Nelson has purchased from CAIH 22,925,701 shares of Chaparral, representing 60% of Chaparral's issued and outstanding common stock, a Stock Purchase Warrant exercisable for an additional 3,076,923 shares of common stock of Chaparral, and a promissory note of Chaparral payable to CAIH, with a principal amount of US$4 million.
Chaparral's sole asset is its 60% controlling interest in the joint stock company Karakudukmunay ("KKM"). The other partner in KKM is Kazmunaigas (40%). KKM is the operator of the Karakuduk Field, a producing onshore oil field located in the Mangistau Region of western Kazakhstan. The acquisition of the shareholding gives Nelson Resources a net 36% participating interest in the field. As at December 31, 2003, the Karakuduk Field had total estimated proven reserves of approximately 25.62 million barrels.
Nick Zana, Chairman and Chief Executive Officer of Nelson, stated: "This strategic investment is an important addition to Nelson's growing portfolio of interests in producing oil and gas assets in Kazakhstan. The Karakuduk field, in which Chaparral has a 60% interest, offers significant development opportunity and the existing infrastructure provides a sound foundation for realizing the growth potential of this excellent field. As the controlling shareholder of Chaparral, Nelson intends to contribute meaningfully to the management of Chapparal and development of the Karakuduk oil field to the benefit of all shareholders through implementation of programs to increase production, reduce transportation and operating costs, increase export volumes, and improve revenues realized from exports."
The Karakuduk field is a 16,900-acre oil field located approximately 365 km north east of Aktau in the Mangistau Region of western Kazakhstan and approximately 160 km south of the Tengiz field. The government of the former Soviet Union discovered the Field in 1972 and drilled 18 exploration and appraisal wells, none of which were produced commercially. In 1995, KKM was awarded a 25-year license, and approval to proceed with development. KKM began to develop the Karakuduk Field in early 2000, and by 2003 had re-established oil production from a majority of the existing wells and from newly drilled wells. As at February 24, 2004, KKM had 47 productive wells in the field, including 34 new wells and 13 re-completions of previously existing delineation wells.
The Karakuduk field has direct access to export markets. The field is approximately 29 km west of the main utility corridor, including the Makat- Mangishlak railroad and the Uzen-Atrau-Samara oil and gas pipelines. KKM has a right to use the existing oil export pipeline and related utilities. It also has a contract with CJSC Kaztransoil, a 100% subsidiary of Kazmunaigas, granting the right to use the export pipeline for transportation of crude oil to local and export markets. KKM has a 29 km crude oil pipeline from the field capable of transporting up to 18,000 barrels of oil per day to the export pipeline terminal.
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