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This year you kind of know that if a spanner has been chucked into the works it will be from Russia with love. Yesterday the pre-Opec meeting expectations, being carefully managed by the KSA were thrown into turmoil not by one Russian but two, indeed as if speaking as one both Putin and Novak challenged the need for any changes in next week’s meeting. Boom!
In Washington, we are being told to stand by for a deal between the debt participants, maybe even before they all head home for the holiday weekend.
And just to reiterate how important the driving season is, after I noted that the AAA said that 6% more road trips would happen this weekend the US air dept have said that for the first time ever 3m people would be flying on any one day…Who said that fossil fuels are over…?
Touchstone has announced that Touchstone Exploration (Trinidad) Ltd., our wholly owned Trinidadian subsidiary, has entered into a second amended and restated loan agreement with our Trinidad based lender providing for an additional US$7 million revolving loan (the “Amended Loan Agreement”).
The Amended Loan Agreement provides for a US$7 million revolving loan facility in addition to the existing term facility. The existing term facility component of the Amended Loan Agreement currently has a principal balance of US$25.5 million, with seventeen equal and consecutive quarterly principal payments of US$1.5 million outstanding and a maturity date of June 15, 2027. Republic Bank Limited is continuing to act as the sole lender, arranger and facility agent of the Amended Loan Agreement.
Touchstone intends to use the revolving loan proceeds to maintain financial flexibility while we proceed with Royston-1X production testing operations and Cascadura facility construction where we continue to target for first production on or around June 30, 2023.
Aside from adding the revolving loan component, the Amended Loan Agreement did not alter any material terms of the Company’s first amended and restated loan agreement effective December 20, 2021. The revolving component of the Amended Loan Agreement has the following terms and conditions, with no additional financial or affirmative and negative covenants other than as provided under the first amended and restated loan agreement between the parties.
An important and totally sensible debt facility for TXP which gives it the key flexibility it needs as the company progresses with both the huge Cascadura development and the testing at Royston. When the former starts to kick in, cash flow will be substantial and I am still fully confident that this year is going to be a memorable one for the company.
Touchstone Exploration (Trinidad) Ltd.
Additional facility type:
One year, with the option to extend annually by additional periods of up to one year
Fixed on drawdown date, based on the one year term Secured Overnight Financing Rate (SOFR) plus an applicable margin per annum, reset annually
Payable monthly in arrears
Principal may be repaid at any time, on or before the maturity date without penalty and any amounts repaid may be redrawn at any time
Increase of existing senior mortgage debenture over the fixed and floating assets of the Borrower and its subsidiaries
As previously announced, the share purchase agreement with PETRONAS (E&P) Overseas Ventures SDN. BHD for a wholly owned affiliate of Savannah to acquire PETRONAS’ upstream and midstream asset portfolio in Chad and Cameroon was terminated by mutual agreement on 13 December 2022. PETRONAS has informed Savannah that it has now completed the sale of these assets to Societe des Hydrocarbures du Tchad, the national oil company of Chad. PETRONAS owned 29.77% of Cameroon Oil Transportation Company S.A. (“COTCo”). Savannah has an effective 41.06% indirect equity interest in COTCo, which was acquired from ExxonMobil in a separate transaction that completed on 9 December 2022.
Completion of the Transaction required an approval (the “Approval”) from the President of the Economic and Monetary Commission of Central Africa (“CEMAC”) which was granted in Malabo on 15 May 2023. At the request of CEMAC, the Approval is subject to certain important conditions, including the dilution of SHT’s shareholding in COTCo through the sale of shares in COTCo from SHT to Société Nationale des Hydrocarbures (“SNH”), the national oil company of Cameroon, and a commitment by SHT to maintain the current shareholders’ board appointment rights provided by COTCo’s bylaws and in particular to not exceed 4 directors representing SHT at the COTCo board of directors.
COTCo has informed Savannah and the other COTCo shareholders that it has not been notified as to how and when the conditions of the Approval will be satisfied. The May COTCo shareholders’ meetings have therefore been postponed by COTCo, pending clarity on the fulfilment of these conditions.
As previously announced, pursuant to the terms of a sales and purchase agreement, Savannah Midstream Investment Limited (“SMIL”), a wholly owned subsidiary of Savannah, has agreed to sell a 10% interest in COTCo to SNH, which would see SMIL’s ownership interest reduce from 41.06% to 31.06%. As part of this agreement, SNH and SMIL pledged, inter alia, their support of one another as shareholders in COTCo.
A technical update from SAVE with regard to COTCo this morning, does what it says on the tin.
Echo has announced that, further to the Heads of Terms announced on 9 May 2023, the Company has now signed binding transaction documents, subject to shareholder approval, on broadly the terms outlined in the Heads of Terms.
The Board of the Company is requesting shareholder approval for the partial sale of its Santa Cruz Sur assets on the basis that it:
· Addresses the Company’s near-term funding challenges by providing near term funding, enabling the Company to transfer to Buyers the significant in-country creditors which had built up during the COVID-19 period and providing access to funding for the Santa Cruz assets.
· Provides continued exposure (both directly through the retained 5%, the contingent payments, the further 5% option and the indirect holding in the Operator) to a well-funded Santa Cruz portfolio, with the concessions likely to be extended as a result of the provision of guarantee.
· Provides the company a new platform from which to move forward with an opportunity to drill an exploratory well on a strong Colombian portfolio with its corresponding lower risk jurisdiction and a clean balance sheet whilst still receiving cash flow from its 5% position in the producing assets of Santa Cruz Sur.
– Sale and Purchase Agreement signed with Selva Maria Oil S.A. and Interoil Exploration and Production ASA, conditional on Echo shareholder approval, for the proposed disposal of 65% out of the Company’s current 70% working interest in Santa Cruz Sur for a cash consideration of up to £1.725 million, consisting of:
– a cash consideration of £0.825 million, with an initial cash payment of £75,000 due immediately; and
– contingent cash payments of up to an aggregate of £0.5 million; and
– payment in kind of £0.4 million via issue of new shares of Interoil Exploration and Production ASA (“Interoil”) upon completion, providing the Company with additional upside exposure to the Santa Cruz Sur assets.
– The Company would retain a 5% non-operated working interest, with significantly lower exposure to ongoing costs and legacy in-country liabilities.
– As part of the transaction, the Company’s remaining 5% working interest would receive a financial guarantee from Selva Maria Oil S.A. for a period of 10 years sufficient to meet the requirements of the Argentine authorities such that all owners of the Santa Cruz portfolio, including the Echo Argentine subsidiaries, will qualify for full title to the concessions and qualify for a 10 year extension to the concessions (the “Guarantee”). The concessions extension is a critical value inflexion point for the concessions.
– The parties intend to evaluate the prospect of the potential future acquisition by the Company of a producing Colombian portfolio from the Buyers resulting from an option to drill an exploratory well therein subject to due diligence and future agreements as to terms (the “Option”).
– Interoil to subscribe for 115,384,615 new ordinary shares in Echo, representing 0.02% of the Company’s enlarged issued share capital, at an issue price of 0.0625 pence per new ordinary share (the “Issue of Equity”). This price is a 100% premium to the mid-price on 5 May 2023.
The SPA covering the Proposed Disposal, the ancillary Guarantee and the Option, is conditional, inter alia, upon Echo shareholder approval pursuant to Rule 15 of the AIM Rules for Companies and the Issue of Equity is conditional upon, inter alia, a required capital re-organisation of the Company to enable the issue of new ordinary shares at the Issue Price (the “Proposed Reorganisation”). Further details of the Proposed Reorganisation are set out below.
A circular containing detailed information about the Proposed Disposal, the Guarantee, the Option, the Proposed Reorganisation and the Issue of Equity will shortly be published and available from the Company’s website at www.echoenergyplc.com.
Background to and reasons for the Disposal
Given the Company’s large creditor position which originated from the COVID-19 period where the asset was sub-economic, 100%+ per annum inflation in Argentina and Argentine currency exchange controls, which have prevented funds being withdrawn from the country without significant penalties, the raising of additional equity for an Argentine business has been challenging.
Having continued to explore all means of raising required near term funding, the Directors see the Proposed Disposal as a pathway to address the Company’s near-term funding challenge by enabling the Company to transfer to the Buyers the significant in-country creditors that had built up during the COVID-19 period and providing access to funding for the Santa Cruz assets.
The disposal provides continued exposure (both directly through the retained 5%, the contingent payments, the further 5% option and the indirect holding in the Operator) to a well-funded Santa Cruz portfolio, with the concessions likely to be extended as a result of the provision of the guarantee.
Furthermore, the disposal provides the Company a new platform from which to move forward with an option on a strong Colombian portfolio with its corresponding lower risk jurisdiction and a clean balance sheet whilst still receiving cash flow from its 5% position in the producing assets of Santa Cruz Sur.
The Directors do not see a viable alternative to this transaction without a significant improvement in the Argentine macro-economic situation or the availability of alternative funding.
Vision For the Future
The Company sees significant opportunities at this point in the economic cycle to secure new oil and gas assets in the region at attractive valuations. Therefore, whilst this Transaction puts the Company on a much more financially stable trajectory, the Company also expects to be very active acquiring new assets and is already in discussions on various opportunities. The Company is introducing a series of cash preservation measures to ensure the funding from this transaction is preserved whilst the Company seeks to grow the business through the acquisition of new oil & gas and energy assets and / or the exercise of the existing Options. These measures include the current VP Exploration and Chief Financial Officer leaving Company service whilst a new Chief Operation Officer is being recruited, on a consultancy basis initially. The Directors also intend to take a portion of both their historic accrued salaries / fees and their forward salaries / fees in shares.
The Board views the 10 year concessions extension at Santa Cruz Sur as a critical value enabler and is therefore delighted that the Buyers will provide a financial guarantee to the Company sufficient to meet domestic regulatory requirements which is expected to help secure the extension. The Company will continue to have exposure to production upside through the contingent payments and Interoil shares, and moving forward will continue to receive its 5% share of production revenue plus has the option to repurchase a further 5% interest at a price of £0.1 million.
The potential to enter Colombia has the potential to rebuild the E&P portfolio in a new territory that does not suffer the macro inflationary and economic factors that Argentina does. It is a much more business friendly jurisdiction with a vibrant small-medium cap E&P sector – an exciting growth opportunity. The Chief Executive has extensive experience in Columbia.
Details of the Transaction
Further to the binding Term Sheet announced on 9 May 2023, the Company has now signed the SPA to sell 65% of its 70% holding in the Santa Cruz Sur business to Selva Maria Oil SA and Interoil Exploration & Production ASA. On Completion the Company therefore will retain a 5% working interest in the assets, will have an option to buy another 5% back and will have an indirect exposure through equity in the Operator.
Total consideration for the sale is up to £1.725M of which:
· Consideration of £0.825 million with:
· An upfront payment of £75,000 on execution of transaction documents (the “Execution Fixed
Consideration”), with the balance of £750,000
due on completion once shareholder approval has been obtained.
· Payment in kind of £0.4 million via transfer of Interoil shares upon completion, providing upside exposure
to the Santa Cruz asset via an equity position in the Operator
· Additional contingent payment of £0.4 million should production from the assets rise to 4,000 boepd
· Further contingent payment of £0.1 million should production from the assets rise to 6,000 boepd (gross)
The Company’s subscription for shares in Interoil is subject to lock-up provisions, which prevent the Company from disposing of the Consideration Shares during the first 12 months of the lock-up period (without exception) and then in limited tranches until the end of the 24-month lock-up period. In conjunction with this, the Company, Interoil and Selva María Oil S.A. have also entered into a ‘right of first refusal’ agreement under which, subject to the lock-up provisions contained in the subscription agreement, where the Company wishes to dispose of any of the Consideration Shares the Company must first offer such Consideration Shares to Interoil and Selva María Oil S.A.
The Buyers will provide a financial guarantee to cover Echo’s remaining 5% interest which is a critical step to enabling the securing of the concessions extension and was not something Echo could easily achieve on its own.
Echo will also retain an option to repurchase a 5% interest in the asset for a consideration of £0.1 million over a 6 month period, providing optionality in the event concessions extension or other value catalysts are achieved.
Additionally, the transaction is intended to provide, subject to the future agreement of terms between the parties, the Company with an ability to acquire an interest in Interoil’s Colombian assets (for a consideration and on terms to be agreed in future) after drilling and testing of an exploration well on the Maná Concessions. The Company can recover twice the cost of that well from associated production.
Further to the above, Interoil Exploration & Production ASA has agreed to subscribe to approximately 115.38 million shares at a price of 0.065 pence per share (raising £75,000). This represents a more than 100% premium to the closing mid-market price on 5 May 2023, the last trading day prior to announcement.
In addition to the approval of Echo shareholders, completion of the Proposed Disposal (“Completion”) is also conditional on, amongst other things, a financial guarantee provided by the Buyers for the benefit of Echo for the National Secretary of Energy & the Province of Santa Cruz.
In case the approval of Echo shareholders is not obtained and Buyers terminate the SPA on that basis, the Company shall reimburse the Execution Fixed Consideration and pay £60,000 to Interoil, unless the Company decides not to make those payments. In this last case, a transfer of 10% out of the Company’s current 70% working interest in Santa Cruz Sur business to Interoil will be completed.
Background to the Buyers
Founded in 2002, Selva María Oil S.A. is a natural resources exploration and exploitation company, which develops its activities mainly in the oil sector.
Interoil Exploration and Production ASA is an independent oil and gas exploration and production company that is listed on the Oslo Stock Exchange. Interoil is involved in the acquisition, exploration, development and operation of oil and natural gas properties in South America.
In order to proceed with the Issue of Equity, it is proposed that the existing ordinary shares in the capital of the Company (“Existing Ordinary Shares”) will be sub-divided into one New Ordinary Share with a nominal value of 0.0001 pence and one 2023 Deferred Share with a nominal value of 0.2499 pence. As the New Ordinary Shares will have a lower nominal value than the Existing Ordinary Shares, the Company will be able to undertake the Issue of Equity at the issue price of 0.0625 pence and otherwise be capable of issuing further New Ordinary Shares in the future at price(s) below 0.25 pence (being the nominal value of the Existing Ordinary Shares).
The number and percentage of New Ordinary Shares held by each shareholder following the Proposed Reorganisation will be the same as the number and percentage of Existing Ordinary Shares held by them. The rights attaching to the New Ordinary Shares will be identical in all respects to those of the Existing Ordinary Shares, including voting, dividend, return of capital and other rights. The 2023 Deferred Shares shall have limited rights. Namely, the 2023 Deferred Shares will not be entitled to receive any dividend out of the profits of the Company available for distribution, nor shall they be entitled to receive notice of or attend any general meeting of the Company, nor vote on the resolutions at the same.
The Proposed Reorganisation remains subject to shareholder approval.
New Conditional Gas Sales contract
As previously announced on 18 April the Company’s Argentine subsidiaries previously made an application to Argentina’s National Secretary of Energy under the Gas Plan regime (Gas Plan 5.2). The company is delighted to report it, and its joint venture partners, have now received the response that the application was successful. This is illustrative of the value which can be created at the Santa Cruz Sur assets in the event the portfolio is properly funded.
The new conditional contract under Gas Plan 5.2 (Santa Cruz Sur Basin) is with ENARSA (Energía Argentina Sociedad Anónima) and is for production volumes outside of those delivered under the existing gas contracts with industrial clients, as announced on 2nd February 2023.The new contract is applicable across all the assets in Santa Cruz Sur and will be in force over the period May 2023-Dec 2028. It has a base volume and an incremental volume. The base volume of 1.06 MMscf/d (gross 100% JV) attracts a price of US$3.46 per MMBTU. Any incremental production volume delivered above this base volume, and above the existing gas contracts with industrial clients, would achieve a gas price of US$9.975 per MMBTU until April 2026, a price of US$ 9.50 per MMBTU from May 2026 to Dec 2026 which reduces to US$ 5.90 per MMBTU for the remaining period of the Gas Plan Contract to December 2028. These prices are materially higher than the existing average sales prices achieved by the Company.
Achieving these incremental production volumes requires an additional investment of around US$ 5.3 million with an operational programme that includes approximately 13 individual workovers/well interventions, which the Company believes will be enabled by this transaction due to the Guarantee and the funding status of the Buyer.
The Company has therefore granted authorisation for the Operator of the Santa Cruz Sur assets to accept on behalf of the Company the terms of the Gas Plan 5.2 contract. The Company views this as one of many future value accretive consequences of the Proposed Divestment.
The Proposed Disposal of the Working Interest in Santa Cruz is subject to Echo shareholder approval pursuant to Rule 15 of the AIM Rules for Companies. A circular containing detailed information about the Proposed Disposal of the Working Interest in Santa Cruz will shortly be published and available from the Company’s website at www.echoenergyplc.com. A notice convening the General Meeting will be set out at the end of the Circular.
Recommendation and Voting Intentions
The Directors consider the transaction to be in the best interests of the Company and its Shareholders as a whole and do not see a viable alternative to the transaction without changes to the Argentina macro economic situation or a significant new external funding source. Accordingly, the Directors unanimously recommend that the Shareholders vote in favour of the Resolution to be proposed at the General Meeting
Martin Hull, Chief Executive Officer of Echo Energy, commented:
“I am delighted that we have progressed from the Head of Terms agreed recently to the signature of binding transaction documents. The transaction’s strategic importance to Echo is reinforced by the new gas contract we also announce today, through which the resulting new investment by the purchasers in the Santa Cruz Sur assets will secure exciting additional commercial upside for Echo. The contract also serves to demonstrate the positive future potential ahead for the company should we complete the transaction and see a step change in operational activity across the portfolio from which all parties in the transaction will benefit. With the completion of the transaction we will put the challenges resulting from the Covid pandemic behind us, and I look forward to updating shareholders on our further progress.”
Completion of this corporate activity is important as it frees up cash from Argentina and eases the need for further capex which will be required under the new GSA.
Europa Oil & Gas
Europa Oil & Gas (Holdings) plc, the AIM traded UK and Ireland focused oil and gas exploration, development, and production company, is hosting a retail investor ‘Meet the Team’ reception at the Ye Olde Cock Tavern, Holborn, London, EC4Y 1AA, on Thursday, 8 June 2023 between 3.00-6.00 p.m. BST.
Will Holland, CEO, and Alastair Stuart, COO, will give a presentation which will be followed by a Q&A session. After the presentation, there will be an informal reception where investors can meet other members of the team.
A very apposite time for this town hall meeting coming as it does after the arrival of Will Holland as CEO and the highly impressive Alastair Stuart as COO. Also, following the take over of Egdon Resources ,who share acreage at Wressle with EOG, the portfolio has taken on a new lease of life.
I will be attending this meeting and look forward to seeing any shareholders or potential investors then.
To register for the event, please click the following link: https://www.eventbrite.co.uk/e/europa-oil-gas-retail-investor-reception-tickets-631474135137
Please email [email protected] if you have any queries regarding the event.
Always a big sporting weekend when the F1 caravan rolls into Monte Carlo for the Monaco GP, an anachronistic event especially as now there are better street circuits around.
And it’s the last weekend of the domestic rugby weekend as Sarries take on Sale for the Premiership Cup.
Also the end of the footy Premiership where there are only a few issues to be sorted. The top of the table is done but there are two relegation spots left between three big teams. The Toffees who play the Cherries have it in their own hands, a win will send the Foxes and Leeds down to the Championship on Sunday. If they slip-up the Foxes play the Hammers and Leeds host Spurs and either could be safe if they win and the Cherries beat the Toffees.
Waiting in the wings are the winners of the Championship Play-off final tomorrow, a game we are always reminded is worth over £100m to the winner. So Covo play the Hatters and for both it would be a happy return to the elite next season, good luck to Mick Kent and the boys….
Sunday sees the League 2 play-off, not so rich but for Carlisle and Stockport fans equally important and on Monday League 1 sees Barnsley v the Owls aiming for the Championship.
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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
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