RPT.L Regulatory News (RPT)

24 Jan 2008 07:01

Regal Petroleum PLC24 January 2008 REGAL PETROLEUM PLC ("Regal" or "the Company") Conditional Placing of New Shares Regal Petroleum plc, the independent oil & gas exploration and productioncompany, today announces that it has conditionally placed (the "Placing") newordinary shares of 5p each in the capital of the Company (the "Placing Shares")in order to raise approximately £84 million (before expenses). The Company alsoannounces the appointment, with immediate effect, of Strand Partners Limited asits new Nominated Adviser ("Nomad"). Highlights • Subject to shareholder approval, Regal will issue 56,440,000 PlacingShares at a price of £1.50 (the "Placing Price"), raising (after deduction ofexpenses) approximately £80 million. • The Placing Shares represent 39.5% of the existing issued share capitalof the Company. On admission of the Placing Shares to trading on AIM, there willbe 199,468,824 ordinary shares of 5p each ("Ordinary Shares") in issue, valuingthe issued share capital of Regal at £299.2m at the Placing Price. • The net proceeds of the Placing will be used, primarily, to fund theexploitation and development of the Group's Ukrainian assets and provideadditional working capital to the Company. • The Placing Shares have been conditionally placed with institutionalinvestors. Admission and dealings in the Placing Shares on AIM are expected tocommence on 22 February 2008, subject to shareholder approval at a generalmeeting of the Company to take place on 19 February 2008. • Regal has been notified by the London Stock Exchange, that following aninvestigation it intends to refer a case regarding alleged breaches by Regal ofthe AIM Rules to the AIM Disciplinary Committee. Further details of this matterappear in paragraph 4 of this announcement. • The Company is pleased to announce the appointment of Strand PartnersLimited ("Strand Partners") as its new Nomad. Mirabaud Securities Limited("Mirabaud") will continue in its capacity as the Company's broker. • A circular, convening a general meeting for 19 February 2008 to seekshareholder approval for the Placing, will be posted to Shareholders as soon aspossible. David J Greer OBE, Regal's Chairman and Chief Executive Officer, commented: "I am delighted with the response of investors to our proposed placing. To havereceived commitments considerably in excess of our requirements in currentmarket conditions is a testament to the quality of our asset base and thestrategy in place to exploit it. I look forward to reporting back toshareholders on our progress in the coming months." "I would like to welcome Strand Partners as our new Nomad and I would like tothank both Strand Partners and Mirabaud for their support during the successfulplacing." Contacts: Regal Tel: 020 7408 9500David J Greer, Chairman & Chief Executive Officer Strand Partners Limited Tel: 020 7409 3494Simon RaggettRory Murphy Mirabaud Securities Tel: 020 7878 3362Peter Krens Citigate Dewe Rogerson Tel: 020 7638 9571Martin JacksonScott Fulton Placing of New Shares and Notice of General Meeting 1. Introduction and summary The Company proposes to raise approximately £84 million (before expenses) by wayof a conditional placing (the "Placing") of 56,440,000 ordinary shares of 5peach (the "Placing Shares") at a price of £1.50 per share (the "Placing Price").The net proceeds of the Placing will be used, primarily, to fund theexploitation and development of the Group's Ukrainian assets and also to provideadditional working capital to the Company. The Placing Shares have been conditionally placed with institutional investors.Subject, inter alia, to the passing of the resolutions to be proposed at ageneral meeting to take place on 19 February 2008 (the "General Meeting"),admission and dealings in the Placing Shares on AIM are expected to commence on22 February 2008. The Placing is conditional, inter alia, upon shareholders passing theresolutions to be proposed at the General Meeting. 2. Background to and reasons for the Placing The Group's most significant assets are the gas and condensate fields atSvyrydivske ("SV") and Mekhediviska-Golotvschinska ("MEX-GOL"), Ukraine (the"Fields"). During the course of 2007, the Company has been planning the furtherdevelopment and exploitation of the Fields. In March 2007 the Company appointedTristone Capital Limited ("Tristone"), a specialist global energy advisory firm,to carry out a review of the strategic options available to Regal in respect ofthe further development and exploitation of the Fields. Following theconclusion of that study, Tristone was engaged by Regal to advise on the partialdivestment of an interest in the Fields, and a competitive bid process began inApril 2007. Following the conclusion of that process KKCG Oil & Gas B.V. ("KKCG") became thepreferred bidder and on 14 September 2007 the Company announced that anexclusive memorandum of understanding had been entered into with MND Explorationand Production Limited (the UK subsidiary of KKCG) whereby KKCG would investUS$310 million in the development of the Fields and pay $20 million to Regal inreturn for a 50% interest in Regal Petroleum (Jersey) Limited ("RPJ").Following the expiration of the exclusivity period, it was announced on 21November 2007 that the Company had entered into an exclusive memorandum ofunderstanding with Shell Exploration & Production Ukraine Investments (1) BV("Shell"). The proposed outline terms for that transaction were that Shellwould acquire a 51% interest in RPJ in return for investing a total of US$360million in the development of the Fields and the payment of $50 million toRegal. On 26 November 2007, the Company announced that it had received noticeof termination of the Memorandum of Understanding between the Company and Shell.The Company now intends to fund the proposed further development andexploitation of the Fields as detailed in this announcement, from the proceedsof the Placing. The Company intends to increase and accelerate the exploitation and developmentof the Fields through improved reservoir delineation through the use of new 3Dseismic data (including a 3D seismic survey of the SV field which has recentlycommenced) and the use of modern well engineering, workovers, stimulation andproduction practices. The Company is developing a full field development planfor the Fields which envisages the drilling of approximately 60 wells (includingvertical and multi-lateral wells) and the construction of new gas treatmentfacilities and flowlines. In order to implement the development and exploitation of the Fields, theCompany has recruited a management team of experienced oil and gas industryprofessionals with strong technical skills. 3. The Ukrainian Assets The Group's Ukrainian assets comprise the Fields, which are located in theDnieper-Donets sedimentary basin. The gas condensate Fields are made up ofeleven mapped gas bearing horizons, up to 19 metres thick, from 4,700 to 6,000metres below surface. Lower Carboniferous reservoirs form the main gas bearing horizons. The grossinterval reaches a thickness of 800 to 1,000 metres within the Fields. Duepredominantly to the depth of burial, the reservoirs have moderate porosity andlow permeability. Despite this, a number of the exploration wells and appraisalwells which have been drilled have demonstrated encouraging production rates ontest. The published proved and probable reserves of the Fields as at 31 December 2006were 810,400 MMscf of gas and 25,009 Mbbls of condensate (169,410 Mboe). Themost recent reserves audit was conducted by Ryder Scott in 2005 and is the basisfor these published proved and probable reserves. A copy of the reserves reportprepared by Ryder Scott is published on the Company's website -www.regalpetroleum.co.uk. The Group owns and operates its own gas and condensate treatment plant, whichhas a processing capacity of approximately 700,000 cubic metres per day of gasand 200 cubic metres per day of condensate. The Group also owns a 13.2 kilometre long, 325 mm pipeline connecting the gasand condensate plant to the main Kursk-Kiev export trunk pipeline and bypassingthe local gas distribution network by tying into the international Majestral gastrunk line. The pipeline has a capacity of 1,500,000 cubic metres per day. 4. Operational and Trading Update Ukraine (100% working interest) The Company's average production for the six month period to 31 December 2007was 5.32 MMscfd and 275 barrels of condensate per day (equivalent to 1,222boepd). This was from the five wells in production during that six monthperiod: GOL-1, GOL-2, MEX-3, MEX-102 and SV-10. Operations have remained cash flow positive and profitable throughout the courseof 2007. In the second half of 2007, gas prices achieved by the Company have been almostconstant with an average price of $4.04 per Mscf, an increase of approximately32% over the same period in 2006. On 5 December 2007, it was announced by theUkrainian Government that an agreement had been reached between Russia andUkraine whereby, commencing during 2008, Ukraine will pay Russia $5.08 per Mscfcompared to the current levels of $3.68 per Mscf. This is an increase of 38% onthe prices for 2007. Historically an increase in importation prices has led toa similar increase in the price caps set by the Ukrainian Government for thesale of gas within Ukraine. The average condensate sales price achieved by the Company for the six monthperiod to 31 December 2007 was approximately $74 per barrel compared to $55 perbarrel in the first half of 2007. The average realised price achieved by theCompany in December 2007 was approximately $87 per barrel. The Company signed a contract with Chernihivnaftagasgeologia ("CNGG") for thedrilling of the MEX-103 production well in late July 2007 with drillingcommencing in early October 2007. The well had reached 3,700 metres on 31December 2007 and drilling continues as planned. The well is due to becompleted in October 2008. Six other production wells are in the process of being permitted and preliminarydiscussions have been initiated with a number of drilling companies able toprovide equipment and services. The drilling of further wells is planned tocommence in mid 2008. Additionally, Regal is considering methods to prolongproduction from its existing production wells and has recently completed aproduction logging programme with a view to working over some of these wells. A 3D seismic survey covering approximately 100 square kilometres of the MEX-GOLlicence area was completed in late May 2007 and the processing of this data isdue to be completed by February 2008. This information will assist with animproved understanding of sub-surface geology leading to more informed placementof new wells and a better understanding of reserve estimates. In addition, the Company has engaged Ukrgeophysica to undertake a 100 squarekilometre 3D seismic survey of the SV field. The seismic acquisition for thissurvey has recently commenced and is expected to take approximately 4 to 5months to complete. This will conclude the complete 3D coverage of the MEX-GOLand SV licences. Romania Barlad Block (100% working interest) On 13 December 2007, the Company announced that the initial flow testing ofRegal's first exploration well, RBN-4, on the Barlad Concession in Romania, hadresulted in a maximum flow rate of dry gas at a rate of 3.74 MMscfd on a 12mmchoke with a flowing tubing head pressure of 49 bar over a 24 hour flow period.A 4.6 metre interval, between 756.7 metres and 761.3 metres, was perforated andtested and there was minimal water production in the test. A second interval of12.7 metres, between 543.3 metres and 556.0 metres was flow tested buthydrocarbons were not present. This well was completed to a total depth of 973metres TVD into the Sarmatian formation. The RBN-4 well has now been suspended to allow re-entry to the lower producinginterval and the Company is currently evaluating the results of the well. In addition, the Company drilled a second planned exploration well, RBN-3, onthe Barlad Concession. This well was drilled to a total depth of 1,116 metresbut, after logging, it was considered that no commercial hydrocarbons werepresent and the well was plugged and abandoned. This well was locatedapproximately 17 kilometres to the northwest of the RBN-4 well and was intendedto evaluate primary targets in the Sarmatian formation and a secondary target inthe Eocene formation. Suceava Block (50% working interest) During 2007, the Company's farm-in partner, Aurelian Oil and Gas Plc ("Aurelian"), acquired 160 kilometres of 2D seismic data in the block and drilled anexploration well, Dornesti Sud-1, which was intended to target reservoirs in theSarmatian formation. This well encountered a gas bearing zone in the Sarmatianformation and flow testing of a 12.5 metre interval, from 531.8 metres to 544.3metres, produced gas at an average rate of 24,840 Sm3d (876 Mscfd) with aflowing wellhead pressure of 32 bar (464 psi) on a 12mm choke over an 8 hourmain flow period. The Dornesti Sud-1 well was drilled to a total depth of 910 metres andencountered gas in the interval 528 metres to 545 metres. This section, whichconsists of sandstones interbedded with siltstones and claystones, wasinterpreted to be gas bearing on evaluation with electrical logs. The well hasbeen completed as a production well and it is now planned to tie it in during2008 to the Bilca Gas Plant, operated by Aurelian on its adjacent Brodina BlockEIII-1 concession. A second exploration well may be drilled in the first half of 2008, once theresults of the first well have been evaluated. If such a well is approved byeach of Aurelian and Regal, the Company will be required to fund its own share(50%) of the well costs. Egypt (25% working interest) The Company holds a 25% interest in the East Ras Budran Concession in the Gulfof Suez with its partner, Apache Khalda Corporation LDC ("Apache"), which holdsthe remaining 75% interest. In early 2007 Apache, as Concession operator, acquired a 3D seismic survey overthe central portion of the Concession. The resulting 3D seismic data has beenprocessed and interpreted. The first of two exploration wells, ERB-A-1X, wasspudded in June 2007 and this well reached its target depth 13,615 feet MD(11,921 feet TVD), including a 1,000 foot near horizontal section, and wassubsequently flow tested. The well was opened for a 12 hour period and producedat an average rate of 1,901 bopd from the target Darat Limestone. This well wassuspended as a future production well and an appraisal well ("ERB-A-2X"), isunder consideration for mid 2008. Apache and the Company have applied to theEgyptian authorities for a development lease in respect of the "A" structure. In the third quarter of 2007, a second exploration well, ERB-B-1X, was drilledto a total depth of 5,146 feet. This well encountered oil shows and the wellwas subsequently tested without a productive flow of oil being achieved. Thewell has now been plugged and abandoned. A third exploration well, ERB-B-2X, is under preparation for spudding inFebruary 2008 which is intended to further explore the "B" structure. Greece As announced on 21 December 2007, the Company has disposed of its entireshareholding in Eurotech Services SA, through which the Company had held its 95%economic interest in Kavala Oil SA. Under the terms of sale, the Company soldthe entire issued share capital of Eurotech Services SA to Aegean Energy SA fora consideration of US$1.5 million in cash. The Company fully impaired itsinvestment in Eurotech Services SA in its accounts for the year ended 31December 2006 and no profits were attributable to its investment in EurotechServices SA in such period. Liberia As announced on 21 December 2007, the Company has disposed of its entireshareholding in Regal Liberia Limited, through which the Company had held its25% interest in Blocks 8 & 9 offshore Liberia. The Production Sharing Contractsin respect of these Blocks remained unratified by the Liberian Government andthe Company took the view that this project did not constitute part of itsfuture area of core interest. Financial Position The unaudited gross profits increased from $2.7 million to $7.0 million whencomparing the nine month periods ending September 2006 and September 2007respectively. The unaudited turnover for the 11 month period to 30 November 2007 increased to$13.9 million (30-Nov-06: $10.4 million). This increase is primarilyattributable to an uninterrupted nine months of continued production in 2007 inUkraine, together with new production following the hook-up of the SV-10 well inMay 2007, whereas the same period in 2006 was marred by intermittent disruptionto production due to court enforced shut-ins. The Group had net cash of $7.0 million (30-Jun-07: $9.4 million) at 30 September2007 and net assets of $59.2 million (30-Jun-07: $62.8 million). As at 31December 2007, the Group had cash in hand of approximately $5.6 million and haddrawn down $9 million from its $15 million Revolving Credit Facility with Bankof Scotland. As at 31 December 2007, the Group had net assets of approximately$55 million. Board Changes On 22 November 2007, the Company announced the appointment of Mr David JohnGreer OBE as Chairman and Chief Executive Officer and Mr Antonio Mozetic as aNon-Executive Director of the Company, each with immediate effect. In addition,Mr Hendrikus (Harry) Alardus Verkuil was appointed as an Executive Director andChief Operating Officer on 15 January 2008. It was also announced on 22 November 2007 that Mr Francesco Scolaro had steppeddown as Non-Executive Chairman of the Company due to other business commitmentsbut would continue as a Non-Executive Director and that Mr Neil Ritson hadresigned from his position as Chief Executive Officer and Director withimmediate effect. Regulatory Matters Regal has been notified by the London Stock Exchange, that following aninvestigation it intends to refer a case regarding alleged breaches by Regal ofthe AIM Rules to the AIM Disciplinary Committee the ("ADC") Regal understands that the case against it relates to alleged breaches of whatwere, at the relevant time, AIM Rules 9 and 10 (equivalent to Rules 10 and 11 ofthe current AIM Rules) in connection with notifications made by Regal during theperiod from June 2003 to June 2005, regarding the drilling of two explorationwells known as Kallirachi 1 and Kallirachi 2, in its Kallirachi Prospect in theNorth Aegean Sea, over which Regal's former indirect subsidiary, Kavala Oil S.A.held rights. This referral follows an extensive investigation by the LondonStock Exchange. Subsequent to the commencement of the London Stock Exchange's investigation,Regal received notification that the Financial Services Authority ("FSA") hadalso decided to investigate the same matters and the London Stock Exchange'sinvestigation was therefore suspended pending the outcome of the FSA'sinvestigation. The FSA and the London Stock Exchange have now agreed, and haveadvised Regal, that the FSA has discontinued its own investigation in light ofthe London Stock Exchange's proposed referral of this matter to the ADC. In view of the referral of the case to the ADC, it is likely that the outcome ofthis matter will not be known for a further six months at least. Relationship Agreement The Company has entered into a relationship agreement (the "RelationshipAgreement") with CA Fiduciary Services Ltd as trustee for the Timis Trust (the"Trustee"), Frank Timis ("Mr. Timis") and Strand Partners under the terms ofwhich the Trustee and Mr. Timis (in respect of himself and his associates (asdefined therein)) have undertaken to exercise or procure the exercise of theirvoting rights in the share capital of the Company so as to procure that, interalia and subject to certain exceptions: (i) the Company is capable at all timesof carrying on its business independently of Mr. Timis and his associates; (ii)no variations are made to the Company's articles of association which would becontrary to the maintenance of the Company's ability to carry on its business insuch a way; (iii) the Board's independence is maintained in relation to theenforcement of the Relationship Agreement; and (iv) any transactions, agreementsor arrangements entered into by the Company with such persons (or theirenforcement, implementation or amendment) will be made on an arm's length basisand on normal commercial terms. The Relationship Agreement contains provisionsunder which it will terminate: (i) on its second anniversary (unless extended byagreement); (ii) upon the Trustee, Mr. Timis and his associates ceasing, inaggregate, to hold 10 per cent or more of the rights to vote at general meetingsof the Company, provided that, such persons will continue to be bound by theRelationship Agreement should they subsequently hold such rights; or (iii) ifthe Company decides to abandon completely the development of the Ukrainianoperations and Mr. Timis and the Trustee serve written notice of terminationupon the other parties. Change of Nomad The Company has appointed Strand Partners Limited as its new Nomad. Mirabaudwill continue in its capacity as the Company's broker. 5. Details of the Placing The Company proposes to raise approximately £84 million (before expenses)through the Placing. The Placing Price represents a premium of approximately1.7 per cent. to the closing mid-market price of 147.5 pence per Ordinary Shareon 22 January 2008, being the last dealing day prior to this announcement. ThePlacing Shares will represent approximately 28.3 per cent. of the Company'sissued share capital as expected to be enlarged by the Placing. Pursuant to the terms of the placing agreement between Mirabaud and the Company(the "Placing Agreement"), Mirabaud, as agent for the Company, has agreed to usereasonable endeavours to procure subscribers for the Placing Shares at thePlacing price. The Placing Agreement is conditional upon, inter alia, theresolutions being duly passed at the General Meeting and admission of thePlacing Shares to trading on AIM becoming effective on or before 22 February2008 (or such later date as the Company and Mirabaud may agree, but in any eventno later than 5 March 2008). The Placing Agreement contains provisionsentitling Mirabaud to terminate the Placing Agreement at any time prior toadmission in certain circumstances. If this right is exercised, the Placingwill not proceed. The Placing has not been underwritten by Mirabaud. Application will be made to London Stock Exchange plc for the Placing Shares tobe admitted to trading on AIM. It is expected that admission will becomeeffective and that dealings in the Placing Shares on AIM will commence on 22February 2008. The Placing Shares will rank pari passu in all respects with the existingordinary shares in issue, including the right to receive all dividends and otherdistributions declared following admission. It is expected that CREST accountswill be credited on the day of admission and that share certificates (whereapplicable) will be despatched shortly thereafter. This information is provided by RNS The company news service from the London Stock Exchange