KMG EP to acquire interest in Citic Energy

JSC KazMunaiGas Exploration Production will buy a 50% stake in Citic Canada Energy for $930 million, which will provide access to the Karazhanbas field in western Kazakhstan.

Uchenna Izundu
International Editor

LONDON, Oct. 10 -- JSC KazMunaiGas Exploration Production (KMG EP) will buy a 50% stake in Citic Canada Energy Ltd. for $930 million, which will provide access to the Karazhanbas field in western Kazakhstan.

Citic Canada owns Citic Canada Petroleum Ltd., which has total control of JSC Karazhanbasmunai (KBM), a large oil and gas company developing that field. Total proven reserves of KBM as of January 1 were 363.8 million barrels of oil according to a Miller & Lents Ltd. reserve report. In 2006, Karazhanbas produced 2.3 million/tonne of oil.

Askar Balzhanov, KMG EP chief executive, said the deal—approved by board members Oct. 3—would boost its production level by another 10%. "We are working closely with CITIC with the goal to improve performance of Karazhanbas field," he said.

KMG EP will pay $875.5 million for its interest in CCEL and spend $54.5 million on financing costs. "Management structure of CCEL and CCPL as well as underlying assets will include representatives of both shareholders. Important matters, including related party transactions, annual work plan, budget, significant financial commitments and significant supply contracts will require unanimous approval," KMG EP said.

The transaction follows an option agreement KMG EP signed with JSC National Co., Kazakhstan's state-owned oil company, to acquire interest in CCPL by yearend (OGJ Online, May 30, 2007).

KMG EP will spend $150 million from its own funds to finance the deal and will be entitled to a preferred return of $26.2 million/year from the project. CITIC will provide limited recourse financing to KMG EP to meet the shortfall and other financing charges at a cost comparable to KMG EP's own cost of financing.

Closure of the 50% beneficial interest is expected to be completed before the end of the year once the parties have secured necessary regulatory approvals.

Contact Uchenna Izundu at uchennai@pennwell.com.

More in General Interest