Jul 22, 2010
Ascom S.A. (the "Company") today announced that the Ministry of Oil and Gas of the Republic of Kazakhstan (the "MOG") cancelled the subsoil use contracts issued to Kazpolmunay LLP ("KPM") and Tolkynneftegaz LLP ("TNG").
The Company views the abrupt cancellation of KPM and TNG's subsoil use contracts as the final step in a systematic campaign commenced by the Kazakh authorities in 2008 to illegally expropriate KPM and TNG's assets and the investments made by their stakeholders in Kazakhstan.
In recent months, the Kazakh authorities had increased their scrutiny and harassment of KPM and TNG.
In connection with the criminal conviction of KPM and its former General Director for the alleged operation of an illegal pipeline, on June 9, 2010, in an effort to collect the approximately $145.0 million in fines levied against KPM, the Court Execution Body of Mangistau Oblast ruled that a public auction of KPM's tangible assets, including vehicles, land plots on which KPM's production assets are located, and the oil pipeline built to transport oil from the Borankol field to the delivery point, should be undertaken.
On June 29, 2010, the Republic of Kazakhstan Prosecutor General's Office initiated an extensive inspection and review of KPM and TNG's operating activities for the periods starting 1997 through 2010.
On July 14, 2010, the MOG submitted formal notifications to KPM and TNG informing KPM and TNG that they were in breach of their subsoil use contracts. Among other alleged violations, the notifications mentioned the operation by KPM and TNG of main oil and gas pipelines without obtaining a state license.
The formal notifications provided that KPM and TNG had to submit all the pertinent explanations regarding the alleged violations and remedy the breaches by July 19, 2010. The notifications also stated that any failure by KPM or TNG to comply with the MOG's request would result in the MOG cancelling KPM and TNG's subsoil use contracts. KPM and TNG believe that the respective allegations are groundless, but nevertheless submitted the required formal explanations to the MOG in due course.
On July 21, 2010, the MOG submitted formal notifications to KPM and TNG, informing KPM and TNG that it had cancelled KPM's subsoil use contract with respect to the Borankol field and TNG's subsoil use contract with respect to the Tolkyn field. The notifications stated that the Borankol and Tolkyn fields had been transferred into trust management to NC "KazMunayGas" ("KMG") and that all facilities and field infrastructure are to be temporarily transferred by KPM and TNG into KMG's custody until their final transfer to a new operator. KPM and TNG were given one day to comply with MOG's demand.
The Company is deeply troubled by the latest actions of the Kazakh government and will continue pursuing any and all remedies available to protect its rights and interests in Kazakhstan and the rights and interests of its noteholders. Despite considerable efforts, the Company has been unable to effectively resolve the issues through the Kazakh legal system. The Company has therefore retained the international law firm of King and Spalding to prepare an international arbitration claim against the Republic of Kazakhstan. The filing of that claim is expected imminently.
In connection with the proposed sale (the "Sale") of the Company, KPM and TNG to Cliffson Company S.A. (the "Buyer"), the sale and purchase agreement entered into between the shareholders of the Company, KPM and TNG and the Buyer automatically terminated as certain closing conditions were not satisfied, including obtaining the necessary consents and approvals from the Kazakh authorities to effectuate the Sale.