IGAS.L Regulatory News (IGAS)

10 March 2015

IGas Energy plc

("IGas" or the "Company" or the "Group")

UK Shale Farm out Agreement with INEOS Upstream Limited ("INEOS")

IGas Energy plc (AIM:IGAS) is pleased to announce it has signed a Farm out and Purchase Agreement ("FOPA") with INEOS. On completion of the transaction, INEOS will acquire an interest in certain licences in the North West and East Midlands and the Group's participating interest in the acreage held under PEDL 133 in Scotland. The consideration for IGas' participating interests comprises £30 million cash payable to IGas on completion and a funded forward work programme of up to £138 million gross, of which IGas' share to be funded fully by INEOS, is expected to amount to approximately £65 million.

Highlights:

· In the North West, INEOS will acquire a 50% interest in IGas' licences: PEDL, 147, 184, 189, and 190, and a 60% interest in IGas' licences: PEDL 145, 193 and EXL 273 (collectively, the "Bowland Licences");

· In the East Midlands, INEOS has the option to acquire 20% in PEDL 012 and 200

· In Scotland, INEOS will acquire IGas' entire working interest in the acreage held under PEDL 133 in the Midland Basin and assume operatorship;

· At completion INEOS will pay IGas a cash sum of £30 million;

· INEOS to fund a two phase carried work programme of up to £138 million of which IGas' share of the gross carry is expected to be approximately £65 million. Upon commencement of commercial production from the Bowland Licences, IGas would be obligated to pay back to INEOS its net share of the carry out of 50% of its net, free cashflow;

· At completion, INEOS will become the operator of PEDLs 145, 193 and EXL 273 subject to normal partner approvals;

· IGas will have up to $285 million of total spend from third parties across its key shale gas acreage from major partners, including Total E&P UK Limited ("Total"), GDF SUEZ E&P UK Limited ("GDF") and INEOS; this will give IGas a significant, funded work programme including 15 wells, flow tests and gas handling stations;

· On completion, the cash component of the consideration will further strengthen the Group's balance sheet giving IGas additional financial flexibility and ability to further develop its onshore licence interests.

Commenting Andrew Austin, CEO of IGas, said:

"We are delighted to announce this farm out with INEOS which underpins the quality, scale and significant potential of our licences, whilst retaining material upside in these key assets.

Alongside the commitment from our existing partners, INEOS's commitment of upfront cash and considerable capital investment will help fund us through the next steps of our shale appraisal and production programme.

This transaction, together with our existing partnerships with Total and GDF, reinforces the potential and materiality of our portfolio to world class counterparties and strongly positions us as we seek to work together to unlock the potential of our untapped natural gas resources in Britain."

Gary Haywood, CEO of INEOS Upstream, says

"This is a great opportunity to acquire some first class assets that have the potential to yield significant quantities of gas in the future. INEOS believes that an indigenous Shale gas industry will transform UK manufacturing, and that we can extract the gas safely and responsibly. We are pleased to have agreed this deal with IGas. INEOS's scale, asset position across the UK, US shale gas expertise, and our expertise in managing oil and gas facilities will be a great match with IGas's existing onshore asset base, and significant exploration and production capability."

Jefferies acted as Financial Advisor to IGas on the transaction.

ENQUIRIES

For further information please contact:

IGas Energy plc

Tel: +44 (0)20 7993 9899

Andrew Austin, Chief Executive Officer

Stephen Bowler, Chief Financial Officer

Ann-marie Wilkinson, Head of Communications

Jefferies International Limited (NOMAD and Joint Corporate Broker)

Tel: +44 (0)20 7029 8000

Sara Hale 

Graham Hertrich

Canaccord Genuity (Joint Corporate Broker)

Tel: +44 (0)20 7523 8000

Henry Fitzgerald-O'Connor

Vigo Communications

Tel: +44 (0)20 7016 9570

Patrick D'Ancona/Chris McMahon

Details of the transaction

INEOS has agreed to farm into a 50% interest in IGas' licences in the Bowland basin: PEDL, 147, 184, 189, 190; and a 60% interest in IGas' licences: PEDL 145, 193 and EXL 273, (the "Bowland Licences"), in the North West of England. In the East Midlands, INEOS has the option to acquire 20% in PEDL 012 and 200.

INEOS will assume operatorship of licences PEDL 145, PEDL 193 and EXL 273. IGas will retain operatorship of all other Bowland Licences.

INEOS will acquire IGas' entire working interest in the acreage held under PEDL 133 in the Midland Basin in Scotland and assume operatorship. INEOS has agreed to pay IGas an upfront cash consideration of £30 million payable on completion of the transaction.

INEOS has committed to agree to fund IGas' share of a forward work programme on the Bowland Licences subject to a gross expenditure cap of £138 million.

The Carry will be split into two distinct phases. Phase 1 shall commence upon execution of the FOPA. Over Phase 1, INEOS is committed to fund a work programme subject to a gross expenditure cap of £70 million. Phase 2, which will be subject to a gross expenditure cap of £68 million, shall follow Phase 1 of the agreed work programme. At the end of Phase 1 INEOS must either commit to the Phase 2 carry or return the licences to IGas.

The work programme is comprised as follows: Phase 1 - three vertical wells, one hydraulically fractured vertical well, two hydraulically fractured horizontal wells, gas processing and tie-in costs and both 2D and 3D seismic surveys. Phase 2 - two vertical wells, three hydraulically fractured horizontal wells, gas processing and tie-in costs and a 3D seismic survey.

On commencement of production from the Bowland Licences and at the point when IGas achieves positive free cash flow from these licences, IGas will be required to repay its net share of the carry to INEOS. Positive free cash flow being gross revenues less costs including operating costs, accrued taxes, capital expenditure, third party transportation and processing fees and third party sales and marketing costs. IGas will repay the carry plus an increment (currently estimated at 6% per annum), out of a maximum of 50% of its net, free cashflow from the Bowland Licences. The free cash flow payment amount is subordinated to all liabilities of IGas pursuant to the Bond Security.

Completion is expected to take place not later than 30 June 2015.

The transaction is subject, inter alia, to partner pre-emption rights and consents and approvals by the Department of Energy and Climate Change and relevant tax clearances.

There is no production from the assets included in this transaction that contribute to the overall EBITDA of the Group.

On completion, IGas will have a gross funded carried work programme of up to $285 million, covering the cost of around 15 wells, flow tests and gas handling stations.

Asset Overview

Licences subject to transaction

Other licences

About INEOS

INEOS is a global manufacturer of petrochemicals, speciality chemicals and oil products. It comprises 15 businesses each with a major chemical company heritage. It has a turnover of $54bn. Its production network spans 65 manufacturing facilities in 16 countries throughout the world, employing 17000 people. INEOS products make a significant contribution to saving life, improving health and enhancing standards of living for people around the world. Its businesses produce the raw materials that are essential in the manufacture of a wide variety of goods: from paints to plastics, textiles to technology, medicines to mobile phones - chemicals manufactured by INEOS enhance almost every aspect of modern life. INEOS is one of the UKs largest manufacturing businesses. It employs 4000 people in the UK across 7 sites. It can use shale gas at its manufacturing sites as a feedstock or energy source. The company also owns land, pipelines and storage in some of the key areas being explored in the UK.INEOS Upstream is INEOS' new oil and gas exploration and production business. It has the stated aim to become the biggest player in the UK Shale gas industry. Shale gas could revolutionise UK manufacturing as it has done in the USA. There is incredible potential to provide the UK with greater energy security, growth and jobs, and help the UK's chemical and energy-intensive UK manufacturing industry to succeed, worldwide. For further information please visit www.ineos.com.