05 Feb 2016
£10 million Secured Convertible Loan Facility, Corporate Update and Board ChangesIndependent Oil and Gas plc ("IOG" or the "Company") (AIM: IOG.L), the North Sea focused oil and gas company, is pleased to announce that further to its announcement of 13 January 2016, it has today entered into a conditional agreement (the "Loan Agreement") with London Oil and Gas Limited (“LOG”) (part of London Group Limited) for the provision of a secured convertible loan facility for up to £10 million (the "New Facility").
- A £10 million secured fully convertible loan facility to be made available by LOG, subject to certain conditions precedent, providing IOG with additional working capital and funding for future acquisitions. The terms of the Loan Agreement are as previously announced on 12 January 2016, although on account of the continuing commodity price environment, the final conversion price is now 8 pence per Ordinary Share.
- £3 million of the New Facility to be used to fund corporate G&A and licence fees up to July 2018.
- £7 million of the New Facility to be dedicated to fund acquisitions that would add value to the existing IOG portfolio.
- Given the convertible aspect of the New Facility, shareholder approval will be sought for the issue of Ordinary Shares pursuant to the New Facility at a General Meeting (“GM”) on 22 February 2016.
- IOG Board strengthened through the appointment of Martin Ruscoe as a Non-Executive Director.
- Marie-Louise Clayton has chosen to step down as a non-executive director to concentrate on other activities.
- Clint Redman also joins IOG as Head of Corporate Finance reporting to the CFO and Eric Bosshard joins as technical advisor to the board.
We are delighted to announce the entry into this facility with LOG. On satisfying the conditions to draw down, the Company will be fully funded for its corporate G&A and licences fees until mid-2018 and can now focus upon building an exciting phase of growth. This transaction will significantly strengthen our balance sheet and enhances our access to capital, thereby enabling us to capture attractive, value enhancing opportunities created by the current phase in the oil price cycle.
Following the recent extension to the Skipper licence until the end of 2016, we remain ready to remobilise on the appraisal well at the earliest feasible opportunity.
We are pleased that Martin has agreed to join the Board and also that Clint and Eric are joining the team and look forward to working with them. Their wide ranging finance and technical expertise will help us to deliver our refined business strategy and generate shareholder value.
We thank Marie-Louise for her important contribution dating back to before IOG was created in its current form, and wish her very well for the future.
Secured Convertible Loan Facility and amendments to Existing Facilities
Pursuant to the Loan Agreement, LOG has conditionally agreed to make a secured convertible loan facility of up to £10 million available to IOG's wholly owned subsidiary, IOG North Sea Limited ("IOG North Sea"). Loans drawn down pursuant to the New Facility will carry a coupon of LIBOR + 9%, with accrued interest capitalised monthly and convertible with the principal loan. The principal and accrued interest in relation to any tranche of the New Facility that is drawn down is repayable on the date that is 36 months after the date of drawdown of the relevant tranche. LOG can at its sole discretion elect to extend the maturity date of a tranche by up to 12 months. However, interest will not accrue during the period of this extension. The New Facility is secured against IOG’s assets and, subject to shareholder approval at the GM, loans drawn down and accrued interest will be fully convertible at any time following the drawdown of each tranche at LOG’s election into ordinary shares of 1p each in the capital of the Company (“Ordinary Shares”) at a conversion price of 8p per Ordinary Share (the "Conversion Price").
This New Facility is in addition to the existing £2.75 million and £0.8 million loans from LOG (the "Existing Facilities"), as announced on 7 December 2015 and 11 December 2015 respectively and will rank behind those facilities in terms of security. The Company has also today made certain amendments to the Existing Facilities in order to permit IOG North Sea to draw down amounts in tranches and for such sums to be used for general working capital purposes in instalments of up to £100,000 (between the two Existing Facilities and less amounts drawn down under the New Facility for G&A and licence fees) each month. Any amounts drawn down under the Existing Facilities will now be repayable 36 months after draw down rather than on 31 December 2016. As at the date of this announcement no amounts have been advanced pursuant to the Existing Facilities.
Of the New Facility, £3 million may be drawn down in instalments of up to £100,000 (less amounts drawn under the Existing Facilities) each month to be used specifically to cover G&A and licence fees for the next 30 months, ensuring the Company will be fully funded for general purposes until mid-2018. A further £7 million of the New Facility may be drawn down subject to certain conditions precedent and at LOG’s sole election to be used specifically to finance IOG’s business strategy. As of this date of this announcement, a total of £40,000 has been advanced that will be treated as being drawn under the New Facility.
IOG North Sea can draw down further amounts up to £160,000 in aggregate prior to the GM to satisfy outstanding commitments. The drawdown of any additional amounts (up to, in aggregate, £3 million) under the New Facility is subject to the satisfaction of certain conditions precedent including the approval of all resolutions at the GM and approval from certain creditors and contractors who have been requested to allow extensions to the timings of the available funding for the Skipper appraisal well and the ultimate repayment dates. In the event of shareholder approval not being granted at the GM any sums drawn down would become immediately repayable. The drawdown of additional amounts (in excess of £160,000 in aggregate) under the Existing Facilities also requires the consent from certain creditors.
To the extent that the New Facility has not been drawn in full at the end of the availability period, being 31 July 2018, LOG may require IOG North Sea to draw down the balance of the New Facility provided that LOG undertakes to immediately convert such amount into Ordinary Shares at the Conversion Price.
For such time as any loan under the New Facility remains outstanding, LOG has the right under the Loan Agreement to nominate two directors to the Board. Martin Ruscoe is LOG's initial nomination to the Board and a further appointment may be announced in due course. In addition, LOG has the right to nominate a non-director observer to the Board.
As regards the conditions precedent relating to the consents from existing creditors and suppliers, Transocean has agreed to defer the existing rig contract commencement and will be working together with IOG on the future drilling of the Skipper appraisal well.
Baker Hughes has also agreed to delay the provision of their services for the Skipper appraisal well and will also work with IOG on the Skipper development wells.
Discussions with other parties are progressing well.
Other Loan Agreements
In the context of this New Facility, Weatherford Technical Services Limited (“Weatherford”) has agreed, subject to finalising documentation, to extend the maturity date of its outstanding loan of approximately US$2 million until 20 December 2017. As consideration for this extension, the exercise price for Weatherford’s 500,000 existing warrants will be reduced from 32p to 8p and the period in which these warrants are exercisable will be extended to 31 March 2019. The interest rate on this loan will remain at 9% per annum for 2016. Interest will be rolled up and become payable at the end of 2016. If the loan has not been repaid in full by the end of 2016 the interest rate will increase to 12% per annum and will be payable quarterly. If during 2016 Brent crude closes above US$40/bbl for 30 consecutive days, 50% of the outstanding principal and accrued interest of the loan would become payable at the end of 2016 and if prices exceed $50/bbl for 30 days the balance would also be paid at the end of 2016. If these prices are not exceed in 2016 and during 2017 Brent crude closes above US$40/bbl for 30 consecutive days, 50% of the outstanding principal and accrued interest will become payable within 30 days and if prices exceed $50/bbl for 30 days the balance would also be payable within 30 days.
AGR Share Payment
Further to the Company’s announcement on 9 December 2015 and the resolutions approved by shareholders at the General Meeting on 29 December 2015, IOG confirms that it is issuing shares to AGR Well Management to settle invoices relating to the work done to date on the Skipper well planning. The total cash sum to be settled is £641,514 inclusive of VAT, and accordingly the Company has today issued 9,945,953 Ordinary Shares at a price of 6.45p per Ordinary Share, being the weighted average share price over the period that the work was done. The Company has therefore applied to the London Stock Exchange for admission of 9,945,953 new Ordinary Shares to trading on AIM (“Admission”). Admission is expected to occur on 11 February 2016. Following Admission there will be 89,108,637 Ordinary Shares in issue. Accordingly, this number may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the Company under the FCA’s Disclosure and Transparency Rules.
The Company is delighted to announce the appointment of Martin Ruscoe as a Non-Executive Director, further strengthening the Board.
Martin Ruscoe is currently a director at London Group Limited and has over 40 years’ experience in the financial services industry. Martin initially worked for a top 20 life office for 25 years, the last nine years as Chief Investment Officer involved in all forms of investment, taxation and new product development within the company. Martin is currently a Non-Executive Director at Surrey Save Credit Union, London Oil & Gas and Modular Airspace Systems.
As part of the restructuring of the Company’s Board, Marie-Louise Clayton has chosen to step down as a non-executive director in order to concentrate on other activities.
As noted above, LOG also has the right to appoint an additional director to the Board whilst the loan funding remains outstanding.
Eric Bosshard is joining IOG in a part time role as Technical Advisor to the Board. He is currently President and Technical Director at LOG and has over 40 years of international experience across the oil and gas sector. Eric has a PhD in Geophysics from Imperial College. He has been active in the international oil and gas industry for over 40 years, 8 years of which as Executive Director of Carless PLC, a UK oil and gas public company with activities in both upstream and downstream oil sectors in the UK and the USA. Prior to Carless Eric worked for Shell International in Asia, Europe, Africa and Australia in the upstream oil sector.
Clint Redman is joining IOG in a part time role as Head of Corporate Finance. He is currently Head of Corporate Finance with LOG. Clint has worked in the investment banking industry for 35 years covering a wide range of markets from equities through to financial futures. Clint has worked across the globe from Tokyo to New York for some of the world’s largest investment banks which include Goldman Sachs, Oppenheimer, Drexel Burnham and Lehman Brothers and brings a wealth of knowledge and contacts.
Posting of the Circular and Notice of General Meeting
IOG is posting a circular to shareholders containing a Notice of General Meeting at which resolutions will be proposed in order to grant authority to the Directors to issue and allot Ordinary Shares to satisfy conversion of sums drawdown under the new £10 million loan, without being required to offer these Ordinary Shares on a pre-emptive basis.
The General Meeting is to be held at One America Square at 10:00am on 22 February 2016.
A copy of the Circular is available here.
In the event that the resolutions to be proposed at the General Meeting are not passed, the Company will be required to repay amounts of up to £200,000 which have been drawn down under the New Facility and will not be able to draw down any further sums. In such an event, the Company would be unable to make such repayment. Accordingly, the Company would need to refinance, potentially from alternative sources, or renegotiate the terms of the loan. There can be no guarantee that any refinancing or renegotiation would be possible. It is therefore of the utmost importance that shareholders vote in favour of the resolutions to be proposed at the General Meeting.
The following information is disclosed in accordance with Schedule 2(g) of the AIM Rules for Companies.
Full Name: Martin Stephen Ruscoe
Ordinary Shares held: None
Directorships/partnerships held in the last five years:
|London Oil & Gas Limited||Surrey Save Credit Union|
|Modular Airspace Systems Ltd||School Educational Trust Ltd|
|Rotec UK Ltd||Little Bookham Enterprises Ltd|
|South Riding Consultancy Ltd||Voluntary Action Southwest Surrey Ltd|
There are no other matters which are required to be announced for Martin Ruscoe pursuant to Schedule 2(g) of the AIM Rules for Companies.
About Independent Oil and Gas:
IOG is an oil and gas company with established assets focused on the UK North Sea. The company's strategy is to deliver near term development and production assets in North West Europe, through its extensive technical and commercial expertise, whilst maintaining some exposure to exploration upside. The company is looking to grow both organically and through acquisition. After the completion of the Skipper acquisition from Alpha Petroleum Resources Ltd. (“Alpha”), the combined estimate of 2P reserves in Blythe and 2C resources in Skipper net to IOG will be 37.1 million barrels of oil equivalent (“MMBoe”).
Post completion of the Cronx acquisition IOG will have five licences in the North Sea. Four of these licences will now be owned 100% by IOG and subject to DECC/OGA approval will be operated by IOG. The Blythe licence is co-owned 50% with Alpha which is the operator. IOG has a 100% working interest in two other licences, one awarded in the 27th licensing round and another in the recent 28th licensing round. One is to the east of Blythe containing the Truman prospect and Harvey discovery and the other is between the Blythe and Cronx licences which contains the Elgood and Hambleton discoveries and the Tetley and Rebellion prospects. Both these 100% owned licences have potential resources that could be tied back to nearby infrastructure or to the Blythe development.
Further information can be found on www.independentoilandgas.com
The Blythe gas discovery straddles Blocks 48/22b and 48/23a in the Southern North Sea in licence P1736 which is 50% co-owned by IOG and Alpha (operator). Blythe needs no further appraisal and has independently verified gross 2P reserves of 34.3 BCF (6.1 MMBoe) which is 17.2 BCF (3.0 MMBoe) net to IOG. (Source: ERC Equipoise Competent Person’s Report (“CPR”) dated September 2013.)
The Skipper oil discovery is in Block 9/21a in the Northern North Sea in licence P1609. Skipper needs further appraisal by drilling a well to retrieve an oil sample in order to design the optimum field development plan. Subject to the completion of the previously announced acquisition of Skipper from Alpha, IOG can now progress to the appraisal and development stage of this asset. Skipper has independently verified gross 2C resources of 26.2 MMBbls. IOG management estimates that the recoverable oil from Skipper is 34.1 MMBbls based on a recovery factor of 25%, compared to the historic CPR estimate of 19%. Successful flow tests from nearby heavy oil fields substantiate the company’s estimate of a 25% recovery factor. The appraisal well will also target two exploration prospects directly beneath the Skipper oil discovery which may contain oil in place of 46 MMBbls. (Source: AGR Tracs CPR dated September 2013.)
IOG has agreed to acquire 100% of Cronx (Block 48/22a, licence P1737) which is subject to completion. The Cronx gas discovery is 14km north-west of the Blythe field in which IOG owns 50%. Cronx was discovered in 2007 by well 48/22b-6 drilled by Perenco UK Ltd.
IOG commissioned an independent CPR by ERC Equipoise on Cronx in July 2012 which shows a base case expected gas recovery of 17.6 BCF or 3.4 MMBOE 2C resource. IOG anticipates drilling a well in 2016, subject to rig availability, the necessary permits and funding. IOG expects the well to confirm the recoverable resources, which IOG believes has the potential to be larger than the 17.6 BCF base case in the CPR. IOG is currently evaluating options for the development and export of the Cronx gas.
About Elgood and Hambleton:
The Elgood discovery (IOG 100%) (Block 48/22c, licence P2260) was drilled by Enterprise Oil in 1991 and tested gas to surface at 17.6 MMcfd but was not progressed by Enterprise due to size and gas prices at that time. IOG's estimate of the recoverable reserves in Elgood is 2.1 MMBoe.
The Hambleton discovery, to the south of the same licence, was drilled by Century Exploration in 2005 but also was not progressed to development. IOG estimates that Hambleton has recoverable resources of 6 BCF (1 MMBoe). IOG believes that the reprocessing of existing 3D seismic data could increase recoverable resources up to 26 BCF.
There are prospective resources on licence P2260 of 5.3 MMBoe in the Tetley and Rebellion prospects. Reprocessing of existing 3D seismic across 48/22a and 48/22c is required to determine whether Elgood connects to Cronx which would boost recoverable reserves significantly. The new seismic interpretation will also determine the likely size of Hambleton. IOG is now working on the potential development plans and will commission a CPR to confirm the resources over this area.
Competent Person’s Statement:
In accordance with the AIM Note for Mining and Oil and Gas Companies, IOG discloses that Mark Routh, IOG's CEO and Interim Executive Chairman is the qualified person that has reviewed the technical information contained in this announcement. Mark Routh has an MSc in Petroleum Engineering and has been a member of the Society of Petroleum Engineers since 1985. He has over 35 years' operating experience in the upstream oil and gas industry. Mark Routh consents to the inclusion of the information in the form and context in which it appears.
About London Oil and Gas:
Further information can be found on http://www.londongroupplc.com/
Advisors to London Oil and Gas:
Assay Advisory www.assayadvisory.com