14 Oct 2010 07:01
Not for release, publication or distribution in whole or in part in or into the United States, Canada, Australia, the Republic of South Africa or Japan or any other jurisdiction where it is unlawful to do so.
14 October 2010
Sirius Petroleum plc
("Sirius" or the "Company")
Proposed Acquisition
Placing of 313,860,327 new Ordinary Shares
Application for re-admission to trading on AIM
Notice of General Meeting
Summary
·; Proposed acquisition of a 40 per cent. Participating Interest in the Ke Farmout Area in Nigeria which includes the Ke Field.
·; Potentially recoverable oil volumes associated with the Ke Field are expected to exceed 25 MMB.
·; The Ke Farmout Area, comprising 12,900 gross acres, was originally part of Oil Mining Lease No. 55 (OML 55) and was awarded to Del Sigma, an indigenous Nigerian company, in the DPR's Marginal Field round of 2003.
·; Placing of 313,860,327 new Ordinary Shares at 5 pence per share to raise £15,693,016 (approximately US$25,000,000) before expenses.
·; Proceeds of the Placing to provide the Group with funding for its working capital requirements for the development of the Ke Field.
·; Placing Shares will represent 30.73 per cent. of the Enlarged Share Capital following Admission.
·; The proposed acquisition, Admission and the Placing are conditional upon, inter alia, shareholder approval at the General Meeting of the Company, convened for 29 October 2010, and renewal of the Award by the DPR to Del Sigma of a 100 per cent. Participating Interest in the Ke Field, originally dated 25 February 2003, which is expected by 29 October 2010.
Enquiries:
| Sirius Petroleum plc www.siriuspetroleum.com Toby Hayward / Mike Hirschfield / Olukayode Kuti
| +44 (0) 20 7451 9800 |
| Strand Hanson Limited (Nominated Adviser) James Harris / James Spinney / Rory Chichester
| +44 (0) 20 7409 3494 |
| Renaissance Capital (Sole Bookrunner) Ed Johnson / Simon Matthews
| +44 (0) 20 7367 7777 |
| Hansard Communications (Public Relations) John Bick / Justine James
| +44 (0) 20 7245 1100 |
Sirius Petroleum plc
("Sirius" or the "Company")
Proposed Acquisition
Placing of 313,860,327 new Ordinary Shares
Application for re-admission to trading on AIM
Notice of General Meeting
1. Introduction
On 22 February 2010, the Board announced that the Company had entered into a conditional agreement, pursuant to which it will acquire a 40 per cent. Participating Interest in the Ke Field, and the surrounding Ke Farmout Area in Nigeria. The Ke Field is a small oil discovery located in swamp water in the southern part of the Niger Delta, approximately 5 km from the Gulf of Guinea. The field was originally discovered in 1965 by Chevron, which retains a small royalty interest in any production income from the Ke Farmout Area. The Ke Farmout Area, comprising 12,900 gross acres was originally part of Oil Mining Lease No. 55 (OML 55) and was awarded to Del Sigma, an indigenous Nigerian company, in the DPR's Marginal Field round of 2003.
In view of the size and nature of the Acquisition and its associated funding commitments, it is deemed to be a reverse takeover of the Company under the AIM Rules. Accordingly, completion of the Acquisition and the coming into effect of the Joint Operating Agreement is conditional on, among other things, receiving the approval of Shareholders, such approval to be sought at the GM, notice of which is set out within the Admission Document.
The purpose of this announcement is to provide Shareholders with information on the Proposals and to explain why the Directors and Proposed Directors consider the Proposals to be in the best interests of the Company and Shareholders as a whole and recommend that Shareholders vote in favour of the Resolutions to be proposed at the GM, as the Directors have already irrevocably agreed to do so in respect of their 78,293,241 Ordinary Shares, representing 15.03 per cent. of the Existing Ordinary Shares.
Irrevocable undertakings to vote in favour of the Resolutions have been received from all of the Directors who are Shareholders and certain other Shareholders in respect of 268,568,736 Ordinary Shares, representing, in aggregate, approximately 51.57 per cent. of the Existing Ordinary Shares.
Whilst Shareholders should read the entire Admission Document, particular attention is drawn to Part 1 and to Parts 2 to 5 of the Admission Document, which is available at the Company's website (www.siriuspetroleum.com) and which contains important information in relation to the Proposals.
2. The Suspension and Admission
Suspension occurred on 22 February 2010 pending the publication of the Admission Document. Admission is conditional on, inter alia, Shareholder approval and the Renewal being granted.
If the Acquisition is not approved then the Company's trading facility on AIM will be cancelled pursuant to rule 41 of the AIM Rules for Companies as (i) the Existing Ordinary Shares will have been suspended for more than six months (since the announcement made on 22 February 2010) and (ii) the Company would have failed to implement its investing strategy within 18 months of the extraordinary general meeting held on 19 August 2008.
If the Acquisition is approved but at that time the Renewal has not been granted, the Company's trading facility on AIM will remain suspended until the Renewal is obtained, provided this is on or before 31 December 2010. If the Renewal has not been obtained on or before 31 December 2010, the Company's trading facility on AIM will be cancelled.
Shareholders should note that the Proposals are inter-conditional. Subject to the above, it is expected that Admission will take place and that dealings in the Ordinary Shares will commence on 3 November 2010.
For the reasons set out in paragraph 6 of Part 1 of the Admission Document, Admission is not conditional upon the Consents.
3. The Company and its investing strategy
Since April 2007 the Company has had no substantive trading business following the decision to cease the business of developing and using aggregation software in the gaming industry. Since that date, the Company has been classified as an investing company under the AIM Rules. The Company's current strategy is to identify oil and gas opportunities, particularly interests in marginal fields in Nigeria.
In July 2008 the Company announced that it had entered into services agreements with parties who agreed to assist the Company in finding acquisition targets, a general meeting was convened to appoint new directors and a £45,000 placing was completed. Since July 2008, the Company has entered into various agreements with third parties to seek out opportunities in the Nigerian oil and gas sector.
In October 2009 the Company announced that it had been granted a licence from the Department of Petroleum Resources of the Nigerian Ministry of Petroleum Resources to import refined oil products into Nigeria. The Iicence was granted with effect from 30 September 2009 and permits the Company, through its subsidiary Sirius Taglient Petro Limited, to import up to 10,000 metric tonnes per shipment of petroleum oil product. The licence is renewable on a quarterly basis for a nominal fee. The purpose of obtaining the import licence was to commence trading activities with a view to producing revenues and positive cash flows whilst continuing to review further potential marginal field opportunities. The Company has, however, concentrated its finite resources on the Acquisition and so will not now commence trading operations until after Admission. The Directors and the Proposed Directors anticipate carrying out trading at a modest level to generate a revenue stream whilst focussing the majority of their resources on proving flow at the Ke 1 well in the Ke Field.
4. Background to and reasons for the Acquisition
The Company's primary objective is the acquisition of marginal oil and gas fields in Nigeria. The Board believes that the Acquisition represents a suitable investment opportunity to acquire a project which the Board believes currently has unrealised value, in line with the Company's investing strategy. Following completion of the Acquisition, the Company will no longer be an investing company.
5. The Ke Field
The Ke Field is a small oil discovery located in swamp water in the southern part of the Niger Delta, approximately 5 km from the Gulf of Guinea. The discovery well, Ke-1, and associated un-drilled fault segments are collectively known as the Ke Asset. The field was originally discovered in 1965 by Chevron, which retains a small royalty interest in any production income from the Ke Asset. The Ke Farmout Area, comprising 12,900 gross acres, was originally part of Oil Mining Lease No. 55 (OML 55) and was awarded to Del Sigma, an indigenous Nigerian company, in the DPR's Marginal Field round of 2003. Under the terms of the proposed Acquisition, Sirius will acquire a 40 per cent. Participating Interest in the Ke Farmout Area, including the Ke Field.
The Ke Field discovery well, Ke-1, encountered light crude oil in two sandstone reservoirs at depths between 9,300 feet and 10,500 feet, one of which tested 44° API oil at a rate of 1,145 barrels of oil per day. A step-out well drilled 8 km to the east (Darama-1) was a dry hole, and no further appraisal of the discovery was conducted. A 3-D seismic survey was subsequently acquired over the field and surrounding area in 1993, and this has enabled detailed mapping of a series of fault blocks surrounding the Ke-1 discovery, where the same reservoir sands are expected to be present and which are thought to be prospective for oil. These prospects, known as Ke-South, Ke-Northeast and Ke-North, together represent a significant volumetric upside to the Ke-1 discovery.
An independent resource assessment of the Ke Farmout Area has been conducted by Degeconek Nigeria Limited (DNL), a Nigerian oil and gas asset management consultant, and its report on the area is set out in Part 3 of the Admission Document in the form of a Competent Person's Report. DNL's assessment of the potentially recoverable oil volumes associated with the Ke-1 discovery well are shown in Table 1, and are classified as Contingent Resources under the SPE/WPC/AAPG/SPEE 2007 code:
Table 1 - Ke Discovery - Summary of Contingent Resources
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| Gross | Net Attributable | Factor(1) | ||||
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| Low | Best | High | Low | Best | High |
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| Oil (mmbls) | Estimate | Estimate | Estimate | Estimate | Estimate | Estimate |
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| Ke Discovery | 2.92 | 5.65 | 5.65 | 1.17 | 2.26 | 2.26 | 75% |
Note: (1) Risk Factor represents the Chance of Commerciality, as assessed by DNL
The Board believes that this small oil accumulation, amounting to about 5.6 million barrels of recoverable oil with some associated natural gas, can be developed via the re-entry and completion of the existing Ke-1 well and the drilling of a second development well. A peak production rate of around 3,500 bopd is anticipated from the two wells. Use of the existing well will help minimise costs, although the economics of the project are robust at current oil prices and could accommodate the drilling of a Ke-1 replacement well if required. DNL has assigned a 75 per cent. risk factor to this development, representing a 75 per cent. probability that the project can be successfully completed as envisaged.
In view of the working capital available to the Company at its current stage of development, the Company has planned to re-enter the Ke-1 well only. Even though a budget has been approved for the second development well, no drilling commitments are yet in place and plans are still under review. As a result the potentially recoverable oil volumes associated with the Ke Field are classified as Contingent Resources. With financing and a work plan in place the potentially recoverable oil volumes associated with the Ke Field are expected by the Directors to exceed 25 Mmbo (as announced by the Company on 22 February 2010 although this has not been verified by DNL).
The favoured method of exporting oil from the field is via a new-build pipeline into Shell's Awoba flowstation, 19km to the north of the field. In the period between the commencement of production and the construction of the pipeline, it is intended that export will be via road tanker and water-borne barge. A final decision to construct the pipeline will be taken based on, among other things, the results of the Ke-1 re-entry well and the availability of funding.
A significant exploration upside exists in the offsetting fault blocks, and, subject to the availability of funding, the Company intends to drill one or more exploration wells following a successful re-entry and production testing of the Ke-1 well. DNL's assessment of the potentially recoverable oil volumes associated with these exploration prospects are shown in Table 2, and are classified as Prospective Resources under the SPE/WPC/AAPG/SPEE 2007 code:
Table 2 - Ke Farmout Area - Summary of Prospective Resources
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| Risk |
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| Gross | Net Attributable | Factor(1) | ||||
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| Low | Best | High | Low | Best | High |
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| Oil (mmbls) | Estimate | Estimate | Estimate | Estimate | Estimate | Estimate |
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| Ke-South | 2.30 | 7.55 | 14.75 | 0.92 | 3.02 | 5.90 | 49% |
| Ke-Northeast | 1.10 | 7.21 | 22.19 | 0.44 | 2.88 | 8.88 | 30% |
| Ke-North | ‑ | ‑ | 15.41 | ‑ | ‑ | 6.16 | 30% |
| Total (mmbls) | 3.40 | 14.76 | 52.35 | 1.36 | 5.90 | 20.94 |
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Note: (1) Risk Factor represents the Chance of (exploration) Success, as assessed by DNL
The Ke-South Prospect, with Best Estimate resource potential of around 7.5 million barrels, is thought to be the most attractive exploration prospect in the area and is likely to be the target of the first exploration well in 2012. DNL has assigned an exploration risk factor of 49 per cent. to this prospect; if successful, a discovery of this size would probably be developed with two producing wells. In the Board's opinion, exploration drilling of the other features, Ke-Northeast and Ke-North, would depend on the results of the first wells, but in a success case could bring the total reserves of the Ke Field area to 20 million barrels or more and peak production to around 7,500 bopd.
The Directors and Proposed Directors stress, however, that this is a success case scenario which depends upon the uncertain results of exploration drilling. The Company will require additional funding to carry out this work programme.
Further information on the Ke Farmout Area is set out in the CPR in Part 3 of the Admission Document.
6. The Acquisition and the Joint Operating Agreement
A 100 per cent. Participating Interest in the Ke Farmout Area, containing the Ke Field, was allocated to Del Sigma by the DPR on 25 February 2003. During 2010 this Award, together with all other awards of marginal field interests in Nigeria, fell due for Renewal. Del Sigma, as well as all other holders of marginal field interests in Nigeria, is currently waiting for the DPR to confirm the Renewal which is a condition precedent of Completion and of Admission. The Board expects to receive the Renewal on or before 29 October 2010. The Company has been informed in writing by the DPR that it is in the process of renewing the licences of all the marginal fields awarded in 2003 and that the Nigerian government has no plans to include these fields in its next bid round. In addition on 21 September 2010 Del Sigma was given permission to re-enter the Ke-1 well, notwithstanding the Renewal being outstanding. Based on the DPR's statement that no marginal fields will be included in the next bid round and upon the permission to re-enter the Ke-1 well, the Board is confident that the Renewal will be granted to Del Sigma in the near future.
The Award was conditional upon, among other things, Del Sigma entering into an agreement with NNPC and Chevron (as leaseholders of the Ke Field). Accordingly Del Sigma entered into the Farmout Agreement with NNPC and Chevron on 18 March 2004 which agreement sets out the terms and conditions, including financial terms and conditions of the farmout of the Ke Farmout Area to Del Sigma. Del Sigma is the operator and is currently the owner of all the rights and interests in the Ke Farmout Area by virtue of the Award and the Farmout Agreement.
As announced on 22 February 2010, Sirius entered into the Joint Operating Agreement which is conditional on, among other things, the Renewal and Shareholder approval at the General Meeting. Under the terms of the Joint Operating Agreement, Sirius is entitled to a 40 per cent. interest in the Ke Farmout Area, which (subject to the Renewal) is 100 per cent. owned by Del Sigma, such transaction being subject of the approval of the DPR, Chevron and NNPC.
Until such time as the Consents are received, Sirius' beneficial interest will be held on trust by Del Sigma with all benefits and obligations being subject to the same conditions as set out in the Joint Operating Agreement. Such beneficial interest is assignable by Sirius in the same manner, and subject to the same conditions, as its legal interest under the Joint Operating Agreement would be upon grant of the Consents.
Sirius and Del Sigma have made an application to the DPR for government consent to the assignment of the 40 per cent. Participating Interest. The DPR will meet with the Company to ascertain its technical and financial competence and will conduct due diligence on the Company including by way of a visit to Sirius's office in London. The DPR will prepare a report from the result of its investigations which is sent to the relevant government minister for approval. The Company has been advised by the DPR that the minister usually acts on its recommendation. The government consent is expected by 29 October 2010. Once the government consent has been obtained, Del Sigma will apply to Chevron and NNPC for consent to the assignment under the Farmout Agreement. These consents cannot be obtained until the government has granted its consent.
Under the Joint Operating Agreement Del Sigma is designated as the operator and Sirius as the financial and technical partner. The Joint Operating Agreement also establishes a joint management committee (JMC) which is responsible for the overall supervision, control and direction of the conduct of joint operations. The JMC comprises an equal number of representatives from Del Sigma and Sirius. If the JMC is deadlocked then disputes are to be referred for resolution to NNPC and Chevron, as farmors, except in the case of disputes regarding payments from the joint bank accounts established under the JOA which will be referred to an internationally recognised firm of chartered accountants.
Sirius will fund 100 per cent. of the development costs of the Ke Field. Upon production of oil, Sirius will receive a net preferential cash flow of 70 per cent. from the production revenues until full recovery of its investment following which its cash receipts will revert to 40 per cent. to match its underlying economic interest in the field pursuant to the Joint Operating Agreement.
There is no farm-in consideration payable in relation to the Acquisition. Del Sigma has incurred substantial historical sunk costs on the Ke Field and, as part of the Acquisition, Sirius has agreed to make initial payments to Del Sigma amounting to US$2 million, of which US$500,000 was paid on the signing of the JOA, US$500,000 will be paid following a satisfactory visit by the DPR to Sirius's head office and US$1 million will be paid within five days of the DPR's final approval of the transfer to Sirius of the 40 per cent. interest in the Ke Field. Sirius is entitled to recover these initial payments as part of the recovery of the funding costs of developing the Ke Field, referred to above.
Further information on the Joint Operating Agreement is set out in Part 4 of the Admission Document.
7. The Offtake Agreement
On 16 February 2009 Del Sigma entered into the Offtake Agreement with Shell Western Supply and Trading Limited (Shell), pursuant to which Shell has agreed to purchase all the crude oil produced from the Ke Field. The agreement will become effective once Del Sigma enters into a crude handling agreement with Shell Petroleum Development Company of Nigeria Limited and will continue for an initial term of five years and then be terminable on three months' notice. Del Sigma is, however, unable to terminate the agreement until 2,000,000 barrels of Del Sigma's production have been taken off by Shell. The price to be paid for each barrel will be, at Shell's option, either the average of the mean Bonny quotations as published in Platts Crude Oil Marketwire during the applicable pricing period or the average of the mean Brent Dated quotations as published in Platts Crude Oil Marketwire plus the average of the mean Bonny differentials to Dated Brent as published in Platts Crude Oil Marketwire under the heading "spread vs fwd DTD Brent" during the applicable pricing period. The applicable pricing period will be the five quotations in Platts Crude Oil Marketwire immediately after the bill of lading. Shell has the option to elect for earlier or deferred pricing periods.
8. Information on Del Sigma
Del Sigma is a Nigerian company, incorporated in July 1993, that has contracted and provided technical services for Shell Petroleum Development Company (a Nigerian subsidiary of Shell), Total Nigeria, Chevron Nigeria, and for Elf Petroleum Nigeria. The technical services provided included maintenance services for the entire ELF OML 58 oil & gas production facilities as well as engineering design services for Nigeria LNG Ltd.
Subject to the Renewal, Del Sigma's sole asset will be a 100 per cent. Participating Interest in the Ke Field, as described above. The managing director and principal shareholder of Del Sigma is Dr Sokeiprim Amachree. He graduated with a B.Eng in mechanical engineering from Ahmadu Bello University, and obtained an M.Sc in industrial engineering and production management from the Cranfield Institute of Technology (now Cranfield University) and PhD in engineering economics and planning from Cardiff University. Prior to forming Del Sigma to work as an independent Nigerian petroleum producer, he worked as a production engineer for Elf Petroleum Nigeria Limited, where he was production engineer in charge of the Elf Obagi field, which produced 60,000 barrels of oil per day.
9. Nigeria and its hydrocarbon industry
The Federal Republic of Nigeria is a constitutional republic comprising of thirty six states and its federal capital territory, Abuja. The country is located in West Africa and shares land borders with the Republic of Benin in the west, Chad and Cameroon in the east and Niger in the north. Nigeria's coast lies to the south, on the Gulf of Guinea which is part of the Atlantic Ocean. Nigeria has a total land area of 923,768Km² and, in 2009, had an estimated population of 154,729,000. In terms of religion, Nigeria is split equally between Muslims and Christians with a very small minority who practice indigenous religions.
Nigeria is the most populous country in Africa and the eighth most populous country in the world. It is listed among the "Next Eleven" economies and is a member of the Commonwealth of Nations. The economy of Nigeria is one of the fastest growing in the world, with the international monetary fund projecting growth of 7.0 per cent. in 2010.
Nigeria has an abundance of natural resources, especially hydrocarbons. It is the tenth largest oil producer in the world, the third largest in Africa and the most prolific producer in sub-Saharan Africa. The Nigerian economy is largely dependent on its oil sector and the upstream oil industry is the single most important sector in the economy.
Nigeria holds the second largest oil reserves and the largest natural gas reserves in Africa. According to the BP Statistical Review of World Energy (June 2009), Nigeria holds the seventh largest natural gas reserves in the world. Most of Nigeria's 36 billion barrels of proven oil reserves are located onshore, in over 250 fields of around 50 million barrels each, along the coast of the Niger Delta region. The country is heavily dependent on its oil industry and oil revenue accounts for 90-95 per cent. of foreign-exchange earnings and 81 per cent. of government revenue.
Until 1960, government participation in the oil industry was limited to the regulation and administration of fiscal policies. In 1971, Nigeria joined OPEC and in line with OPEC resolutions, the Nigerian National Oil Corporation was established becoming NNPC in 1977.
NNPC was created to regulate Nigeria's oil and gas industry. A total of 12 subsidiary companies of NNPC manage the nation's oil assets. The majority of Nigeria's major oil and natural gas projects are funded through joint ventures with NNPC as the principal shareholder. The remaining funding arrangements are comprised of production sharing contracts which are mostly confined to Nigeria's deep offshore development program.
Nigeria has taken steps to develop the local oil industry. In 1996, the government passed the Petroleum (Amendment) Decree Act no. 23, under which the owners of oil mining leases are required to farmout to indigenous Nigerian exploration and production companies those fields which they have left unproduced for at least 10 years since their discovery. With the major oil companies increasingly focused on offshore exploration and production, there is, in the Board's opinion, an opportunity for smaller companies to partner with indigenous Nigerian companies to exploit marginal field opportunities.
In December 1999, there were an estimated 116 "marginal" fields with reserves totalling 1.3 billion barrels, all located in the Niger Delta. There is also a lot of potential to add further reserves in Nigeria. To date, only 26 marginal fields have been advertised and bids invited from interested indigenous exploration and production companies.
The major foreign producers in Nigeria are Shell, Chevron, ExxonMobil, Total and Eni/Agip. In 2008, these producers had an average daily production of between 193,570 and 456,805 barrels and a total annual production of between 70,846,832 and 167,190,786 barrels. These major producers are increasingly looking for larger oil fields, leaving behind smaller discoveries in order to develop deep offshore blocks.
Nigeria is OPEC's fifth largest producer. Through its membership of OPEC, Nigeria has agreed to abide by allotted crude oil production limits that have varied over the years.
The most significant issue facing Nigeria is the continued violence and militant activity in the Niger Delta region, which has, historically, led to long term shut ins of up to 25 per cent. of the country's production capacity.
10. Current trading and prospects for the Group
Following Admission, the Company, together with Del Sigma, intend to re-enter and test the Ke-1 well in the Ke Field to establish sufficient economic proof of flow of oil. This will involve re-entering the well using the casing that was put in place when the well was originally drilled. If the casing is found to be damaged then it will be necessary to either drill a new well or repair the casing. In either case the process is expected to be complete by 31 March 2011 and will cost an estimated US$14.4 million. The net proceeds of the Placing will be used to meet this cost.
If the flow testing proves to be satisfactory (which the Directors consider to be a flow of 2000 bopd over a three day period), Sirius will review its options regarding the sale of the oil arising. One option will be to construct a 19 km pipeline from the Ke Field to Shell's flowstation at Awoba. Other options include the immediate sale of oil produced by using land tankers or water borne barges to transport the oil. Whilst the Board believes the funding to be made available under the EMMEF Facility, assuming the necessary conditions of drawdown are satisfied, will be sufficient to finance the construction of the pipeline, further investigation of the costs of construction will be undertaken and additional capital may be required.
If the flow testing is deemed unsuccessful the Board will consider drilling another well or wells on the Ke Field as well as the acquisition of other marginal field interests in Nigeria, in each case, subject to the availability of funding.
Whilst the Board intends to focus on the re-entry and testing of Ke-1, if technical or operational reasons dictate (such as a protracted delay in securing the use of a swamp rig), the Board will consider drilling at Ke-South (which is on dry land).
Following Admission the Company will no longer be categorised as an investing company under the AIM Rules. The Board will, however, continue to investigate opportunities for further acquisitions within the oil and gas sector. The Company has entered heads of terms with a number of indigenous Nigerian companies for possible joint ventures to exploit marginal field opportunities. These Nigerian companies have farmout agreements for marginal fields with major oil companies. Summaries of the heads of terms are set out in paragraphs 10.3, 10.7, 10.8 and 10.9 of Part 5 of the Admission Document.
The Board is confident of its credentials to work alongside indigenous companies to exploit marginal field opportunities because of its network of government and other contacts that the Company has developed over the last 18 months. In particular, the Company has established and maintained high level contacts with the Lagos state government, the Central Bank of Nigeria, the Nigerian tax authorities, NNPC and other major oil companies.
In addition, the Company will consider the acquisition of other oil and gas assets and with this in mind, on 16 February 2010, the Company announced that it had entered into an agreement with South Africa Hi-Tech Energy Consultancy Inc to procure the services of Dr Vikrom Koompirochana and Mr Wong Fan Woon to introduce to Sirius a transaction, on or before 31 December 2011, giving Sirius the opportunity to acquire, oil and gas assets with a value of at least US$0.5 billion. If any such transaction is introduced and completed it is the Board's current intention to satisfy the consideration payable in Ordinary Shares. To date, no such transaction has been introduced. Further details of the agreement with South Africa Hi-Tech Energy Consultancy Inc are set out in paragraph 10.10 of Part 5 of the Admission Document. South Africa Hi-Tech Energy Consultancy Inc is the service company of Dr Vikrom Koompirochana and Mr Wong Fan Woon. Dr Vikrom Koompirochina is a Thai national and former Thai ambassador to the United Kingdom, Singapore, Malayasia, New Zealand and Italy, and therefore has extensive political, governmental and other contacts. Mr Wong Fan Woon is based in Singapore and has extensive experience of private and public equity markets, mergers and acquisitions, infrastructure project funding and corporate finance in the South East Asian region.
The Directors and Proposed Directors are optimistic as to the Company's prospects based on the Company's proposals as described in Part 1 of the Admission Document, and the continued development of the Company.
11. Details of the Placing and other funding arrangements
Placing
The Company is proposing to place 313,860,327 new Ordinary Shares at the Placing Price to raise £15,693,016 before expenses. The proceeds of the Placing will be used to provide the Group with additional funding for its working capital requirements, in particular to enable the Company to meet its financial obligations under the Joint Operating Agreement.
The Placing Shares will represent 30.73 per cent. of the Enlarged Share Capital following Admission and will rank equally in all respects with the Existing Ordinary Shares. The currency of the Placing is pounds sterling.
The Company, Renaissance, Strand Hanson, the Directors and Proposed Directors have entered into the Placing Agreement. Renaissance, acting as Sole Bookrunner, has agreed to use its reasonable endeavours to place the Placing Shares at the Placing Price. The Placing has not been underwritten. The Placing is conditional upon, among other things, Renewal, Admission and the Placing Agreement not being terminated prior to Admission.
Placees not electing to receive new Ordinary Shares pursuant to the Placing in uncertificated form will receive new Ordinary Shares in certificated form. It is expected that certificates will be despatched by post within 14 days of Admission.
Further details of the Placing Agreement are set out in paragraph 10.21 of Part 5 of the Admission Document.
EMMEF Facility Agreement
As announced on 26 August 2009, the Company entered into an agreement with CapInvest under which CapInvest agreed to provide or procure debt funding to the Company of at least US$80,000,000. As a result of that agreement, the Company has entered into the EMMEF Facility Agreement pursuant to which it is entitled, subject to satisfaction of certain conditions, to drawdown an amount not to exceed US$25,000,000 after, amongst other things:
the Company has established that the Ke Field has probable and proven reserves of not less than five million barrels of oil; and
a successful flow test to prove that the well can flow 2,000 or more barrels of oil per day over a three day period.
This initial drawdown is to be used for the sole purpose of constructing a pipe to link the Ke Field to Shell's flowstation at Awoba, in a manner satisfactory to EMMEF and subject to EMMEF's approval, not to be unreasonably withheld. Alternatively, at EMMEF's sole discretion, this drawdown can be used for the drilling of the Ke-1 well or wells in the Ke Field or a similar field in the Niger Delta with similar or better prospects in order to test the economic viability of such field.
A further amount of up to US$55,000,000 may be available for drawdown but at the lender's absolute discretion (there is, therefore, no guarantee that this additional amount will be available to the Company).
All drawdowns are subject to the satisfaction of conditions precedent and additional conditions which include, among other things that tests show that sales production yields from the Ke Field in the first year of production will be not less than US$30 million, the spot oil price remaining above US$50 per barrel in the 30 days prior to the drawdown and there being no undemocratic change to the Government of Nigeria. The Company will pay on its initial drawdown under the EMMEF Facility Agreement, a facility fee to EMMEF of US$4,000,000 representing five per cent. of the total facility. Further details of the EMMEF Facility Agreement are set out in paragraph 10.16 of Part 5 of the Admission Document.
12. Additional Ordinary Shares to be issued
Completion will trigger the rights of certain parties to be paid fees which are to be capitalised and settled by the allotment and issue of new Ordinary Shares on Admission.
Taglient and SOGL entered into service agreements with the Company in July 2008 (summarised in paragraphs 10.1 and 10.2 of Part 5 of the Admission Document) under which they are entitled to be allotted 61,300,000 and 52,000,000 new Ordinary Shares respectively. These share issues were approved by Shareholders on 19 August 2008.
CapInvest entered into a funding agreement with the Company in August 2009 (summarised in paragraph 10.4 of Part 5 of the Admission Document) under which it was entitled to a fee equivalent to 65,000,000 new Ordinary Shares. That right is now held by EMMEF.
Strand Hanson has agreed to capitalise £325,000 of its fee (under the agreement summarised in paragraph 10.20 of Part 5 of the Admission Document) at the Placing Price and so will be allotted 6,500,000 new Ordinary Shares on Admission.
On Admission Adelphi Holdings Limited will be allotted 1,898,610 Ordinary Shares in settlement of indebtedness of US$150,000, pursuant to the agreement described in paragraph 10.29 of Part 5 of the Admission Document.
Admission of the Transaction Shares to AIM is expected to take place on 3 November 2010 and they will represent 18.28 per cent. of the Enlarged Share Capital.
In addition to the Transaction Shares, various persons have been granted warrants and options over Ordinary Shares. These grants are summarised in paragraph 3.6 of Part 5 of the Admission Document.
13. Directors, Proposed Directors and senior management
Subject to, and from, Admission the Board will be re-organised in recognition of the fact that the Group will be an operating, trading business.
Toby Hayward will become chief executive officer, Mike Hirschfield finance director and Olukayode Kuti will take an executive role with responsibility for the Company's relationships in Nigeria. Subject to the passing of resolution 3 at the General Meeting, Billi Folahan will join the Board as technical director.
In addition Jack Pryde will join the Board as non-executive chairman. Jack has a wealth of experience in the corporate finance sector for resources businesses. Babatunde Agboola will step down from the role of chairman and become non-executive deputy chairman.
Accordingly, from Admission and subject to Shareholder approval at the GM, the Board will comprise Jack Pryde (non-executive chairman), Babatunde Agboola (non-executive deputy chairman), Toby Hayward (chief executive), Mike Hirschfield (finance director), Billi Folahan (technical director), Olukayode Kuti (executive director with responsibility for the Company's relationships in Nigeria) and Graham Porter (non-executive director).
Further detail concerning the Directors and Proposed Directors is set out below.
Directors
Babatunde Agboola, currently a non-executive chairman (appointed as a director on 19 August 2008; non-executive deputy chairman from Admission), aged 57, obtained a BSc degree in chemistry from Illinois State University, and a MSc degree in chemical engineering from Arizona State University. He started his professional career with Mobil Producing Nigeria, a Nigerian subsidiary of Exxon Mobil, which undertook all of the group's upstream activities, where he held the position of project manager prior to his retirement. Since then he has taken up appointments on the boards of several energy services and E&P companies including Fieldspargroup Limited and Dantose Energy Services Limited. His experience spans over 30 years in the oil and gas industry.
Toby Hayward, currently a non-executive director (appointed as a director on 19 August 2008; chief executive officer from Admission), aged 52, is a chartered accountant and has been an investment banker since 1984. He was a director of corporate finance at Singer & Friedlander Limited and Henry Ansbacher & Co. Limited before working in the oil and gas team at Canaccord Capital Limited. He joined Jefferies International Limited as a managing director in 2005 with responsibility for the UK Equity Capital Markets and listed clients in the exploration and production sectors. He also undertook nominated adviser responsibilities. He left Jefferies in June 2008 to concentrate on a number of private interests and he was appointed non-executive chairman of Severfield Rowen Plc in May 2008 and as a non-executive director of Afren plc in June 2009.
Olukayode Kuti, currently a non-executive director (appointed as a director on 19 August 2008; an executive director from Admission), aged 25, obtained a BA from Duke University, USA. He studied Economics & Psychology and also received a Markets and Management Certificate. Since University he has worked as an investment advisor for a South African investment fund, Huxton Capital. He was instrumental in the formation and structuring of the Company's contact base in Nigeria and will have responsibility for maintenance of those relations following Admission.
Mike Hirschfield BSc (Econ), FCA, currently a non-executive director (appointed as a director on 28 March 2008; finance director from Admission) aged 47, qualified as a chartered accountant with Peat Marwick in 1988. He has held senior management positions with a number of companies including group finance director of Utilitec plc and group finance executive of Lupus Capital plc. He is currently a director of Tri-Star Resources plc, a company whose shares are traded on AIM as well as of a number of private companies including Kitwell Consultants Limited, which acts as company secretary to several listed companies.
Graham Porter, currently a non-executive director (appointed as a director on 28 October 2004), aged 51, has over 31 years' experience in the metal exchange markets. Graham worked as a metal broker in the City for 13 years, spending eight of these years with Billiton Enthoven Metal Brokers, before leaving the City in 1991 and moving overseas where he has been based ever since. He has significant experience, with AIM listed companies and with the commodities markets.
Proposed Directors
Jack Pryde, non-executive chairman, aged 65, is a chartered certified accountant and has held various senior management positions in the investment banking industry. He is a former director and head of corporate finance at Henry Ansbacher & Co. and a former vice-president of corporate finance at Canaccord Capital. He left Jefferies International as director of equity capital markets in May 2010. He has extensive experience of advising companies in the resource and energy sectors.
Billi Folahan, technical director, aged 63, is a Nigerian national with extensive oil drilling experience. Mr Folahan began his professional career at Chevron in Nigeria where he worked for many years as an exploration geologist. His work involved the evaluation of prospect and leads in Chevron's Eastern and Western exploration districts. He later joined Oando Exploration and Production Limited, where he helped form its exploration unit, and oversaw the successful bidding process for the company on two oil prospecting licences and one oil mining licence. Mr Folahan is a professional member of the Geological Society of America, the Nigeria Association of Petroleum Explorationists, the Society of Petroleum Engineers, and the American Association of Petroleum Geologists.
Senior management
Except for the Board, the Group does not employ any other senior managers. The Company will engage contractors to provide the technical, operational and other assistance it requires in Nigeria. The contractors have long operational experience with major oil companies in Nigeria.
14. Lock in and orderly market arrangements
The Directors and Proposed Directors have entered into a lock in and orderly market agreement with Renaissance, Strand Hanson and the Company. Each of the Directors and Proposed Directors have undertaken to Renaissance, Strand Hanson and the Company that they will not, subject to limited exceptions as permitted by the AIM Rules, dispose of any interest in Ordinary Shares held by them for a period of 12 months from Admission and, for the 12 months following that period, that they will only dispose of their holdings with the consent of the Company's nominated adviser from time to time. Such obligation will pass to the acquirer of the Ordinary Shares.
Corvus, which on Admission will have a beneficial interest in 76,000,000 Ordinary Shares, has undertaken to Renaissance and Strand Hanson not to dispose of such Ordinary Shares for a period of 12 months from Admission without the consent of Strand Hanson and Renaissance, such consent not to be unreasonably withheld. Further, subject to informing Strand Hanson, Corvus may pledge its Shares as security.
Further details of the lock in and orderly market agreements are set out in paragraphs 10.24 and 10.25 of Part 5 of the Admission Document.
15. Irrevocable undertakings
The Company has received irrevocable undertakings from the Directors and certain significant Shareholders to vote in favour of the Resolutions in respect of, in aggregate, 268,568,736 Ordinary Shares representing approximately 51.57 per cent. of the Company's existing issued ordinary share capital. Further details of these irrevocable undertakings are set out in paragraph 10.28 of Part 5 of the Admission Document.
16. General meeting
A notice is set out in appendix 2 of the Admission Document convening a general meeting of the Company to be held at the offices of Fladgate LLP, 16 Great Queen Street, London WC2B 5DG on 29 October 2010 at 11.00 a.m. at which resolutions will be proposed to:
1. approve the Acquisition. Shareholders' approval for the Acquisition is required, under the AIM Rules because it is deemed a Reverse Takeover;
2. 3. appoint Jack Pryde and Billi Folahan as directors of the Company;
4. remove those provisions of the Company's memorandum of association which by virtue of CA 2006 are deemed incorporated into the Company's articles of association. Since the effect of removing these provisions is to remove the limitation on members' liability, and is thus inserted into the Articles; and
5. dis-apply pre-emption rights.
Under the AIM Rules, if Shareholders approve the Acquisition at the GM and subject to the Renewal, the Company will be admitted to AIM as a new applicant on the first business day after the GM. If Shareholder approval is not given, trading in the Ordinary Shares will be cancelled under the AIM Rules.
DEFINITIONS
The following definitions apply throughout this announcement, unless the context requires otherwise:
| Acquisition | the conditional acquisition of a 40 per cent. Participating Interest in the Ke Field as described in the Joint Operating Agreement. |
| Admission | the effective admission of the Enlarged Share Capital of the Company to trading on AIM in accordance with the AIM Rules. |
| Admission Document | the admission document published by the Company on 13 October 2010. |
| AIM | the AIM market operated by the London Stock Exchange. |
| AIM Note | the AIM Note for Mining, Oil & Gas Companies published by the London Stock Exchange in June 2009. |
| AIM Rules | the AIM Rules for Companies and the AIM Rules for Nominated Advisers published by the London Stock Exchange from time to time. |
| AIM Rules for Nominated Advisers | the rules applicable to nominated advisers operating on AIM, as published by the London Stock Exchange from time to time. |
| Articles | the articles of association of the Company from time to time. |
| Award | the award by the DPR to Del Sigma of a 100 per cent. Participating Interest in the Ke Field, dated 25 February 2003. |
| Board | the board of directors of the Company from time to time. |
| CA 2006 | the Companies Act 2006. |
| CapInvest | Capital Investment Office Limited (registered in England with number 06967969), the sole adviser to the Capital Investment Trust. |
| Capital Investment Trust | Capital Investment Trust acting by its trustees IFG Investment Trust of 19-21 Broad Street, St Helier, Jersey, Channel Islands, JE1 3PB, the legal and beneficial owner of EMMEF. |
| Chevron | Chevron Nigeria Limited, a company incorporated in Nigeria with registered number RC 6135. |
| Company or Sirius | Sirius Petroleum plc, a company incorporated and registered in England and Wales with number 05181462. |
| Completion | the passing by Shareholders of resolutions 1 and 6 at the GM to approve the Acquisition and matters ancillary to it. |
| Consents | the consent of the DPR to the assignment from Del Sigma to Sirius of a 40 per cent. Participating Interest in the Ke Farmout Area and the consents of Chevron and NNPC to such assignment under the Farmout Agreement. |
| Corvus | Corvus Capital Limited, a company incorporated and registered in the Cayman Islands with number 187766. |
| CPR or Competent Person's Report | the report in Part 3 of the Admission Document prepared by Degeconek Nigeria Limited, the competent person for the purposes of the AIM Note. |
| Del Sigma | Del Sigma Petroleum Nigeria Limited, a company incorporated and registered in the Federal Republic of Nigeria with number 223866, whose registered office is at Plot 218 Trans Amadi, Industrial Layout, Port Harcourt, River State, Nigeria. |
| Directors | the directors of the Company as at the date of the Admission Document whose names are listed on page 10 of the Admission Document. |
| DNL | Degeconek Nigeria Limited, the author of the CPR. |
| DPR | the Department of Petroleum Resources of Nigeria. |
| EMMEF | EMMEF Investments Limited, a company incorporated and registered in Jersey with number 104920 and wholly owned by Capital Investment Trust. |
| EMMEF Facility Agreement | the facility agreement between the Company and EMMEF dated 13 October 2010, further details of which are set out in paragraph 12 of Part 1 of the Admission Document and paragraph 10.16 of Part 5 of the Admission Document. |
| Enlarged Share Capital | the Ordinary Share capital of the Company as enlarged by the issue and allotment of the Placing Shares and the Transaction Shares. |
| Existing Ordinary Shares | the 520,827,720 Ordinary Shares currently in issue. |
| Farmout Agreement | the farmout agreement dated 18 March 2004 between NNPC, Chevron and Del Sigma, as varied by an agreement dated on or around 3 November 2004. |
| GM or General Meeting | the general meeting of the Company, convened for 29 October 2010, notice of which is set out in appendix 2 of the Admission Document. |
| Group | the Company and any subsidiary of the Company from time to time. |
| Joint Operating Agreement or JOA
Ke Asset | the joint operating agreement dated, 19 February 2010, and made between Sirius and Del Sigma, details of which are set out in paragraph 6 of Part 1 of the Admission Document and in Part 4 of the Admission Document. the Ke Field and associated undrilled Prospects. |
| Ke Farmout Area | the 522 km2 field comprised within Oil Mining Lease 55, and including the Ke Field and related prospects. |
| Ke Field | The oil accumulation discovered by the Ke-1 well. |
| London Stock Exchange | London Stock Exchange plc. |
| Nigeria | the Federal Republic of Nigeria. |
| NNPC | Nigerian National Petroleum Corporation, the state oil company of Nigeria. |
| Offtake Agreement | the crude oil purchase agreement dated 16 February 2009 between Del Sigma and Shell Western Supply and Trading Limited described in paragraph 8 of Part 1 of the Admission Document. |
| Ordinary Shares | ordinary shares of 0.25 pence each in the capital of the Company. |
| Participating Interest | the percentage interest held by Del Sigma or Sirius as the case may be in the rights and obligations in and to all or part of the Ke Farmout Area and as may otherwise be derived from and under the Farmout Agreement. |
| Placing | the placing by Renaissance on behalf of the Company of the Placing Shares pursuant to the Placing Agreement. |
| Placing Price | 5 pence per Placing Share. |
| Placing Shares | the 313,860,327 new Ordinary Shares to be offered to Placees pursuant to the Placing. |
| Proposals | together the Acquisition and Admission, each as described in the letter from the Chairman in Part 1 of the Admission Document. |
| Proposed Directors Renaissance | Jack Pryde and Billi Folahan. Renaissance Capital Limited, the Company's sole bookrunner in connection with the Placing, and also the Company's broker. |
| Renewal | the renewal of the Award to Del Sigma by the DPR. |
| Resolutions | the resolutions to be proposed at the GM as set out in the notice of GM at the end of the Admission Document and reference to a "Resolution" is to the relevant resolution set out in the notice of GM. |
| Shareholders | shareholders in the Company. |
| SOGL | Sirius Oil & Gas Limited, a company incorporated in the British Virgin Islands with number 1480233. Note that this company is different from the English company of the same name which is a subsidiary of the Company.
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| Strand Hanson | Strand Hanson Limited, the Company's nominated adviser. |
| subsidiary and subsidiary undertaking | have the meanings given to them by CA 2006. |
| Suspension | the suspension from trading on AIM of the Company's Ordinary Shares. |
| Taglient | Taglient Oil Nigeria Limited, a company incorporated and registered in Nigeria with number RC 600925. |
| Transaction Shares
UK or United Kingdom | 186,698,610 new Ordinary shares in aggregate comprising the 52,000,000 new Ordinary Shares to be issued to SOGL on admission, the 61,300,000 new Ordinary Shares to be issued to Taglient on Admission, the 65,000,000 new Ordinary Shares to be issued to EMMEF on Admission, the 6,500,000 new Ordinary Shares to be issued to Strand Hanson Securities Limited on Admission and the 1,898,610 new Ordinary Shares to be issued on Admission pursuant to the agreement described in paragraph 10.29 of part 5 of the Admission Document. the United Kingdom of Great Britain and Northern Ireland. |
| United Kingdom Listing Authority | the Financial Services Authority, acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000 as amended. |
| US or United States | the United States of America, its territories and possessions, any state of the United States of America and the district of Columbia and all other areas subject to its jurisdiction. |
| US$ | US dollars, the lawful currency of the United States. |
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**ENDS**
This summary should be read in conjunction with the full text of this announcement set out above.
Strand Hanson Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as nominated adviser to the Company in connection with the Acquisition, the Placing and the proposed Admission of the Enlarged Share Capital to trading on AIM and Renaissance Capital Limited is acting as sole bookrunner to the Company in connection with the Placing. Strand Hanson's responsibilities as the Company's nominated adviser under the AIM Rules are owed solely to the London Stock Exchange and are not owed to the Company or to any Director or to any other person in respect of their decision to acquire Ordinary Shares in reliance on any part of this announcement. Strand Hanson Limited and Renaissance Capital Limited are respectively acting exclusively for Sirius (in connection with their respective appointments as nominated adviser and sole bookrunner) and for no one else and will not be responsible to anyone other than the Company for providing the protections afforded to their clients or for providing advice in relation to the contents of this announcement or the Acquisition, the Placing or the proposed Admission of the Enlarged Share Capital to trading on AIM.
No representation or warranty, express or implied, is made by Strand Hanson Limited or Renaissance Capital Limited as to the contents of this announcement, without limiting the statutory rights of any person to whom this announcement is issued. The information contained in this announcement is not intended to inform or be relied upon by any subsequent purchasers of Ordinary Shares (whether on or off exchange) and accordingly no duty of care is accepted in relation to them.
The Directors and Proposed Directors of Sirius accept responsibility, individually and collectively, for the information contained in this announcement and for compliance with the AIM Rules. To the best of the knowledge and belief of the Directors, who have taken all reasonable care to ensure that such is the case, the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.
This announcement does not constitute, or form part of, an offer or an invitation to purchase any securities.