Proposed Placing and Acquisition of Mustang Asset

RNS Number : 5872L

Silvermere Energy PLC

02 August 2011

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, REPUBLIC OF SOUTH AFRICA, REPUBLIC OF IRELAND OR JAPAN

2 August 2011

SILVERMERE ENERGY PLC

("SILVERMERE" OR "THE COMPANY")

PROPOSED PLACING,

 ACQUISITION OF THE MUSTANG ASSET AND APPOINTMENT AND RESIGNATION OF DIRECTORS

Silvermere Energy plc. ("Silvermere" or "the Company) is pleased to announce that it has conditionally raised £1.52 million via a placing at 25p per share (the "Placing"). The proceeds of the Placing will be used to provide working capital for the Group and to pay the costs associated with the acquisition of an interest in the Mustang Island 818-L field (see details below) and Admission to trading on AIM.

The development of the Mustang Island 818-L field, located in Kleberg County waters of the Gulf of Mexico, is a field re-habilitation project targeting bypassed or only partially produced gas-condensate. During the period from January 1980 to February 1995, the field had produced a total of 138.9 Bcf of gas. The Mustang Asset ("Mustang Asset") comprises a 33.3 per cent working interest and a 20.83 per cent. net entitlement interest (after deductions of overriding royalties) in the Mustang Licence Area. The Company is currently an investing company under the AIM Rules.  Trading in the Company's Ordinary Shares is currently suspended.  The Acquisition requires the approval of Shareholders since, inter alia, it will result in a fundamental change in the business of the Company and will constitute a reverse take-over under the AIM Rules. An admission document giving details of the proposals and incorporating a notice convening a General Meeting to be held at the offices of Memery Crystal LLP, 44 Southampton Buildings, London WC2A 1AP on 18 August 2011 at 10.30 a.m. will be posted to shareholders later today.

Downloadable versions of this announcement, the admission document and the notice of General Meeting will shortly be available from the following web address:

www.chalkwellinvestmentsplc.co.uk

In order to reflect the change of name from Chalkwell Investments Plc, the Company will shortly be changing its website address to www.silvermere-energy.com. An announcement will be made when this change has been effected.

Application will be made to the London Stock Exchange for the Enlarged Issued Share Capital to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Enlarged Issued Share Capital will commence on 19 August 2011.

Definitions in this announcement are the same as those in the admission document referred to above.

HIGHLIGHTS:

-     The Competent Person's Report included in the admission document assigns proven and probable reserves attributable to Silvermere's net entitlement interest in the Mustang Asset which RPS has valued at $29.36 million (approximately £18.35 million).

-     At the Placing Price the market capitalisation of the Company is £4.25 million.

-     The Company will benefit from an experienced Board with extensive knowledge of the oil and gas industry, corporate finance and corporate governance.

Proposed Chief Executive Andy Morrison says:

"We are very pleased to be bringing the Company back to the market with a promising and attractive asset. The area surrounding the Mustang Asset has a proven producing history and continues to have significant potential.

"I would like to thank our existing and new shareholders for their support. We very much look forward to developing the Mustang Asset and the Company as a whole and to updating the market on our progress in due course."

ENDS

For further information please contact: Silvermere Energy plc Frank Moxon, Proposed Chairman Andy Morrison, Proposed Chief Executive Bruce Evers, Current Executive Chairman	[phone] [phone] [phone]
Merchant Securities Limited (Nominated Adviser and Broker) Lindsay Mair/Virginia Bull Rivington Street Corporate Finance Limited Jon Levinson/Dru Edmonstone Old Park Lane Capital Luca Tenuta	+ 44(0)20 7628 2200  [phone] [phone]
Bishopgate Communications Nick Rome/Shabnam Bashir	[phone]

Background to the Acquisition

During the course of 2010, Silvermere initiated discussions with Core Oil and Gas Inc ("Core"), which had agreed terms to acquire the Mustang Asset. Since November 2010, the Company has made a series of loans to Core, which now total £2.595 million, which Core has used principally to finance its share of the costs for the re-entering and subsequent testing of the I-1 Well (which lies within the Mustang Licence Area) and to pay the consideration due from Core for the Mustang Asset.

Silvermere has funded these loans and its own working capital requirements (including the payment of professional fees associated with the Proposals) through a series of share and loan note issues which have in aggregate raised £3.35 million for the Company.

On 29 April 2011, the Company entered into the Option Agreement with Core, superseding a previous option between the parties. Assuming that Shareholder approval is given for the Acquisition, the Company intends to exercise its option under the Option Agreement and complete the Acquisition at the same time as Admission.

The Mustang Asset

Summary of Reserves for Mustang Island

Reserves Basis	Gross Field Reserves		Working Interest Reserves		Net Entitlement Reserves
	Liquids	Gas	Liquids	Gas	Liquids	Gas
Fluid Type	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)	(MMbbl)	(Bscf)
1P	0.132	21.92	0.044	7.31	0.027	4.57
2P	1.204	48.14	0.401	16.05	0.251	10.03
3P	9.113	91.13	3.035	30.38	1.899	18.99

1. Gross, 100% Basis

2. Silvermere WI, 33.333334% Basis

3. Silvermere Net Entitlement, 20.83% after over-riding royalties to Texas State, Seadrift, Wellmaster and the Core Vendors

4. Liquids refer to the condensate that condenses out of the gas

The Mustang Asset comprises a 33.3 per cent working interest and a 20.83 per cent. net entitlement interest (after deductions of overriding royalties) in the Mustang Licence Area.

The development of Mustang Island 818-L field, located in Kleberg County waters of the Gulf of Mexico, is a field re-habilitation project targeting bypassed or only partially produced gas-condensate. The Mustang Island 818-L field was drilled and produced by Samedan Oil Corp in the 1980s, based on 2D seismic mapping. At abandonment some 25 wells had been drilled targeting several stacked clastic reservoir sands grouped as the 'A', 'B', 'G' and 'I' sands. During the period from January 1980 to February 1995, the field had produced a total of 138.9 Bcf of gas. This includes production from the D1 and D2 wells which are outside of the seismic area and therefore not taken into consideration for this evaluation. Total historic production from the wells within the seismic coverage is 125.6 Bcf.

The 'I' sands, which lie at depths in excess of 11,000 feet, are the primary targets for the initial phases of development of wells within the Mustang Asset. Historic production by Samedan Oil Corporation on the Mustang Licence Area recovered gas from various sands, but as stated in the Competent Person's Report (pages 51-54) volumes of recoverable gas and associated oil remain in these formations.

Based on the structures mapped, each of three fault blocks has a structural high, which is likely to be where remaining gas will accumulate. In each fault block, none of these structural highs has been drilled by any of the existing well stock, further supporting the idea of remaining attic gas being present. For this reason, three new wells are recommended in the outline field development plan to test and subsequently produce the remaining gas volumes.

Drilling and tie-in costs have been estimated by Core based on its recent activity. Estimates of US$5 million to US$8 million include the costs of connecting the wells into the existing infrastructure which is itself connected to the Six Pigs processing facility onshore on Padre Island, Texas. The infrastructure (mini platform, flow-lines, main 20 inch export line to Six Pigs and the Six Pigs processing facility itself) is believed to be in good order.

Texas Land office leases 108873 & 108874 corresponding to the Mustang Asset cover only a quarter of Block 818-L, the Southern half of the North-West quarter and the Northern half of the South-West quarter respectively. Both leases were registered to Magellan E&P Holdings Inc. ("Magellan") with the Texas General Land Office. The subsequent offshore operating agreement between Magellan, Seadrift and Gulf Standard Energy LLC agreed a 33.3 per cent. split between the three parties. The Magellan and Gulf Standard working interests were subsequently acquired by Dominion Production Company LLC who also became the operator of the Mustang Licence Area. Core completed the purchase of Seadrift's entire working interest on 1 July 2011.

Trading

The Company has been an investing company since January 2010. It published its results for the seven months ended 31 December 2010 in June 2011.

Since 31 December 2010 the Company's activities have principally comprised the raising of funds to lend to Core and to cover its overheads. The Company intends to release its interim results to 30 June 2011 in September 2011.

Strategy

Under the guidance of the New Board, the Company intends to pursue a strategy of acquiring a portfolio of US oil and gas licence interests onshore and in shallow offshore waters, characterised by relatively low risk and low cost with the potential for near term production. The Acquisition will provide a good base from which to develop this strategy.

Whilst there can be no categorical assurance given at this time, the Directors and Proposed Directors are optimistic that the I-1 Well will begin production before the end of 2011.

Terms of the Acquisition

Details of the Acquisition are set out in the Option Agreement which provides for the following:

·    Cancellation of the debt due from Core to Silvermere (which amounts to £2.595 million);

·    Payment of certain of Core's legal fees amounting to £20,000;

·    Payment to the Core Vendors of an over-riding royalty of 4 per cent. of the annual revenues attributable to 100 per cent. of the Mustang Asset;

·    Retention by Core of a 16.65 per cent. working interest in the I-1 Well only with the Company carrying Core's share of the tie-in costs; and

·    The issue at Admission of the Consideration Shares to the Core Vendors (this will be effected by a payment by the Company to the Core Vendors of £169,000, which the Core Vendors will use to subscribe for the Consideration Shares).

Thus the total effective consideration payable by Silvermere at Admission is £2.8 million. The amount of on-going royalties payable will depend on production and revenue from the Mustang Asset.

Silvermere's net entitlement is 20.83 per cent. after over-riding royalties as follows:

·    A royalty of 22.5 per cent. of total revenues generated from Mustang Island production is payable to the State of Texas, on the assumption that production starts by 29 May 2012. If Mustang Island production starts after 29 May 2012 this rate will increase to 25 per cent. Silvermere is obliged to pay a third of this total royalty obligation.

·    An overriding royalty of 0.75 per cent. of total revenues generated from Mustang Island production, payable by Silvermere to Wellmaster Exploration & Production Co., LLC, once Core's share of field revenue, gross of royalty, exceeds $100,000.

·    An overriding royalty of 0.25 per cent. of total revenues generated from Mustang Island production, payable by Silvermere to Seadrift Management, LLC.

·    An overriding royalty of 4 per cent. of total revenues generated from Mustang Island production, payable by Silvermere to the Core Vendors (as referred to above).

The Competent Person's Report shows proven and probable reserves attributable to Silvermere's net entitlement interest which RPS has valued at $29.36 million (approximately £18.35 million) and, accordingly, the Directors and Proposed Directors believe that the terms of the Acquisition are attractive.

On the day of the GM, and subject to the passing of the Resolutions, the Company will serve notice on Core exercising its rights under the Option Agreement and directing that the Mustang Asset be transferred to the US Subsidiary, which has been incorporated for that purpose. Completion is expected to take place the following day.

Details of the Placing

Under the terms of the Placing Agreement, the Joint Brokers have agreed, as agents for the Company, to use their reasonable endeavours to procure placees for the Placing Shares at the Placing Price and for the Placing Warrants to raise £1.52 million for the benefit of the Company. The Placing is conditional, inter alia, upon completion of the Acquisition, Admission and the Placing Agreement becoming unconditional and not being terminated in accordance with its terms. The Placing Shares, when issued and fully paid, will rank pari passu with the Existing Ordinary Shares. The Placing Shares will be conditionally allotted and issued prior to Admission credited as fully paid subject only to Admission, which is expected to occur on 19 August 2011. The Placing Warrants will not be admitted to trading on any market but will be freely transferable.

As part of the Placing, certain Directors and Proposed Directors have agreed to capitalise certain payments owed to them amounting to £73,980, in aggregate, by subscribing for 295,920 Placing Shares at the Placing Price and Placing Warrants. In addition, Frank Moxon has agreed to subscribe for a further 52,000 Ordinary Shares and Placing Warrants in the Placing. The total number of Ordinary Shares and Placing Warrants subscribed for and the subsequent holdings of the Directors and Proposed Directors concerned as a percentage of the Enlarged Issued Share Capital are as follows:

	No. of Placing Shares subscribed for	No. of Placing Warrants Subscribed for	Shareholding following Admission	Percentage holding of enlarged issued share capital	Warrants held post Admission
Bruce Evers	96,000	96,000	96,000	0.57	96,000
John Roddison	40,000	40,000	1,030,068	6.07	40,000
Frank Moxon*	144,000	144,000	144,000	0.85	144,000
Andy Morrison**	67,920	67,920	67,920	0.40	67,920
	347,920	347,920	1,337,988	7.88	347,920

* held in the name of Hoyt Moxon Limited, a company wholly owned by Frank Moxon

**52,000 Ordinary Shares will be held in Andy Morrison's SIPP.

In addition, t1ps Investment Management (IOM) Limited and its associated parties and XCAP Securities plc, substantial shareholders of the Company, have each agreed to subscribe for 1,483,200 and 700,000 Placing Shares and Placing Warrants, respectively. Following Admission, t1ps Investment Management (IOM) Limited and its associated parties and XCAP Securities plc will be beneficially interested in 2,768,676 and 1,956,480 Ordinary Shares, respectively, equivalent to 16.30 per cent. and 11.52 of the Enlarged Issued Share Capital, and 1,483,200 and 700,000 Placing Warrants respectively.

In accordance with Rule 13 of the AIM Rules, the independent Director, being Reinhold Heus, having consulted with Merchant Securities, the Company's nominated adviser, considers that the participation in the Placing by the Directors, Proposed Directors and certain substantial shareholders is fair and reasonable insofar as the Company's shareholders are concerned.

The Placing

The proceeds of the Placing, together with the Company's existing cash resources, will be used as follows:

•         approximately $960,000 (£600,000) will be used to pay the Company's share of the cost of the tie-back from the I-1 Well to nearby pipeline infrastructure;

•         approximately £549,000 will be used for the Company's general working capital requirements; and

•         approximately £526,000 will be used to pay the costs (including VAT) of Admission.

Proposed Board

On Admission, it is proposed that John Roddison and Reinhold Heus will resign as directors, that Bruce Evers will become a Non-Executive Director and that the following be appointed to the board: Frank Moxon as Non-Executive Chairman, Andy Morrison as Chief Executive, and Stewart Dalby as a Non-Executive Director. Details of the New Board are set out below.

 

Frank Moxon (Proposed Non-Executive Chairman), aged 44, is an experienced corporate financier specialising in natural resources. Now practising through his own firm, Hoyt Moxon, he was previously head of corporate finance and head of natural resources at Williams de Broë at the time it was acquired by Evolution Securities. He holds a number of non-executive directorships including Cove Energy Plc (AIM quoted), Whetstone Minerals Ltd (TSX-V quoted) and Imperial Minerals Plc (Plus quoted) and is a fellow of the Energy Institute and a member of the Petroleum Exploration Society of Great Britain.

Andy Morrison (Proposed Chief Executive), aged 50, has spent his entire career in the oil and gas industry. From 1982 until 1999, he worked for Shell in a variety of commercial roles in the UK, Asia and South America. He then worked for BG and subsequently for BOC in new business development and strategic roles. From 2007 until 2010 he was CEO of Xtract Energy plc which is quoted on AIM and which manages a portfolio of projects in oil and gas exploration and production.

Bruce Evers (Currently Executive Chairman, Non-Executive Director from Admission), aged 51, has 27 years' experience of working in the City including roles at Panmure Gordon, Schroders,Yamaichi, Investec and Evolution. He has extensive experience of the oil and gas sector as an analyst, specialist salesman and corporate broker. He has advised and raised money for numerous oil and gas companies with operations in many different areas of the world.

Stewart Dalby (Proposed Non-Executive Director), aged 66, is the founding editor and publisher of Oilbarrel.com, a leading website and conference business for small cap and mid-tier oil and gas companies that he successfully sold to Rivington Street Holdings in 2008. He has over 40 years' experience as a journalist and commentator on the global oil and gas industry during which he has acquired a broad range of industry contacts at both board and technical levels. He has previously worked as a stockbroker and investment analyst.

Placing Statistics

Placing Price	25 pence
Number of Existing Ordinary Shares	7,532,223
Number of Placing Shares to be issued*	6,079,120
Number of Placing Warrants to be issued*	6,079,120
Number of Consideration Shares to be issued	676,000
Number of Ordinary Shares being issued pursuant to the conversion of the Loan Notes 2011 Tranche A	1,666,666
Number of 2010 Warrants to be exercised on Admission	1,026,741
Number of Ordinary Shares in issue on Admission	16,980,750
Placing Shares as a percentage of the Enlarged Issued Share Capital	35.80 per cent.
Amount being raised under the Placing (before expenses)*	£1.52 million
Amount being raised under the Placing (after expenses)	£1 million
Market capitalisation at the Placing Price at Admission	£4.25 million

* Which includes the capitalisation of certain payments owing to the Directors and Proposed Directors

Expected timetable of events

Publication and despatch of this document	2 August 2011
Latest time and date for receipt of completed Forms of Proxy to be valid at the General Meeting	10.30 a.m. on 16 August 2011
General Meeting	10.30 a.m. on 18 August 2011
Exercise of Option Agreement	18 August 2011
Admission effective and dealings in the Enlarged Issued Share Capital commence on AIM	19 August 2011
Completion of the Acquisition	19 August 2011
CREST accounts expected to be credited with the Placing Shares, Consideration Shares and the Ordinary Shares to be issued following the exercise of the 2010 Warrants	19 August 2011
Share certificates in respect of the new Ordinary Shares expected to be despatched by	26 August 2011

 

END

 

 

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