15 Mar 2016 07:00
NORTHCOTE ENERGY LIMITED - Shoats Creek Field TransactionsNORTHCOTE ENERGY LIMITED - Shoats Creek Field Transactions
PR Newswire
London, March 14
Northcote Energy Ltd / Index: AIM / Epic: NCT / ISIN: VGG6622A1057 / Sector: Oil & Gas
15 March 2016
Northcote Energy Ltd
(‘Northcote’ or ‘the Company’)
Shoats Creek Field Transactions
Northcote Energy Limited is pleased to announce that is has entered into a pair of transactions at the Shoats Creek Field in Louisiana that together will allow for the accelerated development of the field and provide for a robust development programme in 2016.
Highlights
First Transaction: sale of 50% working interest (‘WI’) and 36% net revenue interest (‘NRI’) in Lutcher Moore #20 well and right to participate in future wells drilled to the Frio and Cockfield formations and 25% WI and 18% NRI in Wilcox to Gulf Coast Western Inc. (‘GCW’), a privately owned, Dallas based exploration and production company Northcote benefits: US$500,000 cash 10% WI carried on each of next 4 wells Royalty equal to 3.44% of working interest assigned to GCW Introduces well-funded partner to help accelerate development and fully fund multi-well programme at Shoats Creek - four new wells to be drilled within the next 12 months: Two wells, to be drilled sequentially, the Lutcher Moore #21 and Lutcher Moore #22 wells, with activity to commence in the next 60 days in which Northcote will have a 23.36% WI, 17.51% NRI plus 1.72% ORRI Additional well (likely a Frio well) to be drilled in Q3 2016 in which Northcote will have a 23.36% WI 17.51% NRI and 1.72% ORRI Fourth well, potentially to the Cockfield formation, to be drilled in Q1 2017 Second Transaction: agreement with Shoats Creek Development, Inc. (‘SCDI’), Northcote’s partner and the operator of the Shoats Creek Field, whereby Northcote shall acquire an additional 20.0% WI and 14.4% NRI in the Cockfield for US$67,200 to be funded through the issuance of 80,738,178 ordinary shares of no par value each (the ‘Ordinary Shares’) in Northcote at a price of US$0.00083 per Ordinary Share As a result of restructuring of the relationship between Northcote and SCDI in concert with the GCW deal, Northcote will realize approximately US$30,000 per month savings in the Company’s US general and administrative costs Issuance of a total of 100,505,706 new Ordinary Shares to fund the purchase price associated with the acquisition of the additional Cockfield interest referenced herein and to re-pay US$17,063.76 in invoices due a third-party contractor. Northcote is in discussions with third-party engineering firms with respect to issuance of a new Competent Persons Report to reflect the improvements in the field since Northcote acquired it, including the successful drilling of Lutcher Moore #20 well. Further updates as to timing of the new CPR will be provided to the market in due course.Northcote Managing Director Randall J Connally said, "The transactions and agreements announced today are collectively transformational for Northcote in this difficult commodity price environment.
“By rightsizing our interest in the near term activities that we are undertaking at Shoats Creek we are able to:
establish a strong group of partners to undertake the development programme at Shoats Creek that will provide for diversification of revenues from one well to five in the next twelve months and greater overall net revenues with a lower risk profile to the Company; ensure continued activity allowing Northcote to continue building our track-record; realise an immediate US$30,000 per month saving in our US general and administrative costs; and, retain substantial upside from both the Cockfield and Frio formations through our agreement with SCDI, while introducing a large, well funded partner in GCW to help accelerate the development of the field in a timely and efficient manner.“Many of the high impact opportunities and initiatives within our portfolio, which provide Northcote with diversified upside and revenue potential, will benefit greatly from these transactions as the Company can now contemplate allocating financial and managerial resources to them where we could not while we had responsibility for funding 70% of the capital costs at Shoats Creek Field.
“I would like to add that in entering into this transaction with us, GCW has shown a great vote of confidence in the potential of the Shoats Creek Field and for the organisation we are building. This is particularly true given that there are no shortage of US companies and operators looking for project funding in the current environment. Ultimately it is having partners, in addition to our own internal resources, that allows a company such as Northcote to undertake the investment and maintain the capabilities at key positions that generate prospects, plan and execute work programmes required to develop a major asset such as Shoats Creek Field.
“Along with SCDI, we look forward to doing a great job of executing the agreed work programme at the Shoats Creek Field over the balance of the year both for our shareholders and for our partners.”
First Transaction
Gulf Coast Western, Inc. (‘GCW’), a privately owned, Dallas based exploration and production company founded in 1970, has agreed to acquire a 50.0% working interest and 36.0% net revenue interest in the Lutcher Moore #20 well and the right to participate in future Frio and Cockfield wells and a 25.0% working interest and 18.0% net revenue interest in the Wilcox formation.
As consideration, Northcote will be paid US$500,000.00 in cash, including US$100,000 upfront; GCW will carry Northcote in an amount equal to 10.0% (of 100%) WI in each of the next four wells drilled and Northcote will retain a net 1.72% over-riding royalty interest (‘ORRI’) in the Cockfield and Frio formations and 0.86% ORRI in the Wilcox formation on every well in which GCW participates (including the next four wells and any subsequent wells).
The transaction contemplates initiating two new drill wells, to be drilled sequentially, the Lutcher Moore #21 and Lutcher Moore #22 wells, within the next 60 days with at least one more well (likely an additional Frio well) to be drilled in the autumn of 2016 and a fourth well, which may be a Cockfield well, to be drilled in the first quarter of 2017.
Funding of additional cash proceeds and certain capital expenditures associated with the contemplated work programme will take place within the next thirty days. Net of the 10.0% WI carry, Northcote’s estimated cost associated with its retained working interest in each of the two wells to be drilled in coming months is estimated at approximately US$100,000 each or US$200,000 for both wells. Northcote will establish a reserve of US$200,000 from proceeds available to it resulting from the transaction to fund these costs.
In the interim results of Northcote for the six months ended 30 June 2015, Northcote’s interest in the Shoats Creek field was recorded as having approximately US$791,000 in gross assets with costs attributed to Northcote’s interest of approximately US$96,000. Given the Lutcher Moore #20 is the first well to come into production (as announced on 7 March 2016) no revenues have been recognised by Northcote until that date.
Second Transaction
In the second transaction, Northcote has entered into a joint operating agreement with SCDI, its partner and the operator of the Shoats Creek Field, whereby Northcote shall acquire a 20.0% WI and 14.4% NRI in the Cockfield formation for US$67,200 to be funded through the issuance of 80,738,178 ordinary shares, no par value, of Northcote Energy Limited at a price of US$0.00083 per Ordinary Share. Further to the agreement, Northcote shall also have the exclusive right to fund any WI, not committed to a third-party, in the Frio formation available to SCDI above 3.0% WI. If Northcote funds any such interest it shall have the right to receive an assignment from SCDI unburdened by any agreements other than the original lease and any agreements to which Northcote is also a party. As a result of this transaction, 97.0% of the development expenditures at Shoats Creek Field will be funded by a strong group of partners anchored by Gulf Coast Western, Northcote and Red Rock Resources plc.
The net effect of the two transactions set out on Northcote’s interests in the Shoats Creek Field are summarised as follows:
| Pre-Announced Transactions | Post-Announced Transactions | ||||||||||||
| Phase 1 (1) | WI | NRI | ORRI | WI | NRI | ORRI | Partners: SCDI 3% + | ||||||
| Directly Held (2) | |||||||||||||
| Frio | 70.00% | 52.81% | 0.00% | 20.00% | 15.09% | 1.72% | GCW | NCT | RRR | SEP | |||
| Cockfield | 70.00% | 52.81% | 0.00% | 40.00% | 29.49% | 1.72% | GCW | NCT | --- | SEP | |||
| Wilcox | 50.00% | 37.72% | 0.00% | 25.00% | 18.86% | 0.86% | GCW | NCT | --- | --- | |||
| Equity Interest (3) | |||||||||||||
| Frio | 3.36% | 2.42% | 0.00% | 3.36% | 2.42% | 0.00% | |||||||
| Cockfield | 3.36% | 2.42% | 0.00% | 3.36% | 2.42% | 0.00% | |||||||
| After Phase 1 | |||||||||||||
| Phase 2 (1) | WI | NRI | ORRI | Partners: SCDI 3% + | |||||||||
| Directly Held | |||||||||||||
| Frio | 27.00% | 20.13% | 1.72% | GCW | NCT | RRR | --- | ||||||
| Cockfield | 47.00% | 34.53% | 1.72% | GCW | NCT | --- | --- | ||||||
| Wilcox | 25.00% | 18.86% | 0.86% | GCW | NCT | --- | --- | ||||||
| Equity Interest (3) | |||||||||||||
| Frio | 0.00% | 0.00% | 0.00% | ||||||||||
| Cockfield | 0.00% | 0.00% | 0.00% | ||||||||||
| Notes: | |||||||||||||
| (1) Phase 1 refers to the first 4 wells, including the Lutcher Moore #20, drilled at Shoats Creek | |||||||||||||
| Phase 2 refers to wells, beyond the first 4 wells, contemplated to be drilled at Shoats Creek | |||||||||||||
| (2) Refers to interests held by Northcote or one of its wholly owned subsidiaries | |||||||||||||
| (3) Equity Interest refers to Northcote's 48% equity ownership in Springer Energy Partners, LP (SEP) which is owner of a 7% WI and 5.04% NRI | |||||||||||||
| (4) After completion of the Lutcher Moore #22 well, Northcote also has right of first refusal to additional 20.0% WI and 14.4% NRI in Frio if RRR does not participate for any reason. | |||||||||||||
| (5) RRR is Red Rock Resources, plc. | |||||||||||||
Northcote is engaging a new Competent Person’s Report, to reflect the improvements in the field since its initial acquisition. These improvements include the successful drilling of the Lutcher Moore #20 well, and also the net effect of the transactions discussed herein together with those announced previously. The Company anticipates completion of this report in early April 2016.
Additionally, Northcote and SCDI have entered into a Shared Services Agreement pursuant to which SCDI has assumed responsibility, without additional cost to Northcote, for certain land, regulatory and day-to-day operational expenses that together with certain fees and reimbursements to be paid to Northcote for ongoing accounting and administrative services will reduce Northcote’s direct monthly general and administrative expenses by approximately US$30,000 per month. These cost savings have been realised by Northcote’s termination of contracts with third-party contractors in the amount of US$20,000 per month and certain fees and reimbursements of cost that will exceed US$10,000 per month.
Pursuant to the Joint Operating Agreement in place between Northcote and SCDI, SCDI has the right to charge the working interest partners of Shoats Creek Field certain fees and reimbursement of certain expenses for performing services, including the services contemplated above, the total of these fees on an ongoing basis (to 100% working interest) based on the current wells, tank batteries and salt water disposal facilities in place at the field is US$4,200.00 per month and will increase by US$1,400 per month for each producing well, salt water disposal well or tank battery added to service. Northcote will be responsible for a share of this cost equivalent to its working interest in each producing well, salt water disposal well or tank battery. Net of these fees and certain reimbursements that SCDI will be entitled to from time to time, Northcote expects the net benefit to the Company to average approximately US$25,000 per month.
Finally, Northcote has settled US$17,063.76 in invoices due a third-party creditor for services provided through the issuance of 19,767,528 Ordinary Shares at US$0.00086 per Ordinary Share.
Application will be made for the 100,505,706 new Ordinary Shares to be admitted to trading on AIM (‘Admission’) and it is expected that Admission will become effective on or around 18 March 2016. These will rank pari passu with the existing ordinary shares of the Company.
Following the issuance of the 100,505,706 new Ordinary Shares, the Company will have 7,082,380,588 Ordinary Shares in issue, each share carrying the right to one vote. The Company does not hold any Ordinary Shares in treasury. The above figure of 7,082,380,588 Ordinary Shares may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the Financial Conduct Authority's Disclosure and Transparency Rules.
**ENDS**
For further information visit www.northcoteenergy.com or contact the following:
| Randy Connally | Northcote Energy Ltd | +1 214 550 5082 |
| Ross Warner | Northcote Energy Ltd | +44 7760 487 769 |
| Roland Cornish | Beaumont Cornish Ltd | +44 20 7628 3396 |
| James Biddle | Beaumont Cornish Ltd | +44 20 7628 3396 |
| Elliot Hance | Beaufort Securities Ltd | +44 20 7382 8300 |
| Nick Bealer | Cornhill Capital Limited | +44 20 7710 9612 |
| Elisabeth Cowell | St Brides Partners Limited | +44 20 7236 1177 |
Notes:
Northcote Energy Limited is an entrepreneurial energy company with diverse interests. The Company combines a portfolio of US exploration and production assets in Louisiana, Texas and Oklahoma as well as the development of new business opportunities in the US and Mexico, directly along with strategic relationships in Mexico with MX Oil plc and in Indonesia with Andalas Energy and Power Plc.