PetroNeft buys additional 40pc interest in licence 67

Oil and gas exploration and production company PetroNeft has signed heads of terms with Belgrave Naftogaz, it announced on Friday, to acquire an additional 40% interest in licence 67, for $2.9m.

The AIM-traded firm said that over the last 12 months, it had “significantly increased” the focus on lIcence 67, as it looked to develop the value of its portfolio.

It said it had increasingly seen the potential that licence 67 offered in terms of exploration and production.

As a means of moving the licence forward in a “cost-effective and timely” way, it said a a non-binding heads of terms had been executed between itself and Belgrave Naftogaz to acquire an additional 40% interest in licence 67, thus increasing PetroNeft's interest from 50% to 90%.

The terms of the proposed transaction included consideration of $2.9m, to be partially satisfied by the issue of 80 million PetroNeft shares to Belgrave Naftogaz, representing an 8.7% shareholding, for a value of $1.2m.

It would also be satisfied by a cash consideration of $1.7m, which would be financed through a three-year loan from Belgrave Naftogaz with an interest rate of 8% above the Bank of England base rate.

The loan and interest would be repaid at the end of the loan, and up to 50% of the loan could be converted by Belgrave Naftogaz to PetroNeft shares at 2p per share during the first year, 2.5p per share during the second year, and 3p per share during the third year.

Belgrave Naftogaz would have the right to nominate a director onto the PetroNeft board.

PetroNeft said it would carry Belgrave Naftogaz for its 10% share of the joint venture costs up to repayment of the loan, after which time Belgrave Naftogaz would fund their share of the joint venture costs.

The company said it would now work with Belgrave Naftogaz to finalise and implement a work programme for the development of Chermoshanskaya, and the further investigation of Ledovoye over the winter months.

“This potential acquisition is consistent with the board and management's previously-announced commitment of enhancing shareholder value through boosting production, reserves and revenue,” said chief executive officer David Sturt.

“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.”

Sturt said the “significant premium” on the share converted reflected both PetroNeft and Belgrave Naftogas's shared view of the mismatch between the current share price of PetroNeft and the “intrinsic value” of its 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 Naftogaz to ensure that we close the acquisition during the first quarter this year.”

At 1206 GMT, shares in PetroNeft Resources were up 35.2% at 0.85p.