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 (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) 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 Galaz Reserves

Today Roxi Petroleum has announced that it has received approval from the State Geological Committee of Kazakhstan for the re-dermination of the reserves of the Galaz field.

The total 2C reserves to GOST standards are 14.6 million barrels of oil (mmbo), with C1 at 7.2mmbo and C2 at 7.4mmbo. Roxi's share of these barrels would be 43.4% or 6.34mmbo

This is somewhat lower than many had hoped for, and below the numbers announced on the Dae Han website last week.

However, this news is tempered by the fact that a new exploration well, NK22, has been spudded on the Galaz block by KazRosMunai LLP targeting the Arksum and Upper Jurassic sands at around 2,200m and some 6km away from the NW Konys field. The prior expectation set with the announcement on 4 November was for this exploration well to be drilled in 2Q10.

It also seems strange that KazRosMunai are drilling this well, as previously there was talk of selling all or part of Galaz to LG of Korea or another party. It remains to be seen whether this deal will now go ahead or whether the farm-in deal with KazRosMunai will now continue to its second stage.