Roxi Petroleum (RXP) Sells Part of Galaz

Today Roxi Petroleum (AIM:RXP) has announced a complex deal to sell part of its interest in the Galaz block to Korean corporate giant, LG International (LGI).

Prior to the agreement, Roxi held a 43.3% interest in the Galaz block. After the deal, it will receive $10m in cash and retain an indirect 34.2% interest of the Galaz block. Perhaps as importantly, LGI has also agreed to provide up to $26m of funding for appraisal and development work on the block.

It shold also be noted that it seems Roxi Petroleum has re-negotiated the terms of the original farm-out to KazRosMunai such that KazRosMunai will now be paid for the services provided rather than transferring and equity interest in Galaz.

In valuation terms, Roxi are giving up 9.1% of the block and receiving $10m in cash in return, valuing the whole block at some ~$110m. Thus, Roxi's remaining 34.2% stake would be worth $37.5m. Of course, Roxi also receives the $10m cash, so the combined value to Roxi of Galaz and the cash it receives is ~$47.5m, or nearly £30m. With 417m shares in issue, that is 7.1p/share.

Or another way of loking at it, LG is purchasing 40% for $24m and providing a further $26m of funding (of which $8.4m is a repayable loan) to develop the asset. Essentially, they are commiting $50m of funding in return for 40% of the asset, valuing Galaz in total at $125m.

LG will hold 40% of Galaz after the deal completes and presumably is confident it is going to make a return on its significant investment, so no doubt we can look forward to future success on the block and the final results of Well NK22.

David Wilkes, CEO of Roxi Petroleum said:

"Completion of the Galaz agreement with LGI will mark a turning point for Roxi. Not only would we retain a meaningful interest in this producing asset, but we would secure substantial funding of its work programme commitments. This together with our recent completion of our farm out deals with Canamens puts Roxi in a strong position to develop its existing assets and achieve production by the end of the year."

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) 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) 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) Munaily Asset

Content updated and post moved here.

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

Overview

Roxi Petroleum's (RXP) Munaily Contract Area, sometimes known as Munayli, is a small block that has had a chequered history in Roxi's hands. It has been identified as for sale for some time, but the potential buyer has not come up with the cash and now Roxi are planning to rehabilitate the field and apply for a pilot production license. Roxi holds a 58.41% share of this license.

Prospects

According to the 2008 WH Ireland broker note, the field was dicovered in 1946 and has produced 10 million barrels from 59 wells up to 1998.

Since acquisition, Roxi has drilled the new H1 well on the block and that has produced at up to 100 barrels of oil per day (bopd) on test from 6m of pay in a Jurassic sandstone with ~20% porosity.

The primary targets for development/rehabilitation are the bypassed shallow Cretaceous, Jurassic, and Triassic sandstone reservoirs at depths between 500 and 1,650 metres.

Reserves

Only a small amount of reserves have so far been attributed to Munaily, and in the 2008 Annual report these were expressed as a dollar value, not the number of barrels.

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

Roxi Petroleum (RXP) Announces Results from Ravninnoe Well #20

Today, Roxi Petroleum (AIM:RXP) has announced the first results from Well #20 drilled on the Ravninnoe field.

The well has been drilled to a total depth of some 3,455m. Wireline logs indicate the presence of a gross hydrocarbon column of some 30m and higher than expected pressure. Roxi have released the Parker drilling rig and are mobilising a workover rig to test multiple reservoir intervals.

From the well design included in the AGM presentation the original target depth was some 3,800m, however at the GM in November, it was stated the target depth was some 3,500m. It is not clear why they stopped drilling earlier than anticipated. Moreover, the gross hydrocarbon column is somewhat smaller than the gross oil column heights published from the historic wells (discussed here) where the range was 57-127m. So, whilst it is no doubt good news that hydrocarbons have been encountered, it is a little disappointing that this well, drilled closer to the mapped crest of the structure apparently has a smaller hydrocarbon column. However, this may be explained by the Envoi note (p7) that describes Ravninnoe as "an anticline sheared off at the top by an unconformable salt layer acting as the top seal for the reservoir".

We shall have to wait and see the results of the testing programme to see if the field is commercial.