Proposed OML 18 Production Arrangement and Placing

RNS Number : 1993I

San Leon Energy PLC

26 August 2016

 

26 August 2016

San Leon Energy plc

("San Leon" or the "Company")

Proposed OML 18 Production Arrangement

Placing at 45p per share to raise approximately £170.3 million (US$221.4 million)

Approval of waiver of obligations under Rule 9 of the Irish Takeover Rules

Resumption of trading on AIM

Notice of Extraordinary General Meeting

San Leon is pleased to announce today it has conditionally raised approximately £170.3 million (US$221.4 million) through an issue of 378,400,000 new ordinary shares ("Ordinary Shares") at a placing price of 45 pence per Ordinary Share ("Placing Price") with institutional and other investors. The net proceeds are being used to complete the OML 18 Production Agreement, which will result in the Company securing an initial 9.72 per cent. indirect economic interest in OML 18, the world-class Nigerian onshore oil and gas asset, and for general corporate purposes.

Highlights

PLACING:

·     Conditionally raised approximately £170.3 million (US$221.4 million) through an issue of 378,400,000 new ordinary shares by way of a placing at a placing price of 45 pence per Ordinary Share, a 54.5% premium to the last traded price of 29.125p on 21 January 2016.

OML 18 PRODUCTION ARRANGEMENT:

·     The OML 18 Production Arrangement represents the entry by the Company into the Nigerian onshore oil and gas production industry, one of the largest oil producing countries in the world.

·     San Leon will secure an initial 9.72 per cent. indirect economic interest in OML 18, a world-class onshore producing asset.

·     OML 18's estimated gross 2P reserves are approximately 576 MMbbl of oil and approximately 4.2 Tcf of gas and its gross 2C contingent resources are approximately 203 MMbbls of oil and approximately 1.6 Tcf of gas.

·     As of June 2016 OML 18 was producing at approximately 50,000 bopd of oil and approximately 50 MMscfpd of gas.

·     Eroton, the Operator of OML 18, has entered into an Offtake Agreement at a gross price of US$95 (US$91.5 net) for approximately 35% of the expected 2P production to the end of 2017.

·     San Leon has the right to provide oilfield services to Eroton.

The Placing and the OML 18 Production Arrangement are conditional on the passing of various resolutions, which are being put to Shareholders at an Extraordinary General Meeting.

Oisin Fanning, Executive Chairman of San Leon said: 

'This is a transformational transaction representing the progress that we have made in delivering against our strategy of securing production and near-term operational cash flow. The OML 18 field in Nigeria is a world class asset currently producing more than 50,000 barrels of oil per day and 50MMscfpd of gas and containing substantial 2P reserves. San Leon's interest in OML 18, secured through an initial 9.72% indirect holding, provides material production, cash flow and significant expected returns to our Shareholders. Cash flow is expected from three different sources: repayment of loan and interest provided by the Company to BidCo* (with preferential repayment terms); dividends as a shareholder of BidCo; and income from the provision of rig and workover services.

Our Board will be further strengthened through the appointment of several new Non-Executive Directors. In particular I would like to highlight the appointment of Mr Mutiu Sunmonu, a former managing director of Shell and country chairman for Shell's operations in Nigeria, to Non-Executive Chairman. Mr Sunmonu brings a wealth of knowledge of the Nigerian oil and gas industry and his addition to the Board allows me to take the role of CEO to focus on the day to day running of the enlarged company. All Board changes are conditional upon Admission.

Finally, we are extremely grateful to our shareholders for their continued patience and support. This has been a long transaction, reflecting its scale and ambition. In particular, we would like to thank Toscafund which has demonstrated its continued commitment to the Company and to our future growth prospects. We believe that the OML 18 Production Arrangement represents a huge opportunity for the Company and its shareholders, providing a platform for significant growth and the creation of shareholder value.'

*BidCo is a Mauritian incorporated special purpose vehicle, established for the purpose of holding the San Leon's OML 18 interest. San Leon will hold 40% of BidCo following Admission.

The Admission Document and Notice of General Meeting will be posted to shareholders today and are also available on the Company's website at www.sanleonenergy.com. The definitions in this Announcement are the same as those in the Admission Document.

Brandon Hill Capital, SP Angel and Whitman Howard are acting as agents to the Placing.

 Enquiries:

San Leon Energy plc  Oisin Fanning, Executive Chairman	[phone]
Brandon Hill Capital Limited Joint Broker Oliver Stansfield Jonathan Evans	[phone]
SP Angel Corporate Finance LLP Nominated Adviser and Joint Broker Ewan Leggat Richard Morrison	[phone]
Whitman Howard Limited Joint Broker Nick Lovering Francis North	[phone]
Vigo Communications Financial Public Relations Chris McMahon Alexandra Roper	[phone]
Plunkett Public Relations Sharon Plunkett	[phone]

The following information is extracted from the Chairman's statement contained in Part One of the Admission Document dated 26 August 2016.

INTRODUCTION

On 22 January 2016, San Leon Energy, the AIM quoted oil and gas exploration and production company focused on Europe and Africa, announced that it had reached an agreement to participate in a transaction, which would result in the Company securing an initial 9.72 per cent. indirect economic interest in OML 18: the proposed 'OML 18 Production Arrangement.'

OML 18 is an onshore Nigerian oil and gas asset that is currently 45 per cent. owned by Eroton and Sahara, indigenous Nigerian oil and gas companies, and 55 per cent. by NNPC. Eroton completed the acquisition of its interest in OML 18 from Shell, Total and Agip in March 2015 and is the Operator of OML 18.

The OML 18 Production Arrangement represents the entry by the Company into the Nigerian onshore oil and gas production industry. Nigeria is one of the largest oil producing countries in the world. The OML 18 Production Arrangement, creating the Enlarged Group, is considered by the Existing Directors and the Proposed Directors to be a transformational transaction for the Company.

OML 18's estimated gross 2P reserves are approximately 576 MMbbl of oil and approximately 4.2 Tcf of gas and its gross 2C contingent resources are approximately 203 MMbbls of oil and approximately 1.6 Tcf of gas. Under Eroton's operatorship, the production wells at OML 18 have seen significant increases, rising from approximately 10,000 bopd of oil in March 2015 to approximately 50,000 bopd of oil and approximately 50 MMscfpd of gas in April 2016. In the development plans currently under discussion for OML 18, the intention is to increase production to approximately 115,000 bopd of oil and approximately 485 MMscfpd of gas by 2020. In addition, it is anticipated that the OML 18 Production Arrangement and the relationships established as part of the transaction will act as a platform for further similar transactions.

Under the AIM Rules for Companies, the OML 18 Production Arrangement constitutes a reverse takeover. Accordingly, the OML 18 Production Arrangement is conditional on its approval by Shareholders, which is being sought at the EGM to be held on 20 September, notice of which is being sent to shareholders together with publication of an AIM Admission Document.

The OML 18 Production Arrangement consists of the acquisition by the Company of certain Loan Notes and warrants issued by BidCo, the special purpose vehicle used by the Company and Midwestern, for the purposes of the OML 18 Production Arrangement, and the acquisition by BidCo of Martwestern. Midwestern is an independent exploration and production company based in Nigeria and Martwestern is the owner of a 50 per cent. shareholding and an initial 90 per cent. economic interest in Eroton.

In order to complete the OML 18 Production Arrangement, the Company is raising US$221.4 million (gross) by way of a Placing, which will be used to acquire US$188.6 million of Loan Notes (and any associated accrued interest and the benefit of any security), US$17.7 million for the repayment of creditors, US$7.1 million for the repayment of outstanding loans and the remaining US$8.0 million to be used to cover transaction costs and provide for general working capital for the Company. On completion of the OML 18 Production Arrangement, the Company will hold US$173.05 million of Loan Notes together with a 40 per cent. shareholding in BidCo.

INFORMATION ABOUT OML 18

OML 18 is located in the Southern Niger Delta and comprises a mangrove swamp area, covering 1,035 km2 (which is an area larger than the country of Bahrain). It is considered a world-class resource of oil, gas and condensate and is located close to the Bonny Terminal operated by Shell and near Port Harcourt. Oil was first discovered on OML 18 in 1958 (on the Krakama Field) and production first commenced in 1970. There are nine discovered fields on OML 18, of which four are still producing (including the Awoba field, which straddles OML 18 and OML 24). To date, an estimated 1,002 MMstb of oil (including Alakari condensate) and 1,778 bcf of gas has been produced.

Approximately 151 wells have been drilled on OML 18 and eight out of the nine discovered fields have been developed. Peak production levels of about 100,000 bopd of oil and 200 MMscfpd of gas were achieved in the early 1970s and early 1990s. Existing, operational infrastructure within OML 18 includes seven oil flow stations, three associated gas gathering processing facilities and one non-associated gas processing facility and associated gathering facilities.

Four fields (being the Akaso, Alakiri, Awoba and Cawthorne Channel fields) are currently in production. Since Eroton became Operator, gross oil production from OML 18 has increased from approximately 10,000 bopd in March 2015 to 50,000 bopd in April 2016, as the initial stages of a comprehensive well rehabilitation programme were executed. To date, 100 per cent. of production comes from naturally flowing wells with potential for artificial lift and secondary recovery.

Other fields are not producing, primarily due to vandalism of the production facilities. Production stopped in many wells with high oil rates and production declines that indicate significant remaining reserves. There is scope to revive some of these wells by stimulation artificial lift re-perforation and in some instances side-tracks. 83 additional strings (including four side-tracks and major workovers) have been identified as part of a 'Quick Win Short Term' restoration and reactivation programme designed to bring on existing producing wells across six fields with good potential. This programme is to be completed by the end of 2017 at an estimated cost of US$62 million. Eroton's share of costs is forecasted to be funded from its own operating cash flow.

The OML 18 Production Arrangement consists of the acquisition by the Company of certain Loan Notes and warrants issued by BidCo, the special purpose vehicle used by the Company and Midwestern, for the purposes of the OML 18 Production Arrangement, and the acquisition by BidCo of Martwestern. Midwestern is an independent exploration and production company based in Nigeria and Martwestern is the owner of a 50 per cent. shareholding and an initial 90 per cent. economic interest in Eroton.

In order to complete the OML 18 Production Arrangement, the Company is raising US$221.4 million (gross) by way of a Placing, which will be used to acquire US$188.5 million of Loan Notes (and any associated accrued interest and the benefit of any security), US$17.7 million for the repayment of creditors, US$7.0 million for the repayment of outstanding loans and the remaining US$8.3 million to be used to cover transaction costs and provide for general working capital for the Company. On completion of the OML 18 Production Arrangement, the Company will hold US$173.05 million of Loan Notes together with a 40 per cent. shareholding in BidCo.

The Operator has proposed a significant oil and gas development drilling programme that will involve capital expenditure of approximately US$1.5 billion (Figure 6) in the 2P case over the next five years that is expected to see oil production increase from approximately 50,000 bopd to 115,000 bopd (including production losses and downtime) and sales gas from 50 MMscfpd to 485 MMscfpd by 2020. This includes 50 notional new wells (which may include side track on some existing wells) and 26 gas wells utilising two rigs starting in March 2017 over a five year period to effectively produce the undeveloped reservoirs, un-drained regions of the reservoirs and accelerate the recovery of identified reserves. The timing on the development wells remains subject to regulatory approvals of the field development plan which is expected in December 2016. The resulting gross oil reserves and contingent resources for OML 18, and indirect net economic interest attributable to San Leon Energy, are shown below.

OML 18 Oil Reserves

Oil and Condensate Reserves (MMbbls)	Gross on Licence			SLE Net Attributable			Operator
	1P	2P	3P	1P	2P	3P
Cawthorne Channel	147.2	206.6	265.1	14.2	17.9	22.6	Eroton
Akaso	70.2	88.1	108.9	5.5	6.1	7.2	Eroton
Alakiri	71.3	107.6	151.7	5.3	6.6	8.4	Eroton
Krakama	33.9	57.3	84.8	1.9	3.2	4.7	Eroton
Orubiri	7.0	14.1	20.7	0.7	1.1	1.6	Eroton
Buguma Creek	39.2	63.8	84.6	1.6	2.0	2.5	Eroton
Awoba*	16.7	31.4	49.2	1.3	2.3	3.7	Newcross
Asaritoru	0.0	1.4	2.6	0.0	0.1	0.2	Eroton
Bille	3.3	5.5	9.0	0.0	0.0	0.0	Eroton
Total	388.8	575.8	776.6	30.5	39.3	50.9

Source: PetroVision Competent Person's Report

OML 18 Contingent Oil Resources

Oil and Condensate Resources (MMbbls)	Gross on Licence			SLE Net Attributable1			Risk Factor	Operator
	1C	2C	3C	1C	2C	3C
Cawthorne Channel	111.2	159.0	222.6	9.9	14.2	19.9	0.7	Eroton
Akaso	0.5	0.7	0.9	0.0	0.0	0.1	0.7	Eroton
Alakiri	15.1	21.2	28.9	1.0	1.4	1.8	0.7	Eroton
Krakama	1.9	2.5	3.2	0.1	0.1	0.2	0.7	Eroton
Orubiri	9.3	12.5	16.5	0.8	1.1	1.4	0.7	Eroton
Buguma Creek	1.5	2.1	2.9	0.1	0.1	0.1	0.7	Eroton
Awoba*	2.4	3.7	5.4	0.1	0.1	0.2	0.7	Newcross
Asaritoru	1.1	1.4	1.8	0.1	0.1	0.1	0.7	Eroton
Bille	-	-	-				0.7	Eroton
Total	143.0	203.1	282.2	12.1	17.1	23.8

Source: PetroVision Competent Person's Report

OML 18 Gas Reserves

Gas Reserves (Bscf)	Gross on Licence			SLE Net Attributable			Operator
	1P	2P	3P	1P	2P	3P
Cawthorne Channel	633.7	790.4	935.5	95.1	117.4	142.5	Eroton
Akaso	537.5	729.5	874.1	27.5	28.6	28.3	Eroton
Alakiri	675.8	985.7	1,247.5	34.9	43.0	49.2	Eroton
Krakama	575.5	695.8	850.0	10.3	19.8	24.9	Eroton
Orubiri	11.8	16.7	20.0	2.6	5.9	7.1	Eroton
Buguma Creek	380.0	547.8	631.9	10.3	14.2	14.9	Eroton
Awoba*	7.8	8.2	8.2	0.0	0.6	0.9	Newcross
Asaritoru	188.9	281.9	299.6	6.6	17.0	29.5	Eroton
Bille	108.4	157.0	213.1	0.1	0.0	0.0	Eroton
Total	3,119	4,213	5,080	187.4	246.5	297.3

Source: PetroVision Competent Person's Report

OML 18 Contingent Gas Resources

Gas Resources (Bscf)	Gross on Licence			SLE Net Attributable1			Risk Factor	Operator
	1C	2C	3C	1C	2C	3C
Cawthorne Channel	162.8	301.5	482.4	24.5	45.3	72.5	0.7	Eroton
Akaso	787.7	976.2	1,196.5	32.2	39.9	49.0	0.7	Eroton
Alakiri	220.6	275.1	340.9	9.9	12.4	15.3	0.7	Eroton
Krakama	8.6	10.8	13.5	0.2	0.3	0.3	0.7	Eroton
Orubiri	54.5	70.9	90.5	17.0	22.1	28.2	0.7	Eroton
Buguma Creek	2.0	4.3	7.2	0.1	0.1	0.2	0.7	Eroton
Awoba*	3.2	6.9	12.0	0.2	0.4	0.7	0.7	Newcross
Asaritoru	1.6	2.6	3.9	0.1	0.2	0.3	0.7	Eroton
Bille	-	-	-	-	-	-	0.7	Eroton
Total	1,241	1,648	2,147	84.2	120.7	166.5

Source: PetroVision Competent Person's Report

¹  Contingent Resources SLE Net attributable: This is mathematically calculated by multiplying the gross contingent resources with the average SLE economic interest determined from the SLE Net attributable reserves of the three cases for each asset. 

PetroVision developed a detailed economic model that estimated the NPV (as at 1 January 2016) based on discounted cash flows of future net revenues at a discount rate of 10 per cent. to determine the value of the indirect net economic interest attributable from BidCo to San Leon Energy. These are, on a 1P, 2P and 3P basis (including the effects of reserve based lending and withholding tax), set out below:

Base Price (US$m)	1P	2P	3P
Total	340	429	486

Source: PetroVision Competent Person's Report

STRATEGY OF THE ENLARGED GROUP

The Company's strategy has been to secure production and near-term operating cash flow. The OML 18 Production Arrangement achieves this for Shareholders, as it is considered a world-class resource of oil, gas and condensate with substantial production and significant upside potential.

The Company's strategy following Admission is to ensure that Eroton increases production at OML 18 through the further development of the OML 18 asset to reach target production of approximately 115,000 bopd of oil and approximately 485 MMscfpd of gas by 2020.

It will do this through the strength of its management and technical expertise in the oil and gas sector. The Group has the right to provide drilling and workover rig services to Eroton (on Eroton's expected five year capital expenditure programme of approximately US$1.5 billion).

The Company will also seek to capitalise on its good relationships with its local, indigenous partners in the sector to pursue further acquisitions and partnerships within the Niger Delta region that will be strategically complementary to OML 18, and where demonstrably value-accretive.

The Existing and Proposed Directors expect such opportunities may play a significant role in unlocking the upside potential of the region and value for Shareholders given the Government of Nigeria's intention to increase the level of indigenous participation in the upstream sector.

The Company will continue to seek partners for, or the divestment of, other assets in its portfolio in line with its strategy of focusing on producing assets and near-term operating cash flow.

BOARD ON ADMISSION

On Admission, the Board will consist of the following individuals:

Mr Mutiu Sunmonu, Non-Executive Chairman (aged 61)

Mr Sunmonu is a former managing director of Shell Petroleum Development Company of Nigeria and country chairman of Shell Companies in Nigeria from 2008 to 2015. Under his leadership, he oversaw Shell's multi-billion dollar operations in Nigeria, employing over 4,000 direct members of staff, with revenue contribution to the Government of Nigeria of approximately US$44 billion in the period from 2009 to 2013. Mr Sunmonu has some 36 years of oil and gas industry experience, from working within the industry in Nigeria, the UK and the Netherlands.

He holds a BSc in Mathematics and Computer Science from the University of Lagos, Nigeria. He is a member of the Institute of Directors.

Mr Oisín Fanning, Chief Executive Officer (aged 58)

Mr Fanning has over 30 years' experience in structured finance, stockbroking and corporate finance, including 12 years specialising in the oil and gas industry. He was closely involved with the restructuring of Dana Petroleum Plc in the early 1990s and he was a major supporter of Tullow Oil Plc in its early growth phase. He was formerly the chief executive officer of Smart Telecom plc (1999 to 2006), MMI Stockbrokers Limited (1993 to 1998) and Astley & Pearce Limited (1990 to 1993).

Mr Joel Price, Chief Operating Officer (aged 44)

Mr Price joined San Leon Energy in January 2013 as a result of the Company's acquisition of Aurelian Oil & Gas plc. He is a petroleum engineer with over 20 years' experience and has a geological background. He has a broad and deep experience across operations, field optimisation, reservoir engineering, business development and technical leadership in a variety of countries and has worked with large independent, private and smaller listed exploration and production operators, including Hess and Delta Hydrocarbons.

He holds a BA (Hons) in Natural Sciences (Geology) from Cambridge University, an MEng Petroleum Engineering from Heriot-Watt University and an MBA with Distinction from Durham University. He is a member of the Society of Petroleum Engineers (SPE) and a member of the Association of International Petroleum Negotiators (AIPN).

Mr Alan Campbell, Commercial & Business Development Director (aged 43)

Mr Campbell has gained more than 15 years' experience in business, banking (principally with Deutsche Bank) and the oil and gas industry. He has gained significant experience from acting in key project management roles during international merger, acquisition and divestment deals, valued at over US$350 million and has been involved in origination, negotiation, due diligence, deal structuring, closing, post-deal integration and management. Mr Campbell joined San Leon Energy in September 2010, as a result of the Company's acquisition of Island Oil and Gas Ltd.

He holds a Masters in Project Finance & Venture Management from the National University of Ireland with First Class Honours and a Bachelor Business degree from Waterford Institute, Ireland. Mr Campbell is a Member of AIPN, the Association of International Petroleum Negotiators.

Mr Ewen Ainsworth, Finance Director (aged 54)

Mr Ainsworth is an experienced finance director, having worked in a variety of finance roles in the oil and gas industry for nearly 30 years. Initially in mainstream accounting, he qualified as a chartered management accountant, and transitioned into leading commercial roles. He has worked at various stages of the oil and gas life cycle from exploration to appraisal/development, production and de-commissioning for companies. In his last three finance roles prior to joining the Company, he worked at board level, as chief financial officer for Cap Energy plc, finance director for Gulf Keystone Petroleum Limited and finance director for Europa Oil & Gas (Holdings) plc. Other companies that he has worked for include: CIECO Exploration and Production (UK) Limited, Atlantic Energy Services Ltd, Texaco Ltd, Murco Petroleum Limited, Conoco (U.K) Ltd and P&O Containers Ltd.

He is also a non-executive chairman of Nostra Terra Oil & Gas Company plc.

He holds a degree in Economics and Geography from Middlesex University. He is a member of the Energy Institute.

Mr Raymond King, FCIS Non-Executive Director and Company Secretary (aged 74)

Mr King has been company secretary and director of San Leon Energy since 2007. He has considerable experience in banking, information technology and telecoms. Mr King worked for 27 years for the Nat West Group before spending the next five years with Christiania Bank and Moscow Narodny Bank Ltd. During the past 18 years, he has acted in various senior executive and non-executive roles with smaller public companies listed on AIM, NASDAQ or OFEX (now called ISDX markets).

Mr King is a member of the Chartered Institute of Bankers, the Chartered Institute of Secretaries and

Administrators, the Institute of Financial Accountants and a member of the British Computer Society.

Mr Nick Butler, Non-Executive Director (aged 61)

Mr Butler is an experienced adviser on the international oil and gas market, having worked with corporates, universities and the UK government over the years. He is currently a visiting professor at and chairman of Kings Policy Institute, Kings College, as well as performing the roles of senior adviser to Coller Capital Limited and Linton Capital LLP. He has also worked as chairman for the Cambridge

Centre for Energy Studies, and acted as a senior policy adviser to the UK prime minister.

Prior to these roles, he worked for nearly 30 years with BP plc as an economist, holding various roles, including that of group vice president for strategy and group policy adviser, being responsible for policy and strategy development covering mergers and acquisitions, climate change, organisational change and entries into new ventures in countries such as Russia and China.

He holds an MA Cantab in Economics from Trinity College, Cambridge. He has also served from 2007 to 2013 as a member of the President's International Advisory Council, Yale University (US).

Mr Mark Phillips, Non-Executive Director (aged 50)

Mr Phillips was a founding partner of the private equity firm, Penta Capital LLP, and had previously been a senior investment executive with the private equity team at Royal Bank of Scotland plc. He has extensive experience across multiple sectors in working with growth companies at board level.

He holds an honours degree in Economics and Law from Strathclyde University as well as an MBA from the University of Edinburgh. He is a member of The Merchant Company of Edinburgh.

CAPITAL DISTRIBUTION POLICY AND CAPITAL REDUCTION

Capital distribution policy

As a result of the OML 18 Production Arrangement and the associated anticipated positive cash flow, the Company is committed to making distributions equivalent to 50 per cent. of the OML 18 Free Cash Flows to Shareholders either by way of buyback of Ordinary Shares or by way of dividends for a five year period commencing on the date the Company first receives cash flows from its interest in OML 18.

The Company expects that tax will only be payable on the interest received on the Loan Note Instruments, with no incremental tax payable on dividend income received from BidCo on the basis of tax paid at source due to the availability of foreign tax credits.

The Company will make any distributions, subject to compliance with the requirements under the Irish Companies Act 2014, including the level of distributable reserves. The Company will make distributions on a bi-annual basis taking into account this policy as outlined above. The Company anticipates that its maiden dividend will be announced in its final results for the year ended 31 December 2016.

Capital reduction

With a view to implementing the dividend policy, the Company proposes to carry out the Capital Reduction pursuant to which, subject to the confirmation of the High Court of Ireland:

(a) an amount of up to: (i) €205,126,205 being the sum standing to the credit of the Company's share premium account immediately prior to the passing of the Resolutions at the EGM; and, (ii) such other amounts as may be credited to the share premium account of the Company by 21 October 2016 consequent upon the allotment of the New Ordinary Shares, will be cancelled and extinguished, or such lesser amount as is approved by the High Court of Ireland; and

(b) all the Deferred Shares will be cancelled or such lesser number as is approved by the High Court of Ireland.

The reserves which may result from such cancellations of capital would be treated as profits available for distribution by the Company.

The Deferred Shares have effectively no rights attached to them. In addition, the Articles of Association provide that the reduction of capital by the Company, involving the cancellation of the Deferred Shares without any repayment of the capital in respect thereof, or any reduction of share premium account shall not constitute a variation or abrogation of the rights attached to the Deferred Shares.

If implemented, it is expected that the Capital Reduction would, subject to the legal, contractual, regulatory and capital requirements referred to below, reduce the constraints on the Company, due to a lack of distributable reserves, from paying dividends on its Ordinary Shares at a future date should the Board deem this to be appropriate. It should be noted that the Placing is conditional on Resolution 4, being the necessary resolution to approve the Capital Reduction, being passed at the EGM, so that if Shareholders do not approve Resolution 4 the Placing will not proceed.

The Capital Reduction itself will not involve any distribution or repayment of capital or share premium by the Company and will not reduce the underlying net assets of the Company and the High Court of Ireland will need to be satisfied that the interests of creditors are not prejudiced by the Capital Reduction. Under the Irish Companies Act 2014, the proposed reduction of capital can only be undertaken with Shareholder approval (being sought in Resolution 4) and with the confirmation of the High Court of Ireland, which is intended to be sought at an appropriate time following the EGM.

DETAILS OF THE PLACING AND THE RULE 9 WAIVER

Placing

The Company has entered into: (i) a Placing Agreement with certain Existing Directors, the Proposed

Directors, SP Angel, Whitman Howard and Brandon Hill, pursuant to which SP Angel, Whitman Howard and Brandon Hill have, as agents for the Company, conditionally placed; and, (ii) Subscription Agreements with institutional and other investors pursuant to which subscribers have conditionally subscribed for an aggregate of 378,400,000 Placing Shares at a Placing Price of 45p per Placing Share, to raise approximately £170.3 million (before expenses) (or US$221.4 million).

The Placing Shares will, if issued in full, represent approximately 85.4 per cent. of the Enlarged Share Capital following Admission (assuming no outstanding options, warrants and other convertible securities are exercised prior to Admission). The Placing Price represents a premium of approximately 54.5 per cent. to the mid-market share price on 21 January 2016 (being the last trading date prior to the suspension of the Existing Ordinary Shares on AIM).

The Placing Shares will be issued credited as fully paid and will rank pari passu with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid on or in respect of such shares after their date of issue, being the date of Admission.

Rule 9 Waiver

As at the date of this Document, the Toscafund Managed Funds have an aggregate beneficial holding of 24,500,822 Existing Ordinary Shares, representing 39.64 per cent. of the total issued Existing Ordinary Shares.

Pursuant to the Placing, the Toscafund Managed Funds are conditionally subscribing for 216,563,634

Placing Shares at the Placing Price. Immediately after Admission, the Toscafund Managed Funds will beneficially hold a maximum of 241,064,456 Ordinary Shares, representing 54.41 per cent. of the Enlarged Share Capital, and assuming that no options or other convertible securities are exercised prior to Admission. As defined in the Admission Document, the Concert Parties immediately following the Placing, would beneficially hold a maximum of 241,177,445 Ordinary Shares, representing 54.4387 per cent. of the Enlarged Share Capital, and assuming that no options or other convertible securities are exercised prior to Admission. The Placing constitutes a reverse takeover transaction for the purpose of the Irish Takeover Rules.

The Company will issue the Warrants to subscribe for up to 10,000,000 Ordinary Shares at 25p per Ordinary Share that will be issued to the Toscafund Managed Funds. The Warrants, which will be freely transferable, will be exercisable (in whole or in part) on and from Admission for a period of seven years. If the Warrants were to be exercised in full by the Toscafund Managed Funds on or following Admission, this would result in the issue to the Toscafund Managed Funds of 10,000,000 additional Ordinary Shares in the Company, being 2.21 per cent. of the then issued ordinary share capital of the Company (assuming that no options or other convertible securities are exercised prior to Admission).

The participation by the Concert Parties in the Placing would result in the Concert Parties beneficially owning 54.43 per cent. of the then issued ordinary share capital of the Company (assuming that no options or other convertible securities are exercised prior to Admission) and therefore would result, within a period of 12 months, in an increase in the percentage of the issued ordinary share capital of the Company held by the Concert Parties exceeding 0.05 per cent. In that situation, absent a waiver from the Irish Takeover Panel, the Concert Parties or such one or more of the members of the Concert Parties as the Irish Takeover Panel may direct would also be required pursuant to Rule 9 of the Irish Takeover Rules to make an offer for the remaining issued ordinary share capital of the Company not already held by the Concert Parties. Such a Rule 9 Waiver has been granted by the Irish Takeover Panel, subject to inter alia its approval by the Independent Shareholders at the EGM.

In addition, if the Toscafund Managed Funds were to exercise the Warrants in whole or in part on, or following, Admission in circumstances where either:

·   prior to such exercise, the Concert Parties beneficially held 30 per cent. or more of the then issued ordinary share capital of the Company and such exercise would result, within any period of 12 months, in an increase in the percentage of the then issued ordinary share capital of the Company beneficially held by the Concert Parties exceeding 0.05 per cent. (except in circumstances where the Toscafund Managed Funds beneficially held more than 50 per cent. of the voting rights in the Company given that the Toscafund Managed Funds are regarded as a single holder of securities for the purposes of Rule 9.1 of the Irish Takeover Rules); or

·    such exercise would result in an increase in the percentage of the then issued ordinary share capital of the Company beneficially held by the Concert Parties from below 30 per cent. to 30 per cent. or more, then, absent a waiver from the Irish Takeover Panel, the Concert Parties or such one or more of the members of the Concert Parties as the Irish Takeover Panel may direct would also be required pursuant to Rule 9 of the Irish Takeover Rules to make an offer for the remaining issued ordinary share capital of the Company not already held by the Concert Parties. Such a Rule 9 Waiver has also been granted by the Irish Takeover Panel, subject to inter alia its approval by the Independent Shareholders at the EGM.

The Irish Takeover Panel has agreed to waive any such obligations subject to the following conditions:

                (i) the Independent Shareholders approve, on a poll, the Rule 9 Waiver Resolution; and

                (ii) that a circular is prepared by the Company in accordance with the Whitewash Guidance Note in the Irish Takeover Rules and such circular is approved by the Irish Takeover Panel. This Document is such a circular and has been so approved in that respect only.

Further information in relation to Toscafund and the Toscafund Managed Funds is set out in Part 7 of this Document.

Conditions and Admission

The Placing is also conditional upon, amongst other things:

(i) the passing, without amendment, of all of the Resolutions at the EGM;

(ii) the Placing Agreement having become unconditional in respect of the Placing (save for Admission) and not having been terminated in accordance with its terms prior to Admission; and 

(iii) Admission becoming effective on or before 8.00 am on 21 September 2016 or such later date as the Company and the Brokers may agree, being no later than 8.00 am on 20 October 2016.

Application will be made to the London Stock Exchange for Admission of the Enlarged Share Capital and it is expected that Admission will become effective and that dealings in the Enlarged Share Capital will commence on AIM at 8.00 am on 21 September 2016.

Shareholders should note that the Placing has been concluded as a private placing and subscription and there is no offer of Placing Shares to Shareholders or any member of the public.

The Placing is conditional upon all of the Resolutions being passed at the EGM with the result that if the Shareholders do not approve all of the Resolutions the Placing will not complete.

REASONS FOR PLACING AND USE OF PROCEEDS

The Company intends to use the net proceeds from the Placing as follows:

·     US$127.0 million to acquire US$115.55 million of Loan Notes (and any associated accrued interest) and warrants issued by BidCo from the Toscafund Managed Funds;

·     US$57.5 million to subscribe for new Loan Notes issued by BidCo and US$4 million to Suntrust to pay accumulated interest and fees;

·     US$17.7 million to be used to pay current creditors;

·     US$7.1 million to be used to pay outstanding loans; and

·     US$4.3 million for general working capital purposes.

Taking into account the net proceeds of the Placing to be received by the Company, and conditional upon the Placing completing, the Existing Directors and Proposed Directors are of the opinion, having made due and careful enquiry, that the working capital available to the Company and the Enlarged Group will be sufficient for its present requirements, that is for at least 12 months from the date of Admission.

The Placing is conditional upon, amongst other things, the passing of all of the Resolutions and, accordingly if any of the Resolutions are not passed, the Placing will not complete. In such circumstances, the Company would be required to seek alternative sources of funding in order to satisfy creditors, for working capital and to progress its proposed strategy.

RELATED PARTY TRANSACTIONS

Placing Shares have been subscribed for by certain substantial shareholders of the Company. Toscafund Managed Funds have collectively conditionally subscribed for 216,563,634 Ordinary Shares at the Placing Price. Optima Worldwide Group Plc (together with its subsidiary Brandon Hill) has conditionally subscribed for 13,190,071 Ordinary Shares at the Placing Price.

As substantial shareholders, both the Toscafund Managed Funds, collectively, and Optima Worldwide Group Plc, together with its subsidiary Brandon Hill, are related parties of the Company for the purposes of the AIM Rules for Companies. These subscriptions, therefore, constitute related party transactions for the purposes of the AIM Rules for Companies.

The Directors, having consulted with SP Angel, the Company's Nominated Adviser, consider the terms of such subscription for Ordinary Shares by Optima Worldwide Group Plc, Brandon Hill and the Toscafund Managed Funds under the Placing to be fair and reasonable insofar as the Shareholders are concerned.

Brandon Hill is also acting as the Company's joint broker on this transaction. This engagement constitutes a related party transaction for the purposes of the AIM Rules for Companies. The Existing Directors, having consulted with SP Angel, the Company's Nominated Adviser, consider the terms of the engagement to be fair and reasonable insofar as the Shareholders are concerned.

ADMISSION TO AIM, DEALINGS AND CREST

The OML 18 Production Arrangement constitutes a 'reverse takeover' under the AIM Rules for Companies and is therefore dependent upon the approval of Shareholders being given at the EGM, details of which are set out below.

Resolutions will be proposed at the EGM, inter alia, to approve the OML 18 Production Arrangement. If the Resolutions are duly passed at the EGM, the admission of the Existing Ordinary Shares to trading on AIM will be cancelled (immediately prior to Admission) and the Enlarged Share Capital will be admitted to trading on AIM.

Application will be made by the Company for the Enlarged Share Capital to be admitted to trading on AIM and it is anticipated, subject to completion of the OML 18 Production Arrangement that Admission to AIM will become effective and that trading in the Enlarged Share Capital on AIM will commence at 8.00 am on 21 September 2016.

If the OML 18 Production Arrangement is not completed, the Existing Ordinary Shares will continue to be traded on AIM, the New Ordinary Shares will not be issued or admitted to AIM, the Proposed Directors will not be appointed to the New Board and the Existing Directors will remain on the Existing Board.

EXTRAORDINARY GENERAL MEETING

The Notice of EGM together with an AIM Admission Document is being sent to shareholders today concerning an EGM to be held at the Herbert Park Hotel, Dublin, Ireland on 20 September 2016.

Resolution 1 - ordinary resolution - Acquisition of an initial 9.72 per cent. indirect interest in OML 18

Resolution 2 - ordinary resolution - Authority for the Directors to allot New Ordinary Shares

Resolution 3 - special resolution - Dis-application of pre-emption rights

Resolution 4 - special resolution - Capital Reduction

Resolution 5 - ordinary resolution - Rule 9 Waiver

Resolutions 1, 2, 3 and 4.

The Existing Directors consider that the completion of the OML 18 Production Arrangement, the Placing that is required to finance the OML 18 Production Arrangement, the issue of the Warrants, the Capital Reduction and Resolutions 1 to 4 are in the best interests of the Company and Shareholders as a whole. Accordingly, the Existing Directors unanimously recommend that you vote in favour of Resolutions 1 to 4, as those Existing Directors who own Existing Ordinary Shares have irrevocably undertaken to do in respect of their entire beneficial holdings of 1,438,671 Existing Ordinary Shares (representing approximately 2.33 per cent. of the Existing Share Capital as at the date of this Document).

Rule 9 Waiver Resolution (Resolution 5)

The Existing Directors, having been so advised by SP Angel, consider the passing of the Rule 9 Waiver Resolution to be in the best interests of the Company and the Independent Shareholders as a whole and therefore unanimously recommend that Independent Shareholders vote in favour of Resolution 5 at the EGM, as they have irrevocably undertaken to do in respect of their own beneficial holdings, being in aggregate 1,438,671 Existing Ordinary Shares (representing approximately 2.33 per cent. of the Existing Share Capital as at the date of this Document).

In addition:

·     certain Shareholders (other than the Existing Directors) have given irrevocable undertakings to the Company to vote in favour of Resolutions 1 to 4 to be proposed at the EGM in respect of their holdings totalling, in aggregate 30,858,165 Existing Ordinary Shares, representing approximately 49.92 per cent. of the Existing Share Capital as at the date of this Document; and

·     certain Shareholders (other than the Existing Directors and the Concert Parties) have given irrevocable undertakings to the Company to vote in favour of Resolution 5 (the Rule 9 Waiver Resolution) to be proposed at the EGM in respect of their holdings totalling, in aggregate 6,357,343 Existing Ordinary Shares, representing approximately 10.29 per cent. of the Existing Share Capital as at the date of this Document.

In total, therefore, the Company has received irrevocable undertakings to vote in favour of: (i) Resolutions 1 to 4 to be proposed at the EGM in respect of holdings totalling, in aggregate, 32,296,836 Existing Ordinary Shares, representing 52.25 per cent. of the Existing Share Capital as at the date of this Document; and, (ii) Resolution 5 (the Rule 9 Waiver Resolution) to be proposed at the EGM in respect of holdings totalling, in aggregate, 7,796,014 Existing Ordinary Shares, representing 12.61 per cent. of the Existing Share Capital as at the date of this Document.

Yours faithfully

Oisín Fanning

Executive Chairman

 

END

 

 

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