(Alliance News) - Anglo African Oil & Gas PLC said Monday it has agreed with both RiverFort and Zenith Energy Ltd for two separate financing deals to allow the company to continue as a going concern.
Shares in the Republic of Congo-focused oil and gas firm were down 16% in London on Monday morning at 0.48 pence each. Shares in Zenith were 6.7% higher at 2.00p each.
Oil & gas producer Zenith is to purchase the 80% stake in Anglo African Oil & Gas's Congo subsidiary for GBP1 million under a sale and purchase agreement, though Anglo African Oil & Gas shareholders have yet to approve the deal.
Anglo African Oil & Gas Congo SAU holds a 56% interest in the Tilapia field in the Republic of the Congo. Once the transaction is complete, Anglo African Oil & Gas will become a cash shell on AIM. It intends to use the proceeds from the disposal to finance its day-to-day operations and consider potential reverse takeover options.
However, due to the timing of the payment for the deal, AAOG said it will not have sufficient cash to allow it to continue as a going concern beyond the start of February.
As a result, the company entered discussions with RiverFort to agree a convertible loan note. Whilst a deal has not been struck over the convertible notes, RiverFort has agreed a term sheet whereby AAOG will receive an initial tranche of GBP250,000, if shareholders approve the Zenith deal, and a further GBP50,000 every month until negotiations over the convertible notes concludes.
Zenith has also agreed to advance a GBP250,000 loan to AAOG to help with its cashflow position. This loan, whilst subject to shareholder approval, is not contingent on the sale of AAOG Congo. The loan is for an initial six month period but may be extended for an additional three months.
AAOG said it will have sufficient working capital for the next three months if the two loan deals go ahead.
"When the board entered into the sale and purchase agreement on December 24, the reality facing the company and its shareholders was that AAOG had very limited cash resources, a large debt owing from Societe Nationale des Petroles du Congo with no certainty as to when the debt would be repaid, a significant creditor position both at the plc level and at AAOG Congo, a work programme at Tilapia that was not fully funded and the likelihood of a significant signature bonus attaching to reattribution of the Tilapia Licence which expires in July 2020," AAOG said.
SNPC owes AAOG Congo USD5.3 million as a result of the work conducted to date on the license. Zenith said it has met with Societe Nationale des Petroles du Congo and expects to obtain the full payment.
"The company's preference had always been to unlock the sums owed by SNPC in order to finance any signature bonus on the licence, regularise the creditor position and initiate the planned work programme. This has not been possible," AAOG added.
The company said it is confident the Zenith deal is in the best interest of shareholders due to the funding problems it faces.
Zenith Chief Executive Andrea Cattaneo added: "We have a bona fide intention to assist AAOG and its shareholders. As announced on December 27, we believe the Tilapia asset has potentially transformational productivity and we look forward to completing the deal in order to begin preparations for drilling activities in TLP-103C as soon as we assume operational control of the asset."
AAOG also noted Non-Executive Director Brian Moritz has resigned from the company with immediate effect.
By Paul McGowan; paulmcgowan@alliancenews.com
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Zenith Energy (ZEN)