SOURCE: North-West Oil Group

January 04, 2007 06:00 ET

Ernest Malyshev: "We Prefer to Use Internal Reserves to Develop Our Business"

MOSCOW -- (MARKET WIRE) -- January 4, 2007 -- Ernest Malyshev, President of North-West Oil Group (PINKSHEETS: NWOG) (FRANKFURT: CXIA), Looks Back on 2006 in his interview to Russian Magazine, Bolshoi Business (US English translation "Big Business Magazine"). The following interview can be found in full text in the November No 11(36) 2006 issue of the Russian Magazine, Bolshoi Business, pages 94-95.

Ernest Malyshev said, "North-West Oil Group is expanding through buying up different oil-producing enterprises." When asked by an interviewer from Bolshoi Business Magazine, "Is it just a publicity effort or does the company have a well-thought M&A strategy?" Mr. Malyshev responded, "As you have rightfully noticed, some of the tenders we've participated in did have an important publicity angle to them, but that was only a part of the picture. First and foremost, we try to purchase existing small-cap oil producers that have potential, thus increasing our own market capitalization. This strategy is fairly new to Russia but we believe it will become increasingly popular in the nearest future. Our company from the very beginning aimed at active acquisition of interesting companies, including the foreign ones. When 'Orenburgneft' is put up for auction we plan to participate in the tender. The company looks promising."

Bolshoi Business Magazine asked, "So if acquisition is such an attractive strategy, why do so many companies try to raise capital through IPOs?" Malyshev replied, "We believe that raising capital on an exchange can be time-consuming and difficult. We prefer to use internal reserves and increase our market capitalization in a more dynamic way."

When asked by Bolshoi Business Magazine, "Why did North-West Oil Group fail to acquire 'Magma' and 'Udmurtneft'?" Mr. Malyshev stated, "'Magma' simply was overpriced. 'Udmurtneft' story was more complicated. The company did look attractive, but we could not have afforded it alone (it was, after all, worth 3.5 billion USD) and competition for the asset was tough. We did find a good partner for the deal -- an Indian, state-owned company Oil India Limited (OIL) -- but we were only able to offer 2.5 billion dollars."

When Bolshoi Business Magazine inquired, "How would you comment on the fact that North-West Oil Group sold its rights for Surgutsky-7 block to Hungarian company MOL?" Mr. Malyshev answered by saying, "We found it more profitable to sell this asset rather than continue exploring it further. From the very start of this project we worked with MOL -- a large state-owned Hungarian company -- together, but later on they started to increase the cost of the project. These extra costs didn't make much difference for their business but for us they turned out to be quite burdensome. So we decided to part ways. Now most of our sites are located in Saratov region."

When questioned by Bolshoi Business Magazine, "How important for you is the fact that the acquired companies have their own geological exploration capabilities?" Malyshev said, "Very important, especially considering the upcoming exploration in Eastern Siberia and other oil-producing regions. For 2007 the Russian government earmarked over 300 million US dollars for geological exploration and we hope to finally see this part of the oil extraction business revived."

"Speaking of the upcoming exploration on East Siberia, what are your company's plans in that respect?" asked Bolshoi Business Magazine. Malyshev replied, "By the end of this year we plan to participate in the tender for sites in Eastern Siberia. All sites have the proven capacity of 10 million tons each, so we expect the competition for them to be extremely serious."

Malyshev responded, "Only as a joint venture with Russian companies. Eastern Siberia is such a 'tasty morsel,' the Government probably won't let any foreigners have a piece of it," when asked, "Do you expect any foreign bidders to participate in the tender?" by Bolshoi Business Magazine.

Bolshoi Business Magazine queried, "What do you see as the most important areas of development in your business?" Malyshev said, "We currently pay special attention to international project development. We plan to enter American oil exchange and now are having our financials audited. We are especially interested in three countries of the Middle East Region -- Syria, Jordan and Lybia -- where we try to develop a number of agreements, especially in the field of construction and extraction of hydrocarbon raw materials. On September 21st, 2006, North-West Oil Group acquired 63% of shares of 'Creditline,' a Russian operator that will build a refinery and petrochemical facility in Syria. This five-year project is estimated at 3.5 billion dollars and since it is of strategic importance to the Russian government we hope it will be backed by Ministry of Foreign Affairs and Ministry of Defense."

Bolshoi Business Magazine then asked, "Oil exploration and production market in Russia is extremely competitive these days. Do you fell that small and medium-sized companies are at a disadvantage under current conditions?"

"We see protecting the rights of smaller players on the market as the issue of utmost importance so we do our best to initiate the discussion on the subject through the 'Assoneft' association that unites small and medium-sized oil producers. We recently met with Elena Korzun, the head of the association, and suggested the ways to correct current imbalance. If small private oil exploration and production companies are not protected they will die out, and those companies are the only ones who would work on smaller sites with capacity of 500 thousand tons that constitute the majority of oil deposits in Russia," stated Malyshev.

Bolshoi Business Magazine followed with, "Unlike many Russian businesspeople you support charitable projects publicly. Why?" Malyshev replied, "I believe that charitable activity should not be kept secret. Those projects played an important role in building up 'North-West Oil Company' when we together with other well-known companies of the oil sector funded the restoration for 'Konstantinovsky' palace in St. Petersburg. Moreover, public and regular charitable activity is one of the founding stones of our company; in my viewpoint, 'anonymous' charity often doesn't reach its recipients. I believe that good deeds are nothing to be ashamed of, that's why we included charitable activities in our long-term strategy."


"North-West Oil Group" closed joint-stock company was founded in 2004. The names of shareholders are not disclosed. The company produces and distributes oil, gas and oil products. The company has signed agreements to provide crude oil and oil products to such companies as Salavatnefteorgsintez, TNK-BP Management, Moscow oil refinery. Internationally, "North-West Oil Group" cooperates with Projector Ltd (UK), Petrocraft (UK) Ltd, LITASCO (LUKOIL). "North-West Oil Group" explores the fields in Saratov region (Severo-Vasnetsovskoe, Stepnovskoe, Kalininskoe, Goruchkinskoe). "North-West Oil Group" has become one of the main sponsors of charitable programs managed by "Konstantinovsky" charity fund together with President's administration

About North-West Oil Group (formerly Nord Oil International):

North-West Oil Group is a non-reporting, publicly traded Oil & Gas company trading under the ticker symbol NWOG on the U.S. Pinksheets market as well as on the Frankfurt Exchange under symbol CXIA.

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