TIDMLMS
RNS Number : 2665S
LMS Capital PLC
12 November 2021
12 November 2021
LMS Capital PLC
COMPLETION OF LMS PREVIOUSLY ANNOUNCED INVESTMENT IN A PORTFOLIO
OF OIL AND GAS PRODUCING ASSETS IN ROMANIA
LMS Capital PLC ("LMS") is pleased to announce that all
necessary regulatory approvals in Romania have now been received by
Dacian Petroleum ("Dacian"), the Romanian oil and gas production
company in which LMS has committed to invest, and the company
should now be able to complete its purchase of an onshore oil and
gas production business in Romania.
A further announcement will be made when completion has
occurred.
Commenting on the transaction, Robert Rayne, chairman of LMS
said:
"We are delighted that the transaction is now able to close. It
has taken longer than anticipated to obtain the necessary
regulatory approvals and get to this point - however our view has
been that this represents an exciting cornerstone investment for
LMS and that the wait was worthwhile. The management of "sunset"
oil and gas assets is an important part of the world's energy
transition.
The terms of the transaction allow for upside from investment
and development of the business. Since the transaction was first
announced in 2020, energy prices have recovered, especially natural
gas, and this will help Dacian's operating cash flows - albeit we
are mindful of the risk of future volatility in prices."
SUMMARY
-- LMS Capital PLC ("LMS") announced in Q3 2020, its commitment
to invest in Dacian Petroleum ("Dacian"), subject to Dacian
receiving required approvals in Romania to proceed with the
acquisition of a business operating onshore oil and gas fields in
Romania
-- Whilst it has taken longer than originally expected, Dacian
has now received all required approvals from the Romanian
Government, and the acquisition is expected to close during
November and Dacian will commence operating the business.
-- The business that has been acquired operates 40 onshore oil
and gas fields with some 90 active wells currently producing
approximately 1,050 barrels of oil equivalent per day ("boepd") -
approximately 60% gas and 40% oil - with significant production
upside and substantial unrecovered reserves
-- LMS led an investment group to acquire a 50% interest in
Dacian, with management holding the remaining 50%.
-- LMS has itself invested US$9.1 million in senior loan and
equity capital to acquire a 32% holding in Dacian. Co-investors
(including LMS Directors) hold 18%
-- The investment by LMS and the Co-investors is structured
almost entirely as senior debt, carrying a 14% annual coupon, which
must be wholly repaid before any returns accrue to equity
-- Dacian is a significant cornerstone investment that
demonstrates LMS' ability to access deal flow in sectors where it
has deep and long-standing relationships, knowledge experience, to
introduce co- investors and to execute transactions.
Rationale for the acquisition
The acquisition offers:
-- the opportunity to acquire a business with a robust operating
plan that is operationally cash flow positive from day one,
expected to meet or exceed target returns and can withstand
volatility in energy prices;
-- a single focus on production and production enhancing
technology that can allow the material extension of the productive
life of mature properties, and in doing so, secure returns likely
to be commensurately high versus the operating risk;
-- a founder team with extensive industry experience and a local
operational team in Romania with prior knowledge of the assets that
are being acquired; and
-- a portfolio of sunset life assets where the extension of life
of aging assets allows for very low carbon footprint per barrel and
molecule produced because the existing industrial infrastructure is
put to further use. These assets are expected to continue oil and
gas production for more than ten years.
Returns
Operating returns
The transaction is expected to be operationally cash flow
positive from completion and is expected to produce returns to
investors through both regular interest and dividend payments. The
investment is expected to meet or exceed LMS' long term return
criteria of 12% to 15% per annum.
The investment is structured as unsecured senior loans which
carry a coupon of 14% per annum and a subscription for share
capital for a nominal sum. The senior loans are expected to be
repaid with interest over approximately 4 years. LMS holds $9.1
million of the 14% senior loans and 32% of the outstanding ordinary
shares. Interest accrues with effect from 20 September 2020 when
funds for the transaction were conditionally transferred. The
accrued net interest to date is approximately $1 million.
Entry price
LMS believes that in relation to the oil and gas reserves
believed to be in place, the acquisition price represents an
attractive entry point into an existing business operating mature
oil and gas producing assets.
Team with relevant experience and local knowledge of the
assets
The Dacian team is highly experienced in the oil and gas
industry and has detailed prior knowledge of the assets included in
the Business which, given their advanced stage of exploitation,
have not been a strategic focus for investment by the previous
owner.
The four founders together have over 100 years of experience in
the oil and gas industry with their roles ranging from direct
operation of oil and gas fields in locations specifically including
Romania, senior leadership of multi-national oilfield service
companies and regional management of oilfield service operations in
Eastern Europe.
In addition to the founders, the senior management team includes
individuals who have worked extensively in the oil industry in
Romania.
Robust operating model - opportunity to add value
The Business being acquired is at an advanced stage of
exploitation and has not been a strategic focus for the seller.
This creates an opportunity to increase oil and gas production
levels through field rejuvenation projects including optimization,
workover and drilling activities that will extend the life of the
well and fields.
These projects can be completed typically in less than one
month, can be funded from operating cash flows, and the payback can
be quickly assessed. Individual projects can be timed and scoped in
response to market conditions including oil and gas prices.
We are confident the investment can meet or exceed our long-term
criteria for returns of 12% to 15% per annum.
Background to the sale of the business
OMV Petrom SA, the vendor, is a Romanian integrated oil company
majority controlled by Austria's OMV. It is one of the largest
corporations in Romania and is the largest oil and gas producer in
South Eastern Europe.
In 2017 OMV Petrom announced the sale of the Business as part of
its operating strategy to divest of smaller, onshore Romanian
fields to allow it to focus on larger international opportunities
including offshore drilling and production in the Black Sea.
Information on Dacian Petroleum
Dacian Petroleum was formed in October 2018 and was formally
qualified as an operator by the Romanian oil and gas authority
(NAMR) in March 2019.
Dacian Petroleum's mission is to build a long-life oil and gas
production company for the purpose of rehabilitating mature oil and
gas producing properties to recover remaining oil and gas reserves
and to do so at a low carbon footprint. The main features of the
Business being acquired are:
-- 40 oil and gas fields, approximately 90 active wells, the
land rights, equipment and assets used in production, and a
workforce of 190 individuals currently employed in the
Business;
-- Current oil and gas production of approximately 1,050 boepd (60% gas; 40% oil); and
-- Local independent petroleum engineering assessment has
concluded that there are substantial remaining hydrocarbons in
place for these fields.
Financing the acquisition
In order to finance the acquisition of the Business, fund
transaction costs and provide cash for working capital and general
corporate purposes, Dacian has raised $20 million, of which $14.0
million is from the Investor Group and the remainder through other
borrowings. Dacian's obligations with respect to the other
borrowings are supported by a personal guarantee (the "Personal
Guarantee") from one of Dacian's founders.
In addition, Dacian is required by the seller to cash
collateralise a performance guarantee ("Performance Guarantee") in
relation to certain obligations in respect of the Business. This
guarantee is for $5.0 million and is required to be set aside out
of operating cash flows over the first three years.
The capital raised by Dacian of $14.0 million from the Investor
Group comprises:
-- the issue to the Investor Group at the time of funding in
September 2020 of $14.0 million Unsecured Senior Loans ("Loans")
maturing after 7 years and bearing interest at 14% from the date of
issue in September 2020; and
-- the issue to the Investor Group of 50% of the ordinary shares in the company.
So long as Dacian is current on its obligations with other
borrowings and the Performance Guarantee and has adequate reserves
for its liabilities, interest on the Loans can be paid at the end
of each year.
The principal amount of Loans cannot be repaid until all
obligations from other borrowings and the Performance Guarantee
have been satisfied.
No dividends can be paid on the ordinary shares until all
obligations on the other borrowings have been fully satisfied, the
Loans and interest thereon have been repaid in full and the
outstanding amounts, if any, under the Personal Guarantee have been
repaid.
LMS Capital has invested $9.05 million in Loans and subscribed
for ordinary shares, resulting in a holding of 32% in the ordinary
shares of Dacian. Other members of the Investor Group will hold 18%
and the founder group will hold 50%.
Investor Group
LMS' investment represents approximately 15% of its NAV at the
time the commitment was made in August 2020 and is the maximum it
can invest in any one transaction under its current investment
policy.
LMS Directors, Robert Rayne, James Wilson and Nick Friedlos have
invested $1.125 million, $1.075 million and $0.1 million
respectively which in total is equal to less than 25% of the amount
being invested by LMS.
Other private investors have funded the balance of $2.7 million
required by Dacian to acquire the Business and to operate it.
All investors - LMS, the LMS Directors and the other private
investors are investing on identical terms, including the same
proportions between the senior loans and ordinary shares in
Dacian.
ENQUIRIES:
LMS Capital PLC - 0207 935 3555
Robbie Rayne, Chairman
Nick Friedlos, Managing Director
Vico Partners - 0203 957 5045
Sofia Newitt - Snewitt@vicopartners.com
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END
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