Sale of Galaz Interest

RNS Number : 0014L

Roxi Petroleum Plc

29 April 2010

 



For immediate release                                                                                                          29 April 2010

Roxi Petroleum plc

Sale of Galaz Interest

Roxi Petroleum plc ("Roxi" or the "Company")(AIM: RXP) the AIM listed exploration and production company operating in Kazakhstan, is pleased to announce that it has, through its subsidiary Galaz Energy BV ("GEBV"), executed the Sale and Purchase Agreement ("SPA") with LG International Corp. ("LGI") to sell a 40 per cent. interest in the operating company for the NW Konys Field, Galaz and Company LLP ("Galaz"), for US$15.6 million (subject to state approval).  Roxi has an indirect interest of 50.15 per cent. in Galaz through its 59 per cent. interest in Eragon Petroleum Ltd.

Highlights:

·    SPA executed with LG International Corp.

·    GEBV will receive the US$15.6 million purchase payment on closing

·    Roxi loan of US$8.4 million repaid immediately

·    US$11.6 million loan to Galaz to finance existing debt and and ongoing operations

·    A further US$14.4 million loan available for Galaz work programme after closing

Galaz

Following state approval for the transaction, LGI will pay to GEBV US$15.6 million for a 40 per cent. interest in Galaz.  GEBV will use the sale proceeds to repay US$5 million of a US$10 million outstanding loan to Kuat Oraziman, provide a loan to Roxi of US$8.7 million, to be repaid out of Roxi's share of future production and to settle the taxation arising out of profits made by GEBV on the sale.

LGI will also advance a loan to Galaz of US$8.4 million, which will be repayable through future production.  This loan will repay the US$8.4 million existing loan from Roxi to Galaz.  Roxi will use this repayment to repay Roxi's outstanding loan to Altius Energy Limited of US$5.6 million and, in part, to fund the purchase from local partners (none of whom are related parties) of a further 13.0 per cent. equity in Galaz, agreed as part of the arrangements.

LGI will also provide a further loan to Galaz of up to US$26 million to refinance existing debt and for the appraisal and development of the NW Konys field which will be repayable out of future production.  An initial tranche of US$11.6 million will be advanced following execution of the SPA.  Galaz will use this initial tranche to repay the loan of US$3 million to Kuat Oraziman, announced on 31 March 2010 and also repay US$5.5 million of debt to KazRosMunai LLP ("KazRosMunai").  As previously announced on the 7 February 2010, Galaz has, through back to back deals, terminated the agreement with KazRosMunai LLP for assignment of 11.6 per cent. equity in Galaz in return for settlement of US$5.5 million of debts.  The balance of proceeds from the drawdown of the initial tranche will be used to fund the current working capital requirements of Galaz.  An additional, US14.4 million is drawable by Galaz, which the management of Galaz consider will be sufficient to finance the further development of this project.

Following completion of the SPA and the associated approval by the Kazakh State authorities, GEBV will hold a 58 per cent. direct interest in Galaz, LGI will hold a 40 per cent. interest and local partners will hold a 2 per cent. interest. Roxi will hold an indirect 34.22 per cent. participating interest in Galaz through its holding in GEBV.

Background

Galaz and Company LLP was acquired by Roxi as part of the Eragon acquisition in March 2008. At that time, the field consisted of five exploration wells, one of which tested oil from an upper Jurassic reservoir in 1992. Initial results of re-entering the old wells resulted in moderate success, with two wells producing at high water-cut on pump.

Galaz subsequently completed 3D seismic acquisition and processing in 2008, following which it drilled four successful appraisal wells. Galaz has upgraded C1 and C2 reserves to 14.6 million barrels in 2009 and is currently awaiting approval for pilot production.

It is the view of the Board that the sale of part of the Company's interest in Galaz realises a significant portion of the value added to the asset since acquisition, while at the same time retaining a share of future production and exposure to future resource upgrades.  By joining with a strong partner such as LGI, the Company anticipates that the asset is now financed through to full production.

Commenting on this announcement, David Wilkes, CEO said:

"This is a key milestone for Roxi and a further opportunity to build a partnership that will bring further value to our shareholders.  The financing arrangement that will result from this sale will ensure we are able to complete the drilling of further development and appraisal wells over the next twelve months as well as enable Roxi to settle some of its existing debt. We look forward to working with our new partners, LG International, and seeing production from NW Konys before the year end.  LGI's industry expertise and commercial experience is a good match with Roxi's, which will accelerate the development of the asset."

Qualified Person

Duncan McDougall, Technical Director of Roxi Petroleum and a Fellow in the Geological Society, London, has reviewed and approved the technical disclosure in this announcement. He holds a BSc in Geology and has 25 years international experience of exploration, appraisal, and development of oilfields in a variety of environments

Enquiries

Roxi Petroleum plc

David Wilkes CEO                                                                               [phone]

Matrix Corporate Capital LLP (NOMAD and broker)         

Alastair Stratton / Anu Tayal                                                              [phone]

Buchanan Communications (Financial PR)

Tim Thompson / Ben Romney / Chris McMahon                                [phone]

 

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