Urals Energy has agreed to acquire a 35.3% interest in OOO Taas-Yuriakh Neftegazodobycha ("Taas") and has been granted an option to increase such interest to 39.5% in January 2009.
Taas is a privately held Russian exploration and production company with oil development operations in East Siberia with licenses to develop two adjacent blocks of the Srednebotuobinskoye oil, gas and condensate field in the region (the "SRB field"). The SRB field is essentially undeveloped. Taas holds (1) an oil production license for the central block of the SRB field (the "Central Block"); and (2) a license for geological prospecting, exploration and production of hydrocarbons in the adjacent Kurungsky allotment in East Siberia (the "Southern Block"). As part of the Acquisition, OOO Urals Energy, the Company's operating subsidiary in Russia, will become the operator for the development of the SRB field.
Urals Energy also said that it has secured a committed, non-recourse US$500 million facility for the Acquisition (the "Acquisition Loan") and has secured, on behalf of Taas, an additional committed, non-recourse US$600 million facility for the development of the SRB field (the "Development Loan"), both from the Savings Bank of the Russian Federation ("Sberbank"), one of the largest banks in Central and Eastern Europe.
Unless otherwise explicitly stated, the financial and operating information, reserves estimates and production forecasts of the Company contained in this announcement assume the exercise of the option to increase the Company's interest in Taas to 39.5%.
- The Company has agreed to acquire a 35.3% interest in Taas and has been granted an option by Finfund Limited (the "Seller") to acquire a further 4.2% interest in Taas in January 2009.
- This Acquisition more than doubles the Company's net proved-plus-probable (2P) oil reserves by adding up to net 272 mmbbl, of which 94 mmbbl are classified as proved (1P), based on a reserves study of the SRB field by Degolyer & MacNaughton ("D&M").
- The acquisition price comprises US$440 million in cash and US$100 million in new shares of the Company, payable on closing, and US$50 million, plus interest, in cash or new shares of the Company, at the Seller's election, payable within five months of closing.
- The exercise price for the option to acquire a further 4.2% interest in Taas will be US$70 million, plus interest, in cash or shares of the Company, at the Seller's election.
- OOO Urals Energy will become the operator for the development of the SRB field under an operating agreement, and a shareholder agreement will be entered into to formalise the relationship between the new and existing shareholders of Taas (together, the "Taas Shareholders").
- The Development Loan will largely fund the development of the SRB field until tie-in to the East Siberia Pacific Ocean pipeline (the "ESPO pipeline"), currently expected to be operational in late 2009.
- With this Acquisition, the Company's net production from East Siberia is expected to be 75,000 bopd by 2013, comprising 45,000 bopd from the SRB field and 30,000 bopd from the Dulisminskoye field (the "Dulisma field").
- Concurrently with the Acquisition, certain funds managed by Ashmore Investment Management Limited ("Ashmore"), a third party unrelated to the Company, have agreed to purchase a 10.5% interest in Taas from the Seller for US$175 million, which is equivalent to the price per share in Taas paid by the Company.
- Following the Acquisition, the purchase by Ashmore and assuming the exercise of the Company's option to acquire a further 4.2% of Taas, the current Taas Shareholders will retain a 50.1% interest in Taas.
RATIONALE FOR THE ACQUISITION
- The Acquisition enhances the Company's portfolio through the addition of substantial, attractively priced, 2P oil reserves (34.6% of which are 1P).
- The Company will benefit from economies of scale by adding to its existing presence in East Siberia and achieving a critical mass in the region.
- The SRB field is well-positioned to access the ESPO pipeline, which opens East Siberia to markets in the Asia-Pacific region. A tie-in to the ESPO pipeline has been approved by Transneft and is expected to be operational by late 2009.
- Under Russian tax legislation, the Central Block of the SRB field benefits from a mineral extraction tax exemption through 2016 and the Southern Block of the SRB field benefits from a mineral extraction tax exemption through 2021 or up to a cumulative total of 25 million tonnes of oil (183 mmbls) in respect of each Block.
- The Company estimates that the present value of the tax exemption will produce savings to Taas of approximately US$1,078 million (or US$1.56 per 2P barrel), assuming the D&M production profile, the price of the Urals blend crude of US$50 per barrel and a 10% discount rate.
- The Acquisition provides the Company with the opportunity to benefit from the upside of significant additional possible oil and gas reserves and resources in place at the SRB field and in the East Siberia region.
- The Company plans to leverage its unique position in East Siberia by capitalizing on potential license opportunities and acquisitions of complementary assets.
- The Company will focus on project management of greenfield developments using the economies of scale and critical mass in East Siberia that result from the Acquisition.
- The Company will continue exploration activities in offshore and island properties while concurrently maximising the value from the adjacent developed fields in those areas.
- The Company plans to streamline its portfolio by divesting non-core assets and has scaled back certain work programs and budgets in non-core areas to focus on the aforementioned projects.
CORPORATE AND OUTLOOK
- The Company intends to raise additional financing of around US$130 million in the near term. It is intended that this will include an equity capital raising by way of a private placement, the proceeds of which the Company will use for potential capital expenditure requirements, including participation in future complementary license auctions, repayment of short-term loans and for general corporate and working capital purposes.
- The Company will shortly post to its shareholders a circular convening a shareholders meeting (the "EGM") to seek approval for various resolutions necessary to undertake the intended equity capital raising. These will include a resolution to approve a limited waiver of pre-emption rights. In connection with the EGM, certain existing shareholders of the Company, together accounting for approximately 37.2% of the Company's issued shares, have indicated to the Company that they intend to vote in favour of the resolutions to be put to the EGM.
- The Company has continued to develop its existing portfolio with a particular emphasis on operations in East Siberia.
- A solid foundation for future growth will be laid in 2008 with significant production increases planned for 2009 as core assets come on-stream and link into the ESPO pipeline.
- The Company intends to seek a listing on the Official List of the London Stock Exchange in 2008.
Leonid Y. Dyachenko, Chief Executive of the Company, commented:
"Today's acquisition further illustrates the importance of East Siberia as a major area of focus for Urals Energy. This acquisition of a substantial and high quality asset with proven high productivity and potential upside increases our already strong reserves base and has the potential to more than double our existing mid-term production target of 30,000 bopd.
"Overall, Urals Energy is in a strong position for future growth. With our new and strengthened management team, our strategic priority will be the effective and efficient development of our substantial resource base in Eastern Russia. With our Dulisma field and this acquisition, we have access to some of the most attractive barrels in Russia due to the associated tax exemptions, high quality crude and access to the ESPO pipeline."