Rockpool Acqui Regulatory News (ROC)

27 Jun 2006 07:02

Roc Oil Company Limited27 June 2006 27 June 2006 ROC OIL COMPANY LIMITED ("ROC") STOCK EXCHANGE RELEASE ROC TO BUY APACHE'S CHINA ASSETS 1. SUMMARY ROC has agreed to acquire a 24.5% operated interest in the Zhao Dong Block ("theBlock") in the Bohai Bay, offshore China, for a cash consideration of US$260million/A$354 million. The acquisition is via the purchase of 100% of the sharesof Apache China Corporation LDC ("ACC") a wholly owned subsidiary of the US$20billion/A$27 billion Apache Corporation ("Apache"), headquartered in Houston. The Block is part of a prolific producing petroleum province which offersconsiderable upside potential. Gross production from the two producing fields inthe Block is in the order of 30,000 barrels of oil per day ("BOPD") (net ACCworking interest: 7,300 BOPD) and gross proved and probable remaining reservesare approximately 61 MMBO (net ACC working interest: 15 MMBO). 2. RATIONALE Subject to completion, the acquisition will deliver a number of technical,commercial and strategic benefits which will have a very positive impact on ROC.Specifically: • Net proved and probable oil reserves will double from 15 MMBO to 30 MMBO. • Production will increase by more than 150% from about 4,500 BOPD to about 12,000 BOPD. Exposure to very significant upside potential has already been identified and/or inferred, in the form of more or less continuous appraisal, development and close-in exploration drilling opportunities through to 2011 andbeyond. • Production diversification whereby during 2H 2006, ROC will be producing oil from four fields, three of which it will operate, in three different countries. By 2Q 2007, when ROC's two non-operated oilfields in the North Sea will have come on stream, the Company will have oil production from six fields in four countries. • ROC's operating profile will be significantly increased. The Company will be operating approximately 40,000 BOPD gross joint venture production offshore Australia and China. The Company will also be operating an additional oilfield development and a separate oilfield appraisal programme, both offshore China andits other exploration operations elsewhere in the world. In an operated gross production sense, ROC will be the third largest foreign operator in China. 3. FUNDING ROC will finance the purchase via a 12 month loan provided by the CommonwealthBank of Australia ("CBA"). At CBA's request, an independent engineering reviewof the assets was undertaken by Australian-based RISC Pty Ltd. Subsequent to completion, ROC, which is currently debt free, will have a Debt toTotal Assets ratio in the order of 0.5 and a Debt to current MarketCapitalisation ratio in the order of 0.4. ROC expects to put a suitable oil price hedging arrangement in place that willreflect the magnitude of the transaction as well as the need to protect thedownside oil price risk while at the same time retaining an appropriate amountof exposure to the oil price upside. 4. TIMING The transaction has an effective date of 1 July 2006 and is expected to close in2H 2006, after satisfaction of a number of conditions precedent, which reflectnormal government and industry practices. 5. ASSETS The Block, which covers 27.5 sq kms, is located in very shallow water close toshore in the Bohai Bay, offshore China, approximately 200 km southeast ofBeijing (Attachment 1). Within the Block there are two producing oil fields (C and D) and part of athird field (C4) which is due to be developed in 2007 and come on to productionin 2008. ACC operates the planned C4 development in which it has an 11.575%unitised interest. Since production commenced in 2003, towards 20 MMBO has been produced from the Cand D fields and there is an estimated 61 MMBO of gross proved and probablereserves yet to be produced. Production, which is currently through 26 wells,will be augmented by a multi-well drilling programme, targeting appraisal,development, extended reach and close-in exploration opportunities, which isunderway and expected to continue over the next several years. Operating,development and drilling costs are reasonable, partly because of the facilities'proximity to shore and the size and established nature of the operation whichprovides economies of scale. The offshore facilities comprise two, bridge-linked platforms, one of which isdedicated to drilling and accommodation while the other is used for productionand processing. An integral part of the oil production operation is thesimultaneous production of a significant amount of associated water which isreinjected into the reservoir. The facilities have been designed accordingly,with 12 water injectors and four water source wells supporting the current oilproduction. An indication of the quality of the petroleum system is provided by the factthat, within the Block, 27 different stratigraphic levels, ranging in age fromPalaeozoic to Tertiary, are known to contain oil. Sixteen of these stratigraphicintervals are currently productive. Between 1994 and first production, 11exploration wells were drilled in the Block of which eight (73%) encounteredsignificant oil. Reservoir quality is good to excellent, particularly in the shallower parts ofthe section where permeabilities are measured in Darcys and porosities rangeabove 30%. The source rock is rich and generative. Oil gravities range from18degrees to 38degrees API with the higher gravity (lighter) oil being in thedeeper part of the section. The oil, which is waxy with a low pour point and alow acid content is currently sold into the export market. Zhao Dong oil bearscomparison with Indonesian Duri crude which recently traded at a discount ofapproximately US$5.50/bbl to West Texas Intermediate. The Block is administered under the terms of a standard Petroleum SharingContract the other parties to which are PetroChina Company Limited (51%) and NewXCL-China, LLC (24.5%). 6. CEO'S COMMENTS Commenting on the transaction, ROC's CEO Dr John Doran stated that: "When completed, the acquisition, which ROC first identified in 2001, will havea profound effect on the Company. The transaction is a great example of the efficiency of the industry food chain.For Apache, with its US$20 billion market capitalisation and two billion barrelsof proved reserves, the asset may have become less material. For ROC, a muchsmaller company, the transaction will provide a substantial boost to its reserveand production trajectory. For ROC, this is also the next logical growth step. Quite apart from thefundamental quality and upside promise of the assets, the deal delivers a numberof other benefits ranging from reserve and production growth in a designatedcore area to increased technical and operating mass. Apache has been an outstanding operator of the Zhao Dong Block and ROC will belooking to deliver more of the same by retaining the existing operatingstructure. The acquisition will complement ROC's other operations at the CliffHead Oil Field Development, offshore Western Australia, which is just beingcompleted, and in the Beibu Gulf, offshore China, where ROC has just started anaggressive appraisal programme relating to its recent oil discovery. With thisoperating capacity being an important component of the transaction, the timingof the Zhao Dong deal could hardly have been better. Placing the acquisition in an Australian industry context is an interestingexercise. Market-watchers in Australia are increasingly talking about apotential consolidation of the independent oil and gas sector. However, if youwere to rummage through corporate Australia you would find it very difficult toacquire the same amount of proved and probable oil reserves for the same price.Then, if you added the requirement that those reserves must come complete withthe upside potential that an exceptionally well endowed petroleum systemprovides, the task would move from being very difficult to totally impossible.This broader access to global opportunities is one of the benefits which ROCshareholders derive from the Company's long established focus on internationaloil and gas operations. Since 1998, ROC has enjoyed working with various Chinese oil companies and inthis context it looks forward to expanding these relationships by working withPetroChina, the largest interest holder in the Zhao Dong Block." *For a complete copy of this release and attachment, please see ROC's website.(http://www.rocoil.com.au/Public/Announcement/2006/ROC_to_Buy_Apaches_China_Assets_27.06.06.aspx) --------------------------------------------------------------------------------In accordance with new Alternative Investment Market of the London StockExchange rules the information in this report has been reviewed by anappropriately qualified person with more than 5 years relevant industryexperience, specifically, ROC's Senior Reservoir Engineer Mr M Lucas, B.Sc.(Hons), M.Sc., MBA and member of the Society of Petroleum Engineers.-------------------------------------------------------------------------------- Michelle Manook For further information please contact:General Manager - Corporate Affairs Dr John Doran on Tel: +61-2-8356-2000 Fax: +61-2-9380-2635 Email: jdoran@rocoil.com.au Or visit ROC's website: www.rocoil.com.au Dr Kevin Hird General Manager Business Development Tel: +44 (0)207 586 7935 Fax: +44 (0)207 722 3919 Email: khird@rocoil.com.au Nick Lambert Bell Pottinger Corporate & Financial Tel: +44 (0)207 861 3232 This information is provided by RNS The company news service from the London Stock Exchange