Roxi Petroleum (RXP) Releases Galaz Update

Today Roxi Petroleum (AIM:RXP) announced an update on its Galaz asset in Kazakhstan.

Unfortunately, it has not been possible to conclude a deal to sell all or part of the asset to LG of Korea under the exclusive MoU announced on 17 July. However, Roxi and LG are still discussing a deal, and Roxi has recommenced discussions with other interested parties; which bodes well for getting achieving full value in any full or part sale.

More interesting is that a reserves upgrade report has been submitted to the state authorities that will be reviewed today, with the results of the review expected to be received by 11 November. Some think the expected 2C classification will be of the order of 30mmbo (gross, of which Roxi share 43.4%). Following the classification to GOST standards, Roxi will then determine the reserves classification to western SPE standards. If expectations of 30mmbo gross recoverable reserves are correct; applying a multiple of $5/bbl would equate to a Roxi share worth ~$60-65m, or close to the current market capitalisation which would mean the BNG, Ravninnoe, Munaily and Beibars assets are in the price for almost nothing.

Further, after the reserves approval, Roxi will submit a pilot production plan and would expect approval, and presumably production start, in 1Q10. So, if the asset is not sold, Roxi will gain valuable cashflow. [Edit: Expectations of 2Q10 production start were set at the GM held on 17 November 2009. See report here].

Finally, Roxi has identified a deeper exploration target in the south of the acreage and plans to drill an exploration well to test the Arksum and Jurassic reservoirs to a depth of 2,200m . Roxi has completed tenders for the well, and hopes to start drilling by 2Q2010. After this well is completed, it is expected that 20km2 of new 3D seismic will be collected over the recently acquired northern portion of the block.