3 Mar 2016 07:00
For immediate release
3 March 2016
Frontier Resources International Plc
("Frontier" or the "Company")
Proposed disposal of Frontier Oman Resources Limited ("Frontier Oman") and
Frontier Resources International Inc ("FRII")
Notice of General Meeting
1. Introduction
The Board of Frontier (AIM Ticker: FRI) announces that the Company has conditionally agreed to dispose of Frontier Oman (which holds the Group's oil exploration interests in Oman) and its entire interest in FRII, which provides administrative and technical support to the Group's oil projects. In accordance with AIM Rule 15, the Oman Disposal and the FRII Disposal are conditional on Shareholder approval at the General Meeting of the Company, notice of which will be sent to Shareholders.
The effect of the Oman Disposal should the Resolution be approved at the General Meeting, would be that on completion the Company will cease to own, control or conduct all, or substantially all, of its existing trading business, activities or assets and would therefore become an AIM Rule 15 cash shell, pursuant to which it must make an acquisition or acquisitions which constitute a reverse takeover under AIM Rule 14 (including seeking re-admission as an Investing Company (as defined under the AIM Rules)) within six months, failing which the Exchange will suspend trading in the Ordinary Shares pursuant to AIM Rule 40.
2. Background
The potential farm-out process in respect of the Oman EPSA has been ongoing for some considerable time, the Company retained the services of a Dallas-based adviser to assist and provide general transaction advice and Frontier Oman has had discussions with a number of parties. But the Board was unable to complete any transaction or raise sufficient funding and/or provide a bank guarantee for the Oman EPSA before the Funding Deadline. Frontier Oman notified the Oman Government that it had not satisfied the Funding Deadline. No default notification has yet been received (which unless rectified would otherwise lead to the termination of the Oman EPSA) notwithstanding that Frontier Oman is in default of the renewal conditions. Frontier Oman's sole licence interest is the Oman EPSA.
Frontier Oman has continued discussions with one remaining potentially interested party, an overseas junior exploration company, regarding its possible interest in acquiring the Oman EPSA on the basis of a conditional letter of intent which is subject to a number of material and substantial conditions including due diligence, agreement of definitive transaction agreements, the agreement of the Oman Ministry to waive and extend the Funding Deadline and approve a change of control of the Oman EPSA pursuant to which the potential purchaser must provide an acceptable guarantee of the work programme for the Oman Ministry. Under the letter of intent, the consideration for Frontier Oman comprises an exclusivity fee of US$50,000 and a completion payment of US$450,000. In addition, but subject to completion of a work programme (comprising 1,000 km of new 2D seismic or an equivalent programme as agreed with the Oman Ministry and the drilling of two wells) the purchaser would then assign to the Company a 10 per cent. working interest in the Oman EPSA, with the Company required to pay its pro rata share of ongoing working costs, and re-pay back-costs to the Company of up to US$1.05 million.
However, the Board does not believe that there is any immediate prospect of any material improvement in market conditions in the oil sector or investor sentiment. The Board has concluded, given the material uncertainties and conditions attaching to the potential disposal described above, and not least the requirement by the purchaser to fund its work programme in current market conditions, that there is an unacceptably low likelihood of this transaction actually proceeding, and the Board is not prepared to incur the necessary significant expenses and costs given the time delays involved. 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.
As previously announced, the funds raised in the recently completed subscription are to enable the Company to pursue a new strategic direction and are not available for funding Frontier Oman. In the absence, therefore, of any Group funding for Frontier Oman, or any immediate external funding, there are no available funds to support Frontier Oman, under the Group's continuing ownership, to continue trading any further or continue discussions with the overseas junior exploration company described above or pay a pro rata share of ongoing working costs in the future as referred to above. 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.
The Board has taken into account the length of time a winding-up might take, together with the potential costs involved and that Frontier Oman's unaudited net current liabilities, excluding inter-company debts and the annual licence renewal fee, amounted to £24,120 as at 29 February 2016. In addition, US$250,000 is due from Frontier Oman to the Oman Government in respect of the annual licence fee for the year ending November 2016. The Board concluded that an immediate disposal of Frontier Oman, if possible, was the preferred outcome as it would minimise the costs to the Company, be achieved in a much shorter timeframe and potentially provide some future value.
Following an approach by the Board, Mr M (Jack) Keyes, the former chief executive officer of the Company, agreed that he would be prepared to purchase Frontier Oman (and fund any ongoing farm-out discussions) and provide the Company with a deferred consideration should he ultimately be successful.
3. Proposed disposal of Frontier Oman
The Company has therefore agreed, on 2 March 2016, the sale of the entire issued share capital of Frontier Oman to Mr M (Jack) Keyes, the former chief executive officer of the Company, conditional on the approval by Shareholders.
As part of the Oman Disposal, certain Group liabilities have been novated to Frontier Oman such that on completion of the sale of Frontier Oman, the Company will no longer have any liability in respect of any accrued or ongoing costs associated with Frontier Oman, including any professional or other advisory fees potentially payable on a farm-out.
In addition, the Company has novated to Frontier Oman the contingent debt that it owes to Mr M (Jack) Keyes of £272.223.13 (equivalent to approximately US$378,000), which would only be paid in the event that the Company completed a farm-out of its interests in one or more of its projects which involved the reimbursement to the Company of at least £435,556 of historic exploration expenditure.
The consideration for Frontier Oman comprises an initial nominal cash sum of £1 and the rights to a carried interest equivalent to 20 per cent. of:
(i) the net cash (after taking into account any taxes) in excess of US$500,000 received by Mr M (Jack) Keyes and/or Frontier Oman (in each case, directly or indirectly) from the sale of Frontier Oman or the assignment of the Oman EPSA; and
(ii) the net cash (after taking into account working interest costs and tax) which Mr M (Jack) Keyes and/or Frontier Oman receives (directly or indirectly) from any sale of any hydrocarbons produced from the first two wells drilled in respect of the Oman ESPA.
On completion of the Oman Disposal, the Company will also cancel the existing share options held by Mr M (Jack) Keyes to subscribe for 750,000 new Ordinary Shares at an exercise price of 5.5p per new Ordinary Share on or before 15 October 2020.
As Mr M (Jack) Keyes was a director of the Company within the last 12 months, the Oman Disposal is a related party transaction for the purposes of Rule 13 of the AIM Rules. The Directors, having consulted with the Company's nominated adviser, consider that the Oman Disposal is fair and reasonable insofar as Shareholders are concerned. The Directors have taken into account the following:
(i) on completion of the sale of Frontier Oman, the Company will no longer have any potential liability in respect of the Keyes Debt of £272,223.13 nor will it have any ongoing requirement to provide any future funding to Frontier Oman;
(ii) in the absence of any Group funding for Frontier Oman or any external funding by way of a farm out, there are no available funds to support Frontier Oman under the Group's continuing ownership to continue trading any further. If the Oman Disposal were not to proceed, the Board would intend to wind-up Frontier Oman as soon as possible. As previously notified the recent subscription was secured to support the future development of the Group in a new sector and the funds raised from the subscription would not be used to support the Group's existing oil exploration projects, including Frontier Oman;
(iii) the Oman Disposal minimises the costs to the Company, can be achieved in a much shorter timeframe than a winding-up and potentially provide some future value should Mr M (Jack) Keyes be able to secure Oman Government approval as described above and secure funding from a third party. Frontier's carried interest reflects, inter alia, the risk that the Oman Disposal is not conditional on Oman Government consent to the change of control of Frontier Oman, which Mr M (Jack) Keyes will need to subsequently procure;
(iv) the Board does not believe that there is any immediate prospect of a material improvement in market conditions in the oil sector or investor sentiment. While the potential farm-out process in respect of the Oman EPSA has been ongoing for some considerable time, and the Company retained the services of a Dallas-based adviser to assist and provide general transaction advice on this process, the Board had been unable to complete any farm-out nor does it believe there is any certainty it would be able to do so within an acceptable timeframe, notwithstanding that the Company has in any event resolved not to commit further funds to Frontier Oman;
(v) while the Oman Government has not yet issued a default notification, the Board does not believe that Frontier Oman under the continuing ownership of the Group would be able to comply in the relevant period with the terms of any such default notice and that the Oman EPSA would therefore in all probability terminate; and
(vi) 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.
4. Disposal of FRII
Given the proposed disposal of the Group's activities in Oman, and the proposed cessation of activities in Zambia and Namibia as described further below, the Company has also, on 2 March 2016, agreed the sale of 100 per cent of the issued share capital of FRII, to Mr M (Jack) Keyes for a nominal cash sum of £1. FRII has historically provided administrative and technical support for the Group's oil exploration projects and has no licence interests. On completion of the FRII Disposal, all inter-company balances owed by Group companies to FRII will be novated to the Company and the remaining net balance owed by FRII to the Company amounting to US$1,718,584 will be waived in full. The net balance owed by FRII of $1,718,584, has already been impaired in full in the Company financial statements
As Mr M (Jack) Keyes was a director of the Company within the last 12 months, the FRII Disposal is also a related party transaction for the purposes of Rule 13 of the AIM Rules. The Directors, having consulted with the Company's nominated adviser, consider that the FRII Disposal is fair and reasonable insofar as Shareholders are concerned. The Directors have taken into account that FRII is a Group cost centre with no revenues or assets and therefore the inter-company balances reflect the historic funding of ongoing administrative and other day-to-day operational costs incurred by FRII on behalf of the Group. Furthermore, the Company no longer requires any technical support, as it will no longer have any activities in Oman and as described further below intends to cease activities in Zambia and Namibia as soon as possible.
5. Effect of the disposals on the Company
In accordance with AIM Rule 15, the effect of the Oman Disposal (together with the FRII Disposal would be that on completion, the Company will cease to own, control or conduct all, or substantially all, of its existing trading business, activities or assets and would therefore become an AIM Rule 15 cash shell, pursuant to which it must make an acquisition or acquisitions which constitutes a reverse takeover under AIM Rule 14 within six months, failing which the Exchange will suspend trading in the Company's shares pursuant to AIM Rule 40. If the Company fails to make an acquisition or acquisitions that constitute a reverse takeover under AIM Rule 14 (including seeking re-admission as an Investing Company (as defined under the AIM Rules)) within a further six months, then the Company's Ordinary Shares will be cancelled from trading on AIM.
The Oman Share Sale Agreement and the FRII Share Sale Agreement are each conditional on the approval by Shareholders.
6. Namibia and Zambia projects update
Namibia
As reported previously, the Namibian Ministry had granted Frontier Namibia a two-year extension to the Namibia Licence until 20 January 2016. The Board has resolved to cease the Group's activities in Namibia. Accordingly, the Namibian Ministry has been informed, and the Board will now take the necessary steps to wind-up as soon as possible, Frontier Namibia, the holder of the expired Namibia Licence.
Zambia
As previously reported, the Zambian Ministry informed Frontier Zambia that the Zambia Licence had been renewed for a further three years with the condition that Frontier Zambia conduct an environmental project brief on or before 14 March 2016 and pay any outstanding statutory fees due with immediate effect. The Board has also resolved to cease the Group's activities in Zambia and informed the Zambian Ministry. The Board will now take the necessary steps to wind-up Frontier Zambia, the holder of the Zambia Licence, as soon as possible.
7. Strategy
As described above, following completion of the Oman Disposal and the FRII Disposal, the Company will become an AIM Rule 15 cash shell, pursuant to which it must make an acquisition or acquisitions which constitute a reverse takeover under AIM Rule 14 (including seeking re-admission as an Investing Company (as defined under the AIM Rules)) within six months, failing which the Exchange will suspend trading in the Company's Ordinary Shares pursuant to AIM Rule 40.
The Board's strategy is to identify a suitable acquisition or acquisitions in a new sector, which will satisfy the requirements of AIM Rule 15.
8. General Meeting
Notice convening the General Meeting will be posted to Shareholders as soon possible. The General Meeting will be held at the Company's Registered Office at 11 Staple Inn, London WC1V 7QH at 10.00 a.m. on 22 March 2016.
Enquiries:
Frontier Resources International Plc Adam Reynolds, Chairman |
Tel: +44 (0) 7785 908158 |
Beaumont Cornish (Nomad) Michael Cornish Emily Staples |
Tel: +44 (0)20 7628 3396 |
Beaufort Securities Limited (Broker) Jon Belliss
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Tel: +44 (0)20 7382 8300 |
A copy of this announcement is available from the Company's website www.friplc.com
DEFINITIONS
The following definitions apply throughout this announcement unless the context otherwise requires:
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"AIM" | AIM, a market operated by the London Stock Exchange
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"AIM Rules" | the AIM Rules for Companies issued by the London Stock Exchange from time to time
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"Company" | Frontier Resources International Plc, a company registered in England and Wales with registered number 06573154
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"Directors" or "Board" | the directors of the Company at the date of this announcement
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"Disposals" | together the FRII Disposal and the Oman Disposal |
"FRII" | Frontier Resources International Inc., a company incorporated under the law of the State of Texas with company charter number 01106351 |
"FRII Disposal" | the proposed sale of the Company's entire interest in FRII pursuant to the FRII Share Sale Agreement |
"FRII Share Sale Agreement" | the conditional share sale agreement dated 2 March 2016 |
"Frontier Namibia" | Frontier Resources Namibia Limited, a company registered in England and Wales with registered number 07725539 and holder of the Namibia Licence |
"Frontier Oman" | Frontier Resources Oman Limited, a company registered in England and Wales with registered number 07626414 and holder of the Oman EPSA |
"Frontier Zambia" | Frontier Resources Zambia Limited, a company registered in England and Wales with registered number 07837491 which is conditionally the holder of the Zambia Licence |
"General Meeting" | the general meeting of the Company to be held on 22 March 2016 at 10.00 a.m. (or any adjournment thereof) |
"Group" | the Company and its subsidiary undertakings, from time to time |
"Keyes Debt" | £272,223.13 owed to Mr M (Jack) Keyes by the Company which would only be paid in the event that the Company completes a farm-out of its interests in one or more of its projects which involves the reimbursement to the Company of at least £435,556 of historic exploration expenditure
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"London Stock Exchange" or "Exchange"
| London Stock Exchange plc |
"Namibia" | the Republic of Namibia |
"Namibia Licence" | the petroleum agreement between the Government of the Republic of Namibia and Frontier Namibia dated 17 October 2011 in respect of Blocks 1717 and 1718 |
"Namibian Ministry" | Minister of Mines and Energy in Namibia |
"Oman" | the Sultanate of Oman |
"Oman EPSA" | the exploration and production sharing agreement between the Government of the Sultanate of Oman and Frontier Resources Oman Limited dated 10 October 2012 in respect of block 38 |
"Oman Disposal" | the proposed sale of the Company's entire interest in Frontier Oman pursuant to the Oman Share Sale Agreement |
"Oman Funding Deadline" | 4 February 2016 |
"Oman Government" | the Government of the Sultanate of Oman |
"Oman Share Sale Agreement" | the conditional share sale agreement dated 2 March 2016 |
"Ordinary Shares" | the issued ordinary shares in the capital of the Company from time to time |
"Resolutions" | the ordinary resolutions to be set out in the notice of General Meeting |
"Shareholders" | holders of Ordinary Shares
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"Zambia" | the Republic of Zambia |
"Zambia Licence" | the petroleum exploration licence granted to Frontier Zambia by the Ministry of Mines and Minerals Development of the Republic of Zambia on 25 March 2011 in respect of Block 34 |
Further AIM Rule disclosures
The reported financial results below for each of Frontier Oman and FRII for the year ended 31 December 2014 (the last audited accounts) and the six months ended 30 June 2015 (the last unaudited interim accounts), have been derived from the published accounts of Frontier Oman and FRII without material adjustment or amendment and have not been adjusted to eliminate any inter-company balances that will be eliminated or waived in full on completion of the Disposals:
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| Year ended 31 December 2014 |
| Six months ended 30 June 2015 |
Frontier Oman | US$ |
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Profit / (loss) before taxation |
| (267,991) |
| (19,227) |
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Total assets |
| 1,810,000 |
| 1,764,206 |
Net assets / (liabilities) |
| (739,421) |
| (785,215) |
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FRII |
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Profit / (loss) before taxation |
| (6,950) |
| (2,710) |
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Total assets |
| 973,475 |
| 1,099,996 |
Net assets / (liabilities) |
| (912,246) |
| (914,956) |
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The initial sale proceeds to the Company are de-minimis. Any further amounts received pursuant to the Oman Share Sale Agreement under the terms of the carried interest will be utilised for additional working capital at that time.
Following completion of the Disposals and the cessation of activities in Namibia and Zambia, the Company's principal asset will comprise its cash balance of approximately £1,218,207.