PetroNeft, an oil and gas exploration and production company, operating in the Tomsk Oblast, Russian Federation, and 50% owner and operator of Licences 61 and 67, provides the following update: 

Highlights

• Heads of Terms signed with Belgrave Naftogas (formerly Arawak Energy Russia B.V.) to acquire an additional 40% interest in Licence 67 for US$2.9 million.

Background

Over the last 12 months, PetroNeft has significantly increased the focus on LIcence 67, as we look to develop the value of our portfolio. We have increasingly seen the significant potential that Licence 67 offers in terms of exploration and production. As a means of moving the Licence forward, in a cost-effective and timely way, a non-binding Heads of Terms has been executed between PetroNeft and Belgrave Naftogas to acquire an additional 40% interest in Licence 67, thereby increasing PetroNeft’s interest from 50% to 90%. 

The terms of the proposed transaction are: 

• Consideration of US$2.9 million to be satisfied in the following way:
• Issuance of 80,000,000 PetroNeft ordinary shares to Belgrave Naftogas (representing a 8.7% shareholding) for a value of US$1.2 million (US$0.015 per ordinary per ordinary share).
• Cash consideration of US$1.7 million which will be financed through a 3 year loan from Belgrave Naftogas to PetroNeft with an interest rate of 8% above Bank of England base rate. The loan and interest to be repaid at the end of the loan. Up to 50% of the loan can be converted by Belgrave Naftogas to PetroNeft ordinary shares at 2p per ordinary share during Year 1; 2.5p per ordinary share during Year 2; and 3p per ordinary share during Year 3. 
• Belgrave Naftogas to have the right to nominate a Director onto the PetroNeft Board.
• Belgrave Naftogas to be carried by PetroNeft for their 10% share of the Joint Venture costs up to repayment of the loan, after which time Belgrave Naftogas will fund their share of the Joint Venture costs. 
• PetroNeft will now work with Belgrave Naftogas to finalise and implement a work programme for the development of Cheremshanskoye and the further investigation of Ledovoye over the winter months.

Licence 67 History

PetroNeft acquired Licence 67 during a state auction December 2009. The following year, Arawak Energy Russia B.V. (now Belgrave Naftogas) exercised its right to acquire a 50% non-operated interest from PetroNeft. The licence is located in a highly prospective part of the Tomsk region being surrounded by significant adjacent producing fields and served by a good road network with all season roads crossing the licence. 

Since the acquisition of the licence, the partnership has acquired two 3D seismic surveys totaling 157km² over the Cheremshanskoye and Ledovoye fields and drilled three wells, two on the Cheremshanskoye field and one on the Ledovoye field, with all the wells encountering oil. The last well was C-4 which was drilled in 2018 and tested up to 399 barrels of fluid a day. 

Following the drilling of the L-2a well on the Ledovoye field, in 2016 Ryder Scott calculated 2P reserves for the field of 14 mmbbls and 3P reserves of 17.4 mmbbls. 

In 2019 and following the successful C-4 well, the Russian State Reserves Committee approved C1+C2 reserves (approximately equivalent to International 2P reserves) for the Cheremshanskoye field of 19.2 mmbbls. This qualifies the field for a small field partial exemption of the state Mineral Extraction tax. 

At the start of 2020 the partnership returned to the C-4 well to carry out an extended test which resulted in the well flowing naturally up to 496 barrels of oil per day and 1,200 barrels of oil being produced and sold competitively on the market. An all season road is currently being built linking the C-4 well to existing road infrastructure which will ensure all year round production from Q1 this year. 

At the beginning of 2020 Sarum Energy, a UK based company whose majority shareholder is Alastair McBain (former CEO of Arawak Energy) purchased Belgrave Naftogas from Vitol. 

David Sturt, Chief Executive Officer of PetroNeft Resources plc, commented:
“This potential acquisition is consistent with the Board and Management’s previously announced commitment of enhancing shareholder value through boosting production, reserves and revenue. As early as next month the asset is expected to transform from being an exploration to a producing asset. This agreement will add significant impetus to our plans to develop the Licence.

The significant premium on the share converts reflects both PetroNeft Resources plc and Belgrave Naftogas’s shared view of the mismatch between the current share price of PetroNeft and the intrinsic value of PetroNeft’s underlying asset portfolio. We expect that Belgrave Naftogas’s nominated Director will combine international experience and regional insight to boost the financial and operating profile of our assets.

We will be working hard with Belgrave Naftogas to ensure that we close the acquisition during the first quarter this year.”

KeyFacts Energy: PetroNeft Russia country profile   l   Acquisitions & Mergers