Mr. Mikhail Afendikov reports

CUB ENERGY INC. ANNOUNCES Q1 2016 FINANCIAL AND OPERATIONAL RESULTS

Cub Energy Inc. has released its unaudited interim financial and operating results for the first quarter of 2016. All dollar amounts are expressed in United States dollars. This update includes results from KUB-Gas LLC, which Cub has a 35-per-cent equity ownership interest (increased from 30 per cent effective Feb. 8, 2016), and Tysagaz LLC, Cub's 100-per-cent-owned subsidiary.

Operational highlights

• Royalty rates for natural gas in Ukraine declined from 55 per cent to 29 per cent, effective Jan. 1, 2016, which materially improved the company's netbacks and net income.
• Production averaged 1,644 barrels of oil equivalent per day (98 per cent natural gas) for the quarter ended March 31, 2016, which is flat compared with the 1,644 boe/d in the comparative 2015 quarter, and is a 22-per-cent increase from the 1,353 boe/d production averaged for the fourth quarter ended Dec. 31, 2015.
• Achieved average natural gas price of $6.23 per thousand cubic feet and condensate price of $28.29 per barrel during the quarter ended March 31, 2016, as compared with $7.77 per thousand cubic feet and $39.83/bbl for the comparative 2015 quarter, and $7.32 per thousand cubic feet and $46.84/bbl for the fourth quarter ended Dec. 31, 2015.
• In January, 2016, a workover at RK-21 set a retrievable plug above the current open perforations in the D-2 through D-3 lower reservoirs and opened the D-0 reservoir for production. The workover was successfully completed, and the well was initially on production at approximately 1.3 million cubic feet per day.
• In February, 2016, the company received an additional 5-per-cent interest in KUB Holdings for a total 35-per-cent equity ownership interest. The company has the ability to further increase its ownership interest from 35 per cent to 40 per cent on meeting certain benchmarks and optional payments.
• In March, 2016, the company was granted a 20-year term production licence in western Ukraine. The Uzhgorod licence covers approximately 75,000 acres, which is a 50-per-cent increase from its original size of 50,000 acres.

Financial highlights

• Netbacks of $23.13/boe, or $3.86 per thousand-cubic-feet equivalent, for the quarter ended March 31, 2016, as compared with netback of $11.64/boe, or $1.92 per thousand-cubic-feet equivalent, for the comparative 2015 quarter. In addition, netbacks were $13.13/boe, or $2.19 per thousand-cubic-feet equivalent, for the fourth quarter of 2015. Netbacks in 2016 improved as a result of the reduced royalty rate effective Jan. 1, 2016.
• Revenue from hydrocarbon sales for the three months ended March 31, 2016, was $1.5-million ($1.8-million in 2015).
• Revenue from hydrocarbon sales by KUB-Gas for the three months ended March 31, 2016, was $12.7-million ($17-million in 2015), of which the company's 35-per-cent share was $4.4-million ($5.1-million in 2015).
• The total pro rata revenue from hydrocarbon sales, a non-international financial reporting standards measure combining the company's revenue and 35-per-cent of the allocated KUB-Gas revenue, totalled $5.9-million ($6.9-million in 2015) for the three months ended March 31, 2016.
• The company's net income from its 35-per-cent equity investment in KUB-Gas for the quarter ended March 31, 2016, was $1.7-million ($100,000 in 2015), which improved as a result of the reduced natural gas royalty rate.
• The net income for the company for the three months ended March 31, 2016, was $1.5-million, or zero per share ($1.2-million net loss, or zero per share, in 2015).
• There was $100,000 in capital expenditures for the quarter ended March 31, 2016 ($100,000 in 2015), and the pro rata capital expenditures, a non-IFRS measure combining the company's capital expenditures and 35 per cent of the allocated KUB-Gas capital expenditures, totalled $300,000 ($500,000 in 2015) for the quarter ended March 31, 2016.
• During the three months ended March 31, 2016, the company's Ukraine subsidiary, Tysagaz, entered into an unsecured, non-interest-bearing loan agreement with KUB-Gas, whereby KUB-Gas agreed to lend Tysagaz approximately $1.2-million for general working capital. The loan is due and payable on Dec. 31, 2017. The company expects to repay the loan if, and when, the National Bank of Ukraine lifts the dividend restriction in Ukraine and contemporaneously receive the same amount as a dividend from KUB Holdings. There is no guarantee that the dividend restriction will be lifted or that dividends will be available from KUB Holdings.
• With the current cash resources, no further financing in 2016 under the existing line of credit, temporary suspension of the RK field, dividend restrictions, currency fluctuations, reliance on a limited number of customers 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.

                               (in thousands of U.S. dollars) 

                                                     Three months ended March 31,        
                                                              2016          2015

Petroleum and natural gas revenue                       $    1,456      $  1,776
Pro rata petroleum and natural gas revenue                   5,903         6,884
Net income (loss)                                            1,457        (1,223)
Income (loss) per share -- basic and diluted                  0.00         (0.00)
Funds generated from operations                               (109)          246
Pro rata funds generated from operations                     1,215           144
Capital expenditures                                           138            83
Pro rata capital expenditures                                  287           540
Pro rata netback ($/boe)                                     23.13         11.64
Pro rata netback ($mcfe)                                      3.86          1.92


                                                          March 31,      Dec. 31,
                                                              2016          2015

Working capital (deficit)                                $  (2,718)   $   (1,722)
Cash and cash equivalents                                    1,971         1,360
Long-term debt                                               1,176         2,000

Outlook

The company is evaluating the 2016 work programs in light of the recently reduced royalty rate of 29 per cent, effective Jan. 1, 2016. The company expects KUB-Gas to drill two wells and perform several fracture stimulations in 2016, which the company expects will be self-financed by KUB-Gas. The company may drill one new well on its 100-per-cent-owned western Ukraine licences, pending sufficient operating cash flow. The company continues to explore solutions to the gas-blending contract at the RK field at Tysagaz. The company hopes to resume production at the RK field in July, 2016.

Supporting documents

Cub's complete quarterly reporting package, including the unaudited interim financial statements and associated management's discussion and analysis, has been filed on SEDAR and has been posted on the company's website.

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