Acquisition

3 Nov 2005 07:01

Urals Energy Public Company Limited03 November 2005 FOR IMMEDIATE RELEASE 3 November 2005 Urals Energy Public Company Limited Proposed Acquisition to boost Group's production by c.50% Urals Energy Public Company Limited ("Urals Energy" or the "Group") todayannounces that it has agreed to acquire production and exploration assets in theKomi Region of Russia for US$70 million, including assumed debt. Urals Energyis a leading independent exploration and production company with operations inRussia. Urals Energy's shares were admitted to trading on the LondonAlternative Investment Market in August 2005, with its IPO resulting in a totalfund raising of US$131.1 million. Proposed Acquisition Urals Energy has today signed an agreement to acquire producing and explorationassets in the Komi Region of Russia for US$ 62 million cash plus the assumptionof approximately US$ 8 million in debt; with closing of the transactionestimated for mid November. The transaction is subject to FAS (Russian FederalAntimonopoly service) approval and certain other customary conditions. Consideration for the acquisition will be satisfied through a combination ofexisting cash resources and debt, following completion of a new senior debtfacility. This will have no material impact on the funding of the Group'sexisting development and exploration programme. Nevertheless, taking intoaccount market conditions and likely future funding requirements, the Group mayconsider further equity issuance in due course. The proposed acquisition gives Urals Energy immediate incremental production ofapproximately 2,900 bopd and extensive exploration acreage in an area where theGroup already has a complementary asset base. On completion in mid November itis expected that total group production will rise to c.8,700 bopd. Managementestimates this acquisition will add proved reserves of approximately 12 millionbarrels and probable reserves of approximately 10 million barrels for total 2Padditions of at least 22 million barrels. The Group is currently working withits independent engineering consultants, DeGolyer and MacNaughton, to confirmthese estimated reserves. The proposed acquisition has an exploration and production license for an areaof 960 square kilometres. A recently acquired 3D seismic survey indicates fiveexploration prospects that are analogous to the existing producing structure. The acquisition fits Urals Energy's acquisition criteria of acquiring producingassets in complementary areas of Russia and the CIS with development andexploration potential. On completion of the transaction the Group intends toactively develop these assets in order to increase production of the acquiredassets from the current level of 2,900 bopd to 4,500 bopd by the end of 2006.35% of the acquired assets' current production is exported with the 65% balanceto the domestic market. The producing fields are connected by a pipeline toTransneft. Oil quality is light with a gravity of 36 API. The Group believes the transaction represents a compelling opportunity toacquire producing assets on attractive terms per 2P barrel in the Komi region, aregion where the Group already has a complementary asset base and which theGroup has identified as a core area to develop a material presence. There isalso the potential to significantly increase reserves through development andexploration. The assets complement Urals Energy's existing asset base andoperating experience in the Komi region and gives the Group the opportunity toreduce unit costs through economies of scale. This proposed transaction follows Urals Energy's acquisition of CNPSEI inOctober 2004 which gave the Group its initial presence in the Komi region. Forthe six months ended June 2005 CNPSEI achieved average daily production of 1,015BOPD. More detailed information will be published following closing of thetransaction. This will include information about the profitability of theacquired assets, prepared in accordance with the Company's accounting standards,following a reconciliation from the existing information which has been preparedin accordance with Russian Accounting Standards. William R. Thomas, Chief Executive Officer, commented: "This proposed transaction fits all our key objectives; it boosts production andearnings on day one, has material development and exploration potential andbuilds our presence in one of our core operational areas; enabling us to addvalue through new investment and reducing existing unit costs." 3 November 2005 Pelham PRJames Henderson 020 7743 6673Charles Vivian 020 7743 6672 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