OilVoice - Range to Acquire a 50% Interest in Two Key Oil & Gas Blocks in Georgia

Range to Acquire a 50% Interest in Two Key Oil & Gas Blocks in Georgia

Thursday, July 09, 2009

Highlights:
• Heads of Agreement signed with private UK company to acquire a 50% interest in two oil and gas blocks in the Republic of Georgia
• Blocks cover 7,000 sq km (approx 10% of the acreage of the Country) and have been subject to significant exploration during the Soviet era
• Range has also agreed to issue 70m shares and 70m options subject to milestones being met and appoint nominee to board
• Range is proceeding with a placement of AUD$2.5m to meet initial requirements as part of transaction and to fund operational activities on Puntland assets
• Acquisition to complement existing Puntland assets, which the company remains 100% committed to and keen to rapidly progress in 2009

Range Resources Limited, the AIM listed Australia-based oil and gas explorer, has significantly enhanced its oil and gas portfolio, with confirmation it has entered into a Heads of Agreement with private UK company Strait Oil and Gas Limited (“Strait”) to acquire a 50% interest in two oil and gas blocks in the Republic of Georgia.

The two blocks subject to this agreement, Blocks VIa and Vlb, cover a contiguous area of 7,000 sq km (approx 10% of the surface area of the Country) and were subject to significant exploration in the Soviet era. Please refer Figure 1 for outline of block locations.

Led by seasoned international energy executives Mark Patterson and Greg Smith, Range’s management team is well placed (in conjunction with Strait’s established team) to find and produce commercial volumes of oil and natural gas on the Georgian Blocks.

Under the terms of the agreement, subject to standard due diligence, shareholder and regulatory approvals, Range:
• will complete Phase II under the relevant Production Share Agreement (PSA) applicable to the blocks, consisting mainly of 350 sq. km of 2D and 3D seismic and well selection. Budgeted costs are between US$4-5m,
• make the following equity payments to Strait’s nominees:
- 20m Range Shares and 20m Range Options (RRSOA) upon due diligence completion and obtaining relevant shareholder approvals;
- 20m Range Shares and 20m Range Options upon completion of Phase II under the PSA and
- 30m Shares and 30m Options upon completion of the first 2 wells under the PSA or a commercial discovery, whichever occurs first.
• appoint a Strait nominee to the Range board upon regulatory and due diligence completion.

Blocks Via and Vlb background
A significant number of wells were drilled during the Soviet era (mainly in the 1980’s and early 1990’s) in and adjacent to the Blocks. Strait has undertaken a large scale review of all available data over the last two years with the assistance of recognised international oil and gas consultants RPS Energy. Key findings of the technical review include:
• Very few of the approximately 200 wells were drilled with the specific objective of finding oil and gas reservoirs. Certain wells were drilled to relatively shallow depths, to further define structural features identified from surface geological mapping, and to assist in planning the location and design of water reservoirs. Deeper wells were drilled for the purpose of detailed identification of the stratigraphy of the area. Many of these wells found oil and gas shows, in which case they were shut in and abandoned without testing. Much of the work carried out by the technical staff of Strait has been to collate information from these diverse databases and to integrate the data into their own regional interpretation. Data reviewed includes seismic, gravity and magnetic, well, structural mapping and field analogues and reservoir data.
• An initial analysis of 24 areas identified 11 structures suitable for oil in place estimates and key targets for future drilling. Of these structures two are deeper than 2,500 meters and the rest are shallow features between 600 and 2,500 meters. Range intends to release an announcement detailing the oil in place potential of the identified leads and prospects following completion of its final stage due diligence review.
• In compliance with the terms of the applicable PSA, Range proposes to complete 350km of seismic before May 2010 (in accordance with the PSA) and then commence a minimum two well drilling program.
• In addition to the oil potential of the Blocks there are numerous prospective gas fields, which include highly prospective natural gas and coal bed methane targets. Of the 161 wells drilled for gas, 22 displayed potentially commercial flow rates. Early production could be attained by supplying the local town of Kutaisi with a dedicated natural gas supply.

Background on Georgia
Since the Rose Revolution, Georgia has focused on developing its political and economic systems to Western European standards. Following the unrest with Russia in 2008 Georgia has returned to a state of civil order. The European Union has been advisor, establishing a base and opening a branch of the European Bank for Reconstruction and Development in the capital Tbilisi. Some key background points include:
• Georgia was named the year's number one reformer in the World Bank's 2007 "Doing Business Survey," improving its overall ranking from 112 to 37.
• Significant decrease in corruption in the public and private sectors made Georgia the World Bank's top anticorruption performer in 2006 "Anticorruption in Transition-3" (ACT3) report.
• Repatriation of profit. Foreign investor’s rights and guarantees are equal to those granted to Georgians. Profit and property repatriation is allowed.
• Infrastructure: Located at the crossroads of Europe and Central Asia, Georgia’s three major oil and gas pipelines, Black Sea ports, well-developed railway systems, together with its airports are playing an increasingly important role, linking East & West. The Georgian Railway, one of the crucial links in Eurasian transit, serves as a short-cut between Europe and Central Asia, carrying 3.9 million passengers and 22.6 million tons of cargo in 2006. Georgian Railway now directly links to the railway systems of Armenia, Azerbaijan and Russia.
• Oil and Gas Pipelines: Georgia plays an important role as a strategic crossroad for hydrocarbon transit in the Caspian region. During the last ten years, approximately $5 billion has been invested to develop the three major oil and gas pipelines that cross Georgia including:
- The Baku-Tbilisi-Ceyhan (BTC) pipeline, completed in 2005 at a total construction cost of nearly US$4 billion, can transport up to a million barrels of oil a day from the Sangachal terminal in Azerbaijan to a newly constructed marine terminal in Ceyhan on the Turkish Mediterranean coast.
- The South Caucasus gas Pipeline (SCP), completed in 2006, will carry natural gas from the Shah Deniz field in the Caspian Sea to customers in Georgia, Turkey and Azerbaijan.
• Construction of two new pipelines across Georgia increases its role as a strategic crossroad for hydrocarbon transit in the Caspian region. One pipeline runs just south of the Blocks.
With Range’s planned onshore drilling program in Puntland, and its progress towards developing a joint exploration strategy with the Puntland Government for the Outer Continental Shelf off the Puntland coast, the Georgian farm in is considered by the company to be a significant step towards establishing the company as a diversified international explorer with a growing oil and gas acreage position and significant upside potential.