SOURCE: Skyland Petroleum Limited

Skyland Petroleum Limited

October 23, 2016 18:42 ET

ASX Announcement -- Skyland Petroleum -- Acquisition Update on East Siberian Oil and Gas Asset

GEORGE TOWN, GRAND CAYMAN--(Marketwired - October 23, 2016) - Skyland Petroleum Group Limited ARBN 613 928 671 (ASX: SKP) ("Skyland" or the "Company") is pleased to announce that it has successfully completed its due diligence on the Mirninsky Licence.

The update provided is in relation to the potential acquisition of a producing oil and gas asset located in the East Siberian basin within the Sakha (Yakutia) Republic of the Russian Federation (herein referred to as the "Mirninsky Licence").

Previous announcements disclosed that the Company is contracted to purchase 100% of the Mirninsky Licence from a Russian entity known as 'YATEC' for USD100 million (the "Acquisition"); and that such purchase was contingent upon a number of factors which included receipt of satisfactory results from the Company's financial, technical and legal due diligence investigations. The Company has recently completed its due diligence into the project and has concluded that the results of the due diligence are encouraging.

Positive Due Diligence Results

In relation to technical due diligence, the Company is pleased to provide the independent audited SPE-PMRS estimate reserves and contingent resources figures for the Mirninsky Licence. The work was completed by Gustavson Associates LLC ("Gustavson") of Boulder, Colorado, USA in accordance with the Australian VALMIN Code and SPE PRMS methodology.

The reserves and contingent resource figures are in line with Skyland's expectations and management reaffirms its view of the Mirninsky Licence as transformational to the Company's value and ultimately to its shareholders investments in Skyland.

The Mirninsky License covers an area of 2,452 km2 and contains four named discovered oil and gas fields plus a number of unnamed discoveries. The four named discovered fields are as follows:

  1. Machobinskoye (currently on pilot production with oil sales within the region);
  2. Nelbinskoye;
  3. North Nelbinskoye; and
  4. Mirninskoye

The evaluation gives P50 reserves of 76.8 million barrels (MMbbl) of oil plus condensate and 453.7 billion cubic feet (Bcf) of gas (a total of 152.4 million barrels oil equivalent (MMBOE)) for the two largest named fields in the licence, Machobinskoye and Nelbinskoye.

Reserves were only determined for the two largest of the named fields, with the two smaller fields being classed as having contingent resources at this stage since further appraisal is required. Several other discoveries were also identified within the licence area and assigned contingent resources. These are in addition to the reserves.

The evaluation gives P50 contingent resources of 34.8 MMbbl of oil and 339.6 Bcf of gas for the two smaller named fields (North Nelbinskoye and Mirninskoye) plus a number of unnamed discoveries within the licence area which have been identified (a total of 91.4 MMBOE).

The sum of the P50 reserves plus P50 contingent resources is 111.6 MMbbl of oil and condensate and 793.3 Bcf of gas (a total of 243.8 MMBOE). Evaluation of the prospective resources relating to the exploration potential within the block is still ongoing and these resources will be in addition.

RESERVES (Machobinskoye & Nelbinskoye Fields Only)
   P90 (1P)  P50 (2P)  P10 (3P)
Oil (MMbbl)  50.2  74.8  104.1
Condensate (MMbbl)  1.4  2.0  2.8
Gas (Bcf)  329.4  453.7  620.4
BOE (MMbbl)  106.5  152.4  210.3
Contingent Resources (North Nelbinskoye & Mirninskoye Fields Only)
   P90  P50  P10
Oil (MMbbl)  4.9  12.1  23.6
Gas (Bcf)  73.2  140.4  245.5
BOE (MMbbl)  17.1  35.5  64.5
RESERVES plus Contingent Resources for the 4 named Fields (Machobinskoye, Nelbinskoye, North Nelbinskoye & Mirninskoye)
   P90  P50  P10
Oil (MMbbl)  55.1  86.9  127.7
Condensate (MMbbl)  1.4  2.0  2.8
Gas (Bcf)  402.6  594.1  865.9
BOE (MMbbl)  123.6  187.9  274.8
Contingent Resources (unnamed discoveries)
   P90  P50  P10
Oil (MMbbl)  9.2  22.7  43.3
Gas (Bcf)  90.1  199.2  370.8
BOE (MMbbl)  24.2  55.9  105.1
RESERVES plus Contingent Resources - TOTAL
   P90  P50  P10
Oil (MMbbl)  64.3  109.6  171
Condensate (MMbbl)  1.4  2.0  2.8
Gas (Bcf)  492.7  793.3  1236.7
BOE (MMbbl)  147.8  243.8  379.9
LEGEND FOR RESERVES
Reference  Meaning
P90  90% chance of being greater than this. Also considered equivalent to 'Proven' or '1P'
P50  50% chance of being greater than this. Also considered equivalent to 'Proven + Probable' or '2P'
P10  10% chance of being greater than this. Also considered equivalent to 'Proven + Probable + Possible' or '3P'

In addition to completing the technical audit, Skyland has also satisfactorily completed both the financial and legal due diligence with the assistance of OOO PricewaterhouseCoopers Advisory and Morgan Lewis (Moscow), respectively. Skyland is now working closely with YATEC on finalizing details of the SPA and reaching agreement on outstanding technical, commercial and transfer issues as outlined in the SPA.

Successful Continuation of Corporate Strategy

The Company believes that the Acquisition of this world-class asset represents a significant step forward towards Skyland's corporate objective in establishing itself as a major player in the supply of oil and gas to emerging Asian markets and ultimately securing the Company's long-term success.

Dr David Robson, Chairman and Managing Director, commented:

"Since execution of the sale and purchase agreement with YATEC in relation to the Acquisition, the management team has worked extremely hard with our technical, financial and legal advisors as well as with the current Russian ownership, to carry out the required due diligence quickly and efficiently. We have demonstrated our commitment to this project, making good progress in a short period of time and are now taking the next steps in completing this high-value acquisition. We look forward to adding this project to our portfolio and are confident that it will play a significant role in the supply of energy to China and neighbouring countries."

Financing

Pursuant to the Company's disclosure in its recent scheme booklet, as announced on ASX on 14 June and 18 August 2016, the Company may look to raise capital in order to finance acquisitions such as the purchase of the Mirninsky Licence.

While final board approval and any necessary shareholder or ASX approval remains outstanding and no firm determination has been made on the structure to fund the acquisition and associated costs, financing may include an equity raising and/or direct investment in the Mirninsky Licence.

About Skyland:

Skyland Petroleum Group Limited is an oil and gas exploration and production company listed on the Australian Securities Exchange ("ASX") and primarily focused on projects in Russia, Central Asia and the Caucasus. The company aims to create and maximize shareholder value by acquiring and developing a portfolio of productive oil and gas assets with significant unrealized technical and commercial upside at attractive acquisition metrics.

DISCLAIMER

This announcement may contain "forward-looking information". Such forward-looking statements reflect the current views of the Company with respect to future events and are subject to certain assumptions. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of the Company. The "forward looking statements" contained herein speak only as of the date of this announcement and, unless required by applicable law, regulation or ASX listing rules, the Company undertakes no obligation to publicly update or revise such information; whether as a result of new information, future events or otherwise. No representation, warranty or assurance (express or implied) is given or made in relation to any forward-looking statement. No representation, warranty or assumption (express or implied) is given in relation to any underlying assumption or that any forward looking statement shall be achieved. Given these uncertainties any reader of this announcement is cautioned not to place undue reliance on any such forward looking statements.

TECHNICAL DISCLAIMER

The oil, condensate and gas reserves and contingent resources figures provided in this report were compiled by Gustavson Associates LLC (the "Report"). Unless otherwise stated in this announcement, the information provided has been prepared in accordance with the standard definitions set out by the Society of Petroleum Engineers, Petroleum Resource Management System (PMRS) and were prepared by a "qualified petroleum reserves and resources evaluator" employed by Gustavson Associates LLC. The Report is dated 12 October 2016 and the figures presented here were prepared using the probabilistic method. Skyland does not currently have any economic interest in the Mirninsky Licence, but the Company would assume an economic interest in the Mirninsky Licence were the proposed transaction with YATEC to complete. Reserves and resources are summed using arithmetic summation. No Economic cut-off applied - this makes < 1% difference at the Reserve 2P level. Barrels of oil equivalent ("BOE's") may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl was used and is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the wellhead. The reference point for the purpose of measuring and assessing the estimated petroleum reserves is the wellhead. Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies, including for example where evaluation of the accumulation is deemed insufficient to clearly assess commerciality

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