MALKA OIL: INFORMATION MEMORANDUM
(Thomson Reuters ONE) - MALKA OIL'S BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERSAPPROVE THE TRANSACTION WITH GAZPROM NEFTTHE DEVELOPMENT OF MALKA OIL'S BUSINESS AND INITIATIVE TO CHANGESThe Board of Directors (the "Board") has since it took officeinvestigated different strategic options for the company's futuregrowth. The options have included organic growth, acquired growth,joint ventures and divestures. The investigation has principallylooked at expected revenues and costs and has in connection therewithtaken into account the prevailing conditions for growth andprofitability for the business. Great emphasis has been put onevaluation of the geological conditions, but material efforts havealso been made to clarify legal status. For the purposes hereofexternal expertise has been commissioned.The company's block 87 has geological potential but also containsdifficult technical challenges. The investment costs for extractionsof the reserves will most likely be material, creating substantialrisks for a small sized company like Malka Oil. Furthermore, thesubsidiary STS-Service is as previously reported involved in a numberof legal disputes which are time consuming and costly for thecompany.In consequence hereof, the board of directors and the management wishto divest STS-Service and block 87.If the general meeting approves the transfer it is the intention ofthe Board that the company shall continue to conduct its business inaccordance with the object stated in the articles of associationbased on a revised business plan. The shareholders of the companywill be summoned to attend a new shareholders meeting in connectionwith the completion of the sale at which time the revised businessplan will be presented to the shareholders for approval by theshareholders.ESTIMATED VALUE FOR THE SHAREHOLDERSThe value of the transaction on a debt-free basis amounts to SEK820,000,000. Following deductions for sale- and other transactioncosts the sale is expected to result in a price of approx. SEK780,000,000 corresponding to approx. SEK 0.19/share.As is evident by this information material a sale at this level willresult in a loss in comparison to previously reported evaluations ofthe company's oil assets. The Board has in its previous reportsmaintained a valuation which in connection with assumptions made onfuture investments, looked at a long-term extraction of the oilreserves of the Russian subsidiary.During the review of the strategic alternatives, the Board has,however, identified the abovementioned problems which have lead tothe proposal to divest STS-Service together with its block license.During the structured sales process, in which a number of potentialbuyers have placed bids for STS-Service, it has been evident that thevaluation that the market players have been willing to pay, isessentially lower than the valuation which has been maintained sofar.SHAREHOLDERS SUPPORTING THE TRANSACTIONA majority of the shareholders registered to attend the generalmeeting have expressed their support for the transaction and havecommitted to vote in favour of it at the extraordinary generalmeeting 17 December 2009.RECOMMENDATIONThe Board is unanimously recommending that Malka Oil's shareholdersapprove the transaction at the extraordinary general meeting, 17December 2009.StockholmThe Board of DirectorsEXECUTIVE SUMMARY OF THE TRANSACTIONThrough the transaction, Gazprom Neft will acquire all shares inMalka Oil's subsidiary LLC STS-Service, including a group debt MalkaOil has against the subsidiary. The transaction is expected to becompleted during February 2010.THE PRICE for the shares and the group debt amounts to SEK820,000,000.THE TRANSACTION is subject to approval by the General Meeting ofMalka Oil and the Federal Antimonopoly Service of Russia ("FAS").Furthermore Gazprom Neft is under certain circumstances entitled towithdraw from the transaction.TIMETABLE- Extraordinary General Meeting in Malka Oil AB (publ) 17 December2009, to approve the transaction.- Approval from FAS which is expected to be received during February2010.The completion of the transaction following approval from the FAS isexpected to occur no later than at the end of February 2010.Share Transfer agreementAn overviewOn 1 December Malka Oil signed a binding Term Sheet with Gazprom Neftregarding the sale of the subsidiary LLC STS-Service, including agroup debt. Following additional negotiations the Term Sheet has nowbeen elaborated in a Share Transfer Agreement signed by both partieson 14 December 2009. The purchase price for the shares in thesubsidiary and the group debt amounts to SEK 820,000,000. Thetransaction is estimated to be completed in February 2010. The ShareTransfer Agreement is governed by English law. Any disputes shall besettled by arbitration in accordance with the Arbitration Rules ofthe Arbitration Institute of the Stockholm Chamber of Commerce.How has the purchase price been determined?For the purpose of investigating the divesture option, the companyhas carried out a structured sale process together with RenaissanceCapital, where a number of potential buyers expressing their interesthave been evaluated. The purchase price has been determined followingbidding between these potential buyers. The bid from Gazprom Neft wasthe highest price offered and was thus accepted.What are the actual and potential costs of the transaction?The transaction will be charged with costs for financial and legaladvisory services, and certain liquidation costs.The transaction costs following a realized sale in accordance withthe proposal of the Board is estimated to amount to approx. SEK40,000,000, of which the greater part relates to the financialadvisory services provided.Is the transaction done, or are there any risks that it might fail?In addition to approval from the General Meeting the transaction isconditional upon approval from FAS and approval from the board ofdirectors in Gazprom Neft. A decision from FAS is estimated to takeapprox. two (2) months to receive. Approval from the board ofdirectors in Gazprom Neft was obtained on 11 December 2009.In addition thereto, Gazprom Neft is entitled to withdraw from thetransaction if a material adverse event has occurred beforecompletion of the deal, which has a significant negative impact onthe subsidiary and its possibility to continue to conduct itsbusiness operations. Gazprom Neft may until 6 months after completionof the transaction reverse the sale if such an event has beendiscovered (provided it occurred prior to completion). The Boardassesses the risk of the occurrence of any such event to be low. Itshould be noted that events that have an overall effect on the marketas such, for example a decrease in the oil price, will not entitleGazprom to reverse the sale.What would the consequences be if the transaction is not approved bythe shareholders?If the transaction is not approved, the liquidity situation of thecompany will be very strained and the company will in such asituation shortly have to solve its financing need until a new issuecan be carried out.Malka Oil after the transactionMalka Oil will, after the transaction, consist of the Swedish parentand cash corresponding the purchase price less the transaction costs.In addition thereto, the subsidiary STS Management in Tomsk willremain, but will be under liquidation. The company further considerstaking over STS-Service's office in Moscow and maintain a staff orapprox. 5 persons.The company will elaborate on a complete and detailed business planfor new investments. This plan will be presented to the shareholdersat an extraordinary general meeting to be held following completionof the current transaction.Pro forma Balance SheetThe Pro forma Balance Sheet illustrating the company after atransaction in line with the proposal of the Board has been developedusing the following assumptions: * The balance sheet of the parent company as of September 30, 2009 presented in the financial report for the 3rd quarter has been used as a base; * The parent company perspective has been used since practically all other parts of the group are part of the transaction; * The expenses for liquidation of the remaining STS Management are expected to amount to a maximum of approximately 2 million SEK covering redundancy payments to a limited number of remaining staff. These expenses have been accounted for in the pro forma balance sheet as an increase in short-term liabilities and an increase in the reported loss as part of retained earnings; * Fees and expenses linked to the transaction have been estimated at 40 million SEK and therefore the company's cash position has increased by 780 million SEK (=820 million SEK - 40 million SEK) as a result of the transaction; * The price of the deal covers payment for the parent company's shares in the subsidiary and the parent company's loans to the subsidiary; * Previously, the accounting values of the shares in and loans to the subsidiary have been reported in total as TSEK 1,471,071 in the company balance sheet. As a result of the transaction, a loss of TSEK 691,071 (=TSEK 1,471,071 - TSEK 780,000) is booked into retained earnings; * The total reported loss including the loss of TSEK 2,000 due to the liquidation of STS Management amounts to TSEK 693,071.Estimated value for the shareholdersFollowing deductions for sale- and other transaction costs the saleis expected to render a price of approx. SEK 780,000,000corresponding to approx. SEK 0.19/ share.RisksThe Board has specifically identified the following risks in respectof the transaction.Liquidity risk: The company is currently in a very difficultliquidity situation. This means that a delay of the sales process mayresult in material liquidity problems for the company.Cost risk: In the event of a delayed sales process the transactioncosts may increase as a result of an extended engagement of thecompany's external advisors.Liability risk: Malka Oil has provided a number of warranties toGazprom Neft in the Share Transfer Agreement and a breach againstthese warranties may lead to damage claims. Malka Oil has alsogranted a number of indemnities in respect of certain key issues forthe transaction, such as ownership to the shares in LLC STS-Service.The liability in respect of these key issues has been limited to 100percent of the purchase price. In respect of any other warranties theliability is limited to 30 percent of the purchase price. To the bestof the knowledge of the Board there is no, and will not be, anybreach of warranties and the risk of damages being incurred istherefore assessed to be low. Except for the key issues the warrantyperiod is limited to twelve (12) months from completion of thetransaction.MALKAMalka Oil AB is an independent Swedish oil company within explorationand production active in Tomsk region in western Siberia in Russia.The subsidiary OOO STS-Service owns an oil licence valid for 25 yearsas from April 2005, which gives the company the right to extract allhydrocarbons found within the Tomsk licence block during the licenceperiod. The licence block measures just over 1,803 square kilometres,corresponding to an area of approximately 30 times 60 kilometres andis located in the very active oil and gas producing north westernpart of the Tomsk region. The licence block is surrounded by a largenumber of established producing oil and gas fields.Drilling on the licence block commenced during the Soviet era. TheSoviet authorities drilled four wells, three of which discoveredhydrocarbons, i.e. oil, gas and gas condensate. A vast amount of 2Dseismic data was collected which indicated a volume of approximatelyone million tons (which is about eight million barrels) ofrecoverable oil reserves classified in accordance with Russiancategories "Proven" (C1) and "Probable" (C2).Besides the four oilfields that are currently establish in thelicence block, Malka Oil has, based on existing seismic data,identified another seven structures, i.e. potential oil fields. Afurther important dimension that indicates additional potential inMalka Oil´s licence block is that there was no seismic data forapproximately a third of the licence block and the data acquisitionfor this area was completed during spring 2008. After two seasons ofseismic data gathering and interpretation, Sibneftegeofizika, areputable Siberian oil service company has presented a seismic reportcovering Malka Oil's license block nr 87 in the Tomsk region. Thisnew report identifies four new potential oil bearing structures inaddition to the seven communicated earlier. These will be subject toexploration drilling over the next few years.Tomsk regionMalka Oils licence block 87 is surrounded by a large number ofproductive oil and gas fields.http://hugin.info/138739/R/1361166/332375.pdfThis announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 15.12.2009 - 00:39 Uhr
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