b4atf
11 years ago
Range Resources Q&A on the Proposed Merger with International Petroleum
MM (Mining Maven): Can you outline the key features of this transaction and the principal
benefits you see for Range Resources and International Petroleum shareholders?
RR (Range Resources): Significant production growth: Range has now cemented a world class asset
base and management team capable of delivering 13,000 bopd by 2015 from P1 and P2 reserves on
both conventional and unconventional plays through the proposed merger with International
Petroleum. That doesn't assume any exploration success which now (assuming the merger proceeds)
is underpinned by what we would see as a world class exploration portfolio, including Range's
current acreage and now complemented by key projects in Niger and Kazakhstan. International
have a 10 well re-entry program on their key Yuzhno-Sardakovsky and Zapadno-Novomolodezhny
Russian assets. The wells have been drilled, fracced and ready to be put into production (3-4,000
bopd) as soon at 16 km pipeline is completed in Q1 2014. The pipeline has been purchased, laid and
just requires welding now. The project can then sustain the drilling and development of up to an
additional 40 well locations.
New CEO Chris Hopkinson and his technical team. Chris is a former Shell senior exec with Soviet
Union & Africa expertise, and was CEO of Imperial Energy, which was sold in 2008 to ONGC Videsh of
India for £1.45bn. He has a serious track record and has a big technical team in Russia to support
him. Additionally his expertise on Waterflood can certainly assist us with our program in Trinidad.
We will be able to share people and technical resources and through this merger we can sort out our
historical delays in Trinidad and bring production back on track and achieve stated production
objectives.
Increased reserve and resource base: A package of 76 mmbbls of net attributable 2P reserves, 3P
Reserves of 233 mmbbls of oil and gross mean estimate prospective resources of 761 mmbbls of oil
and 156 Bcf of gas with scope for further increases to come- this is a truly unique opportunity.
Access to further reserve and production based lending facilities that would be able to encompass
the expanded reserve and production base of the merged entity.
Exploration Upside: The Niger exploration acreage (4 blocks totalling 70,950km² with 100% owned
PSC's) is adjacent to and on trend with China National Petroleum Corp's blocks. The Niger PSC's are
very loose in terms of time constraints, so the projects can move forward when capital is available
rather than due to the adherence of strict timetables enforced on the company. Additionally, Niger
has very favourable tax incentives.
Please access announcement released by IP today:
http://www.internationalpetroleum.com.au/IRM/ShowDownloadDoc.aspx?SiteId=200&AnnounceG
uid=d34b72da-e848-4ae1-b972-cd72d228495c
Another 85,000km² block is under negotiation in a similarly prospective North African country.
MM: Why with all Range has got on, would it go and try and double its size and complexity with
the proposed merger with International Petroleum?
RR: It's a simple answer – Value. We could ignore the opportunity and focus on our existing assets
with current rig and maintenance upgrades in Trinidad and achieve significant gains over the next 6-
12 months. But when we analysed IP’s assets and the team that runs them, we formed the view that
there was a truly unique ability to create a mid-tier oil and gas company, which is not only
underpinned by the effective doubling in market capitalisation but also increased upside potential at
all levels (2P, 3P, prospective recoverable resource and in ground potential). International
Petroleum have its challenges due to an illiquid exchange, need for capital and liquidity - Range
provide the solution, but our shareholders are asking what's in it for them – it’s the opportunity that
would cover all bases from operational management through to near term production growth (both
conventional and secondary recovery) and low, medium and high exploration risk. Key question that
follows is how will it all be funded and that question is addressed below. The coming weeks will
involve a number of events on both Range's and IP’s sides to ensure the financing solution is
beneficial to all shareholders.
MM: You have stated the merger will build a more robust company with greater financial and technical resources. Given that Range Resources has been operating in the sector, involved with complex transactions and handling challenging geology for some time, why now do you feel shareholders need a more robust company?
RR: Robust from a number of perspectives - the Niger blocks take Range back to its early days with multi billion barrels in ground potential, which now compliments the production potential of Trinidad and Russia. None of our shareholders will deny that operationally we have fallen short with regards to time frames and execution of work programs, which is our responsibility. However it is important to note that from a well by well (bopd) and geological perspective, we are exceeding expectations. With or without the merger, we are implementing a rig overhaul and a maintenance program to significantly improve efficiencies, but the merger goes much further in bringing a proven oilfield and team which adds reserves, production and experience in taking oilfields from 1,000 bopd to over 20,000 bopd and we believe both Russia and Trinidad are capable of being those type of assets based on both current reserves and known exploration upside.
MM: You have stated the current production of the merged entity would be approximately 1,000 barrels oil per day (bopd) and a total targeted production from all sources of 13,000 bopd by 2015. There has been some concern voiced with regard to a slower than anticipated build up in existing company production levels. Therefore, what gives you the confidence that this target is achievable?
RR: Slower than anticipated production ramp up in Trinidad has been a function of capital and timing - as mentioned above with the new capital and operational programs in place on the back of the production based lending facility being drawn down imminently we are confident in the targets being met. The Trinidad team has also been examining horizontal well options following the exciting QUN 135 discovery, which could prove to be an important boost to short term production. On the Russian side, Chris Hopkinson has a proven track record in Russia and brings with him a technical team covering all key areas of bringing known fields into production. The co-mingling of operational resources will also assist in bringing different approaches to drilling and secondary recoveries in the respective fields.
MM: There are many investors who express concerns regarding geopolitical risk associated with operating environments such as Russia and Niger, which will now become key assets of the merged company. What is your view and confidence level regarding these territories and what would you say to address such concerns?
RR: Chris Hopkinson has worked in Russia for 14 years. In his words, if anything the situation has become more stable over the last 6 years. Contrary to popular belief the Russian Oil industry is highly regulated and to high standards. The state recognises that small dynamic and hungry companies like IP are the ones that will push the boundaries to unlock Russia’s huge reserves base. To that end IP have recently seen active support from the various state bodies. In addition to this, IP have excellent connections at all levels both locally and centrally and is confident of its ability to deliver results in Russia as its management team has previously demonstrated.
Niger has a democratically elected government that is highly supportive and active with regards to further development of its hydrocarbon potential. The government has ensured that any unwanted activity post the Libyan and subsequent Mali conflicts have been contained in the far North of the country. International Petroleum’s highly prospective assets are in the south of Niger on the Chad border, in a proved basin where there are no stability or security risks. IP are confident of the Governments continued support and are looking forward to exploration success there.
MM: What approach will the company now take to legacy assets which have formed the basis for investment in Range by many shareholders? In particular we refer to the assets in Puntland and Georgia.
RR: Approach doesn't change from what's already been communicated. In Puntland, we will retain our 20% onshore interest and continue to work with Horn Petroleum in furthering activities to ensure a third well is drilled as quickly as possible. Our offshore block also has a large potential, and
we continue to engage with potential joint venture partners to progress to a first stage exploration program. Georgia is progressing solidly with Georgian Industrial Group (“GIG”) joint venture on the Coal Bed Methane project and finalising the seismic interpretation of the recently completed program. We are confident that we will attract farm in partners for our acreage not covered by the GIG joint venture and have been in advanced negotiations with two parties.
MM: Shareholders have expressed concern with regard to dilution with Range’s share capital structure and financing. If one assumes this merger is to complete can you outline the company’s financing strategy and the key financial instruments you will have in place to support the company’s operations?
RR: Dilution implies that there is no corresponding increase in value of the merged company. Our critical task in the next few weeks as we look to complete the due diligence process is to demonstrate to our shareholders why the two companies combined offer a far superior value proposition than maintaining our current path. Understanding the financing is the key to the merger, and we aim to have a clear path set out as we move to complete the merger. Key features being completion of our own Texas sale and Trinidad drawdown, the ability to access further reserve / production based lending facilities to encompass the reserve / production base for Russia and potential asset sales / farm-ins of non-core assets, thus covering the exploration costs. The merger allows IP to progress with various financial initiatives without the immediate pressures which it faced on its own in its current state.
MM: The proposed merger remains subject to various conditions, including due diligence and regulatory approvals. What is the time you expect for these conditions to be satisfied and are there any other conditions?
RR: Four to six weeks is probably a realistic time frame for the merger to become unconditional, subject to final due diligence and regulatory approvals
MM: How can a 30% premium to the current market value be justified? Why is Range paying a premium that appears to be excessive to the market’s own valuation of International Petroleum (IP)?
RR: National Stock Exchange of Australia (NSX) is not liquid and transparent enough market to suggest share price is a true reflection of value, given the volume and trading that has occurred in IOP on the exchange. Key points are to use discounted cashflow, in ground barrel valuation, PV10 net present values and market comparisons and always justify the consideration offered. Additionally, our objective is for IOP shareholders (which include many of the top resource funds in the world) to accept the offer as opposed to other alternatives that were on the table. Essentially, Range offers the ability for IOP shareholders to realise not only the growth potential of their own company but participate in Range's significant growth story - clearly the same applies for Range’s shareholders.
MM: With this merged entity, and a near 5 billion shares in issue, should shareholders really be excited and can you outline the value creating opportunities you see that could drive investor interest and share price appreciation?
RR: The key is to demonstrate to our shareholders and the market that we have as a starting point a potential merged company with a combined market capitalisation of approximately £160m and the ability to exponentially grow significantly from immediate and sustained production increases, realised asset sales and exploration / farm out successes. We believe that upon a completed merger, Range will be in a position to take on a different perception and interest from both retail and institutional investors. Range intends to provide a number of updates over the coming weeks which, in our opinion, will ensure that the benefits of the merger are clearly outlined and the greater value proposition well and truly understood.
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
Renee
12 months ago
Hot Features
Premium
