Roxi Petroleum runs into trouble

Technical problems at Roxi Petroleum's flagship BNG asset in Kazakhstan mean the 30-day well test at its promising Deep Well A5 will now not begin until the end of this month. Clearly, a delay of one month is frustrating for the army of investors betting on success here, but as Roxi says, this makes no difference to the outcome of the test

Roxi, which already knows that a gross oil-bearing interval there is at least 105 metres thick, blamed the heavy fluids needed to control the high pressure in the well during the drilling phase. That had to be "swabbed" away, but toward the end of the process, the coil tubing equipment experienced a compressor failure. That now needs to be replaced before completing the swabbing process.

"The delay in replacing the faulty heavy duty compressor powering the coil tubing equipment makes no difference to the outcome of the flow test, the results of which will be used to provide an external reserves estimate," says Roxi.

But Brendan D'Souza, an analyst at WH Ireland, is unfazed:

We view this as a temporary inconvenience in the grand scheme of things. We are encouraged that the faulty compressor powering the coil tubing equipment does not effect the outcome of the flow test results, which will be used to in the calculation of reserves. We note that Roxi's shares have declined by 46% from its peak of 25.5p, set in early September. We believe this sharp decline is unwarranted and reiterate our Buy recommendation and Target Price of 28p.

Elsewhere, well NK-22 in the Galaz block, central Kazakhstan, produced water with oil and is being monitored to assess its potential. And at Munaily, where Roxi has one well producing at a rate of 150 barrels of oil per day (bopd), a second well - Well 39 - as been perforated. Swabbing is underway ahead of production.

Of course, this also costs money, so Roxi has drawn down a further $1.7 million (£1 million) from the $40 million equity facility announced in January 2013 with Kairat Alpamysovich Satylganov, a Kazakh investor previously chairman of two of the largest Kazakh banks and now sitting in the Roxi board.

Roxi will issue a further14.2 million shares to Mr Satylganov at 7.41p, resulting in a 1.7% dilution. It also brings the total called and received to date to $26.2 million.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.