Perth, Oct 31, 2008 AEST (ABN Newswire) - The Directors of Kairiki Energy Limited (ASX:KIK) wish to report the following activities during the quarter ended 30 September 2008. Two oil discovery wells drilled in SC 54 - Philippines, Yakal and Tindalo. The Acquisition of Tunisian Kerkouane Permit was completed and acquisition of Italian Pantelleria Permit completed.
Kairiki issues US$10 million convertible notes to fund SC 54 drilling program and new non-executive director appointed - Ms Jyn Sim Baker
Oil & Gas Activities Philippines Offshore Oil and Gas Permit (Service Contract 54) 40% Participating Interest
During the quarter the following progress occurred in respect of the company's Philippines oil and gas operations: Outboard
i) The Joint Venture completed its preliminary interpretation of the 851 km2 Abukay 3D seismic survey data during the quarter ending 30 September 2008. The Joint Venture has agreed to undertake pre-stack depth migration processing over the entire 3D volume to help further de-risk the Gindara and Lapu Lapu prospects and improve delineation of the remaining outboard prospectivity.
ii) In July and August 2008 the Joint Venture conducted a site survey over the Gindara prospect in preparation for future drilling as part of a larger site survey acquisition program over an additional 17 shallow water prospects within the Permit.
Shallow water area
i) In July and August 2008 the Joint Venture completed multiple site surveys covering 17 shallow water prospects to identify any potential hazards and shallow gas at future possible drilling locations and both analogue and digital grids were acquired. A soil coring program was also completed over key prospects during August.
ii) In September 2008, the Joint Venture commenced its two well drilling program with Yakal and Tindalo.
The Yakal-1 well was a discovery, encountering an oil column ranging from 78 metres to a maximum of 93 metres. This column was confirmed with wireline logging, pressure data and samples. The well was cased and suspended and was prepared for future completion and production at a later date.
The Tindalo-1 well was a discovery encountering an oil column of 119 metres as confirmed by wireline logs, and with indications that the column extends a least a further 15 metres (134 metres in total). The Tindalo-1 was cased and suspended and was prepared for future completion and production at a later date.
These discoveries are an important first step in realising the Joint Venture's strategy to rapidly commercialise the Service Contract 54 ("SC 54") inboard area. In addition to these two discoveries there are more than 20 additional prospects in the SC 54 inboard area covered by 3D seismic data. While each prospect is relatively modest in size, with future drilling success and the application of pragmatic, low cost development methodologies, there is the opportunity to aggregate adjacent pools through a single production facility to maximise value.
Once the technical work is completed over the coming weeks to better understand both the resource size of these discoveries and their impact on the remaining exploration portfolio, the Joint Venture will develop a forward program to maximise value from the SC 54 shallow water. Any future development is likely to include an extended well test through a production facility to recover the oil produced for sale. The Tindalo and Yakal discoveries provide a platform for such a development concept. The drilling of Yakal and Tindalo in 2008 means that there are no drilling commitments until sub-phase VI, which commences in August 2010.
Sicily Channel - Italy/Tunisia
During the period to 31 October 2008 the company completed the acquisitions of both the Kerkouane and Pantelleria permits in the Sicily channel. Kairiki acquired a 30% interest in each of these Permits as part of its Area of Mutual Interest ("AMI") agreement with AuDAX.
Offshore Italy (30% Participating Interest)
The Joint Venture plans to mature the prospect and leads inventory over the coming few months. The forward work program requires completing the tendering process for an offshore rig and receiving environmental approvals for offshore drilling.
AuDAX, the operator, engaged a drilling management consultant to prepare for the future high impact exploration and appraisal drilling campaign. Offshore Tunisia (30% Participating Interest)
The Joint Venture plans to complete 400 km of 2D seismic acquisition and drill one well prior to permit expiry in February 2010 and continues to evaluate the prospects and lead inventory
Onshore Tunisia During the quarter the following progress occurred in respect of the company's operations: Chorbane (50% Participating Interest)
In November 2007 Kairiki announced that it had signed a conditional purchase agreement to acquire a 50% interest in the Chorbane permit, located onshore southeast Tunisia. Regulatory approval was being sought during the quarter. Under the sales and purchase agreement this transaction is required to be completed by 31 October 2008.
New Ventures
Kairiki continued to review opportunities under its AMI Agreements in Romania and Tunisia. Mineral Projects No further exploration work was carried out during the quarter. The company is continuing its efforts to farm-out its mineral properties. Corporate Summary During the quarter, the following occurred: Issue of Convertible Note
On 29 August 2008 Kairiki executed an agreement to issue Convertible Notes to raise US$10,000,000 from the IMC Oil & Gas Investments Ltd ("IMC"). The principle terms and conditions of the Notes are as follows:
i) Repayment Date: 8 September 2011;
ii) Convertible into ordinary fully paid shares at an issue price determined as the lesser of:
a. A$0.185; and b. the closing price of the ordinary shares on ASX on the conversion date, provided that, if this price is lower than A$0.16, the conversion price will be A$0.16;
iii) Shares issued upon conversion of the Notes, or part thereof, will carry standard rights applicable to quoted ordinary shares in the Company and will, from the date of issue, rank equally with fully paid ordinary shares currently on issue;
iv) A Noteholder may convert at any time prior to the Repayment Date, subject to a limit of 3 conversions with each conversion being in respect of a number of Notes which are convertible into at least 10 million shares;
Repayment Rights: The parties will have rights of repayment as follows:
a. Kairiki shall have the right up to 31 January 2009 to give notice to repay up to 50% of the outstanding amount in respect of the Notes; b. A relevant Noteholder shall have the right, during the period 1 January to 15 January each year, to require the Company to use all or a specified part of any cash balance held in a special repayment account, established for receipt of future net revenues and option conversion monies, to repay a portion of the outstanding amount in respect of the Notes; and c. A relevant Noteholder has the right to full repayment of the outstanding amount in respect of the Notes on the occurrence or non-fulfillment of specified events or conditions before 31 January 2009. In the event that Kairiki and IMC fail to enter into the KIK/IMC Alliance Agreement by 1 December 2008 or the non-fulfillment of other specified conditions by 31 January 2009 through wilful breach, Kairiki will be liable to pay a break fee of US$1 million;
vi) Interest Rate: 12% per annum;
vii) Security: Fixed and floating charges over all of the assets of the Company and its subsidiary, Yilgarn Petroleum Philippines Pty Ltd, but excluding certain property;
viii) The Notes shall not provide for any voting rights at shareholder meetings of Kairiki;
ix) Unless converted or redeemed during the term, the Notes will be redeemed at the Repayment Date at the face value of the Notes;
x) Drawdown under the Convertible Note Deed will be conditional on, inter alia, IMC having the right to:
a. appoint a representative to the Board of the Kairiki; b. an option to participate at up to 20% in the shallow water SC 54 project by reimbursing the Company on a proportionate basis for its past costs at the time the option is exercised. This option must be exercised by 31 March 2009; and c. an option after 1 January 2009 to farm-in at up to 20% to the outboard portion of SC 54 under commercial terms yet to be agreed. This option must be exercised no later than 30 March 2009 or 6 months before spud of an outboard well. The Notes will be accessed in two tranches by the Company. The first tranche of US$8.5 million has been placed under the Company's 15% capacity under ASX Listing Rule 7.1.
The remaining US$1.5 million was subject to shareholder approval, which was received on 21 October 2008. The maximum number of shares convertible under the first tranche is 62.5 million shares. In the event that the Company elects to redeem at least US$2.5 million of Notes by 31 January 2009, the remaining Notes (tranches 1 & 2) will be converted based on a floating exchange rate set on the day of conversion rather than a fixed exchange rate Australian dollar to US dollar of 0.85.
Shareholder General Meeting - 14 August 2008
At a general meeting held on 14 August 2008 the shareholders approved the following resolutions: i. The ratification and issue of certain options to employees; and ii. Ratification of the prior issue and allotment of 49,949,730 fully paid ordinary shares, at an issue price of 23 cents per share, to institutional and other exempt investors.
Shareholder General Meeting - 21 October 2008
At a general meeting held on 21 October 2008 the shareholders approved the following resolutions: i. the issue by the Company of up to US$1.5 million convertible notes to IMC Oil & Gas Investments Ltd under the Conditional Note Offer, and ii. ratified the issue by the Company of US$8.5 million convertible notes to IMC Oil & Gas Investments Ltd under the Unconditional Note Offer.
Appointment of New Director
On 10 October 2008 Ms Jyn Sim Baker of IMC Resources Group ("IMC") was appointed to the Board of Kairiki. Ms Baker brings corporate and commercial skills to the Board having held the role of Chief Executive Officer for IMC Resources Group, which spans Australia, China and Indonesia, since June 2006. She is responsible for investments in mining resources, oil and gas resources and the vertical integration process for the IMC's core businesses in shipping and logistics. Ms Baker has over 20 years of management and legal advisory experience.
Prior to joining IMC, Ms Baker was the Chief Executive Officer of Midwest Corporation Limited, a company listed on the Australian Stock Exchange. Formerly a practicing corporate lawyer, Ms Baker's expertise extends across energy industry projects, minerals exploration and mining, and infrastructure development. Ms Baker holds a Bachelor of Law and an ICSA (Institute of Chartered Secretary and Administration) qualification from the University of London and a Certificate in Legal Practice from the University of Malaysia. She is a member of the AICD (Australian Institute of Company Directors), Australia.
Cash position
At 30 September 2008, Kairiki had approximately A$12.342 million in cash.
Contact
Craig Gumley
Managing Director
TEL: +61-8-9388-6711
Laurie Brown
Exploration Director
TEL: +61-8-9388-6711
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