Urals Energy Plc Regulatory News (UEN)

18 Apr 2006 07:01

Urals Energy Public Company Limited18 April 2006 URALS ENERGY PUBLIC COMPANY LIMITED US$148 Million Acquisition of Major Eastern Siberian Oil & Gas Development License and Associated Facilities Urals Energy ("Urals Energy"or "the Group or the Company"), a leadingindependent exploration and production company with operations in Russia whichwas admitted to trading on AIM in August 2005, announces the $148 millionacquisition of the significant Dulisminskoye oil, condensate and gas fieldtogether with the LTK transportation and treating facilities, both located insouthern East Siberia near the giant Kovykta and Verkhnechoskoye fields. TheEast Siberia Pacific Ocean pipeline planned by Transneft is expected to passthrough the region. The Dulisminskoye Field ("The Field") • The Field is in the early stages of development producing 1,000 bopd • According to preliminary estimates by DeGolyer and MacNaughton theField contains approximately 109 million barrels of proved and probable oilreserves, approximately 87 million barrels of possible oil and condensatereserves and 1.9 trillion cubic feet of possible gas reserves Impact of Acquisition • Projected to increase Urals Energy total Group reserves to 225million barrels of proved and probable reserves and 369 million barrels and 2trillion cubic feet of proved, possible and probable reserves • Planned programme of infield development drilling and constructionof additional processing and transportation facilities projected to increaseField production from 1,000 bopd to approximately 12,000 bopd by end of 2008 andapproximately 30,000 bopd by end of 2011 Consideration and Funding: • $148 million cash consideration with initial $50 million payment -consideration and forward capex to be funded through combination of debt and newequity • $50 million initial payment provided by Morgan Stanley aspre-payment for shares to be allotted Rationale: • Provides Urals Energy with an attractive entry into Eastern Siberia,one of the most important undeveloped petroleum provinces in Russia onattractive terms per 2P and 3P barrel in a new region • Significantly increases Urals proved, possible and probable reservesand provides important planned future increases in production and cashflow William R. Thomas, Chief Executive Officer, commented: "This is a significant acquisition for the Group giving us a material producingfield strategically located close to the proposed East Siberian pipeline and ina region with substantial additional hydrocarbon potential. The successfulintegration and development of recent acquisitions has enabled us to meet ourproduction targets twelve months ahead of schedule. We are confident thisacquisition will also accelerate our growth ahead of plan." Pelham PR 18 April 2006James Henderson/ Gavin Davis 020 7743 6673 US$148 Million Acquisition of Major Eastern Siberian Oil & Gas Development License and Associated Facilities Urals Energy today announces that it has signed a definitive sale and purchaseagreement (the "Agreement") to acquire the entire issued share capital of OOODulisma ("Dulisma") and OOO Lenskaya Transportnaya Kompaniya ("LTK") for anaggregate purchase price of $148 million payable in cash. The Acquisition Pursuant to the Agreement, Urals Energy will acquire the significantDulisminskoye oil, condensate and gas field (the "Field") together with the LTKtransportation and treating facilities, all situated in the Irkutsk region ofEastern Siberia. The Irkutsk region is located in southern East Siberiaapproximately 1,100 km from the border between Russia and China. The regionholds significant discovered oil and gas deposits, including the giant Kovyktaand Verkhnechoskoye fields, and the East Siberia Pacific Ocean pipeline ("ESPO")planned by Transneft is expected to pass through the region. Urals Energy will pay a total of $148 million for the acquisition, with aninitial $50 million payment. Of the $148 million payable, $133 million is a cashpayment to acquire the equity and $15m payable to acquire outstanding promissorynotes. The balance of the consideration is payable on closing and is subject toapproval by the Russian Federal Antimonopoly Service and other customaryconditions precedent. Urals Energy has assumed operational and financialcontrol of Dulisma and LTK with immediate effect. Closing of the transaction isexpected in June 2006. Dulisma owns the license for a large oil, condensate and gas field in the earlystages of development located in the Irkutsk region of the Russian Federation.The Field is delineated by 47 exploration and appraisal wells drilled during thelate 1980's. The Russian State Committee on Reserves has attributed recoverablereserves (categories ABC1-2) of approximately 180 million barrels of oil andcondensate and 2.2 trillion cubic ft of gas to the field. According to a preliminary 12 April 2006 estimate by the Company's independentengineering consultants, DeGolyer and MacNaughton ("D&M"), the Field containsapproximately 109 million barrels of proved and probable oil reserves,approximately 87 million barrels of possible oil and condensate reserves and 1.9trillion cubic feet of possible gas reserves as at 31 March 2006. These arepreliminary estimates and subject to confirmation prior to publication of D&M'sdefinitive reserve report expected in early May. On completion of the acquisition and following confirmation by D&M of itspreliminary reserve estimate for the Field, the Group will have increased itsproved and probable reserves to 225 million barrels and proved, possible andprobable reserves to 369 million barrels with an additional 2 trillion cubicfeet of gas. The Field is currently producing 1,000 bopd from five wells and transportedthrough a third party pipeline system. On completion of the acquisition, UralsEnergy intends to increase production as quickly and efficiently as possiblethrough infield development drilling and construction of additional processingand transportation facilities. This will include the construction by LTK of anearly phase 12,000 bopd capacity pipeline from the Field to the centralised oildepot at Ust-Kut. LTK owns the pipeline right of way and has received thenecessary regulatory permits to build and operate the early phase pipeline whichis expected to be operational by early 2007. Based on the Group's work to date,Urals Energy anticipates that production from the Field will increase toapproximately 12,000 bopd by the end of 2008. The Group also currently anticipates that the Field has the potential toincrease its production to approximately 30,000 bopd by the end of 2011. Thissecond phase of the development programme will include the construction of apermanent pipeline to either the river port and railway terminal at Ust-Kut orto a planned pump station on the ESPO pipeline. The Field is strategically located North West of Lake Baikal, along the plannedroute of the ESPO oil pipeline which is expected to connect East Siberianoilfields to the Pacific Coast in order to supply demand for oil in Asianmarkets. Transneft has announced it expects to commission the first phase of theESPO in 2008. The Field, together with the Verkhnechonskoye Field operated byTNK-BP and the Talakan Field operated by Surgutneftegas, will potentially be keysuppliers of crude oil to the ESPO. With estimated possible reserves ofapproximately 1.9 trillion cubic feet of gas, the Field also has the potentialto supply Gazprom for its proposed gas pipeline to Asian markets. Financing of the Acquisition The Group intends to finance the acquisition through a combination of debt andequity capital, with new equity expected to be the principal funding source.Such funding will cover the acquisition, additional capital investment requiredto develop the acquired assets and the Company's other working capital needs. The Company has entered into an agreement with Morgan Stanley & Co.International Limited ("Morgan Stanley") covering the provision of US$50 millionfor the initial payment relating to the acquisition. The advance by MorganStanley to the Company (the "Advance") is structured as a pre-payment for sharesto be allotted to Morgan Stanley (or as it may direct). The number of shares tobe allotted to Morgan Stanley are to be sufficient to discharge the Advance andcertain associated costs and fees. In the event that the Advance and associated costs and fees have not beenrecouped by 30 September 2006, the Group will be required to allot at leastsufficient shares to Morgan Stanley, at a discount to the then prevailing marketprice, in order to allow it to recover the amount of the Advance (plus paymentin kind accruals, costs and fees that accrue after 30 June 2006), with anyproceeds realised by Morgan Stanley over and above such recovery to be returnedto the Company. The Group intends to convene an EGM in the near term to obtain shareholderapprovals for the allotment of shares on a non-pre-emptive basis for purposesnoted above and to approve the issue of shares to Morgan Stanley in respect ofthe Advance. In this regard, the Group and Morgan Stanley have receivedirrevocable undertakings to vote in favour of the necessary resolutions tosupport the Morgan Stanley arrangement from existing shareholders holding amajority of the Company's issued share capital. The requisite shareholderresolutions require a simple majority to be passed. Rationale and Strategy The Acquisition fits Urals Energy's acquisition criteria of acquiring producingand non-producing assets in complementary areas of Russia and the CIS withdevelopment and exploration potential. The Acquisition gives Urals Energy anattractive entry into Eastern Siberia, one of the most important undevelopedpetroleum provinces in Russia. This acquisition is expected to significantlyincrease Urals Energy's proved and probable reserves and provide importantfuture increases in production and cash flow. The Group believes the transactionrepresents a compelling opportunity to acquire producing and non-producingassets on attractive terms per 2P and 3P barrel in a new region. Recentproposals by Russian government working groups have focused on Eastern Siberiaas a priority for tax relief to boost development of the region's oil industry. The acquisition of Dulisma and LTK will be Urals Energy's fourth acquisitiontransaction within the last twelve months. The successful integration anddevelopment of the ZAO Arcticneft, OOO Dinyu and OOO Urals Nord acquisitions hasenabled Urals Energy to meet its production target for 2007 twelve monthsearlier than anticipated at the time of the Group's IPO. Production is currently9,000 bopd and prior to the announcement of this acquisition was forecast torise to at least 14,000 bopd by the end of 2007. The Group will provide arevised production target following completion of the D&M report for the Field. More detailed information will be provided as soon as practical but in no eventlater than the closing of the acquisition. This will include information aboutthe profitability of the acquired assets, prepared in accordance with theCompany's accounting standards. Background to Urals Energy 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 was admitted to trading on AIM in August 2005. The Group 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 Group's six E&P subsidiaries have Proved and Probable reserves of 116million barrels of oil equivalent (MMBOE) and produced approximately 6,237barrels of oil per day (BOPD) during the second six months of 2005. The Group'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 Group 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