Roxi Petroleum Announces Sale of Galaz

On 29 April Roxi Petroleum (AIM:RXP) announced the sale of a stake in its Galaz project to LG International Corp (LGI).  This deal has been in gestation for some time, but the Sale and Purchase Agreement has finally been executed.

The deal is quite complex, and requires a great deal of concentration to understand completely.  Here are a few highlights insofar as I can tell.  It is recommended that any reader also consults the actual RNS issued by the company to check that I've not made any significant errors in this report of it.

• Overall, Roxi's interest in Galaz will fall from 50.15% to 34.22%
• In return, Galaz re-pays a loan from Roxi to Galaz of some $8.4m
• Galaz also loans Roxi of some $8.7m to be re-paid out of future production
• Roxi uses these proceeds to re-pay its convertible loan from Altius Energy (previously known as Arawak Energy), thus avoiding the dilutive effect of conversion.  Some of the proceeds are also used to purchase a 13% stake in Galaz from the local partners.
• LGI provide a loan of up to $26m to Galaz some of which will be used to repay the the bridging loan from Kuat Oraziman of $3m announced on 31 March and some to re-pay $5.5m to KazRosMunai.  The rest of the money will be used to finance the working capital needs of Galaz and fund further development of the project.

Overall it seems that Galaz is now well-funded, with a credible international partner and Roxi has funds to finance work on other assets as well as participate in the upside on Galaz.  Maybe some of these funds will be used on Ravninnoe or to purchase a further stake there.

Unfortunately, we did not learn any more about the results of the NK22 well, which seems like a new discovery on the block.  Hopefully, we will hear news on that soon, together with the start of production on NW Konys.

Roxi Petroleum Newsflow Update

In the post on 11 March, I set out a number of items of expected newsflow.  Here is an update:

1) Ravninnoe Well #20 test result (expected March 2010 per Oil Barrel Conference).  Update: Result announced in 7 April RNS.  240bopd from an 18 metre interval.  Awaiting results of extended flow test and acid stimulation.

2) Galaz NK22 test result (ought to be imminent as discovery was announced on 18Feb 2010).  Update: Result still awaited.

3) South Yelemes re-perforation of Well G-54 result (they were preparing to perforate on 3 Feb 2010). Update: Result announced in 7 April RNS.  200bopd from shallower interval.

4) Spudding of first new well on South Yelemes (a rig had been mobilised on 3 February 2010). Update: Well 805 spudded on 14 April, to be followed by Well 806.

5) Canamens exercising their option (or not) over a further %-age of BNG (due by 31 March 2010). Update: Done, announced in 31 March RNS.

6) Repayment (or not) of Arawak Energy (now known as Altius Energy) loan(s) - decision due by 31 March 2010.  Update: Re-paid from a new interest-free loan from Kuat Oraziman. This new loan likely to be re-paid using funds received from LG in the Galaz deal.

7) Further exercise (or not) of Arawak (now known as Altius Energy) warrants (the exercise price rises to 15p after 31 March 2010). Update: Altius Energy exercised a total of 3.6m warrants, leaving a substantial number outstanding at an exercise price of 15p or above.

8) Commencement of Galaz production (approval should be granted before end April 2010). Update: LG deal going well, but now expected to close during May 2010.

9) Commencement of Galaz development programme (deal with LG announced on 10 Feb 2010; awaiting regulatory approval). Update: presumably after the partial sale to LG deal completes

10) Lifting of Beibars military polygon (or not), and maybe a farm-in? (timing of lifting of the military polygon is unknown at present). Update: No further updat as yet.

11) Forward drilling plan for Ravninnoe (probably dependent upon Well #20 test result). Update: No further update yet.

12) Volumetrics and forward drilling plan for BNG (At Oil Barrel, the expectation was set of some news on this by mid-2010 in the form of a Competent Persons Report or CPR). Update: still awaited.

Additionally, we have been informed that some 80bopd of production on Munaily will commence around mid-year 2010, with the potential to ramp up to 300-400bopd.


Don't forget to do your own research.

Roxi Petroleum Corporate Update

Today Roxi Petroleum (AIM:RXP) announced a corporate update.  This covered a number of items identifed as due for release in the blog post of 11 March:

1. Canamens have exercised their option to acquire a further 12% of the BNG contract area for a consideration of $23m.  This transaction means that the BNG work programme is fully funded for 2010.  The Oil Barrel presentation indicates that 9 wells will be drilled on BNG this year, including 5 exploration wells and 4 appraisal/production wells.  Roxi now holds 23.41% of the BNG asset.
2. The most recent $3m convertible loan from Arawak Energy (now owned by Vitol) has been re-paid.  This avoids the conversion of the loan into shares and thus also avoids shareholder dilution.  The $3m has been provided by director Kuat Oraziman, and is repayable by 1 July 2010 - presumably from the funds that Roxi will receive once the Galaz deal completes.  Shareholders must thank Mr Oraziman for his continued support of the company.
3. Separately, Arawak has exercised a further 2m warrants at 10p each, providing £200,000 of funding to Roxi.  According to my calculations, this leaves Arawak with 30,923,835 warrants, which must now be exercised at 15p, if before 30 September 2010, or 20p if between 1 October 2010 and 31 March 2011.  This could be a significant source of funding for Roxi to finance further drilling on the Ravninnoe block.
4. The proposed transaction with LG International to acquire a stake in the Galaz block is progressing well

Unfortunately, a number of other operational matters were not covered in the RNS so we are no further forwards on understanding:

• The test results from Well #20 at Ravninnoe - we are awaiting oil flow rates from this well
• The results of the perforation of the well at South Yelemes
• If any of the appraisal oil wells at South Yelemes have spudded
• The test results of well NK22 on Galaz

We must hope for an update on these operational matters shortly, hopefully including some news on the lifting of the Military Polygon on Beibars and progress on re-habilitating Munaily.

Update: It was announced on 1 April 2010 that Altius Energy (formerly known as Arawak Energy) has exercised a further 1.6m warrants at 10p.  According to my calcuations,this brings Altuis' warrant holding down to 29.3m

Roxi Petroleum Anticipated Newsflow

Trading volumes in Roxi Petroleum (AIM:RXP) have risen sharply in recent days along with the share price.  From prior company announcements, here is a list of news items that maybe in the pipeline:

1) Ravninnoe Well #20 test result (expected March 2010 per Oil Barrel Conference)

2) Galaz NK22 test result (ought to be imminent as discovery was announced on 18Feb 2010)

3) South Yelemes re-perforation of Well G-54 result (they were preparing to perforate on 3 Feb 2010)

4) Spudding of first new well on South Yelemes (a rig had been mobilised on 3 February 2010)

5) Canamens exercising their option (or not) over a further %-age of BNG (due by 31 March 2010)

6) Repayment (or not) of Arawak Energy (now known as Altius Energy) loan(s) - decision due by 31 March 2010. 

7) Further exercise (or not) of Arawak (now known as Altius Energy) warrants (the exercise price rises to 15p after 31 March 2010)

8) Commencement of Galaz production (approval should be granted before end April 2010)

9) Commencement of Galaz development programme (deal with LG announced on 10 Feb 2010; awaiting regulatory approval)

10) Lifting of Beibars military polygon (or not), and maybe a farm-in? (timing of lifting of the military polygon is unknown at present)

11) Forward drilling plan for Ravninnoe (probably dependent upon Well #20 test result)

12) Volumetrics and forward drilling plan for BNG (At Oil Barrel, the expectation was set of some news on this by mid-2010 in the form of a Competent Persons Report or CPR)

Don't forget to do your own research.

Roxi Petroleum (RXP) Galaz Asset

Content updated and post moved here.

Content below up to 28/2/10, but this will not be maintained.

Overview

Roxi Petroleum's (RXP) Galaz contract area is a relatively small block compared to the potential of BNG (Ayrshagyl) and Ravninnoe, but has been important in establishing reserves and initial production. The block was recently extended in size to form the most northerly triangular shape and now covers a total area of some 42km2 in the middle of Kazakhstan.

Prospects

Initially, the block had modest 2C gross reserves of 12.6 millions of barrels of oil (mmbo), from 2008 Annual Report. But recent drilling has demonstrated the prospectivity of channel features in the NW Konys field. Soviet era wells #26 and #27 have been re-entered and flowed at relatively modest rates of 50-60bopd. More recent drilling under Roxi operatorship has been successful, with NK1 finding oil in the Arksum sands. But wells NK3, 4, 5 and 6 showing oil in the Arksum and Jurassic sands.

The table above shows the total test production levels that have been announced for each well, giving a total of 1,730bopd. However, we might expect the productivity to be somewhat lower when under full production. It appears as though production rates from NK4 have not yet been released.

It might be expected that additional development wells for the NW Konys field will be required to produce all of the reserves.

Roxi has identified a deeper exploration target in the south east of the acreage which has been drilled to a depth of 2,840m.

We now know that well NK22 is in the SE corner of the block and has recorded 12.8m of net pay in the Lower Cretaceous and Upper Jurassic. It seems that the deeper horizon was not prospective in this location. We do not yet know the prospective resources fom this new discovery, but it is probably safe to assume that the 2C (and 2P reserves to SPE standards) will rise. Hopefully, test results form this well will be publshed soon.

At the AGM in July 2009, Roxi stated that they intend to extend the seismic grid to the whole Galaz area, and believe there are a large number of targets.

Another operator is going to drill a deeper well to the West of the northern-most apex of the triangle to ~2,500m. We don't know who that is, but the results will be no doubt interesting to RXP as they plan their own deeper well programme. Another operator also holds the "zig-zaggy" triangle near the top of the acreage.

Reserves

A reserves upgrade report has been submitted to the state authorities that was to be reviewed on 4 November with the results of the review expected to be received by 11 November. Some thought that the expected 2C classification was of the order of 30mmbo (gross, of which Roxi share 34.2%). However it was announced on 1 December that the C1 reserves to GOST standards are 7.4 million barrels of oil (mmbo) and C2 reserves are 7.2mmbo. This makes the 2C reserves to GOST standards 14.6mmbo gross. Following the classification to GOST standards, Roxi is going to determine the reserves classification to western SPE standards.

The December 2009 broker note from Matrix indicated their expectations of 2P reserves under SPE standards to be 8 million barrels of oil (mmbo), with a further 5mmbo unrisked upside.

Finance

Some time ago, Roxi entered into a 2 stage farm-out agreement with KazRosMunai.

In June, Arawak Energy Limited (a subsidiary of Vitol, now known as Altius Energy) advanced a loan, in exchange for some warrants, to finance the development of Galaz to full production (http://www.roxipetroleum.com/PDFs/Rns180609.pdf).

On 17 July Roxi announced they had received an approach from LG of Korea to purchase the whole block, with exclusivity granted until the end of September. Note that LG also holds a stake in ADA Oil.

It was announced on 4 November 2009 that it has not been possible to conclude a deal to sell all or part of the Galaz block to LG under the exclusive MoU. However, Roxi and LG are still discussing a deal, and Roxi has recommenced discussions with other interested parties; which bodes well for achieving full value in any full or part sale.

However, on 11 February 2010, it was announced that a deal had been struck where LG has purchased a 40% stake in the Galaz asset from Roxi Petroleum and the other part owners of the block. Roxi Petroleum ends up with a remaining 34.2% stake in Galaz, $10m to fund other projects and LG has agreed to provide a further $26m of funding to further appraise and develop the block.

Roxi Petroleum (RXP) Releases Operational Update

Today, Roxi Petroleum (AIM:RXP) announced a very interesting operational update.

Galaz

Roxi Petroleum's original announcement of the spudding of this well stated that the target depth was 2,200m with the target formations being the Arksum Sands and Upper Jurassic. These are the formations that have been targeted by the earlier production wells on NW Konys.

They have said today that they have seen "shows" in these formations and are drilling ahead at 2,550m in the middle-Jurassic. The new ultimate target depth is as yet unknown.

It may be reasonable to conclude that the shows in the Arksum and Upper Jurassic will end up being commercial, and may well add to the reserves already declared on the block. It remains to be seen if the deeper exploration target will find anything, let alone be commercial, but if it is, it could add substantial value to the Galaz block.

Interestingly, Roxi have been silent on the progress of negotiations with third parties on the full or partial sale of this asset.

Ravninnoe

Roxi Petroleum have released further details of the initial results from the drilling of Well #20 on the Ravninnoe contract area. They have confirmed the hydrocarbons encountered were oil at high pressure (likely to lead to higher flow rates in the future), and that they have not encountered any H2S issues. Porosity has been measured in the range of 4-20%. A workover rig has been mobilised to complete the logging and test the well. Hopefully further results will be released within the month.

BNG

The BNG (aka Ayrshagyl) contract area is probably the crown jewel in the Roxi Petroleum portfolio. Now, following the farmout agreement with Canamens they are moving to explore the block.

First seems to be a re-entry and perforation of an existing well on the South Yelemes field, also known as G-54. It appears this will be followed by 2 further wells on that field. Prior seismic charts released by Roxi have shown a Triassic target beneath the Jurassic G-54. It remains to be seen if this target will be drilled by either of these two wells.

Roxi have also announced they have awarded a contract to acquire more 3-D seismic in the south of the block, in the "transition zone". This area probably includes the previously drilled Saztobe well, which appears to have tested for condensate from the Carboniferous.

Moreover, Roxi appear to be nearing a conclusion on interpreting the earlier 3-D seismic acquired in 2009, and are planning to drill a further 6 wells on the block in 2010. Hopefully, some of these additional oil weels will be targeting the exciting pre-salt targets which have great potential - indeed well G-1 tested at ~2,000bopd in Soviet times.

Other Operational

Roxi Petroleum have stopped trying to sell the Munaily block and is now applying for a production licesne to re-habilitiate the field. The statement regarding the Beibars block is the most encouraging for some time as Roxi is now "evaluating the potential of the block" in anticipation of lifting of the "Force Majeure". Beibars was previously described at the 2008 Visor Capital presentation as one of the high impact blocks in the portfolio, alongside BNG.

Management

The board of Roxi Petroleum has been strengthened with the appointment of Edmund Pery, Earl of Limerick - and experienced financier in the oil and gas sector and Hyunsik Jang, formerly a senior player in LG (who have been interested in buying Galaz) as operations director. Mr Jang will be co-ordinating drilling activity and identifying new sources of finance from the Far East.

Finance

Roxi Petroleum has also secured a further $3m convertible loan from Arawak Energy (now known as Altius Energy) re-payable by end March 2010 or convertible into 19m new shares at ~10p/share; this takes Arawak's potential stake in Roxi Petroleum over 20% if all their warrants are exercised. Hopefully, a full or partial sale of Galaz by this deadline will give sufficient funds to repay the loan and preclude further dilution of shareholders

Arawak takes stake in Roxi Petroleum (RXP) to over 21m shares

Roxi Petroleum made three announcements today.

The first indicated that 12,050,000 warrants with an exercise price of 10p had been exercised. This raises ~£1.2m in cash for the company at a price above the current mid-market price (according to advfn RXP closed today at a mid price of 8.75p).

The second and third indicated that Arawak Energy Limited (part of Vitol Group, now known as Altius Energy) now had a holding of 21,132,500 shares or just over 5% of the new issued share capital; this representing the sum of the ~9m warrants exercised on 3/11/09 and the ~12m warrants exercised today. Arawak still holds 32,867,500 10p warrants (although the exercise price rises to 15p/share after the end of March 2010). This combined total represents the 54m warrants Arawak procured as part of the Galaz funding deal announced in June 09 (18m came from their loan and 36m were sold to Arawak by Kuat Oraziman). Note that Arawak Energy are now owned by Vitol.

The interesting thing is that since the beginning of November a further 6.43m 10p options were exercised on 23 November. It is not clear presently where these options came from or who exercised them.

Arawak Exercises More Options in Roxi Petroleum (AIM:RXP)

In two recent announcements (03/11/09 and 23/11/09), Roxi Petroleum has raised a total of ~£1.5m through the exercise of just over 15m options at 10p each.

Options at 10p were issued to Arawak Energy Limited (now part of Vitol Group and now called Altius Energy) and Kuat Oraziman in the announcement made in June 2009 to bring in funds to finance bringing Galaz into production. Subsequently Mr. Oraziman sold his 36m options to Arawak for an undisclosed sum.

So, it seems likely that Arawak are the party exercising the options and they have now exercised ~15.5m of the 54m options they held. Interestingly, the exercise price rises to 15p/share at the end of March 2010. So, this exercise of options shows a welcome show of confidence in the company, especially as the mid price of Roxi shares today is some 9.5p. These transactions also provide working capital funding to the company without recourse to the GEM facility, and thus does not dilute existing shareholders more than has already been announced.

Edit: 2/12/09 according to today's announcement it seems as though Arawak Energy did not exercise the ~6.4m options exercised on 23 November. That remains a bit of a mystery.