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Nostrum digs deep

Despite a sharp slide in the oil price, Nostrum is on track to double production capacity by end-2016
August 25, 2015

A 45 per cent plunge in the price of Brent crude meant first-half cash profits at Nostrum Oil & Gas (NOG) slumped by more than half to $153m (£97.2m). But shares in the Kazakhstan-based explorer and producer rose 7 per cent on results day, as management stood by full-year production guidance of 45,000 barrels of oil equivalent per day (boepd) and plans to double annual production to 100,000 boepd by the end of 2018.

IC TIP: Hold at 488p

Nostrum wholly owns and operates Chinarevskoye, a production field in north-west Kazakhstan, as well as three exploration fields nearby. It exports crude oil to Neste Oil's refinery in Finland, and delivers both condensate and liquid petroleum gas to Russian ports in the Black Sea. The challenging market backdrop contributed to a 5 per cent fall in production to 44,337 boepd, and a 69 per cent slump in net operating cash flow to about $56m.

The group's directors have raced to mitigate the sinking oil price. For instance, they have hedged 7,500 barrels of oil per day - nearly a third of Nostrum's liquids production - at a price of $85 until February 2016. They also expect to complete construction of a third gas treatment facility unit by the end of 2016. Management also confirmed it had made another informal offer to acquire peer Tethys Petroleum.

Broker Stifel expects EPS of 57.6¢ in 2015 (from 68.6¢ in 2014).

NOSTRUM OIL & GAS (NOG)
ORD PRICE:488pMARKET VALUE:£918m
TOUCH:485-488p12-MONTH HIGH:817pLOW: 370p
DIVIDEND YIELD:3.5%PE RATIO:21
NET ASSET VALUE:470¢NET DEBT:83%*

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201444518050.0nil
2015274528.0nil
% change-38-71-84-

*Excludes restricted cash of $5.3m

£1=$1.56