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.

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) 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) Names New CEO as David Wilkes

Roxi Petroleum (AIM:RXP) today announced the appointment of David Wilkes as CEO.

Of course David Wilkes joined the board on 1 October as Finance Director, so this move looks like a planned succession as the existing CEO, Rob Schoonbrood, retires at the age of 65.

Rob has worked extremely hard through the credit crunch to lay the financial foundations that will enable Roxi to drill the BNG and Ravninnoe contracts areas using finance raised from Canamens and to drill the Galaz block with the deal struck with KazRosMunai LLP.

Let's hope that David can build on these foundations and take the company to the next level. Results from the Ravninnoe Well #20 and Galaz Well NK22 cannot be too far away.

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.

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.