Cub Energy Inc. Announces Q1 2015 Financial and Operational Results

HOUSTON, TEXAS -- (Marketwired) -- 05/13/15 -- Cub Energy Inc. ("Cub" or the "Company") (TSX VENTURE: KUB), a Black Sea region-focused upstream oil and gas company, announced today its unaudited interim financial and operating results for the first quarter of 2015. All dollar amounts are expressed in United States Dollars. This update includes results from KUB-Gas LLC ("KUB-Gas"), which Cub has a 30% ownership interest, and Tysagaz LLC ("Tysagaz"), Cub's 100% owned subsidiary.

Operational Highlights

--  First quarter production in Ukraine continued to be below capacity due
    to the lingering effects of government legislation attempting to reserve
    a large share of the natural gas market for the state owned National
    Joint Stock Company Naftogaz ("Naftogaz") and lack of reinvestment at
    KUB-Gas.
--  Production averaged 1,644 boe/d (98% natural gas) for the three months
    ended March 31, 2015, representing an 11% decrease from 1,857 boe/d in
    the comparative 2014 quarter and a 22% decrease from the 2,112 boe/d
    production averaged for the three months ended December 31, 2014.
--  Monthly average of 1,383 boe/d for March 2015 for a 43% decrease over
    the December 31, 2014 exit rate of 2,407 boe/d. The decrease in March
    was a result of recent government decrees that encouraged producers to
    temporarily constrain production due to government interference in
    supply.
--  Achieved average natural gas price of $7.77/Mcf and condensate price of
    $39.83/bbl during the three months ended March 31, 2015 as compared to
    $8.63/Mcf and $78.19/bbl for the comparative 2014 period and $9.62/Mcf
    and $72.34/bbl for the three months ended December 31, 2014.
--  In January 2015, the Company added the fourth, fifth and sixth sets of
    perforations to the RK-21 well (100% WI). The well responded favorably
    by displaying an immediate increase in flowing tubing pressure with a
    corresponding increase of production from a five-day average of 0.8
    MMcf/d to over 2.6 MMcf/d for the subsequent five-day period. These
    perforations were added over a two-day period at small incremental cost.
--  During the first and second quarters of 2015, the Company upgraded the
    separation and dehydration process at the RK facility (100% WI) in
    western Ukraine.
--  Completion and testing operations are substantially finished on the M-22
    well (30% WI) in Ukraine. The S13, S13a and S13b were all non-commercial
    despite initially appearing promising on logs. The S6 zone did build up
    pressure after perforating and produced gas at rates too small to
    measure. The well is being suspended, and will be added to a fracture
    stimulation campaign which may occur later in 2015. If successful, M-22
    will qualify for the reduced royalty rate of 30.25% for its first two
    years of production.

Financial Highlights

--  Netbacks of $11.64/boe or $1.92/Mcfe for the quarter ended March 31,
    2015 as compared to netback of $30.28/Boe or $5.05/Mcfe for the
    comparative 2014 period when royalty rates were 28% versus the current
    55%. In addition, netbacks were $21.47/Boe or $3.58/Mcfe for the quarter
    ended December 31, 2014 when the Company realized higher gas prices.
--  Revenue from hydrocarbon sales for the three months ended March 31, 2015
    was $1.8 million (2014 - $1.7 million).
--  Revenue from hydrocarbon sales by KUB-Gas for the three months ended
    March 31, 2015 were $17.0 million (2014 - $23.4 million) of which the
    Company's 30% share was $5.1 million (2014 - $7.0 million).
--  The total pro-rata revenue from hydrocarbon sales, a non-IFRS measure
    combining the Company's revenue and 30% of the allocated KUB-Gas
    revenue, totaled $6.9 million (2014 - $8.7 million) for the three months
    ended March 31, 2015.
--  The Company received $1.3 million in dividends during the three months
    ended March 31, 2015 as compared to $1.0 million during the comparative
    period. Due to the National Bank of Ukraine resolution prohibiting
    cross-border dividends, it is unclear when dividends will resume. The
    Company continues to review alternatives for repatriating dividends.
--  The Company's net income from its 30% equity investment in KUB-Gas for
    the three months ended March 31, 2015 was $0.1 million (2014 - $1.1
    million) which was impacted by lower gas prices, increased royalty rates
    (from 28% to 55%) and foreign exchange losses.
--  The net loss for the Company for the three months ended March 31, 2015
    was $1.2 million or $0.00 per share (2014 - $0.9 million or $0.00 per
    share).
--  Capital expenditures of $0.1 million (2014 - $1.1 million) for the three
    months ended March 31, 2015 and the pro-rata capital expenditures, a
    non-IFRS measure combining the Company's capital expenditures and 30% of
    the allocated KUB-Gas capital expenditures, totaled $0.5 million (2014 -
    $3.2 million) for the three months ended March 31, 2015.
--  The Company has $3.0 million available on a $5.0 million unsecured line
    of credit with Pelicourt as at March 31, 2015. Pelicourt notified the
    Company that it is having liquidity issues as a result of the National
    Bank of Ukraine resolution prohibiting the payment of cross-border
    dividends and will not be able to provide any further funding under the
    line of credit in 2015.
--  With the current cash resources and the uncertainty surrounding the
    Pelicourt line of credit, dividend restrictions, currency fluctuations,
    reliance on a single customer, and impact on carrying values, the
    Company may not have sufficient cash to continue the exploration and
    development activities. These matters raise significant doubt about the
    ability of the Company to continue as a going concern and meet its
    obligations as they become due.

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                                               Three Months    Three Months
                                                      Ended           Ended
(in thousands of US Dollars)                 March 31, 2015  March 31, 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Petroleum and natural gas revenue                     1,776           1,701
----------------------------------------------------------------------------
Pro-rata petroleum and natural gas
 revenue(1)                                           6,884           8,734
----------------------------------------------------------------------------
Net profit (loss)                                    (1,223)           (915)
----------------------------------------------------------------------------
Earnings (loss) per share - basic and
 diluted                                              (0.00)          (0.00)
----------------------------------------------------------------------------
Funds generated from operations(2)                      246            (126)
----------------------------------------------------------------------------
Pro-rata funds generated from operations(3)             144           2,391
----------------------------------------------------------------------------
Capital expenditures(4)                                  83           1,074
----------------------------------------------------------------------------
Pro-rata capital expenditures(4)                        540           3,222
----------------------------------------------------------------------------
Pro-rata netback ($/boe)                              11.64           30.28
----------------------------------------------------------------------------
Pro-rata netback ($Mcfe)                               1.92            5.05
----------------------------------------------------------------------------

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                                                  March 31,    December 31,
                                                       2015            2014


--------------------------------------------================================
Working capital                                          48             704
----------------------------------------------------------------------------
Cash and cash equivalents                             2,586           1,728
----------------------------------------------------------------------------
Long-term debt                                        2,000           2,000
----------------------------------------------------------------------------

Notes:

(1)   Pro-rata petroleum and natural gas revenue is a non-IFRS measure that
      adds the Company's petroleum and natural gas revenue earned in the
      respective periods to the Company's 30% equity share of the KUB-Gas
      petroleum and natural gas sales that the Company has an economic
      interest in.
(2)   Funds from operations is a non-IFRS measure and is defined as cash
      flow from operating activities, excluding changes in non-cash working
      capital.
(3)   Pro-rata funds from operations is a non-IFRS measure that adds the
      Company's funds from operations in the respective periods to the
      Company's 30% equity share of the KUB-Gas funds from operations that
      the Company has an economic interest in.
(4)   Capital expenditures includes the purchase of property, plant and
      equipment and the purchase of exploration and evaluation assets. Pro-
      rata capital expenditures is a non-IFRS measure that adds the
      Company's capital expenditures in the respective periods to the
      Company's 30% equity share of the KUB-Gas capital expenditures that
      the Company has an economic interest in.

Outlook

The Company is re-evaluating its future capital programs on its 100% owned and operated Tysagaz assets in light of the recent changes in royalty rates and the temporary cross-border dividend restriction. On March 3, 2015, the Ukraine Parliament passed laws, reinstating the reduced royalty rate of 30.25% for newly drilled wells (for two years), and extending the cross-border dividend freeze through June 3, 2015. If financing becomes available or government policy changes, the Company may perform several workovers at Tysagaz in late 2015. The Company needs to reinvest capital in its operations to sustain or increase current production levels.

KUB-Gas is considering several fracture stimulations later in 2015 but will be dependent on government policy changes and discussions and approval of the partners.

The limit price for May at which gas can be sold to industrial customers is 6,810 Ukrainian Hryvnya ("UAH") per thousand cubic metres ("Mcm"). At the current exchange rate of 20.5 UAH/USD, that is equivalent to $9.35/Mcf. The price that the Company receives has been up to 20% lower, reflecting the margins of the traders through whom the gas is sold, and lingering effects of the government decrees.

Supporting Documents

Cub's complete quarterly reporting package, including the unaudited interim financial statements and associated Management's Discussion and Analysis, have been filed on SEDAR (www.sedar.com) and has been posted on the Company's website at www.cubenergyinc.com.

About Cub Energy Inc.

Cub Energy Inc. (TSX VENTURE: KUB) is an upstream oil and gas company, with a proven track record of exploration and production cost efficiency in the Black Sea region. The Company's strategy is to implement western technology and capital, combined with local expertise and ownership, to increase value in its undeveloped land base, creating and further building a portfolio of producing oil and gas assets within a high pricing environment.

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

Oil and Gas Equivalents

A barrel of oil equivalent ("boe") or units of natural gas equivalents ("Mcfe") is calculated using the conversion factor of 6 Mcf (thousand cubic feet) of natural gas being equivalent to one barrel of oil. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) or a Mcfe conversion of 1bbl: 6 Mcf is, based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and is not based on either energy content or current prices. While the boe ratio is useful for comparative measures, it does not accurately reflect individual product values and might be misleading, particularly if used in isolation. As well, given that the value ratio, based on the current price of crude oil to natural gas, is significantly different from the 6:1 energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an indication of value.

Reader Advisory

Except for statements of historical fact, this news release contains certain "forward-looking information" within the meaning of applicable securities law. Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. Cub believes that the expectations reflected in the forward-looking information are reasonable; however there can be no assurance those expectations will prove to be correct. We cannot guarantee future results, performance or achievements. Consequently, there is no representation that the actual results achieved will be the same, in whole or in part, as those set out in the forward-looking information.

Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking information. Some of the risks and other factors that could cause the results to differ materially from those expressed in the forward-looking information include, but are not limited to: general economic conditions in Ukraine, the Black Sea Region and globally; political unrest and security concerns in Ukraine; industry conditions, including fluctuations in the prices of natural gas and foreign currency; governmental regulation of the natural gas industry, including environmental regulation; unanticipated operating events or performance which can reduce production or cause production to be shut in or delayed; failure to obtain industry partner and other third party consents and approvals, if and when required; competition for and/or inability to retain drilling rigs and other services; the availability of capital on acceptable terms; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in market prices for natural gas; liabilities inherent in natural gas operations; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, skilled personnel and supplies; incorrect assessments of the value of acquisitions; geological, technical, drilling, processing and transportation problems; changes in tax laws and incentive programs relating to the natural gas industry; failure to realize the anticipated benefits of acquisitions and dispositions; and the other factors. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

This cautionary statement expressly qualifies the forward-looking information contained in this news release. We undertake no duty to update any of the forward-looking information to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation. Readers are cautioned not to place undue reliance on forward-looking information.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contacts:
Cub Energy Inc.
Mikhail Afendikov
Chairman and Chief Executive Officer
(713) 677-0439
[email protected]

Cub Energy Inc.
Patrick McGrath
Chief Financial Officer
(713) 577-1948
[email protected]
www.cubenergyinc.com

Source: Cub Energy Inc.

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