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LONDON (Alliance News) - Empyrean Energy PLC shares jumped by 50% on Monday after it struck a deal to sell all of its interest in the Sugarloaf AMI project in the US for up to USD71.5 million, potentially leading to some of the proceeds being returned to shareholders.
Empyrean shares were up 48% to 7.41 pence per share on Monday morning, having hit 7.82p earlier.
The company has entered into a conditional purchase and sale agreement with Carrier Energy Partners II LLC, which will pay an initial USD61.5 million under the deal, paying the other USD10.0 million based on WTI prices in the future.
Empyrean currently holds a 3% working interest in the Sugarloaf project, which is operated by Marathon Oil Corp. Subject to closing, the deal is set to be completed before the end of March.
Sugarloaf is a large producing field over the Eagle Ford shale play in Texas, with 290 wells producing and a further 26 wells currently in development. Net production to Empyrean stood at around 1,250 barrels of oil equivalent per day in the three months ended September 30.
Empyrean's net production in the six months ended September 30 stood at 224,182 barrels, which generated USD5.8 million in revenue for Empyrean, yielding a net profit before tax of USD3.5 million.
To put that into perspective, Empyrean generated total revenue of USD6.0 million in that six-month period and a net profit before tax of USD1.8 million - showing the Sugarloaf project was the company's main earnings driver.
"This transaction crystallises the value of the Sugarloaf AMI project at a time when there are significant challenges facing the resources sector in general and, specifically, when the additional financing required to support the company's continued participation in the development of the Asset in the current low oil price environment would incur either an unacceptable cost or unacceptable dilution when compared with the Transaction," said Chief Executive Tom Kelly.
Empyrean shareholders will have the last say on the proposed deal, as the sale is classed as a fundamental change of business. So far, Empyrean said it has received irrevocable undertakings in respect of 23.6% of its issued share capital.
Chief Executive Tom Kelly has supported the deal, using his 9.4% stake, whilst other board members with considerable stakes also have signalled they will vote in favour of the deal.
If the company does sell the asset, it will be left with a 58% working interest in the Eagle Oil Pool development project in California, a 7.5% working interest in two producing wells located in the Sugarloaf Block A operated by ConocoPhillips and a 10% working interest in the Riverbend project, located in the Tyler and Jasper counties, onshore Texas.
The additional USD10.0 million payment will be paid to Empyrean based on WTI prices in the future. If average WTI prices exceed USD55 a barrel in 2016, then the buyer will pay Empyrean USD1.0 million per USD1 rise in WTI prices above that price, up to USD5.0 million.
The other USD5.0 million will be paid if average WTI prices exceed USD60 per barrel in 2017, again with the buyer paying USD1.0 million per USD1 above that price up to a maximum of USD5.0 million.
"We believe that we have reached the right time to realise the value of the Sugarloaf asset and de-risk our position against continued depressed oil prices. I hope Shareholders will share in my excitement for the transaction and the opportunities it may unlock in respect of the company's remaining assets and others that may arise at a time when drilling and associated costs are significantly reduced and a number of operators and market participants are financially distressed," said Kelly.
The proceeds from the sale would be used to pay US tax liabilities of around USD3.6 million, to repay its USD21.6 million of outstanding debt in relation to Empyrean's Macquarie bank facility, and to pay outstanding bills owed to Marathon Corp of around USD5.2 million. All of those estimates are based on the sale of the asset closing.
The funds beyond those payments will be used to progress the company, but Empyrean said it also will "consider the most efficient manner in which to return surplus funds to shareholders."
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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