The Blocks A&E licence area extends over 12,455 km2 in the highly prolific Pre-Caspian Basin in Western Kazakhstan. The onshore acreage position contains significant resource potential in both post-salt and pre-salt structures. Max Petroleum currently has one discovery on Block E, the Zhana Makat Field, brought onto production in August 2007 with estimated proved and probable reserves of 5.8 million bbls at 31 March 2009. As of 19 February 2010, the field was producing in excess of 2,100 barrels of oil per day. Max Petroleum resumed drilling in October 2009 with two shallow development wells in the Zhana Makat Field and successfully completed them.
On 14 January 2010 Max Petroleum commenced its post-salt exploration programme on Blocks A & E. On 15 February 2010, the Company announced the log results on the BOR-1 well, the first exploration well on the Borkyldakty prospect, which indicated 38 metres of net oil pay over five Triassic sandstone reservoirs at true vertical depths ranging between 1,357 and 1,536 metres. The Company has run production casing in the well, which will be tested in the next few weeks using a workover rig. The drilling rig is currently moving to the KZN-1 well location on the North Kyzylzhar II – East prospect, which the Company plans to spud in early March 2010.
The Group will retain a 100% working interest in its post-salt portfolio, which is expected to be highly accretive with strong economic returns on invested capital, if successful, due to the low drilling cost of shallow and intermediate wells. The deeper and higher risk pre-salt portfolio is being offered for farmout to larger companies seeking high risk, high return prospects.
The principal terms of the Blocks A&E licence are as follows:
- Stabilised tax/royalty exploration and production contract, executed in March 2003.
- Exploration period of six years plus two two-year extensions. First extension until March 2011 was executed on 30 July 2008.
- Production period of 25 years from each commercial discovery (40 years for large, complex discoveries).
- Corporate income tax rate of 20%.
- Mineral extraction tax (“MET”) rates ranging from 5% to 20%, dependent upon annual production levels and market price of crude.
- Export rental tax (“ERT”) rates ranging from 0% to 32% based on crude export levels and market price of Brent/Urals.
- Manageable capital and work commitments.
The Group acquired an 80% interest in the Blocks A&E subsoil licence in October 2005 from Horizon Services N.V. (“Horizon”). In July 2008, the Group increased its ownership in Blocks A&E to 100% upon completion of its acquisition of the remaining 20% interest from Horizon in exchange for 37 million ordinary shares in Max Petroleum and the Group’s 80% interest in the East Alibek licence.
