Beacon Energy. Regulatory News (BCE)

16 December 2022

Beacon Energy plc

("Beacon Energy" or the "Company")

Reverse Takeover Transaction and Corporate Update

Conditional Acquisition of Rhein Petroleum GmbH 

Beacon Energy plc (AIM:BCE), the energy company seeking growth through acquisition or farm-in to interests in discovered upstream projects, is pleased to announce that the Company has entered into a conditional Share Purchase Agreement ("SPA") with Tulip Oil Holding B.V. ("Tulip") and Deutsche Rohstoff A.G. ("DRAG") (collectively, the "Sellers") relating to the purchase of the entire issued and to be issued share capital of Rhein Petroleum GmbH ("Rhein Petroleum"), (the "Proposed Transaction").

The board of Beacon Energy ("Board") considers the Proposed Transaction to represent a transformational, value enhancing transaction for shareholders, which is fully aligned with Beacon Energy's growth strategy.

The Board believes the Proposed Transaction will deliver:

· A full-cycle portfolio of largely operated production, development, appraisal and exploration assets located onshore Germany, a low political risk jurisdiction over licences as set out below

· A near-term active work programme designed to enhance production and cash flow

· An experienced operating team in Rhein Petroleum that has a track record of exploration, appraisal, development and production operations

· Strong HSE record and a firm commitment to environmentally responsible hydrocarbon production

· A well-understood existing production base, generating immediate revenue

· A material 2P net reserve base of 3.85 mmbbl and a 2C net contingent resource base of 22.96 mmbbl, located across four core assets as assessed by SGS Nederland B.V, and to be included in a Competent Person's Report ("CPR"), which will form part of the Admission Document to be sent to shareholders in due course

· A commercially attractive programme with the economic results of the CPR describe an NPV10 valuation of €52.8 million from the development and production of the 2P reserve base, assuming, inter alia, capex of €15.7 million for a 3 well programme and facilities upgrade and utilising forward oil pricing as at 14 November 2022

· An investment case which will be the basis for Beacon Energy seeking to carry out a placing to new and existing investors ("Placing") to raise approximately £6 million net of costs to finance the drilling, completion, tie-back and bringing into production the Schwarzbach-2 well and required working capital. Production from this well will be used to fund the forward development programme

· Access to a built-in growth pipeline of onshore, material, high-margin, low-risk and near-term development and appraisal opportunities

· A mix of low, medium and higher risk exploration opportunities with a cumulative best estimate un-risked net prospective resource base of 207.83 mmbbl with individual prospects that are potentially material

· Entry into a region where the Company sees significant potential for growth and where, over time, it believes a substantial business can be built

· Acquisition of Rhein Petroleum which, for the financial year ended 31 December 2021, Rhein Petroleum reported audited revenue of €2.9 million, operating loss of €1.2 million and a loss after tax and interest of €1.5 million under German accounting standards. As at 30 June 2022, Rhein Petroleum reported unaudited total assets of €11.9 million and net liabilities of €12.9 million (including €22.0 million shareholder loan liability which will be acquired by Beacon at Completion) under German accounting standards

In addition:

· To provide certainty and continuity for the Company, current Interim CEO Larry Bottomley becomes CEO on a permanent basis, effective immediately

· The Competent Persons Report covering the material assets of Rhein Petroleum will be included in an AIM Admission Document to be published in due course and an updated corporate presentation describing the acquisition will be made available on the Company's website www.beaconenergyplc.com shortly

Consideration

Under the terms of the SPA, the Sellers will receive: (i) new ordinary shares in Beacon Energy such that, following the intended Placing (described more fully below), the Sellers will collectively hold 33.2 per cent of the enlarged share capital of Beacon Energy (the "Consideration Shares"); and (ii) contingent consideration based on the future production of the Rhein Petroleum assets based on future production (the "Earn-Out"). Tulip is currently interested in 90 per cent. of the issued share capital of Rhein Petroleum, with DRAG, a listed oil and gas company in Germany, interested in the balancing 10 per cent. The Consideration Shares will be issued to both current shareholders pro rata to their existing holdings in Rhein Petroleum.

The Earn-Out comprises a contingent production consideration in cash, after provision for royalties levied by the relevant German states ("Net Production") such that the Earn-Out payment on the current discoveries is 10 per cent of Net Production proceeds. There is also a contingent 3 per cent production earn-out on any future discovery that leads to production from the current exploration licences.

In addition to a vendor-financed loan of €1.9 million, to be repaid from production, Beacon Energy will be seeking to carry out a placing to new and existing investors ("Placing") to raise approximately £6 million net of costs to finance the drilling, completion, tie-back and bringing into production the Schwarzbach-2 well and required working capital. Directors of Beacon Energy intend to participate in the Placing. In addition, Tulip also intends to participate in the Placing to acquire an additional approximately 6.8 per cent of the enlarged share capital of the Company, such that Tulip is expected to hold approximately 36.7 per cent of the issued share capital of the Company at Completion. 

In addition to the Consideration Shares, the Company will also issue to the Sellers warrants over new Ordinary Shares which shall each have an exercise price of GBP0 and may only be exercised in the event another existing warrant or option holder in the Company exercises existing warrants or options and only in the same proportion as that exercised (the "Top Up Warrants"), such that the percentage holding of each of the Sellers at Completion shall be maintained, ceteris paribus, pre and post the exercise of some or all of the existing options and warrants in the Company.

The Consideration Shares and Placing shares held by Tulip on admission to AIM will be subject to both lock-in terms and a relationship agreement, full details of which will be set out in the Company's Admission Document.

Reverse Takeover Process

The Transaction is classified as a reverse takeover pursuant to the AIM Rules for Companies. The Company's ordinary shares will remain suspended from trading on AIM until such time as the Proposed Transaction is completed, which is anticipated will be the second business day following the satisfaction or waiver of the final condition which the SPA is subject to. In the event that the Proposed Transaction does not proceed the Company's share will remain suspended from trading as Beacon Energy has been a cash shell on AIM for more than 6 months. Completion of the Transaction is subject to, inter alia:

· certain regulatory consents and confirmations;

· approval by Tulip's shareholders at a general meeting to be convened in due course;

· approval by Beacon Energy's shareholders at a general meeting to be convened in due course ("General Meeting"), including the passing of the Rule 9 Waiver resolution (as described below);

· finalisation of the Placing; and

· the publication of an AIM Admission Document.

The Admission Document, which will include a notice of General Meeting, is expected to be issued in due course. 

It is noted that the notice of General Meeting within the Admission Document is also expected to include a resolution in respect of a waiver from Rule 9 of the Takeover Code in light of the fact that Tulip is expected, on Admission, to hold over 30 per cent of the Company's share capital as enlarged by the issue of the Consideration Shares and the Placing.

Rule 9 Waiver Resolution

Tulip is expected, on Admission, to hold 36.7 per cent. of the Company's share capital as enlarged by the issue of the Consideration Shares and the Placing. The shareholders of Tulip are presumed to be acting in concert (as defined in the Takeover Code) with each other for the purposes of the Takeover Code. The shareholders of Tulip are not presumed to be in concert (as defined in the Takeover Code), with DRAG or the shareholders of DRAG.

The Company will apply to The Takeover Panel ("Panel") for a waiver from the obligation for Tulip to make a general offer for the Company that would otherwise arise as a result of the issue of the Consideration Shares and Placing shares to Tulip and the exercise by Tulip of any Top Up Warrants, subject to the approval, on a poll, by a resolution of the Company's independent shareholders, which will be proposed at the General Meeting (the "Whitewash Resolution"). Accordingly, with the consent of the Panel, the Whitewash Resolution will be proposed at the General Meeting and will be taken on a poll at the General Meeting, notice of which will be set out in the Company's Admission Document to be published in due course.

Commenting on the signing of the SPA, Beacon Energy Non-Executive Chairman, Mark Rollins, said:

"We are delighted that we have signed the SPA with Tulip and DRAG on this compelling European O&G opportunity which has the potential to build a self-funding platform for growth from cash generative producing and development oil assets. As a Board, we have been impressed by the professionalism of the Rhein Petroleum operating team and look forward to working with them in unlocking the potential in the portfolio.

"I am also pleased that Larry has taken on the role of CEO, having assumed the role on an interim basis earlier this year at an important juncture for the Company. Larry, and the Board, have since made considerable efforts through this year, delivering important legacy outcomes and progressing the business development pipeline culminating in this SPA.

"We are also very pleased to have been able to call on the services of a high quality group of consultants with direct expertise in M&A and all the associated processes. As we enter an exciting period, we will call on their deep experience and knowledge, along with that of the rest of the Board, which will be key to our efforts to deliver on our strategy."

Beacon Energy CEO, Larry Bottomley, added:

"Since assuming the role of CEO on an interim basis, the entire Board has worked tirelessly to help me deliver value accretive opportunities from our compelling business development pipeline. It is with satisfaction that we have delivered the SPA and I take on the CEO role with considerable enthusiasm to develop a self-funding, production-led platform for growth. I look forward to working with the extended team on the acquisition and reverse takeover which, once complete, will underpin the Company with immediate cash flow and provide an active near-term work programme designed to grow production, cash flow and value for our shareholders."

Further announcements will be made in due course, as appropriate.

Further information on Rhein Petroleum

Table 1: Summary of Rhein Petroleum's oil and gas licences

Source: CPR - Rhein Petroleum GmbH. SGS Nederland B.V. (Subsurface Consultancy)

Enquiries:

For further information, please visit www.beaconenergyplc.com and @BeaconEnergyPlc on Twitter

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The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018.