5th Nov 2007 07:01
Island Oil and Gas PLC05 November 2007 05 November 2007 ISLAND ANNOUNCES EXECUTION OF MEMORANDUM OF UNDERSTANDING WITH VALIEXCHIMP S.L.R. COVERING VARIOUS PRODUCING OIL AND GAS FIELDS AND INFRASTRUCTURE IN THE REPUBLICS OF MOLDOVA AND TATARSTAN Island Oil & Gas plc ("Island" or the "Company") today announces that it hasexecuted a Memorandum of Understanding (the "MOU") with Valiexchimp S.L.R.("Valiexchimp") giving Island the exclusive option, up until 30 November 2007and subject to satisfactory technical, commercial and legal due diligence, toacquire, through a Joint Venture Company ("JVC"), 50% owned by Island and 50%owned by Valiexchimp, a 50% equity stake in certain upstream and downstream oiland gas assets, currently owned and operated by Valiexchimp, in the Republic ofMoldova. The MOU also gives Island the exclusive right to a 50% equity stake inany producing oil and gas assets acquired by Valiexchimp in the Republic ofTatarstan as a result of a Protocol Agreement relating to the commercial andeconomic collaboration between the Ministry of Economics and Foreign Affairs ofthe Republic of Tatarstan and the Process Committee of the Republic of Moldova. The assets that are the subject of the MOU include: • the currently producing Valeni Oil Field, with combined gross P50 and P10 resources of 4.67 mm barrels of oil based on an independent Reserves Report produced in March 1996, together with several untested satellite structures; • the currently producing Victorovca Gas Field, with combined gross P50 and P10 resources of 9.38 bcf of gas based on an independent Reserves Report produced in March 1996, and deeper, as yet untested reservoirs with oil and gas shows; • the Comrat Oil Refinery, with a current capacity of approximately 2,000 bopd; • various oil and gas gathering pipelines and oil storage facilities; • five land drilling rigs, including one with a capability of drilling to 4,000 meters; • an exclusive option to acquire producing interests in the Republic of Tatarstan through Valiexchimp. The oil and gas assets are located in Southern Moldova adjacent to the Romaniaborder and form a continuation of a long-established producing hydrocarbon trendexploited in Eastern Romania that has to date not been extensively evaluated inSouthern Moldova. An investment programme over the next two years will result in: • up to 44 production wells being drilled to accelerate the recovery of the combined P50 and P10 resources established in the 1996 Reserves Report for the Valeni and Victorovca Fields; • acquisition of 2D seismic to delineate additional potential oil and gas structures in the vicinity of the Valeni and Victorovca Fields; • the construction of a 9 kilometer gas pipeline to connect the Victorovca Field to the MOLDGAZ facilities to increase the market potential for the Victorovca gas; • Upgrading the Comrat Refinery through the addition of vacuum and bitumen facilities to handle asphalt production to sell to the European Union funded project to upgrade Moldova's road network. Currently development wells can be drilled, completed and put on production forapproximately $USD 230,000 per well using the drilling rigs that will as aresult of the Completion of this transaction be jointly owned by Island andValiexchimp. Based on current oil and gas prices achieved by Valiexchimp throughexport of oil to Romania and Bulgaria, each oil well will potentially pay backthe capital investment in drilling and completing the well in 100 days (afterdeduction of Government taxes and operating costs). The cost of acquiring the equity stake in the Valiexchimp oil and gas assets isEuros 10 million of which Euros 5 million are paid on formation of the JVC by 30November 2007. The balance of the acquisition price is payable after 90 days ofcontinuous oil production from the Valeni Field. The gross cost of the investment programme over two years is capped at $USD13.36 million. Island is issuing 100,000 Ordinary Shares to Valiexchimp in accordance with theterms of the MOU in respect of securing an option to acquire the assetsdescribed herein by 30 November 2007. The Company is in discussions with potential investors in order to fund thisopportunity in such a manner that no financial obligation will accrue toIsland's shareholders. Investors in the joint venture will have the opportunityto participate in a new subsidiary, jointly owned by Island, which will hold theMoldovan assets and any potential oil and gas assets in Tatarstan. For aninvestment of approximately Euro €12 million, to cover Island's acquisitioncosts and its share of the investment required to complete the 2008 workprogramme, Investors will share in the profits from the Moldovan operations andhave the option to participate in any subsequent projects in Tatarstan. If theexclusive option is exercised with Valiexchimp, the timing of new drilling andseismic operations will be coordinated with net positive cash flow projectionsfrom the current production wells in the Valeni and Victorovca Fields togenerate the funds required for the proposed investment programme. Commenting on the Memorandum of Understanding with Valiexchimp, Paul Griffiths,Chief Executive said: "Valiexchimp have established themselves as the dominant oil and gas operator inMoldova. Their growing reputation has been recognised through their ability tobe considered for potential acquisitions in Tatarstan, a significant oilprovince. Island, with its experienced commercial and technical teams,experience in gas production and marketing, combined with its proven trackrecord as a highly competent operator, is a natural joint venture partner forValiexchimp as it seeks to generate additional value for its growing portfolioof oil and gas assets. Subject to securing investors that can separately fundthis transaction, in order not to impact Island's core strategy of deliveringvalue from its Irish and Dutch exploration and near-development assets, Islandcan potentially benefit from immediate cash flow from the Moldovan operations." Enquiries: Lisa J Newman MCIPR MIRSNewman ConsultingTel: +44 (0)1252 878682 Paul GriffithsChief ExecutiveIsland Oil & Gas plcTel: +353 1 631 3755 Notes to Editors: Island was founded in 2003 and listed on AIM in December 2004 (LSE:IOG). TheCompany has interests in eleven Irish offshore licences, as well as licences inthe Netherlands, Morocco and Albania. Further information on Island can be found on the Company's website at http://www.islandoilandgas.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
IOG.L