Interim Results

RNS Number : 2677C

Zhaikmunai LP

29 August 2008

 



29th August 2008

FOR IMMEDIATE RELEASE

Continuing strong progress in the first half of the year

Zhaikmunai L.P. (LSE:ZKM) ('Zhaikmunai'), the independent oil and gas enterprise operating in northwestern Kazakhstan, today announces its interim results for the six months to 30 June 2008.

Financial highlights

• Revenue up 93 per cent to US$76.9 million (1H07: US$39.9 million);
• Operating profit up 98 per cent to US$42.1 million (1H07: US$21.3 million);
• EBITDA up 68 per cent to US$42.1 million (1H07: US$25.0 million); 
• Net income up 22 per cent to US$17.6 million (1H07: US$14.4 million);
• Average realised oil price of US$91.92/bbl (1H07: US$52.56/bbl);

Operational highlights

• Average daily production for the six months up to 4,930 barrels per day (1H07: 4,639 bbls per day);
• End June 2008 daily oil production up to 6,700 bbls per day;
• Long-term rail cars agreement obtained;
• Progress with detailed engineering and procurement for the Gas treatment plant 

Key developments

• New internal reserve estimates report submitted to Ministry of Energy & Mineral Resources (MEMR)
• New drilling programme launched for production wells to increase production under existing production permit

Commenting on the results, Kai-Uwe Kessel, Chief Executive, said:

 'The first half of the year has shown strong progress financially and operationally. Following the announcement of six commercial discoveries in May, we have now submitted new internal reserves estimates for the whole license area for approval. This is a new important stage of growing the company's production and financial performance.'

  Chairman and Chief Executive's Review

In June 2008, Zhaikmunai announced that it made six commercial discoveries in the Chinarevskoye license. The Company issued six declarations on May 15 and May 17 which were subsequently submitted to the Kazakh ministry of Energy & Mineral Resources (MEMR) on May 19, 2008. This followed successful drilling and test operations of four drilled exploration wells and new interpretation of existing seismic, production and well data. 

Revised reserve estimates have now been finalised for the entire license area and have been submitted to MEMR, for approval in order to obtain the development lease for all gas-condensate reservoirs. Approvals of the reserve estimates and subsequently, the development plans are expected to be obtained by the end of 2008.

In May 2008, Zhaikmunai launched a new drilling campaign for production wells in order to increase current level of oil production under the existing production permit. We continue to develop transportation and treatment infrastructure for the future anticipated ramp up of production.

Financial Results

Revenue 

Revenues from Oil Sales for the first 6 months of 2008 were $76.9 million, up 93% on the corresponding period (1H 07: $39.9 million). Sales volumes for the first 6 months of 2008 were 837,275 bbls, up 10% (1H07: 759,424 bbls).

Net price received

The weighted average Brent crude oil price on which Zhaikmunai based its sales for the first 6 months of 2008 was US$105.55/bbl (1H07: US$65.1/bbl). The discount, accounting for the trader's costs and fee, was US$13.63/bbl for the first 6 months of 2008 (1H07: US$12.53/bbl). Accordingly, the average netback for crude oil sales on FOB Uralsk basis during the first 6 months of 2008 was US$91.92/bbl (1H07: US$52.56/bbl).

Capex

Total net cash used for capital expenditures for the first 6 months of 2008 amounted to US$90.8 million, as compared to US$55.1 million for the first 6 months of 2007. 

Operational Review

Production 

Production volumes increased 7 per cent for the first 6 months of 2008 to 892,000 barrels, compared to 835,000 barrels for the first 6 months of 2007.

Daily crude oil production increased to 4,930 barrels per day during the first six months of 2008 in comparison to an average of 4,639 barrels per day in first half of 2007. 

At the end of June 2008, there were 9 producing wells, an increase from 7 producing wells in the corresponding period. Daily oil production reached 6,700 barrels per day.

Drilling

During the second quarter, the company continued to deploy 4 drilling rigs. At the end of June, one UNGG rig and two Saipem rigs were drilling well numbers 51, 57 and 115. The second UNGG rig was being moved to its new location at well 121.

During the quarter the company employed 4 work-over rigs. Work-over operations have been carried out on wells 23, 27, 56 and 61.

Finally, an additional rig from KazBurgaz has been employed for drilling water wells that will form part of the reservoir pressure maintenance system. 

Sales & Marketing

The second quarter saw some discontinuity in the supply of rail cars for shipment of crude. The shortage of railcars effectively caused a lowering of the production down to 2,000 bbls per day. By August, the railcar shortage was resolved and production was back up to 6,700 bbls per day.

Gas Treatment Plant

During the first half of the year, project activity continued to make progress, focused primarily on basic and detailed engineering and procurement.

Construction

The main other ongoing construction projects are: the oil pipeline (from the field to the city of Uralsk), construction of an oil loading terminal, the gas pipeline (from the field to the Intergas Central Asia Gas pipeline), infield pipelines and roads, expansion of the existing Oil Treatment Unit, construction of a reservoir pressure maintenance system and the construction of a 90 flat residential building in the city of Uralsk. The first project to be commissioned (end of Q3) will be the expansion of the Oil Treatment Unit.

Financial Statements

The reviewed consolidated financial statements for the period through to 30 June 2008 are appended to this release.

Conference call

Zhaikmunai's management team will be holding a conference call for analysts and investors to discuss this development at 2pm BST on 2 September 2008. Dial in details for the conference call and the replay facility, which will be available for one week, are below.

Participants International Dial In:             [phone]

Conference ID                                        62589379

Replay Details:

International Dial In:                               [phone]

Replay Access Number:                         62589379#

For further information please visit our website www.zhaikmunai.com or contact:

Zhaikmunai                                           [e-mail]

Analysts/Investors

Frank Monstrey, Chairman                     [phone]    

Kai-Uwe Kessel, CEO        

Jan-Ru Muller, CFO

Media

Brunswick Group LLP:

Michael Harrison                                   [phone]

Carole Cable             

Notes to Editors

Zhaikmunai is an independent oil and gas enterprise engaged in the exploration, production and sale of crude oil and gas condensate in northwestern Kazakhstan. The Company's licence area is the Chinarevskoye field, which is located in the northern part of the oil-rich Pre-Caspian Basin. Zhaikmunai entered into a Production Sharing Contract with the Republic of Kazakhstan in 1997. Based on a reserve report prepared by Ryder Scott Company L.P., Zhaikmunai's estimated gross proven plus probable hydrocarbon reserves as at 1 July 2007 were 397 million boe. Zhaikmunai's GDRs are listed on the London Stock Exchange under the ticker symbol 'ZKM'.

Forward looking statements

In the interests of providing Company current and potential investors with information regarding the Company, including the Company's assessment of its and its subsidiaries' future plans and operations, certain statements included in this press release may constitute forward-looking information or forward looking statements (collectively, 'forward-looking statements'). All statements contained herein that are not clearly historical in nature are forward-looking, and the words 'anticipate', 'believe', 'expect', 'estimate' and similar expressions are generally intended to identify forward-looking statements. Many factors could cause the Company's actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company. These forward-looking statements made as of the date hereof disclaim any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise. 

Zhaikmunai LP

Condensed Consolidated Interim Financial Information (Unaudited)

For the six months ended June 30, 2008

Zhaikmunai LP                                                                                                           Condensed Interim Consolidated Financial Information

CONTENTS

    Page

Report on Review of Condensed Interim Consolidated Financial Information

Condensed Interim Consolidated Financial Information (unaudited)

Condensed Interim Consolidated Balance Sheet (unaudited)                                                                                                                            1

Condensed Interim Consolidated Statement of Income (unaudited)                                                                                                                 2

Condensed Interim Consolidated Cash Flow Statement (unaudited)                                                                                                                3

Condensed Interim Consolidated Statement of Changes in Equity (unaudited)                                                                                             4

Notes to the Condensed Interim Consolidated Financial Information (unaudited)                                                                                   5-13

Report on Review of Interim Condensed

Consolidated Financial Statements

To Board of Directors and Shareholders of Zhaikmunai LP:    

Introduction

We have reviewed the accompanying interim condensed consolidated balance sheet of Zhaikmunai LP and its subsidiaries (jointly 'the Group') as at 30 June 2008 and the related condensed consolidated interim statements of income, changes in equity and cash flows for the six-month period then ended and explanatory notes. Management is responsible for the preparation and presentation of these condensed consolidated interim financial statements in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting ('IAS 34'). Our responsibility is to express a conclusion on these condensed consolidated interim financial statements based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity.' A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial information is not prepared, in all material respects, in accordance with IAS 34.

August 28, 2008

Zhaikmunai LP                                                                                                            Condensed Interim Consolidated Financial Information

interim Consolidated BALANCE SHEET

In thousands of US dollars

	Notes	June 30, 2008 (unaudited)	December 31, 2007 (audited)
ASSETS
Non-Current Assets
Property, plant and equipment	3	371,547	289,533
Advances for equipment and construction works		91,395	70,475
		462,942	360,008
Current Assets
Inventories		4,296	2,496
Trade receivables		16,317	9,530
Prepayments and other current assets		16,249	14,973
Cash and cash equivalents		87,808	7,344
		124,670	34,343
TOTAL ASSETS		587,612	394,351
EQUITY AND LIABILITIES
Partnership capital and Reserves
Partnership capital		91,822	-
Retained earnings and translation reserve		85,464	68,240
		177,286	68,240
Non-Current Liabilities
Long term borrowings	4	324,336	203,982
Abandonment and site restoration liabilities		1,920	1,299
Due to Government of Kazakhstan		6,301	6,317
Deferred tax liability		35,375	26,191
		367,932	237,789
Current Liabilities
Trade payables		30,071	35,768
Current portion of long term borrowings	4	1,073	45,521
Current portion of Due to Government of Kazakhstan		1,278	-
Income taxes payable	8	547	2,062
Other current liabilities		9,425	4,971
		42,394	88,322
TOTAL EQUITY AND LIABILITIES		587,612	394,351
The notes on pages 5 through 13 are an integral part of the condensed interim consolidated financial information.

Chief Executive Officer of the General Partner of Zhaikmunai LP		Kai-Uwe Kessel
Chief Financial Officer of the General Partner of Zhaikmunai LP		Jan-Ru Muller

Zhaikmunai LP                                                                                                            Condensed Interim Consolidated Financial Information

interim consolidated Statement of income

In thousands of US dollars

		Six months ended June 30
	Notes	2008 (unaudited)	2007 (unaudited)
Sales of crude oil		76,939	39,913
Cost of sales	5	(23,160)	(13,343)
Gross profit		53,779	26,570
General and administrative expenses	6	(8,383)	(5,111)
Selling and oil transportation expenses		(6,450)	(2,899)
Finance costs	7	(7,348)	(2,187)
Foreign exchange (loss)/gain		(780)	4,049
Other income		(216)	-
Profit before Income Tax		30,602	20,422
Income tax expense	8	(13,035)	(5,979)
Net Income		17,567	14,443
The notes on pages 5 through 13 are an integral part of the condensed interim consolidated financial information.

Chief Executive Officer of the General Partner of Zhaikmunai LP		Kai-Uwe Kessel
Chief Financial Officer of the General Partner of Zhaikmunai LP		Jan-Ru Muller

Zhaikmunai LP                                                                                                           Condensed Interim Consolidated Financial Information

interim consolidated CASH FLOW Statement 

In thousands of US dollars

		Six months ended June 30
	Notes	2008 (unaudited)		2007 (unaudited)
Cash flow from operating activities:
Profit before income tax		30,602	20,422
Adjustments for:
Depreciation and amortization		4,514	2,358
Interest expense on borrowings	7	5,731	2,361
Unwinding of discount on amounts due to Government of Kazakhstan		488	487
Unrealized foreign exchange gain		792	(3,668)
Revision of contractual obligation to Government		-	(700)
Operating profit before working capital changes		42,127	21,260
Changes in working capital:
(Increase)/decrease in inventories		(1,813)	902
(Increase)/decrease in trade receivables		(6,835)	2,716
Increase in prepayments and other current assets		(1,373)	(9,047)
(Decrease)/increase in trade payables		(13,280)	705
Increase/(decrease) in other current liabilities		4,573	468
(Decrease)/increase in provisions		(1,237)	45
Cash generated from operations		22,162	17,049
Income tax paid		(3,184)	(377)
Net cash flows from operating activities		18,978	16,672
Cash flow from investing activities:
Purchases of property, plant and equipment		(90,842)	(55,103)
Net cash used in investing activities		(90,842)	(55,103)
Cash flow from financing activities:
Repayment of borrowings		(245,872)	(4,493)
Interest paid		(17,859)	(6,544)
Proceeds from borrowings		324,381	53,645
Proceedings from issue of Global Depositary Receipts		91,822	-
Net cash provided by financing activities		152,472	42,608
Effects of exchange rate changes on cash and cash equivalents		(145)	137
Net increase in cash and cash equivalents		80,608	4,177
Cash and cash equivalents at the beginning of period		7,344	2,806
Cash and cash equivalents at the end of period		87,807	7,120
The notes on pages 5 through 13 are an integral part of the condensed interim consolidated financial information.

Chief Executive Officer of the General Partner of Zhaikmunai LP		Kai-Uwe Kessel
Chief Financial Officer of the General Partner of Zhaikmunai LP		Jan-Ru Muller

Zhaikmunai LP                                                                                                           Condensed Interim Consolidated Financial Information

condensed interim Statement of changes in equity

In thousands of US dollars

	Partnership capital	Retained  earnings	Translation reserve	Total
As of December 31, 2006 (audited)	-	26,488	1,704	28,192
Translation difference (unaudited)	-	-	-	-
Profit for the period (unaudited)	-	14,443	1,179	15,622
As of June 30, 2007 (unaudited)		40,931	2,883	43,814
As of December 31, 2007 (audited)	-	64,261	3,979	68,240
Translation difference (unaudited)	-	-	(343)	(343)
Issue of Global Depositary Receipts	91,822	-	-	91,822
Profit for the period (unaudited)	-	17,567	-	17,567
As of June 30, 2008 (unaudited)	91,822	81,828	3,636	177,286

The notes on pages 5 through 13 are an integral part of the condensed interim consolidated financial information.

Chief Executive Officer of the General Partner of Zhaikmunai LP		Kai-Uwe Kessel
Chief Financial Officer of the General Partner of Zhaikmunai LP		Jan-Ru Muller

Zhaikmunai LP                                                                                                            Interim Condensed Consolidated Financial Information

nOTES TO THE interim condensed consolidated Financial Information

1.    General

Zhaikmunai LP is a Limited Partnership formed on 29 August 2007 pursuant to the Partnership Act 1909 of the Isle of Man. The Partnership is registered in the Isle of Man with registered number 259P.

The consolidated financial information includes the results of the operations of Zhaikmunai L.P. ('the Zhaikmunai LP' or 'the Group') and its wholly owned subsidiaries Claydon Industrial Limited (BVI) ('Claydon') and Jubilata Investments Limited (BVI) ('Jubilata'), who in turn own 100 percent of Zhaikmunai LLP ('the Partnership'). The Zhaikmunai LP and its subsidiaries are hereinafter referred to as 'the Group'. The Group's operations are primarily conducted through its oil and gas producing entity Zhaikmunai LLP located in Kazakhstan. The Group is ultimately indirectly controlled, through Thyler Holdings Limited, by Frank Monstrey. The General Partner of the Zhaikmunai LP is Zhaikmunai Group Limited, which is responsible for the management of the Group.

On March 28, 2008 the Group listed 10,000,000 Global Depository Receipts ('GDRs') at US$10 per GDR, representing 9.09% of the participating rights of the Group, on the London Stock Exchange ('LSE').

The Zhaikmunai LP is an Isle of Man limited partnership that was formed and registered under the Partnership Act 1909 (the ''Partnership Act'') on 29 August 2007.. The ownership interests in the Zhaikmunai LP consist of Common Units, which represent a fractional entitlement in respect of all of the limited partner interests in the Zhaikmunai LP and the General Partner. At any general meeting every holder of Common Units shall have one vote for each Common Unit of which he or she is the holder. Under the Partnership Agreement, distributions to limited partners will be made either as determined by the General Partner in its sole discretion or following the approval of a majority of limited partners. Any distributions to the Zhaikmunai LP's limited partners will be made on a pro rata basis according to their respective partnership interests in the Zhaikmunai LP and will be paid only to the record holders of Common Units.

The Group was formed through a reorganization of entities under common control on March 28, 2008 to enable the listing of GDRs on the LSE. This consolidated financial information has been prepared using the pooling of interest method and, as such, the financial information has been presented as if the transfers of the Group interests in Claydon and Jubilata had occurred from the beginning of the earliest period presented.

The Partnership was established in 1997 for the purpose of exploration and development of Chinarevskoye oil and gas condensate field in the Western Kazakhstan Region. The Partnership carries out its activities in accordance with the Contract for Additional Exploration, Production and Production-Sharing of Crude Hydrocarbons in the Chinarevskoye oil and gas condensate field (the 'Contract') dated October 31, 1997 in accordance with the license MG No. 253D (the 'License') for the exploration and production of hydrocarbons in Chinarevskoye oil and gas condensate field between the State Committee of Investments of the Republic of Kazakhstan and the Partnership. 

The registered address of the Zhaikmunai L.P. is: Clinch House, Lord Street, Douglas, Isle of Man IM991R2.

This interim condensed consolidated financial information was authorized for issue by issue by Kai-Uwe Kessel, Chief Executive Officer of the General Partner of Zhaikmunai LP and by Jan-Ru Muller, Chief Financial Officer of the General Partner of Zhaikmunai LP on August 28, 2008.

2.    BASIS OF PREPARATION

The interim condensed consolidated financial information for the six months ended June 30, 2008 has been prepared in accordance with IAS 34 and should be read in conjunction with the Group's combined annual financial information for the year ended December 31, 2007. The Group's combined annual financial information was prepared on the same basis as the consolidated financial information for the six months ended June 30, 2008 except that, as discussed above, as a result of the common control transaction, equity now consists of Zhaikmunai LP's partnership capital as described above.

The functional currency of individual entities within the Group is determined as the currency of the primary economic environment in which it operates. Transactions in currencies other than the functional currency are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Exchange gains and losses on settlement of foreign currency transactions translated at the rate prevailing at the date of the transactions, or the translation of monetary assets and liabilities at period end exchange rates, are taken to the income statement. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to the functional currency at the foreign exchange rate ruling at the date of the transaction.

The functional currency of the Partnership is the Kazakhstan Tenge as its operating activities are conducted in Kazakhstan. The functional currency of the remainder of the Group is the US Dollar. On consolidation, income statements of subsidiaries are translated into US Dollars, at average rates of exchange. Balance sheet items are translated into US dollars at period end exchange rates. Exchange differences on the retranslation are taken to a separate component of equity.

Currency exchange rates established by the Kazakhstan Stock Exchange ('KASE') at the respective balance sheet dates were used to translate the assets and liabilities, and the weighted average of currency exchange rates of the KASE for six months of 2007 and 2008 were used to translate the income and expenses for the six months ended June 30, 2007 and 2008, respectively. The following Tenge / US Dollar closing rates and weighted average rates were used during the preparation of the financial information:

	2008	2007
Weighted average rate for the six months ended June 30,	120,51	123,14
Rate at the balance sheet date	120,75	120,3

This condensed interim financial information has been prepared on an historical cost basis except for financial instruments.

2.    BASIS OF PREPARATION (continued)

Accounting Policies

The accounting policies applied in preparation of this interim condensed consolidated financial information are consistent with those applied in preparation of the Group's combined annual financial information for the year ended December 31, 2007.

New accounting developments

The following IFRS and IFRIC interpretations are not yet in effect as at June 30, 2008:

• IFRS 3    Business Combinations - amendment

• IFRS 8    Operating Segments

• IAS 27    Consolidated and Separate Financial Statements - amendment

• IFRIC 11    IFRS 2 - Group and Treasury Share Transactions

• IFRIC 12    Service Concession Arrangements

• IFRIC 13    Customer Loyalty Programmes

• IFRIC 14    IAS 19 - The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction 

The Partnership expects that the adoption of the pronouncements listed above have or will have no material impact on the Group's results of operations and financial position. 

3.    Property, Plant and Equipment

During the six months ended June 30, 2008, the Group had net additions of property, plant and equipment of US dollars 87,799 thousand. These additions included capitalised interest of US dollars 9,878 thousand and abandonment and site restoration assets of US dollars 569 thousand. 

4.    Borrowings

In thousands of US dollars	June 30, 2008 (unaudited)		December 31, 2007 (audited)
	Current	Non-current	Current	Non-current
Credit line due to Bank Turan Alem	-	-	38,793	203,982
Loan due to Blavin Holdings Limited	-	-	6,728	-
BNP Paribas facility	1,073	324,336	-	-
	1,073	324,336	45,521	203,982

BNP Paribas facility

The Partnership has entered into a 550 million US Dollar senior secured facility agreement with BNP Paribas as mandated lead arranger maturing no later than 31 December 2014. The BNP Paribas Facility comprises three tranches of US Dollars 200 million, US Dollars 200 million and US Dollars150 million. The Group has incurred fees related to the arrangement of the BNP Paribas facility of 20 million US Dollars. These fees are included within the total of the 324,336 thousand US Dollars drawn down as at June 30, 2008.

The rate of interest payable on outstanding amounts under each tranche will be LIBOR plus, under tranche 1, a margin of 3%, under tranche 2, a margin of 4% and under tranche 3, a margin of 5%.

The total amount outstanding is repayable in accordance with a repayment schedule, reducing the total commitments to US$450 million on December 31, 2010 and reducing to zero by December 31, 2014. In addition, the BNP Paribas Facility is mandatorily prepayable to the extent of the proceeds of any material disposals, debt offerings and a cash sweep of 50% of the Partnership collected revenue (in excess of US$25 million). The Partnership is also entitled to voluntarily prepay the amounts outstanding. The Partnership is required to give customary representations and warranties, repeated periodically, and maintain certain covenants. 

Pursuant to the terms of the BNP Paribas facility the Partnership has entered, at nil cost, into a hedging contract covering oil export sales commencing March 2008 through till December 2013:

Year	Quantity	Brent put price	Brent call price
	Barrels (‘bbls’) per month	US Dollars per bbl	US Dollars per bbl
2008	96,769	70	123
2009	107,639	70	123
2010	99,461	70	-
2011	96,956	70	-
2012	60,493	70	-
2013	48,384	70	-

Gains and losses on the hedge contract, which does not qualify for hedge accounting, are taken directly to the profit and loss.

The Partnership is additionally required to maintain and fund a debt service reserve account with a balance equal to at least 5% of the amount outstanding under the BNP Paribas Facility. Lastly, the Partnership is required to maintain annual oil and gas off-take contracts (gas to be commenced in 2010) with off-takers required to purchase 80% of total production and 100% of production available for export. The Partnership's obligations under the BNP Paribas Facility are secured by various forms of security, including, (i) a pledge over 100% of the participatory interests in the Partnership; (ii) pledges over its bank accounts; (iii) the assignment of rights under the off-take contracts; (iv) assignment of all guarantees or performance bonds issued in connection with the contract with KSS for the Gas Treatment Facility; and (v) assignment of the benefit of the Partnership's relevant existing and future insurance policies. 

5.    COST OF SALES

		Six months ended June 30,
In thousands of US dollars	2008 (unaudited)	2007 (unaudited)
Depreciation and amortization	4,161	2,358
Well workover costs	4,006	1,785
Repair, maintenance and other services	3,128	2,039
Materials and supplies	2,587	954
Royalties	2,400	1,642
Payroll and related taxes	1,677	1,221
Rent and operation of oil separation units	1,479	795
Environmental levies	1,117	443
Management fees	972	1,069
Other transportation services	751	434
Government profit share	710	400
Other	172	203
	23,160	13,343

6.    General and administrative expenses

		Six months ended June 30,
In thousands of US dollars	2008 (unaudited)	2007 (unaudited)
Professional services	2,547	332
Payroll and related taxes	1,099	918
Training	1,313	845
Management fees	925	1,461
Equity option plan (Note 8)	871	-
Other	410	246
Bank charges	264	608
Sponsorship	192	153
Insurance fees	177	36
Communication	166	125
Business trip	127	60
Lease payments	122	86
Social program	100	125
Materials and supplies	70	116
	8,383	5,111

7.    FINANCE COSTs

		Six months ended June 30,
In thousands of US dollars	2008 (unaudited)	2007 (unaudited)
Interest income	(244)	(2)
Interest expense on borrowings	5,731	2,361
Losses on hedge contract (Note 4)	1,321	-
Unwinding of discount on Due to Government	488	481
Revision of contractual obligation to Government	-	(700)
Unwinding of discount on Abandonment and Site Restoration Liability	52	45
	7,348	2,187

8.    Equity-based TRANSACTIONS

Employees (including senior executives and executive directors) of members of the Group receive remuneration in the form of equity-based payment transactions, whereby employees render services as consideration for share appreciation rights, which can only be settled in cash ('cash-settled transactions').

The cost of cash-settled equity-based employee compensation is measured initially at fair value at the grant date using a binomial model, further details of which are given in Note 8. This fair value is expensed over the period until vesting with the recognition of a corresponding liability. The liability is remeasured at each balance sheet date up to and including the settlement date with changes in fair value recognised in profit or loss.

The expense recognised for employee services received during the year is shown in the following table:

In thousands of US dollars

6m 2008 (unaudited)

6m 2007 (unaudited)

Expense arising from cash-settled share-based payment transactions

871

-

The equity-based payment plan is described below. There have been no cancellations or modifications to any of the plans during 2008. 

On March 27, 2008, 2,250,000 equity appreciation rights (SARs) were granted to senior employees and executive directors of members of the Group, which can only be settled in cash. These will vest over a five year period from the date of grant, so that one fifth of granted SARs vests on each of the five anniversaries from the date of grant date. The contractual life of the SARs is ten years. The fair value of the SARs is measured at the grant date using a binomial option pricing model taking into account the terms and conditions upon which the instruments were granted. SARs are exercisable at any time after vesting till the end of the contractual life and give its holder a right to a difference between the market value of the Group's SDRs at the date of exercise and the IPO value of SDR's, which is 10 US Dollars. The services received and a liability to pay for those services are recognised over the expected vesting period. Until the liability is settled it is remeasured at each reporting date with changes in fair value recognised in profit or loss as part of the employee benefit expenses arising from cash-settled share-based payment transactions. 

The carrying amount of the liability relating to the SARs at 30 June 2008 is US Dollar 871 (2007: nil). No SARs had vested at 30 June 2008 (2007: Nil).

The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, equity options during the year: 

	June 30, 2008 (unaudited)		December 31, 2007
	No.	WAEP,  US Dollar	No.	WAEP,  US Dollar
Outstanding at the beginning of period	-	-	-	-
Granted	2,250,000	10	-	-
Exercised	-	-	-	-
Outstanding at the end of period	2,250,000	10	-	-
Exercisable at the end of period	-	-	-	-

9.    Equity-based TRANSACTIONS (continued)

The following table lists the inputs to the models used for the plan for the six months ended 30 June 2008:

Dividend yield (%)                        0

Expected volatility (%)               20

Risk -free interest rate (%)      4.04

Expected life (years)                   6.6

Option turnover (%)                   10

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

9.    income Tax Expense

The income tax expense consisted of the following:

		Six months ended June 30,
	In thousands of US dollars	2008 (unaudited)	2007 (unaudited)
	Income tax expenses comprise:
	- current income tax expense	5 094	2,439
	- deferred income tax expense	7 941	3,540
	Total income tax expense	13,035	5,979

 

10.    Related Party Transactions

For the purpose of this interim condensed consolidated financial information related parties transactions include mainly balances and transactions between the Group and the participants and/or their subsidiaries or associated companies.

Balances with related parties at the balance sheet dates and transactions with related parties for the respective periods follow.

In thousands of US dollars		June 30, 2008 (unaudited)	December 31,  2007 (audited)
	Trade receivables and advances
	Frans van der Schoot N.V.	–	1,500

   The balance represents advances paid for future services.

In thousands of US dollars		June 30, 2008 (unaudited)	December 31,  2007 (audited)
	Trade payables
	Amersham Oil LLP	104	81
	Probel Capital Management N.V.	159	190
	Total	263	271

			Six months ended June 30,
	In thousands of US dollars		2008 (unaudited)	2007 (unaudited)
		Management fees and consulting services
		Probel Capital Management N.V.	1,219		1,069
		Frans van der Schoot B.V.	4,408		899
		Amersham Oil LLP	644		622
		Total	6,271		2,590

 10.    Related Party Transactions (continued)

Management fees are payable in accordance with the Technical Assistance Agreement ('TAA') signed between the Partnership, Amersham Oil LLP, Probel Capital Management N.V. and Frans van der Schoot B.V and relate to the rendering of geological, geophysical, drilling, scientific, technical and other consultancy services. 

All related parties are companies indirectly controlled, through Thyler Holdings Limited, by Frank Monstrey.

11.    COMMITMENTS and contingencies

Capital Commitments

As of June 30, 2008 the Group had contractual capital commitments of US Dollars 278,647 thousand (December 31, 2007: US Dollars 186,148 thousand). 

Operating leases 

The Group entered into a lease agreement for the main administrative office in Uralsk in October 2006 for a period of 20 years for US Dollar 12 thousand per month.

There have been no changes to the the Group's contingent liablities as disclosed in the Group's combined annual financial information for the year ended December 31, 2007.

 

END

 

 

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