Ruspetro - Time for a fresh start?
At the current stock price of 40p (time of writing), house broker BoA Merrill’s have the stock on 5 times 2014 EV:EBITDA and just over 3 times for 2015, although these forecasts do not account for any increase in debt (so expanding the EV side) nor gas sales receipts (on the EBITDA side). They have a price target of 132p. One particularly interesting element of the recent slew of directors purchasing, to us, was the announcement of early April which, it seems, confused some retail investors. In a nutshell, it seems there was a legacy call option (the right to buy stock) that was written by Don Wolcott to Alexander Chistyakov before the IPO with an equivalent exercise price of around 83p per share (at the prevailing FX rate at the time). The call option pertained to 50% of Mr Wolcott’s stock and it was, in fact, exercised in October of 2012, but took some 6 months to complete due to the closed period the company was in. Chistyakov bought 11.43m shares from Wolcott for the sum of $15.3m. There are two ways to read the announcement: one, that Mr Wolcott’s purchasing of a further circa 2m shares does not replace anywhere near the stock he sold, or that alternately Mr Chistyakov saw value in the stock at 83p and was so confident in the future of the company that he was prepared to part with $15.3m to buy this stock. In any event, the additional purchasing by other board members than Chistyakov and Don Wolcott is a good sign, we believe. It is generally always worth paying heed to such collective shows of faith, and this we touch upon in our questions below to management.
A. Yes, we do expect to reach and surpass 10,000 boepd. Our March average production rate was 6,350 boepd of which 1,100 boepd was condensate. We are also producing 9,000 boepd of gas which is not sold. At this production level the business is operating cash flow positive. We do not have a target year-end production rate for 2013 but rather see 2013 as a year in which we will put in motion several strategic directions for the company: firstly, renegotiating our loan from Sberbank to give us time to develop. Secondly, developing and monetizing our gas business and thirdly to examine strategic partnerships at the asset level to develop our crude oil production. Selling gas will give the business the cash flow required to accelerate drilling and build crude oil production. Q. I see that there has been a “vote of confidence” in the company recently with some additional directors share purchasing; is it fair for your shareholders to conclude that you perceive the worst is now behind the company? A. We are pursuing a strategy of strategic development at the asset level. This is aimed at closing the gap between the enterprise value of the ccompany and the ccompany’s fundamental value. Therefore the ccompany is doing everything it can to restore and build value for shareholders. Q. What do you say to those detractors who state that if the majors could not get the oil out of the difficult to drill fields in the 80s, then why will Ruspetro be more successful? A. Technology has moved on significantly since then — witness the shale oil boom in the US. We have a top team of geologists and petrochemical engineers who are using the latest technology to develop the field. Q. Can you give us a 1 and 3 year major target thresholds for the company, for example debt paydown, production levels etc?
I caught up with Don Wolcott, CEO, and posed the following questions to him: Q. Do you still expect to achieve the 10k bopd production target that was missed last year and, if so, what timescale are you looking at?
A. Restructure Sberbank debt — H1 2013 Develop Gas monetisation – on-going Strategic partnerships to develop crude oil on-going Appraisal drilling in the crude and gas/condensate fields – on-going
May 2013
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