London-listed PetroNeft has completed the farm-out of Licence 61 in Russia to Oil India (OIL), much to the disappointed of major shareholder.
OIL has now taken a 50% interest in the licence after the farm-out received approval from the Russian Regulatory Approval, with drilling to re-start this month.
PetroNeft nets $85 million from the deal, which is set to be split into three tranches.
All of the company’s debt has been paid off from the initial $35 million from the farm-out, with some left over for working capital.
Another $45 million will be paid through exploration and development expenditure for work to be carried out on the licence.
OIL will also be required to pay $5 million if the production from the Sibkrayevskoye field reaches 7500 barrels of oil per day in the next five years.
PetroNeft will retain operatorship of the licence.
PetroNeft’s largest shareholder, Natlata Partners, questioned the deal saying the explorer had not provided enough details.
“If the deal is as attractive as suggested, Natlata would consider supporting it,” the shareholder group said at the time.
“Unfortunately the announcement only provided clarity with respect to $35 million, while the rest of the money is or may be subject to the current management actually delivering on its promises – which, Natlata notes, should sound alarm bells for shareholders, if past performance is anything to go by.”
The company used Evercore as its financial adviser for the farm-out, while White & Case were the principal legal advisers.
The T-5 will be the first well to be drilled by the company, which is expected to take about 60 days to drill.
Five more wells are set to be drilled from the same drilling pad where drilling was suspended early last year.
PetroNeft also plans to acquire 1000 kilometres of 2D seismic across the field.