Investment Update - Turkey

RNS Number : 8523F

Xtract Energy plc

04 May 2011

 



4^th May 2011

AIM: XTR

XTRACT ENERGY PLC

("Xtract" or the "Company")

Investment Update Turkey : Extrem Energy AS ("Extrem")

Xtract Energy plc ("Xtract") owns 50% of Extrem Energy AS ("Extrem"), a Turkish joint stock company. The remaining 50% of Extrem is owned by Merty Energy, Petroleum Exploration, Education and Services Inc. ("Merty") and individual members of the Yoldemir family. Extrem has a portfolio of licenses interests in onshore and offshore Turkey.

Following the disappointment of not achieving commercial production from the Alasehir licence in 2010, Xtract, assisted by external advisors, reviewed the entire asset portfolio of Extrem as well as the corporate structure of Extrem. The Company has been in active discussions with Merty, and others, to determine the most advantageous way to progress the Extrem portfolio given competing demands on Xtract resources, whilst retaining value for our shareholders. This review and the outcome of the discusssions concluded that additional investors should be sought to participate in the various licence work programmes.

Xtract is pleased to announce that a Heads of Agreement has been signed between Xtract, Extrem, Merty and the Yoldemir family, whereby Merty intends to acquire Xtract's 50% share ownership in Extrem giving Merty and the Yoldemir family complete control of the Extrem corporate entity. Merty and the Yoldemir family as owners of Extrem have agreed to grant Xtract certain Gross Over Riding Royalty Interests in the existing licences and to make other payments in consideration for the assignment of Xtract's 50% share in Extrem.

The headline details are as follows:

1 Gross Over Riding Royalty Interest ("GORRI")

Licence Name                                   GORRI

Edirne-2 (Onshore)                             6%

Alasehir (Onshore)                             6%

Siraseki (Onshore)                             6%       - Note (A)

Marmara Denizi (Offshore)                 6%

Marmara-2 (Offshore)                         7%

Marmara-3 (Offshore)                         7%

Candarli Korfezi (Offshore)                8%

The GORRI payments would be made licence by licence and on the basis that Xtract would be entitled to the applicable GORRI percentage of gross hydrocarbon sales revenue after state royalty (currently 12.5%) has been deducted.

[GORRI generic example : Assume gross production of 500 bbls/day sold at US$80/bbl = US$40,000 revenue minus 12.5% state royalty = US$5,000 state royalty = US$35,000 remaining revenue subject to the GORRI. GORRI of say 6% on US$35,000 = US$2,100 royalty payable to Xtract per day of 500 bbls/day production].  

Note (A) : During 2010, Extrem were unsuccessful in securing an extension to the Siraseki licence, however Merty has since re-applied for this licence with the understanding that , if successful, ownership will be transferred to Extrem 1 year after award. To date the licence has not been awarded to Merty. The Siraseki GORRI is premised on Merty successfully re-acquiring the Siraseki licence.

2 Processing Royalty

The processing royalty is based on a USD 5 gross royalty per barrel processed through the existing production facility, after a deduction for state royalty and plant operating costs. The royalty becomes payable once the plant has reached 500 barrels per day throughput, and with a total capped payment of USD 500,000.

3 Farm In Success Payments

A payment upon each discrete successful farm out by Extrem to a third party will trigger a payment to Xtract of USD 200,000. Based on the seven licences that are included in the transaction, total success by Merty would result in a payment to Xtract of USD1,400,000.

4 Signing Payment

A payment will be made on signature of the fully termed Assignment Agreement and the associated Royalty Agreement. This one off payment would be USD 100,000.

This outcome of this transaction will enable Merty and Extrem to fund and progress the licences through farm out with new partners. Xtract benefits from this strategy in that it will have no further financial liability in relation to Extrem or the Turkish licences but Xtract will benefit from near term income whilst retaining a significant upside participation in potential successful commercial production scenarios through the royalty agreements.

Xtarct Energy Taxation Update

Xtract is also pleased to give an update on its current tax liability. The Xtract tax liability resulting from gains made on sales of investments, particularly MEO shares, has recently been clarified with the Australian Taxation Office and HMRC. At this point in time Xtract has a current tax liability of £1.212 million with no additional liability for either interest or penalties. Tax payments of £1.5 million have already been made. A payment schedule has been agreed with the relevant tax authority.

Qualified Person

In accordance with AIM Guidelines, Peter Moir, B.Sc. Civil Engineering, M.Eng. Petroleum Engineering, UK Chartered Engineer, President of Elko Energy Inc. and CEO of Xtract Energy plc is the qualified person as defined in the Guidance Notes for Mining, Oil and Gas Companies, February 2010, of the London Stock Exchange, that has reviewed the technical information contained in this press release. Mr Moir has more than 30 years experience in technical, operational and commercial aspects of the E&P business.

Enquiries please contact:

Xtract Energy	Peter Moir, CEO Alan Hume FD	[phone] [phone]
Cenkos Securities Plc	Jon Fitzpatrick Beth McKiernan	[phone] [phone]

About Xtract Energy

Xtract identifies and invests in a portfolio of early stage oil and gas assets and business interests with significant growth potential. The Company aims to work closely with the associated management teams to achieve critical project milestones, to finance early stage asset and business development activity, and then to finance the asset development phase, or if appropriate to crystallise value for all shareholders at a suitable exit point. Xtract aims to achieve returns for our shareholders through access to the significant upside rewards associated with our investments.

For further information on Xtract please visit www.xtractenergy.co.uk

A short description of the principal assets of Xtract is set out below. These assets are either held directly or through wholly owned subsidiaries of the Company.

Extrem Energy AS ("Extrem Energy")

Following execution of a fully termed Assignment Agreement and associated Royalty Agreement, Xtract will hold a royalty interest over the license portfolio currently owned by Extrem Energy, onshore and offshore Turkey.

Elko Energy Inc. ("Elko")

Elko is a Canadian registered oil & gas exploration company which has interests in exploration and production licences in the Danish and Dutch North Sea. Its major asset in the Danish North Sea is a 33% working interest in an exploration and production licence 02/05 and a 33% working interest an adjoining exploration and production license 01/11, close to the prolific Central Graben oil kitchen. Technical work indicates the potential for significant resources on these combined licenses. Elko also holds a royalty interest in gas-bearing license blocks P1 and P2 in the Dutch North Sea. Xtract owns approximately 50% of Elko's issued share capital.

Zhibek Resources Ltd ("Zhibek Resources")

Zhibek Resources is an oil and gas exploration and production company which has a 72% interest in the Tash Kumyr exploration licence in the Kyrgyz Republic. Xtract has entered a farm-out agreement to fund a seismic and drilling programme for 2008-2011. Xtract owns 25.0% of the issued share capital of Zhibek Resources.

Xtract Oil Ltd ("XOL")

Xtract's wholly owned subsidiary, XOL, is focused on the development of the Company's oil shale resources in Australia and the technology for oil extraction from oil shale resources. Xtract has oil shale exploration rights over mining tenements in the Julia Creek area of Queensland. In addition to evaluating third party technologies, XOL has been developing proprietary technology for the commercial extraction of liquid hydrocarbon products from oil shale.

Xtract Energy (Oil Shale) Morocco SA ("XOSM")

XOSM is a joint venture with Alraed Limited Investment Holding Company WLL, a company controlled by His Highness, Prince Bandar Bin Mohd. Bin Abdulrahman Al-Saud of Saudi Arabia. XOSM has signed a Memorandum of Understanding with the Office National des Hydrocarbures et des Mines for the purposes of evaluation and possible development of an oil shale deposit near Tarfaya, in the south west part of Morocco. Xtract currently holds 70% of the joint venture.

 

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