24 Feb 2015 07:00
Notice of Extraordinary General Meeting
Range advises of its Notice of Extraordinary General Meeting ("Notice"). The meeting will be held on Friday, 27 March 2015 at 4.30pm Western Standard Time (WST) at RSM Bird Cameron, 8 St Georges Tce, Perth, Australia (Sir Cyril Bird boardroom). Instructions on voting are included in the Notice of Meeting.
A copy of the Notice of Meeting has been dispatched to shareholders today. Full details, including the Notice are available on the Company's website www.rangeresources.co.uk and also the Australian Securities Exchange website www.asx.com.au (ASX code: RRS).
Letter to Shareholders regarding the proposed US$60 million funding
Dear Range Shareholders,
As announced on 11 December 2014, Range entered into a subscription agreement and a convertible note deed with Core Capital Management Co., Ltd (Core Capital) which, subject to obtaining Shareholder approval, will result in the Company raising US$60 million (Transaction).
The proceeds from the funding package will be primarily used to accelerate the Company's oil production targets through drilling, secondary recovery and also to repay existing debt.
We are writing this letter to Shareholders to provide you with more insight into the support for the Transaction, some further background as to the Company's financial and strategic rationale for entering into the Transaction and the opinion of the Board in recommending Shareholders to vote in favour of the relevant resolution.
There have been many questions from Shareholders with regards to Core Capital and the Transaction, which we have provided answers to in our regular investor Q&A sessions.
In the event if the Transaction is not approved, Range must find alternative sources of capital to fund the exploration and development of its assets, as well as to repay the Lind loan. The Board believes that considering the challenging oil price environment we are in, there is no certainty as to possible timing or the ability to raise alternative capital. The Company is not aware of any alternative funding proposal at the current time which would offer the Shareholders a greater benefit than the proposed Transaction.
Board's recommendation and benefits for Shareholders
The Company's prime objective is to deliver value to Shareholders. Key to this is to establish a stable financing position to ensure that Range Shareholders are not exposed to an unreasonable level of funding risk going forward. It is the Board's strong view that the Transaction places the Company in a very strong position to achieve production growth in Trinidad and to establish the Company as one of the strongest independent oil and gas players in Trinidad with the largest private onshore acreage and significant cash reserves to grow from, in an environment that is difficult for oil and gas companies to secure funding.
The funding package offered by Core Capital is compelling to Shareholders, employees and other stakeholders of Range. The share placement represents an attractive price at a premium to the Company's share price of £0.006 per Share prior to the announcement of the Transaction on 10 December 2014 and provides a high degree of certainty on completion, given that Core Capital has the cash readily available which would enable Range to receive and apply the proceeds swiftly and efficiently.
Accordingly, the Directors are of the opinion that the Transaction is in the best interests of Shareholders and unanimously recommend that Shareholders vote in favour of the relevant resolution.
Directors are of the view that the following non-exhaustive list of advantages may be relevant to Shareholders' decision on how to vote in relation to the Transaction, namely:
· The Transaction will provide Range with significant funds to develop the Trinidad assets.Range intends to drill multiple development and exploration wells and implement a waterflood programme which will increase production from the Trinidad assets. As such, the funds from the proposed Transaction should result in an increase in future cash flows as Range is able to advance the development of the Trinidad assets;
· The Transaction will provide access to an additional US$50 million financing facility. LandOcean has committed to providing a facility of US$50 million to fund the waterflood programme on the Trinidad assets. The terms of the LandOcean facility are such that it is not available to Range without additional cash being secured. As such, the proposed Transaction will make available the LandOcean finance facility. The proceeds from the US$50 million trade financing package will be used to pay for LandOcean's technical services in relation to the Integrated Master Services Agreement between the Company and LandOcean. In December 2014, the Company entered into a second purchase order with LandOcean over the next two years, whereby LandOcean shall provide technical services to implement waterflooding plans for the Company's blocks in Trinidad. This Transaction and the LandOcean facility provide additional funding flexibility to fully exploit the Trinidad assets;
· The funds from the Transaction will provide the Company with sufficient capital to refinance its current debt position. Range has outstanding debt with Lind with a face value of US$7.25 million. As previously announced, Range received a statutory demand from Lind demanding repayment of approximately US$7.25 million that Lind alleges is due and payable and is required to repay the loan under the terms of the Lind facility; and
· The proceeds from the Transaction will be sufficient to provide excess capital that could be applied to future growth opportunities, including potential asset acquisitions in Trinidad. The funding may be used to fund potential acquisition opportunities, which could provide Range with additional production and revenue in Trinidad. The Company's management believes that in the current environment of low oil prices, there may be attractive, future opportunities for the Company to expand its portfolio through asset acquisitions at attractive valuations.
Use of proceeds
Range intends to apply the proceeds from the Transaction primarily to drill multiple development and exploration wells and implement waterflood programmes, which will increase production from the Trinidad assets, resulting in an increase in future cash flows. In respect of the Trinidad assets, Range plans to apply the Transaction proceeds as follows:
· Undertake the development and waterflood work programmes on three existing onshore blocks (Morne Diablo, South Quarry and Beach Marcelle), where Range has a solid reserves base with certified 2P of 22.1 mmbo in well-known, easy-to-access reservoirs. As part of the field licence obligations, Range has commitments on its existing blocks to drill 34 development wells over the next two years;
· Commence exploration on:
- The deeper exploration targets of the existing three licences. As part of the field licence obligations, Range has exploration commitments on its existing blocks of 6 exploration wells over the next two years;
- The large Guayaguayare block. Subject to government approvals, Range plans to fulfil the obligations under its work programme of 2 onshore exploration wells in 2015;
- The highly prospective St Mary's licence. As part of the field licence obligations, Range has exploration commitments on the St Mary's licence of 4 wells to be drilled before the end of 2018. In addition, the Company is required to provide the Ministry with a performance bond. Range is currently seeking financing options to satisfy the requirements for the bond and may use the proceeds of the Transaction for this purpose; and
· Fund any potential acquisition activities in Trinidad.
The Company and its strategic partner LandOcean are currently working on a detailed work programme schedule over the next 12 months, which is planned to be finalised and published to Shareholders in March 2015.
In addition, Range will use the funds to:
· Repay outstanding debt with Lind of US$7.25 million;
· Fund the refundable security deposit of US$7.5 million which makes available an additional US$50 million credit line facility to pay for LandOcean's services (refer to the Company's announcement on 11 December 2014); and
· Pay off its first purchase order of US$5 million with LandOcean (refer to the Company's announcement on 2 June 2014), and provide funds for general working capital purposes.
Independent Expert's Report (IER)
We appreciate that a number of Shareholders will not have encountered the concept of an IER before, so we have endeavoured to provide further details below on the purpose of this report and its recommendation.
What is an IER?
The Australian Corporations Act (Section 611) requires that when a party proposes to acquire a substantial interest (over 20%) in a company, that company must provide its existing shareholders with all information that is material to the decision on how to vote at the meeting. The company therefore will engage an independent third party to prepare a report to assist the shareholders in reaching their decision. Given that, if the Transaction is approved, Core Capital will own a substantial interest in the Company, Range has engaged RSM Bird Cameron ("RSM") to prepare an IER.
The IER is intended to provide Shareholders with an independent view of whether the Transaction is 'fair and reasonable' to the current Shareholders, and this includes considering the advantages and disadvantages of the Transaction. This assessment is designed to assist all Shareholders in reaching their voting decision.
Further detail on the purpose of the report is included on pages 10 and 11 of the IER.
How is the IER prepared?
RSM compares the fair value of an ordinary share in Range prior to, and immediately following, the proposed Transaction. They also review other significant factors that the Shareholders might wish to consider prior to approving the proposed Transaction.
Given that Core will increase its interest in the issued shares of the Company above 20%, when considering the fair value of a share prior to the transaction RSM infers a control premium within their valuation in accordance with ASIC Regulatory Guide 111: Content of Expert Reports. The exact level of the control premium varies depending on the valuation method adopted and varies between 20-35%; these are detailed in the report.
RSM considers a range of alternative valuation approaches but the primary methodology they have used is a fair value per share using a sum of parts approach as summarised below:
1. The Company's Trinidad operations are valued using a discounted cash flow valuation based principally on the production forecasts contained within the Forrest Garb reserve report dated 1/1/2014 (proved & probable reserves for South Quarry, Morne Diablo and Beach Marcelle fields);
2. The Company's held for sale assets (being Georgia and Texas) are valued based on any current market offer and/or expectation of sale price, less costs to sell; and
3. Other assets and liabilities of the Company are valued at book value.
RSM has valued each share on a pre-Transaction basis at between AU$0.019 and AU$0.022.
On a post-transaction basis, RSM has amended their valuation to reflect the cash received from the Transaction and the additional shares issued. They then deduct the control premium. On that basis they valued each share at between AU$0.012 and AU$0.016.
Further information relating to the process undertaken by RSM in preparing these valuations, including assumptions made, are set out in the IER.
What does the IER recommendation mean?
An offer is considered "fair" if the value of the offer price/consideration is equal to or greater than the value of the securities that are the subject of the offer. An offer is considered "reasonable" if it is fair or, where the offer is "not fair" it may still be "reasonable" if the expert believes that there are sufficient reasons for Shareholders to accept the offer.
The IER recommendation for the Transaction concludes that the proposed Transaction is 'not fair but reasonable'. The conclusion regarding the fairness of the Transaction is because the value of a Range share pre-Transaction is greater than the value of a Range share post-Transaction. This is largely a factor of the control premium that does not apply to the post-Transaction value.
However, as detailed at clause 2.12 in the report, RSM states: "In our opinion, the position of the Shareholders of Range if the Proposed Transaction is approved is more advantageous than the position if it is not approved. Therefore, in the absence of any other relevant information and/or a superior offer, we consider that the Proposed Transaction is reasonable for the Shareholders of Range."
Board's view on the IER recommendation
The Board recommends that Shareholders vote in favour of the resolution. Core Capital is subscribing for the share placement at a premium to the share price of £0.006 per Share prior to the announcement of the Transaction, and as outlined in this letter, the Board firmly believes that the Transaction is in the best interests of Shareholders.
We appreciate the rationale for the calculation of the fairness opinion by RSM, however, we would highlight to Shareholders that the implied valuation using the DCF calculation for the assets assumes that Range is able to finance the development. The proposed investment is the cornerstone to unlock the potential of these reserves.
As RSM highlights, the position of Shareholders would be more advantageous if the Transaction is approved, as it would provide the Company with the required funding to develop the Trinidad assets and grow the Company for the benefit of all Shareholders.
Summary
We trust this letter provides appropriate clarification in relation to the Transaction and also offers an insight into the Company's rationale in pursuing the Transaction.
Your Board is committed to delivering value to Shareholders and believes that through its strong supportive strategic partnership with LandOcean and the proposed US$60 million financing with Core Capital, the Company has the capabilities to achieve the incremental production plans, improve productivity efficiency and increase market value in the interests of all Shareholders. We would like to thank all Shareholders for their continued support as we strive to achieve this objective.
Please do not hesitate to contact the Company, should you have questions, or comments you wish to share.
Yours sincerely
David Chen
Chairman (on behalf of Range's Board of Directors)
Contacts
Cantor Fitzgerald Europe(Nominated Advisor and Broker)
David Porter / Sarah Wharry(Corporate finance)
Richard Redmayne (Corporate broking)
t. +44 (0)20 7894 7000
Range Resources Limited
Australian Office
Ground Floor, BGC Centre
28 The Esplanade
Perth WA 6000
Australia
t. +618 6205 3012
UK Office
Suite 1A, Prince's House38 Jermyn StreetLondon, SW1Y 6DNUnited Kingdom
t. +44 (0)20 7025 7040
f. +44 (0)20 7287 8028
e. admin@rangeresources.co.uk
www.rangeresources.co.uk