KrisEnergy Ltd - MANAGEMENT REPLY: Not concerned about Niko's dispute with Bangladesh government

24/7/2013 – KrisEnergy Ltd has highlighted that the Feni and Chhatak gas fields, which are the subject of a tax dispute, are not part of the concession it is trying to buy in Bangladesh.

The company added a further response to our questions in our earlier report titled Will problematic Bangladesh acquisition go through?(July 19).

Co-founder Richard Lorentz pointed out the Feni and Chhatak gas fields are in separate blocks of Niko Resources.

Therefore they are not pertinent to KrisEnergy Ltd's acquisition of Tullow Bangladesh Ltd, he added.

Tullow Bangladesh Ltd (TBL) is the operator of Block-9 in Bangladesh and owns a 30% stake in it.

Further, in his reply, Mr Lorentz says he doesn't view the acquisition to be contention and the company is extremely happy with the acquisition of TBL, the asset (which is a 30% stake in Block-9) and the team of people.

In response to the termination of funding commitment by First Reserve Management L.P., Mr Lorentz pointed out that KrisEnergy Ltd had the opportunity to draw down more equity from First Reserve but the management felt it was prudent to find other forms of financing that are more efficient and provide a balanced and sensible structure to the company's capital structure.

KrisEnergy Ltd started this process in 2011 when it issued a senior secured bond and secured a revolving credit facility.

In continuation to his earlier response, which was included in our July 19 report, Mr Lorentz informed that KrisEnergy carried out two seismic programs at its Block-120 in Vietnam on July 22.

Playing down the fears related to the location of Block-120 in the disputed area of South China Sea, he said the seismic program didn't invite any trouble and the company believes the drilling activities will also be without incident.

In our July 19 report, we highlighted a previous report by Platts (a service of McGraw Hill Financial) which said TBL had sought permission to drill a fifth well at Block-9 in Bangladesh.

To this, Mr Lorentz said there had not been any plan for a fifth development well.

Also in our July 19 report, we highlighted the changes in the portfolio of KrisEnergy after the Qualified Person's Report (QPR) was prepared on December 31, 2012.

In the KEY RISKS segment of the report, it was elaborated how KrisEnergy relinquished about 45% of area at its Kutai block in Indonesia (Source:Note 6 on page 5 of prospectus), a 25% area at its G10/48 block in Thailand (Source:Note 8 on page 5) and a 25% area at its G6/48 block in Thailand (Source:Note 4 on page 6) after December 31, 2012.

But to that Mr Lorentz said the company had not relinquished any concessions since the QPR was written.

He adds: we note throughout the prospectus that it is our intention to relinquish the Glagah-Kambuna TAC shortly after the IPO but we have yet to do that. We have not relinquished any other contract area.

In response to our follow-up question, Mr Lorentz said:

"All contract areas in the oil and gas industry have partial relinquishments built into the terms. This is SOP [standard operating procedure] in our industry."

We thank Mr Lorentz for his response.


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