Petroneft Resources: Oil India Provides $35m in Funding for Major Drilling Program
PetroNeft an oil & gas exploration and production company operating in the Tomsk Oblast, Russian Federation, and 50% owner and operator of Licences 61 and 67 is pleased announce that it has reached agreement with Oil India, its partner on license 61, for a budget and major work programme for 2016 and 2017.
This work programme is expected to require gross funding of at least US$35 million. Oil India have indicated to the Company their willingness to provide 100 per cent. of this funding by way of a shareholder loan to the joint venture company on favourable terms. Principal repayments by the joint venture on the proposed loan will not commence until 2019. The legal documentation for the first tranche of this proposed financing is currently being finalised and Shareholders will be updated once that is complete. This is a significant accomplishment for PetroNeft in the current market as it would otherwise be extremely challenging, expensive and dilutive to Shareholders for PetroNeft to raise the required funding for its share of these costs.
However, Oil India has indicated that this funding will only be made available conditional on the current management team remaining in place. Furthermore, should there be a change in management subsequent to the drawdown of the new loan this would constitute an event of default, requiring immediate repayment of amounts advanced and further requiring PetroNeft to provide its 50% share of this funding.
The major points of this work programme are as follows:
2016
South Arbuzovskoye Development Plan
– One vertical and up to 3 horizontal wells
– Pad 2 construction has been completed and construction of the pipeline and power line to Pad 1 is in progress
– Production drilling rig is being moved to location with drilling and production to commence in Q2
Sibkrayevskoye Delineation and Optimization Studies
– Additional delineation well (S-374) at Sibkrayevskoye to better define south-eastern portion of the field
– S-374 drilling pad is under construction and the drilling rig is being moved to location
– Optimisation studies and approvals for Sibkrayevskoye Development
2017
Sibkrayevskoye Development Plan
– Development of Pad 1 with up to 7 vertical/slant wells and 6 horizontal wells
– Construction of 26 km pipeline and power line from Pad 1 to Lineynoye central processing facilities Q1
– Commencement of development drilling and production Q2
The economics for these developments are very good even in the current low oil price environment.
Current operations
The workover programme for Tungolskoye and Arbuzovskoye is currently in progress. The Sibkrayevskoye No. 373 well was put on long term test using an electric submersible pump and has consistently achieved a rate of over 200 bopd. Licence 61 is currently producing about 2,400 bopd (gross) and PetroNeft is debt free.
Dennis Francis, Chief Executive Officer of PetroNeft Resources plc, commented:
“The agreement of a work programme and budget is a major step forward for the development of License 61. Given the challenges currently being experienced in the market, the ability to secure this funding is a major positive for the Company. We are delighted to be continuing our partnership with Oil India.
Our most recent drilling campaign has laid the groundwork for this, potentially transformative 2016 / 2017 drilling schedule. At Sibkrayevskoye, the S-373 well and extensive new seismic data acquired at Sibkrayevskoye in 2015 indicate that the field could ultimately be in the 100 million bbl range which would be one of the largest oil fields discovered in the Tomsk Region in the last 25 years.”
EGM Requisition
As previously announced PetroNeft has received a notice requisitioning an Extraordinary General Meeting (“EGM”) of the Company from Natlata Partners Limited (“Natlata”), a company registered under the laws of the British Virgin Islands. PetroNeft announces that it has posted a circular to its Shareholders to convene this EGM, which is to be held at 11.00 a.m. at the Herbert Park Hotel, Ballsbridge, Dublin 4, Ireland on Monday 18 April 2016. The circular contains details of the EGM Resolutions that are to be put to Shareholders and sets out the Board’s response to the EGM Resolutions. For the second time in two years a single shareholder, Natlata, is seeking to replace a majority of the Board with their own nominees.
The EGM Resolutions which include Ordinary Resolutions relating to the appointment of three new directors (Anthony Sacca, David Sturt and Maxim Korobov) and for the removal of four current directors (Dennis Francis, David Sanders, Paul Dowling and David Golder).
Board recommendation
In the view of the Board:
– A single shareholder, Natlata has proposed the Ordinary Resolutions as a means by which it can seek control of the Board and therefore the Company without paying Shareholders a fair price for obtaining control of the Company.
– Natlata has provided insufficient disclosure regarding its plans and proposed strategy for the Company, including in relation to proposed funding, and key long term Executive management.
– The passing of the Natlata resolutions would cause material risks for PetroNeft and its Shareholders and in particular could lead to the:
-Loss of operatorship of Licence 61
-Loss of key funding to be made available by Oil India for the development of Licence 61 (as detailed above)
-Loss of good corporate governance required of a company traded on UK and Irish public markets given the record of certain of Natlata’s proposed Board members
-Loss of representation on the Board for the independent majority of Shareholders’ interests
-Real risk that the Company’s strategy will be changed or related party transactions may be undertaken that could be to the detriment of the independent majority of Shareholders
-Real risk that the new Board could seek to cancel the admission to trading of the Ordinary Shares contrary to the interests of the independent majority of Shareholders.
The Board believes that the EGM Resolutions are NOT in the best interests of the Company and Shareholders as a whole and is unanimously recommending that you vote AGAINST ALL of the EGM Resolutions.
Engagement with Natlata
PetroNeft has engaged extensively with Natlata in recent years. When the EGM requisition was received on 18 February 2015, the Company was at the final stage of appointing two independent non-executive directors in a process that had been discussed with Natlata.
Following receipt of the EGM requisition the Board put this decision on hold in order to enter new discussions with Mr. Korobov and Natlata to ascertain his current position which appeared to have changed markedly from earlier more constructive discussions.
Since the EGM proposal was made PetroNeft has met with representatives of Natlata on several occasions with a view to reaching an arrangement that is in the interests of PetroNeft and its Shareholders as a whole. To date a compromise has not been reached but the Board of PetroNeft remains open to continuing these discussions.
Circular availability
The circular is available on the Company’s website at the following link:
http://petroneft.com/investor-relations/investor-notices/
