Argentine Acquisition (1261J)

TIDMPPC

RNS Number : 1261J

President Petroleum Company PLC

27 June 2011

27 June 2011

PRESIDENT PETROLEUM COMPANY PLC

("President" or "the Company")

Argentine Acquisition

President Petroleum (AIM: PPC), the oil and gas exploration and production company is pleased to announce the farm-in of a 50% working interest in the CNO-8 "Puesto Guardian" licence in Salta Province, Argentina.

Highlights

-- Entry into very prospective onshore licence block with existing oil production, and material upside potential through exploitation of reserve base and further exploration

-- Immediately increases net production to President by approximately 225 bopd

-- Targeting net 1200 bopd from Argentina by end Q2 2012 from an initial firm five well drilling programme; with further production drilling in 2012 planned.

-- Acquisition price $2.20 per 2P barrel

-- Acquisition increases Company estimates of net 2P reserves by approximately 500 percent (estimate 2.1 million 1P and 6.6 million 2P barrels of oil, assuming licence period extended to 2026), based on assessment performed by internationally recognised reserve auditors

-- 2P reserves (net) valued by President at NPV10 US$ 60 million, assuming licence extension to 2026, with material further upside from bringing in Possible reserves and exploration

-- Consideration of US$1.5 million cash, 5,102,041 President shares (equivalent to approximately US$2 million at the closing middle share price on 24 June 2011 and an exchange rate of GBP1:US$1.60), a US$10.75 million carry (representing 50% of drilling costs on a US$21.5 million drilling programme), plus 1 million warrants to purchase President shares at GBP0.50 per share

-- Acquisition and work programme expected to be funded from existing cash resources and current and anticipated production

-- Creation of Latin American business unit, charged with managing the acquired business and expanding regional interests

-- Energy pricing dynamic in Argentina undergoing positive structural change

-- Completion of transaction 1 July, 2011

Peter Levine, Chairman of President Petroleum Company Holdings BV commented:

"This transaction reflects the determination of the new management of President to concentrate on acquiring producing assets with proved and probable reserves combined with realistic near term potential to materially increase production.

"This acquisition has a solid foundation around existing producing fields, and holds significant exploitation potential with the ability to materially grow production through a clearly thought out near term drilling and completion programme. This production is complemented by our production assets in Louisiana, where as previously announced we are embarking on a series of PUD wells and workovers.

"President considers Argentina a very fertile location to build a major hydrocarbon producing business, making material investments in the local economy, engaging with well connected partners, training and growing a local workforce and benefitting the communities where the Company works. President expects to achieve rapid progress in the short to medium term in this regard."

There will be a conference call for analysts at 10am today. Analysts wishing to join the call should dial [phone] and request the "President Petroleum Analyst Conference Call." The accompanying slides will be available on the Company's website, www.presidentpc.com.

For further information contact:

 
 President Petroleum Company 
---------------------------------  --------------------- 
 John Hamilton, Interim Chairman    [phone] 
---------------------------------  --------------------- 
 Ben Wilkinson, Finance Director    [phone] 
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 Evolution Securities               [phone] 
---------------------------------  --------------------- 
 Tim Redfern, Neil Elliot, Adam 
  James 
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 RBS Hoare Govett                   [phone] 
---------------------------------  --------------------- 
 Stephen Bowler, John MacGowan, 
  Max Jones 
---------------------------------  --------------------- 
 Pelham Bell Pottinger              [phone] 
---------------------------------  --------------------- 
 James Henderson, Mark Antelme, 
  Jenny Renton 
---------------------------------  --------------------- 
 

The Puesto Guardian Concession

The Puesto Guardian Concession ("Concession") is 622sq km and is located in the Noroeste Basin in NW Argentina. The area includes five fields; four of which are producing from the Cretaceous Yacoraite formation (depth 2400-3200m) with light, sweet crude that is trucked to a local refinery. The field was originally discovered by YPF in 1937 and was awarded to a consortium including the current operator Petrolera San Jose (the "Operator") in 1991 as part of the privatisation of YPF. The Operator has a 40 percent interest in the Concession and is in the same group as Tripetrol Petroleum S.A. (from whom the Company has acquired its interest) which retains a 10 percent interest in the Concession. Whilst the Concession did produce at a peak of 9000 bopd during the early 1980's, only one well has been drilled since the current Concession was awarded in 1991 and production has remained on a very slow decline from 1,100 bopd in 1994 to the current production of approximately 450-500 bopd (gross). 344sq km of 3D seismic data was acquired in 2005 over three of the fields, but low oil prices and other factors have meant that no wells have been drilled since. Whilst one of the older wells drilled by YPF, MDT 14, has issues due to the failure to properly abandon and plug the well, pursuant to a court order made in Argentina within the last year, YPF have been and are paying all material costs and expenses associated with that well.

For the year ended 31 December 2010, the Concession's operations generated a net profit of Argentine Pesos 5.95 million (approximately US$ 1.5 million).

Reserve Estimates

 
 Net to President 
  (mmbo)             Licence to 2026   Licence to 2016**   Independent Report* 
------------------  ----------------  ------------------  -------------------- 
 1P                  2.1               1.3                 1.5 
------------------  ----------------  ------------------  -------------------- 
 2P                  6.6               3.6                 3.7 
------------------  ----------------  ------------------  -------------------- 
 

* Effective December 2009 ** Adjusted by President for production to June 2011

An international, independent reserve audit report dated May 2010 attributed gross reserves of 2.9 million 1P and 7.4 million 2P as at 31 December, 2009, within the confines of the existing licence period to 2016, and using a realised oil price assumption of US$ 46/bbl (currently US$ 56/bbl). Using these reserve numbers adjusted for realised production until June 2011, the Company has estimated remaining reserves net to President's 50% interest until 2016 at 1.3 million 1P and 3.6 million 2P barrels of oil).

An application for a concession extension to 2026 (which is not a condition to the farm in) was made by the Operator in March 2011 and signing of an extension agreement in line with other recent extensions in Argentina is expected by end 2011. The Company's assessment of oil reserves on a licence expiry of 2026 is net 2.1 million 1P and 6.6 million 2P barrels of oil (based on US$ 56/bbl), with further upside potential.

The Company estimates the value of net 2P reserves at NPV10 of US$ 60 million, assuming oil prices remain at current levels in Argentina, and initial well rates at 380 bopd (low end of range). Clear upside exists in the oil price, production rates, and additional 2P reserves.

Committed Work Programme

A committed five well, jointly operated drilling program (with option to increase drilling slots) has been tendered and first contracts will be awarded in July 2011 for an anticipated spud in November 2011. The five well programme consists of four wells on Proved Undeveloped Reserve and one Probable location, to access by passed reserves up-dip of existing wells based upon revised maps from the 3D survey. The wells will be designed for high quality completions utilising modern mud systems and fracture stimulation, enabling production rates to exceed those of older wells. The Company estimates the 30-day-initial-production average at 380-600 bopd per well, with the cost estimate of US$ 4.2 million gross for each completed well. The wells are expected to take 35 days to drill and are expected to be tied in immediately. A Joint Operating Agreement has been signed with the Operator, giving President material involvement in operations.

Acquisition Consideration

The farm-in agreement has been entered into with Tripetrol Petroleum S.A. (the "Seller"). The consideration paid for the farm-in comprises US$3.5 million in cash which is payable on the closing of the transaction which will occur on 1 July 2011 ("Closing"). President is also under an obligation to fund an initial work programme of US$21.5 million of which half represents the carried interest of the remaining 50 per cent owners of the Concession. In addition, Tripetrol Oil Trading Inc., an affiliate of the Seller, has, conditional on Closing, agreed to subscribe for 5,102,041 ordinary shares of President ("Subscription Shares") at 24.5 pence per share (based on the closing mid-market price of a share on the day prior to the date of this announcement and using an exchange rate of GBP1:US$ 1.60). The Subscription Shares will represent 4.45 percent of the Company's issued share capital (as enlarged by the issue of a further 5,994,898 ordinary shares as set out in this announcement). Save in certain limited circumstances, the Subscription Shares cannot be sold for a period of one year from their issue. A warrant to subscribe for one million ordinary shares at 50 pence per share has also been granted, conditional on Closing, to the

Seller. The warrant can only be exercised at any time between 1 July 2012 and 1 July 2014. President will also in 2012 make an unsecured loan facility (with standard lender protections) available to the Seller on commercial terms for up to US$ 3.8 million, repayable from production revenue. Following Closing, President will own an economic working interest of 50% in the Concession. The legal title will be transferred to the Company's subsidiary following the relevant local authority approval which is expected to occur in the third quarter of 2011.

Argentine Oil Industry

The Argentine oil and gas industry is in the midst of a transformation that is fundamentally altering pricing for both oil and natural gas. Price caps have created a situation which will likely make the country a significant importer over the next decade. Long established price controls and restrictions on hydrocarbon exports have discouraged energy companies from investing in development and exploration, with a resultant fall in production. Over the last 18 months, oil prices have risen from a capped price of US$42/bbl to a current market price of US$56/bbl (vs. current US$90-100/bbl WTI). This dynamic, combined with the emerging shale play discovered by YPF, is creating renewed interest from the existing majors.

Management Team

President has formed a highly qualified management team to progress its Latin American strategy, starting with the Puesto Guardian licence. The Company will be opening a local office in Buenos Aires. Collectively, the team has over 40 years of experience in Latin American E&P, in senior technical, business development, managerial, and board level roles. The team is aligned with President through having an indirect 2.5 percent interest in the Puesto Guardian concession by virtue of their 5 per cent holding in an operating subsidiary. The team will also be subscribing for 892,857 New President shares at 24.5 pence, representing 0.78% percent of the Company's share capital (as enlarged by the issue of a further 5,994,898 ordinary shares as set out in this announcement). The team will also be issued options to acquire shares in President, with vesting conditions to include far reaching share price performance targets.

Application for Admission

President has applied for 5,994,898 new ordinary shares in the Company to be admitted to trading on AIM market ("Admission"). Admission is expected to become effective 7 July 2011. The new shares will rank pari passu with the Company's existing ordinary shares.

Following Admission, the number of issued ordinary shares of the Company will total 114,732,530.

The above figure may be used by shareholders as the denominator for the calculation by which they determine if they are required to notify their interest in, or a change to their interest in President.

President Petroleum (AIM: PPC), is an oil and gas exploration and production company with onshore producing and exploration assets in Louisiana, USA and onshore exploration licences in South Australia.

Dr Jonathan M Cohen, FGS, C Geol, Executive Vice President Exploration, who meets the criteria of qualified persons under the AIM guidance note for mining and oil and gas companies, has reviewed and approved the technical information contained in this announcement.

This information is provided by RNS

The company news service from the London Stock Exchange

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