MoldovaDuring 2008 Island evaluated a number of potential oil and gas field rehabilitation and development projects in Moldova, the Former Soviet Union (‘FSU’), South-East Europe and North-West and West Africa. We have high-graded a small number of these projects based on the quality of the available technical, commercial and legal information and the likely entry costs. The ability of these projects to support the raising of the seed investment capital required to ‘kick-start’ operations and the timing of positive cash flow from operating revenues are key considerations for ranking the opportunities that are currently available to Island. Post year end, the changing economic climate and weakening commodity prices requires that, in common with many of our industry peers, Island re-evaluates and ranks each and every opportunity that is available on the basis of the cost of acquiring and progressing the development of new assets. Island will complete this process by the end of 2008 to ensure that the commercial terms Island may offer to acquire new assets are consistent with the prevailing economic climate and recognise the fact that Island will wish to operate any assets that are subsequently acquired. Moldova is very much a net energy importer. All its requirements come primarily from Russia via part of a strategic gas pipeline infrastructure that passes through the Ukraine, which in Moldova is jointly owned by Gazprom and the Moldovan State. In 2001, oil consumption amounted to approximately 24,000 bpd. Energy shortages are a common occurrence in Moldova. Moldova wishes to reduce its reliance on imported energy and is therefore seeking to stimulate and encourage domestic oil and gas production from the country’s only two producing fields – the Valeni oil field and the Victorovca gas field. Both assets have the potential to generate immediate cash flow for Island should Island progress to acquire an interest in the fields for an acceptable entry price. Efforts to diversify Moldova’s sources of energy supply include arrangements to access secure international supplies through ‘Protocol Agreements’ of economic cooperation with FSU countries (such as Tatarstan for example). This would potentially involve investment and the provision of new drilling and completion oil technology by an indigenous Moldovan exploration and production company in field rehabilitation projects in such countries. Island envisages that, through its wholly owned Dutch subsidiary Island Moldova BV, it would become a 50:50 stakeholder with Valiexchimp in a Moldovan registered joint venture company thereby allowing Island access to potential oil field rehabilitation projects in the FSU for a relatively low entry cost, in order to meet Island’s medium term business strategy to increase its potential cash flow from producing assets and add value through Island’s status as an approved and successful operator. However, there are now alternative options for Island to become involved in similar projects in the FSU without necessarily pursuing this option. In November 2007, Island announced that it had concluded a Memorandum of Understanding with Valiexchimp, a privately owned Moldovan oil and gas company, covering a number of upstream and downstream assets in the Republic of Moldova. The principal upstream asset owned by Valiexchimp is the Moldovan Concession Agreement that was executed in 1995 between an American company, ‘Redeco’, and the Moldovan Government. This gave Redeco the exploration and exploitation rights for the whole of Moldova until 2015, subject to the exercise of certain options on extensions. During 2007, the Moldovan Government approved the transfer of the existing rights and obligations under the Concession Agreement to an indigenous Moldovan private oil and gas company, Valiexchimp, as a consequence of the reorganisation of Redeco Limited after it was bought by Valiexchimp. A condition of the transfer of the Concession Agreement to Valiexchimp was that as Redeco’s exclusive Concession rights had expired in 2005, Valiexchimp’s rights and obligations would be restricted solely to the areas covered by the Valeni and Victorovca oil and gas fields. |
