Acquisition and Fundraising

RNS Number : 3406H

Alkane Energy PLC

26 May 2011

 

Alkane Energy plc

("Alkane", "the Group" or "the Company")

Acquisition of Gas Exploration Licences

and Fundraising

Introduction

It is announced that today, Alkane Energy plc, the profitable alternative energy company, has agreed to acquire interests in two onshore gas exploration licences via the conditional acquisition of the entire issued share capital of Seven Star Natural Gas Ltd ("Seven Star") for an initial consideration of £0.30 million (the "Acquisition"), to be satisfied by the issue of 905,570 ordinary shares of 0.5 pence each in the capital of the Company ("Acquisition Shares") and the payment of £120,536 in cash to discharge certain loans to the vendor and other companies connected with the ultimate owners of the vendor. The Acquisition Shares have been placed with institutional shareholders on behalf of the vendor of Seven Star ("Vendor Placing"). Depending on the ultimate development of the licences, the total consideration payable, before royalties, could rise to £1.20 million subject to various success based stage payments.

At the same time the Company has, via an institutional placing (the "Placing"), raised £0.94 million (gross) though the issue and allotment of 4,699,800 ordinary shares of 0.5 pence each in the capital of the Company ("Placing Shares"). Both the Acquisition Shares and the Placing Shares were placed at a price of 20 pence per share (the "Placing Price").

After funding the cash cost of the Acquisition and related costs, the proceeds of the Placing will be used to fund future cash payments which may become due under the terms of the Acquisition and to provide additional working capital headroom to fund the Company's development of new gas to power assets in onshore gas, conventional gas and biogas energy projects.  The Directors believe that the Acquisition will enhance the Company's credentials with respect to the forthcoming DECC 14^th licensing round.  The Placing has been undertaken under the Company's existing authority to allot shares for cash on a non pre-emptive basis. 

Background to, and reasons for, the Acquisition

Alkane currently has an installed capacity of 38MW, operating from 12 mid size (up to 10MW) power plants across the UK. Of these, 11 operate on coal mine methane ("CMM") and one wholly on conventional gas. Alkane then sells the gas extracted from the mines or sells electricity through the electrical grid network, using standard modular reciprocating engines to generate the electricity.

In recent years Alkane's stated strategy has been to build upon its core gas to power skills through:

·     the organic growth of its CMM portfolio with a medium term target of approximately 20 sites, with 
50MW of capacity generating c.300GWh of power per annum; and

·     selective expansion into complementary businesses including conventional gas to power (utilising 
redundant installed capacity), provision of biogas power production plants to anaerobic digestion projects and the exploitation of traditional onshore gas reserves such as Seven Star, shale gas or coal bed methane.

The Acquisition of Seven Star provides Alkane with access to two existing licences that cover previously identified onshore gas sites. Subject to the successful development (which includes identifying drilling sites and agreeing appropriate property arrangements, licence extensions, planning permissions, grid connections etc.), the Company intends to commence the development of its first onshore gas to power facility at Calow, under PL213.  It is the Company's intention to include the development of the Calow site within the 2013 development programme, funded from the cash flow of the Company's operating CMM sites to deliver incremental capacity.

The Acquisition provides Alkane with access to licences over onshore gas sites that have been previously documented to have gas reserves of, in aggregate, approximately 3.50 bcf (based on 2C contingent resource data for the aggregate reserves identified at each site under the Seven Star licences) that have been subject to a Competent Persons Report ("CPR") produced on behalf of the Company by Tracs. Onshore gas reserves typically provide a high methane quality and content and a predictable resource.

Information on Seven Star

Seven Star is a wholly owned subsidiary of UK Methane Limited which is a wholly owned subsidiary of UK Onshore Gas Limited. Seven Star holds a 100% operator participating interest in licence  PL213 and a 50% participating interest in licence PEDL141. Egdon Resources is the designated operator and holds a 46% interest. Altwood Petroleum holds the remaining 4% interest in PEDL141. Each of the PL213 and PEDL141 licences (the "Licences") grants the licensee(s) the exclusive right to search, bore for and extract hydrocarbons from the licensed area.

The standard conditions which apply to the Licences mean that the Licences can be revoked if there is a change of control of Seven Star and Seven Star fails to comply with any instruction from DECC requiring a further change of control. Alkane has had initial discussions with DECC in relation to the Acquisition and whilst DECC is unable to provide an "irrevocable commitment" that it does not intend to seek a further change of control following completion of the Acquisition until after the acquisition has taken place, the Directors believe that the appropriate confirmations and approvals from DECC will be forthcoming. Additionally, in order to develop the site at Nooks Farm under PEDL141, it may require the license to be extended by DECC, which if it cannot be agreed means that the Company may lose its development and gas extraction rights under PEDL141. Alkane has not paid any up-front payment in relation to PEDL141.

Details of the Acquisition

The acquisition agreement was conditionally entered into on 23 May 2011 and will complete on admission to AIM of the Acquisition Shares. The consideration payable, or which may become payable, by the Company pursuant to the acquisition agreement is as follows:

·     the Company has allotted the Acquisition Shares, with the cash proceeds of the Vendor Placing of 
£181,114 being payable to the vendor following Admission; and

·     within 2 business days of receipt of the proceeds of the Placing, the Company will procure that Seven 
Star repays loans of £120,536 which are owed by Seven Star to the vendor and other entities connected with the ultimate owners of the vendor.

Upon the successful development of the Seven Star Licences, Alkane will be required to pay to the vendor of Seven Star:

·     £250,000 within 15 business days of the satisfaction of certain conditions with respect to the site at 
Calow (PL213);

·     £250,000 within 15 business days of the satisfaction of certain conditions with respect to the site at 
Nooks Farm (PEDL141);

·     £400,000 once Seven Star has produced in aggregate 1 bcf of natural gas from either or both of the 
Seven Star sites under the Licences; and

·     amounts equal to 4% (Calow) and 6% (Nooks Farm) of the gross income on sales or revenue derived 
from natural gas over and above 1 bcf (excluding VAT) received by the Company from the sale of electricity derived from the natural gas and / or hydrocarbons which have been extracted under the Licences.

The conditions with respect to each of the two payments of £250,000 include Seven Star having obtained an unconditional planning consent, having successfully completed a gas test at such site and having a grid connection in place at the relevant site.

Completion of the Acquisition is conditional upon, inter alia, admission of the Acquisition Shares.

Reasons for the Placing and use of proceeds

In 2009, Alkane disposed of its German associate company, Pro2 Anlagentechnik GmbH ("Pro2"), for a total cash consideration, including the repayment of a shareholder loan, of €5.6 million. The proceeds of the Pro2 disposal plus external bank debt and the strong operating cashflows generated by Alkane's existing CMM portfolio, are expected to be sufficient to finance the Company's medium term CMM capacity target of 50MW.

In addition to the organic growth of the CMM portfolio, the Company has been looking at ways to continue its growth strategy in complementary business areas, of which the Acquisition of Seven Star is one.

After funding the cash cost of the Acquisition and related costs, the proceeds of the Placing, which total £0.94 million (gross), will be used to provide additional working capital headroom to fund the Company's development of new gas to power assets in onshore gas, conventional gas and biogas energy projects as well as enhancing Alkane's credentials and proposal to DECC under the forthcoming DECC 14^th licensing round for new CMM, onshore gas and other gas reserve extraction licences.

Details of the Placing

The Company is pleased to announce that Altium has on the Company's behalf sold the Acquisition Shares and the Placing Shares at the Placing Price with certain institutional investors to raise, in aggregate, approximately £1.12 million (gross). Under the Placing, Neil O'Brien, Chief Executive, has subscribed for 100,000 Placing Shares.

The Placing Price represents a 13% discount to the closing mid-market price of 23 pence per ordinary share on 25 May 2011 (being the last practicable date prior to the date of this announcement). The Acquisition Shares and Placing Shares represent approximately 5.6% of the fully diluted share capital as enlarged by the Vendor Placing and the Placing.

The Acquisition Shares and Placing Shares will be issued credited as fully paid and will rank pari passu in all respects with the existing ordinary shares, including as to the right to receive and retain all dividends and other distributions declared, made or paid after Admission.

Admission and dealing arrangements

Application has been made to the London Stock Exchange for Admission of the Acquisition Shares and the Placing Shares. It is expected that Admission will become effective and that dealings in the Acquisition Shares and the Placing Shares will commence at 8:00 a.m. (London time) 27 May 2011.

Neil O'Brien, CEO, commented on the acquisition and placing:

"We are delighted to have completed this transaction which is consistent with our stated strategy to broaden our gas to power activities. The Licences will be added to our project pipeline and provide us with a mid-case contingent resource of 3.5 bcf for the two Licences.  We believe this opportunity will give us a sound platform from which to develop in the future."

For more information please contact:

Alkane Energy plc Neil O'Brien, Chief Executive Officer Steve Goalby, Finance Director	01623 827927 01623 827927
Altium Capital Limited Adrian Reed, Financial Advisory Chloe Ponsonby, Corporate Broking	0845 505 4343 020 7484 4040
Hudson Sandler Nick Lyon Kate Hough Alex Brennan	020 7796 4133
www.alkane.co.uk

Background Information

Alkane Energy has the UK's leading portfolio of coal mine methane ("CMM") licences, enabling the Company to extract gas from abandoned coal mines.  Alkane started extracting CMM in 1999 with sites at Shirebrook, Steetley and Markham.  Shirebrook and Markham are still operational today, a decade after they were opened.  Shirebrook is still producing CMM and surplus capacity has been deployed to conventional peak load along with capacity at Markham.  

The Group now generates power from 12 mid size (less than 10MW) plants across the UK and sells this power through the electricity distribution network.  The electricity is generated using standard modular reciprocating engines, and these units and other ancillary plant are designed to be flexible and transportable.  This allows additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency. 

Alkane's skills and ambitions are not limited to CMM.  The operating model has already been transferred to demand response running at peak periods using conventional gas.  Alkane currently operates 10MW across two sites on conventional gas with our trading partners GDF SUEZ Energy UK. 

The Biogas market also provides a potential new business stream which will require the same power assets and core gas and electricity skills as CMM.

Coal Bed Methane ("CBM") and Shale Gas are potential longer term opportunities where Alkane has 500km² of DECC petroleum licences and contingent CBM resource estimates of circa 350 billion cubic feet. 

 

END

 

 

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