21 Mar 2022 17:59
21 March 2022
Lekoil Limited
("LEKOIL" or the "Company")
Notice of Extraordinary General Meeting
LEKOIL (AIM: LEK), the oil and gas exploration and production company with a focus on Nigeria and West Africa, announces that, further to the Company's announcement of 28 February 2022 (the "Strategic Investment and Restructuring" announcement), an Extraordinary General Meeting ("EGM") of the Company will be held on 7 April 2022 at 4.00 p.m. Greenwich Mean Time (GMT) at the Company's registered office at Walkers Corporate Limited, 190 Elgin Avenue, George Town, Grand Cayman, KY1-9001, Cayman Islands.
The EGM has been called for shareholders to:
· approve the Option Agreement entered into with Savannah Investments, in accordance with the requirements of Rule 15 of the AIM Rules. Details of the Option Agreement are set out below and in Strategic Investment and Restructuring announcement, including the intention to use the proceeds of the Option Agreement, if received, for working capital purpose of the Company; and
· authorise Directors to allot and issue fully paid ordinary shares up to an aggregate number of 151,755,547, which is approximately 20 per cent (20%) of the Company's current issued ordinary share capital.
Copies of the Notice of EGM and Forms of Proxy and Instruction have been posted to shareholders and are available to download from the Company's website. The relevant parts of the Chairman's letter included in the Notice of EGM is set out below. Shareholders who wish to attend should contact info@lekoilplc.com for dial-in details.
The Company encourages shareholders to vote by way of Proxy prior to the EGM.
Chairman's Letter
18 March 2022
Dear Shareholder,
Extraordinary General Meeting
I am writing to inform you that the Board of Directors of the Company has convened an Extraordinary General Meeting of the Company (the "EGM") to be held at 4:00 p.m. (GMT) on 7 April 2022 at the offices of Walkers Corporate Limited, 190 Elgin Avenue, George Town, Grand Cayman, KY1-9001, Cayman Islands.
In light of the prevailing global government guidelines and restrictions on public gatherings, international travel and in the interest of the health and safety of our shareholders during this global COVID-19 pandemic, we encourage our shareholders to complete their proxy forms and participate at this forthcoming EGM by proxy.
For health and safety reasons access to the venue of the meeting will be restricted.
Special business - ordinary resolutions
Approval of Option Agreement (Resolution 1)
On 28 February 2022, the Company announced that it had entered a convertible facility agreement (the "CFA") and an option agreement (the "Option Agreement") with Savannah Energy Investments Limited ("Savannah Investments" or the "Investor") in order to support the Company's restructuring (the "Transaction").
The Option Agreement, as further described below, conditionally grants Savannah Investments the right to purchase the Mayfair Loan (as defined below) (the "Sale of the Mayfair Loan").
The Sale of the Mayfair Loan to Savannah Investments, in the manner contemplated by the Option Agreement, would amount to a "fundamental change of business" under Rule 15 of the AIM Rules for Companies. As such, the entry into force of the Option Agreement and any future completion of the Sale of the Mayfair Loan in accordance with the Option Agreement is conditional upon the approval of the Company's shareholders ("Resolution 1").
For the reasons set out below, the Board of Directors of the Company considers the entry into force of the Option Agreement and any Sale of the Mayfair Loan to be in the best interests of the Company and its shareholders as a whole and the Board of Directors unanimously recommend shareholders to vote in favour of Resolution 1.
Description of the Mayfair Loan and its impairment
The Company is a party to the USD$135 million intercompany loan agreement (the "Mayfair Loan") between the Company (as lender) and Mayfair Assets & Trust Limited (as borrower) ("Mayfair"). The Company is the beneficiary of various security documents associated with the Mayfair Loan, including an all-asset debenture and a share charge (as amended from time to time).
As at 30 June 2021, the Company's review of the intercompany and related party debt position between the Company (and its subsidiaries) and Lekoil Nigeria Limited (and its subsidiaries) showed USD$253.0 million due under the Mayfair Loan.
The Company has, in parallel with entry into the CFA, impaired the value of the Mayfair Loan to USD$1 million. This does not affect the amount of the loan owing from Mayfair to the Company but is a recognition by the Company that an impairment of the intercompany debt is appropriate given: (i) in the Company's accounts for the year ended 31 December 2020, the Company reduced the carrying value of its equity investment in Mayfair by US$107 million to US$10 million; and (ii) the factors that justified the impairment of the equity value are still relevant and existing and equally apply to the ability of Mayfair to repay the Mayfair Loan (i.e., the lack of bids during the OPL 310 farm out process, the inability to raise financing for OPL 310 to date, the proximity to the end of the term of the OPL 310 license in August 2022 and the ongoing legal dispute with Optimum Petroleum Development Limited).
Description of the Option Agreement
Under the Option Agreement, the Company grants to Savannah Investments an option to be assigned the Company's interest in the Mayfair Loan and its associated security related to OPL 310. A USD$1 million payment is payable in cash by Savannah Investments to the Company upon such assignment. A summary of the Option Agreement and full details of the OPL 310 asset are provided below.
Pursuant to the Option Agreement, the Company is entitled to receive deferred consideration in the event that Savannah Investments obtains a working interest in OPL 310 and the same is developed. Such deferred consideration is structured as a royalty of 0.5% on crude oil sales attributable to Savannah Investments actual participating interest in OPL 310. The total royalty that might be payable is capped at USD$50 million based on a 17.14% participating interest. The royalty would apply up to a 17.14% participating interest and the royalty cap will be reduced appropriately for a participating interest less than 17.14%.
Shareholder Approval for Sale of the Mayfair Loan
The Company is seeking shareholder approval for the Sale of the Mayfair Loan pursuant to the Option Agreement. In the event shareholder approval is not received, the Option Agreement will terminate and have no further effect.
Shareholder approval is required pursuant to Rule 15 of the AIM Rules for Companies.
The Sale of the Mayfair Loan would not directly impact on the equity held by Mayfair (and indirectly the Company) in OPL 310. However, it could be considered that the Company has disposed of a material asset that amounts to a fundamental change of business. The Company cannot predict what actions Savannah will take as holder of the Mayfair Loan and how that may affect the Company's indirect interest in OPL 310 but those actions may include enforcement of the Mayfair Loan and its security. This or similar actions could mean that the Company's interest in any future development and value of OPL 310 is diminished or lost. In this scenario, the overriding royalty pursuant to the Option Agreement will remain in place. The Company expects that the option consideration, if it is received, will be used for the working capital purposes of the Company.
Authority of Directors to allot shares (Resolution 2)
The authority given to the Directors to allot further shares in the capital of the Company requires the prior authorisation of the shareholders in general meeting. Upon the passing of Resolution 2, the Directors will have authority to allot shares or grant rights to subscribe for or to convert any security into shares ("Relevant Securities") in the Company pursuant to Article 18 of the Articles (i) up to an aggregate number of 151,755,547 new ordinary shares which is approximately 20 per cent (20%) of the Company's current issued ordinary share capital as at 18 March 2022, being the latest practicable date prior to the publication of this Notice; (ii) to enable the Company (within the limit set out in subclause (i) above) to settle accrued but unpaid fees to creditors who agree to take part or all of their fees in ordinary shares.
These authorities will expire immediately following the next AGM. The Directors intend to seek renewal of Resolution 2 at each AGM, in accordance with current best practice.
For health and safety reasons, access to the meeting venue shall be restricted due to the prevalent risks associated with the COVID-19 Pandemic.
Recommendation
As stated in the Company's announcement of 28 February 2022, Savannah Investments' strategic involvement in the restructuring, including the Option Agreement, has received the support of the major institutional shareholders in the Company, representing approximately 42% of the Company's then issued share capital. This support when combined with Savannah Investments' current shareholding, represents approximately 56% of the Company's current issued share capital.
If Resolution 1 is not passed, the Option Agreement will terminate and the Company will not receive the USD$1 million in consideration for any future exercise of Savannah Investments rights pursuant to the Option Agreement. Without access to these funds which would arise on any future exercise of the option, the Company would be required to source additional working capital in late 2022/early 2023.
Resolution 2 will grant the Company the ability to allot and issue ordinary shares up to 20% of the current issued ordinary share capital. The Company intends to use this authority to continue, in a limited way, with the Contractor Shares Arrangement. In particular, the Contractor Shares Arrangement may be used to pay amounts due to creditors and/or to incentivise the Company's directors in lieu of cash payments. The Company does not intend to issue shares pursuant to the Contractor Shares Arrangement in excess of 5% of the current issued share capital nor does the Company intend to implement any further convertible facility agreements pursuant to this authority. Other than the Contractor Shares Arrangement, any issuance of shares pursuant to this authority will be subject to shareholder's pre-emption rights in accordance with the Company's Articles of Association.
Accordingly, your Board of Directors consider that the Resolutions to be put to the EGM are in the best interests of the Company and its shareholders as a whole and unanimously recommend shareholders to vote in favour of the Resolutions.
Anthony Hawkins
Interim Executive Chairman
18 March 2022
OPL 310: Asset summary and impairment of Mayfair Loan | Mayfair Assets & Trusts Limited (Nigeria) holds a 17.14% participating interest in OPL 310, offshore from the Dahomey basin, in partnership with the operator Optimum Petroleum Development Limited ("Optimum"). The licence includes the 2013 Ogo oil & gas discovery which straddles water depths of 200-3,000 feet. The find is estimated to contain P50 gross recoverable resources of 774 MMboe, split between a four-way dip closure and deeper syn-rift stratigraphic trap. Further appraisal work is required to de-risk these volumes, ahead of any field development. In addition, following the acquisition of 3D seismic in 2014, the licence partners have identified surrounding prospects and leads which offer significant upside potential.
During 2020, the Lekoil Group engaged advisors to run a farm out process of Lekoil's share for OPL 310. This farm out process was completed without any offers being received during 2020. During 2020 and early 2021, the Group had extensive discussions and negotiations with Optimum about the operation of the Cost and Revenue Sharing Agreement ("CRSA"). Optimum submitted a letter, announced on 24 February 2021, proposing the termination of the CRSA. There is a material risk that this dispute will end up in litigation.
In light of the lack of interest during the farm out process, the inability of the Company to raise financing for the last two years to fund the next two development wells, the proximity to the end of the license and the ongoing legal dispute with Optimum, the Company took an impairment of US$107.5 million reducing the carrying value of OPL 310 to US$10 million (see Annual Report 2020).
The Company has, in parallel with entry into the CFA, impaired the value of the Mayfair Loan to US$1 million. This does not affect the amount of the loan owing from Mayfair to the Company but is a recognition by the Company that an impairment of the intercompany debt is appropriate given: (i) in the Company's accounts for the year ended 31 December 2020, the Company reduced the carrying value of its equity investment in Mayfair by US$107 million to US$10 million; and (ii) the factors that justified the impairment of the equity value are still relevant and existing and equally apply to the ability of Mayfair to repay the Mayfair Loan (i.e., the lack of bids during the OPL 310 farm out process, the inability to raise financing for OPL 310 to date, the proximity to the end of the term of the OPL 310 license in August 2022 and the ongoing legal dispute with Optimum).
Shareholders are directed to the Strategic Report in the Annual Report for the year ended 31 December 2020 for a full asset description. |
Option Agreement Summary
Purchase Price upon Assignment: | US$1,000,000 |
Assignment: | Term Loan Facility Agreement dated 13 May 2013 between Mayfair Assets & Trusts Limited (as Original Borrower), Lekoil Nigeria Limited (as Original Guarantor) and Lekoil Limited (Cayman Islands) (as Lender) and any and all amendments, assignments and novations thereto (the "Mayfair Loan") to together will any and all security (registered or unregistered) associated with the Term Loan. |
Expiry of Option: | 31 December 2022, extended until 31 December 2023 if the Company raises finance equivalent to the Purchase Price. |
Exercise of Option: | Savannah Investments has the right to trigger the assignment of the Mayfair Loan provided it pays the Purchase Price. The parties will then agree the form of royalty agreement for the Overriding Royalty. |
Overriding Royalty: | The Company and Savannah Investments will agree a royalty agreement for a 0.5% gross overriding royalty (capped at US$50 million) on crude oil sales attributable to a 17.14% participating interest in OPL 310. In the event the participating interest in OPL 310 held by Savannah Investments is less than a 17.14% interest, the royalty rate will be 0.5% on that lower participating interest and the USD$50million cap will be appropriately reduced, and in the event the participating interest is greater than 17.14%, the royalty rate will apply to 17.14% of the interest. |
Condition Precedent | The assignment of the Mayfair Loan is conditional on the shareholders of the Company giving their approval to the assignment at an EGM. |
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.
For further information, please visit www.lekoilplc.com or contact:
SP Angel Corporate Finance LLP (Nominated Adviser and Joint Broker) Jeff Keating / Stuart Gledhill |
+44 20 3470 0470 |
Tennyson Securities (Joint Broker) Peter Krens / Edward Haig-Thomas | +44 20 7186 9030 |