Emerald Energy Plc - 14 November 2005
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THE UNITED STATES OF AMERICA, CANADA, AUSTRALIA, JAPAN, THE REPUBLIC OF IRELAND OR THE REPUBLIC OF SOUTH AFRICA
EMERALD ENERGY PLC
(“Emerald” or the “Company”)
Acquisition of 50 per cent. participating interest in Block 26 in Syria (the “Acquisition”) and placing of 5,090,000 new ordinary shares of 10p each in the capital of the Company (the “Placing Shares”) at a price of 158p per Placing Share (the “Placing”) raising approximately £8.0 million
Highlights
- Acquisition of 50 per cent. participating interest in the Contract for the Exploration, Development and Production of Petroleum covering Block 26 in Syria (the “Block 26 EDP Contract”)
- Total consideration for the Acquisition is US$16.9 million, comprised of US$7.3 million payable in cash on completion and the issuance of 3.5 million new ordinary shares after 18 months
- A placing of 5,090,000 Placing Shares raising approximately US$13.1 million (net of expenses) to fund the Acquisition and related working capital requirements of approximately US$5.8 million
- Admission expected to become effective and dealings in the Placing Shares to commence on 17 November 2005 (the “Admission”)
Introduction
Emerald announces that it has entered into a Share Purchase Agreement with Soyuzneftegas Limited (the “Vendor”) to acquire the entire issued share capital of SNG Overseas Limited (“SNGO”), a special purpose investment vehicle used by the Vendor to hold and fund its participating interest in the Block 26 EDP Contract, for a total consideration of approximately US$16.9 million. The consideration payable comprises:
- a cash payment of US$7.3 million, payable on completion of the transaction, for the entire issued share capital of SNGO and to settle the outstanding shareholder loan granted to SNGO by the Vendor; and
- 3.5 million new ordinary shares of 10p each in the capital of the Company to the Vendor on 18 May 2007, the date falling eighteen months after completion of the Acquisition, these shares being worth approximately US$9.6 million at the Placing price.
The gross assets of SNGO, which total approximately US$7.3 million, consist solely of the investment in the Block 26 EDP Contract; this investment has been funded by a shareholder loan granted to SNGO by the Vendor. As SNGO is a special purpose investment vehicle, there are no profits or losses attributable to it.
The Placing
Emerald is raising approximately £7.5 million, net of expenses, (approximately US$13.1 million at the dollar/sterling exchange rate of 1.7405) through the placing of 5,090,000 new ordinary shares at 158 pence per share. The net proceeds of the Placing will be used to fund the US$7.3 million cash consideration to purchase SNGO and to fund the Company's working capital requirements in respect to its obligations pursuant to the Block 26 EDP Contract. Evolution Securities Limited is acting as financial adviser to the Acquisition and as sole book runner, co-lead manager and underwriter to the Placing. Haywood Securities (UK) Ltd is acting as co-lead manager to the Placing.
Application has been made to the UK Listing Authority and to the London Stock Exchange for the Placing Shares to be admitted to the Official List and to trading on the London Stock Exchange's market for listed securities respectively. Admission is expected to become effective and dealings in the Placing Shares are expected to commence on 17 November 2005.
Information on Block 26
Block 26 covers an area of approximately 11,000 sq km and surrounds existing discovered oil fields that currently produce over 85,000 bopd. The 20-26º API gravity crude oil with a high sulphur content that is produced from the Cretaceous limestone reservoirs in these fields is processed and then transported through the existing pipeline infrastructure either for domestic consumption or for export.
Besides the Cretaceous, particularly in the deeper Palaeozoic horizons, there is further hydrocarbon potential. Several wells have been drilled on Block 26 to the Palaeozoic, some with indications of hydrocarbon presence, but no commercial discovery. The leads and prospects currently mapped in the Palaeozoic are larger than those mapped in the Cretaceous and they are the focus of current technical studies in the lead up to the drilling campaign.
The rights under the Block 26 EDP Contract include rights under the discovered fields within Block 26 and undivided rights elsewhere within the block. The Block 26 EDP Contract also conveys rights of access to and use of existing production and transportation infrastructure. Block 26 is operated by Gulfsands Petroleum Plc (“Gulfsands”), an AIM listed company, who, following the completion of the Acquisition, will continue to own a 50 per cent. participating interest in the Block 26 EDP Contract. The Government of the Syrian Arab Republic and the Syrian Petroleum Company are also parties to the Block 26 EDP Contract.
In the event of commercial discovery, a Syrian operating company is to be formed to conduct and oversee development and production. The operating company would be owned as to 50% by the Contractor (defined as the owners of the participating interest in the Block 26 EDP Contract), and 50% by Syrian Petroleum Company. Under the terms of the Block 26 EDP Contract, commercial oil production is allocated first to satisfy the 12.5% royalty, part of the remaining production is used for cost recovery of the Contractor's investment and the remaining surplus is shared between the Contractor and Syrian Petroleum Company in various proportions according to the level of production. If commercial production does not occur within four years of the discovery with respect to oil, or seven years with respect to gas, then the development area is to be surrendered.
Under the terms of the Block 26 EDP Contract, the minimum work programme for the initial phase that must be completed by August 2007 includes the reprocessing of existing seismic data, the acquisition of at least 500 km of new seismic data and the drilling of four wells, two of which have to be drilled to test Palaeozoic reservoirs. Gulfsands is currently acquiring 1,170 km of 2D seismic and planning the drilling of at least two exploration wells in 2006.
Benefits of the Acquisition
- Emerald has entered into a new geographic area with a partner already established in country.
- Emerald has gained participation in a block with 27 leads and prospects at an attractive cost.
- The exploration programme for Block 26 is already underway.
- The risk/reward profile for exploration in Block 26 is similar to that successfully pursued by Emerald in Colombia.
- Gulfsands, Emerald's partner in Block 26, is an experienced operator.
Update on existing operations and interests
The expansion of production facilities at Vigia is progressing and the Company continues to produce from 6 wells a gross volume of 4,800 bopd. The Company is advancing preparations for its 2006 drilling programme and other capital projects to enhance its operations in Colombia. The Company has recently announced its third exploration discovery at Silfide #1 and is evaluating various artificial lifting methods to place this well on test production.
On 11 November 2004, the Company announced that it had entered into a conditional Sale and Purchase Agreement with Star Capital Research Limited to acquire a 25 per cent. interest in JSC Krasnoyarskgazprom (the “Krasnoyarskgazprom Agreement”). Subsequently, on 9 March 2005 the Company announced that it had extended the longstop date for completion to 31 December 2005. However, as the Company has been unable to satisfy itself with regard to the security of title to the said 25 per cent. interest in the licences previously announced to be held by JSC Krasnoyarskgazprom, the Krasnoyarskgazprom Agreement has been terminated.
Commenting on the Acquisition and Placing, Chairman and Chief Executive, Alastair Beardsall, said:
“The acquisition of 50 per cent. of Block 26 provides Emerald with access to a portfolio of exploration opportunities to be developed in partnership with Gulfsands, an experienced E&P operator. A seismic programme to acquire 1,170 km of 2D data is underway and plans are well advanced to drill two exploration wells next year. We look forward to being able to deliver value to our shareholders whilst working with Gulfsands on this exciting project.”
Presentation on the Acquisition and Placing
A copy of the presentation entitled “An acquisition for growth” used for the Placing has been placed on the Company's web site at www.emeraldenergy.com .
14 November 2005
Enquiries:
Emerald Energy plc:
Helen Manning: 020 7925 2440
Evolution Securities Limited:
Chris Sim
Gina Gibson: 020 7071 4300
Haywood Securities (UK) Ltd:
Simon Catt, Investment Adviser, Institutional Sales & Trading: 020 7031 8000
This announcement does not constitute, or form part of, an offer or solicitation of an offer, to purchase or subscribe for, underwrite or otherwise acquire, any rights, shares or other securities. Members of the general public are not eligible to take part in the securities offering. The securities are not and will not be offered other than to persons who trade or invest in securities in the conduct of their profession or trade (which includes banks, securities intermediaries (including dealers and brokers), insurance companies, pension funds, other institutional investors and commercial enterprises which as an ancillary activity regularly invest in securities). In the United Kingdom this announcement is directed exclusively at (a) persons who have professional experience in matters relating to investments who fall within article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005) (“the Order”) or (b) are persons falling within article 49(2)(a) to (d) (high net worth companies, unincorporated associations etc) of the Order or (c) other persons to whom it may be lawfully directed (all such persons together being referred to as “Relevant Persons”). This announcement must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which this communication relates is available only to Relevant Persons and will be engaged in only with Relevant Persons.
The information contained in this announcement is not an offer of securities for sale or a solicitation of an offer to purchase securities in the United States. The securities have not been, nor will they be, registered under the United States Securities Act of 1933, as amended (the “Securities Act”), or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold or delivered within the United States or to US persons (as defined in Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
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