Issue of £1.5 million Loan Note

RNS Number : 2249Q

Predator Oil & Gas Holdings PLC

15 February 2019

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (596/2014/EU) ("MAR").

15 February 2019

Predator Oil & Gas Holdings Plc / Index: LSE / Epic: PRD / Sector: Oil & Gas

Predator Oil & Gas Holdings Plc

("Predator" or the "Company" and together with its subsidiaries, "the Group")

Issue of Convertible Loan Note to Raise £1.5 million for Moroccan Licence Award

Predator Oil & Gas Holdings Plc, the Jersey-based Oil and Gas Company with a portfolio of attractive upstream gas assets adjacent to  gas infrastructure entry points to the key European gas market, is pleased to announce that it has raised £1.5 million by the issue of a convertible loan note ("Loan Notes") to Arato Global Opportunities  LLC ("Lender").  The net proceeds of the Loan Notes will be used to fund a returnable bank guarantee to be put in place in respect of the work programme agreed to be carried out by the Company on the Guercif licence in Morocco, and for general working capital purposes.

As announced on 30 November 2018, an application for the Guercif licence for hydrocarbon exploration and appraisal onshore northern Morocco has been accepted by the Office National des Hydrocarbures et des Mines ("ONHYM") acting on behalf of the State.  The formal award of the exclusive licence is subject to the provision by Predator of a bank guarantee prior to a formal signing ceremony.

Terms of the Convertible Loan Note

The nominal amount of each Loan Note is £1 and the aggregate principal amount is £1.5 million.  There is no coupon attaching to the Loan Notes and the term is 24 months after which the Loan Notes are repayable in cash in an amount of 105% of the principal amount plus a fee of 10% of the principal amount being repaid.   The Lender has also agreed to make available to the Company a further £250,000 principal of Loan Notes on the same terms, subject to certain conditions, for additional working capital if required.

The Loan Notes are convertible at the election of the Lender at 105% of the principal amount being converted.   The conversion price is calculated as 90% of the volume weighted average share price of a Predator Ordinary Share as shown on the London Stock Exchange for the two trading days immediately preceding the notice of conversion from the Lender.  The Loan Notes can otherwise be redeemed at any time by the Company in cash in an amount of 105% of the principal amount plus a fee of 10% of the principal amount being repaid.

In addition, the Lender is being issued with  warrants to subscribe for 2,083,333 Ordinary Shares in the Company at an exercise price of 12p per share for a period of 2 years, and Novum Securities, the Company's broker who has arranged the Loan Notes, is being issued with warrants to subscribe for 2,000,000 Ordinary Shares in the Company at an exercise price of 12p per share.

The Company intends to seek Shareholder approval in due course for the issue of sufficient Ordinary shares to cover the Loan Note conversion and the exercise of the warrants granted to each of the Lender and Novum Securities.

Arato Global Opportunities is an investment fund focussed on small and midcap growth companies. 

Further Information on the Guercif Licence, Morocco

Licence Location

The Guercif Licence ("Guercif") is located onshore Morocco and comprises four Exploration Permits, I, II, III and IV. It covers an area of 7,269 km² and lies approximately 250 kilometres due east of and on trend with the Rharb Basin where shallow gas production has been established by SDX Energy Plc for several years. Guercif also lies approximately 180 kilometres due north-west of Tendrara where deep discovered gas is currently being appraised and potentially developed by Sound Energy Plc.

Licence Terms and Work Programme

The Licence equity holders are Predator Gas Ventures Ltd., a wholly-owned subsidiary of Predator, 75% (operator) and ONHYM, the State oil company, 25%. ONHYM is carried through exploration but funds its pro-rata share of all costs upon a Declaration of Commerciality.

The Licence is for 8 years and is split into an Initial Period of 30 months; a First Extension Period of 36 months duration; and a Second Extension Period also of 30 months. After each Licence Period there is an opportunity to withdraw from the Licence without entering the next Licence Period.

In the Initial Period, the work programme comprises 250 kilometres of 2D seismic reprocessing and AVO analysis and the drilling of one well to a minimum depth of 2,000 metres. Desk-top geological and gas marketing studies will also be carried out. Seismic reprocessing costs are estimated to be US$150,000 and well costs US$2,000,000.

The fiscal terms in Morocco are restricted to a 5% State royalty for gas, applicable after the first 10.6 BCF of net production to the operator, and corporation tax charged at 31%. However, there is a 10-year "holiday" before corporation tax will be charged and any unused tax losses can be offset against the tax due. There are no signature bonuses but production bonuses in the form of cash payments exist with a maximum one-off payment of US$5,000,000 on production greater than 30,000 BOE/day. A discovery bonus of US$1,000,000 is also payable.

Gas prices in Morocco are currently higher than UK National Balancing Point (NPB) prices for domestic delivery. Any future gas exports will be priced at NPB prices.

Exploration History

Guercif has been very lightly explored with only 4 deep exploration wells drilled by Elf in 1972 (GRF-1), Phillips in 1979 (TAF-1X), ONAREP (the forerunner of ONHYM) in 1985 and 1986 (MSD-1 and KDH-1) and 2 shallow stratigraphic wells drilled by BRPM for coal exploration in the 1950's.

TransAtlantic re-entered, logged and tested the MSD-1 well, originally drilled in 1985, in 2008 but the logging and testing failed to establish the presence of hydrocarbons in the Jurassic.

The seismic inventory includes 3,291 kilometres of 2D seismic data acquired between 1968 and 2003 (including a new 300-kilometre ONAREP 2D seismic survey acquired in 2003), which were reprocessed in 2006 by TransAtlantic when Pre-Stack Time Migration was applied for the first time to the entire seismic inventory.  TransAtlantic also acquired an aero magnetic and aero gravity survey in 2006 comprising 10,000 line kilometres.

Historical exploration focus was entirely on the Jurassic and was completed before the shift in focus took place that resulted in shallow (Tertiary) gas production in the Rharb Basin and successful deep (Triassic) gas appraisal drilling at Tendrara.

In this context therefore Guercif has never been explored for these more recent targets and this is the new focus for Predator Gas Ventures Ltd. ("PGV").

Current Prospectivity

Predator has re-evaluated the existing reprocessed 2D seismic database and well data and has identified the Moulouya Prospect as being drill-ready.  The Moulouya Prospect covers at least 40 km² and is supported by multiple seismic amplitude anomalies.

An off-set well, GRF-1 drilled in 1972 before the acquisition of the 2003 ONAREP seismic, less than 1.5 kilometres to the south-east of the edge of the seismic amplitude anomaly, had dry gas shows in some high quality Tortonian (Miocene) reservoir sands. The same reservoir sands are exposed at the margin of the Guercif Basin where they are interpreted as deep water turbidites and form thick, stacked multiple sand bodies.

The gas potential of the area is further enhanced by the recognition of TransAtlantic of up to 128 feet of untested gas pay at the base of the Miocene in GRF-1 with average porosities of 20% and average gas saturations of 20%. Two micro-seepage surveys carried out for TransAtlantic by Geo-Microbial Technologies in 2006 and 2007 also identified dry gas around the GRF-1 well in soil samples.

The Directors believe that the Moulouya Prospect therefore represents a low risk proven gas play that is a potentially play-opening, opportunity for shallow gas in multiple, high quality reservoirs at depths in the range 2,000 to 5,000 feet. Significantly the potential for a very large accumulation exists due to the lack of compartmentalisation of the mapped seismic anomaly - unlike the situation in the producing Rharb Basin where the structures are small but with a very high success rate for finding gas.

Commercial Rationale

The Moulouya Prospect lies just 9 kilometres from the Maghreb gas pipeline where significant spare capacity exists for the transport of gas either for domestic use or for export to the European Union.

Approximately 90% of Morocco's hydrocarbons are imported from Algeria but in 2021 ownership of the Maghreb Pipeline will pass to Morocco.

Small volumes of gas can be utilised in the domestic gas market but larger volumes require gas-to-power and export options. The potential to get gas to market with ease exists and the Government is supportive and aligned commercially and strategically with the other licence partners and has a desire to keep gas in-country.

The reservoirs potentially developed in the Moulouya Prospect have the potential to generate good well deliverability without any stimulation whatsoever based on the production history for similar shallow reservoirs in the Rharb Basin. Field production rates for a successful field development are expected to be high and therefore production costs per unit volume produced are anticipated to be correspondingly low. Capital development costs are expected to be very low given the shallow drilling depths, high recoveries per well based on potentially contiguous reservoir sands (thereby reducing the number of development wells), anticipated quality of the dry gas (reducing complex processing requirements), and proximity to the Maghreb Pipeline. 

The Directors believe that a successful gas discovery well potentially creates the opportunity for a fast-tracked, uncomplicated gas development.

Valuation Metrics

A Competent Persons Report ("CPR") by SLR Consulting was published for the Licence (formerly named Merada) in May 2012.  For guidance, in 2012 the forerunner of the Moulouya Prospect ("Tertiary Prospect") was considered by SLR Consulting to have 515 BCF of undiscovered gas in place for the "Triassic Prospect" with Best Estimate 206 BCF recoverable based on only a 40% recovery factor (gross equity figures). Assumed gas price at the time was US$7.5/mcf. NPV 10% per BCF of discovered gas was considered to be US$ 1.34 million/BCF giving an unrisked EMV of approximately US$ 276 million for the gross recoverable gas resources.

It is the intention, following formal ratification of the Guercif Licence, to commission a new CPR which will include the re-evaluation of the Moulouya Prospect based on new technical information generated since 2017. An uplift in volumetrics is anticipated, together with a revision of the economic model based on higher gas prices, lower capex requirements and higher well productivities.

Predator Forward Work Programme Plans

Predator believes that the Moulouya Prospect is drill-ready and warrants a fast-tracked approach to drilling in order to capitalise upon its attractive valuation metrics and the ability to accelerate a gas development in the case of a gas discovery to exploit the current demand for gas in Morocco and, in a wider context, Europe.

The next six months will therefore be spent on desk-top studies by management to develop and finalise the drilling programme and to carry out an Environmental Impact Study. Discussions with rig owners will progress further with the objective of seeking a suitable rig to drill the Moulouya Prospect in the late third or fourth quarter of 2019. The well is not anticipated at present to take longer than 15 - 20 days to drill, subject to finalising the drilling programme.

Use of Proceeds.

The proceeds of the Loan Note will fund a returnable Bank Guarantee to complete the licence terms and conditions as agreed to be carried out by the Company on the Guercif licence in Morocco, and for general working capital purposes. The amount of the Bank Guarantee is US$1,500,000 excluding bank arrangement charges of up to US$100,000.

The Directors currently anticipate that funding of the Guercif work programme will either be through cash flow from Trinidad C02 EOR operations (depending on the level of surplus revenues generated), a farmout for a carry in up to 2 wells and past costs (including a pro-rata share of Predator's Bank Guarantee), further equity issuance (dependent on share price and market conditions) or a combination of these options.

Morocco's Energy Strategy

Predator attended the recent 2^nd Morocco Oil and Gas Summit 2019 in Marrakesh, which was endorsed by ONHYM. Several excellent presentations by ONHYM were informative in presenting Morocco's oil and gas exploration opportunities but also emphasised the country's pragmatic approach to security of energy supply. This objective is recognised as requiring a diversified energy mix that includes renewable energy and fossil fuels, with an increasing focus on developing gas which is seen as a "greener" source of fossil fuel. This is consistent with Predator's core strategy and it is therefore very refreshing to be working with ONHYM towards a common goal secure in the knowledge that, at least in Morocco, we will receive the excellent practical support of the relevant government agencies. Morocco has a growing influence within Africa, which is a fast-developing geographic region with significant potential for further economic growth that will require sustainable and secure energy supplies. Predator has therefore positioned itself to take advantage of the opportunity that Morocco presents.

Paul Griffiths, CEO of Predator commented: "We are delighted that we have found support from Arato Global Opportunities in providing funds which will enable Predator to proceed with the award of the Guercif licence in Morocco.  Guercif represents a high impact, low cost, near-term drilling opportunity in a sophisticated and stable business and operating environment that is well understood by management. We are excited by this opportunity and by the potential for cash flow from Trinidad C02 EOR operations through 2019, which can underpin our plans to become a significant gas player connected to the European gas market."

For further information please contact:

Predator Oil & Gas Holdings Plc Sarah Cope, Chairman Paul Griffiths, Chief Executive Officer	[phone] [e-mail]
Novum Securities Ltd (Broker) Jon Bellis	[phone]

Notes to Editors:

Predator is an oil and gas exploration company with the objective of participating with FRAM Exploration Trinidad Ltd. in further developing the remaining oil reserves in the producing Inniss Trinity oil field onshore Trinidad, primarily through the application of C02 EOR technology. Potential for cash flow exists by executing a Pilot Enhanced Oil Recovery project using locally-sourced carbon dioxide for injection into the oil reservoirs ("C02 EOR"). Near-term expansion and growth potential is focussed on upscaling the C02 EOR operations in the Inniss-Trinity oil field and potential acquisitions of assets suitable for C02 EOR development. 

In addition, Predator also owns and operates exploration and appraisal assets in current licensing options offshore Ireland adjoining Shell's Corrib gas field in the Slyne Basin on the Atlantic Margin and east of the Kinsale gas field and Barryroe oil field in the Celtic Sea.

The Company has a highly experienced management team with a proven track record in the oil and gas industry.

 

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