4 Dec 2018 07:00
Sirius Petroleum Plc
("Sirius" or "the Company")
Acquisition of 75% Shareholding in Precision Energy
Provides access to near-term production growth and low risk exploration potential
Complementary asset opportunity located adjacent to Ororo
Sirius Petroleum (AIM: SRSP), the Nigeria-focused oil and gas development and production company, is pleased to announce that it has entered into a conditional sale and purchase agreement with Precision Energy Group ("PEG") to acquire a 75% shareholding in Precision Energy Tetra 109 (BVI) Ltd ( "Sirius JV" or the "Acquisition", respectively), a wholly owned subsidiary of PEG. Sirius JV has in turn conditionally agreed to acquire a direct 40% equity and up to 80% economic interest in Tetrarch Limited ("Tetrarch") from Tetrarch Holdings Limited (together with the Acquisition, the "Transactions").
Summary
· Tetrarch is an 80% shareholder in Tetra Energy Services Limited ("Tetra"), which wholly owns Tetra Petroleum Oilfield Services Ltd ("TPOS"). TPOS has entered into a petroleum services contract ("PSC") to provide certain petroleum services to the owners of the licence known as OML 109.
· Once the Transactions are completed and after recovery of its costs, Sirius will hold an effective indirect economic 30% interest in the cash flows of TPOS through its economic interest in Tetrarch.
· Subject to completion of the Transactions, Sirius JV intends to provide petroleum services to Tetrarch and therefore TPOS in relation to the PSC in which Sirius and its operational partners expect to take an active role in providing such services.
· There is only nominal consideration payable on the Acquisition, which is conditional upon, among other things, Sirius sourcing for Sirius JV US$40 million of external debt funding, to be provided by a third-party funder, to be deployed towards the execution of a minimum work programme commitment ("MWPC") on the Ejulebe field, a producing field located in the North East corner of OML109. Sirius is in advanced discussions with a third-party funder for the provision of the required US$40 million debt funding, which is intended to be secured directly against the cashflows generated as a result of the Ejulebe MWPC.
· The MWPC is designed to boost current production on the Ejulebe Field from circa 250 barrels of oil per day ("bbls/d") to over 5,000 bbl/d, by providing for:
o Stage A - MWPC: workover on 1 existing well and the drilling of one new development well, EJ-9 and, at Sirius JV's option, 2 additional work-overs or side-tracks of existing wells.
o Stage B - MWPC: 1 exploration well on the EJ-WSW prospect - the CPR prepared by PanTerra Geoconsultants, December 2017 ("CPR") has attributed gross unrisked P50 resources of 32-38 mmboe.
· EJ-WSW is located in close proximity to the Ejulebe field and the CPR notes that it is expected to have similar reservoir characteristics to the Ejulebe field. In addition, the close proximity of the prospect to the existing Ejulebe production facilities would allow a fast-track development for early cash-flow in the event of a commercial discovery, and potential monetization of gas resources in accordance with the Nigerian government's stated objectives. The CPR has estimated a 51% Chance of Commerciality to the EJ-WSW exploration well.
Bobo Kuti, CEO of Sirius, said: "The proposed acquisition would be a significant addition to the Sirius portfolio and we look forward to working with the co-owners of the asset and our operational partners to boost production on the Ejulebe field. We are also excited to explore the EJ-WSW prospect, which, if successful, could potentially add material reserves."
OML 109
OML 109 is an Oil Mining Licence in shallow waters offshore Nigeria, initially awarded in 1991 as an Oil Prospecting Licence to Atlas Petroleum Ltd under the indigenous sole risk fiscal regime and as such has no government participation. In 1996 it was successfully converted to OML109, and in 2017 the licence was formally extended by the Nigerian government for a period of 20 years.
OML 109 is located approximately 30km due south of OML 95, where the Ororo field is located. Encompassing 191,000 acres or 773 square kilometres, the OML 109 block has only been addressed with three exploration wells in its entire history, the first in 1966. Extensive oil and gas infrastructure exists in and around the block, including that of the Ejulebe field.
The Ejulebe field comprises some 15 hydrocarbon-bearing horizons, producing oil, associated and non-associated gas (including condensate). The field has produced approximately 14 mmbbls since 1998, is currently producing c.250 bbl/d and has gross remaining 2P reserves of 4.7 mmbbls, according to the CPR.
The EJ-WSW and EJ-SW exploration prospects, which according to the CPR contain respectively gross unrisked P50 prospective resources of 32-38 mmboe and 32-53 mmboe are close to the Ejulebe field and are expected to have similar reservoir characteristics to the Ejulebe field.
The wider OML 109 "Joint Exploration and Development Area" contains prospects and leads that have been ascribed gross unrisked P50 prospective resources of 266mmboe, according to a Resource Review completed by Panterra Geoconsultants in February 2018.
OML 109 ownership structure and the Transactions
· Current owners of OML 109 since 1996 are Atlas Petroleum International Limited ("Atlas") (70%) (Operator) and Summit Oil & Gas Worldwide Ltd ("SOGW") (30%).
· Atlas and SOGW have entered into the PSC with TPOS, a wholly owned subsidiary of Tetra (owned by Tetrarch 80% and Fomak Limited 20%), relating to the provision of services for the exploration, development and production of hydrocarbons from OML 109. Tetra is an indigenous oil services company, which has been providing the services to date.
· Sirius JV has agreed to acquire a 40% equity interest in Tetrarch from Tetrarch Holdings Limited for a nominal consideration, and is intended to provide services to Tetrarch in relation to the PSC. This acquisition is not subject to any governmental consent, but compliance with local content regulations will be required.
· Sirius will secure its 30% beneficial equity interest in Tetrarch via the acquisition of 75% of Sirius JV.
The acquisition by Sirius JV of the interest in Tetrarch is conditional upon, among other things, Sirius having arranged for an initial US$40 million of debt funding, to be provided to Sirius JV by a third-party lender, necessary to fund the drilling and completion of the EJ-9 development well on the Ejulebe field, together with 1 workover on an existing well (together "Stage A MWPC") and one exploration well under the MWPC ("Stage B MWPC"). If the conditions are not satisfied within 45 days of signing, the Transactions will not proceed.
Following completion of the Transactions, Sirius JV's shares in Tetrarch will be held in escrow, until the Stage A MWPC and Stage B MWPC are completed. If Stage A MWPC is not commenced within 90 days of the Transactions having completed, Tetrarch will have the right to terminate the Transactions. On completion of Stage A MWPC and Stage B MWPC Sirius JV will be entitled to a preferential cash flow of 80% of net revenues from Tetrarch for recovery of all approved costs funded by it pursuant to the MWPC with the balance shared pro-rata between all parties, then reverting to 40% following recovery of those costs with 60% going to the asset owners. If Stage A MWPC is completed, but Sirius JV does not spud the exploration well as set out in Stage B MWPC immediately after that, then all arrangements entered into between Sirius JV and Tetrarch in relation to OML 109 will terminate. These provisions are subject to Tetrarch's sole risk rights. The MWPC is subject to approval by TPOS. Stage A MWPC and Stage B MWPC are budgeted to cost approximately US$40 million in aggregate for which Sirius will arrange a US$40 million debt facility for Sirius JV. Sirius estimates that, together with cash flows expected to be generated from Tetrarch, the US$40 million debt facility will be more than sufficient to cover both Stage A MWPC and Stage B MWPC. In the event of an overrun, further funding may be required to complete these stages of MWPC, in which case Sirius may be expected to procure such funding. The terms relating to such eventuality are to be included in the shareholders' agreement between the parties, which is being negotiated.
In accordance with the above, Sirius has now signed a sale and purchase agreement to acquire a 75% stake in Precision Energy Tetra 109 ("Sirius JV") from PEG and the interests being acquired by Sirius JV, implying a beneficial 30% equity interest in Tetrarch, for a nominal consideration of £1. Sirius is expected to arrange the funding required to finance the MWPC, amounting to at least US$40 million from a third-party funder with whom Sirius is in advanced discussions. If the conditions are not satisfied within 45 days of signing, unless such period is extended by the parties, the Acquisition will not proceed. For clarification, Sirius' role with respect to the US$40 million debt financing is to source the debt financing and not to assume the debt liability itself, which will sit with Sirius JV.
The Acquisition is conditional, among other things, upon the acquisition of shares in Tetrarch by Sirius JV becoming unconditional (other than in relation to the provision of funding) and upon Sirius having arranged the US$40 million funding required to complete the acquisition of shares in Tetrarch by Sirius JV.
The obligations set out under the PSC and the MWPC are industry standard, and Sirius intends to procure petroleum services from third party service providers on behalf of Sirius JV and will obtain industry standard insurance before commencing any operations or making any material expenditures. On this basis, Sirius has provided a conditional parent company guarantee, under which, effective from the closing of the Transactions, Sirius will guarantee to Tetrarch prompt, faithful and full performance and payment of all obligations of Sirius JV under the MWPC in relation to the petroleum operations. If the closing of the Transactions does not take place within 45 days of signing then the Transactions will terminate, and the guarantee will automatically fall away.
The current owners of Tetrarch have advised Sirius that the losses attributable to the assets to be owned by Sirius JV for the six-month period ended 30th June 2018 are estimated to be US$750,000 (unaudited).
The Company is only able to ascribe a value to the Transactions which is equal to the consideration until such time that it is able to implement the Stage A MWPC. The Company will provide updates on the Acquisition and Transactions in due course. There can be no guarantee that the Acquisition and/or Transactions will complete.
Qualified Person Review
This release has been reviewed by and approved by Martin Richards MA (Oxon), MEng (Heriot-Watt), Subsurface Manager for Sirius Petroleum plc, who has over 30 years' experience as a reservoir engineer in the oil industry and is a member of the Society of Petroleum Evaluation Engineers. Martin Richards has consented to the inclusion of the technical information in this release in the form and context in which it appears.
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 ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.
Ends
Enquiries:
Sirius Petroleum +44 20 3740 7460
Bobo Kuti, CEO
Jack Pryde, Chairman
Mark Henderson, Chief Financial Officer
Cantor Fitzgerald Europe +44 20 7894 7000
David Porter/Nick Tulloch
Gable Communications +44 20 7193 7463
John Bick srsp@gablecommunications.com
About Sirius Petroleum
The Company's strategy is to target proven opportunities and maximize hydrocarbon production and recovery through the acquisition of discovered assets in Nigeria, with a particular focus on shallow offshore areas and the realisation of upside potential through appraisal activities.
Sirius's initial focus is the Ororo field, which was originally operated by Chevron in 1986. Chevron drilled Ororo-1 and hydrocarbons were discovered in seven sandstone reservoirs (D1 to D5, F and G). Four of the reservoirs in the original Ororo-1 well were tested, two produced oil (D3 and G) at a combined rate of 2,800 bopd and two produced gas condensate (D4 and D5).
The Ororo field is located within OML 95 in the Niger Delta, offshore Nigeria, in the western part of the prolific Niger Delta petroleum system. It lies in shallow waters offshore Ondo State in water depths ranging between 23ft and 27ft. The field is adjacent to the Mina, West Isan, Ewan, Eko and Parabe fields, all of which are operated by Chevron.
Sirius has a 40% economic interest under a Financial & Technical Service Agreement and entered into a Joint Operating Agreement in August 2017 with its indigenous partners Owena Oil & Gas (100% Owena State owned entity) and Guarantee Petroleum, who own 27% and 33% respectively. According to the Ororo CPR, the mid-case gross recoverable 2C contingent resources are 24mmboe as defined by the Society of Petroleum Engineers - Petroleum Resources Management System.
Following the completion of the first phase, two-well drilling programme at Ororo, Sirius intends to explore the possibility of entering into appropriate arrangements to replicate Sirius' arrangements with its operational partners
OML 109 is a 773 sq.km licence located in shallow waters offshore Nigeria, which contains the Ejulebe field which has produced 14 mmbbls to date and has been attributed gross 2P remaining reserves of 4.7 mmbbls and gross 2C contingent resources of 4.4 mmbbls as defined by the Society of Petroleum Engineers - Petroleum Resources Management System.