Roxi Petroleum (RXP) Oil Barrel Report

Today Roxi Petroleum (AIM:RXP) presented at the Oil Barrel conference in London.  Hopefully, the investor presentation will be placed upon the web-site in due course.  First, my earlier post that suggested there would be 17 wells in 2010 was in fact under-estimating Roxi.  Today they talked of 19 wells in 2010 - with the extra two probably being more wells on Ravninnoe than I had assumed.

A copy of the presentation can be found here.

Key highlights:

Overview:

The overview slide near the beginning of the presentation had some volumetrics on it, talking of 29 million barrels (mmbo) of C1 and 45mmbo of C2.  It was a bit unclear precisely what this related to, whether it was current or target or gross or net.

They also showed a graph givng a production forecast out into 2012 or 2013.  I look forward to analysing this further once the presentation in published.

Beibars:

They talked of seeking a farm-in partner during 2010, so they must be becoming increasingly confident of getting the military polygon lifted soon.

Ravninnoe:

We might expect test production in 2010 and pilot production in 2011.  This suggests they are anticipating positive test results from Well #20.  The tests are just getting underway and we can expect the results in March.  I got the impression later that a significant proportion of the funds raised from the partial sale of Galaz will be used to fund further wells on Ravninnoe, once the remaining Canamens funds are exhausted.  Remember, at that point Roxi will only need to fund 30% of expenditure, so its $10m will equate to an overall drilling budget of some $33m, although the funds that Roxi can apply to Ravninnoe may be somewhat less than $10m if they chose to repay the most recent Arawak loan.

Munaily:

Now stopped trying to sell this block, and will develop it.  Expect production in 2010 (I seem to recall ~500bopd gross), which isn't massive but they'd rather have it than not.

Galaz:

Before the oil barrel conference started Roxi made an announcement about the Galaz NK22 well. They have confirmed an oil discovery in the Lower Cretaceous and Upper Jurassic. Although we don't yet know the prospective size of the new discovery, we do know they have found 12.8m of net pay, which is in-line with the declared net pay on Well NK3 on NW Konys.

It was confirmed at the oil barrel conference that the Middle Jurassic formation does not appear to be productive in this location, although it was implied that the Middle Jurassic is productive nearby. The position of  well NK22 well is in the south-east corner of the block.
 
They seemed rightfully pleased with the recent partial sale of Galaz to LG
 
BNG:

Expecting big things from this block. They are in the process of agreeing the prospect inventory with Canamens to agree the drilling priority.  They expect to publish the volumetrics for the near term drill prospects mid-year.  This will probably be in the form of a CPR (maybe this is in connection with the rumoured IPO of Canamens) and will include P50 resource estimates.

They have previously announced the perforation of G-54 on the South Yelemes field and the drilling of multiple appraisal/development wells on this Soviet-era discovery.  They expect a number of exploration wells to be drilled on the acreage during 2010 as well as ~600km2 of new 3-D seismic on  the SE portion of the block.

I think Roxi Petroleum management are anticpating that Canamens will take up their option over the further 12% share of BNG in return for the additional cash for exploration and appraisal.

Post Meeting Chat:

Together with others, I had a brief chat with David Wilkes, the CEO after the presentation.  He was asked where is thought the share price ought to be.  He diplomatically side-stepped this by suggesting his recent share purchase indicated that he thought there was significant upside in the stock.  I understand that the "close-period" prior to the results announcement may commence soon, so it will be interesting to see if Mr Wilkes takes advantage of this for a further purchase.  He is aware that communication with the market needs to improve and the content of the website has room for improvement.  I think he will do something about this, but I got the impression he wants to focus their cash resources on drilling, so it may be unreasonable to expect significant action in the short term.

We might expect Mr. Jang to be granted some options during April 2010.

Roxi Petroleum (RXP) Drilling Programme

Roxi Petroleum (AIM:RXP) has released a great deal of operational news over the past few weeks. By combining this with the recent Matrix broker note it is possible to compile a tentative schedule of drilling for the rest of 2010 and beyond.

Galaz

Well NK22 has decalred a discovery in the SE corner of the block in the Cretaceous and Upper Jurassic.  However, given the deal to sell part of Galaz to LG was announced last week, it is likely that LG believe the oil shows that were encountered in the Arksum and Upper Jurassic sands will be commercial. Moreover, we do not yet know if hydrocarbons will be encountered in the deeper exploration target.

We know that LG have committed $26m of funding to develop the Galaz field. We don't know exactly what that money will be spent on, but we know that Roxi Petroleum have submitted an application to produce the 7.3 million barrels (mmbo) of C1 reserves.




According to the schematic (re-produced above) in the Matrix broker note, one can see that there are 5 or 6 more wells required to fully develop the C1 reserves. An estimated cost of $1.5m per well (per well cost estimate given at the November GM) would leave ~$17m. Presumably these remaining funds could be used to either:
a) Fund further development of the C2 reserves - according to the schematic, a further 8 or so wells, or ~$12m plus costs of surface facilities and/or,
b) More appraisal/exploration of the apparent new discovery in the Arksum/Upper Jurassic and deeper targets on the acreage. Note that RXP are also planning to shoot 3-D seismic over the northern part of the acreage.

Once production comes on stream from NW Konys, then the cash generated ought to be able to fund further development of new discoveries on the block.

Assuming the regulatory consents for the LG deal are forthcoming in a short timeframe, it seems we can expect results from NK22 soon and at least half a dozen development wells on Galaz this year and maybe some exploration/appraisal wells if the deeper target on well NK22 is successful.

Ravninnoe

We know that Well #20 is undergoing testing, and results should be announced shortly. The Matrix note indicated that a further 3-4 development wells would be drilled in 2010 to exploit the mid-Carboniferous target if Well #20 is successful. However, the funding from Canamens will probably only be sufficient to drill one further well on the acreage. So, funding of the further development wells will probably come from the $10m recently received for the partial sale of Galaz..

So, let us assume for the moment that we will get results from Well #20 shortly and three further wells will be drilled on Ravninnoe in 2010. We don't know if this will target the Lower Carboniferous or not; and there also remains the potential to drill the even deeper Devonian formation below 5,500m.

BNG
Roxi Petroleum recently announced plans to perforate well G-54 on the South Yelemes field, drill two shallow wells there and a further 6 wells to be drilled in 2010. The Matrix note talked of drilling a total of 4-5 shallow wells, presumably on South Yelemes. We can hope that one of these shallow wells will be deepened to explore the Triassic target that lies beneath the G-54 discovery.

This leaves 3-4 other targets to be drilled on BNG in 2010. We can perhaps assume that 2 of these will be on the fields discovered by the G-1 and G-7 wells, so this leaves a further 1 or 2 wells to probe other targets or appraise whatever is found in the earlier wells.

Summary

In total it appears as though we can expect 6 or so wells on Galaz on top of the NK22 result; possibly 3-4 wells on Ravninnoe as well as the test results from Well #20 and the results of a total of 8 wells on BNG, many of which seem to be targeting discoveries that were made in Soviet times. A total of at around 19 well results in 2010 – a very busy drilling programme indeed for a company with a market capitalisation of only £40m.

Roxi Petroleum (RXP) Ravninnoe Asset

Content updated and post moved here.

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

Overview

Roxi Petroleum's exciting Ravninnoe (pronounced Rav-nina) contract area lies in the Pre-Caspian Basin of Kazakhstan, 100km NE of Tengiz and some 30km away from the Opornaya supply base. The Exploration License expired in May 2009, but an extension over the acreage to May 2011 has been granted. Roxi holds a 30% interest in this license block after a farmout of a portion of its interest to Canamens.

Prospects

Six wells have been drilled on this area before Roxi secured the block. A number of them are still seeping oil to surface and showed gross oil columns in the range of 57-127m, apparently in the mid-Carboniferous.

Roxi have re-entered an old well, but the casing was parted so the well was suspended. However, 130km2 of 3-D seismic have been shot over the acreage.

A new well started drilling on 30 October, Well#20, which is essentially an offset re-drill of the old well #8. At the 2009 AGM it was stated that the old Well#8 had flowed oil at up to 6-800 barrels of oil per day (bopd). From the AGM presentation, it appears as though this well is targeting prospects in the middle and lower Carboniferous to a total depth of 3,800m. At the 17 November GM it was stated that the primary target is at 3,200m, but if they continued to see oil shows at 3,500m they would "keep going". Moreover, this well is not in the optimal location to test the lower-Carboniferous target, so it is unlikely they will drill as far as 3,800m.

It was announced on 14 January 2010 (see this post) that Well #20 was drilled to a total depth of 3,455m and encountered a gross hydrocarbon column of some 30m. The well will now be tested across several intervals. It was further announced on 3 February that the hydrocarons encountered were oil at high pressure and no H2S issues had been identified.  It has been subsequently announced that testing operations on Well #20 should be complete during March 2010.

Investors can look forward to the results from this well with some anticipation, but should not overlook the fact that the company is planning to re-map the as yet un-drilled pre-salt (presumably Devonian) horizons that may yield further results. A second appraisal well might be expected to be drilled, presumably targeting the lower-Carboniferous depending upon the results of the first well.

In their December 2009 broker note, Matrix helpfully delineated the prospects on Ravninnoe by describing the P50 and P10 resources estimates for the mid-Carboniferous structure targeted by Well #20 as 27mmbo and 58mmbo respectively. They also suggest the P50 and P10 resources of the lower-Carboniferous target are 28mmbo and 49mmbo respectively and also indicate that this structure has also been drilled before in the Soviet days and therefore attribute a 50% chance of success. They say Roxi is also working on the exploration potential of the deeper Devonian target.

Moreover Matrix also make a passing reference to Well #20 having been designed to test a number of seismically mapped Jurassic and Cretaceous targets - this looks like a new disclosure.

Further disclosures have been made in an Envoi note about the Ravninnoe field.

Reserves

Currently, 15.5 millions of barrels of oil (mmbo) gross 2C reserves are granted to the field. However, some of the original owners of the Ravninnoe field have put their share of the asset up for sale and the Envoi note accompanying that sale suggests Pmean recoverable reserves of some 53mmbo from a combination of the mid and lower Carboniferous stratigraphic and structural traps. This does not include any potential upside from deeper Devonian targets.

Finance

Canamens have farmed-in to acquire up to 32.5% of the field for a total consideration of up to $22m. The estimated cost of each well is ~$8.5m, so Roxi are funded for the entire work commitment of the block, some $18m up until 2011.

Roxi Petroleum (RXP) BNG Asset

Post updated and moved here.

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

Source: Canamens

Overview

Roxi Petroleum's (RXP) BNG Contract Area, sometimes known as Ayrshagyl, is probably the most mouthwatering block in the Roxi Petroleum portfolio, lying as it does some 40km away from the super-giant 8bn barrel Tengiz field in Kazakhstan.

Prospects

At the time of acquisition, 25 leads had been identified at various depths from the Jurassic to the Carboniferous. It was stated at the 2009 AGM that it was believed a common source rock under-pinned the acreage that may have been up to 40,000 feet thick. The existing leads are being refined and delineated by the 3-D seismic programme that took place during 2008. Some areas of the block are excluded as they contain shallow fields in the 5-100 millions of barrels of oil (mmbo) range from the Jurassic, Triassic and Permian horizons.

The shallow fields in this area tend to be above the salt (or post-salt). But the super-giants like Tengiz have been discovered under the salt (or pre-salt). It is to be hoped that the new techniques associated with the modern 3-D seismic have provided imaging that is good enough to delineate prospects under the salt.
Interpretation of the 360km2 3-D seismic us due to be received in November 2009.

It was understood at the 2009 AGM that the company was in the process of deciding well locations, with an intention to start drilling ~3 Jurassic depth wells in the G-54 area and possibly 1 deeper well to the Permian in the G-1 (Yelemes) area, with first spud in 4Q09, with the deeper well more likely to be in 1Q10. These wells appear to be primarily appraising the existing discoveries that were made in the 1980's. The combination of modern 3-D seismic and old and new well logs ought to provide enough data to support the generation of 2P reserves to SPE standards. The original G-1 tested oil at ~2,000barrels of oil per day (bopd) - from 2009 AGM report). See BNG seismic post for brief discussion of other targets; it may just be, that Roxi will consider testing the Triassic Truncation play with one of the planned G-54 wells.
G-54 tested oil at a rate of 250bopd in 1998. Once production has been established from G-54, the cashflow, together with the Canamens funding ought to provide the financial platform to explore the deeper horizons.

Clearly, the timing of the wells has been put back by the re-negotiation of the farm-out to Canamens, and the broker note of December 2009 with Matrix indicating shallow wells in 1-2Q10; although it is not clear if these wells are targeting just the Jurassic or whether they will also be targeting the Triassic play. Matrix indicate the well targeting the deeper Y-1 structure won't be spudded until 1H11, which would be something of a disappointment if true.

The "coffin-shaped" area that is not currently under license is thought to be prospective, and indeed the image sourced from Canamens above suggests there may be an existing field there. At the 2009 AGM it was suggested this area may become available during 2010.

The announcement of 3 February 2010 stated that Roxi was preparing to reperforate the old G-54 well and that a rig has mobilised ready to drill 2 wells - presumably shallow wells - on the South Yelemes field. Moreover, they were planning to drill 6 further wells on the BNG block during 2010. It is to be hoped at least some of these additional wells will also test the deeper, larger structures and that at least one of the shallow wells tests the Triassic lead underneath G-54. Roxi has also tendered a contract to shoot more 3-D seismic over the southern part of the block, presumably covering the old Saztobe well.

Reserves

Reserves for the BNG Contract Area to SPE standards have yet to be published. However, the 2008 annual report shows reserves and resources to Soviet-era GOST standards of over 400mmbo (C1+C2+C3), with 42mmbo C1+ C2. After the recent farm-out deal with Canamens, the Roxi share of these resources would be around 93mmbo 3C or 10mmbo 2C.

The 2C reserves are attributed 40mmbo to Yelemes and 2mmbo to G-54.

The combination of modern 3-D seismic and old and new (from the anticipated drilling programme) well logs ought to provide enough data to support the generation of 2P reserves to SPE standards.

Of course, we don't yet know the prospective resources attributed to the leads and prospects identified on the recent 3-D seismic.

Financing

On 29 October, Roxi announced the details of the new financing transaction. This deal means that Roxi's additional work commitments are reduced to $8m, in return for reducing its eventual stake in BNG to 23.41%. Whilst it is disappointing that the final stake is BNG is being reduced so dramatically, it is undoubtedly good news that funding issues have now been resolved and the path is clear to commence drilling; hopefully in the near future.

Roxi Petroleum (RXP) Announces Completion of First Stage of BNG Farmout

Today Roxi Petroleum (AIM:RXP) announced the completion of the first stage of its agreement with Canamens to dispose of part of its interest in the highly prospective BNG Contract Area (aka Ayrshagyl).

The revised deal was announced in October and ratifed at a General Meeting on 17 November.

The first stage has involved Roxi transferring at 23% interest in BNG to Canamens in return for $32m plus a $2m completion payment.

Canamens now have until 31 March 2010 to decide whether to complete on the second part of the deal which would see Roxi transferring a further 12% interest in return for a further $23m.

This $32m is going to be used to drill prospects on the BNG block, probably starting with the already discovered G-54 structure in the Cretaceous/Jurassic, and potentially a deeper well to test the as yet undrilled Triassic prospect that appears to lie beneath. We do not yet know whether and when Roxi will drill the previously discovered G-1 prospect (which tested oil at ~2,000bopd) in the Lower Permian or the G-7 Jurassic target.

At the AGM in July 2009, it was suggested that a further 2D/3D seismic programme on the south of the block may also commence during 2010.

Roxi Petroleum (RXP) finally seals the BNG Farm-out Deal with Canamens

Back in July Roxi Petroleum (AIM:RXP) announced the terms of a farmout deal with Canamens, whereby in exchange for 35% of BNG, Canamens would fund up to $50m of the 2009 and 2010 work programmes for the BNG asset. Under the terms of that arrangement, Roxi would end up with 37.96% of BNG. This deal was ratified by shareholders at a GM held on 12 August.

In September, with the interims, they made a further announcement that the terms of the deal were being re-negotiated, and a further separate but associated agreement with Baverstock, so they could be released from further work programme commitments.

Yesterday, Roxi announced the details of the new transaction. This deal means that Roxi's additional work commitments are reduced to $8m, in return for reducing its eventual stake in BNG to 23.41%. Whilst it is disappointing that the final stake is BNG is being reduced so dramatically, it is undoubtedly good news that funding issues have now been resolved and the path is clear to commence drilling; hopefully in the near future.

Smarty Overview of Roxi Petroleum (AIM:RXP) Investment Case

Why invest in Roxi Petroleum (RXP):

• Funded to drill acreage over next 2 years
• Production success 1200-1400 barrels of oil per day (bopd) from Galaz - revenues monetised Q4 from possible sale of Galaz
• Sept Interims with New broker note to follow
• Possible move to SETS
• Very likely Drill Ravninnoe wells end Sept
• Drill Yelemes Q4
• Vitol involvement
• ADA acreage opportunity
  
  A positive broker note was meant to be published by WHI. Our new broker will obviously be keen to get his clients in pre proper news hits the streets and before broker note and probable rerating. Therein lies the problem of stock availability as a high % of RXP stock is held by KO and his Kazakh mates. I suggest that there maybe an attempted tree shake at some point as institutional demand will be met by a supply problem, net result a severe pop in the sp followed by news and a further spike north on rerating.
  
  I also like the Vitol involvement in RXP and their investment in BWLVN yesterday says a lot about their current appetite for more opportunity and it wouldn't surprise me to see their involvement in Kazakhstan-based ADA.
  
  This share is currently below the radar of many BUT not for much longer. I am in for the long term as I want to see BNG and possibly ADA deliver. There aren't many fully funded OE companies with the deep prospects and acreage prospectivity that RXP possess. RXP have done a great job to stay afloat and have managed to obtain interest & support from Canamems, LG of Korea, Vitol and I really see this as a hugely undervalued stock that has huge 'Bagger' potential.
  
  Smarty