BNK Petroleum Inc. provides the following international operations update:
Europe
In Poland, through Saponis Investments Sp. Z o.o. ("Saponis"), the Company has completed the major tenders for the services to drill the Wytowno S-1 and Lebork S-1 wells on the Slawno and Slupsk concessions in Poland, including the award of the drilling rig contract to NAFTA Pila. NAFTA Pila recently completed drilling the Lebien LE1 well and is currently drilling the Legowo LE1 well, both for Lane Energy/Conoco Phillips. These two wells are shale gas test wells located on concessions directly offsetting the Company's Saponis concessions. Surface agreements have been secured for both the Wytowno S-1 and Lebork S-1 wells. Surface site construction is underway and rig release and mobilization from the Legowo LE1 well and site construction will determine the Saponis drilling schedule. The Company owns 26.6% of Saponis and the rest of Saponis is owned by Rohol-Aufsuchungs Aktiengesellschaft ("RAG"), Sorgenia E&P S.p.A. ("Sorgenia") and by LNG Energy through a subsidiary. The Company is obliged to pay approximately 6.6% of the drilling costs of these first two wells with the other 20% of the Company's interest being paid by RAG and Sorgenia under the terms of the Company's farm-out to RAG and Sorgenia. The Company holds 195,000 net acres in Poland through Saponis and a further 880,000 adjacent net acres through another European subsidiary.
The Company is also pleased to announce the appointment of Jack Wroblewski as its Country Manager in Poland. Mr. Wroblewski brings valuable Polish operational experience to the Company. He has held a number of significant positions in the Polish oil and gas sector. His past positions include General Director of another exploration and production operator in Poland, General Director of the Polish Organization of Oil Industry and Trade, and Deputy Director of the Department of Geology and Director of the Bureau of Geological Concessions for the Polish Ministry of Environment, Natural Resources and Foresty. Mr. Wroblewski holds a Ph.D. in Earth Sciences and a M.Sc. in engineering geology from the University of Warsaw. "We are very pleased that he has joined our company and I feel that he is a great addition to our team." said Wolf Regener, the Company's President and CEO.
In Germany, the Company has undertaken additional geological work to further high-grade its concessions and to gather additional data from not only the primary shale targets but also from the secondary shale targets on the concessions. The Company intends to begin the German concession farm-down process during the second quarter 2011.
The Company has also agreed to acquire from an arm's length party the minority interest it does not already own in an entity formed to pursue other oil and gas concession applications within Europe. Consideration for the acquisition includes re-imbursement of costs, 1,000,000 share purchase warrants, each excercisable subject to vesting to acquire one additional share at a price of C$2.85 for a period of three years, US$200,000 in cash and reimbursement of costs which are not expected to exceed US$100,000. The cash and the warrants will only become payable or exercisable, as applicable, in tranches if, as and when additional concessions are acquired by the Company.
The Company, through its European subsidiaries, continues to pursue concession applications in various European countries with a view to increasing the number of European basins in which it has holdings. Progress of many of the concession applications is slowing as a result of increased competition and awareness of shale gas potential in Europe.
Future Financial Options
With the combination of increased production through additional fracs and the refinancing of its existing credit facility, management believes that cash on hand and cash flow from operations will be sufficient to fund its planned exploration activities in the United States and its required exploration activities in Poland and Germany. The Company also believes that expanded exploration activities in Poland and Germany beyond those now required and potential exploration activities resulting from the granting of future concessions will be financed through farm-out arrangements with other companies that will finance the drilling programs on these projects, and/or by the proceeds of additional equity or debt offerings.
While the Company continues to pursue its strategy of farming-out exploration costs and risk on it's European concessions, successful well results from basin competitors and/or Company wells may accelerate the Company's capital expenditure plans and commitments in Europe and, accordingly, the Company intends to file a short form base shelf prospectus in certain Canadian jurisdictions to facilitate its ability to raise additional capital if required.
Subject to receipt of all necessary approvals the shelf prospectus, when made effective, would provide for the potential offering by the Company of common shares, debt securities, warrants for the purchase of common shares or debt securities, subscription receipts, or any combination thereof, in selected Canadian provinces to raise an aggregate amount of up to C$200 million during the 25 months following final receipt.
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