar I, Crude oil sales volumes (mbo) which are currently, or will soon be, shut-in pending commencement of trial production (“TPP”). 2014 1,370 — The Sagiz West, East Kyzylzhar I and Baichunas West fields on track to gain TPP status in 2015 allowing for continuous production from all wells at those fields which is expected to 2013 1,234 bring on stream in excess of 1,000 bopd of additional production. — NUR-1 re-entry plan designed by Halliburton and submitted to CaspiyMunaiGas LLP, a design institute, for approval. Adjusted EBITDA (US$ million) — Began quarterly repayments of the Sberbank loan principal in March 2014, with a total of US$4.1 million repaid as of 19 August 2014. 2014 34.5 — Completed conversion of the remaining outstanding convertible bonds into ordinary shares in September 2013, 2013 31.5 the final part of the restructuring of the Group’s debt facilities first announced in December 2012. — In August 2014, agreed a conditional strategic investment by AGR Energy in Max Petroleum of approximately US$62.5 million before expenses, which would result in AGR Energy holding 51% of the Company’s share capital on completion. 2014 2013 % Change Average daily production bopd 3,899 3,346 17% Revenue US$ million 100.4 93.3 8% Total sales volumes mbo 1,370 1,234 11% Average realised selling price US$ per bbl 73.29 75.64 (3)% Cash generated from operations US$ million 34.0 40.4 (16)% Loss for the period US$ million 76.8 10.1 658% Adjusted EBITDA1 US$ million 34.5 31.5 9% Proved and probable (2P) reserves2 mmboe 9.5 10.9 (13)% Proved, probable and possible (3P) reserves2 mmboe 10.4 14.2 (27)% 1 Adjusted EBITDA is defined as profit/(loss) before finance income, finance expense, income tax expense, depreciation, depletion and amortisation, share-based payment expense, exploration and appraisal costs, restructuring costs and impairment losses. Adjusted EBITDA is a non-IFRS performance measure with no standard meaning under IFRS, and is reconciled to the income statement in note 39 to the accompanying financial statements. 2 Reserves estimated by the Ryder Scott Company, the Group’s competent person, as at 31 March 2014 and 31 March 2013, respectively. Max Petroleum Plc Annual Report & Accounts 2014 1 COMPANY OVERVIEW The Group has a 100% US$411 million working interest in the cumulative revenue generated from 6,487 mmbo of production Blocks A&E Licence, which from September 2006 through March 2014 comprises two onshore blocks that extend over 12,455 km2 in the Average daily Pre‑Caspian Basin in production (bopd) Western Kazakhstan. 2014 3,899 2013 3,346 2012 2,807 — Current production from the Zhana Makat, Borkyldakty and Asanketken fields is approximately 3,400 bopd, of which approximately 2,800 bopd are from fields in Full Field Development (“FFD”), resulting in over 2,200 bopd being available for export. — The Zhana Makat and Borkyldakty fields are in FFD and Pipeline and terminal facilities are producing continuously, with 80% of their In June 2014 the Group commissioned a new oil pipeline, production exported and 20% sold domestically. and associated Makat oil terminal facility, connecting its Zhana Makat field with the regional oil pipeline — The Asanketken field is in trial production (“TPP”) and is approximately 10 km away. These new facilities will enable producing continuously with all of the field’s production the Group to make transportation cost savings of sold domestically. The Group expects Asanketken will be approximately US$4 per bbl for oil produced from the approved for FFD by the end of 2014, which will enable Zhana Makat, Borkyldakty, Sagiz West and East the Group to export 80% of its production. Kyzylzhar I fields. — The Group’s other post-salt fields, comprising Sagiz West, East Kyzylzhar I, Uytas, Baichunas West and Eskene North, are at various stages of appraisal, during which time the Group may produce each zone in a well for up to 90 days (“Test Production”) and carry out appraisal drilling in order to gather the information necessary to apply for TPP, when wells can be produced continuously. — The Group expects the Sagiz West field to be approved for TPP and commence continuous production in the first half of 2015, which is expected to result in over 1,000 bopd of additional production. Max Petroleum Plc 2 Annual Report & Accounts 2014 RUSSIAN FEDERATION Uralsk KARACHAGANAK (14 bboe) Astana Aktobe PRE-CASPIAN BASIN KAZAKHSTAN ZHANAZHOL (1.8 bboe) G Atyrau A URIYE V ARCH E Astrakhan KASHAGAN (13 bboe) Blocks A&E TENGIZ Lake Balkhash (9 bboe) Aral Sea Aktau Almaty Caspian UZBEKISTAN Caspian Sea Sea Major oil field Major oil field Oil pipeline Bishkek Oil pipeline Planned oil pipeline-tanker route Planned oil pipeline-tanker route Pre-CaspianKYRGYZSTAN basin Pre-Caspian basin 0 100 200 0 100 200 miles miles 0 100 200 300 400 TURKMENISTAN 0 100 200 300 400 kilometres CHINA kilometres NETBACKS Netbacks measure sales net of production costs, selling and Export sales netback transportation costs, mineral extraction tax, export rent Illustrative US$100 per bbl Brent oil price tax and export customs duty. During the year ended 31 March 2014, the Group realised US$100 per bbl an average selling price of US$103.49 per bbl and US$39.04 per bbl for export and domestic sales, respectively. The Netback US$44.86 average export and domestic netbacks during the year were US$100 per bbl US$45.21 per bbl and US$20.96 per bbl, respectively. Netback US$44.86 The netback analysis to the right is for illustrative purposes Domestic sales netbackUS$40 per bbl based on current taxes and cost assumptions and a Illustrative US$40 per bbl selling price hypothetical US$100 per bbl Brent oil price for export Netback US$28.57 sales and a domestic sales price of US$40 per bbl. These US$40 per bbl illustrative netbacks incorporate transportation cost savings of approximately US$4 per bbl arising since the Netback US$28.57 Group commissioned a new pipeline and terminal facility in June 2014 (see left). Max Petroleum Plc Annual Report & Accounts 2014 3 STRATEGIC REPORT The Strategic Report, outlined on pages 4 to 27, incorporates the Chairman’s Statement, Business Review, Liquidity and Capital Resources, Key Performance Indicators, Financial Review, Principal Risks and Uncertainties and the Corporate and Social Responsibility Report. Approved by the Board of Directors and signed on behalf of the Board. Robert B Holland III Interim Chief Executive Officer Max Petroleum Plc 4 Annual Report & Accounts 2014 19 August 2014 STRATEGIC GOVERNANCE FINANCIAL ADDITIONAL REPORT STATEMENTS INFORMATION CHAIRMAN’S STATEMENT Dear Shareholder, Max Petroleum has taken important steps this year to shift If this transaction is completed, the investment by AB its focus from exploration to production. The changes have should enable the Group to fund its planned capital followed disappointing progress in adding to reserves from programme to develop its post-salt fields and maximise the post-salt, slower than expected production growth and reserves and production.
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