Posting of Admission Document

RNS Number : 5948S

Igas Energy PLC

23 November 2011

 



23 November 2011 

IGAS ENERGY PLC ("IGas Energy" or "the Company")

Notice of General Meeting, Posting of Admission Document, Restoration of Trading on AIM and Trading Update

Following the announcement by the Company on 19 September 2011 and the subsequent temporary suspension of trading on AIM, IGas Energy announces that a General Meeting will be held at the offices of Morrison & Foerster (UK) LLP, CityPoint, One Ropemaker Street, London EC2Y 9AW at 10:45 a.m. on 9 December 2011. 

The purpose of the General Meeting is, inter alia, to seek shareholder approval for the acquisition of Star Energy Group Limited ("Star Energy"), which constitutes a reverse takeover under the AIM Rules and is therefore conditional, inter alia, upon such approval. 

An Admission Document (the "Admission Document") giving details of the proposals and incorporating a notice convening the General Meeting has been posted to shareholders on the 22^nd November and will be available on the Company's website www.igasplc.com  with effect from 7:00am today.

Consequently, the Company's ordinary shares will be restored to trading on AIM today at 08:00am. 

Andrew Austin, IGas Energy, commented:

"This is a transformational deal for IGas Energy. With this acquisition we will be creating a substantial onshore oil and gas company in the UK. The enlarged group is expected to have a growing production profile as IGas Energy's combined oil and gas resources are developed. We are acquiring an experienced team and the enlarged IGas team will have the necessary capabilities to exploit both the existing assets and those being acquired as part of the acquisition.

In addition, the gas sales agreement with Petronas offers an important partnership and a customer for our gas as it comes on stream. This agreement constitutes a significant step towards the migration of our resource base to reserves."

Please see below an extract from the Letter from the Chairman contained in the Admission Document.  All definitions are as set out in the Admission Document.

1. Introduction

As announced by the Company on 19 September 2011, the Company has conditionally agreed to acquire Star Energy Group Limited from Petronas International Corporation Limited. The Acquisition will comprise the UK onshore production assets of the Star Group but exclude certain non-UK assets and the gas storage business currently conducted by Star. The consideration for the Acquisition is £110 million, which is to be satisfied by way of new debt facilities with Macquarie Bank, cash generated by Star prior to closing and IGas' existing cash resources. In addition the Company has also entered into a gas offtake agreement with Petronas Energy Trading Limited to supply 150 Bscf of gas at market derived rates.

Your Board believes that the Acquisition is an exciting and transformational opportunity for the Company. Not only would the proposed Acquisition add 2P reserves of 11.13 MMboe and increase contingent resources 2C to 316 MMboe, but IGas will be acquiring an experienced and substantial management team involved in current production, with capacity to further develop the assets of the Enlarged Group.

Your Board also believes that the Acquisition would make the Company one of the largest onshore UK oil and gas producers with a balanced portfolio of producing and development assets. Your Board believes that the potential exists for significant upside to the existing oil production from the Star assets which, together with the opportunity to grow the production profile as combined oil and gas resources are developed, has the potential to deliver considerable fiscal synergies for the Enlarged Group.

Your Board has obtained irrevocable undertakings from shareholders and directors holding, in aggregate, 89,627,390 shares, representing 55.90% of the Issued Share Capital to vote in favour of the Resolutions to be proposed at the General Meeting to implement the Acquisition. These undertakings include undertakings from the Directors who have irrevocably undertaken to vote in favour of the Resolutions to implement the Acquisition with respect to their holdings totalling 38,483,847 shares or 24.00% of the Issued Share Capital.

IGas is an AIM listed oil and gas exploration and production company that owns exploration and development licences in gas assets onshore UK, including Coal Bed Methane ("CBM") and shale gas. As IGas is developing its existing gas portfolio, it is seizing an opportunity to acquire a mature onshore UK oil and gas portfolio of producing assets through the transaction with Petronas. Pursuant to the Acquisition, IGas will acquire the entire issued share capital of Star Energy Group Limited and its subsidiaries: Star Energy Limited, Star Energy Oil and Gas Limited, Star Energy Oil UK Limited, Star Energy (East Midlands) Limited and Star Energy Weald Basin Limited and will take ownership of all Star's producing oil and gas assets, with the exception of Humbly Grove and the Herriard fields, which will be carved out from the current business, together with all the subsidiary entities that concentrate on gas storage which will also be carved out from the Star Group and will be retained by Petronas.

Due to the size of the Acquisition in relation to the Company, the Acquisition constitutes a reverse takeover under the AIM Rules for Companies and is therefore subject to the approval of the Shareholders of the Company. Approval for the Acquisition is being sought at the General Meeting which has been convened for 10.45 a.m. on 9 December 2011.

If the Resolutions are duly passed at the General Meeting, the Issued Share Capital will be re-admitted to trading on AIM on 12 December 2011.

2. Background information on IGas

2.1 Introduction

On 9 March 2011 IGas announced completion of the acquisition of Nexen Exploration UK Limited for a consideration of 39,714,290 Ordinary Shares. The effect of this transaction was that all 11 UK Petroleum Exploration and Development Licences ("PEDL") and the three blocks within a seaward petroleum production licence became wholly owned and operated by IGas (having previously been subject to various joint interest relationships with Nexen Petroleum UK Limited).

The result of this acquisition was that IGas' Contingent Resource 2C (P50) increased by 115 per cent. to 1,736 Bscf or 260 MMboe (DeGolyer & MacNaughton 31 December 2008 assessment). In March 2011, IGas placed a total of 27,500,000 Ordinary Shares to raise £20,625,000 (before expenses). The Board considered the consolidation of its licence interests and associated fundraising to be a major turning point in the history of the Company and the first step in creating a vehicle to further expand and accelerate its growth as an operational onshore hydrocarbon exploration and production company.

The Board accordingly believes the current Acquisition is a further significant step towards delivering upon that strategy. The Acquisition will provide IGas with a substantial portfolio of producing acreage, comprising 25 onshore fields in the Weald Basin in the South of England and in the East Midlands. The Company is developing a combined optimised work programme for the Enlarged Group based on its findings from DG-3 and DG-4, maximising synergies using Star's execution capabilities and its tax profile to obtain maximum results from capital expenditure opportunities in the Star producing companies.

2.2 Operational Update

IGas considers that significant progress has been made in recent months. We announced on 19 September 2011 that the Company planned to drill between four and six wells by Q2 2012 and to date three wells have been completed or are underway; DG-3 drilled 1500 ft of coal at Doe Green.

Also at Doe Green, DG-4 spudded on 10 October 2011 and Ince Marshes spudded on 4 November 2011. IGas also planned to be operational at 5 sites by Q2 of 2012. The Company is currently operational at 4 sites, being Doe Green (DG-3 and DG-4); Ince Marshes; Ellesmere Port, where site construction is now complete; and Barton (now renamed Irlam), where site construction is underway.

Also in accordance with the plans announced by the Company on 19 September 2011, at Ince Marshes, which spudded on 4 November 2011, the Company is drilling with a Schramm R1 TXD rig. The well will be logged and cored, to be suspended as a potential producer. At Ellesmere Port the Company has completed site construction. Pre-drill approvals are in place and a drilling programme has been prepared. The Company will await an analysis of the Ince Marshes results prior to commencing drilling at Ellesmere Port.

At Doe Green DG-3 the Company has completed multilaterals in the London Delph seam (1500ft) and at DG-4 is drilling multilaterals in the Plodder seam (with a target of 3,000 ft). An upgrade of facilities is also underway at Doe Green of power generation and pumping equipment.

The Company's current planned work program will fulfil all of its remaining 13th Licencing Round Obligations, specifically the planned drilling at Irlam and Ellesmere Port will discharge the final obligations. We have also increased headcount by 8 in accordance with our announced plans.

2.3 Summary of IGas' Resources

The IGas Coal Bed Methane ("CBM") and shale gas assets are in ten onshore and one offshore licence located in Cheshire, Flintshire and Staffordshire. Total area under license is 1,455 km2. IGas has a 100% working interest in all licences.

The assets were reviewed for CBM potential by DeGolyer and MacNaughton in December 2008, who established at the time, and based on the data then available, statistically aggregated Contingent Resources of 1.7 Trillion Cubic Feet (2C). The CBM assets were also reviewed, from the perspective of their GIIP, by Equipoise Solutions Ltd, who also assembled and reviewed the available shale gas data.

Existing reports are based mostly on the voluminous coal core data available from the mining industry alongside modern petroleum core and log data from several wells in the period from 2008 to 2010.

There is a range of available information on the licences, but in general the coals' measures are adequately to well defined. Senergy (in their report dated 15 November 2011) has analysed the data provided by IGas to estimate resources on a field level basis. The information was reviewed using experiences from successful CBM development projects in North America and Australia. Senergy did not carry out independent interpretation of each seam thickness.

Senergy used existing GIIP estimates combined with development and recovery efficiencies to estimate Contingent Resources on a field level basis. Senergy's estimate for total Contingent Resources net to IGas is depicted in the table below.

Contingent Resources Net to IGas

Stochastic Aggregate of all UK Fields	1C	2C	3C
Total Gas (Bscf)	1,400	1,811	2,389
Total Hydrocarbons (MMboe)	241	312	412

Source: Competent Persons Report, Senergy, 15 November 2011

IGas' CBM developments should benefit from the modern petroleum core and log data, and the production data available, as well as from knowledge gained from drilling and operating the Doe Green wells over the last few years. The optimal development zones and drilling and completion techniques for IGas' CBM assets will still take time to fully develop. Enhanced project definition and production projections based on the Doe Green results could give sufficient confidence for a limited reclassification of certain resources as Possible or Probable Reserves.

3. Background information on Star

3.1 Introduction

Star was founded in 1999 to pursue underground gas storage projects. Star was the subject of an initial public offering on AIM in May 2004, before being the subject of a takeover offer from Petronas in early 2008.

Star currently carries on business producing oil and gas from 25 onshore fields in the Weald Basin and East Midlands areas.

IGas has agreed with Petronas that it will acquire Star and those of the Star Subsidiaries which carry on exploration, development and production activity. The gas storage businesses will be retained by Petronas, together with the Humbley Grove and Herriard Fields.

3.2 Summary of Star's assets

Operations Overview

Star has interests in 25 UK onshore licences in the East Midlands and the Weald Basin and is the appointed operator in 23 of the 25 licence areas. In total, Star occupies or owns 105 sites with an inventory of 247 wells (of which 85 are currently still in operation). The operating companies in East Midlands and the Weald Basin are responsible for the day-to-day operations of the fields and are supported by central services and development teams.

East Midlands

The East Midlands has two primary production area centres: Welton and Gainsborough / Beckingham.

The Welton area production wells are beam pump type. The Welton area fields comprise:

·      Welton A/B/C;

·      Nettleham;

·      Scampton (N&S);

·      Stainton; and

·      Cold Hanworth.

The Welton Gathering Centre ("WGC") is the hub reception and process facility. The produced oil, gas and water are separated at the WGC. Welton A/B/C and Nettleham flow to WGC via pipelines. All other fields have oil/water storage and tanker pick-up.

At WGC produced oil is exported to Conoco Immingham via road tanker, gas is used for power generation and produced water is pumped for reinjection at Welton A. WGC is manned 24 hours per day. All other Welton area sites are normally unmanned, but roving operators visit all sites daily during daytime hours.

The WGC has been designed for much higher throughputs than current use (6,000 bopd versus current 950 bopd) and previously included many more process unit operations including gas sweetening and amine units, fuel gas compression and GT power generation. The WGC site has a large plot area. There are many site process unit operations that are now not in service or isolated, though not disinvested, including a former rail export siding.

The Gainsborough / Beckingham facility manages its own production as well as the production from seven other oilfields:

·      Corringham;

·      Glentworth;

·      East Glentworth;

·      Rempstone;

·      Long Clawson;

·      South Leverton; and

·      Bothamsall.

Gainsborough / Beckingham wells flow to the Gainsborough-5 gathering and processing hub via pipelines. All other fields have oil and water storage and tanker pick-up. The Gainsborough-5 processing facility separates oil, gas and water. Oil is exported to Conoco Immingham via road tanker, gas is piped to Gainsborough-1 for power generation and produced water is pumped for reinjection.

All Gainsborough / Beckingham area oil production wells are beam pump type. Gainsborough-5 is manned 24 hours per day, Gainsborough-1 is manned during daytime hours and has 24 hour security and Long Clawson A is manned during daytime. All other Gainsborough area sites are normally unmanned, but roving operators visit all sites daily during daytime hours.

Weald Basin

The Weald Basin sites cover the following areas: Stockbridge, Palmers Wood, Bletchingly, Storrington and Horndean, which are manned sites with daytime operators. The two sites at Palmers Wood are covered by one man as are the three sites at Horndean. The main Stockbridge site, Larkwhistle Farm is manned during the day and operators from this site also service the Hill Farm, Folly Farm, Goodworth and Avington sites. The Holybourne terminal is continually manned.

The Albury gas field is presently suspended following drilling of a new well for potential gas storage use. Star Energy Weald Basin Limited currently plans to reinstall equipment for gas production and power generation for export at the Albury gas field.

The Humbly Grove and Herriard sites have not been assessed as these licence areas are not being acquired as part of the Acquisition.

Oil is exported by tanker from all sites except the Palmers Wood Coney Hill site which exports to the Palmers Wood Rooks Nest site by pipeline. There are plans to abandon this pipeline. There is also a pipeline into the Holybourne terminal from Humbly Grove. Produced water is either reinjected on site or trucked to another site for reinjection. Power is imported or generated by an on-site diesel generator.

Oil can be either exported by road tanker to the BP operated Hamble terminal on the Solent or by road tanker to the Star operated Holybourne storage facility for onward transport by rail (5,000 stb loads) to the Esso Fawley refinery, which is generally once per week. Generally oil from Stockbridge is exported to Hamble and oil from the other fields is exported to Holyboure / Fawley. However, there is flexibility of operation and any production can be exported via either route.

The production department has two work over rigs, four hot water flush rigs, one hot oil flush rig, and one flushby unit for pulling beam pump well rods. Demand for the rigs is high.

3.2.1 Summary of Star's Reserves and Resources

A summary of the Star Asset Reserves and Contingent Resources is provided in the two tables below.

Reserves and Resources Net to IGAS¹

Asset	Proved (1P)	Proved plus Probable (2P)	Proved plus Probable plus Possible (3P)	2C2 Contingent Resources
Volume Oil (MMstb)
Star Assets	5.68	9.63	14.85	4.46
Total Oil (MMstb)	5.68	9.63	14.85	4.46
Volume Gas (Bscf)
Gainsborough/ Beckingham	4.20	6.50	7.70	N/A
Albury	0.70	2.20	2.70	N/A
Total Gas (Bscf)	4.90	8.70	10.40	N/A
Total Hydrocarbons (MMboe)	6.52	11.13	16.65	4.46

Source: Competent Persons Report, Senergy, 15 November 2011

¹The proportion of gross reserves, resources or value for the attributable interests of IGas. These volumes exclude Humbly Grove and Herriard.

²2C: in a resource size distribution this is the Base case or (50% probability) or Mean volume. This is defined for each asset in the CPR.

The produced gas is currently mostly used to generate power for internal consumption, with the option to sell into the UK grid. Due to power generation capacity limitations only a limited amount of gas has been produced in the recent past. Whilst this has affected the production profiles for the remaining resources, Senergy has not discounted these resources and classified them as Reserves, because Senergy believes that these resources can easily find a way into the UK market.

4. Principal terms of the Acquisition

Pursuant to the terms of the Acquisition Agreement, the Company will acquire the entire issued share capital of Star and outstanding intercompany debt owed by Star to its parent company for a total cash consideration of £110 million. Pursuant to the Acquisition, the Company will acquire the entire issued share capital of Star Energy Group Limited and its subsidiaries: Star Energy Limited, Star Energy Oil and Gas Limited, Star Energy Oil UK Limited, Star Energy (East Midlands) Limited and Star Energy Weald Basin Limited and will take ownership of all Star's producing oil and gas assets, with the exception of Humbly Grove and Herriard fields, which will be carved out from the current business, together with all the subsidiary entities that concentrate on gas storage which will also be carved out from the Star Group.

The Company will also receive the benefit of a tax deed entered into by Petronas, giving the Company protection against any undisclosed or changes in the provisional tax liabilities of the Star entities being acquired.

Petronas and the Company will also enter into a gas offtake agreement. Pursuant to this agreement the Company will be obligated to sell its first 150 Bscf of gas production to Petronas at a pricing matrix based on the bid price under the National Balancing Point heading on the European Spot Gas Markets.

The Acquisition is conditional upon completion of the corporate reorganisation described above to remove the gas storage business from Star Energy Group Limited, which involves the obtaining of certain regulatory consents. The Acquisition is also conditional upon Admission. It is expected that the Acquisition will complete prior to 16 December 2011 and the Company will make a further announcement once the completion date has been confirmed.

The Acquisition will be financed by way of debt facilities from Macquarie Bank together with cash balances held at Star and IGas' own cash resources. The Company will borrow a total of up to $135 million (approximately £85 million) to enable it to complete the Acquisition. The Credit Agreement comprises three separate facilities, a 5 year senior secured term loan of $90 million at a rate of 5.5% over LIBOR and a 2% commitment fee; and a 5 year senior secured term loan of $45 million at 12% over LIBOR and a 3.5% commitment fee. The Credit Agreement also provides for an uncommitted working capital facility of $15 million and is available at the future discretion of Macquarie. The debt facilities will be secured over the assets and undertakings of the Enlarged Group. At Completion the Company will issue Macquarie with 21,286,646 Warrants to acquire Ordinary Shares at a price of 55.8p per Ordinary Share. IGas' held cash balances of £22.5 m as at 31 October 2011. The Acquisition is designed to have an economic effect as at 31 March 2011 and accordingly cash balances generated within Star after this date accrue for the benefit of IGas, together with certain other cash adjustments relating to tax and capital expenditure. The $135 million element of the facility with Macquarie will be used to finance the majority of the Acquisition price, with the $15 million working capital facility potentially being available to allow the funding of capital expenditure on both the IGas and Star asset portfolios.

The Company has also entered into a series of oil swap transactions with Macquarie Bank with respect to approximately 2.4mmbbl over six years. These oil swap transactions will be novated and assigned to the Star producing companies on completion of the Acquisition. These oil swap transactions are designed to protect an element of the Enlarged Group's cash flow for debt service.

Under two oil supply agreements between (i) Star Weald Basin Limited (the shares of which are to be acquired by the Company under the Acquisition Agreement) and Esso Petroleum Company Limited ("Esso") and (ii) Star Oil & Gas Limited (the shares of which are to be acquired by the Company under the Acquisition Agreement) and Conoco Phillips Limited ("Conoco"), these Star Subsidiaries will supply quantities of crude oil as nominated by IGas to Esso and Conoco, respectively, in return for payment of a floating price for their production. Following Completion, the Company intends to novate its rights and obligations under the derivative transactions to the relevant Star Subsidiaries in order to hedge their exposure to fluctuations in the price of Brent Crude Oil, and their exposure to foreign exchange rate fluctuations.

To date the Company has been entirely equity financed which is consistent with market sentiment and expectation for companies primarily engaged in exploration and appraisal activities. However, following completion of the Acquisition, it is expected that the Enlarged Group will have significant production volumes generating cash flows which make debt financing appropriate.

5. Current trading and prospects of the Enlarged Group

The Enlarged Group will have interests in 35 UK onshore licences and one offshore licence, comprised of 109 sites with inventory of 250 wells, 86 of which are currently producing.

The CPR estimates that the Enlarged Group will have production of approximately 2,140 boe/d in the year ending 31 December 2012. With an aggregate of 11.1 MMboe 2P reserves comprised of 9.6mmstb of oil and 8.7 Bscf of gas. The CPR further estimates combined assets of the Enlarged Group of 316.5 MMboe of 2C resources.

There will be 3 main collection/treatment centres located at the Welton Gathering Centre, Gainsborough 5 Processing Hub and the Holybourne Oil Terminal from where production will be delivered to off-takers by road trucks and rail.

The Company currently operates in a highly realisable gas price environment; 2012-2013 forward gas prices are approximately $9.00 mcf (approximately 60p/therm).

On the basis of the information currently available to the Board with respect to the Star producing assets and with access to cash in the form of the cash currently held by IGas, cash-flows from the Star production assets and potentially the US$15 million working capital facility (currently uncommitted) IGas intends to continue the development of its CBM assets in conjunction with the development of the Star assets. In this context the Board was pleased to be able to employ debt from a leading lender in the sector to finance substantially the entire Acquisition price when market conditions are generally difficult and unpredictable.

At Keele, the technical work undertaken suggests that a work over will be required to optimise potential production. IGas has now extended the planning permission at the site to 22 December 2012 and such work will be considered as part of the combined optimised work programmes being developed.

At Point of Ayr we will seek a further extension to the licence term as we continue attempt to secure surface access to the potential reservoir.

The Company is developing a combined optimised work programme for the Enlarged Group based on its findings from DG-3 and DG-4, maximising synergies using Star's execution and its tax profile to obtain maximum results from capital expenditure opportunities in the Enlarged Group.

6. Reasons for the Acquisition

Your Board believes that by bringing together the existing assets of the Company with the exploration assets of the Star Group there is an opportunity to create an Enlarged Group with significant economies of scale, a balanced portfolio of booked reserves and material resources and an experienced execution team.

The Star Group being acquired employs 143 persons inclusive of a senior technical team with a proven track record for delivering resources and experienced site operators. IGas has for some time been recruiting appropriate experienced and qualified personnel for its own operations and the Acquisition will deliver not only hydrocarbon assets but a team of experienced professionals capable of managing those assets and also of assisting in the management of the Company's existing assets.

In addition, there are tax losses within the IGas Group and the Star Group which can be utilised by the Enlarged Group. Star also holds a number freehold land titles in valuable locations, which will be of value to the Enlarged Group. The Star Group also brings with it owned and accessible production equipment.

The Board believes that the Enlarged Group will be one of the largest onshore producers of hydrocarbons, and one of the largest exploration and production companies dedicated to UK onshore hydrocarbon production. The Board further believes that the creation of the Enlarged Group will facilitate the Company's ability to raise future finance to further develop the assets of the Enlarged Group on the basis of being a creditable operator in terms of size in the UK onshore market. The acquisition of the Star Group presents a number of operational and logistical synergies including access to equipment and supply chain synergies.

7. Irrevocable undertakings

The Board has obtained irrevocable undertakings from shareholders and directors holding, in aggregate, 89,627,390 shares, representing 55.90% of the Issued Share Capital to vote in favour of the Resolutions to be proposed at the General Meeting to implement the Acquisition. The Directors have irrevocably undertaken to vote in favour of the Resolutions to implement the Acquisition with respect to their holdings totalling 38,483,847 shares or 24.00% of the Issued Share Capital.

Accordingly, the Company is in receipt of aggregate undertakings to vote in favour of the Resolutions to implement the Acquisition.

8. Further Information

The Company has changed its accounting reference date to 31 March 2011 and intends to change the accounting reference date for all subsidiaries in the Enlarged Group in due course.

9. Recommendation

The Directors, who have received financial advice from RBS Hoare Govett Limited, consider the terms of the Acquisition to be fair and reasonable so far as Shareholders as a whole are concerned. In giving its advice, RBS Hoare Govett Limited has relied upon the Directors' commercial assessments of the Acquisition. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as they have irrevocably undertaken to do in respect of their own beneficial shareholdings amounting to, in aggregate, 38,483,847 Ordinary Shares (representing approximately 24.00% per cent. of the existing Issued Share Capital).

For further information visit www.igasplc.com or contact:

IGas Energy plc
Andrew Austin, CEO	[phone]
Stephen Bowler, CFO
RBS Hoare Govett	[phone]
Sara Hale/Jamie Buckland/John MacGowan
Kreab Gavin Anderson	[phone]
Ken Cronin/ Kate Hill/ Anthony Hughes

 

END

 

 

MSCLFFFVLELFFIL