10 Apr 2017 07:00
10 April 2017
HAGUE AND LONDON OIL PLC
(the "Company" or "HALO")
PROPOSED REVERSE TAKEOVER
PROPOSED ACQUISITION OF TULLOW 101 NETHERLANDS B.V.
Conditional agreement to acquire producing assets in the Dutch North Sea
Hague and London Oil PLC is pleased to announce that it has agreed the conditional acquisition of significant non-operated natural gas production assets in the Dutch North Sea from Tullow Netherlands Holding Coöperatief B.A. based on an enterprise value of €4,752,675, the net effect of which is that the Seller shall receive an estimated amount of €9,752,429 on Completion and contingent payments of up to €20,000,000 payable between 1 January 2019 and 1 January 2021.
HALO is to acquire the assets through the purchase by its wholly owned subsidiary, Hague and London Oil B.V. ("HALO B.V."), of the entire issued share capital of Tullow 101 Netherlands B.V. ("Tullow 101") (the "Acquisition").
Highlights
HALO B.V. will acquire Tullow 101 and its two subsidiaries, Tullow Exploration & Production B.V. and Tullow Exploration & Production Netherlands B.V. (the "Target Group").
The Acquisition comprises interests in a suite of offshore exploration and production licences on the Dutch Continental Shelf ("DCS") within the Northern Area and Joint Development Area ("JDA") in the western part of the DCS (the Licences), which collectively generated total net production of 2,900 boepd in 2016.The Directors believe that the Acquisition represents a transformational step in the implementation of HALO's strategic repositioning towards lower risk, production opportunities in established hydrocarbon provinces with ample access to, and equity ownership of, infrastructure.
The Licences benefit from stable field production and the Directors see potential for significant upside in proved undeveloped and probable reserves, and contingent resources.
HALO is currently engaged in discussions with potential finance providers to agree the terms of funding for the completion payment pursuant to the terms of the Acquisition, whilst minimising dilution to Shareholders. The Company will announce further details of its financing arrangements at the appropriate time and once any binding agreement is entered into and details of such arrangements shall be included in the Admission Document.
Andrew Cochran, Chairman and Interim Chief Executive of Hague and London Oil plc, commented:
"Since the combination with Wessex Exploration in 2014, we have been on a slow but steady, measured, path to transform the Company into a lower-risk, successful E&P player. The prolonged market downturn has hit our sector very hard and has certainly impacted our efforts to diversify and grow the portfolio sooner. We have therefore been focused, disciplined and persistent in our implementation of the announced strategy, and today's proposed acquisition is the culmination of the Company's dedication to deliver within the stated objectives and a cost-effective manner. These are high-quality, cash generative assets with significant upside potential, in a mature basin with existing infrastructure and commercialisation routes - which have been the critical factors in our screening process and are also likely to be key in agreeing the funding of the Acquisition. We are looking forward to integrating this portfolio into HALO to continue on the future growth trajectory. This will fully complete the corporate transition to what we had longed planned for the Company"
Reverse takeover, General Meeting and Admission
Given the scale of the Acquisition when compared to the existing Group, the Acquisition constitutes a reverse takeover under Rule 14 of the AIM Rules and requires the Company to issue a new admission document and is conditional, inter alia, on the approval of the Acquisition by Shareholders. The Company is in the process of preparing an admission document relating to the Acquisition and readmission to trading on AIM of the Enlarged Group (the "Admission Document") and is aiming to publish the Admission Document by 1 August 2017. A Competent Person's Report ("CPR") on the material assets and liabilities of the Enlarged Group is in the course of being finalised, and will be included in the Admission Document as required by the AIM Rules. The Admission Document and a notice of the General Meeting, at which the approval of HALO's shareholders to the Acquisition will be sought, will be sent to shareholders in due course following the finalisation of the CPR and binding financing agreements. The Admission Document will also be made available on the Company's website (http://www.haloil.co.uk/ ).
Stifel Nicolaus Europe Limited is acting as nominated advisor to the Company in connection with the Acquisition.
Restoration of trading on AIM following publication of Admission Document
Trading in the Company's Ordinary Shares on AIM has been temporarily suspended since 4 April 2017. On publication of the Admission Document, the Ordinary Shares will be re-admitted to trading on AIM.
Capitalised terms used but not defined in the body of this Announcement shall have the meanings ascribed to them in the "Definitions" section at the end of this Announcement, unless the context otherwise requires.
Enquiries:
Hague and London Oil PLC 6 Charlotte Street, Bath, BA1 2NE
Attention: Andrew Cochran Executive Chairman andrew.cochran@haloil.co.uk
Natalia Erikssen IR/PR enquiries natalia.erikssen@haloil.co.uk
+44 (0)20 7520 9268 | Stifel Nicolaus Europe Limited 150 Cheapside London EC2V 6ET
Attention: Callum Stewart Managing Director callum.stewart@stifel.com +44(0) 20 7710 7600 |
INTRODUCTION
The Company announced on 11 May 2016 its intention to pursue a dual strategy going forward consisting of (1) a focus on lower risk assets with well-understood geology, near-term commercial potential, access to infrastructure and with locations in established hydrocarbon and stable political jurisdictions (2) higher risk assets being spun out into a partly owned subsidiary of HALO, Vermeer Exploration B.V.
The rationale for HALO'S revised strategy was a significant reduction in the appetite of equity markets for high-risk exploration, affecting industry valuations, in conjunction with the availability of lower-risk assets and an expanded access to capital. HALO was conscious that its existing portfolio and opportunities arising in the market fell in two distinct and seemingly opposed risk profiles. Given the state of the industry, opportunities available and capital markets, HALO adapted by refocusing the business and has concentrated its efforts on pursuing the acquisition of producing, lower-risk or near-term development assets primarily in Europe. The Directors believe that the Acquisition fits perfectly in this stated objective and represents a transformative step in implementing the previously disclosed strategy for the Group.
PRINCIPAL TERMS AND CONDITIONS OF THE ACQUISITION
Pursuant to the Acquisition Agreement, HALO B.V. has agreed to acquire all the issued shares in the capital of Tullow 101 with effect from 00.00.01 on 1 January 2017 conditionally upon passing of the Resolution at the General Meeting and re-admission of the Company's Ordinary Shares to trading on AIM. The purchase price payable at Completion is based on an enterprise value of €4,752,675 subject to working capital adjustment and adjustment for intra-group indebtedness, the net effect of which is that the Seller shall receive an estimated amount of €9,752,429 on Completion.
Contingent payments of up to a maximum of €20,000,000 may also be payable between 1 January 2019 and 1 January 2021.
HALO has agreed to guarantee all of HALO B.V.'s obligations under the Acquisition Agreement.
Following Completion, Tullow 101's name will be changed to assimilate it within the Group.
SUMMARY FINANCIAL INFORMATION ON TULLOW 101 AND THE SUBSIDIARIES
Tullow 101
Tullow 101 was incorporated to undertake the exploration, development and production of oil and gas in the Netherlands. Tullow 101 is primarily a holding company and does not employ personnel and does not perform research and development activities.
Tullow 101 recorded a loss of €240,310,000 for the year ended 31 December 2015. As at 31 December 2015, the company had a net liability position of €47,771,000. Further financial information on Tullow 101 will be included in the Admission Document.
Tullow Exploration & Production Netherlands B.V. ("TEPN")
Tullow Exploration and Production Netherlands B.V.'s activities during financial year 2015 recorded a loss of €230,200,000.
Tullow Exploration & Production B.V.
Tullow Exploration and Production B.V. recorded a loss of €53,240,000 for financial year 2015.
INFORMATION ON THE TARGET GROUP'S ASSETS
The proposed acquisition comprises TEPN's interests in 12 licences in the Northern Area and a suite of interests in the JDA in the western part of the DCS. The acreage spreads over 2,878 sq km across 12 licences which generated total net production of 2,900 boepd in 2016. An independent CPR which will externally assess and describe the proved & probable reserves and contingent & prospective resources within the Licences is underway and will be published as part of the Admission Document.
Tullow Oil Group reported total revenues of $31.5 million from its Dutch assets in 2016.
There is significant planned and sanctioned capital expenditures ("Capex") for the Acquisition assets, which is in excess of total consideration in both 2017 and 2018. Capex would likely be funded by the operating cashflow generated out of production from the Licences within the current business plans.
The operating expenditures ("Opex") in 2016 averaged to be approximately €25/boe in 2016 with respect to the Licences and these are anticipated to be ca. €21/boe in 2017. There are currently no pending abandonment expenditures ("Abex") associated with the assets, however Abex obligations and potential financial guaranties are expected to be incurred in the future within the normal course, and ongoing of operations of the Assets.
Gas trades in line with the Title Transfer Facility ("TTF").
ASSETS TO BE ACQUIRED
Area | Licence | Unitised Interest | Licence Interest | Operator |
Northern Area | E10 |
| 30.00% | ENGIE
|
| E11 |
| 30.00% | ENGIE
|
| E14 |
| 30.00% | ENGIE
|
| E15c |
| 20.00% | ENGIE
|
| E18b |
| 30.00% | Now relinquished
|
| E15a | 4.147% | 4.69% | Wintershall |
| E15b | 18.357% | 21.12% | Wintershall |
| E18a | 18.357% 4.147% | 17.60% | Wintershall |
| E18a Ballot |
| 10.384% | Wintershall |
| F13a | 4.147% | 4.69% | Wintershall |
JDA | J9 |
| 9.95% | NAM |
JDA | K8 | 9.95% 0.597% | 22.50% | NAM |
JDA | K11 | 9.95% | 18.00% | NAM |
JDA | K7 | 9.95% | 0% | NAM |
JDA | K14a | 9.95% | 0%3 | NAM |
JDA | K15 | 9.95% | 0%3 | NAM |
JDA | L13 | 9.95% | 22.50% | NAM |
JDA | K18 Golf | 2.189% | 0% | NAM |
JDA | K15 | 6.809%, 3.809% | 0% | NAM |
THE ENLARGED GROUP AND THE EFFECTS OF THE ACQUISITION ON HALO
The Acquisition of the Target Group will substantially increase the size and scale of the Group's operations. The Directors believe the Target Group will become significantly earnings-enhancing by 2018 (assuming no significant change in commodity prices and no material unbudgeted capital expenditure requirements).
The Company's strategy is to focus on lower-risk assets with well-understood geology, near-term commercial potential, access to (or ownership of) infrastructure situated in established hydrocarbon basins and stable fiscal jurisdictions, with higher risk assets spun out into Vermeer Exploration B.V. Following Admission, the Group will continue to implement this stated strategy.
The Directors believe the change in scale which will result from the Acquisition will allow the company to pursue larger opportunities in the future as well as cash flow to pursue lower-risk organic opportunities. The Group continues to screen suitable opportunities as they arise focusing on those which meet the strategic objectives and are deemed to be value-accretive.
FINANCING ARRANGEMENTS RELATING TO THE ACQUISITION
HALO is in the course of discussions with potential finance providers to agree terms on which funding may be provided for the purchase price payable pursuant to the terms of the Acquisition, whilst minimising dilution to Shareholders.
The Company currently expects the Enlarged Group to be in a position to meet the costs of any contingent payment which may become payable under the Acquisition Agreement in the period between 1 January 2019 and 1 January 2021, without recourse to any additional third party financing.
The Company will announce further details of its financing arrangements at the appropriate time and once any binding agreement is entered into and details of such arrangements will be included in the Admission Document.
ADMISSION TO AIM
The Company's Ordinary Shares have been temporarily suspended from trading on AIM since 4 April 2017. The Company is in the course of preparing the Admission Document and the temporary suspension of trading will be lifted and trading will resume on publication of the Admission Document.
If Shareholders approve the Acquisition at the General Meeting, to be convened in due course, the Company's existing quotation on AIM will be cancelled and the Enlarged Group will then be admitted to trading. The Admission Document will include an expected timetable of principal events.
GENERAL MEETING
A notice convening a general meeting of the Company will be set out in the Admission Document. At the General Meeting the Shareholders will be asked to approve, by ordinary resolution, the Acquisition. To be passed, the Resolution requires a majority of the votes cast at the General Meeting, in person or by proxy.
DEFINITIONS
"Acquisition Agreement" | the conditional sale and purchase agreement dated [7] April 2017 made between (1) the Seller; (2) HALO B.V. and (3) the Company relating to the Acquisition; |
"AIM" | the market of that name operated by the London Stock Exchange; |
"AIM Rules" | the AIM Rules for Companies published by the London Stock Exchange, as amended from time to time; |
"Board" | the board of directors of the Company from time to time; |
"Completion" | completion of the Acquisition in accordance with the terms of the Acquisition Agreement; |
"Directors" | the directors of the Company; |
"Enlarged Group" | the Company and its subsidiaries following completion of the Acquisition; |
"General Meeting" | the general meeting of the Company to be held for the purpose of, inter alia, considering and, if thought fit, passing the Resolution, and any adjournments thereof; |
"Group" | the Company and its subsidiaries; |
"London Stock Exchange" | London Stock Exchange plc; |
"Ordinary Shares" | ordinary shares of £0.04 each in the capital of the Company; |
"Resolution" | the resolution to approve the Acquisition to be proposed at the General Meeting; |
"Seller" | Tullow Netherlands Holding Coöperatief B.A., a cooperative incorporated under the laws of the Netherlands; |
"Shareholders" | holders of Ordinary Shares in the Company from time to time; |
"Subsidiaries" | Tullow Exploration & Production B.V. and Tullow Exploration & Production Netherlands B.V. (and each a "Subsidiary"); and |
"Tullow Oil Group" | the group of companies the ultimate parent company of which is Tullow Oil plc, a public limited company incorporated in England and Wales with company number 03919249. |