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Neconde Completes Nigeria OML 42 Purchase

Source: 12/1/2011, Location: Africa

Kulczyk Oil Ventures Inc announces that Neconde Energy Limited (“Neconde”) has completed the acquisition of Oil Mining License 42 (“OML 42”) announced by KOV in a news release dated 6 May 2011. The purchase of OML 42 closed on 30 November 2011. The bridge financing arrangement between KOV and its major shareholder has been extended until 31 March 2012 to provide the Company sufficient time to secure financing.

Tim Elliott, President and Chief Executive Officer of KOV stated that:
“This transaction provides KOV with an opportunity to participate in a world-class project.”

On 6 May 2011 the Company announced that it had joined the Neconde consortium as a 20% shareholder and that Neconde had entered into various agreements on 29 April 2011 with Shell Petroleum Development Company of Nigeria Ltd, Total E&P Nigeria Limited and Nigerian Agip Oil Company Limited (together, the “Sellers”), to acquire (the “Transaction”), the Sellers’ cumulative 45% participating interest in Oil Mining License 42 (“OML 42”). OML 42 is a large license containing previously-discovered oil fields in the Niger Delta area of onshore Nigeria. The remaining 55% participating interest in OML 42 is currently held by the Nigerian National Petroleum Company (“NNPC”) and NNPC has advised that they will transfer the interest to Nigerian Petroleum Development Company (“NPDC”), who will operate the block.

OML 42 is an 814 square kilometre lease originally awarded in 1962. Initial production commenced in 1969 and aggregate production from the 5 fields discovered within OML 42 reached a peak of approximately 250,000 barrels of oil equivalent per day (“boe/d”) in the 1970’s. Production, which was primarily oil, continued until the first part of 2005 when the producing fields were shut-in due to security issues in the Niger Delta area. Production at the time of the shut-in was more than 50,000 barrels of oil per day (“bopd”) and more than 80 million cubic feet per day (“MMcf/d”) of natural gas. The sales process for OML 42 started in late 2010 and during the first part of 2011 one of the fields within the license area was put on-stream resulting in current production from OML 42 of approximately 15,000 bopd.

When Neconde began the evaluation process on OML 42 earlier this year, it engaged RPS, an independent engineering firm, to do an estimate of the remaining recoverable oil resources of OML 42 based on the material that had been made available by the Sellers up until that point. Details of RPS estimates were published by the Company in a press release dated 6 May 2011. Neconde, with the technical assistance of KOV, has further commissioned RPS, to undertake a much more extensive study of OML 42, and prepare a Competent Persons Report (“CPR”) on the asset. This report should be ready in the coming weeks.

The purchase of OML 42 by Neconde was completed for a purchase price, subject to closing adjustments, of $585 million. Of this amount, $435 million was paid by consortium partners as equity contributions to Neconde with KI paying for the potential share of KOV pursuant to the bridge financing arrangement. The remaining $150 million of the total purchase price is funded through Neconde debt financing.

In order to facilitate the participation of KOV in the Neconde consortium, Kulczyk Investments SA (“KI”), the major shareholder of the Company, provided bridge financing in respect of the Company’s share of Neconde’s acquisition costs of OML 42. KI and the Company agreed that until such time as the Company raises funds to repay KI, the shares of Neconde allocated to KOV would be held in trust for KI. It has been further agreed, in anticipation that the acquisition would have closed prior to the end of October 2011, that if the Company had not raised funds to repay KI for its bridge financing prior to 31 October 2011 the trust arrangement between KI and the Company would terminate and KI would become fully entitled (legally and beneficially) to the Company’s shares in Neconde. An agreement has been reached between the Company and KI to provide for an extension of that bridge financing until 31 March 2012 to allow the Company time to secure financing.

KOV has the option, until the end of March 2012, to participate for a 20% shareholding interest in Neconde (an effective 9% participating interest in OML 42) for an aggregate price, assuming a close of the KOV acquisition on 31 March 2012, of approximately $162.5 million. This price is comprised of 31.96% of the cash portion of the purchase price of $435 million and 31.96% of the interest charges related to $150 million of Neconde debt financing from 28 April 2011 until the closing date plus $19 million of additional costs, most of which relate to the bridge financing arrangement with KI.

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