JKX Completes Acquisition of Koshekhablskoye Gas Field

JKX Oil & Gas has completed the acquisition of 100% of the southern Russian Koshekhablskoye gas field. The conditional acquisition was announced on July 24, 2007 and was subject to a number of conditions precedents including consent from JKX’s shareholders. These conditions have now all been satisfied.

The acquisition was executed through wholly owned subsidiaries of JKX acquiring 100% of the Field’s licensee, Yuzhgazenergie. US$40 million of the total cash consideration of US$50 million has been paid to the seller, Mostotal Investments Limited, subject to an adjustment for working capital and indebtedness. The balance of US$10 million is payable in two tranches (of US$8 million and US$2 million respectively), and is scheduled for payment before the end of 2009, provided that a number of further conditions are satisfied. JKX is funding the transaction from existing cash resources.

Miller and Lents Ltd, independent oil and gas consultants engaged by JKX, has estimated that remaining proved gas reserves in the Field are 114 billion cubic feet (“Bcf”) and proved plus probable gas reserves are 216 Bcf. JKX has now added these 2P reserves of approximately 36 million boe to its booked reserves, representing an increase of approximately 85% in JKX’s proved plus probable oil and gas reserves.

The conditions precedent referred to above represent key milestones in initiating field rehabilitation and development. In addition to JKX shareholder approval granted at the EGM of September 3, 2007, the other conditions precedent were fulfilled by obtaining the following approvals from the relevant Russian authorities:

  • Development Plan for rehabilitation, further appraisal and development of the Field;
  • Anti-monopoly approval for the transaction;
  • Mining Allotment Act to set the boundaries of the Field and to permit work to commence on the Field; and
  • Registration of Land Leases covering the Field.

Further, in August, the Russian authorities conducted an inspection of the license and YGE's compliance with its terms and on August 3, 2007 issued an "Act of Inspection" concluding that the license is in good standing.

The initial activities of the Field rehabilitation and development are underway, including the design and sourcing of replacement processing facilities, logistics associated with mobilization of the drilling rig to initiate workovers on existing wells, procurement of camp facilities and commissioning of a 3-D seismic survey over the license area. Suitable office facilities have been sourced in Maikop and Moscow. The project is scheduled to produce first gas in the second quarter of 2008.