WTI (Feb) $74.22 +28c, Brent (Feb) $79.70 +43c, Diff -$5.48 +19c.
USNG (Jan) $2,45 -4c, UKNG (Jan) 84.68p -0.23p, TTF (Jan) €35.145 +€1.32.
Oil price
Oil has drifted today but ahead of the holiday period that is not a surprise, expect volumes to be light and unless things change dramatically positions are unlikely to be altered ahead of the final years reckoning next week.
Scirocco Energy
Scirocco has announced that it has conditionally agreed the sale of its interest and investment in Energy Acquisitions Group Limited for an enterprise value of £2.6 million before adjustments, plus contingent consideration of up to a further £150,000 to private equity firm OrbeNovo Capital.
Principal Terms of the Proposed Transaction
· Scirocco Energy has entered into a conditional Sale and Purchase Agreement to sell or procure the sale of the entire issued share capital of EAG to ONC Bidco 1 Limited, a newly incorporated company controlled by OrbeNovo Sponsor LLP and an affiliate of OrbeNovo Advisory LLP, for a firm net consideration of £702,267 payable to Scirocco Energy.
· Contingent consideration of up to £150,000, payable in tranches, if and when EAG completes the acquisition of certain target anaerobic digestion sites which have been developed in EAG’s deal pipeline within the last twelve months.
· The SPA in respect of the Proposed Transaction was entered into between (1) the Company’s wholly owned subsidiary, Scirocco Energy (UK) Limited; (2) Christopher James Kerr (“CK”); (3) Riada Partners Limited (a company owned and controlled by Neil Adair “Riada”); and (4) ONC on 19 December 2023.
· Additionally, under the terms of the SPA, Scirocco Energy has agreed to assign of all of its rights and obligations under a shareholder loan agreement dated 24 August 2021 (as amended and restated on 22 February 2022) in respect of a loan granted by Scirocco Energy to EAG. As at 30 September 2023, the amount outstanding under such loan comprised a principal loan amount of £1,270,000 and accrued accumulated balance of £1,578,000.
· The Proposed Transaction constitutes a fundamental change of business pursuant to AIM Rule 15 of the AIM Rules for Companies and therefore is conditional upon Shareholder approval to proceed. The Proposed Transaction is also conditional upon the change of control consent approval of AIB pursuant to the AIB loan facility dated 3 May 2023 made between EAG’s subsidiary and AIB.
· In respect of the Shareholder approval, the Company intends to shortly post a Circular to Shareholders, along with accompanying Notice of General Meeting and Form of Proxy, calling for a General Meeting to be held in January 2024. Further announcements will be made as and when appropriate.
· Following completion of the Proposed Transaction, the Company will remain an investing company and subject to the requirements of AIM Note 5.6 for Investing Companies.
Strategic Rational, use of Net Proceeds and Future Strategy
· The Board of Directors have made the strategic decision to divest the Company’s interest in EAG, a decision founded by the evaluation of key factors influencing the growth, development and future valuation of the Company’s investment in EAG. This view has been informed by an independent valuation report prepared by Grant Thornton NI, which has significant experience in the anaerobic digestion asset market in Northern Ireland.
· The growth of EAG is heavily dependent on the ability to invest more capital to establish a critical mass portfolio of cash generative assets within this sector. The EAG investment was made on the premise that further acquisitions, and investments in digestate processing equipment to manufacture biofertilizer, could be completed within the two year period since the original investment. Unfortunately, the inability of the Company to issue new equity to raise cash, despite requesting authority to do so from Shareholders several times, constrained Scirocco’s capacity to fund this growth and pursue the strategy.
· Further complicating matters is the uncertainty surrounding the first two contingent consideration payments tied to the Ruvuma development plan. Anticipated now in 2024, having earlier been expected in 2023, the ambiguity in the timing and receipt of these payments impedes the Company’s ability to make definitive investment plans.
· The value of capital assets has decreased across multiple sectors since the original investment in EAG was made as global interest rates have increased since early 2022. As the risk -free rate available to investors increases, the expected or target return on fixed assets increases, reducing the price investors will pay for a series of cashflows. When Scirocco Energy invested in EAG in order to acquire Greenan, UK interest rates were 0.25%. The Bank of England base rate is currently 5.25%. This has had a negative impact on the value of Greenan asset owned by EAG.
· Coupled with the challenges of retaining EAG without predictable access to capital, and considering the decline in Greenan NIROC’s remaining life, the Board therefore firmly believes that it is in the best interests of the shareholders to divest at this time as it provides the optimal window to receive the maximum consideration for the investment.
· The net firm proceeds of the Proposed Transaction are expected to be received in early 2024 following completion of the General Meeting (assuming the necessary resolution is passed) and receipt of the change of control consent from AIB and such proceeds will be retained by the Company. The contingent consideration of up to £150,000 will be received if and when EAG completes the acquisition of the four targets in the twelve months following completion.
· Following receipt of the first contingent payment of $3 million pursuant to the disposal of the Company’s interest in the Ruvuma asset, which is expected later in Q1 2024, and following settlement of SILOF liabilities but prior to run-rate G&A costs, the Company expects to have a pro forma cash balance of c. £4 million.
o The only other material legacy asset which the Company will hold following the completion of the Proposed Transaction, if approved, will be the 8.39% of Kiliwani North which is held on the Company’s balance sheet as a contingent decommissioning liability of £160,000.
· At this point, the Board intends to finalise its review of a range of potential alternative options available to it by which it is able to deliver value to Shareholders, which may include the distribution of available cash, further investments in line with its investing policy and/or the deployment of the proceeds in pursuit of a reverse takeover transaction.
Further Information on the Proposed Transaction
Conditions
Completion of the SPA is conditional upon, inter alia, the following conditions being satisfied (the “Conditions”):
· a shareholder resolution being passed by the requisite majority of Scirocco Energy’s shareholders at the General Meeting; and
· the receipt of a waiver by Allied Irish Banks PLC, as EAG’s primary lender, of any change of control provisions, or equivalent mechanisms, which may apply to the Proposed Transaction under the existing loan facility dated 3 May 2023 made between EAG and AIB.
The Conditions must be satisfied or waived by 31 January 2024 (the “Longstop Date”) (unless such date is extended by agreement between the parties to the SPA), otherwise the SPA automatically terminates.
Consideration and Leakage
The consideration payable under the SPA comprises:
· £3.00 to be split equally between Scirocco Energy, CK and Riada as sellers in respect of each of their shares in EAG; and
· £702,266.74 to be paid to Scirocco Energy in respect of the existing shareholder loan, less any leakage that is not permitted leakage under the SPA,
The firm net consideration is calculated as enterprise value of £2.6 million, minus the outstanding AIB bank debt of c. £1.8m, plus/minus certain other adjustments, so that the acquisition occurs on an effective cash/debt free basis.
The Consideration is to be subject to reduction on a pound for pound basis should any leakage of Company funds have occurred between 30 September 2023 and the date of the SPA (being [19] December 2023) (both dates inclusive), save in respect of any leakage of Company funds which have been agreed in advance by the parties to the SPA as being permitted leakage. The maximum aggregate liability of each of the Sellers under the leakage provisions is not to exceed the amount of any such leakage actually received by that Seller and his or its connected persons or in respect of which that Sellers and his or its connected persons have actually benefitted.
Sellers’ Warranties
The SPA contains customary warranties for a transaction of this nature given by the Scirocco Energy, CK and Riada in favour of ONC, in relation to, inter alia, their capacity to enter into and sign the documents relating to the Proposed Transaction (including the SPA), their title to the shares of which they are legal and/or beneficial owner (as applicable) and there having been no insolvency type event in relation to the Company nor any of its subsidiaries as at 30 September 2023.
The EAG management team, CK and RIada, will work with the Buyer or the Buyer’s group going forward.
The maximum aggregate liability of each Seller in respect of any claims under the SPA shall not exceed the Consideration actually received by that Seller.
ONC’s Warranties
The SPA contains customary warranties given by ONC in favour of Scirocco Energy, CK and Riada in relation to, inter alia, its capacity to enter into and sign the documents relating to the Proposed Transaction (including the SPA), that its entry into such documents would not require ONC to obtain any consent or approval and that it shall have immediately available on an unconditional basis the necessary cash resources to meet its obligations under the documents relating to the Proposed Transaction and any other documents which are to be executed by ONC at Completion.
Governing Law
The SPA is governed by the laws of England and Wales.
Schedule Four disclosure
As at 30 June 2023, being the most recent published balance sheet date position of Scirocco, the value of the loan receivable from EAG was noted as £1,522,000.This represented the entire carrying value of Scirocco’s investment in EAG and was based on the Board’s judgement that the loan would be repaid in full, given the expectation, at the time, of further investment being available to deploy into the EAG business, either from Ruvuma sale proceeds and/or raising capital. Due to the factors listed above, the Company was not in a position to be able to negotiate a consideration that reflected this carrying value. The Company, however, reminds shareholders its initial investment was a lower amount of £1.27 million. During its ownership of EAG, Scirocco did not receive any dividends and recorded a £40,000 share of profits for the year ended 2022 and a £42,000 loss for the six months ended 30 June 2023.
Commenting on the Proposed Transaction, Tom Reynolds, Scirocco’s CEO stated:
“I am pleased to announce a strategic decision regarding the proposed divestment of our interests in EAG. This move is grounded in a thorough evaluation of key factors influencing the growth and development of our investments.
The combination of the challenges of retaining EAG without predictable access to capital, and considering the decline in Greenan’s remaining life, the Board is convinced that the opportunity to sell now on the terms described here provides the optimal window for divestment. While the consideration payable to the Company falls short of the total investment made into EAG, it’s important to underscore that the valuation of EAG mirrors the fair market value of the business in its current form. The Board will continue its review of the range of alternative opportunities and next steps for the Company.”
So, as a result of access to capital being limited Scirocco are unable to raise money and therefore feel obliged to divest their investment in EAG which is heavily dependent on ‘the ability to invest more capital to establish a critical mass portfolio of cash generative assets within this sector’.
When Scirocco initially invested in EAG it was on the premise that further acquisitions, and investments in digestate processing equipment to manufacture biofertilizer, could be completed within the two year period since the original investment.
So, a combination of the delay in the Ruvuma payments and no authority from the shareholders to raise money on a number of occasions, has led to the only way out, a sale so that the team can carry on and given the circumstances not a bad result for Scirocco.
The Scirocco board will now review the whole process in the new year and put options for the future to the shareholders, there should be a number of options available to them.
Europa Oil & Gas
Europa has announced that it has acquired a 42.9% equity interest in Antler Global Limited via a US$3 million cash subscription for new ordinary shares in Antler. Antler holds an 80% working interest in the recently acquired and highly prospective EG-08 production sharing contract, offshore Equatorial Guinea, with Guinea Ecuatorialde Petroleos (“GEPetrol”), the National oil company, holding the remaining 20%.
This Subscription adds an additional geographical location to the Company’s existing portfolio of assets, and one which the Board believes has enormous near-term, infrastructure-led, near-field exploration potential. The Subscription monies received by Antler will fund the first-year work programme costs, including the acquisition of existing 3D seismic data, which will be reprocessed alongside preparations to drill, whilst ensuring all financial obligations under the EG-08 PSC with the Republic of Equatorial Guinea (the “State”) and GEPetrol, are met.
Whilst the initial two-year term of the licence does not require the drilling of a well, the Company believes it already has drill-ready prospects, which consist of three independent targets, with estimated total prospective resources of 1.4 trillion cubic feet of gas equivalent (TCFE), based on Company estimates. Antler will commence a farm-down process with a view to bringing in a partner for drilling. The resource prospectivity of EG-08 has only been examined at one stratigraphic horizon, which is analogous to discoveries made in the adjoining block operated by Chevron. However, further prospectivity exists in multiple horizons and these are yet to be evaluated.
Equatorial Guinea has an established oil and gas industry with associated infrastructure and is one of the biggest hydrocarbons producers in sub-Saharan Africa. There have been multiple sizable oil and gas discoveries made offshore Equatorial Guinea over the years, although there has been limited exploration drilling in the past decade. However, there has been a significant uptick in upstream exploration and development activity throughout 2023 with further planned for 2024-25.
A presentation with further details can be found on the Company’s website. In addition, the Company is holding a webcast for retail investors on Wednesday, 3 January 2024 at 2.30 p.m. (GMT). The presentation will be hosted on the Investor Meet Company (“IMC”) platform and is open to all existing and potential shareholders. Questions can be submitted pre-event via your IMC dashboard up until 9.00 a.m. the day before the meeting or at any time during the live presentation. Investors can sign-up for free and add to meet Europa via: https://www.investormeetcompany.com/europa-oil-gas-holdings-plc/register-investor
Will Holland, Chief Executive Officer of Europa, said:
“We are very excited about this potentially transformational deal for Europa, which adds another high-impact exploration prospect to our portfolio and ties with our strategic approach to replenishing the portfolio with potentially high impact but relatively low risk prospects. Equatorial Guinea is an enormous opportunity for us and provides us with near-term drilling activity targeting over 1 TCFE of recoverable resource in an area with a well-developed upstream industry and a highly supportive government. I am also pleased to report that we have solid support from many of our institutional investors for this acquisition.”
With this deal Europa enters Equatorial Guinea through a 42.9% interest in Antler Global Ltd via a $3m cash subscription in Antler shares. Antler holds 80% of the highly prospective EG-08 offshore Equatorial Guinea and I like the near term, near-field exploration and all funded for year one likely to be funded further by partnering up.
I also like the high chance of well over 1 TCF of gas with resource prospectivity so far only examined at one stratigraphic horizon but most of all it is analogous to discoveries made by Chevron, also it is exciting that further prospectivity exists in multiple horizons yet to be evaluated.
Europa shareholders should be delighted that this exciting and out of the box acquisition gives them a chance for some very substantial upside and in not too long a timescale. What is most attractive is that EOG’s relatively new board are pretty much all experienced in this part of the world and that board has been strengthened today.
Reabold Resources
I have written a number of articles recently about the company including yesterday regarding progress at Colle Santo. This morning I was fortunate enough to speak to them both through Core London Studios and the link to the interview is below.
In the interview they summarise the requisition process and what the requisitioners want, when asked about Daybreak they explained to me about the whole situation about Kam Sattar and Andrea Cataneo and how they were involved there, which I didn’t know and their situation there with regard to attempted corporate activity.
They also updated in some detail about Colle Santo which is now fully updated and about West Newton where plans for drilling in 2024 are very much under way.
We discussed that Andrea Cataneo has been put forward as CEO of Reabold even though he is already CEO of Zenith which they claim must be a conflict, and I can see that the Chairman of Zenith has also been nominated to the Reabold board, again a breach of corporate governance in their eyes.
Overall they gave a detailed and thorough analysis of where Reabold is at the moment and that with the current board they will achieve their programme, not something that could happen if the board was replaced.
Core Finance CEO Interview: Stephen Williams and Sachin Oza, Reabold
Echo Energy
Echo has announced a £500,000 unsecured convertible loan note funding facility with a UK based alternative asset management and investment firm. The Company has drawn down an initial £65,000 of gross proceeds under the Facility to support its working capital requirements and immediate work programme.
Facility – Key Terms
· The £500,000 Facility is structured as an initial tranche of unsecured convertible loan notes of £65,000 and up to a further £435,000 available to be drawn down at any time over the next 6 months, subject to mutual agreement between the Company and the Investor.
· A 5% fee on the amount drawn down is payable to the Investor upon each draw down.
· Echo will pay the legal fees for the implementation of the Facility, which have been capped at £15,000 and deducted from the Initial Drawdown.
· All Loan notes, once drawn, are repayable 24 months from the date of the first draw-down. The Loan notes are zero-coupon/interest free but are issued at 92% of Par Value.
· Each tranche of the Facility is convertible into new ordinary shares of the Company at the Investor’s election at any time prior to repayment, at the lesser of: (i) 150% of the Company’s closing bid price on the trading day immediately prior to the date of draw-down of the relevant tranche; or (ii) 90% of the lowest closing bid price in the five trading days immediately preceding the date of conversion.
· The loan notes are redeemable in cash by the Company, all or in part, at Par Value at any time after draw down, or in the event of a change of control of the Company, at 110% of Par Value. If the Company notifies the Investor of an intended redemption of any loan notes, the Investor shall have two trading days to elect to convert some or all of outstanding amounts or accept the early redemption. In the event of default, loan notes will be redeemable immediately at 110% of par value of outstanding loan notes.
Further comment here after I speak to management, but it looks eminently sensible.
Longboat Energy
Longboat has announced the completion of the acquisition of privately held Topaz Number One Limited, thereby increasing its working interest in the Production Sharing Contract over Block 2A offshore Sarawak, Malaysia (“Block 2A”) to 52.5%.
Longboat now holds an operated 52.5% interest in Block 2A, offshore Sarawak Malaysia, containing the giant ‘Kertang’ prospect, simplifying the process towards a positive well decision and the potential introduction of an additional funding partner prior to drilling.
Having worked closely with Topaz and its owners over the past twelve months on Block 2A and other acquisition opportunities, Longboat made the decision to accelerate the building of a full-cycle E&P business in SE Asia through the acquisition of Topaz and the addition of James Menzies and Pierre Eliet to the Company’s management team as Executive Chairman SE Asia and Director SE Asia respectively.
Helge Hammer, Chief Executive of Longboat Energy, commented:
“We are pleased to have completed the corporate acquisition of Topaz, which increases our interest in a large exploration block in a region that has seen considerable exploration success recently. Petronas announced that they have recorded 19 exploration discoveries, 13 of which were made offshore Sarawak, and two exploration-appraisal successes, contributing over 1 billion barrels of oil equivalent to new resources for Malaysia in 2023. Clearly, we are in the right address.
The Longboat team has extensive experience and network in SE Asia, which combined with our in-house technical expertise, puts us in a strong position to deliver accelerated growth in the region.”
Completion is good, much comment already and now its all down to James Menzies…
Jadestone Energy
Jadestone has announced its interim greenhouse gas emissions reduction targets as part of its Net Zero pledge by 2040[1].
Since pledging its commitment to Net Zero by 2040 in June 2022, the Company conducted detailed studies of Jadestone’s existing operated asset base[2] to develop a GHG emissions reduction roadmap. Jadestone identified a range of GHG emissions reduction measures, which were screened and subjected to technical and economic evaluation. Based on the GHG emissions forecasts in this roadmap, the Company is committing to reduce the combined absolute Scope 1 and 2 GHG emissions from its operated assets, (i) by 20% by 2026 and (ii) by 45% by 2030 (both from 2021 levels).
The interim 2026 and 2030 targets are expected to be achieved through a combination of flaring reduction measures, natural field declines and high quality carbon credits. The combined cost associated with the GHG emissions reduction measures incorporated into the interim targets set out above is currently estimated at US$15-30 million over the 2024-2030 period. The Company continues to identify, screen and implement new GHG reduction measures in an effort to further reduce direct emissions from its sites.
Paul Blakeley, President and CEO commented:
“The announcement of our interim GHG emissions reduction targets and associated investment is an important milestone for Jadestone on the road to Net Zero, and meets our commitment to report these by the end of 2023.
The Company believes that its strategy is a key component of the energy transition in the region, as existing fields and discoveries can fulfil hydrocarbon demand without requiring new resource additions from greenfield projects.
We look forward to providing further updates as we progress on our journey.”
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. The writer may or may not hold investments in the companies under discussion
