27th Oct 2005 07:41
Max Petroleum PLC27 October 2005 MAX PETROLEUM PLC PLACING AND ADMISSION OF ORDINARY SHARES TO TRADING ON AIM The Board of Max Petroleum PLC ("Max" or "the Company"), an oil and gasexploration company with an initial focus in the Republic of Kazakhstan,announces that the Company's Ordinary Shares of 0.01p each ("Ordinary Shares")have today been admitted to trading on the Alternative Investment Market of theLondon Stock Exchange ("AIM"). The Company's trading symbol is "MXP". Listing Details • 73,920,000 Ordinary Shares have been conditionally placed with investors by ODL Securities Limited, the Company's broker, to raise £25,872,000 (before expenses) for the Company • Proceeds of placing to fund the deferred cash consideration, upon Registration of the Contracts, and to provide funding for the future work programmes and working capital generally. • On admission to AIM a total of 259,740,329 Shares were in issue capitalising the Company at £90,909,000 at the placing price. • The Company's Nominated Adviser is Nabarro Wells & Co. Limited. Key Information • Max has acquired an 80 per cent interest in two companies which indirectly have the rights under Contracts known as Blocks A&E and East Alibek to explore for, develop and produce oil prospects in the Republic of Kazakhstan. • The total area covered by the Contracts is approximately 12,000 km2. • Blocks A&E and East Alibek are part of the Pre-Caspian Basin of the Republic of Kazakhstan, which contains five super-giant sub-salt fields. 25 supra-salt oil fields have already been discovered in the area covered by Blocks A&E which are excluded from the interests held by Max. The discovered fields provide excellent exploration and development information and some of the shut-in wells that are included may have reactivation potential. The Directors are confident that there is scope for further discoveries of this nature. • East Alibek is adjacent to the Alibekmola field, which is estimated to have reserves of 400 million bbls. • The Company is led by Jim Jeffs and Steve Kappelle, two experienced oil industry executives, who have previously occupied senior executive positions at Chaparral Resources and Whittier Energy in the case of Jim Jeffs and Shell and Unioil AG in the case of Steve Kappelle. • The Company's strategy in relation to the Properties is to: - initially explore for and develop oil pools in the shallower supra-salt prospects. The initial objective, using modern western exploration techniques, including 2D and 3D seismic, reprocessing and re-interpretation of well logs, is to quickly bring on-stream low risk, low cost oil reserves; and - obtain all the available seismic, geological and engineering data before seeking further finance or farmin to commence higher risk, higher cost exploration for larger oil discoveries in the deeper sub-salt prospects. The Company will undertake a detailed review of all the available data for the large sub-salt prospects, including re-processing and re-interpretation of existing seismic as well as shooting further 2D or 3D seismic, to more clearly define the exploration potential of Blocks A&E and East Alibek, prior to committing to any significant new capital expenditures for drilling deep wells. • Max has acquired 80% of the share capitals of Madiran Investment BV ("Madiran") and Sherpico Investments Limited ("Sherpico"). Madiran and Sherpico own 100% of the charter capital in two Kazakhstan registered limited liability partnerships, Samek International LLP ("SI") and Samek Development Enterprise LLP ("SDE") who have been assigned the rights as contractor under the A&E Contract and East Alibek Contract respectively. The rights of SI and SDE as contractors under the Contracts are subject to registration by the competent authority in Kazakhstan ("Registration"). • The consideration for the acquisitions comprised $33,650,000 in cash and the issue and allotment to the vendor and its nominees of 134,100,000 Ordinary Shares. As Registration of SI and SDE as contractors under the Contracts has not yet been completed, US$24,050,000 of the cash consideration ("Deferred Consideration") has been deferred pending Registration. • Max, together with two other parties, has been the subject of litigation proceedings in Alberta, Canada in relation to the rights under the Contracts ("Proceedings"). A settlement has been reached whereby the plaintiffs have agreed to discontinue the claim against Max ("Settlement"). • If Registration has not occurred by 15 December 2005, the Company's obligation to pay the Deferred Consideration will terminate and the Company will seek to use the proceeds of the Placing to make a suitable alternative investment in oil and gas exploration assets, subject to Shareholder approval in the case of a substantial alternative investment of the Placing proceeds. If no suitable acquisition opportunities arise within 18 months of 15 December 2005, an extraordinary general meeting will be called to give Shareholders the opportunity of voting in favour of a voluntary winding-up of the Company and a distribution of its remaining cash reserves. James A. Jeffs, Max's Chief Executive Officer, commented: "I am delighted to be involved in a Company with such enormous potential. Whilstin the long run Max Petroleum intends to grow into an international oil and gascompany, we viewed Kazakhstan as an attractive starting point from which toestablish a foundation for the Company to expand. We were extremely pleased to get prospects of the calibre we did, and we willcontinue to look for other opportunities in the country, which boasts some ofthe potentially most rewarding prospects in the world. It is also a countrywhich is encouraging foreign investment, has a stable government and anestablished and transparent economic infrastructure. Listing on AIM will allow Max to grow at the pace which the Company's managementhas targeted, focusing on short-term production possibilities and long-termexploration success." Wednesday 27th October 2005 Enquiries:Max Petroleum PLC James A. Jeffs T: +44 (0)20 7514 1490 Chief Executive Officer Steve Kappelle Chief Operating Officer Pelham Public Relations Charles Vivian T: +44 (0)20 7743 6672 E : [email protected] Alisdair Haythornthwaite T : +44 (0) 20 7743 6676 E: [email protected] Nabarro Wells & Co. Limited Hugh Oram T : +44 (0) 20 7710 7400 Jonathan Naess Introduction and history Max was incorporated on 8 April 2005 for the purpose of acquiring an 80%interest in companies which, subject as referred to below under the paragraphheaded "Registration", ultimately have the exploration and production rights toone oil bearing and two potentially oil bearing on-shore properties in thePre-Caspian Basin of the Republic of Kazakhstan, one of the richest hydrocarbonbasins in the world. The Company completed the acquisitions on 12 October 2005. The Company is led by Jim Jeffs and Steve Kappelle, two experienced oil industryexecutives, who have previously occupied senior executive positions at ChaparralResources and Whittier Energy in the case of Jim Jeffs and Shell and Unioil AGin the case of Steve Kappelle. The Company views the acquisition of the Target Companies as the foundation forbuilding an international oil and gas exploration and production business led bya management team with proven experience of acquiring, evaluating and developinginternational oil and gas exploration opportunities. The Pre-Caspian Basin contains five super-giant sub-salt fields: Tengiz (6 to 9billion barrels of recoverable oil reserves), Karachaganak (47 trillion cubicfeet of natural gas, 4.7 billion barrels of gas condensate and 1.4 billionbarrels of oil), Kashagan (recently discovered with reserves estimated to be inexcess of 5 billion barrels), Zhanazhol (1 billion barrels of oil) and Astrakhanfields (located within the Russian part of the basin). In addition there are anumber of smaller shallower sub-salt fields in the basin which range in sizefrom under one million barrels to more than two hundred million barrels. Blocks A&E contain a number of smaller shallow prospects as well as a number ofsmall closed-in wells that may have reactivation potential. The Directors intendto use modern western exploration and, where applicable, reactivation techniquesto provide low risk, low cost oil reserves. At the same time Max will undertakea substantial work programme including the shooting of new 2D and 3D seismic andre-processing of existing data before commencing higher risk, higher costexploration for the much larger deep oil deposits which the Directors believemay be discovered on the Properties. Since incorporation the Company has raised approximately £11,710,000 to financepre-acquisition due diligence on the Properties, its negotiations with thevendor of the Target Companies and the initiation of a gravity and magneticsurvey. ODL, the Company's broker, has conditionally placed a further 73,920,000Ordinary Shares with investors at 35p per share to raise £25,872,000 beforeexpenses of £2,779,000. The proceeds of the Placing will be used to satisfy thedeferred cash consideration of US$24,050,000 which is payable subject toAdmission and Registration and to provide initial funding for the intendedexploration and reactivation programme to be conducted on the Propertiesfollowing Completion. Completion of the Placing is conditional upon Admission. The Properties Deposition within the Pre-Caspian Basin is divided into two megasequences -sub-salt and supra-salt. The depth to reservoir of the smaller supra-saltfields varies from a hundred to several thousand feet. The depth to reservoir inthe sub-salt fields varies from 6,000 to 17,000 feet, but it is at these depthsthat the super-giant fields elsewhere in the Pre-Caspian Basin have beendiscovered. The Directors believe that the Properties contain numbers of supra-saltprospects with significant potential for exploration for sub-salt fields. Maxhas acquired a large amount of geophysical and well data on the A&E ContractArea and the East Alibek Contract Area from Samek. The prospects inside theProperties have been identified by the Directors based on their preliminaryreview of that data, however much more data and analysis is required to properlyassess the hydrocarbon potential of these prospects. The Properties are serviced by excellent infrastructure, including electricalpower lines, a good network of all weather roads and an experienced oil industrywork force. The Properties are also close to the regional rail and oil pipelinetransportation systems and the East Alibek Contract Area is connected by a newpipeline through the Alibekmola field to the Kenkiyak to Atyrau pipeline. A&E Contract Area On the A&E Contract Area 25 supra-salt oil fields have already been discoveredand one additional large oil field was discovered adjacent to Block A in thelate 1980s, with original reserves of approximately 200,000,000 barrels ofrecoverable oil. The reserves in these fields are excluded from the A&EContract, however, some of the shut-in wells on Blocks A&E may have reactivationpotential, of which the Directors believe that the Iskine Prospect, may be themost important. The Company has the exploration and production rights below theshallow fields excluded from the A&E Contract Area. The data from these fieldsprovides excellent exploration and development information for futureexploration. In addition, there are a number of potential geological structures within theblocks where the Directors believe that many more supra-salt pools will bediscovered. Recoverable reserves per pool are estimated by McDaniel to besimilar to existing discoveries ranging from 1 to 20 mmbbls per pool. The potential deep structures in Block A have not yet been completely covered byseismic to confirm closure. Based upon comparison with the geology in otherfields in the Pre-Caspian Basin, given the geographic location of the blocks andthe large (12,455 square kilometre) concession area, the Directors believe thatthere is significant potential to develop deeper sub-salt plays in the A&EContract Area. East Alibek Contract Area There are several producing and non-producing oil fields located in closeproximity to the East Alibek Contract Area. These fields are operated byinternational and Kazakh oil companies, among them Nelson Resources Ltd.,Chinese National Petroleum Corporation and Transmeridian Exploration Inc. Thenearest discovery to the East Alibek Contract Area is the Alibekmola oil and gasfield, which was discovered in 1987. Published estimates for the Alibekmolafield indicate proven, probable and possible recoverable reserves ofapproximately 400,000,000 bbls. The main prospects are in the sub-salt Carboniferous zones on the western sideof the contract area and are thought to be similar in structure to thereservoirs in the Alibekmola field. Based upon the very limited well andseismic data available at this time, total crude oil potential has beenestimated by McDaniel to be in the range of 10 to 100 mmbbls within the contractarea. East Alibek is a much smaller contract area than the A&E Contract Area sothere are fewer prospects and less overall reserves potential. East Alibek is currently at the exploration stage of its development. Only oneexploration well has been drilled within the East Alibek Contract Area withthree other exploration wells which have been drilled just outside the contractarea in the relatively low, down-dip structural areas to the west and northwest.None of these wells recovered hydrocarbons, although they all encounteredporous carbonate intervals that may be hydrocarbon bearing in more favorablestructural positions. Strategy The Company's strategy in relation to the Properties is to: • initially explore for and develop oil pools in the shallower supra-salt prospects. The initial objective using modern western exploration techniques, including 2D and 3D seismic, reprocessing and re-interpretation of well logs is to quickly bring on-stream low risk, low cost oil reserves; and • obtain all the available seismic, geological and engineering data before seeking further finance to commence higher risk, higher cost exploration for larger oil discoveries in sub-salt prospects. The Company will undertake a detailed review of all the available data for the large sub-salt prospects, including re-processing and re-interpretation of existing seismic as well as shooting some new 2D or 3D seismic, to define more clearly the exploration potential of Blocks A&E and East Alibek, prior to committing to any significant new capital expenditures for drilling deep wells. In the event that the Company were to be successful in making a large sub-saltdiscovery, the Directors expect that a very substantial further fundraising and/or a farmin by an oil and gas major may be required in order to develop the fullpotential of the Properties. In the longer term the Company intends to build a portfolio of international oiland gas exploration and production assets. A&E and East Alibek Exploration Contracts The Company's first project has been to acquire an 80% interest in the A&EContract and the East Alibek Contract. The nature of the Company's interest inthe Contracts is explained further below under the paragraph headed "Details ofthe Acquisitions". The rights to the Contracts remain subject to Registration.A full Competent Person's Report prepared by McDaniel is included in theCompany's admission document. The following is a summary of the principalfeatures of the Contracts: Contract Contract Period Contract Exploration Group's Minimum Royalties Consideration Area interest Expenditure* (further paid or to be Work details set paid by the Commitments (100% out below) Company for (Before 2009) outstanding) interest**** Blocks A& Exploration 12,455 sq. 5 new wells 80% US$5,350,000 2-6% US$18,000,000E** phase expiring km Exploration Dec 2009(Reg. (with facility 200 km of 2D US$44,000,000 82,000,000Number to apply for 2x seismic (if Production Ordinary Shares1117) two year Phase entered) extensions) Production phase: 25 year period expiring Dec 2034East Exploration 79 sq. km 6 new wells 80% US$15,400,000 3-7% US$15,650,000Alibek*** phase expiring Dec 2009(Reg. (with facility 50 km of 2D Exploration 52,100,000Number to apply for 2x seismic Ordinary Shares1118) two year extensions) *Max will provide 100% of the capital expenditures on exploration under theContracts until such expenditures reach US$300,000,000 in aggregate. Suchexpenditures will be treated as a loan by Max to the Target Companies and willbe reimbursed out of the revenues generated from the Contracts prior to anydistribution of revenues to Shareholders. ** Following a commercial discovery on Blocks A&E, a bonus of 0.1 percent of thevalue of booked reserves is payable to the Kazakhstan state. The state mustalso be reimbursed for historical exploration expenses of up to US$29,500,000with the timing of payment subject to negotiation. *** Following a commercial discovery on East Alibek, a bonus of 0.1 percent ofthe value of booked reserves is payable to the Kazakhstan state. The state mustalso be reimbursed for historical exploration expenses of up to US$2,170,000within 180 days of the start of commercial production. **** The consideration payable for the interest has been satisfied except forUS$24,050,000 of the cash consideration, payment of which is deferred subject toAdmission and Registration The A&E Contract Area The A&E Contract Area covers approximately 12,455 square kilometres in theAtyrau region of Kazakhstan. It is located on the South Eastern margin of thePre-Caspian Basin and is serviced by excellent infrastructure, includingelectrical power lines, a good network of all weather roads and an experiencedoil industry work force. The area is close to the regional rail and oilpipeline transportation systems. The last major oil discovery in the vicinity of Blocks A&E was the supra-saltKenbay oil field discovered in the late 1980's, with original reserves ofapproximately 200,000,000 barrels of recoverable oil. This field is locatedadjacent to the northwest corner of Block A and is currently producing from theCretaceous, Jurassic, and Triassic reservoirs at depths from 150 to 1,200meters. A&E Contract The rights to explore and develop Blocks A&E derive from a hydrocarbonexploration and production contract which was originally issued to Samek by theMinistry of Energy and Mineral Resources of the Republic of Kazakhstan on 4March 2003. The A&E Contract has a 6 year exploration phase between 2003 and 2008 and a 25year production period which ends in 2034. The total minimum investmentcommitment under the Contract terms is US$50,000,000 comprising US$6,000,000during the exploration phase and US$44,000,000 if a commercial discovery isdeclared and the production phase is entered. The minimum work commitment during the exploration phase is US$6,000,000 ofwhich US$650,000 has already been paid. If a commercial discovery is made, acommercial discovery bonus of 0.1% of the value of the booked reserves ispayable to the State and the State must be reimbursed for historical explorationexpenses of up to US$29,500,000 with the timing of payment subject tonegotiation. Royalty rates for the pilot production phase (in tons of crude) are as follows: 0 - 200,000 2% 200,000 - 400,000 4% Over 400,000 6% The royalty rates for the production phase, upon commercial discovery, aresubject to further negotiation. Samek agreed to assign all its interests in the A&E Contract to SamekInternational LLP ("SI") on 17 May 2005. The consent of the MEMR was requiredto the assignment of the A&E Contract under the Subsurface Use Laws of theRepublic of Kazakhstan and was granted by the MEMR pursuant thereto on 8September 2005. Subject to registration of the relevant amendments to the A&EContract SI will become the contractor under the A&E Contract as assignee fromSamek. Max completed the acquisition of an 80% interest in Madiran InvestmentBV, the company which owns 100% of the charter capital of SI, on 12 October2005. The importance of, and process involved in, Registration is set out under theparagraph headed "Registration" below. Geology The A&E Contract Area is located on the south-eastern margin of the Pre-CaspianBasin in an area that has potential for both deeper Upper Devonian,Carboniferous and Lower Permian carbonate zones and shallower Upper Permian,Triassic, Jurassic and Cretaceous clastic oil reservoirs. The Pre-Caspian Basin is a pericratonic depression that formed during LateProterozoic-Early Paleozoic time. It is bounded on the east by the MugodzharyMountains and to the southeast and south by a series of orogenic belts. In thewest, the basin is bounded by the Voronezh Massif and in the north by theVolga-Urals Platform high. The geological data indicate that the principal source rocks in Blocks A&E areUpper Devonian to Lower Permian (Artinskian) age. Development Potential Based on the geophysical and well data available from adjacent properties toBlocks A&E, the Directors believe that Blocks A&E have significant hydrocarbonexploration and development potential. There is hydrocarbon potential in bothdeep sub-salt and shallow supra-salt deposits. Most of the supra-salt prospectsare expected to yield recoverable reserves in the range of 1 to 20 mmbbls perpool. In 1995, the summary of reserves just in the supra-salt shallow fields in1995 showed recoverable reserves of 55,000,000 tonnes (around 400,000,000barrels). This figure does not include any evaluation of mid-level and deepreserves. There are 25 discovered oil fields within Blocks A&E and one additional largeoil field adjacent to Block A. The total original oil reserves for these 26fields were estimated to be approximately 600,000,000 barrels according toestimates published by the Ministry of Energy in 1995. Cumulative productionwas approximately 200,000,000 barrels of oil with minor amounts of gas atJanuary 1, 1995. In addition, there are a number of potential structures withinthe Blocks. The discovered fields are excluded from the A&E Contract, however,they provide excellent exploration and development information for futureexploration. Historically three deep exploration wells have previously been drilled in thestructure high in the southern part of Block E. Although none of these wellspenetrated carbonate reservoirs, similar to that found in Tengiz or Kashagan allof the wells stopped drilling in the Lower Permian rocks and did not reach thedeeper Carboniferous rocks where these super-giant fields were discovered. Aswith other fields in the Pre-Caspian basin and given the geographic location andthe large (12,455 square kilometre) concession area, significant potential isexpected through developing the deeper sub-salt plays. Exploration and development strategy for Blocks A&E The Company intends to initially explore for and develop oil pools in thesupra-salt deposits so that low risk low cost oil reserves can be brought onstream quickly using modern western exploration techniques. Higher riskexploration for larger oil discoveries in sub-salt prospects will be the focusof later exploration activity subject to the Company's ability to raise thenecessary finance. The East Alibek Contract Area The East Alibek exploration contract covers an area of approximately 30 squaremiles in Western Kazakhstan. The northern boundary of the block is locatedapproximately 150 kilometers south of the city of Aktobe in the AktyubinskOblast. The East Alibek Contract Area is serviced by excellent infrastructure, includingelectrical power lines, a good network of all weather roads and an experiencedoil industry work force. The area is close to the regional rail oiltransportation system and is connected by a new pipeline through the Alibekmolafield to the Kenkiyak to Atyrau pipeline. Exploration within the area began in the 1930's and initially targeted shallow,supra-salt (above the regional salt layer) oil prospects. In the 1970's, theexploration focus changed to targeting oil reservoirs in deep sub-salt zoneswhich continued into the early 1990's. Several large oil fields, (some withassociated gas), were discovered during this period including the Alibekmola,Zhanazhol and Kenkiyak fields. In addition to the existing producing fields, anumber of undrilled exploration prospects were identified during Soviet timesthat may also contain recoverable hydrocarbons. Since the end of the Soviet era in the early 1990's, very little exploration hasbeen conducted and the primary activity has been associated with development ofearlier oil field discoveries by foreign companies. East Alibek Contract The rights to explore East Alibek derive from a second hydrocarbon explorationcontract originally issued to Samek by the MEMR on 4 March 2003. The East Alibek Contract has a 6 year exploration phase between 2003 and 2009.Upon commercial discovery, the contractor has the exclusive right to proceed tothe production stage, a mining allotment will be granted and the contractor isentitled to reimbursement of expenses incurred in connection with explorationand development. The total minimum investment commitment under the Contractterms is US$22,000,000 during the exploration phase of which US$6,600,000 hasalready been paid. If a commercial discovery is made, a commercial discoverybonus of 0.1% of the value of the booked reserves is payable to the State andthe State must be reimbursed for historical exploration expenses of up toUS$2,170,000 within 180 days of the start of commercial production. Royalty rates for the pilot production phase (in tons of crude) are as follows: 0-100,000 3% 100,000 - 300,000 5% Over 300,000 7% The royalty rates for the production phase, upon commercial discovery, aresubject to further negotiation. Samek agreed to assign all its interests in the East Alibek Contract to SamekDevelopment Enterprise LLP ("SDE") on 30 May 2005. The consent of the MEMR wasrequired to the assignment of the East Alibek Contract under the Subsurface UseLaws of the Republic of Kazakhstan and was granted by the MEMR pursuant theretoon 13 September 2005. Subject to registration of the relevant amendments to theEast Alibek Contract SDE will become the contractor under the East AlibekContract as assignee from Samek. Max completed the acquisition of an 80%interest in Sherpico Investments Limited, the company which owns 100% of thecharter capital of SDE, on 12 October 2005. The importance of, and process involved in, Registration is set out under theparagraph headed "Registration" below. Geology The East Alibek Contract Area is located within the Pre-Caspian (North Caspian)Sedimentary Basin in the western part of Kazakhstan. This basin is aworld-class hydrocarbon province, located on the southeastern margin of theRussian Platform and covers an area of some 200,000 square miles, from theRussian border in the north to the northernmost part of the Caspian Sea in thesouth. The Pre-Caspian Basin is a pericratonic depression that formed during LateProterozoic-Early Paleozoic time. It is bounded on the east by the MugodzharyMountains and to the southeast and south by a series of orogenic belts. In theWest, the basin is bounded by the Voronezh Massif and in the North by theVolga-Urals Platform high. The source rocks in the region are the Devonian, Lower and Middle Carboniferousand the Lower Permian clastic and carbonate deposits located in the inner partof the basin. Development Potential The East Alibek Contract Area has seen very limited exploration with only 1exploration well and seven 2D seismic lines. There are however severalproducing and non-producing oil fields located in close proximity to thecontract area operated by international and Kazakh oil companies, among themChinese National Petroleum Corporation and Nelson Resources Ltd. Based on thelimited well and seismic data available, the Directors believe that the EastAlibek Contract has fair to good crude oil exploration potential. The potentialfor recoverable crude oil is estimated to be in the range of 10 to 100 mmbbls. Exploration and development strategy for East Alibek The Directors believe that further exploration work is necessary in East Alibek.They intend to begin by collecting and reviewing all existing well data andrunning new 2D and possibly 3D seismic lines before drilling any furtherexploration wells. Details of the Acquisitions Acquisitions Max completed the acquisitions of 80% shareholdings in Madiran Investment B.V.("Madiran") and Sherpico Investments Limited ("Sherpico") on 12 October 2005. Madiran is a company registered in the Netherlands and is the holding company ofSamek International LLP ("SI"), the Kazakhstan limited liability partnership towhom Samek has assigned its rights under the A&E Contract. Sherpico is a company registered in England and Wales and is the holding companyof Samek Development Enterprise LLP ("SDE"), the Kazakhstan limited liabilitypartnership to whom Samek has assigned its rights under the East AlibekContract. By acquiring 80% of the share capitals of Madiran and Sherpico Max hasindirectly acquired 80% interests in the A&E Contract and the East AlibekContract, because Madiran and Sherpico respectively hold 100% of the chartercapital of SI and SDE, the assignees of the Contracts. The total aggregate consideration for the acquisitions of 80% of Madiran andSherpico is US$33,650,000 in cash and 134,100,000 Ordinary Shares ("Consideration Shares"). The consideration has been satisfied by Max save thatpayment of US$24,050,000 of the cash consideration has been deferred pendingAdmission. The Consideration Shares will represent approximately 51.62% of theissued ordinary share capital of Max immediately following Admission andcompletion of the Placing. Samek has received a total payment of $9,600,000 in consideration for itsagreement to assign its rights under the Contracts to SI and SDE. This paymenthas been made by Max and has been offset against the non-deferred element of thecash consideration payable to the vendor in respect of the Acquisitions. Shareholders Agreements Max has entered into shareholders agreements with Horizon Services NV ("Horizon"), the residual 20% shareholder in Madiran and Sherpico. Pursuant to theshareholders agreements Max and Horizon have agreed, inter alia, that: (i) Max shall have the right to appoint up to three directors and Horizon shall have the right to appoint one director to the boards of Madiran, Sherpico, SI and SDE; (ii) Horizon shall at any time have the right to sell its 20% shareholding in Madiran and Sherpico to Max in consideration for such number of Ordinary Shares as have a market value equal to 20% of the value of the Contracts at the relevant time; and (iii) Max will provide up to US$300,000,000 in aggregate of anticipated exploration and production expenditure in relation to the Properties, which funding will be provided by way of loan secured on the assets of the Target Companies and the Target Partnerships. Contract Operators The operator under the Contracts is SI in respect of the A&E Contract and SDE inrespect of the East Alibek Contract. Mr Garifolla Kachshapov, whose biographyis set out below has been appointed as the general manager of both SI and SDE sohe will have responsibility for the operation of the Contracts on a day to daybasis. Mr Nagangali Uteev whose biography is also set out on page 22 of belowhas been appointed as Chief Geologist of both SI and SDE, with responsibilityfor site analysis and interpretation. The Company also intends to appointSteve Kappelle, Dauren Myrzagaliyev and Garifolla Kachshapov to the board ofdirectors of the Target Companies and the Target Partnerships. Steve Kappellewill oversee the operations of the Target Companies, the Target Partnerships andthe Contracts on behalf of the main board of Max. Registration The Ministry of Energy and Mineral Resources of the Republic of Kazakhstan ("MEMR") has executed the necessary amendments to complete the assignments ofthe Contracts but has not yet registered these amendments. The Company has beenadvised that Registration is required to allow SI and SDE to become thecontractors under the Contracts and so complete the transfer of title to theContracts. The Directors have received legal advice in Kazakhstan that thereare only two legal grounds on which Registration can be refused, namely (i) iffalse information has been submitted to the relevant Competent Authority, on thebasis of which the permission was issued to transfer the subsoil use right or(ii) if there is no underlying civil contract for the transfer of a subsoil useright. The Directors have also been advised that no evidence has been presentedwhich would give the MEMR grounds to refuse such Registration and that theTarget Partnerships have the right to demand Registration. If Registration has not occurred on or before 15 December 2005, the obligationof the Company to pay the Deferred Consideration will terminate and the Companywill have the right to call for the Consideration Shares to be transferred backto it or such person(s) as it may nominate. In this event the Company will: (a) seek to use the proceeds of the Placing to make a suitable alternative acquisition of an oil and gas exploration and production asset; (b) seek the approval of Shareholders prior to making any substantial alternative investment of the proceeds of the Placing; (c) if no suitable acquisition opportunities arise within 18 months of 15 December 2005, call an extraordinary general meeting at which Shareholders will be given the opportunity to vote in favour of a resolution to wind up the Company and distribute its remaining cash reserves. Litigation The Company has been served with proceedings in Alberta, Canada in relation tothe rights under the Contracts. Although the Company has always refuted theclaim, it has now negotiated a settlement whereby it is agreed that theplaintiffs will discontinue the proceedings in consideration for payments ofUS$500,000 and £525,000 of which the payment of £525,000 will be satisfied bythe issue and allotment to the plaintiffs of 1,500,000 Ordinary Shares, whichthe plaintiffs have agreed not to dispose of for the 12 months following theissue of these Ordinary Shares. Directors and Senior Managers The Directors are as follows: James Andrew Jeffs, Chief Executive Officer James A. Jeffs, aged 52, is the Chairman of the Board of Whittier Energy, an Oil& Gas production and exploration company. He is also a director of both MagnumOil and South Oil Company, Russia based oil and gas companies. Mr. Jeffs hasserved as Managing Director and Chief Investment Officer of The Whittier TrustCompany, a $4 billion trust and investment management company, since 1994. Heserved as the Co-Chairman of the Board of Chaparral Resources, Inc., an oil andgas exploration and production company until May 2002, and as Chairman and ChiefExecutive Officer until October 2002. Prior to that he was Chief InvestmentOfficer and Senior Vice President of Trust Services of America, a $12 billiontrust and investment management company, and served as President and ChiefExecutive Officer of TSA Capital Management, an institutional investmentmanagement company. He has served on the $30 billion Los Angeles County EmployeeRetirement Association board of investments and received both his Bachelor ofScience and MBA degrees from the University of Southern California. Steven James Kappelle, Executive Director Steve Kappelle, aged 42, was appointed Honorary Australian Consul for Kazakhstanin 2004 and has been based in the Middle East and Central Asia for 20 years.From 1990 to 1995 he worked for Shell in Dubai where he held several managerialpositions including Business Development Manager for the region. In Kazakhstanhe has worked closely with government oil companies and in 2001 was instrumentalin establishing the governmental crude swap agreement between Kazakhstan andIran. Subsequently with the government and in private organisations based inKazakhstan, he was responsible for co-ordinating the multi modal export of over4,000,000 tons of crude oil from Kazakhstan. He has an Honours degree inEconomics from the University of Western Australia. Dauren Myrzagaliyev, Non-Executive Director Dauren Myrzagaliyev, aged 38, has been a consultant to Samek since 1997. Priorto that he worked as a director on international and government relations forTek Kazinvest and was 3rd Secretary at the Embassy of the Republic of Kazakhstanin the USA. He has also worked as an attache with the Ministry of ForeignAffairs of the Republic of Kazakhstan and at the Kazakhstan Academy of Sciences. David Ray Belding, Non-Executive Director David Belding, aged 59, is a trained lawyer who was previously a seniorexecutive and co-founder of Mandalay Resort Group, which was acquired by MGMResorts, Inc for US$4.8 billion in June 2005. David had also previouslyco-founded Gold Strike Resorts, a hotel and casino operator, which he developedfrom 1977-1995. He graduated in Economics and Finance from the University ofArizona and received a Doctorate in Law from Georgetown University. He sits onthe boards of several corporations and associations, including the University ofNevada, First Independent Bank of Nevada, and the Whittier Trust Company. Thomas Richard Fuller, Non-Executive Director Tom Fuller, aged 58, is a Registered Professional Engineer, and a foundingPartner in Diverse Energy Management Company since 1988. Diverse is a private,upstream USA exploration and production company that makes equity investmentspredominantly in energy related businesses. Tom was previously a Director ofHillin Oil Company, and Senior Vice President and Energy Group Manager of FirstCity Bank, Dallas and Houston. He commenced his career with Exxon as a petroleumengineer after graduating in Petroleum Engineering from the University ofWyoming. Following Admission, the Directors intend to appoint a finance director and willconsider the appointment of a further non-executive director. The senior managers of the Company are as follows: Garifolla Kachshapov Mr. Kachshapov first joined Samek as a Director when it was founded in 1994,returning as General Manager in 2001 following a spell as director of a smalloil production company between 1999-2001. He commenced his career as anengineer with a heavy equipment manufacturer after graduating in MechanicalEngineering from the Kazakhstan Polytechnic Institute. Mr Kachshapov owns 100%of the share capital of Horizon. Nagangali Uteev Mr. Uteev is a petroleum geologist. His career spanned a number of seniorappointments during the Soviet and post-Soviet eras in petroleum exploration. Details of the Placing The Company's broker, ODL, has conditionally placed 73,920,000 new OrdinaryShares with investors at 35p per share. The Placing, which is not underwritten,is conditional inter alia on the admission of the Company's issued and to beissued Ordinary Shares to trading on AIM by 31 October 2005, or such later timeas ODL and the Company agree. The Placing will raise £25,872,000 for the Company before expenses. After theexpenses of the Placing and Admission, estimated in total at £2,779,000(including VAT), the Placing will raise £23,093,000. The Placing Shares willrank pari passu in all respects with the existing issued Ordinary Shares. It is expected that the proceeds of the Placing will be received by the Companyon or before 31 October 2005 with the exception of £5,000,000 which is expectedto be received within 90 days of Admission. It is expected that the appropriatestock accounts of Placees will be credited with the Placing Shares comprisingtheir Placing participation with effect from 27 October 2005. In the case ofPlacees requesting Placing Shares in uncertificated form, it is expected thatcertificates in respect of the Placing Shares will be despatched by post, within14 days of the date of Admission. Pending despatch of share certificates orcrediting of CREST accounts, the Company's Registrar will certify anyinstruments of transfer against the register. Use of the proceeds of the Placing It is intended that the funds raised pursuant to the Placing will be used tosatisfy the deferred cash consideration of US$24,050,000 payable in respect ofthe Acquisitions and to enable the Company to conduct a 3D seismic programme onthe Properties as soon as practicable. The 3D seismic programme will provideimproved and more up to date data on the Properties. The Directors have prepared a Preliminary Work Programme and Budget for 2005 -2007 designed with two principal objectives: - to evaluate the hydrocarbon potential on Blocks A&E and East Alibek. - to identify the most effective route to early production from the existing fields. The programme includes completion of the regional and structural seismicprogramme started by Samek in 2005, database compilation and well evaluation atEast Alibek. The shallow potential will be targeted with detailed 2D and 3Dseismic acquisition and interpretation of the post salt prospects, andproduction potential on Block E will be evaluated. Early production will beplanned and implemented and potential well re-entries identified forre-completion. The deep exploration potential will be interpreted using the newregional data with existing old seismic. The use of the proceeds of the Placing described above is however subject toRegistration, which is the process required to perfect the transfer of therights of the Target Partnerships to the Contracts. Until such time asRegistration occurs and pending their use for the purposes referred to above,the monies raised pursuant to the Placing will be placed on deposit or investedin fixed interest bonds or money market funds. Current trading and prospects The Company has been established only recently and therefore has no tradingrecord. The prospects for the Company are dependent on the results of thefurther exploration work to be undertaken on the Properties. The Company alsointends to identify and acquire further exploration and developmentopportunities. Working capital The Directors are of the opinion that, taking into account the net proceeds ofthe Placing and having made due and careful enquiry, the working capitalavailable to the Company will, from the date of Admission, be sufficient for itspresent requirements, that is, for at least the next 12 months from the date ofAdmission. Dividend policy The nature of the Company's business means that it is unlikely that theDirectors will recommend a dividend in the early years following Admission. TheDirectors believe the Company should seek to generate capital growth for itsShareholders but may recommend distributions at some future date, depending uponthe generation of sustainable profits, when it becomes commercially prudent todo so. Share options In order to attract and retain high calibre individuals to the Board and seniormanagement to the Company, the Company has granted options over Ordinary Sharescomprising 16.8% of its issued share capital before the Placing and 12.04% ofits issued share capital immediately following the Placing and Admission ("Options"). The Directors believe that the future success of the Company willdepend on management and key employees being adequately incentivised andidentifying closely with the Company and that the award of the Options iscommensurate with the roles and responsibilities of the relevant option holders. The Options include the grant on Admission of options to subscribe for newOrdinary Shares representing 3.4% of the issued share capital of the Company onAdmission to each of Jim Jeffs, Steve Kappelle and Condor Investment & TradingCorporation ("Condor"). If further Ordinary Shares in the Company are issuedwithin 12 months of the date of Admission (other than on exercise of shareoptions and on any capital reorganisation of the Company), further options willbe granted to each of Jim Jeffs, Steve Kappelle and Condor over Ordinary Sharesrepresenting 3.4% of any such issue (10.2% in aggregate). The Options have beengranted to Condor as an incentive in respect of its role as business developmentconsultant for the Company. Lock-in arrangements All the Directors have undertaken in the Placing Agreement not to dispose of anyOrdinary Shares held by them for a period of 12 months after Admission andthereafter not to dispose of any Ordinary Shares for a further period of 12months other than through the Company's broker for the time being. The Company has signed lock-in agreements with or has otherwise taken steps toprocure that Shareholders holding Ordinary Shares which in aggregate comprise62.38% of the issued ordinary share capital of the Company before the Placingand 44.63% of its issued share capital immediately following the Placing andAdmission will not dispose of their holdings of Ordinary Shares on the sameterms as the lock-in arrangements for Directors. Corporate governance As an AIM company the Company is not obliged to, and does not currently fullycomply with, the corporate governance regime in the UK, currently the CombinedCode on Corporate Governance. The Directors recognise the importance of sound corporate governancecommensurate with the size of the Company and the interests of Shareholders. Asthe Company grows, the Directors intend that it should develop policies andprocedures which reflect the Combined Code on Corporate Governance which waspublished in July 2003 (the "Combined Code"), so far as is practicable, takinginto account the size and nature of the Company. The Board intends to establish a Remuneration Committee and Audit Committee assoon as practicable following Admission. The Remuneration Committee will reviewthe performance of the executive directors of the Company and determine theirremuneration and the basis of their service agreements with due regard to theinterests of Shareholders. The Remuneration Committee will also determine thepayment of any bonuses to executive directors. The Audit Committee will meet atleast twice a year and will be responsible for ensuring that the financialperformance, position and prospects of the Company are properly monitored,controlled and reported on and for meeting the auditors and reviewing theirreports relating to accounts and internal controls. The Company will adopt and operate a share dealing code consistent with Rule 19of the AIM Rules and will take all proper and reasonable steps to ensurecompliance by the Directors and relevant employees. Dealings and CREST The Directors have applied for the Ordinary Shares to be admitted to CREST witheffect from Admission and CRESTCo Limited has agreed to such admission.Accordingly, settlement of transactions in the Ordinary Shares followingAdmission may take place within the CREST system if the relevant Shareholder sowishes. CREST is a voluntary system and holders of Ordinary Shares who wish toreceive and retain share certificates will be able to do so. Admission Document Defined terms used in this announcement are more fully defined in the Company'sadmission document, copies of which are available free of charge from theoffices of Nabarro Wells, Saddlers House, Gutter Lane, London EC2V 6HS and fromthe registered office of the Company at Ground Floor, 11 Albemarle Street,London W1S 4HH, during normal business hours on any weekday (Saturdays, Sundaysand public holidays excepted) from the date of Admission until at least 30 daysafter the date of Admission. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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