More Roxi Petroleum (RXP) Research Notes

It seems that Baltic Business Analysis have started following Roxi Petroleum (AIM:RXP).  They have produced several reports.  Unfortunately, it seems that you can only access their content by paying for it.  I haven't bought any of it, so can't vouch for its quality, but for those who may wish to find out more here are some links:

Roxi Petroleum (RXP) has High Growth Chances

RXP Analyst Update 12/22/09

RXP Company, Industry and Country Update 12/23/09

I do hope Matrix Corporate Capital update their note soon as so much progress has been made since December.

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) Broker Note Released

Roxi Petroleum's (AIM:RXP) broker and NOMAD, Matrix Corporate Capital has finally released its long awaited broker note covering the company.

Based on a long term oil price of $80/barrel, Matrix sets a core value of 8p/share and a core plus risked value of 17p/share. With a long term oil price assumption of $100/barrel, the core value rises to 12p/share.

The broker note can be found here.

Key points that have emerged include:

1) BNG.

Matrix recounts the prior guidance of the company setting out the 2C reserves of 42 million barrels of oil (mmbo), with 2mmbo being attributed to G-54 in the Jurassic and 40mmbo attributed to Yelemes G-1 in the pre-salt.

However, elesewhere they talk of a shallow target spudding in 2Q10 to target 25mmbo and a deeper well spudding in 1H11 targeting 35mmbo. There is some discrepancy between the 2C reserves and the target sizes that is not very well explained; and no mention is made of the 3C resources of ~360mmbo that are mentioned in the annual reports. Moreover, it is not clear if the targeted 25mmbo in shallow target is just for G-54 or whether it includes the Triassic target identified beneath in the BNG Seismic post.

Elsewhere they talk of the shallow Jurassic well spudding in 1Q10 and targeting 5-40mmbo between 2-3,000m and a deeper well targeting 20-60mmbo at a depth of 3,500-4,500m. However, on the company's own seismic charts, the Jurassic is at around 1,400-1,600m, the Triassic target at 2,100-2,500m and the lower Permian target at approx 2,400-2,700m. So, overall, something of a confused picture, probably derived from the inordinate length of time it has taken to produce the note.

Interestingly, Matrix paint a little more detail on the old Ayrshagyl and Saztobe wells, both of which encountered hydrocarbons. It seems Ayrshagyl suffered a blowout and the Saztobe well was in the SW of the block and discovered condensate. This area is unlikely to be an exploration target for some time - the 3-D seismic over that part of the block is likely to be carried out during 2010.

2) Ravninnoe.

The Matrix broker note paints a little more detail on the targets in Ravninnoe. First, the mid-Carboniferous target currently being drilled by Well #20 is described as having P50 resources of 27mmbo and P10 resources of 58mmbo. The P10 resources number is a new disclosure.

Moreover, they indicate that if Well #20 is successful, then 3 or 4 additional wells are planned to be drilled on Ravninnoe in 2010. I guess we now have an indication of the use of funds if the full or partial sale of Galaz goes through.

Matrix also disclose some extra details about the deeper targets at Ravninnoe. First, the lower-Carboniferous target does seem to have been drilled by old Soviet wells, and Matrix assign a chance of success of 50% to this prospect, with P50 and P10 resources of 28 and 49mmbo respectively. Interestingly, in prior disclosures like the Envoi note, the lower-Carboniferous and Devonian targets have been merged together. This note clearly separates them out as different targets although we do not yet know the prospective size of the Devonian target.

There is also an interesting passsing reference to Well #20 having been designed to test a number of seismically mapped Jurassic and Cretaceous targets - this looks like a new disclosure.

3) Galaz

First, Matrix have made a simple mistake in saying the NK22 exploration well spudded on 24 December. That date is in the future, and Roxi have clearly said it spudded on 24 November.

Matrix also give an indication of the differences between the old Soviet GOST standards and western SPE standards for measuring reserves. Roxi's latest news releases indicate 14.6mmbo of 2C reserves on the NW Konys (aka NW Konus), but in their valuation, Matrix only attribute a core 8mmbo with an unrisked upside of 5mmbo. It appears as though some of the discrepancy arises from how far along the river channel one allows for probable reserves.

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)

Results of Roxi Petroleum (RXP) General Meeting

As expected, the Roxi Petroleum general meeting to approve the transaction to fund the exploration and appraisal of the BNG block went ahead today, and the resolution was duly passed.

Details of the circular can be found here.

There were some interesting questions after the formal part of the meeting, and the discussion is reported below.

1) Attendees. The meeting was sparsely attended: your author, someone from Arawak and four others, although a fifth other person did arrive part way through. I think I recall the chairman saying ony 2 people were entitled to vote and one of those was me; however he was holding about 150m proxies in favour of the transaction. All the directors were there.

2) Galaz. The reserves upgrade is being considered by the Khazakstan authorities now. I think the company had anticipated receiving the results by now and described the decision as "imminent". Someone asked about the potential deal with LG. It seems another party may interested; there was talk of negotiating an "exclusivity fee". Kuat Oraziman said he hoped to get to some sort of resolution by the end of this month. I guess investors ought to continue to be patient as these deals can take a good while to pull together. The existing wells that have been drilled are currently shut-in pending commencement of pilot production which may be expected during 2Q10. They will start production slowly and build to 1,000-1,500bopd by year end 2010. There was some clarification of the new exploration target announced on 4 November; this is targeting Arksum and Upper Jurassic sands that are a bit deeper than the existing wells but in the same formation. This is not the deeper target indicated earlier. Well cost should be in the region of $1.5m.

3) Ravninnoe. Well #20 drilling ahead at 1,600m. We might expect some news around Xmas. I clarified the target depth. The AGM presentation had a well design that indicated a target depth of 3,800m that may have explored the lower-Carboniferous as well as appraising the mid-Carboniferous primary target at 3,200m. They confirmed the well location is not optimal for the deeper target, so they probably won't drill as far as 3,800m. Although Duncan McDougal did say if they still had oil shows at 3,500m they would carry on.

4) BNG. Once the paperwork aurrounding the BNG deal sanctioned today is completed, they hope to get drilling on BNG ASAP. Applications and permits are in progress. Whilst they would hope to commence drilling in December, 1Q10 is a more realistic target. They will start by drilling the G-54 wells. I asked about the tantalising target just below in the Tertiary, and they will consider it; but not with the first well. The decision on the location of the first deep well has yet to be taken, so it may not be Y-1. For more detail on the BNG block see here and here

5) BNG seismics and volumetrics. I asked when they would update the market on these results. Rob Schoonbrood indicated they were encouraged by the results so far and Duncan McDougal said they would probably release the results during 1Q10. After the meeting I mentioned that the fully diluted EV of MXP was ~£300m at present, compared to RXP's ~£40m (OK a bit more with the warrants, options and the small amount of debt) and the only material thing MXP has over and above RXP is that MXP have gone to market with their volumetrics. I do hope that point hit home and leads to an acceleration of the release of data.

6) Finance. Someone asked when the company was going to come to market for more cash. Clive Carver answered that there were no current plans to do so. So, I guess they hope Arawak exercise more warrants to ensure they have enough cash to fund overheads until production from Galaz or BNG kicks in. Of course, if Galaz is sold the short term cash needs for funding overheads (remember drilling on Rav and BNG is funded for a good while) goes away anyway; and there's ~$7m of the $57m BNG money coming to Roxi as well. Interestingly, RS talked about the $50m coming from Canamens that goes to drill BNG. As aficianandos will know, this will be loaned to BNG BV, but $32.5m comes back to Roxi from future production and $17.5m goes to Canamens. RS indicated that Roxi will eventually get the full $50m back, with the balance coming back from Baverstock as "compensation".

7) Futures. I chatted a bit at the end to Rob Schoonbrood and Duncan McDougal. Although there is still a theoretical possiblity of doing some sort of deal on ADA; personally I'm now discounting it. However, "the coffin" part of BNG not yet operated by Roxi may well become available during 2010. I congratulated them both on not re-pricing their options which they accepted gracefully, but they are confident of making a significant amount on those options over time - their targets are very ambitious. RS even suggested any further significant dilution (my guess beyond say 500m shares which is about the fully diluted position now, ex-GEM) would only be done to fund acquisition of further assets.

Overall, it is pleasing to see the BNG deal finally done - they did say there is very little chance of this deal falling apart and no risk of any further taking back of assets by Baverstock. It is good to see we are drilling in Ravninnoe now and will be drilling BNG shortly. Galaz reserves upgrade imminent, and if we are lucky a Christmas present of good news from Ravninnoe and a deal to sell all or part of Galaz. However, investors ought not to get their hopes up about the timing of any news release about the BNG seismic coming any time soon. Hopefully, getting this deal out of the way ought to now pave the way for Matrix Corporate Capital to release their long awaited broker note to drum up some institutional interest.