Strategic Review

RNS Number : 7939X

Regal Petroleum PLC

13 December 2010

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM
ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

Regal Petroleum plc

("Regal" or the "Company")

10 December 2010

UPDATE RE: STRATEGIC REVIEW, OPERATIONS & CORPORATE ACTIVITY

Regal, the AIM-listed oil and gas exploration and production group (symbol: RPT), provides an update on corporate activity and operations as follows.

Following the disappointing results of the Company's 2009/2010 drilling campaign at its Mekhediviska-Golotvschinska ("MEX-GOL") and Svyrydivske ("SV") gas fields in Ukraine, on 30 September 2010 the Company announced a strategic review of reservoir performance and its business plans.

The results of the review, including independent technical studies and analysis of well test results, have largely attributed the disappointing well flow-rates to the lower permeabilities of a substantial portion of the gas-bearing sandstones as defined by wireline logs, which are also vulnerable to liquid saturation blocking when exposed to overbalanced conditions.

The various perforation techniques, adopted to date, during the drilling campaign have failed to deliver significant gas inflow from these lower-permeability intervals and the review has concluded that an alternative approach is, therefore, required. Hydraulic fracturing is a key completion technology that remains to be deployed and tested in these fields and which has the potential to improve flow-rates from these tighter gas sands.

The review has, therefore, concluded that development of the Company's Ukrainian asset will require further technical studies, including the trialling of alternative technologies for well completion, including hydraulic fracturing, following which the impact, if any, on the Company's estimated reserves and the investment capital required to fund future development can be determined.

Since the current plan does not envisage further drilling in the short term and that future wells would be drilled only to B-Sand reservoirs, the Company decided to complete its discussions with Saipem SpA ("Saipem") with regard to both the utilisation of the drilling rigs operated by Saipem and to the various other arrangements between Saipem and Regal. Subject to contract, this has resulted in the following settlements of all liabilities and obligations:

1.   Regal to pay Saipem a sum of € 5,083,334; being € 2,541,667 to terminate each of the two contracts for the drilling rigs operating in the Ukraine, including the settlement of all demobilisation costs. Such payment will release Regal from all remaining operational obligations and liabilities to Saipem; and

2.   Regal to pay Saipem a further sum of € 9,000,000 to release Regal from all other obligations and liabilities of Regal and its subsidiaries to Saipem, including the release of all guarantees and letters of credit.

These payments will fall due on or before 25 February 2011.

Further to the announcement made on 30 September 2010 regarding the agreement to sell the Company's Barlad concession in Romania, the Company announces that it has made significant progress in satisfying the conditions precedent required to close this sale which is expected to result in the receipt of proceeds of $ 25 million (excluding VAT and before taxes).

The Company remains subject to a suspension order issued by the Ukrainian Ministry of Environmental Protection in relation to its operations at the MEX-GOL and SV fields.  As announced on 17 November 2010 and 1 December 2010, following court rulings against Regal, Regal has shut-in its operations at these fields, which has resulted in the suspension of production and the associated loss of revenue. 

Since the announcement on 30 September 2010, and given the loss of revenue resulting from the production shut-in, the Company has implemented a cost reduction programme that has significantly reduced, in particular, the overheads and support costs relating to the Company's operations in the Ukraine. The Company continues to explore options to further reduce cost.

As at 10 December 2010, the Company held $ 28.0 million in cash, prior to the receipt of proceeds from the Barlad disposal and the payment of the settlement amounts to Saipem, described above. The Company currently has commitments of approximately $ 5.4 million, whilst $ 12.7 million of the cash is held as security against certain letters of credit in favour of Saipem which will be released when the settlements described above are made.

As announced on 25 November 2010, the Company has received a number of approaches with respect to a potential offer for the Company. As part of its strategic review, the Company has been in negotiations with several parties regarding potential corporate options that resulted in the offer by Energees Management Limited for the entire issued, and to be issued, share capital of Regal for a cash consideration of 24 pence per ordinary share ("the Offer"), announced on 10 December 2010.

The Board of Directors of Regal, having taken into consideration:

n the technical difficulties associated with bringing the wells to sustainable commercial production rates;

n the uncertainty in the outcomes of further reservoir appraisal and the potential impact, if any, on the reserves estimate;

n loss of operational revenue as a result of the suspension order and uncertainty as to when production may be allowed to resume;

n additional capital requirements for further appraisal and field development; and

n the ongoing legal and political risks surrounding the Ukrainian operations,

believes that the Offer provides greater value and certainty to Regal shareholders than the Company remaining an independent listed entity at this time.

For further information, please contact:

Regal Petroleum plc          Tel: [phone] 

K Henry, Chairman

R Wilde, Finance Director

Strand Hanson Limited       Tel: [phone]

Simon Raggett / Rory Murphy

Citigate Dewe Rogerson     Tel: [phone]

Martin Jackson / George Cazenove

RonanMcElroy, PhD Geology, SPE, Chief Technologist of Regal, has reviewed and approved the technical information contained within this Announcement in his capacity as a qualified person, as required under the AIM Rules for Companies of the London Stock Exchange.

This announcement is not intended to be and does not constitute, or form any part of, an offer to sell or the solicitation of an offer to subscribe for or buy any securities, nor shall there be any sale, issue or transfer of the securities referred to in this announcement in or into any jurisdiction in contravention of any applicable law. 

The Offer will be made solely by means of the Offer Document and the acceptance forms accompanying the Offer Document, which will contain the full terms and conditions of the Offer, including details of how it may be accepted.

The distribution of this announcement in jurisdictions other than the UK and the availability of the Offer to shareholders who are not resident in the UK may be affected by the laws of relevant jurisdictions. Therefore any persons who are subject to the laws of any jurisdiction other than the UK or shareholders who are not resident in the UK will need to inform themselves about, and observe, any applicable requirements.  Copies of this announcement are not being, and may not be, mailed or otherwise forwarded, distributed or sent in, into or from any jurisdiction where to do so would constitute a breach of applicable law or regulations.

 

END

 

 

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