3SOF

Financials Out! Here are highlights.
Have a profitable Day.

  TORONTO, Aug. 15 /CNW/ - Nelson Resources Limited (TSX/AIM: NLG), a
leading independent exploration and production company operating in
Kazakhstan, today reports its results for the three and six months ended
June 30, 2005. All amounts are expressed in U.S. dollars unless otherwise
indicated.
   
        HIGHLIGHTS
   
        Year on year, first half (H1) 2004 to H1 2005:
   
        - Oil revenue up 191% to $222.2 million (H1 2004 $76.4 million)
        - Oil production increased by 116% to 5.5 million barrels (H1 2004 2.5
          million barrels)
        - Net profit increased to $60.1 million, from a H1 2004 loss of $6.6
          million
   
        Quarter on quarter, Q1 to Q2 2005:
   
        - Production net to Nelson averaged 29,693 barrels of oil per day - up 8%
          from 27,439 bopd for Q1 2005
        - Gross operating profit increased 16% to $77.0 million (Q1 2005 $66.6
          million)
        - Net profit after tax declined to $24.2 million from $35.8 million in Q1
          2005, due primarily to an increase in other compensation charges
          resulting from the increase in the market price of the Company's common
          stock
   
        Operations:
   
        - Proved and probable reserves were increased by Nelson's independent
          petroleum engineering advisor to 270 million barrels, up from 235
          million barrels previously, due to successful pilot wells at the
          Kozhasai field and the assignment of an initial value to Nelson's
          interest in the Arman field acquired in Q1.
        - 19 new wells were added during the quarter to bring the well stock to
          191 producing wells and 21 water injection wells across the group's
          five producing fields.
        - North Buzachi commissioned a new oil processing facility with 20,000
          bopd capacity
   
        Nick Zana, Nelson's Chief Executive Officer, commented, "Nelson continues
to make excellent progress in accordance with the very ambitious work programs
we have undertaken for 2005 in all our locations. We are making solid
achievements in all areas including drilling, water flood, expansion of
processing capacity and provisions for the utilization of associated gas. I am
most gratified by the two new wells that KOA has drilled and is testing in
Kozhasai that have allowed us to book additional reserves for this very
prospective field. Our team is working hard to realize the potential of the
Nelson group's five producing oil fields with the goal of adding value for our
shareholders."
        Mr. Zana further commented, "My 32 years in the oil industry compels me
to comment on the fact we are in a period of unprecedented high oil prices.
This is very fortuitous for a young oil company as it allows us to fund our
field development costs largely through operating cash flow. However, it is
accompanied by inflation in the costs of equipment, services and personnel as
well as tougher demands by governmental authorities. We in the oil industry
have seen these cycles before and recognize the demands of managing our
businesses through this exciting and challenging period."

Good morning Nlg's. I know Michaels away this week, could someone explain this decline in net profit statement. It always seem's as though there is something to hold this stock back. Hopefully I am wrong.


Net profit after tax declined to $24.2 million from $35.8 million in Q1
          2005, due primarily to an increase in other compensation charges
          resulting from the increase in the market price of the Company's common
          stock.

Aton daily 16-Aug-05

2Q05 US GAAP results show q-o-q rise in production, revenue; bottom line,
cash flow disappoint

Nelson Resources yesterday reported 2Q05 US GAAP results showing a significant q-o-q
increase in production and revenue and a slight decline in EBITDA and net income due to
several unexpected items, which the company explained in a subsequent conference call.
In 2Q05, Nelson's production rose by 14% q-o-q to 29.7mbpd (net), or slightly higher
than our forecast, while revenue came in at $124mn, up an impressive 26% q-o-q and 147% y-o-y and broadly in line with our estimates.
We note that production exceeded the volume of crude oil sold (by 213,000 bbl or 7.4% of 2Q05 output), suggesting an increase in crude oil stock which is likely to be sold down in coming quarters.

Total operating expenses doubled q-o-q to $49.5mn, or well above out expectations,
partly due again to non-cash additional compensation costs. The real negative surprise
came in a 43% q-o-q increase in production costs, though this was almost fully explained by
the introduction of gas flaring penalties, an issue that is becoming increasingly common to
Kazakhstan oil producers. Nelson said it accrued $5.4mn in penalties in 2Q05, and management noted that while it is seeking to find a temporary solution to reduce penalties in coming quarters, Nelson's gas flaring would be ended in 2H06 anyway.

The rise in G&A, which doubled from 1Q05's figure, was attributed to Nelson's efforts
to begin proper accounting, reporting and corporate governance procedures,
following a spate of acquisitions in 2004 that led to a substantial increase in consultancy
fees, which were incurred at the corporate level and thus did not reduce taxable income (and resulted in a higher effective income tax rate).
Transport expenses rose as a result of a higher transportation tariff imposed on the company.

Meanwhile, a lower than expected hedging loss resulted in pre-tax profit remaining in
the proximity of our forecasts, at $46.5mn, or down 9% q-o-q. However, a higher than
expected effective tax rate of 48% resulted in lower than expected net income at $22.4mn, some 24% below our estimates.

Operating cash flow was reported at $18mn, significantly below our forecast due to an
unexpected $30mn increase in working capital, which the company attributed to an increase in trade receivables due to a mismatch between crude oil deliveries and payments, meaning the bulk of this is due to be recovered in coming quarters. Excluding the unexpected increase in working capital, operating cash flow rose 20% q-o-q to $48mn, or exactly in line with our expectations.

Overall, the 2Q05 numbers paint a picture of healthy operating results, with the company's
financials slightly lower than our estimates but higher than the market's expectations.
Based on the reported 1H05 results, Nelson seems to be on track to meet our full
year 2005 projections of $529mn in revenue, $292mn in EBITDA and $144mn in net income.

We will incorporate the gas flaring penalties into our financial model, although we
expect the impact on the long-term forecast and fair value to be minimal. Nelson remains a
very promising growth story and our recommendation on the stock remains Buy.

From the Yahoo message board - last sentence about NLG

GOOD NEWS: Bear Stearns: $60 base.
Key Points
*** BID CONFIRMED - ANTICIPATE OTHERS - BID DOESN'T EQUAL A DEAL. On the back of several press reports suggesting an imminent bid by PTR or ONGC, PKZ mgmt confirmed that it has received a bid for all outstanding shares but that the process would continue (i.e., other bids would be welcome). We do not believe PKZ has to do a deal, therefore offers need to be attractive (i.e., above $55/sh)
*** WHY SHOULD THE PKZ BOARD ACCEPT A LOW BID? In light of the strong commodity, it remains surprising that the market appears to believe that PKZ could be sold for less than $50, something we hope the board recognizes would not be an acceptable deal.Using $50/bbl WTI in 06, PKZ is trading at 2.4x EBITDA, 5.4x EPS & $5.92/2P boe, with production 30% below capacity. Net cash stood at $5/sh at 2Q05.
*** WE OUTLINE WHY WE FEEL PKZ IS WORTH $65 - OUR TARGET IS $59. In light of the current commodity, we project PKZ will be generating >$800 mn/yr using $40/bbl oil beginning in 2007 for 7 yrs. Discounted back at 14% that is worth $4.6 bn assuming limited replacement beyond EOR. Our assumption for China pipe improvement is material & worth $500mn. With $23/bbl netbacks, PKZ is worth $9/bbl today.
*** DOES A PURCHASE HAVE TO OCCUR - WE DON'T THINK SO. We've long suggested a more complicated M&A agreement with multiple partners might occur. We believe PKZ would pay for political freedom and backlog in a deal that might leave the company public but worth far more. The Chinese have the biggest incentive to do this deal and not lose it to partners or the Indians. We outline the options.
*** BUY THE MEDIA-DRIVEN NOISE - PKZ HEADED HIGHER. Has PKZ moved too far to fast? We don't think so, especially considering the performance of the group and cost of oil assets throughout the world. Kazakh netbacks remain some of the best in the industry in light of the favorable gov't both PKZ and Nelson substantially undervalued and rate both Outperform.

We are definitely benefiting today from the sale of pkz. Petro-china a paying a 20% premium for pkz and we deserve the same additional value.

Good day to all!

Hi Usedcasting

I guess it is a matter of definition but I would say they pay a 70% premium compared to the stock price before PKZ announced that they had been approached.

The interesting question is if the Indian consortium would be interested in NLG (or even the Chinese). NLG seems to be even more attractive but I am not sure it is for sale!

Oiloiloil,

Thanks for the Bear Sterns rec. I had missed that one!

eliteG

I remember you wanted to see volume and a sharp price increase. Are you game today?

NLG.TO continue to increase under heavy volume.

Kazakhstan oil has always been traded at a discount compared to other developing markets. I believe the Petrokazakhstan deal will reduce this discount so we could see a nice run from here.

The NLG.TO weekly chart looks real breakouty.    In this am @ $2.54

Congrats PerfectSage

Up 14% today. I think we officially can call it a break out!

The Chinese Government and the Indian Government has apparantly agreed to co-operate on future oil aquisitions. As mentioned earlier in this thread a combination of PKZ and NLG is a match made in heaven so I wouldn't be surprised if they are next on the shopping list.

The chart at least indicates that there are some speculations!

Very interesting article in The Globe today:

Quote
PetroKaz deal puts little-known Nelson in investors' sights
By DAVE EBNER
Thursday, August 25, 2005

CALGARY -- Investors hunting for the next PetroKazakhstan Inc. have set their sights on Nelson Resources Ltd., driving the oil producer's stock almost 30 per cent higher in the past three days on takeover speculation.

Like PetroKaz, Nelson is listed on the Toronto Stock Exchange but operates fully in the central Asian country of Kazakhstan. Shares of Nelson took off after China National Petroleum Corp. made a $4.18-billion (U.S.) bid for Calgary-based PetroKaz, a deal announced early Monday.

"What we see is a market reaction to the runup of PetroKazakhstan," Nick Greene, Nelson's chief financial officer, said in a telephone interview yesterday from the company' office in London.

Mr. Greene said Nelson hasn't been approached by a larger suitor -- "You don't just pick up the phone and call someone and make an offer on the fly" -- but he did note that there have been a surge of calls from new investors, both institutional and retail

It sounds to me like they would welcome an offer!

All good news Michael. Where do we go from here? The word I'm hearing is $3.40. A 30% discount on other oils due to the region.

Good trading all!

From the Toronto paper(The Globe and Mail) today 8/25/05


By DAVE EBNER

Thursday, August 25, 2005 Page B5

CALGARY -- Investors hunting for the next PetroKazakhstan Inc. have set their sights on Nelson Resources Ltd., driving the oil producer's stock almost 30 per cent higher in the past three days on takeover speculation.

Like PetroKaz, Nelson is listed on the Toronto Stock Exchange but operates fully in the central Asian country of Kazakhstan. Shares of Nelson took off after China National Petroleum Corp. made a $4.18-billion (U.S.) bid for Calgary-based PetroKaz, a deal announced early Monday.

"What we see is a market reaction to the runup of PetroKazakhstan," Nick Greene, Nelson's chief financial officer, said in a telephone interview yesterday from the company' office in London.

Mr. Greene said Nelson hasn't been approached by a larger suitor -- "You don't just pick up the phone and call someone and make an offer on the fly" -- but he did note that there have been a surge of calls from new investors, both institutional and retail.

"Apparently, we are relatively unknown, at least in the Canadian retail investor community," he said. "I think the calls are to ask who we are."

Although its profile in Canada is low, Nelson is well known in Europe. The company was listed on the London Stock Exchange's Alternative Investment Market last year, on which it is among the top five names by market capitalization.

Nelson's only real connection to Canada is the TSX listing, which it got in 1993 when the company was incorporated in Bermuda.

The aggressive bid for PetroKaz is "extremely positive" for other companies working in the Kazakhstan-Caspian Sea region, said Moscow brokerage Aton Capital in a report to clients on Tuesday.

Aton also said that PetroKaz shareholders will likely look at other investments in the area, and Nelson is a top candidate for new funds.

Nelson stock closed at $2.89 (Canadian) on the TSX yesterday, up 28 cents or 10.7 per cent to its highest level since the mid-1990s. It has climbed 29.6 per cent this week, and its market capitalization is now $2.5-billion, up from less than $2-billion at the end of last week.

It produces roughly 30,000 barrels of oil a day, about one-fifth of PetroKaz's productive capacity.
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Hi Video

NLG.TO are now close to be fair valued compared to other oil companies (the whole sector is undervalued!). NLG.TO is therefore now more a take over and TA play than a fundamental play.

NLG has always be quite expensive based on the valuation of their reserves (there are good reasons for that which has been discussed extensively in this thread)

Below are the ATON figures for the Oil companies in the region:



The figures are from June and a lot have happened since. Here is an update for the most interesting companies based on the POS from yesterday:



I haven't added the 15% increase in NLG's reserves as I don't know if the other companies have had similar increases. You might therefore decrease the $/bbl with 15%.

PKZ's evaluation include their refiniery. the value is $5.7/bbl If you subtract the value of this

I still think NLG has some upside but I don't see a 30% discount at present. I am therefore considering to sell over the coming trading days depending on the TA.

Michael,

Short term NLG might need a rest after a spectactular run this week.
Longer term it has a long way to go. The Zhambai field is the real
catalyst for share price growth. IF there is really 14 billion barrels with 3 to 4+ billion
recoverable, NLG can at least double or triple from here. We have about 300 million
barrels now and add our 25 % stake of Zhambai (750 mill to 1 billion) the company enters the big leagues:

Aton April 2005
The option for 25% in the South Zhambai-Zaburunye block, which is estimated to be the second largest offshore field in Kazakhstan after Kashagan, represents an additional attraction.

Michael,


Aton: May 5 2005
Nelson Resources. Zhambai block negotiations may be wrapped up this year
Nelson Resources President Baltabek Kuandykov said yesterday the company expects to close a deal with KazMunaiGaz, Kazakhstan's state oil and gas company, to purchase 25% in the Zhambai offshore block this year, Dow Jones reported. The recoverable resources of the Zhambai block, the development of which is covered by a PSA agreement, are estimated at 6.8bn bbls of oil equivalent.

Nelson has had an option to buy a 25% stake in the project for some time and plans to convert this to equity and participate in the exploration phase. Kuandykov said the outstanding questions with KazMunaiGaz related to legal, commercial and environmental issues at Zhambai, which would be the subject of negotiations that may begin mid-month.

The news is positive for Nelson Resources as the acquisition of a 25% stake in the Zhambai block would likely raise the company to the ranks of the world's largest independent oil producers in terms of reserves and has long been seen by the market as a major catalyst for the company's stock performance.


Aton: May 17 2005
Finally, asked about negotiations on the 25% Zhambai block option (due to begin shortly), management reiterated its hope the deal would be closed this summer. CEO Nick Zana had said recently that Kazakhstan's state oil and gas company, KazMunaiGaz, has received permission from the government to extend Zhambai's license area well beyond the borders of block currently drawn. (THIS WILL GIVE US THE POTENTIAL FOR EVEN MORE OIL!!!!!)