Following the previously announced agreement between Nelson and Chaparral Resources, which holds the other 60% interest in the field, Chaparral, through a wholly-owned subsidiary, exercised its right of first refusal to purchase the remaining 40% stake currently owned by the Kazakh state oil company Kazmunaigas. Upon completion of this transaction, ownership of this stake will be transferred to Nelson, increasing the Company's net interest in the Karakuduk field to 76% (with 36% held indirectly through the Company's shareholding in Chaparral, and 40% held directly). The Company is the majority shareholder of Chaparral, holding 60% of its outstanding shares.
The 16,900 acre Karakuduk field has total estimated proved plus probable reserves of approximately 63.0 million barrels of oil (independent reserve report, December 31, 2003), and produced 8,290 barrels of oil per day on average for the third quarter 2004. The field is located onshore in the Mangistau region of western Kazakhstan, 340 kilometers northeast of the Caspian port of Aktau, and is operated by Joint Stock Company Karakudukmunai ("KKM"), which will be owned 60% by Chaparral and 40% by Nelson. KKM was awarded a 25-year commercial development license for the field in 1995.
The Karakuduk field has direct access to export markets. The field is approximately 29km west of the main utility corridor, including the Makat-Mangishlak railroad and the Uzen-Atyrau-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.
Nick Zana, Nelson's Chief Executive Officer, commented, "The Karakuduk field offers significant potential for growth in production, and since becoming the major shareholder of Chaparral in May 2004, we have already begun to see some success from our strategy to improve performance through rapid field development. Securing the remaining 40% Kazmunaigas stake allows us to consolidate our control of this excellent field. The acquisition will impact positively on our performance, increase our reserve base and production levels, and allow us to more effectively pursue our development strategy at the field, to the benefit of all shareholders, both of Nelson and Chaparral."
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