NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES.
Caspian Energy Inc. (the "Company" or "CEK") (TSX:CEK) announced today its
financial results for the three and six months ending June 30, 2013. Its
unaudited condensed interim consolidated financial statements for the period and
related management's discussion and analysis have been filed with Canadian
securities regulatory authorities and are available for viewing at
www.sedar.com.
As this is the first fiscal year that the Company is reporting under the new
IFRS pronouncements, more fully identified below, shareholders will notice
significant changes in the numbers that had been previously reported for prior
periods, but management wishes to direct readers to Note 17 of the Condensed
Interim Consolidated Financial Statements for the three and six months ended
June 30, 2013 and 2012, where the Company's 40% interest in Aral Petroleum
Capital LLP is fully disclosed.
On January 1, 2013, the Company adopted new standards for IFRS 10, "Consolidated
Financial Statements", IFRS 11 "Joint Arrangements", IFRS 12 "Disclosure of
Interests in Other Entities", IFRS 13 "Fair Value Measurement" as well as
consequential amendments to IAS 28 "Investments in Associates and Joint
Ventures".
The adoption of IFRS 11 resulted in the deconsolidation of the Company's 40%
proportionate share of Aral and the application of the equity method of
accounting for the investment in Aral. Changes have been applied retrospectively
in accordance with IAS 8, "Accounting Policies, Changes in Accounting Estimates
and Errors", resulting in the restatement of prior period financial information.
Operational highlights
-- Final Permit to resume production filed for the East Zhagabulak field,
which was shutdown on January 1, 2013
-- At Wells 303 and 316, permits for retesting have been obtained from the
MOG (Minister of Oil and Gas) and tenders let
-- At Well 315, a permit for retesting has been obtained and work is
scheduled for the third quarter 2013
-- During the second quarter both a 3-D a 2-D seismic survey were completed
Outlook 2013
-- On January 14, 2013, the Company reported that the Exploration license
which governs the majority of the acreage, commonly referred to as the
North Block, had been extended for a further two years up until December
2014
-- By the close of fiscal 2013, transition from the "pilot" phase to the
"production" phase of development at East Zhagabulak will be completed
-- To execute the innovative completion techniques and strategy of Mr.
Roger Nutt, who believes that to achieve full potential from the
Zhagabulak wells, each well must be perforated at the depths which will
give access to the relevant fractures or karsts. Each perforated
interval must then be mini-fractured and propped open, to allow the oil
access from the reservoir to the well-bore perforations, through the
cement around the casing. Instead of deliberately avoiding the natural
fractures and permeability pathways in the rock - which has historically
been the case in Zhagabulak - the new approach is to identify and
selectively perforate these intervals, to allow the oil they contain to
be recovered. See MD&A - "Business Prospects and Outlook" for a more
detailed description.
-- On June 13, 2013, the Company announced the June 3, 2013 signing of a
number of agreements whereby its Kazakhstan subsidiary expects to be
able to immediately implement the previously announced testing of
certain wells based on the advice of outside consultant Mr. Roger Nutt
over two wells within the following 90 days.
-- On June 26, 2013, the Company announced that it had received notices of
a failure to make a payment from Meridian Capital International Fund,
Firebird Global Master Fund, Ltd. and Firebird Avrora Fund, Ltd. (the
"Convertible Debenture Holders") under Caspian's Amended and Restated
Convertible Debentures dated July 8, 2011 for failure to pay the
principal amount on the maturity date of June 2, 2013. The terms of the
Convertible Debentures provide that a default occurs if there is a
failure to pay principal on maturity and such failure to pay is not
remedied within 30 days after receipt of written notice from the holder.
On July 26, 2013, the Company announced that each of the Convertible
Debenture Holders agreed to extend the period to remedy such failure to
pay until August 26, 2013.
Regulatory matters
-- Between April 8 and April 12, 2013, Canadian securities regulatory
authorities issued cease trade orders pertaining to the trading of the
Company's securities as it had not filed its December 31, 2012 audited
consolidated financial statements and management discussion and
analysis. Such filings were made on April 23, 2013 and the Company
believes that it is in compliance with its regulatory filings and the
cease trade orders will be lifted.
-- On February 8, 2013, the Company received a letter from the Toronto
Stock Exchange (the "TSX"), which states that the "listing of CEK's
shares on the main board of the TSX is under review with respect to
meeting continued listing requirements". The Company was granted 90 days
in which to regain compliance with these listing requirements, pursuant
to the TSX's remedial review process. On May 7, 2013, the Company
received an update from the TSX stating that the Continued Listing
Committee has determined to defer its delisting decision until no later
than June 10, 2013.
-- On June 11, 2013, the Company announced that the Continued Listings
Committee of the TSX determined to delist Caspian's common shares
effective at the close of market on July 11, 2013. A letter from the TSX
Continued Listing Committee states that the delisting was imposed due to
Caspian's failure to meet the continued listing requirements of the TSX.
-- On July 10, 2013, the Company announced that the TSX extended the date
for the delisting of Caspian's common shares from July 11, 2013 to
August 1, 2013. The delisting date was delayed by the TSX at the request
of Caspian. Caspian requested the delay in order to allow further time
for Caspian to pursue a listing on NEX. NEX is a unique and separate
board of TSX Venture Exchange. It provides a unique trading forum for
listed companies that have fallen below TSX Venture's ongoing listing
standards.
-- On July 26, 2013, the Company announced that the TSX extended the date
for the delisting of Caspian's common shares from August 1, 2013 to
August 22, 2013. The delisting date was delayed by the TSX at the
request of Caspian. Caspian requested the delay in order to allow
further time for Caspian to pursue a listing on NEX.
Financial highlights
-- 6 month Comprehensive loss was $5,295,000 (2012: $3,045,000(Restated))
-- For the quarter ending June 30, 2013, CEK's comprehensive loss was
$2,600,000, this compares to a comprehensive loss for the quarter
ending June 30, 2012, of $2,278,000(Restated). Caspian recorded a
loss of $2,119,000 (2012 $1,650,000(Restated)) pertaining to finance
expense. Depletion and depreciation expenses were $1,000 and $1,000,
respectively. Derivative fair value adjustment was equal to $nil
during 2013 and $1,038,000 during 2012. CEK's operations used
$164,000 in cash during 2Q 2013 and used $529,000(Restated) for the
comparative period in 2012.
-- At the close of the second fiscal quarter of 2013, Caspian had a working
capital deficiency of $16.0 million. The Company's Convertible
Debentures matured on June 2, 2013. The Company was not able to pay the
Debentures on the maturity date.
Operational performance
The East Zhagabulak field was shutdown on January 1, 2013 and continued through
to March 29, 2013, while awaiting extension to the pilot production period.
Verbal permission to extend the pilot production period, subsequent to March 29,
2013, was granted by the Committee of Geology and Subsoil, on that date. Based
on this extension, the Work Group of the ROK (Republic of Kazakhstan) Ministry
of Oil and Gas (MOG) approved the program of associated gas utilization, which
permits gas flaring. The final step in reinstating production is to obtain the
Hazardous Emissions Permit from the ROK Environmental Ministry. Request for the
Permit was filed on July 10, 2013. A positive outcome is expected prior to the
end of August 2013.
During fiscal 2013, to transit from the "pilot" phase to the "production" phase
of development at East Zhagabulak, the design and construction of the Technology
Scheme of Field Development must be finalized. During the second quarter, the
design institute - KazNIPIMunaigas, completed the preparation of the Field
Development Technology Scheme. Prior to the completion of the third calendar
quarter of 2013, the project report will have been reviewed for approval by the
following Kazakh governmental agencies: the Emergency Situations Department, the
Sanitary-Epidemiology Control and the Ecology Department. Subsequently, it will
be approved by the Committee of Geology and Subsoil Use of the ROK Ministry of
Industry and New Technologies. By the calendar close of 2013, the field will
have transited from the Pilot Production Phase to the Production Phase.
The MOG and State Ecology Department granted a permit to test Well 306, which is
valid until September 29, 2013. Testing is expected to commence in the 3rd
quarter of 2013. During 2Q 2013, a testing tender was issued.
At Well 316 and Well 303, permits for retesting have been obtained from the MOG
During 2Q 2013,tenders were let for re-testing wells 316 and 303 with a
projected start date during August 2013. All necessary permits and approvals
from the government agencies have been obtained.
At Well 315, a permit from the MOG was obtained for testing during the period
from September 6, 2013 to October 30, 2013. Obtaining a permit for emissions in
the State Ecology Service is underway. Testing is expected to start in the 3rd
quarter of 2013. During 2Q 2013, a testing tender was issued.
On April 29, 2013, a 2-D seismic survey commenced at the Taldyshoky, Itassay and
Krykkuduk areas. During 2Q 2013, the 2D seismic operations were completed. 3D
seismic operations were completed in the presalt area - Baktygaryn. The data is
currently being processed. Processing and interpretation of the seismic data
will be completed by the end of 2013.
Outlook 2013
During the two year extension period, the operator is planning to perform
Geological and Exploration operations on several prospective areas of the North
block. Geological documentation has been prepared for the drilling of 4,950
metre deep wells in three pre-salt areas Baktygaryn, Aransay and North Mortuk.
Further, 900 metre deep post wells in the Taldyshoky, Itassay, Krykkudul and
other areas are contemplated. Additional 2D and 3D seismic shoots are expected
prior to drilling.
This Geological and Exploration work is conducted in the expectation of the
discovery of new oil pools in the North Block contract territory.
Aral Petroleum Capital LLP (Aral or APC), the operating entity in Kazakhstan,
holds a 25-year production licence for East Zhagabulak and a three-year
exploration permit for the larger North Block, an area of some 2,200 square
kilometres in West-Central Kazakhstan that contains both East and West
Zhagabulak.
Funding
On June 13, 2013, the Company announced the June 3, 2013 signing of a number of
agreements whereby its Kazakhstan subsidiary expects to be able to immediately
implement the previously announced testing of certain wells based on the advice
of outside consultant Mr. Roger Nutt over two wells within the following 90
days. Pursuant to the agreements, additional financing has been committed to
Aral Petroleum Capital LLP (APC), a Kazakhstan partnership in which Caspian
indirectly holds a 40% interest, to cover operating expenses, as well to Caspian
to cover ongoing overhead and accounts payable. The financing will permit
drilling which will allow APC to meet its 2013/14 License drilling commitments
in the North Block.
The agreements provide for the availability of a loan of US$20 million to APC
for the purpose of funding APC's operations. It is intended that proceeds from
this loan will, in part, be used to fund the work prescribed in the work program
agreed with the Ministry of Oil and Gas in Kazakhstan. This work program
envisages the drilling of a deep exploration well in the Baktygaryn and Aransay
area. As well, one shallow well is planned to be drilled in Itassay.
The agreements amend the loan agreement between Caspian's wholly-owned
subsidiary, Caspian Energy Ltd. (CEL), and Asia Sixth Energy Resources Limited
to allow CEL to draw US$100,000 each month from now until November and to draw
an additional US$1,400,000 as early as December 28, 2013. These funds will
enable Caspian to bring current all of its existing payable and to cover its
budgeted operating expenses over the next 18 months.
In return for raising the financing contemplated in the agreements, CEL's
partners in APC, being Asia Sixth Energy Resources Limited (ASER) and its
subsidiary Groenzee B.V. and together with ASER, require CEL to transfer to them
part of its ownership interest in APC resulting in CEL's interest in APC
reducing from 40% to 33.5%.
During June 2013, Caspian announced that its wholly owned subsidiary, CEL, has,
to date, received $200,000, pursuant to the aforementioned agreements toward its
corporate overhead expenses.
On June 26, 2013, the Company announced that it had received notices of a
failure to make a payment from Meridian Capital International Fund, Firebird
Global Master Fund, Ltd. and Firebird Avrora Fund, Ltd. (the "Convertible
Debenture Holders") under Caspian's Amended and Restated Convertible Debentures
dated July 8, 2011 for failure to pay the principal amount on the maturity date
of June 2, 2013. The terms of the Convertible Debentures provide that a default
occurs if there is a failure to pay principal on maturity and such failure to
pay is not remedied within 30 days after receipt of written notice from the
holder. On July 26, 2013, the Company announced that each of the Convertible
Debenture Holders agreed to extend the period to remedy such failure to pay
until August 26, 2013.
On July 31, 2013, the Company announced that Aral Petroleum Capital LLP ("APC"),
Caspian's 40% owned subsidiary, received an advance in the amount of USD
$3,000,000 pursuant the loan agreement between APC and Groenzee B.V. signed in
June, 2013. The proceeds of this advance are to be used to test well 316 in West
Zhagabulak in accordance with the advice of outside consultant Mr. Roger Nutt.
The tender process for this work has been concluded and a suitable bid was
received from a prominent contractor. Mobilization of the rig required for this
testing is imminent pending clearance of certain items through customs. The
target date to commence the contemplated testing is set for mid August.
Share structure
On January 9, 2013 1,286,684 common shares and 643,342 share purchase warrants
were issued to satisfy the 4Q 2012 interest obligation on the Company's
Convertible Debentures. The deemed price of the stock issued is $0.063769 per
share and the warrant exercise price is $0.087263.
On April 11, 2013 1,974,420 common shares and 987,210 share purchase warrants
were issued to satisfy the 1Q 2013 interest obligation on the Company's
Convertible Debentures. The deemed price of the stock issued is $0.041602 per
share and the warrant exercise price is $0.05693.
The Company's ability to continue as a going concern is in significant doubt and
is dependent upon achieving profitable operating results from its Kazakhstan
operations. There are no assurances that these initiatives will be successful.
See Note 1 to the Unaudited Condensed Interim Consolidated Financial Statements.
CAUTIONARY NOTE
Forward Looking Statements - Certain information set forth in this news release
may contain forward-looking statements that involve substantial known and
unknown risks and uncertainties. These forward-looking statements are subject to
numerous risks and uncertainties, certain of which are beyond the control of
Caspian, including, but not limited to the satisfaction of all conditions set
out above, the closing of the funding of the loan agreement and the ability of
Caspian to meet its future obligations with respect to APC, the impact of
general economic conditions, industry conditions, currency fluctuation and
dependence upon regulatory approvals. Readers are cautioned that the assumptions
used in the preparation of such information, although considered reasonable at
the time of preparation, may prove to be imprecise and, as such, undue reliance
should not be placed on forward-looking statements.
FOR FURTHER INFORMATION PLEASE CONTACT:
Caspian Energy Inc.
William Ramsay
Chairman and Chief Executive Officer
+44 (0)773663-1378
Caspian Energy Inc.
Brian Korney
Chief Financial Officer
+1 403-513-3375
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