Pioneering High Impact Exploration

Kulczyk Oil Ventures

“Kulczyk Oil Ventures offers a balanced portfolio of production, development, appraisal and high impact exploration projects, with a strategy to expand the company by way of organic growth as well as through corporate acquisitions,” explains Jock M. Graham, Executive Vice President of KOV since February of 2006 and a consultant to the company prior to his appointment as Executive VP.

A highly trained geologist with almost 30 years of experience, Mr. Graham worked at Chevron Canada in development, operations and exploration geology throughout the Western Canadian Basin; in Dubai as a founding member of Arabex Petroleum Limited; and at Coplex Resources Ltd. with projects in Senegal, Oman, The Philippines, Yemen and Colombia. Serving as Vice President and Country Manager for Coplex Colombia in Bogota, Mr. Graham was responsible for exploration and development efforts in and around the Llanos Basin, and served as Technical Director for Vostok Oil at Tomsk in Western Siberia, and as Operations Manager for that group’s significant En Naga North and El Naga West development project in Libya prior to joining KOV.

Mr. Graham’s extensive experience integrates perfectly with Kulczyk Oil Ventures and the company’s principal assets, which include five licenses with four producing gas fields in Ukraine, a large license onshore Brunei and a large onshore exploration block in Syria. Along with Mr. Graham, the management team at KOV has a vast wealth of experience in international exploration and production operations. Cohesive, motivated, dedicated and eager, the company’s team has been growing both in Canada and abroad as exploration and production activities have increased. “KOV shareholders can have confidence that the management of the company is aligned with their interests and will grow the value of the company, and their shareholding as a direct result,” says Mr. Graham.

A History of Exploration and Development

On May 25, 2010, KOV’s shares were listed for trading on the Warsaw Stock Exchange, with the main shareholder of the company, Kulczyk Investments S.A. – an international investment house founded by Polish businessman Dr. Jan Kulczyk – owning 49.99 percent of the issued common shares.

Originally incorporated as Loon Energy Inc. in Alberta back in 1987 and listed on the Alberta Stock Exchange, the company invested in Canadian oil and gas assets until 2001, when the company changed its focus to international oil and gas assets. From there, a number of strategic acquisitions were made including exploration assets in Colombia in 2005, entering into the Brunei Block L PSA in 2006 and, in 2007, entering the Syria Block 9 PSC and acquiring an exploration block in Peru.

A strategic decision was made by the company in late 2008 to focus its future efforts on the exploration for, and the development of, oil and gas in Asia, Africa and Europe. Pursuant to a plan of arrangement with its shareholders, the company was de-listed from the TSX Venture Exchange in December of that year, with Colombian and Peruvian interests carved out of the company and lodged in a new entity, Loon Energy Corporation, which continues to trade on the TSX Venture Exchange.

The remainder of the company – containing the Brunei and Syria assets – was listed on the Warsaw Stock Exchange as Kulczyk Oil Ventures in 2010 and raised approximately $93 million at that time, part of the proceeds being used to finance the US $45 million acquisition of an indirect 70 percent shareholding in KUB-Gas by KOV in June, 2010. The company now trades in Warsaw and continues to be a reporting issuer in Canada.

“We see a continued path of consolidation in our industry and we believe we are in a strong position to take advantage of the opportunities that we see in this regard,” says Mr. Graham. “However, the most effective way for a company in our space to grow is through the drill bit and we will always keep several high impact exploration projects in our portfolio. Additionally, the company has a dedicated and experienced management team that has taken us this far and will continue to grow the business.”

By adopting a flexible, opportunistic approach, KOV has successfully and effectively developed projects with regard to financing, partners and operations while maintaining a broad and well-balanced geographical focus aimed at mitigating risk. With a proven track record in evaluating prospects in underexplored regions, the company is able to take advantage of an extensive network of contacts in the worldwide oil and gas business to access new growth opportunities and work in partnerships with local and international groups to assist in sourcing and securing equity positions in high quality assets.

Operations in Ukraine, Brunei, and Syria

Seeking out countries which have longstanding reputations as prolific oil and gas producers, Kulczyk Oil Ventures has a presence in locations known for rapid growth and world-class exploration. In June of 2010, 70 percent of KUB-Gas LLC plus service assets was acquired for $45 million, with assets that have grown to now include four producing fields, one exploration license, a Canadian-made drilling rig and snubbing unit, two service rigs, and four gas producing facilities. In November of 2012, an all-time high of 25.8 MMcf/d (18 MMcf/d net to KOV) was attained, with plans to continue drilling and work throughout 2013.

“Ukraine has been producing oil and gas in significant quantities for many decades, and prior to the large discoveries in Siberia was one of the Soviet Union’s major producing areas,” says Mr. Graham. “Most recently, the Dnieper-Donetsk Basin – in which KOV operates through its interest in Kub-Gas – has become one of the largest producing areas in the country with upwards of 60 Tcf of gas discovered in this basin. We fully expect that number to keep growing as more and more western companies enter the oil and gas arena there. Currently, KOV owns an effective 70 percent interest in KUB-Gas LLC, the company holding 100 percent interests in five licenses in the Lugansk Oblast of eastern Ukraine, four of which are producing.”

With an economy built on the production of oil, gas, and liquid natural gas, Brunei remains one of the world’s most prolific producers, a position it has held since 1929, when oil was discovered at the Seria Field. KOV has a 90 percent interest in a 1,123 square kilometre onshore license in Brunei (Block L), which offsets billion barrel and multi-Tcf discoveries, with more discoveries continuing to be made in Brunei every year.

In Syria, KOV was in the process of drilling its first exploration well when the company was forced to cease operations and ultimately declare Force Majeure as a result of the ongoing troubles in the country. At the time the company commended its operations in Syria, there was no indication of what was about to unfold, and the Syrian people were very receptive to KOV, with Western staff routinely in the country to assist and work with Syrian staff, both in Damascus and the field area. From an operating perspective, it was a very stable environment and as a result, there were a host of foreign companies in the country until the recent troubles began; currently, all foreign companies are in a state of Force Majeure until such time as it is deemed safe to re-enter the country and resume operations.

“This was a huge disappointment as we had drilled to approximately 2,000m en route to a 3,000m target depth on a very large structure with significant reserve potential,” says Mr. Graham. “Several of our primary objectives were yet to be reached so when we had to suspend operations, it was very frustrating. The well is currently suspended, but we fully intend to return to the site to complete operations when the situation improves. Our license is very close to several large gas / condensate fields and has a very compelling geologic story. KOV has a participating 50 percent interest in an approximately 10,000 square kilometre exploration block in Syria (Block 9).”

Prior to the recent unrest Syria, with a long-established oil and gas sector, was producing roughly 400,000 BOPD. Once it is deemed safe to re-enter Syria, KOV will return to the country and resume operations. “At that time,” confirms Mr. Graham, “we fully intend to return to Syria, to continue growing the business there and trust we will continue to enjoy excellent relations with the people with whom we interact.”

Despite social, geographic, political, and logistical challenges that may arise, Kulczyk Oil Ventures is committed to the many positive aspects that come with working on exploration projects that have high reward potential such as in Syria and Brunei, where KOV plans to commence drilling its first well in April, having been awarded all major contracts for the programme. With plans to drill a minimum of two exploration wells, the company is optimistic about its two well-defined targets that carry significant resource potential and which, if successful, could open up a large play for the company in Brunei. While KOV’s earlier drilling efforts in Brunei were unsuccessful, the company believes the new targets are technically very solid.

“It’s part of our strategy of putting the company in a position to go for a ‘home run’ as part of the upside exposure, while mitigating exploration risk with a growing production and revenue base in Ukraine, as well as continuously looking for new areas of growth,” comments Mr. Graham. “Of course, only time will tell if we are successful in these upcoming exploration wells, but we do have our fingers crossed. With exploration success, you can transform your company overnight; it’s that simple.”

While Kulczyk Oil Ventures believes exploration success delivers ‘the most bang for the buck’ with respect to reserves and production growth potential, there is also a need to balance these types of projects in the company’s portfolio with production and appraisal / development projects. Exploration is inherently risky, states Mr. Graham, and although KOV will always strive to have an exploration component in its portfolio, the company believes in a solid production base and is very careful to balance risk exposure, a tactic which has worked for KOV since it was founded.

“We are one of the companies that not only survived the last four years of worldwide economic chaos and downturn, but we grew our reserve and production base through this period and we are now poised for further growth,” says Mr. Graham. “I would simply say, ‘watch this space’ in 2013.”

June 19, 2018, 8:19 AM EDT

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