Baltic Seeks Funds for Western Siberia Exploration
Further to the announcement on 20 October 2006 of the results of the high definition 2D seismic and gas seismotomography for the Privolny license block, Baltic announces that it has entered into a placing agreement (the "Placing Agreement") with Arden Partners plc ("Arden Partners"), under which Arden Partners has placed 4.2 million new ordinary shares of 1 pence each ("Placing Shares") for 200 pence per share.
The Directors of Baltic intend to use the net proceeds of the Placing principally to finance an exploratory drilling program by Zauralneftegaz Limited ("Zauralneftegaz").
A letter from the Chairman of Baltic, together with a notice convening an Extraordinary General Meeting of the Company (the "EGM") to approve, inter alia, the issue of the Placing Shares in connection with the Placing, will, be posted to shareholders today (the "Circular").
The Group was founded in December 2004 to invest in oil related infrastructure projects and upstream activities in Russia and other countries in the FSU to generate a diversified and recurring revenue stream with reduced exposure to fluctuations in oil and gas prices. The Group's principal activities are focused around its transshipment activities in Kaliningrad and its exploration activities in Kurgan.
The Group's transshipment activities in Kaliningrad comprise:
- a 58.35 per cent equity interest in Tetoil Limited, which is constructing a oil export transshipment terminal in Kaliningrad, a sovereign Russian territory located on the Baltic Sea between Poland and Lithuania;
- a 100 per cent equity interest in OOO Baltic Top, the owner and operator of a refined products terminal business which stores gasoline and diesel for delivery to customers in the Kaliningrad region;
- a 51 per cent equity interest in Torgovy Dom Kaliningradneft, which transships, for export, oil and refined products using the Russian Naval Authorities' facilities at Baltysk, which is located approximately 38 kilometers to the west of Kaliningrad; and
- a 50 per cent equity interest in OOO Polex Service, which owns and operates a vessel cleansing business, based in Kaliningrad, under an agreement with Rosmorport, the Russian Port Authority.
Its exploration activities in Kurgan are conducted through a 50 per cent equity interest in Zauralneftegaz, which is licensed to explore for hydrocarbons over more than one million acres in the Kurgan region of Western Siberia. Zauralneftegaz is under the board and operational control of the Group through a joint operating agreement with Siberian Energy Group Inc., the Group's fellow shareholder in Zauralneftegaz.
The Board of Directors of Baltic (the "Board") believes that the infrastructure in the Kurgan area, in general, and the Zauralneftegaz license blocks, in particular, is well developed for any future production which might result from the exploration program. A metalled road is located within half a kilometer from the proposed first drilling exploration site, referred to below, and the land between the road and the site is flat and firm. In addition, the main Trans-Siberian railway line runs through the Zauralneftegaz license blocks.
Zauralneftegaz exploration program
On 9 August 2006, Baltic announced that an extensive surface geochemical survey, a gas seismotomography(R) program, carried out by Exotrad Incorporated. BVI ("Exotrad"), on the Privolny and Mokrousovsky blocks of Zauralneftegaz's exploration acreage in Kurgan, Western Siberia, had identified a number of well defined geochemical leads. Exotrad is involved in cost-effective passive and active seismic and soil and gas surveying for hydrocarbon reservoir detection and monitoring. It has undertaken over 260 projects since the late 1980s in Central and Eastern Asia, Eastern Europe and North and South America.
As a result of the work by Exotrad, which has been accredited in an independent report dated 19 September 2006 by two doctors of geology at Tyumen State Oil and Gas Institute, the Board commissioned Bashneftegeofizika of Ufa, Bashirs, a member of the Bashneft group of companies, to shoot high definition 2D seismic along the geochemical survey lines of the Privolny and Mokrousovsky license blocks. A total of 150 kilometers of new 2D seismic was shot on the Privolny block. This data was subsequently processed and interpreted in the UK by RPS Energy, the results of which were announced by the Company on 20 October 2006. Shooting, processing and interpretation of 320 kilometers of new 2D seismic data on the Mokrousovsky block is continuing and is expected to be completed later this year.
The Exotrad geochemical survey has continued since the announcement on 9 August this year. The field work has now been concluded and interpretation has been completed in respect of a further three blocks. In an interim report issued on 19 October 2006, Exotrad reported that it had identified a strong surface geochemical anomaly in the Orlovo-Pashkovsky license block; in addition, two further strong geochemical anomalies, which are still being interpreted, have been mapped in the Petukhovsky and Lebyazhevsky blocks.
In its report on the Privolny seismic data, RPS Energy reported that two robust prospects had been identified in the north of the Privolny license area, beneath the surface geochemical anomaly which had been previously identified in the Exotrad geochemical survey. The Directors believe that the exploration risk on these prospects has been substantially reduced through Exotrad's surface geochemical work and would be further reduced following the first exploration well at the Privolny block. RPS Energy also reported that the two prospects, which it considers to be drillable, have a combined area of closure of approximately 28 square kilometers. The Directors therefore believe that these prospects could be significant.
As the results of the Privolny 2D seismic confirm the encouraging findings of the gas seismotomography(R) program, the Board has determined to drill up to four exploration test wells in Zauralneftegaz's Kurgan license blocks. At least two of these wells are proposed to be drilled in northern locations in the Privolny block and potentially two are proposed to be drilled on the Mokrousovsky block. Zauralneftegaz has contracted a highly experienced Russian contractor to drill the wells, using an Uralmash 3000 rig. The first well will be drilled on the Privolny block to a maximum depth of 2000 meters, with logging and coring undertaken in accordance with a program designed by RPS Energy and the Tyumen State Oil and Gas Institute, which will be used as the basis for the drilling license application.
In the event that the wells prove successful in establishing the presence of hydrocarbons, the Board intends that production testing will be supervised by a leading firm of reservoir evaluation consultants. The Board will then determine the most appropriate means of commercializing the license blocks.
The total budget for the exploration program and further seismic, which the Board proposes to shoot on Zauralneftegaz's Lebyazhevsky block, amounts to approximately £8 million.
Baltic has agreed with Siberian Energy Group Inc., its fellow shareholder in Zauralneftegaz, to finance this expenditure through a loan from Caspian Finance Limited, a wholly owned member of the Group, at interest rates of between 12 per cent and 14 per cent per annum. As part of these arrangements, Siberian Energy Group Inc. has agreed that the Baltic Group will also receive a gross override royalty of 3 per cent of any gross revenues from oil production by Zauralneftegaz, up to the maximum amount of the loan. It is a term of the relevant loan agreement that all loans from Caspian Finance Limited, and accrued interest relating thereto, will be repaid prior to any distribution of dividends by Zauralneftegaz to Baltic and Siberian Energy Group.
The Board expects to announce the results of the first Privolny well by Spring 2007.
The Board continues to assess how best, whether by demerger, farm-in, outright sale or otherwise, to maximize shareholder value from the Group's investment in Zauralneftegaz, and the appropriate time for implementing such action.
Reasons for the Placing and use of proceeds
The reason for the Placing and the principal use of the net proceeds is to finance a loan to Zauralneftegaz to enable it, under Baltic's control, to finance its exploration program, including, in particular, the drilling of up to four exploration wells and seismic analysis of the Lebyazhevsky license block.
Current trading and prospects
On 9 August 2006, in its interim statement in respect of the period ended 30 June 2006, the Board announced that good progress was being made by both Tetoil Limited and Zauralneftegaz Limited. This continues to be the case and both projects remain within budget. In addition, OOO Baltic Top and OOO Polex Service are trading satisfactorily, and Torgovy Dom Kaliningradneft ("TDKN") is expected shortly to enter into its first contract to ship gasoline, which is therefore expected to commence in November 2006. The Directors now anticipate that TDKN will reach output of 200,000 tons per month by August 2007.
Accordingly the Board expects trading for the year ending 31 December 2006 to be satisfactory and continues to believe that the Group's prospects are excellent.
Details of the Placing
The Placing Shares have been placed by Arden Partners in accordance with the Placing Agreement with both new and existing eligible institutional investors. The Placing has been conducted in accordance with the Placing Agreement, which is conditional, inter alia, upon:
- the passing of the appropriate resolution ("Resolution") relating to the Placing Shares to be proposed at the EGM; and
- admission of the Placing Shares to trading on AIM ("Admission") becoming effective by no later than 8.00 am on 28 November 2006 or such later time as the Company and Arden Partners agree, being in any event not later than 31 December 2006.
The Placing Agreement may be terminated by Arden Partners in certain circumstances up until the time of Admission, including for a material breach of the Company's obligations under the Placing Agreement or for a material breach of a warranty contained in the Placing Agreement or in the event of force majeure or a material adverse change in the financial condition of the Company.
Application will be made to London Stock Exchange PLC for the Placing Shares to be admitted to trading on AIM. Subject to the passing of the Resolution:
- the Placing Shares will be issued credited as fully paid and will rank pari passu in all respects with the existing ordinary shares of the Company, including the right to receive all dividends and distributions, declared, made or paid after the date of this Announcement; and
- it is expected that Admission will become effective and dealings in the Placing Shares will commence on 28 November 2006.
Commenting on today's announcement, Simon Escott, Chief Executive of Baltic, stated:
"Following encouraging 2D seismic data, which matched our geochemical results and showed two robust drilling prospects in our Privolny license block, we are pleased to now have the capability to move forward with our drilling program, with the spud date for the first well in December this year.
"We have de-risked and added value to our acreage for shareholders, and with the imminent drilling, we look forward to the results of the first well in Spring 2007.
"Meanwhile, our three terminal operations in Kaliningrad are either already in
operation, due to commence operations in November or on schedule and budget to
commence by the end of January 2007."
- Baltic Oil's Exploration of Western Siberia Yields Some Shows (Feb 01)
- Baltic: More Testing Needed at Mok-1 Exploration Well (Dec 06)
- Baltic Oil Deepens Privolny (Jul 30)
Company: Zauralneftegaz Limited more info
- Siberian Energy Says Mokrousovsky-1 Close to TD (Dec 07)
- Siberian Energy Announces Interim Interpretation of Mokrousovsky Seismic (Apr 09)
- Zauralneftegaz to Drill up to Four Exploration Wells in Kurgan (Nov 06)