Recent News Releases

Since the last post on 15 May, Roxi Petroleum (AIM:RXP) have released their final results, the Annual Report and Accounts for 2009 and an operational update.

The Annual Report can be found here and the Ops update for 1 June can be found here.

The new items released in the Annual Report and the Ops Update include a number of expected events for the rest of 2010:

June 2010:

The McDaniel determined SPE 2P reserves for the Galaz field should be released in June.  Prior releases have determined reserves to Soviet GOST standards - some 14mmbo of 2C reserves.  Hopefully, the determination of reserves to Western standards will encourage more investment in the company form London.

Well 806 on the South Yelemes field in the BNG contract area will be spudded.  We have already heard on 1 June that Well 805 has encountered hydrocarbons in the Cretaceous as well as in the target Callovian Sands in the Upper Jurassic.  The well was coring and preparing to drill on to target depth at 2,500m before running wireline logs.  It has also been announced that they will not flow test this well with this rig, but will mobilise a separate workover rig to conduct testing operations, should they be warranted on wells 805 and 806.

In the 1 June release, Roxi also stated that the reserves and prospective resource figures for the 2010 drilling programme on BNG were undergoing internal and external audit prior to release.  It is to be hoped that the release of these figures comes shortly.

 Test has started on Well #20 on the Ravninnoe block, with acidisation due to be carried out around now.

July 2010:

Pilot production should start on the Galaz field, after the much delayed approval from the Kazakh authorities.  We have also heard that the company has applied for an extension to the Galaz Contract Area, based on the results so far from Well NK22.  The well test awaits the final approval of LGI as the new operator of the block.

Roxi have also announced that well 135 (MJ-A) will spud on the BNG block during July.  We await further details of the target of this well.

August 2010:

The new 3-D seismic acquisition programme should complete on BNG together with the spudding of the first development wells on NW Konys.

September 2010:

Pilot production should start on South Yelemes and they should also receive an export license for the oil produced on BNG.  This should be a key development for Roxi Petroleum as the economics of oil production for export should be much more favourable than production for the domestic market.

Well 807 should be spudded on BNG and more development wells on NW Konys should commence.

October 2010:

Apparently Roxi are starting a "Project Financing Roadshow".  It is unclear what this means - whether to try and find additional partners for the so far disappointing Ravninnoe block, or to secure further funding for the BNG block - maybe the pre-salt formations.

Munaily should start production from one well, a further exploration well on BNG should spud and appraisal wells on NW Konys, hopefully to prove up more reserves towards the ends of the channel feature.

November 2010:

Roxi are anticipating receiving SPE reserves for BNG and spudding well 808 on South Yelemes as well as exploration wells on NW Konys.

December 2010:

Two more exploration wells on BNG should spud.  One is described as "post salt".  We must wait to see if any of the exploration wells are going to probe the pre-salt deeper horizons.



The structure of Roxi Petroleum and its subsidiaries and partners is very complex.  They have attempted to describe the effects of the "post balance-sheet events" in the Annual Report.  These events relate to the Galaz farm-out deal, the BNG farm-out deal and the settling of the loans made from Altius and Kuat Oraziman.  I have found it too difficult to summarise these into a new pro-forma balance sheet, and I do hope that matters are clarified in the interim results to be announced in August.

Despite the breathtaking pace of current and anticipated future developments, the share price performance in recent weeks has been very disappointing, with the share price languishing at levels not seen since April 2009.  This is painful for those holding RXP, but is somewhat mitigated by the CEO, David Wilkes buying a further 91,500 shares announced on 26 May.

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 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

The Importance of Kazakhstan Oil to South Korea

An interesting paper on the geo-politics of Kazakhstan and South Korea.

http://uskoreainstitute.org/bin/k/o/USKI_WP0902.pdf

And a link to the 2008 Annual Report of the Turkish Petroleum Corporation

http://www.tpao.gov.tr/v1.4/condocs/yillik_rapor_2008en.pdf

Some interesting quotes from the paper:

"The most dynamic driving force of the Kazakh economy is the exploitation of crude oil around the Caspian Sea. These areas are estimated to have the largest oil and gas reserves outside the Middle East. Major oil companies have already moved to gain exploitation rights in these resource rich areas."

"South Korea is actively investing in the exploitation of Kazakhstan’s energy resources. The Korea Oil Corporation, Samsung, LG, SK, and Daesung formed a consortium which has energetically sought to exploit oil fields in the Caspian Sea and on land. In 2004, then South Korean President Roh Moo-hyun visited Kazakhstan and negotiated a basic contract for the exploitation of oil fields in the Zambil Region. The Korea Oil Corporation, LG, SK, and Serim have taken the lead on this project and on projects in other regions of Kazakhstan. LG has secured 50 percent of the Egizkara Oil Field’s total shares (estimated reserves: 200 million barrels). In cooperation with Serim, KS Energy has also secured the exploitation of two oil fields in Kazakhstan and started drilling operations there. In 2006, the Korea Oil Corporation discovered a new oil field in the Bashenkol structure inside the ADA Block of Actobe. Although it is estimated to hold about 20 million barrels of oil by itself, the estimated reserves in three other promising oil fields puts the total volume of the block at about 170 million barrels."

"In order to attract foreign investment in the exploitation of crude oil, the Kazakh government set up Production Sharing Agreements (PSAs) which granted foreign companies intending to invest in any Kazakh oil field to receive certain tax breaks and investment incentives when seeking joint venture with any private Kazakh company. Over the last several years, these PSAs have fueled fierce competition among foreign energy companies to invest in several of Kazakh’s oil fields, including North Buzachi, Sazankurak, Saztobe, Chinarevskoye and Airankol, which are all currently in production. In addition, other oil fields in Alibekmola, Urikhtau, and Kozhasai are almost ready to produce crude oil. As a result of this heightened activity, the oil production of Kazakhstan is expected to increase steadily for the next 10 years."

These quotes  and the TPC Annual Report seem to support a number of interesting ideas:

a) That Roxi Petroleum's (AIM:RXP) BNG, Beibars and Ravninnoe blocks are in a very prospective area.

b) South Korea sees the strategic importance of investing in the oil industry in Kazakhstan.  Interestingly, one of the shareholders in ADA is Vertom (a company in which Kuat Oraziman, Executive director  of RXP has an interest) where LG and KNOC also have investments.  Of course, LG has just agreed to purchase a stake in the Galaz block.

c) KazTurkMunai is the operator of the existing NE Saztobe, SE Saztobe and West Yelemes fields on the BNG block.  These fields are excluded from Roxi Petroleum's contract, but indicate the prospectivity of the contract area.

Perhaps one of the Korean corporate giants will be the eventual purchaser of Roxi Petroleum assuming they are successful in proving up the BNG contract area.

Further background on KazMunaiGaz, the Kazakhstan state oil company, which has a controlling stake in KazTurkMunai:

http://www.rice.edu/energy/publications/docs/NOCs/Papers/NOC_Kaz_Olcott.pdf

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.

Roxi Petroleum (RXP) Management and Advisors

The board of directors can be found on the Roxi Petroleum website.

Chairman: Clive Carver
CEO: David Wilkes (took over from Rob Schoobrood on 1 January 2010)
Finance Director: David Wilkes
Executive Director: Kuat Oraziman
Technical Director: Duncan McDougall
Operations Director: Hyunsik Jang
Non-Executive: Edmund Pery, Earl of Limerick
Company Secretary: Paul Puxon

The advisors can be found on the Roxi Petroleum website.

NOMAD and broker: Matrix Corporate Capital LLP
Auditors: BDO Stoy Hayward LLP
Competent Person: McDaniel & Associates Consultants Ltd
Financial Public Relations (PR): College Hill Associates Limited (according to a tweet on 1 April, the PR advisors are now Buchanan Communications)