OilVoice - KEA Petroleum Raises £6 million Ahead of AIM Admission

KEA Petroleum Raises £6 million Ahead of AIM Admission

Friday, February 12, 2010

Oil and gas exploration business, KEA Petroleum, will begin trading on London's AIM Market next Monday after successfully raising £6 million from institutional and private investors.

Kea Petroleum plc was incorporated in England and Wales on 18 September 2009. Since incorporation, the Company has raised approximately £7.2 million from the Pre-IPO Fundraising and has, through the acquisition of Kea Holdings, acquired three oil and gas exploration permits in the Taranaki and Northland Basins of New Zealand.

Kea Petroleum has assembled an experienced team with a combination of technical expertise and relevant experience. This is complemented by extensive financial and transactional knowledge of the oil and gas sector gained through both public and private companies across the major global hydrocarbon regions.

The proceeds from the Pre-IPO Fundraising and the Placing will be used to drill one well on each of the PEP 51155 and PEP 51153 permits in the Taranaki Basin, to carry out initial seismic surveying on the PEP 51339 permit in the Northland Basin and to provide general working capital for the Group.

The Company, through its operating subsidiary Kea Exploration, has entered into a conditional funding and participation agreement and a gas offtake agreement with Methanex New Zealand. Under the terms of the agreements, Methanex will fund the drilling of a well (Beluga-1) on Kea's permit PEP 51155 in consideration for Kea granting certain rights to Methanex to purchase the gas discovered and share in the profits from the development of the Beluga prospect. Further details of the Methanex transaction and the agreements that have been entered into with Methanex are set out in paragraph 6 below and paragraph 10 of Part VI of this document.

Following Admission, the Company will continue to evaluate prospects and leads on its existing permits and is actively considering further exploration opportunities in the Taranaki Basin, the Northland Basin and elsewhere. Field operations in Kea's Northland permit are expected to be carried out in the first quarter of 2010. The increase in interest in this frontier basin is underscored by the fact that the offshore portion of this basin will be the focus of drilling activity this year, with two wells scheduled to be drilled by Origin Energy in the coming months. The Northland Basin is of similar geological origin and style to the productive Taranaki Basin, to which it is the northern extension.

The majority of the Kea Board previously worked together at Rift Oil plc, a company acquired by Talisman Energy Holdings Ltd in 2009. This former AIM-listed venture successfully delivered a three-fold return on investment over a four year period, while demonstrating the ability to operate in a timely and cost effective manner in the challenging environment of onshore Papua New Guinea. This team has now chosen to focus on New Zealand, where it has considerable expertise, particularly in the prolific Taranaki Basin. The initial thrust will be to build a business where existing and lower risk new discoveries can be rapidly brought on-stream, by utilising the well established local infra-structure and market.

Although regarded as mature for exploration, the depth, variety of exploration targets and complexity of structure mean that significant further reserves continue to be found and developed. Kea has identified two particular niches which it feels well suited to exploit in its permit areas PEP 51155 and PEP 51153:

The New Zealand gas market was long dominated by prolific Maui production peaking at over 200 bcf/annum in 2003. However, the rapid decline of this field since then has resulted in a gas supply shortfall, with a consequent mothballing of certain facilities such as the Methanex methanol plants at Motonui and Waitara which are currently operating at only 30 per cent. capacity. The increasing demand for gas at better prices than the old Maui contract prices justifies a renewed exploration effort for these deeper plays.

Extensive shallower oil has regularly been encountered in the Miocene, Mount Messenger and Moki formations and a number of viable producing fields exist, with reserves of a few million barrels. Production is sometimes complicated by variable reservoir properties and the typically waxy nature of the crude. Recently, OMV Aktiengesellschaft, Austria's largest oil producing, refining and downstream operating company, has developed a 30 year old offshore Moki discovery with new technology involving heated downhole equipment and casing, together with horizontal drilling. This has resulted in field production rates exceeding 40,000 bopd, such that New Zealand's current liquids production is now about 50 per cent. higher than the previous high in the 1990s.

Kea intends to apply similar heating and completion technologies, combined with cheap, modern rock fragmentation techniques to bring Miocene oil accumulations such as at Wingrove into profitable production. These techniques will also be applicable to the targets Kea has identified in its offshore application area and other future projects.

Kea has also taken a position in the onshore part of the Northland Basin, which, despite similar geology to the Taranaki, has remained virtually unexplored. Being an early mover here, with moderate and low cost work obligations, Kea will be able to take advantage of the likely upswing in offshore licensing and exploration which the New Zealand government is strongly promoting. A large area of the offshore Northland Basin is presently gazetted for application closing mid 2010.

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