TIDMEME
RNS Number : 1480M
Empyrean Energy PLC
18 January 2016
Empyrean Energy Plc / Index: AIM / Epic: EME / Sector: Oil &
Gas
18 January 2016
Empyrean Energy PLC ("Empyrean" or the "Company")
Proposed Disposal of Sugarloaf AMI Project for a Consideration
of up to US$71.5 million
Empyrean Energy PLC (AIM: EME.L), the profitable US onshore oil,
gas and condensate exploration, development and production company
with assets in Texas and California, is pleased to announce that it
has entered into a conditional purchase and sale agreement (the
"PSA Agreement") with Carrier Energy Partners II, LLC ("CEP II"), a
Delaware corporation, to dispose of all of its right, title and
interest in the Sugarloaf AMI development (the "Sugarloaf AMI
Project" or the "Asset") for an initial cash consideration of
US$61,500,000 (the "Purchase Price") (the "Transaction"). The
Company may also receive, in certain circumstances further set out
below, a contingent consideration of a maximum of US$10,000,000.
Empyrean currently has a 3% working interest in the Sugarloaf AMI
Project, which is operated by Marathon Oil Company, a subsidiary of
US major Marathon Oil Corporation (NYSE: MRO) ("Marathon" or the
"Operator"). CEP II is a Houston, Texas based private oil and gas
company focused on the acquisition and exploitation of upstream
assets. Backed with an equity commitment from Riverstone Holdings
LLC, its primary objective is to partner with select operators that
are developing both unconventional and conventional reservoirs in
North America.
Subject to Closing, the Transaction has an effective date of 1
October 2015 (the "Effective Date") and is expected to close in the
first quarter of 2016. Following the Transaction, the Company's
portfolio will comprise a 58.084% working interest ("WI") in the
Eagle Oil Pool Development Project, located in the San Joaquin
Basin in southern California; a 7.5% WI in two producing wells and
lesser interests in another six producing wells located in the
Sugarloaf Block A operated by ConocoPhillips and; a 10% WI in the
Riverbend Project, located in the Tyler and Jasper counties,
onshore Texas, further details of which are outlined below.
The value of the Transaction means that at, and subject to,
Closing, the Transaction would be deemed to be a disposal resulting
in a fundamental change of business of the Company under Rule 15 of
the AIM Rules. Accordingly, Closing of the Transaction is
conditional on the approval of Shareholders at a General Meeting.
The Company intends to post a circular to Shareholders and a notice
convening a General Meeting as soon as possible.
The Company confirms that it has received irrevocable
undertakings from certain Shareholders to vote in favour of the
Transaction in respect of a total of 23.6 per cent. of the
Company's issued share capital. This includes irrevocable
undertakings from Tom Kelly, Chief Executive Officer, who is
interested in 20,881,563 Ordinary Shares, representing
approximately 9.4 per cent. of the Company's issued share capital,
and Messrs Knight, Appleby and Farthing who are interested, in
aggregate, in a further 31,552,595 Ordinary Shares, representing
approximately 14.2 per cent of the Company's issued share
capital.
Empyrean CEO, Tom Kelly, said:
"This Transaction crystallises the value of the Sugarloaf AMI
Project at a time when there are significant challenges facing the
resources sector in general and, specifically, when the additional
financing required to support the Company's continued participation
in the development of the Asset in the current low oil price
environment would incur either an unacceptable cost or unacceptable
dilution when compared with the Transaction. In line with the
Board's stated strategy, the last year has seen the Company, led by
our partner, Marathon, continue to demonstrate the future upside
potential of the Sugarloaf AMI Project and deliver
significantly-increased reserves and resources. We believe that we
have reached the right time to realise the value of the Sugarloaf
asset and de-risk our position against continued depressed oil
prices. I hope Shareholders will share in my excitement for the
Transaction and the opportunities it may unlock in respect of the
Company's remaining assets and others that may arise at a time when
drilling and associated costs are significantly reduced and a
number of operators and market participants are financially
distressed. Subject to the successful completion of the
Transaction, we will retain our interests in three further
prospective exploration and development projects in the USA, and as
a debt-free entity with sufficient working capital, we will be well
placed to further develop those assets and build value in the
future."
Carrier Energy Partners II CEO, Mark Clemans, commented:
"The addition of these Eagle Ford shale properties of the
Sugarloaf AMI project are a complement to our existing
unconventional assets located in the Permian Basin. Our
non-operated business strategy is to partner with highly successful
operators to focus on asset development and value creation in
resource plays and other capital intensive basins. Marathon has a
proven track record in Karnes County and we are excited to be
included in the project as a joint venture partner."
Macquarie Capital acted as financial adviser to Empyrean in
respect of the Transaction.
Overview of the assets subject to the Transaction
The Sugarloaf AMI Project is a development project covering
approximately 24,000 gross acres in Karnes County, onshore Texas,
USA, in the liquids rich core of the Eagle Ford Shale. As outlined
above, the Company currently has a 3 per cent. WI in the Sugarloaf
AMI Project, which is operated by Marathon, with approximately 290
gross wells in production and an inventory of a further 26 wells
drilling and/or in various stages of completion as at 23 December
2015. Average daily production net to Empyrean's interest after
royalties from the Sugarloaf AMI Project during the three months to
30 September 2015 was 1,250 boe.
The target in any well is any one of four formations; the Lower
Eagle Ford Shale, which has been the major producer to date, the
Austin Chalk, which was appraised and delineated for development
during late 2013 and 2014, the Upper Eagle Ford Shale, which is
expected to become increasingly important, and the upper portion of
the Lower Eagle Ford Shale.
Aggregate production net to Empyrean after royalties and costs
for the six months to 30 September 2015 ("H1 2015") was 224,182
boe. Revenues attributable to the Sugarloaf AMI Project in H1 2015
(excluding any general corporate or financing costs) totalled
US$5,790,000 (H1 2014: US$7,534,000) and net profit before tax was
US$3,525,000 (H1 2014: US$4,323,000). As disclosed in the Company's
interim results announced on 31 December 2015, the Company's
revenues for H1 2015 totalled US$6,033,000 (H1 2014: US$7,911,000)
and net profit before tax was US$1,830,000 (H1 2014:
US$2,705,000).
On 13 October 2015, the Company announced that an updated
reserves report by DeGolyer and MacNaughton had highlighted a
further significant increase in the Company's Reserves and
Resources at the Sugarloaf AMI Project as set out below:
-- 13.84% increase in Proven Reserves (1P) to 6.58 MMboe (5.78 MMboe to 31 December 2014)
-- 9.77% increase in Probable Reserves to 7.53 MMboe (6.86 MMboe to 31 December 2014)
-- 11.63% increase in Proven plus Probable Reserves (2P) to
14.11 MMboe (12.64 MMboe to 31 December 2014 )
-- 10.90% increase in Proven plus Probable plus Possible
Reserves (3P) to 23.19 MMboe (20.91 MMboe to 31 December 2014)
-- 2P Reserves plus 2C Resources up 0.65% to 15.59 MMboe (15.49 MMboe to 31 December 2014)
-- NPV (10) of 1P Reserves valued at approximately US$45.7m (US$43.8m to 31 December 2014)
-- NPV (10) of 2P Reserves valued at approximately US$135.9m (US$121.7m to 31 December 2014)
-- NPV (10) of 3P Reserves valued at approximately US$294.7m (US$263.5m to 31 December 2014)
Principal terms of the Transaction
Pursuant to the terms of the PSA Agreement, the Company has
conditionally agreed to sell to CEP II and CEP II has agreed to
buy, as of the Effective Date, all of the Company's rights,
interests and title in the Sugarloaf AMI Project (less certain
excluded assets) for a purchase price of US$61,500,000 in cash plus
certain contingent payments (if any) and less any agreed
adjustments in accordance with the terms of the PSA Agreement.
The principal terms of the PSA Agreement are as follows:
Conditions to Closing
Closing of the PSA Agreement is conditional on, inter alia:
o the approval of the PSA Agreement and the transactions
contemplated by it by the shareholders of the Company;
o the approval of the PSA Agreement and the transactions
contemplated by it by the Board; and
o the aggregate amount of the downward adjustment of the
Purchase Price at Closing to reflect any payment obligations owed
by the Company for disputes relating to title defects or
environmental defects (as determined pursuant to the terms of the
PSA Agreement) not exceeding 12.5 per cent. of the Purchase
Price.
Subject to certain conditions being met and there being no
exercise of the termination rights under the PSA Agreement, the
Closing of the Transaction shall occur on the later of (i) the
fifth business day following Shareholder approval at a General
Meeting and (ii) the thirty-first day after the date of the PSA
Agreement.
Escrow of Funds
January 18, 2016 04:09 ET (09:09 GMT)
The following definitions apply throughout this announcement,
unless the context otherwise requires:
"Austin Chalk" shale formation overlying the Eagle
Ford Shale
"boe" barrels of oil equivalent
"D&M report" an independent appraisal and report
prepared by DeGolyer & MacNaughton,
effective to 30 June 2015
"Eagle Ford Shale" shale formation underlying much of
southern Texas in the United States
"Eagle Oil Pool the Company's 58.084 per cent. working
Development Project" interest in a target based in the San
Joaquin Basin in southern California
"Marathon" a subsidiary of US major Marathon Oil
Corporation (NYSE:MRO)
"possible reserves" unproved reserves which analysis of
or "3P reserves" geological and engineering data suggests
are less likely to be recoverable than
probable reserves but with at least
a 10 per cent. probability that the
quantities actually recovered
"probable reserves" reserves which, based on the available
or "2P reserves" evidence and taking into account technical
and economic factors, have at least
a 50 per cent chance of being produced
"prospective resources" those quantities of petroleum which
are estimated, on a given date, to
be potentially recoverable from undiscovered
accumulations
"proven reserves" reserves which, based on the available
or "1P reserves" evidence and taking into account technical
and economic factors, have at least
a 90 per cent chance of being produced
"reserves" those quantities of petroleum which
are anticipated to be commercially
recoverable by application of development
projects to known accumulations from
a given date forward under defined
conditions, reference should be made
to the full PRMS definitions for the
complete definitions and guidelines
"resources" contingent and prospective resources,
unless otherwise specified
"Riverbend Project" the Company's 10 per cent. working
interest in the Wilcox Formation in
the Cartwright Well in onshore Texas
"Sugarloaf AMI the Sugarloaf AMI development operated
Project" by Marathon Oil located in Karnes County,
onshore Texas, USA, in the liquids
rich core of the Eagle Ford Shale in
which the Company has a 3 per cent.
working interest
This information is provided by RNS
The company news service from the London Stock Exchange
END
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January 18, 2016 04:09 ET (09:09 GMT)
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