Results of Roxi Petroleum (RXP) General Meeting

As expected, the Roxi Petroleum general meeting to approve the transaction to fund the exploration and appraisal of the BNG block went ahead today, and the resolution was duly passed.

Details of the circular can be found here.

There were some interesting questions after the formal part of the meeting, and the discussion is reported below.

1) Attendees. The meeting was sparsely attended: your author, someone from Arawak and four others, although a fifth other person did arrive part way through. I think I recall the chairman saying ony 2 people were entitled to vote and one of those was me; however he was holding about 150m proxies in favour of the transaction. All the directors were there.

2) Galaz. The reserves upgrade is being considered by the Khazakstan authorities now. I think the company had anticipated receiving the results by now and described the decision as "imminent". Someone asked about the potential deal with LG. It seems another party may interested; there was talk of negotiating an "exclusivity fee". Kuat Oraziman said he hoped to get to some sort of resolution by the end of this month. I guess investors ought to continue to be patient as these deals can take a good while to pull together. The existing wells that have been drilled are currently shut-in pending commencement of pilot production which may be expected during 2Q10. They will start production slowly and build to 1,000-1,500bopd by year end 2010. There was some clarification of the new exploration target announced on 4 November; this is targeting Arksum and Upper Jurassic sands that are a bit deeper than the existing wells but in the same formation. This is not the deeper target indicated earlier. Well cost should be in the region of $1.5m.

3) Ravninnoe. Well #20 drilling ahead at 1,600m. We might expect some news around Xmas. I clarified the target depth. The AGM presentation had a well design that indicated a target depth of 3,800m that may have explored the lower-Carboniferous as well as appraising the mid-Carboniferous primary target at 3,200m. They confirmed the well location is not optimal for the deeper target, so they probably won't drill as far as 3,800m. Although Duncan McDougal did say if they still had oil shows at 3,500m they would carry on.

4) BNG. Once the paperwork aurrounding the BNG deal sanctioned today is completed, they hope to get drilling on BNG ASAP. Applications and permits are in progress. Whilst they would hope to commence drilling in December, 1Q10 is a more realistic target. They will start by drilling the G-54 wells. I asked about the tantalising target just below in the Tertiary, and they will consider it; but not with the first well. The decision on the location of the first deep well has yet to be taken, so it may not be Y-1. For more detail on the BNG block see here and here

5) BNG seismics and volumetrics. I asked when they would update the market on these results. Rob Schoonbrood indicated they were encouraged by the results so far and Duncan McDougal said they would probably release the results during 1Q10. After the meeting I mentioned that the fully diluted EV of MXP was ~£300m at present, compared to RXP's ~£40m (OK a bit more with the warrants, options and the small amount of debt) and the only material thing MXP has over and above RXP is that MXP have gone to market with their volumetrics. I do hope that point hit home and leads to an acceleration of the release of data.

6) Finance. Someone asked when the company was going to come to market for more cash. Clive Carver answered that there were no current plans to do so. So, I guess they hope Arawak exercise more warrants to ensure they have enough cash to fund overheads until production from Galaz or BNG kicks in. Of course, if Galaz is sold the short term cash needs for funding overheads (remember drilling on Rav and BNG is funded for a good while) goes away anyway; and there's ~$7m of the $57m BNG money coming to Roxi as well. Interestingly, RS talked about the $50m coming from Canamens that goes to drill BNG. As aficianandos will know, this will be loaned to BNG BV, but $32.5m comes back to Roxi from future production and $17.5m goes to Canamens. RS indicated that Roxi will eventually get the full $50m back, with the balance coming back from Baverstock as "compensation".

7) Futures. I chatted a bit at the end to Rob Schoonbrood and Duncan McDougal. Although there is still a theoretical possiblity of doing some sort of deal on ADA; personally I'm now discounting it. However, "the coffin" part of BNG not yet operated by Roxi may well become available during 2010. I congratulated them both on not re-pricing their options which they accepted gracefully, but they are confident of making a significant amount on those options over time - their targets are very ambitious. RS even suggested any further significant dilution (my guess beyond say 500m shares which is about the fully diluted position now, ex-GEM) would only be done to fund acquisition of further assets.

Overall, it is pleasing to see the BNG deal finally done - they did say there is very little chance of this deal falling apart and no risk of any further taking back of assets by Baverstock. It is good to see we are drilling in Ravninnoe now and will be drilling BNG shortly. Galaz reserves upgrade imminent, and if we are lucky a Christmas present of good news from Ravninnoe and a deal to sell all or part of Galaz. However, investors ought not to get their hopes up about the timing of any news release about the BNG seismic coming any time soon. Hopefully, getting this deal out of the way ought to now pave the way for Matrix Corporate Capital to release their long awaited broker note to drum up some institutional interest.