Roxi, the Central Asian oil and gas company with a focus on Kazakhstan, has announced the conditional sale of the company's equity and debt interests in the Galaz Contract Area, the second of the company's principal assets, for net proceeds of US$20.72 million after estimates of associated taxes.
In the event that the price of Brent Crude reaches US$60 per bbl by 28 April 2015, a further US$2.9 million after taxes will become payable to Roxi.
The purchaser is a consortium led by Xinjiang Zhundong Petroleum Technology Co., a company listed on the Shenzhen Stock Exchange in China. The sale is conditional upon the receipt of appropriate Kazakh regulatory clearances, which are expected before the end of April 2015.
Roxi plans to use the funds from the sale of the Galaz Contract Area to fund all of the planned development in 2015 at the Company's flagship asset BNG.
The Galaz block is located in the Kyzylorda Oblast in central Kazakhstan. The Contract Area was extended on 10 January 2011 to 179 square kilometres and now includes significant exploration upside on the east side of the Karatau fault system, as well as the NW Konys development.
Roxi has an effective 34.22 per cent interest in the licence for the Galaz Contract Area, which runs on an exploration basis until 14 May 2016. The other principal shareholders in Galaz are Sary-Arka Mining LLP, a Kazakh entity that is acquiring a stake previously held by LGI, the Korean Multinational (40%) and Baverstock GmbH a company controlled by Mr Kuat Oraziman the CEO of Roxi, (23.78%).
Since 2008 17 wells have been drilled at Galaz, a significant number of which are or indicate they will be commercial. Production levels at the Contract Area vary as wells are brought into production from testing and then cease to be tested. Recently production at the Galaz Contract Area has been at the rate of approximately 770 bopd (263 bopd net to Roxi).
In the year ended 31 December 2013, turnover from the sale of oil produced from Galaz was in aggregate some US$5 million and the loss attributable of approximately US$2.2m.
As at 30 June 2014, the date of the 2014interim statement, the carrying value of the Galaz assets was some US$7.8 million.
Principal terms of the Galaz Disposal
The consortium led by Xinjiang Zhundong will acquire 100% of the interests in the Galaz Contract Area, including all associated debts, for an aggregate consideration of US$100 million, of which US$10 million is dependent on the price for Brent crude being US$60 per bbl or greater on 28 April 2015.
US$2 million of the aggregate purchase consideration will be retained by the purchaser for a period of 12 months to cover warranty claims individually greater than US$50 000.
Structure of the transaction
Roxi's interest in the Galaz Contract Area is held via its 59% holding in Eragon Petroleum Limited which owns 100% of Galaz Energy BV, which in turn owns 58% of Galaz & Co LLP, the entity which holds the licence for the Galaz Contract Area.
Under the conditional Sale & Purchase Agreement, the consortium led by Xinjiang Zhundong is to acquire the 100% of Galaz & Co LLP.
Consideration attributable to Roxi
Of the net US$90 million payable, assuming the additional US$10 million is not triggered by the Brent crude being US$60 per bbl on 28 April 2015, some US$49.6million will be used to acquire existing loans and accrued interest of Galaz & Co LLP, of which some US$6.9 million is owed direct to Roxi and a further US$4.38 million is owed to its subsidiary Galaz Energy BV.
The balance of US$40.4 million payable is attributable to the equity holders of Galaz & Co LLP and is to be split on a pro rata basis to their shareholdings. Galaz Energy BV, as a 58% shareholder in Galaz & Co LLP, will receive some US$23.43 million for its equity in the Galaz Contract Area. From this some US$2.95 million will be deducted to meet taxes estimated to be as a result of the Galaz disposal.
The net amount receivable to Galaz Energy BV will therefore be US$23.43 million including the US$4.38 million debt referred to above, of which some US$13.82 million is attributable to Roxi. This together with the US$6.9 million debt due direct from Galaz & Co LLP to Roxi takes the net amount attributable to Roxi from the initial consideration of US$90 million to US$20.72 million, of which US$0.68 million is subject to the 12 month retention referred to above.
In the event the price for Brent crude is US$60 per bbl or greater on 28 April 2015 and the additional consideration becomes payable the net amount attributable to Roxi would increase to US$23.63 million.
Related party transaction
As a result of Baverstock's interest in the sale of Galaz, a company in which Kuat Oraziman a director of Roxi has a controlling interest, the transaction is deemed a related party transaction under the AIM Rules. The independent directors of Roxi, being the Board with the exception of Kuat Oraziman, consider, having consulted with WH Ireland, that the terms of the transaction are fair and reasonable so far as shareholders are concerned.
Impact on Roxi
The amount attributable to Baverstock from the Galaz disposal is US$9.6 million from the initial payment, which would rise to some US$11.6 million in the event the additional consideration becomes payable.
As previously announced,under the terms of the 2008 acquisition of 59% of Eragon Petroleum PLC from Baverstock, Roxi has an obligation to carry Baverstock for the first US$100 million of costs on the Eragon assets (BNG, Galaz & Munaily). This obligation has almost been fulfilled.
Once the full US$100 million has been committed development funding for the Eragon assets will be in the ratio 59:41 between Roxi and Baverstock. Therefore the US$9.6 million initial consideration attributable to Baverstock from the Galaz Disposal is likely to become available together with the US$20.72 million attributable to Roxi from the initial consideration to provide some US$30 million to further develop BNG. If the additional consideration becomes payable the joint amount available to spend on BNG would rise to some US$35 million.
With the declining costs of drilling following the recent fall in the price of oil the amounts attributable from the initial consideration alone are expected to be sufficient to fund all of the 2015 development costs at the deep and shallow regions of the BNG asset and in particular cover the costs of three further deep wells (801, A6 & A7) to the Deep Well A5 drilled in 2014.
Clive Carver, Chairman said "While we have been pleased with our investment at Galaz we view the opportunities at our flagship BNG asset to be greater. Accordingly we are selling our interests in Galaz to fund the development of BNG without dilution for Roxi shareholders.
The proceeds from the disposal of Galaz will allow us to complete our 2015 BNG programme of four deep wells followed by an independent assessment of the BNG reserves."
Adapted from press release by Joe Green