Nostrum Oil & Gas Reports 1H2016 Net Loss Of $55,8mln

Nostrum Oil & Gas Reports 1H2016 Net Loss Of $55,8mlnAccording to Nostrum Oil & Gas’ consolidated financial statements, published yesterday, during 1H2016 the Company incurred a loss of $ 55,8mln compared to the $15,2mln profit a year earlier.
The loss was the result of decline in revenue by 40% and 11 times increase in losses on derivative financial instruments, which was partially compensated by the reduction of costs (-6.2%), general and administrative expenses (-22%), distribution and transport costs and financial costs (-11.9%).

Meanwhile, the results of 2Q2016 demonstrate qoq revenue growth of 21%, while the production costs increased by only 4%. Thus, the negative quarterly results were caused mainly by a loss on derivative financial instruments of $ 44,3mln in comparison with $3.6 million profit on derivative instruments in the previous quarter.

Our view

The key reason for negative results remains the decrease of average price of oil Brent from $59,4/barrel in 1H2015 to $41,0/barrel in the reporting period. In addition, production volumes also decreased in the reporting period by 11.6% (yoy), which also has a significant pressure on operating activities.

According to our opinion, the nature of the loss on derivatives also does not entirely clear, because during the reporting period, oil prices were almost always within the range of the prices recorded in the hedging contract.

At times of increased uncertainty on the oil market and due to the lower than expected financial results of the Company, we set put target price and recomendation under review.