88 Energy Limited (ASX:LON:88E) To Merge via Recommended Takeover

Creating an Alaska-Focused Oil Company

Highlights

· 88 Energy and XCD Energy to merge to form an oil exploration company with operations on the North Slope of Alaska, USA with platform of growth prospects.

· 88 Energy to acquire XCD Energy via a unanimously recommended off-market takeover offer with:

· 2.4 new 88 Energy shares for every XCD Energy share held; and

· 0.7 new 88 Energy shares for every XCD Energy listed option held.

· The Board of Directors of XCD Energy unanimously recommend that XCD Energy securityholders accept the improved Offers, in the absence of a superior proposal and subject to the independent expert concluding that the offer is fair and reasonable, or not fair but reasonable.

· Share Offer values the XCD Energy shares at 1.2 cents each1, representing a:

· 71% premium to the closing price of XCD Energy shares on ASX on 6 May 2020 of 0.7 cents;

· 140% premium to the closing price of XCD Energy shares on ASX on 24 April 2020 of 0.5 cents2;

· 143% premium to 30-day VWAP of XCD Energy shares3; and

· 55% premium to 60-day VWAP of XCD Energy shares3.

· Option Offer values the XCD Energy listed options at 0.35 cents each1, representing a:

· 116% premium to the VWAP of all trades completed on ASX since the options were listed (XCDOA) on 25 February 2020 up to and including 6 May 2020.

· The merger creates an Alaska focused oil explorer with:

· a diversified portfolio of 3 key project areas; Project Icewine, Yukon Leases and Project Peregrine at various stages of project maturity;

· Board, management and technical team with proven operational capability and a track record for delivering on project objectives, together with access to an extensive network of global and Alaskan relationships – both business and technical; and

· Increased scale, market presence, funding capability and share trading liquidity across ASX and AIM.

· XCD securityholders will hold approximately 20% of the combined group, thereby:

· retaining exposure to the potential future upside of the Brookian oil plays across both sets of assets;

· mitigating and diversifying exploration risk whilst gaining exposure to 88 Energy’s assets, balance sheet and farm-out expertise; and

· benefiting from the combined group’s strong exploration and operating expertise, enhanced financial strength and the ability to optimise exploration activity across an enlarged portfolio.

· XCD Energy shareholders have entered into pre-bid acceptance agreements with 88 Energy in respect of 18.5% of shares on issue and 6.8% of listed options on issue.

Offer Terms

88 Energy Limited (ASX: 88E; AIM: 88E) (“88 Energy”) and XCD Energy Limited (ASX: XCD) (“XCD Energy”) are pleased to announce they have agreed to merge and have entered into a Bid Implementation Agreement (“BIA”) by which 88 Energy will offer to acquire all of the fully paid ordinary shares and listed options on issue in XCD Energy via and off-market takeover offer (“Offer”) under the Corporations Act 2001 (Cth) (the “Corporations Act”). A copy of the BIA accompanies is available at the following link – http://www.rns-pdf.londonstockexchange.com/rns/2081M_1-2020-5-6.pdf

Under the Offer, XCD Energy securityholders will receive improved terms from 88E as outlined below:

· 2.4 new 88 Energy shares for every XCD Energy share held (“Share Offer”); and

· 0.7 new 88 Energy shares for every XCD Energy listed option held (“Option Offer”),

(together, the “Offers”).

The Share Offer values the XCD Energy shares at 1.2 cents each4, representing a:

· 71% premium to the closing price of XCD Energy shares on ASX on 6 May 2020 of 0.7 cents;

· 140% premium to the closing price of XCD Energy shares on ASX on 24 April 2020 of 0.5 cents5;

· 143% premium to 30-day VWAP of XCD Energy share6; and

· 55% premium to 60-day VWAP of XCD Energy share6.

Option Offer values the XCD Energy listed options at 0.35 cents each1, representing an:

· 116% premium to the VWAP of all trades completed on ASX since the options were listed (XCDOA) on 25 February 2020 up to and including 6 May 2020.

The Board of Directors of XCD Energy unanimously recommend to XCD Energy shareholders and listed optionholders that they accept the Offers, in the absence of a superior proposal and subject to the independent expert concluding that the offer is fair and reasonable or not fair but reasonable.

All of the Directors of XCD Energy intend to accept, or procure the acceptance of, the Offers in respect of any XCD Energy shares and listed options that they own or control, which represents in aggregate 3.4 % of XCD Energy shares in issue and 3.6 % of XCD Energy listed options in issue7, in the absence of a superior proposal and subject to the independent expert concluding that the offer is fair and reasonable or not fair but reasonable.

The Offers value the equity of XCD Energy at approximately $8.9 million4 and deliver a substantial premium to XCD Energy Shareholders and Optionholders, who will retain a ~20% ownership and participation in the future performance of the combined group.

1 Based on the closing price of 88 Energy shares on ASX of 0.5 cents on 6 May 2020. The implied value of the Share Offer and Option Offer will change with fluctuations in the 88 Energy share price.

2 XCD Energy closing price on 24 April 2020, the last trading day prior to 88 Energy announcing its intention to make the Offers

3 VWAP of XCD Energy shares is calculated for the period up to and including the 24 April 2020, the last trading day prior to 88 Energy announcing its intention to make the Offers

4 Based on the closing price of 88 Energy shares on ASX of 0.5 cents on 6 May 2020. The implied value of the Share Offer and Option Offer will change with fluctuations in the 88 Energy share price.

5 XCD Energy closing price on 24 April 2020, the last trading day prior to 88 Energy announcing its intention to make the Offers

6 VWAP of XCD Energy shares is calculated for the period up to and including the 24 April 2020, the last trading day prior to 88 Energy announcing its intention to make the Offers

7 Mr Ferguson has confirmed that he intends to exercise those XCD Energy Performance Rights (10M) referred to in the Bid Implementation Agreement once vested, and then accept the XCD Energy Shares issued on exercise into the Offers.

Strategic Rationale for the Transaction

The transaction creates an Alaska-focused oil exploration and appraisal company with a diversified portfolio of three highly prospective project areas: Project Icewine, Yukon Leases and Project Peregrine and provides an attractive investment proposition for existing and new shareholders.

Key benefits of the transaction include:

· the creation of an established oil exploration and appraisal company with an attractive and complementary portfolio of exploration assets – at various stages of project maturity;

· enhanced strategic, commercial, technical and financial strength to optimise funding of operations, including an increased level of liquidity and exposure to a larger global investor base giving greater financing flexibility;

· the ability to optimise operational activity across the combined group’s highly prospective exploration / appraisal portfolio with potential synergies associated with future project development and infrastructure requirements; and

· a strong board, management and technical team with a proven track record for advancing projects and delivering on milestones, including two 3D and one 2D seismic survey, drilling of four exploration wells safely and on budget over a 5 year period as well as execution of farm-in/farm-out transactions.

88 Energy Managing Director, Mr David Wall, said the strategic merit for the combination is clear:

“In a combined company, XCD Energy shareholders and listed option holders will be able to leverage from 88 Energy’s geological and operational expertise, specific to the North Slope of Alaska, where we have drilled four wells as Operator, safely and within budget, and acquired several 2D and 3D seismic surveys over the last five years. This includes extensive technical knowledge of the regionally successful Brookian oil plays, in which 88 Energy retains significant upside exposure via its highly prospective portfolio of exploration/appraisal projects covering ~330,000 net acres (480,000 gross) co-located on the North Slope.”

“88 Energy’s Board is confident that merging the assets of 88 Energy and XCD Energy, combined with the potential upside offered, places the combined group in a strong position to fill the growing investment void in the ASX / AIM listed oil and gas sector.”

XCD Energy Chairman, Mr Peter Stickland, said the transaction is compelling for XCD Energy shareholders.

“In addition to a significant premium, the transaction provides XCD Energy shareholders with the opportunity to become shareholders of a company with significantly increased scale and demonstrated operational capability that is focussed on the world class oil potential of the North Slope of Alaska,” said Mr Stickland.

“It allows our shareholders to continue to have a material interest in the upside associated with the Brookian oil plays, while mitigating and diversifying the subsurface and execution exploration risks,” he said.

“The XCD Energy Board believes that this transaction is in the best interests of XCD Energy and unanimously recommends it to our shareholders, in the absence of a superior proposal and subject to the independent expert concluding that the offer is fair and reasonable, or not fair but reasonable.”

Transaction Details

The Offers are subject to only a limited number of conditions, including a 90% minimum acceptance condition. The full list of conditions to the Offers are set out in Schedule 2 of the BIA attached to this announcement. Details of which conditions have been varied from those advised in 88 Energy’s initial ASX announcement on 27 April 2020 are set out below.

The Share Offer will extend to all XCD Energy shares which come into the bid class during the Offer period as a result of the exercise of listed or unlisted options or the conversion of performance rights held by XCD Energy executives (subject to obtaining any necessary ASIC modifications), during the Offer period. An Option Offer will be made in respect of the XCD Energy listed options currently on issue.

88 Energy and XCD Energy have agreed to a deal protection regime including no shop and no talk rights, a right to match any superior offer and payment of an agreed break fee or reverse break fee of A$150,000 in certain circumstances.

Further details regarding the Offers will be contained in the Bidder’s Statement, which will be sent to XCD Energy securityholders. 88 Energy currently expects the Bidder’s Statement to be dispatched to XCD Energy securityholders in the coming weeks.

Independent Board Committee

As advised in 88 Energy’s initial ASX announcement on 27 April 2020 in relation to the Offers, the 88 Energy board of directors has established an independent board committee to consider, amongst other things, the terms of the revised takeover offer and the application of ASX Listing Rule 10.1 and Chapter 2E of the Corporations Act to the Offer (“Independent Board Committee”). The Independent Board Committee is comprised of each of the directors of 88 Energy, other than David Wall, the Managing Director, who currently holds 29,395,800 XCD Energy shares and 2,500,000 XCD Energy listed options.

The Independent Board Committee has independently assessed Mr Wall’s personal interest in XCD Energy and has determined that Listing Rule 10.1 does not apply to the revised takeover offer because Mr Wall’s XCD Energy shares and listed options do not have sufficient value for them to be classified as a “substantial asset” for the purposes of Listing Rule 10.1.

Additionally, the Independent Board Committee has also determined that Chapter 2E of the Corporations Act does not apply because Mr Wall will receive the same consideration as all other XCD Energy shareholders and listed option holders.

The Independent Board Committee approved the bid consideration payable under the Offers based on its own determination on the relative values of 88 Energy shares, and XCD Energy shares and listed options, having taken advice from 88 Energy’s corporate adviser.

Michael Evans (through his controlled entities, Tevlo Pty Ltd and Tour Holdings Pty Ltd) holds 4,000,000 shares in XCD Energy. The Independent Board Committee formed the view (and Michael Evans confirmed) that this holding was not significant enough to constitute a material personal interest under the Corporations Act and therefore did not preclude Mr Evans from being a member of the Independent Board Committee.

Owing to Mr Wall’s and Mr Evan’s interest in XCD Energy shares and XCD listed options, as detailed above, the Offers represent a related party transaction pursuant to the AIM Rules for Companies. Accordingly, Dr Steve Staley, the remaining independent director of 88 Energy, having consulted with the Company’s nominated adviser, Cenkos Securities plc, consider that the terms of the Offers are fair and reasonable insofar as the Company’s shareholders are concerned.

88 Energy’s Intentions

If the Offers are successful, XCD Energy will become a wholly-owned subsidiary of 88 Energy.

Upon completion of the Offer, 88 Energy intends to continue to pursue the exploration activities across both sets of assets, including evaluation of their prospects, strategic relevance, funding requirements and financial performance as soon as possible.

Further details of 88 Energy’s intentions will be included in its Bidder’s Statement.

Bid Implementation Agreement

As noted above, 88 Energy and XCD Energy have entered into the BIA, a copy of which is available at the link above.

Under the terms of the BIA, the parties have agreed to customary terms in relation to the conduct of the Offers, exclusivity and break fees. In addition, the parties have agreed to certain variations/waivers to the original conditions to the Offers proposed by 88 Energy in its announcement on 27 April 2020 as set out in clause 3.8 of the BIA. An update on the status of the conditions to the Offers will be included in 88 Energy’s Bidder’s Statement.

Pre-Bid Acceptance Deeds

88 Energy has entered into pre bid acceptance deeds with major XCD Energy shareholders and listed option holders in respect of 18.5% of the XCD Energy shares and 6.8% of the XCD Energy listed options on issue. Pursuant to these deeds, the relevant XCD listed security holders have undertaken to accept the Offers, in the absence of a superior proposal. Details of the security holders who have executed pre-bid acceptance deeds with 88 Energy are set out in 88 Energy’s initial ASX announcement on 27 April 2020 in relation to the Offers.

Timetable

It is expected that 88 Energy’s Bidder’s Statement and XCD Energy’s Target’s Statement, containing further information about the Offers, will be posted to XCD Energy Shareholders and Listed Optionholders in around late-May 2020, with the Offers to open for acceptance around that time.

Advisers

88 Energy is being advised by Longreach Capital as corporate adviser and Steinepreis Paganin as the legal adviser in relation to the Offers.

XCD Energy is being advised by Taylor Collison as corporate adviser and GTP Legal as the legal adviser in relation to the Offers.

Forward Looking Statements and Disclaimers

This announcement is for information purposes only and does not constitute a prospectus or prospectus equivalent document. It is not intended to and does not constitute, or form part of, an offer, invitation or the solicitation of an offer to purchase or otherwise acquire, subscribe for, sell or otherwise dispose of any securities, or the solicitation of any vote or approval in any jurisdiction, nor shall there be any offer, sale, issuance or transfer of securities in any jurisdiction in contravention of any applicable law.

This announcement contains forward looking statements. Forward looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “forecast”, “believe”, “plan”, “estimate”, “expect” and “intend” and statements that an event or result “may”, “will”, “should”, “could” or “might” occur or be achieved and other similar expressions.

The forward-looking statements in this announcement are based on current expectations, estimates, forecasts and projections about 88 Energy and XCD Energy and the industry in which they operate. They do, however, relate to future matters and are subject to various inherent risks and uncertainties. Actual events or results may differ materially from the events or results expressed or implied by any forward-looking statements. The past performance of 88 Energy or XCD Energy is no guarantee of future performance.

None of 88 Energy, XCD Energy, or any of their directors, officers, employees, agents or contractors makes any representation or warranty (either express or implied) as to the accuracy or likelihood of fulfilment of any forward looking statement, or any events or results expressed or implied in any forward looking statement, except to the extent required by law.

You are cautioned not to place undue reliance on any forward-looking statement. The forward-looking statements in this announcement reflect views held only as at the date of this announcement.

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