Urals Energy Plc Regulatory News (UEN)

15 Nov 2005 07:01

Urals Energy Public Company Limited15 November 2005 FOR IMMEDIATE RELEASE: 15 November 2005 Urals Energy Public Company Limited Completion of the US$70 million OOO Dinyu Acquisition, Provision of $100 million Revolving Loan Facility & Exploration Drilling Update Urals Energy Public Company Limited ("Urals Energy" or the "Company") todayannounces the successful completion of its acquisition of OOO Dinyu, theprovision of $100 million revolving loan facility and an exploration drillingupdate. Urals Energy is a leading independent exploration and productioncompany with operations in Russia. Urals Energy shares were admitted to tradingon the London Alternative Investment Market in August 2005, when it placedshares resulting in a total fund raising of $131.1 million. Completion of US$70 million acquisition of OOO Dinyu Further to the Company's announcement on 3 November of the proposed acquisitionof assets in the Komi Region of Russia, Urals Energy today announces that it hasclosed the US$70m acquisition of OOO Dinyu. This follows completion of all duediligence and approval from FAS (Russian Federal Antimonopoly Service). TheCompany acquired ownership of OOO Dinyu and its assets from LonsdacksInvestments Limited. Following completion, the acquisition gives the Company immediate incrementalproduction of approximately 2,900 bopd, bringing total Company production toc.8,700 bopd, an increase of 50%. The acquisition was satisfied through a cash consideration of US$62 millionfunded through a combination of existing cash resources and debt, followingcompletion of a new senior debt facility referred to below. As part of thetransaction, Urals Energy also assumed US$8 million in debt. As well as incremental production, the acquisition gives Urals Energy extensiveexploration acreage covering 960 square kilometres in the Komi region andcomplements the Company's existing asset base and operating experience in thearea. OOO Dinyu operates two licences, the Dinyu-Savinbor Field (100% ownership)and the South Michau Field (65% ownership) with combined proved reserves ofapproximately 12 million barrels and probable reserves of approximately 10million barrels, for total 2P additions of at least 22 million barrels. UralsEnergy is actively negotiating the terms to acquire the remaining 35% of SouthMichau not owned by Dinyu. Current production from the two licences is c.2,900bopd. A recently acquired 3D seismic survey indicates five exploration prospectsthat are analogous to the existing producing structure. While the South Michau Field is still to be developed, Dinyu-Savinbor isestimated to add 80% of the total 2P additions of 22 million barrels to thegroup bringing total management-estimated Company 2P reserves to 111 millionbarrels. The Company will implement an aggressive appraisal and developmentprogramme at Dinyu with the objective of increasing current Dinyu productionfrom 2,900 bopd to c.4,500 bopd by the end of 2006. This would correspondinglyincrease Urals Energy's total oil production to approximately 10,300 bopd by theend of 2006. Approximately 35% of the acquired assets' current production isexported with the 65% balance being sold to the domestic market. The producingfields are connected by a pipeline to Transneft. Oil quality is light with agravity of 36o API. This acquisition gives Urals Energy c.3,600 bopd of production in the Komiregion and the opportunity to reduce unit costs through economies of scale. TheKomi region represents a core business region for the Company which it willfurther develop through a combination of organic growth and acquisitions. Closing of US$100 million loan facility with BNP Paribas. The Company also announces that it has closed a five year minimum US$100million reserve-based revolving loan facility with the potential to increase toUS$150 million. The facility is provided by BNP Paribas with whom Urals Energyhas a long standing relationship. This facility provided a proportion of thefunding required to close the OOO Dinyu acquisition and gives Urals Energy thefinancial flexibility to continue its strategy of growing organically andthrough acquisition. Exploration Update - Petrosakh Urals Energy also announces the commencement of drilling the first explorationwell to test the Pogranichny license offshore Sakhalin Island. The EastOkruzhnoye No. 1 well spudded on November 1 and is now drilling and has reacheda depth of 550 metres. This well is ahead of schedule and is expected to reachthe target formation, the Pileng horizon, by the end of the year. ThePogranichny license area is held by the Company's 97%-owned subsidiary, ZAOPetrosakh ("Petrosakh"). If the well encounters an oil bearing zone, extensive testing will be conductedto determine commerciality. Petrosakh is already producing 2,800 bopd from otherwells in the Okruzhnoye field with a 14 well development drilling programmetargeted at increasing production to c. 5,800 bopd. DeGolyer and MacNaughton estimates this prospect to contain unrisked potentialresources of approximately 50 million barrels. Once the East Okruzhnoye No. 1 well is complete, the East Okruzhnoye No. 2 wellwill be drilled and is expected to spud in January. Both these wells are beingdrilled with a BU-1600, a Russian rig, which has been improved through theaddition of extra equipment enabling Petrosakh to complete the drilling of thesewells ahead of time and under budget. On 1 November 2005, the Sakhalin Department of the Federal Services on NaturalReserves completed an audit of Petrosakh's compliance with the terms of thePogranichny exploration license. The audit confirms that Petrosakh is in fullcompliance with the license terms. Once the two exploration wells have beendrilled, Petrosakh will have fulfilled its work obligations under the terms ofthe existing exploration license. The Company is therefore confident ofextending the term of the exploration licence and, in the event of a commercialdiscovery, converting to a production licence. Urals Energy had intended to commence drilling in the first quarter of 2006 onthe Vitnitskaya prospect from a well site approximately 40 kilometres south ofthe Okruzhnoye field using the Deutag T-2000 rig. However, due to delaysresulting from damage recently incurred by the barge hired to transport the rig,it will not be possible to move the rig from the mainland to Sakhalin Island andcomplete drilling prior to the start of the Spring thaw and potentiallystranding the rig for a prolonged period and incurring significant additionalcost. This delay, and consequent negotiations that are in progress regarding theDeutag rig, may require the Company to adjust its 2005 consolidated incomestatement for previously capitalised costs associated with the procurement andmobilisation of the rig. However, the Board is confident that it can secure acost effective solution that will result in the Vitnitskaya Prospect beingdrilled within or under budget. For example, the Company is evaluating the useof a local Russian rig to drill the Vitnitskaya Prospect and would as a resultnot expect to incur any material incremental cash costs as a result of thesedevelopments. The Board is also confident that any delay in drilling theVitnitskaya prospect will have no impact on either Petrosakh's licenseobligations being fully met or the merit of Petrosakh's application to extendthe license term and, in the event of a discovery, conversion to a productionlicense. A further update will be provided when appropriate. William R. Thomas, Chief Executive Officer, commented: "Urals Energy remains focused on fast, profitable growth through strategicacquisitions, success with the drill bit and production. The acquisition of OOO Dinyu is an example of this focus as it provides UralsEnergy with immediate production increases and real exploration potential whilealso complementing our existing assets in the Komi region. We are also pleased that our exploration programme is overall ahead of schedule,despite the delaying of the T-2000 rig, and we are confident of further successon the Pogranichny Block." 15 November 2005 Pelham PR James Henderson 020 7743 6673 / 0777 4444 163 Gavin Davis 020 7743 6677 / 079 101 046 60 About the Company: Urals Energy is an independent exploration and production (E&P) company with itsprincipal assets and operations in Sakhalin Island, Timan Pechora (includingareas in the Nenets Autonomous Okrug and Komi Republic) and the Republic ofUdmurtia, Russia. The Company listed on AIM in August 2005. The Company is focused on the integration of its five recently acquiredsubsidiaries and the exploitation of their assets. In addition, it is activelyseeking to continue to grow and diversify its reserve and production portfoliothrough exploration activities and the acquisition of additional E&P companiesor assets by taking advantage of the ongoing rationalisation of E&P assets inRussia. The Company's five E&P subsidiaries have Proved and Probable reserves of 89.7million barrels of oil equivalent (MMBOE) and produced approximately 5,600barrels of oil per day (BOPD) during the first six months of 2005. The Company's two largest subsidiaries by reserves and production, Petrosakh andArcticneft, own and operate refining assets with a total refining capacity of5,300 BOPD, which provide the Company with the ability to maximise the value ofthe oil produced by choosing between the sale of oil or of refined productsdepending on market conditions, tax considerations and other factors. This information is provided by RNS The company news service from the London Stock Exchange