Roxi, the Central Asian oil and gas company with a focus on Kazakhstan, announced that Bakmura LLP ("Bakmura"), a subsidiary of the Korean National Oil Corporation ("KNOC"), has agreed to pay an initial cash consideration of $5 million and to invest a further $25 million in the BNG Contract Area work program in return for a 35 percent interest in the BNG Contract Area license.
Roxi acquired a 58.41 percent interest in the BNG Contract area in 2008 as part of its acquisition of a 59 percent interest in Eragon PLC. The license period was extended in 2011 until June 2013, after which further license extensions can be applied for subject to compliance with the existing work program.
In June 2011, Gafney Cline & Associates ("GCA") published an independent estimation of resources based on the Company's preliminary interpretation of approximately 1,400 square kilometers of 3D seismic data, which had been acquired in 2009 and 2010.
The Company identified 30 prospects and a further 7 leads within the BNG Contract Area. The prospects ranged in size from 3 to over 80 million barrels of oil ("mmbo"), with a total aggregate gross resource potential of over 500 mmbo of "Best Estimate Prospective Resources".
The geological chance of success, or risk, assigned by GCA to the majority of these prospects ranged from around 20% to over 80% in one or two cases. The less well defined leads varied from 6 to over 130 mmbo in size, having an aggregate potential of a further 400 mmbo, and a chance of success assigned by GCA of less than 15%.
In addition to these prospective resources, a further 13 mmbo estimated for the South Yelemes field were classified by GCA as Contingent Resources.
GCA reported that the Yelemes field development was contingent on further testing of the Neocomian dolomite reservoir, extension of the Sub-Surface User Contract ("SSUC") and subsequent extension of Pilot Production consents.
The total Risked Most Likely Prospective and Contingent Resources on the BNG block was estimated to be 215 mmbo.
In 2009 Roxi entered into a farm-out of up to 35 percent of the BNG Contract Area to Canamens BNG B.V., for an initial fee of $7 million and a further $50 million to be spent on the BNG work program. Canamens advanced $38 million of the $50 million due for the BNG Work Program before formally advising Roxi that Canamens no longer wished to continue funding BNG in March 2011. Later in the year Canamens withdrew from Kazakhstan.
In May 2011, Roxi announced that it had agreed to cancel the original Canamens farm-out arrangements and return the 35 percent interest to BNG Energy BV. Canamens also agreed to assign back to BNG Energy BV all loans in return for Roxi agreeing to pay a 1.5 percent royalty in perpetuity based upon production volumes from the BNG Contract Area. On cancellation of the Canamens farm-out Roxi's interest in BNG was restored to 58.41 percent.
Following Canamens decision not to continue to fund the BNG Work Program BNG's development work has been funded by Roxi, principally from loans from its Executive Director and largest shareholder Mr Kuat Oraziman.
Under the proposed arrangements with Bakmura (the "Bakmura Agreements") Roxi will sell a 35 percent interest in the BNG Contract Area license to Bakmura LLP ("Bakmura"), a wholly owned subsidiary of KNOC Kaz B.V., which in turn is wholly owned by KNOC, for an initial cash consideration of $5 million plus an obligation to fund a further $25 million of the BNG work program. In consideration for funding the work program, Bakmura will be entitled to recoup its investment from future production from the license in priority to payments due to Roxi.
It is likely that the $39 million accounting gain on the carrying value of the BNG Contract Area, which arose in the interim statements following the cancelation of the previous Canamens farm-out arrangements, will be offset.
The $5 million cash consideration payable to Roxi will be used for general working capital purposes.
Roxi is also pleased to announce that Bakmura will, subject to the approval of the Kazakh authorities, become the operator of the BNG Contract Area.
Bakmura option to acquire a stake in Galaz
Under the Bakmura Agreements, Roxi has given Bakmura an option to transfer Roxi's 32 percent interest in Galaz & Company LLP (the "Galaz Option") to Bakmura. The Galaz Option is exercisable before June 7, 2013, if the oil exploration project in the BNG Contract Area turns out to be economically not viable and Bakmura has funded the current BNG work commitments in full. As part of the Galaz Option, Bakmura are also obliged to direct any unspent portion of the $25 million BNG work program funding to Galaz Energy BV.
Should Bakmura exercise the Galaz Option, Bakmura would be required to pay Galaz Energy BV an additional $5 million. The Galaz Option can be exercised from April 7, 2013 and the consent of the Kazakh authorities would also be required.
Following the exercise of the Galaz Option Roxi's interest in the BNG Contract Area license would increase to 58.41 percent while Roxi's interest in the Galaz Contract Area is expected to decrease to 15.34 percent.
Roxi has provided a guarantee to Bakmura that, should the Galaz Option be exercised and for any reason the required Kazakh regulatory consents not be received, Roxi would undertake to repay the investment made by Bakmura in the BNG and Galaz Contract Areas from Roxi's share of the future production revenues of the Galaz Contract Area.
BNG work program commitments
The Bakmura investment will facilitate the fulfillment of the existing obligations of BNG Ltd to drill wells of a depth in aggregate of a further 39,370 feet (12,000 meters) before the date by when an application to extend the current license will be required by June 2013.
"I am delighted that Bakmura is to be our partner in further developing this important asset. The funding provided by Bakmura will allow us to explore some of the deeper horizons in the BNG Contract Area where we believe greater value exists for our shareholders.
"Bakmura is a subsidiary of KNOC, a world class operator with proven development experience in Kazakhstan. They also have the skills, experience and resources to bring the BNG asset to commercial production."
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