LICENCE PL001 FARMOUT AGREEMENT

RNS Number : 9636J

Argos Resources Ltd

13 April 2015

 

13 April 2015

Argos Resources Limited

LICENCE PL001 FARMOUT AGREEMENT

Participation in Current Falkland Islands Drilling Campaign and Future Licence Development

and

Argos to Receive a Royalty Interest From all Developed Discoveries for the Licence Duration

Argos Resources Limited (AIM: ARG.L) (the "Company"), the Falkland Islands based exploration company focussed on the North Falkland Basin, is pleased to confirm that its wholly-owned subsidiary, Argos Exploration Limited ("AEL"), (together "Argos") has entered into a farmout agreement (the "Agreement") with Noble Energy Falklands Limited ("Noble") and Edison International S.p.A ("Edison") which will allow exploration drilling on its Licence PL001 (the "Licence"), covering an area of approximately 1,126 square kilometres in the North Falkland Basin (the "Licence Area"), to proceed as part of the current 2015 drilling programme (the "Transaction").

Highlights

·     Noble will assume operatorship of Licence PL001 from Argos;

·     Noble and Edison will earn a 75% and 25% working interest in the Licence respectively;

·     Noble and Edison have committed to drill an exploration well in the Licence Area during the current
 drilling campaign at no cost to Argos;

·     Argos will retain an overriding royalty interest of 5% of gross revenues from all hydrocarbon discoveries
 developed within the Licence (the "ORRI");

·     Argos will have no requirement to contribute to any future capital or operating expenditures incurred
 over the life of the Licence;

·     Argos will receive US$2.75 million in cash upon completion of the Transaction and US$800,000 per
 annum from 1 January 2016 through to receipt of the first royalty payment pursuant to the ORRI (if any)
 as reimbursement for certain historic costs incurred by Argos in relation to the maintenance of the
 Licence and the acquisition of certain seismic and other data in respect of the Licence Area;

·     The proceeds are expected to be sufficient to meet all anticipated transaction costs and running costs
 through to receipt of the first such royalty payment pursuant to the terms of the ORRI;

·     The initial exploration well will test the Rhea prospect and will fulfil the remaining work obligation on
 the Second Exploration Term of the Licence;

·     Should Noble and Edison elect to surrender the Licence following the drilling of the initial exploration
 well, Argos has retained the right to have 100% of the working interest reassigned to it, subject to
 appropriate Falkland Islands Government approvals; and

·     Completion of the Transaction is subject to Shareholder, government, regulatory and partner approvals.

Completion of the Transaction is subject to the consent of Shareholders being obtained at a General Meeting of the Company and a notice convening a General Meeting for 5.00 p.m. on 4 May 2015 at Falkland Islands Chamber of Commerce, Stanley, Falkland Islands to consider the Resolution set out at the end of the Circular will be posted to Shareholders on 17 April 2015.

All capitalised terms in this announcement are as defined in the Appendix.

Ian Thomson, Chairman of Argos, commented:

"We are delighted to have entered into this agreement with such highly-regarded and financially robust partners as Noble and Edison.   The innovative nature of the transaction means that there is no material Shareholder dilution or further Shareholder funding required by the Company for any future investments in Licence PL001. In addition, with ongoing working capital requirements catered for by the terms of this agreement and the Second Exploration Term work obligation on our Three Exploration Term Licence now covered, the financial position and outlook for the Company is robust.

We are pleased to be participating in the 2015 drilling campaign in the North Falkland Basin, which is already underway, and look forward to the drilling of the first exploration well to test the Rhea Stack.  Rhea has always been our top-ranked prospect in which we estimate a resource potential of 449 million barrels of recoverable oil. We are especially delighted that, following their own extensive technical work, Noble and Edison have selected this as their first exploration target on the Licence. We believe that success at Rhea will de-risk other prospects in the Licence.

I am sure Shareholders will share in the Board's excitement at this important milestone in the Company's life. The Board recognises and is grateful for the continuing support and loyalty shown by Shareholders. The Company will continue to evaluate further investment opportunities in its core business area."

For further information:

Argos Resources Limited

([phone])

www.argosresources.com

Ian Thomson, Chairman

John Hogan, Managing Director

Nomura International plc (Financial Adviser)

([phone])

John Bigham

Henry Phillips

Wouter Leemhuis

Cenkos Securities plc (Nomad & Broker)

Derrick Lee ([phone])

Neil McDonald ([phone])

Citigate Dewe Rogerson (Communications Adviser)

([phone])

Martin Jackson

Shabnam Bashir

Nomura International plc, which is authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority and Prudential Regulation Authority, is acting exclusively for Argos Resources Limited and no one else in connection with the Agreement and will not be responsible to anyone other than Argos Resources Limited for providing the protections afforded to clients of Nomura International plc nor for providing advice in connection with the Agreement or this announcement or any matter referred to herein.

Proposed Farmout Agreement and Notice of General Meeting

1.    Introduction

The Company announces that its wholly-owned subsidiary, Argos Exploration Limited ("AEL")(together "Argos"), has entered into the Farmout Agreement with Noble Energy Falklands Limited and Edison International S.p.A in respect of the Company's principal asset, a 100 percent interest in production licence PL001 covering an area of approximately 1,126 square kilometres in the North Falkland Basin (the "Transaction").

The value of the Transaction relative to the Company's current market capitalisation means that Completion is deemed to be a disposal resulting in a fundamental change of business of the Company under Rule 15 of the AIM Rules. Accordingly, completion of the Transaction is conditional on the approval of Shareholders at a General Meeting and a notice convening the General Meeting for 5.00 p.m. on 4 May 2015 at Falkland Islands Chamber of Commerce, Stanley, Falkland Islands to consider the Resolution set out at the end of the Circular will  be posted to Shareholders on 17 April 2015.

The text below is intended to provide Shareholders with information about the background to, and the reasons for, the Transaction and to explain why the Board considers it to be in the best interests of the Company and its Shareholders as a whole and, further, why the Directors recommend that Shareholders vote in favour of the Resolution to be proposed at the General Meeting.

Further details of the Transaction are set out in paragraph 3 below under the heading "Principal terms of the Transaction" together with, at paragraph 4 below, details of the Company's ongoing activities and strategy following completion of the Transaction.

2.    Background to and Reasons for the Transaction

Licence PL001 covers an area of approximately 1,126 square kilometres in the North Falkland Basin. The Licence is adjacent and to the west of the large Sea Lion oil discovery which is reported to contains some 400 million barrels of recoverable oil.

A 3D seismic survey was acquired by the Company in early 2011 covering the entire Licence Area. The quality of the seismic data acquired is excellent and has led to the identification of 52 prospects and 40 leads within the Licence. The Company's Competent Person's Report ("CPR") issued in July 2013 describes 52 prospects with a total unrisked potential of 3.1 billion barrels of prospective recoverable resource in the most likely case, and up to 10.4 billion barrels in the upside case.

Under the terms of the Licence, AEL has an outstanding commitment to drill an exploration well on the Licence no later than 25 November 2016, which is the date of the end of the Second of Three Exploration Terms of the Licence. The Company has been seeking financially and operationally strong farmin partners to meet the substantial costs of drilling this commitment well and has reported progress on these efforts to Shareholders in previous communications.

Due to its remote location, it is not practical or cost-effective to mobilise a rig to the Falkland Islands to drill a single well and, in the two previous drilling campaigns undertaken in 1998 and 2010/11, licence holders across the basin have collaborated to share the costs in multi-well drilling campaigns. A similar, third, collaborative drilling campaign began in February 2015 with the Eirik Raude rig currently operating offshore the Falkland Islands. The Company considers it imperative that it participates in drilling on PL001 as part of this campaign while sufficient time remains on the Licence to both explore its prospectivity and to fulfil the drilling commitment.

From the large inventory of prospects described in the Company's CPR, the Rhea prospect (and Rhea Stack) is the Company's top ranked prospect. The CPR describes the Rhea Stack as containing a best estimate unrisked resource potential of 449 million barrels of recoverable oil, increasing to 1,463 million barrels in the upside case. As described in paragraph 3 below, as part of the Transaction the Farmees have committed to drill an exploration well and have elected to test the Rhea prospect during the current drilling campaign at no cost to Argos. The Company believes that success at Rhea will de-risk other prospects in the Licence.

In addition to the targeted Rhea prospect, the ORRI (described in paragraph 3 below) provides the Company with continued material exposure to further drilling and success across the Licence Area, which contains a best estimate of 3.1 billion barrels of prospective recoverable resource. Argos will have no requirement to contribute to any future capital or operating expenditures incurred in respect of the Licence.

3.    Principal terms of the Transaction

The principal terms of the Transaction are summarised below:

(a)          Noble will assume operatorship of Licence PL001 from Argos;

(b)          Noble and Edison will earn a 75% and 25% working interest in the Licence respectively;

(c)           Noble and Edison have committed to drill an exploration well in the Licence Area during the
current drilling campaign at no cost to Argos;

(d)          Argos will retain an overriding royalty interest of 5% of gross revenues from all hydrocarbon
discoveries developed within the Licence (the "ORRI");

(e)          Argos will have no requirement to contribute to any future capital or operating expenditures
incurred over the life of the Licence;

(f)           Argos will receive US$2.75 million in cash upon completion of the Transaction and US$800,000
per annum from 1 January 2016 through to receipt of the first royalty payment pursuant to the ORRI (if any) as reimbursement for certain historic costs incurred by Argos in relation to the maintenance of the Licence and the acquisition of certain seismic and other data in respect of the Licence Area;

(g)          The proceeds are expected to be sufficient to meet all anticipated transaction costs and running costs through to receipt of the first such royalty payment pursuant to the terms of the ORRI;

(h)          The initial exploration well will test the Rhea prospect and will fulfil the remaining work
obligation on the Second Exploration Term of the Licence;

(i)           Should Noble and Edison elect to surrender the Licence following the drilling of the initial exploration well Argos has retained the right to have 100% of the working interest reassigned to it, subject to appropriate Falkland Islands Government approvals; and

(j)           Completion of the Transaction is subject to Shareholder, government, regulatory and partner approvals.

The Company is pleased to have reached agreement on the Transaction with such highly-regarded and financially robust partners as Noble and Edison and, as a consequence, to be participating in the 2015 drilling campaign in the North Falkland Basin. Noble Energy, an S&P 500 company (NYSE: NBL), is a world-class operator with an outstanding track record and reserves of 1.4 billion barrels of oil equivalent. Edison is a leading European energy company and a part of the EDF (Electricité de France) group.

4.    Ongoing activities and strategy

The Company has a strong and experienced management team with extensive experience in both the oil and gas industry and the Falkland Islands. Accordingly, following completion of the Transaction, the Company will seek to identify additional ways to create value for Shareholders utilising this expertise.

The innovative nature of the Transaction means that there is no material Shareholder dilution or further material Shareholder funding required by the Company for any future investments in the Licence. In addition, the Company's ongoing working capital requirements are expected to be covered by the terms of the Transaction and, with the prospect of a further 10 year Third Exploration Term ahead, the Directors believe that the financial position and outlook for the Company is robust.

In addition to its existing interest in the Licence through the ORRI, the Company has an agreement over an area of mutual interest ("AMI") with a third party covering unlicensed acreage to the north of the Licence Area which is not subject to the Transaction and within which it has acquired proprietary 3D seismic data. The Company intends to further evaluate the seismic data obtained with a view to a decision on applying either on its own or jointly with a third party for new licences within the AMI.

In addition, there is unlicensed acreage elsewhere offshore the Falkland Islands and the Company expects that there will also be acreage which is currently licensed but which may have to be relinquished over the next few years under the terms of the Falkland Islands licensing regime. The Company has access to seismic data over many of these areas and intends to review this unlicensed acreage and to constantly monitor relinquished acreage as it becomes available with a view to potentially applying for new licences on areas considered prospective from these ongoing efforts.

5.    Details of the General Meeting

As described above, the value of the Transaction is such that it is classified as a fundamental change of business for the purpose of Rule 15 of the AIM Rules and Shareholder approval for the Transaction is required to be obtained at a General Meeting.

A notice convening the General Meeting will be set out at the end of the Circular which will be posted to Shareholders on 17 April 2015. The General Meeting is to be held at 5.00 p.m. on 4 May 2015 at Falkland Islands Chamber of Commerce, Stanley, Falkland Islands and Shareholders will be asked to consider and, if thought fit, approve the following Resolution which will be proposed as an ordinary resolution:

Resolution 1

THAT approval be and is hereby given to the proposed assignment (the "Transaction") of certain business and assets of Argos Exploration Limited on the terms of a farmout agreement dated  13 April 2015 made between Argos Exploration Limited, Noble Energy Falklands Limited and Edison International S.p.A (the terms of that agreement being more particularly described in the Circular dated 17 April 2015 issued by the Company to its Shareholders and containing a notice of General Meeting to consider this resolution) with such revisions and amendments of a non-material nature as the Directors may approve and all acts, agreements, arrangements and indemnities necessary or, in the opinion of the Directors, desirable in order to facilitate the Transaction.

6.    Action to be taken

A Form of Proxy for use at the General Meeting will be enclosed with the Circular. Whether or not you intend to be present at the General Meeting, you are requested to complete the Form of Proxy in accordance with the instructions therein and return it to the Company's Registrars, Computershare Investor Services (Jersey) Ltd, Queensway House, Hilgrove Street, St Helier, Jersey JE1 1ES as soon as possible and in any event not later than 5.00 p.m. on 30 April 2015, being 48 hours before the time of the General Meeting (excluding non-working days). The completion and return of the Form of Proxy will not preclude you from attending the General Meeting and voting in person if you wish to do so.

7.    Documents available

Following publication of the Circular, copies will be available to the public free of charge at the Company's registered office and at the offices of Peachey & Co LLP, 95 Aldwych, London WC2B 4JF during business hours, Monday to Friday, except bank holidays for one month following publication.

The Circular will also available on the Company's website, www.argosresources.com.

8.    Recommendation

Your Board considers the Transaction and passing of the Resolution to be in the best interests of the Company and Shareholders as a whole.

Accordingly, the Directors unanimously recommend that the Shareholders vote in favour of the Resolution as those who hold Ordinary Shares have themselves irrevocably undertaken to do in respect of their entire beneficial holdings of Ordinary Shares amounting to, in aggregate, 32,211,613 Ordinary Shares, representing approximately 14.7 per cent. of the existing issued share capital of the Company.

Definitions

The following definitions apply throughout this announcement, the Circular and the accompanying Form of Proxy, unless the context otherwise requires:

"AEL"	Argos Exploration Limited, a wholly-owned subsidiary of the Company
"AIM"	the AIM market operated by the London Stock Exchange
"AIM Rules"	the AIM rules for Companies published by the London Stock Exchange in May 2014 (as amended) governing the admission to and the operation of AIM
"Argos"	Argos Resources Limited, and its wholly-owned subsidiary Argos Exploration Limited
"Board" or "Directors"	the directors of the Company
"Cenkos"	Cenkos Securities plc, which is authorised and regulated by the Financial Conduct Authority
"Circular" or "this document"	the document dated on or around the date of this announcement, including the notice convening the General Meeting
"Company"	Argos Resources Limited, incorporated in the Falkland Islands with registered number 10605 and whose registered office is at Argos House, H Jones Road, Stanley, Falkland Islands FIQQ 1ZZ
"Completion"	completion of the Transaction
"Computershare" or "Registrars"	Computershare Investor Services (Jersey) Limited
"Edison"	Edison International S.p.A
"Farmees"	Noble and Edison
"Farmout Agreement" or "Agreement"	the farmout agreement dated 13 April 2015 made between AEL and the Farmees for the assignment of AEL's 100% working interest in the Licence to Noble (as to 75%) and Edison (as to 25%)
"FCA"	the Financial Conduct Authority of the United Kingdom.
"Form of Proxy"	the form of proxy for use at the General Meeting which will be enclosed with the Circular
"General Meeting"	the General Meeting of the Company to be held at 5.00 p.m. on 4 May 2015 at Falkland Islands Chamber of Commerce, Stanley, Falkland Islands
"Licence" or "PL001"	production licence PL001 covering an area of approximately 1,126 square kilometres in the North Falkland Basin
"Licence Area"	the 1,126 square kilometres (approximately) covered by the Licence as at the date of this announcement
"London Stock Exchange"	London Stock Exchange plc
"Noble"	Noble Energy Falklands Limited, a subsidiary of Noble Energy
"Noble Energy"	Noble Energy, Inc.
"Ordinary Shares"	ordinary shares of two pence each in the issued share capital of the Company
"ORRI"	the overriding royalty interest agreement dated 13 April 2015 made between AEL and the Farmees pursuant to which AEL shall retain a right to 5% of gross revenues from all hydrocarbon discoveries developed within the Licence
"Resolution"	the resolution as set out in the Notice which will be contained at the end of the Circular
"Shareholders"	the holders of Ordinary Shares
"Transaction"	the completion of the Farmout Agreement, the ORRI and related documentation, and the consequential assignment of the Licence to the Farmees
"United Kingdom" or "UK"	the United Kingdom of Great Britain and Northern Ireland
"United Kingdom Listing Authority" or "UKLA"	the FCA, acting in its capacity as the competent authority for the purposes of Part IV of the FSMA
"£"	Pounds Sterling, the lawful currency of the United Kingdom
"US$"	United States Dollars, the lawful currency of the United States of America

 

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