LONDON (Alliance News) - Frontier Resources International PLC on Thursday said it has agreed to sell for a nominal sum to its former chief executive the subsidiary which holds all of the company's assets in Oman, as well as the subsidiary which provides administrative and technical support to the company's operations.
The company will sell the owner of the oil exploration assets in Oman, Frontier Oman, and the technical support subsidiary, FRII, which will both need to gain the approval of shareholders before being completed.
Frontier would be disposing of the majority of its business if approved, meaning it would need to make an investment or acquisition within the next six months to avoid its shares being suspended from trading on AIM. Its other operations in Zambia and Namibia are both being wound down.
Frontier said it was disposing of the Oman business after failing to find a partner for the project, meaning it could not gather the funding needed to develop the project before the deadline set by authorities in Oman.
The company said there was still a "junior exploration company" that is interested in farming into the assets, but Frontier said there is an "unacceptably low likelihood" of completing the transaction due to the current environment.
"There are significant ongoing administrative costs and obligations that Frontier Oman would still incur, should it continue in operation while seeking possible agreement from the Oman government to an extension of the funding deadline and negotiate and agree definitive terms with the potential farm-out partner, with no assurance that Oman government approval would ever be forthcoming or that any transaction could be subsequently completed on acceptable terms," it said.
"The board has concluded that it is in the best interests of the company and its shareholders, as soon possible, either to dispose of the group's interest in Frontier Oman to a party who might be willing to fund ongoing farm-out discussions without any cost to the company in return for some potential consideration in the future should those discussions be successful, or to wind-up Frontier Oman without delay to avoid any further costs," Frontier added.
As a result, the former chief executive of Frontier Resources, Jack Keyes, has agreed to purchase Frontier Oman, and to fund any ongoing farm-out discussions.
Frontier Oman has net current liabilities of around USD24,120, excluding USD250,000 in licence renewal fees and inter-company debts. In addition, Frontier owes Keyes another GBP272,223, but this will only be paid should a farm-out partner be found.
Keyes will purchase the subsidiary for a nominal fee of GBP1 and the rights to a carried interest equivalent to 20% of the net cash in excess of USD500,000 from the sale of the subsidiary to a third party and 20% of the net cash generated from any oil production from the Oman assets.
The 750,000 shares options over Frontier shares held by Keyes also will be cancelled. Those options could have been exercised at a price of 5.5 pence each.
"The Oman disposal enables the company to make a clean break from its activities in Oman and enables the board to focus on new projects. On completion of the Oman disposal, the company will have no further liabilities either to Mr M (Jack) Keyes or to Frontier Oman," said the company.
The technical subsidiary, FRII, also will be sold to Keyes for GBP1, leading to USD1.7 million of money owed by the subsidiary to the company being waived and impaired in full.
Frontier's other assets in Namibia and Zambia also are winding down, with the subsidiaries holding the assets in those countries both being wound up.
Shareholders vote on the plan on March 22.
Frontier shares were up 3.7% to 0.070 pence per share on Thursday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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