* PROPOSAL TO CONVERTIBLE BONDHOLDERS TO CONVERT TO NEW SHARES IN
CONNECTION WITH SUBSEQUENT RIGHTS ISSUE
* RIGHTS ISSUE OF MSEK 140 (APPROX MUSD 16.7)
Malka Oil has identified a financing need of approx MUSD 15 (or
approx MSEK 125) to pay off Russian supplier's debt and to finance
underlying operations during 2009 (not including interest payments on
convertible bond loans). Due to prevailing market conditions in
combination with Malka Oil's current capital structure, the Board of
Directors has come to the conclusion that it is not possible to
attract new share capital unless the two outstanding convertible bond
loans with a total par value of MUSD 80 are restructured.
Background and reasons
A rapidly changing business environment in Russia and globally has
adversely impacted Malka Oil, specifically during the last six
months. Foremost are the drop in oil prices and the collapse of the
Russian stock markets with its resulting credit crunch. Historically
the Russian domestic oil price has been on a level of 55-60% of the
Ural Blend price. In January the Russian domestic oil price was below
30% of Ural Blend price which severely impacted Malka Oil's revenues.
This resulted in a negative net back per barrel in January.
In addition Malka Oil has not met production expectations and the
increase of the reserves at a satisfactorily pace.
Consequently the Board of Directors and management of Malka Oil have
addressed these challenges. An extensive cost cutting program is
currently being implemented as well as a debt restructuring program
in Russia resulting in a debt repayment plan agreed with major
creditors.
In spite of these measures the board of Malka Oil has identified a
capital requirement of MUSD 15 (or approx 125 MSEK) to pay off
Russian supplier's debt and to fund operations throughout 2009, given
that all interest payments resulting from convertible bond loans are
excluded. So called "Reserve based lending" is not a viable
alternative in today's business climate and it is extremely
challenging to attract new equity capital currently given the
existing capital structure of Malka Oil.
Although the Board of Directors views the situation as critical, they
also note that the company is well positioned to crystallise
underlying values after a potential debt restructuring and capital
raise. Necessary infrastructure and permits are in place, drilling
rigs are readily available and the company has gained valuable
knowledge of reservoir characteristics. Malka Oil is currently
producing 3,000 bpd and targeting 4,000 bpd once all existing wells
are on-stream. Furthermore, Malka Oil is well positioned to further
increase production and reserves, when overall market conditions
improve.
Malka's board and management have been working intensively the last
months with several parallel solutions aiming at a financing model
that suits Malka Oil under the current marketing conditions. The
deemed most suitable and at the same time realistic alternative for
Malka Oil, its shareholders and convertible bondholders can be
summarised as:
* offer convertible bondholders an early possibility to convert
into shares
* satisfy Malka Oil's need of working capital through a rights
issue towards Malka's current shareholders being conditional upon
that the convertible bondholders accept the offer proposed to
them"The Board of Directors and management have worked intensively to
find a long-term solution for Malka Oil and its financial structure
which has resulted in the proposal below. The Board of Directors
assesses the restructuring proposal to be well balanced between the
current shareholders and the convertible bondholders. The convertible
bondholders have the possibility to become shareholders in Malka Oil
and existing shareholders can maintain ownership in the company by
participating in the rights issue." says Mats Gabrielsson, Chairman
of the Board of Malka Oil AB and continues;"The company is in a difficult financial situation and the
alternatives available are limited."
Through the proposal from the board and an acceptance from the
convertible bondholders as well as a fully subscribed rights issue
Malka's interest bearing debt will disappear and the operational
capital liquidity will be strengthened to a degree as deemed
necessary, given prevailing market conditions and the present extent
of operations, for the coming twelve months.
With the proposal the convertible bondholders will get 42% of
outstanding shares and existing shareholders will through their full
participation get 58% of outstanding shares.
The offer in short to convertible bondholders:
- Early conversion to newly issued shares in Malka Oil
- Rate of conversion USD 0.0477 (approx. SEK 0.40)
- 1,678,000,000 additional shares in Malka Oil
- Newly issued shares within the frame of the offer are not entitled
to subscription in the proposed share issue
Proposed conditions for the rights issue: [1]
- Subscription price SEK 0.07
- 1 (one) existing share in Malka Oil warrants subscription to 6
(six) newly issued shares in Malka Oil
- 2,013,077,040 additional shares
- Total proceeds from issue approximately MSEK 140 [2]
- Execution and completion of rights issue conditional upon that
convertible bondholders accept the offer in full
Action plan - indicative time table
A bondholder's meeting will be held around week 9 to decide upon the
proposal to the convertible bondholders. The notice will be sent to
bondholders in accordance with the loan agreements.
An extraordinary shareholders' meeting will be held around March 17,
2009 to (1) decide upon appropriate changes of the articles of
association, (2) approval of proposal to convertible bondholders and
thereto related decisions, (3) decide upon a rights issue and thereto
related decisions. The notice for the extraordinary shareholders'
meeting will be published around February 17, 2009.
A new company presentation is available on the company website
www.malkaoil.se
For further information, please contact:
Mats Gabrielsson, Chairman of the Board, mobile +46 707 75 83 20
Fredrik Svinhufvud, Managing Director, tel +46 8 5000 7811, mobile
+46 708 708 708
Richard Tejme, CFO, tel +46 8 5000 7812, mobile +46 707 31 52 17
For further information on Malka Oil AB, see the website
www.malkaoil.se
Malka Oil AB (publ) is an independent oil and gas production company
operating in the Tomsk region in western Siberia. Its current
position consists of oil and gas assets for licence block number 87
in the said region. The block has a surface of 1,800 square
kilometres. There are currently three oil fields at the licence
block, namely Zapadno-Luginetskoye ("ZL"), Lower Luginetskoye ("LL")
and the Schinginskoye oil field, and a large quantity of other not
yet drilled oil structures.
The ZL and LL oil fields are in production and these two oil fields
have during 2007 went through reserve classification by the Russian
State Committee of Reserves (GKZ) and during spring 2008 a Western
reserve study made by DeGolyer and MacNaughton. The GKZ registered
extractable oil and condensate reserves in the categories C1 and C2
amounted to 97 million barrels at the end of 2007. The company's own
estimate of its extractable oil and condensate reserves, C1+ C2, in
the three existing oil fields on licence block number 87 is currently
140-190 million barrels. The Western reserve study estimation as of
April 30, 2008 amounted to 43.5 million barrels 2P and 90.6 million
barrels 3P oil reserves.
Malka Oil's licence block is surrounded by a large number of
producing oil and gas fields.
Reasonable caution notice: The statement and assumptions made in the
company's information regarding Malka Oil AB's ("Malka") current
plans, prognoses, strategies, concepts and other statements that are
not historical facts are estimations or "forward looking statements"
concerning Malka's future activities. Such future estimations
comprise but are not limited to statements that include words such as"may occur", "concerning", "plans", "expects", "estimates","believes", "evaluates", "prognosticates" or similar expressions.
Such expressions reflect the management of Malka's expectations and
assumptions made on the basis of information available at that time.
These statements and assumptions are subject to a large number of
risks and uncertainties. These, in their turn, comprise but are not
limited to i) changes in the financial, legal and political
environment of the countries in which Malka conducts business, ii)
changes in the available geological information concerning the
company's projects in operation, iii) Malka's capacity to
continuously guarantee sufficient financing to perform their
activities as a "going concern", iv) the success of all participants
in the group, or of the various interested companies, joint ventures
or secondary alliances, v) changes in currency exchange rates, in
particular those relating to the RUR/USD rate. Due to the background
of the many risks and uncertainties that exist for any
oil-prospecting venture and oil production company in its initial
stage, Malka's actual future development may significantly deviate
from that indicated in the company's informative statements. Malka
assumes no implicit liability to immediately update any such future
evaluations.
[1] The execution and completion of the rights issue supposes that
the offer as described above is accepted by in full. In the interest
of time the board will summon to a shareholder's meeting around
February 17, 2009 (see separate notice)
[2] Before issue costs, upon full participation
