Norwegian Joint Venture with JAPEX

Longboat Energy PLC

02 May 2023

 

2 May 2023

Longboat Energy plc

("Longboat Energy", "Longboat" or the "Company")

Transformational Investment to Create a Norwegian Joint Venture with JAPEX

Longboat Energy, the emerging full-cycle E&P company, is pleased to announce that it has reached agreement with Japan Petroleum Exploration Co., Ltd ("JAPEX") to make a significant investment into its Norwegian subsidiary, Longboat Energy Norge AS ("Longboat Norge"), to form a joint venture. 

The joint venture will be renamed Longboat JAPEX Norge AS ("Longboat JAPEX" or the "Joint Venture"), with a goal of building a leading Norwegian-focussed independent.

Transaction highlights

Cash investment of up to US$50 million for 49.9% of Longboat JAPEX comprised of:

·	cash investment on completion of US$16 million;
·	a contingent consideration of US$4 million, payable on successful completion of a production acquisition currently under review; and
·	a further tranche of up to US$30 million, payable on a sliding scale following a successful discovery on the Velocette exploration well due to spud in Q3 2023.

JAPEX to provide the Joint Venture with a US$100 million Acquisition Financing Facility:

·	five-year facility to finance acquisitions and associated development costs in pursuit of the Joint Venture's strategy; and
·	interest rate based on a sliding scale with an all-in cost over the term of <10%.

JAPEX, founded in 1955, is a public company listed on the Tokyo Stock Exchange (m/cap ~US$1.8 billion) with proved reserves of 159 mmboe (2022/3) and production of 58,500 boepd (FY22). JAPEX's largest shareholder is the Japanese government (35%) via the Minister of Economy, Trade and Industry of Japan.

Longboat JAPEX will pursue a growth-led strategy to create value predominantly through the acquisition of development projects, growing 2P reserves and reaching a significant production level within three to five years. The Joint Venture will continue to target the drilling of one to three exploration and appraisal wells per year.  

Helge Hammer, Chief Executive of Longboat, commented: 

"Longboat is delighted to have found a strong and complementary strategic partner in JAPEX. JAPEX has been looking for the best way to enter Norway and identified Longboat as an excellent match to reach its strategic objective.

"The Longboat team has significant experience and expertise in the Norwegian E&P sector and has strong local industry relationships. JAPEX is a long-established E&P company with a strong balance sheet and significant worldwide technical competence including in the North Sea. By joining forces, we will have greater opportunities and strong financial backing to pursue them. We believe that this agreement has laid the foundations for exciting growth in the coming years.

"We are also pleased to be in a strong position to continue to pursue our interests in the Kveikje area as this development project is being matured and additional value created.      

"The team looks forward to delivering production and reserves growth to create value for shareholders both in Norway with JAPEX, but also in Malaysia following our recent entry into the region." 

Masahiro Fujita, President and CEO of JAPEX, commented: 

"JAPEX is very pleased that we have formed the partnership with Longboat for a Norwegian E&P business. We see a very strong alignment in the business expansion strategy in Norway and believe the combination of the Longboat team's significant experience and expertise in Norway and JAPEX's technical and financial competence will be very beneficial in pursuing such a strategy.

"I look forward to working closely with the Longboat team in pursuit of our common growth strategy in Norway."

Transaction Detail

Longboat has agreed to a significant investment from JAPEX into its Norwegian subsidiary, Longboat Energy Norge AS, to create an incorporated joint venture to be renamed Longboat JAPEX Norge AS . The Joint Venture will pursue a growth-led strategy to create value through the acquisition of development projects, 2P reserves growth and establishing a significant production level within three to five years. The Joint Venture will continue to target the drilling of one to three exploration and appraisal wells per year.

In return for a 49.9% interest in Longboat JAPEX, JAPEX will make an investment totalling up to US$50 million (together the "Investment"). The investment will be made in up to three tranches with the initial cash investment of US$16 million payable in full on completion of the transaction along with a completion adjustment based on a Locked Box approach from the Investment effective date of 1 January 2023 (which is anticipated to generate a small positive cash payment to Longboat JAPEX).

The second tranche of US$4 million is contingent and becomes payable on the successful negotiation and completion of small production acquisition, under current contemplation, in-line with the Joint Venture strategy (the "Contemplated Acquisition"). The Contemplated Acquisition remains subject to final negotiation and a number of key conditions, and there is no certainty the Contemplated Acquisition will reach completion, in which event the associated investment will fall away.

The third tranche (the "Velocette Tranche") of up to US$30 million is contingent on a successful discovery on the Velocette prospect, located in licence PL1016, and anticipated to drill in Q3 2023, targeting Gross Mean Resources of 177 mmboe¹ with a 30%¹ Chance of Success. The amount payable under the Velocette Tranche is based on a sliding scale of US$/boe values (zero to US$30 million) applied to the gross resources approved for development by the Norwegian Ministry of Petroleum and Energy. The scale has a minimum of 85 mmboe and maximum of 200 mmboe.

As part of the Investment, JAPEX will provide the Joint Venture with a five-year, US$100 million Acquisition Financing Facility (the "Facility") to finance acquisitions and associated development costs. The Facility will be available for drawing for the first three years subject to certain conditions, including mutually agreed acquisitions by the Joint Venture. The Facility will attract a market-rate of interest on an increasing scale over its tenor with an initial rate of 6% in the first year and an all-in cost over the term of less than 10%.

The Norwegian oil and gas industry continues to be very active with record high production levels at circa 4 million boepd, a continued high level of exploration and appraisal drilling activity at 30-40 wells year, and a high level of field development activity, where many new projects have been sanctioned recently and several new projects are now being matured towards final investment decisions. This very high level of activities implies a substantial M&A opportunity set, which represents the main targets for our new Joint Venture to deliver value creation and growth.

Furthermore, Norway continues to offer an attractive regulatory framework including a recent change in the Petroleum Tax System, which has resulted in significantly improved economics of new development projects. The main elements of the new system are the introduction of immediate expensing of investments, 71.8% repayment of all losses in the following year (compared to previously 72% of exploration losses only) and a corporate tax at 6.2% carried forward against future profits. The marginal tax rate remains unchanged at 78% but return on investments in development projects is significantly improved and the total capital requirements substantially reduced.

The Investment remains subject to customary regulatory, lender and partner approvals. Completion of the Investment is anticipated during the third quarter of 2023.

The information contained within this announcement is considered to be inside information prior to its release.

Investor Conference Call An updated corporate presentation is available on the Company's website and the management will also present to shareholders via the Investor Meet Company platform at 11.00 AM on Wednesday, 3 May 2023 which is open to all existing and potential shareholders. If you wish to attend the online presentation you should register for the event in advance via this link: https://www.investormeetcompany.com/longboat-energy-plc/register-investor Enquiries:

For further information, please contact: Longboat Energy Helge Hammer, Chief Executive Officer via FTI Jon Cooper, Chief Financial Officer Nick Ingrassia, Corporate Development Officer Stifel Nicolaus Europe Limited (Nominated Adviser and Joint Broker) Callum Stewart Tel: [phone] Jason Grossman Simon Mensley Ashton Clanfield Cenkos Securities plc (Joint Broker) Neil McDonald                 Tel: [phone] Pete Lynch Leif Powis FTI Consulting (PR adviser) Ben Brewerton Tel: [phone] Rosie Corbett [e-mail]

Background

Longboat Energy was established at the end of 2019 to create a full-cycle E&P company through value accretive M&A and near-field exploration. Since June 2021, Longboat has entered a series of four transactions to acquire interests in a portfolio of nine, gas-weighted exploration wells drilling on the Norwegian Continental Shelf close to existing infrastructure. To date, eight of these wells have been drilled resulting in five hydrocarbon discoveries, representing a technical 63% success rate.

In February 2023, Longboat entered Malaysia through the award of a Production Sharing Contract for Block 2A, offshore Sarawak. Block 2A covers approx. 12,000km² and is located in water depths of between 100-1,400 metres where a number of large prospects across multiple plays have been identified, with significant volume potential representing multiple trillions of cubic feet of gas.

Longboat's activities remain focused on creating a portfolio with a clear low-cost route to monetisation and low-carbon drilling and development opportunities, well aligned to Longboat's ESG targets which includes a corporate 'Net Zero' on a Scope 1 and 2 basis by 2050.

Standard

Estimates of reserves and resources have been prepared in accordance with the June 2018 Petroleum Resources Management System ("PRMS") as the standard for classification and reporting with an effective date of 31 December 2020.

Review by Qualified Person

The technical information in this release has been reviewed by Hilde Salthe, Managing Director Norge, who is a qualified person for the purposes of the AIM Guidance Note for Mining, Oil and Gas Companies. Ms Salthe is a petroleum geologist with more than 20 years' experience in the oil and gas industry. Ms Salthe has a master's degree from Faculty of Applied Earth Sciences at the Norwegian University of Science and Technology in Trondheim.

Glossary

"2P Reserves"	The sum of proved and probable reserves.  Denotes the best estimate scenario of reserves
"boe"	Barrels of oil equivalent
"boepd"	Barrels of oil equivalent per day
"mmboe"	Million barrels of oil equivalent

 

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