05 Jun 2014
Update on Operations and Issue of Loan Notes/Equity Swap
Independent Oil and Gas plc (“IOG”) (AIM: IOG.L), the North Sea focused Oil and Gas Company, is pleased to provide the following operational and funding update.
Blythe Hub Operational Update
The Blythe operator, Alpha Petroleum Resources Ltd (“APR”), has received tenders for the pipeline route and site survey for the Blythe field development. Due to the restricted availability of suitable vessels, the results from the survey are not expected to be available until Q3 2014. This means that the submission to the Department of Energy & Climate Change (“DECC”) of the Field Development Plan (“FDP”) for Blythe is now expected to occur in Q4 2014. This will be a key milestone towards first gas production for IOG, which is now targeted in mid-2016.
Under the agreement signed with BP Gas Marketing Ltd in February 2014, IOG will sell its 50% share of the gas produced from the Blythe gas field development to BP Gas Marketing Ltd.
IOG has committed to reprocessing the 3D seismic data over the Harvey discovery and Truman prospect (IOG 100%) in order to assess their potential. Both are located to the east of Blythe and if the remapping confirms their potential size, one or both could be tied back to the Blythe hub.
The acquisition of 100% of the Cronx licence, as previously announced, remains ongoing. The licence extension to the end of 2014, provides additional time for completion and the seller has also now agreed to allow completion up to the end of 2014. Completion is subject to IOG securing funding for a pilot well, which will also allow IOG to qualify as an exploration operator in the UKCS. IOG submitted its application to DECC to operate this licence in March 2014. Completing the Cronx acquisition and being formally qualified as an operator are also important milestones for IOG.
Skipper Hub Operational Update
Despite best efforts, the partnership on the Skipper licence has agreed that given the time required to prepare for the appraisal well and secure a suitable drilling rig, that the Skipper appraisal well is now scheduled to take place in Q2/Q3 2015. The well will appraise the Skipper discovery and target two exploration prospects directly beneath the Skipper discovery. The net 2C resource in Skipper attributable to IOG’s 50% share is 13.1 MMBbls with a net NPV10 of £137m (Source: AGR Tracs Competent Person’s Report - Skipper - September 2013) There is potentially an additional 46 MMBbls of oil in place in the two exploration prospects. (Source: AGR Tracs.) AGR Well Services is working with APR and IOG to secure a suitable drilling rig which will be another key milestone for IOG.
28th Licensing Round
In line with the Company’s hub strategy, IOG made applications for three licences in the 28th Seaward Licensing Round. The licences applied for are all discoveries and would add very significant resources to the Company’s portfolio.
If successful either the award of the 28th Round licences or the acquisition of a producing asset would significantly enhance the Company’s portfolio.
IOG continues to consider opportunities to acquire producing assets to support the wider development and growth of the business.
Senior Loan Facility
Funding for the acquisition of producing assets would utilise the senior loan facility, details of which were announced on 7 March 2014 (the “Senior Loan Facility”), subject to the suitability of the producing assets and requisite approvals. The Board has decided to delay completion of the Senior Loan Facility until such time that an acquisition is pending or until the Blythe FDP is approved, which is estimated to be at the end of Q1 2015. Further information on the Senior Loan Facility are included in the notes section below.
Darwin Subscription (the “Subscription”)
The Company is pleased to announce that it is has agreed new funding arrangements with Darwin Strategic Limited ("Darwin"), pursuant to which Darwin has subscribed for 5,625,000 ordinary shares of one penny each ("Subscription Shares") at a price of 32 pence each. The aggregate issue price of £1,800,000 is to be satisfied by the issue of 1,800,000 redeemable subscription notes ("Subscription Notes") by Darwin to IOG. Completion of the Subscription is conditional upon the Subscription Shares being admitted to trading on AIM on or before 11 June 2014. Application has been made to the London Stock Exchange for the new ordinary shares to be admitted to trading on AIM from 8.00am on 11 June 2014 ("Admission").
Over the course of the 36 months following Admission, the Company may at its sole discretion, instruct Darwin to sell Subscription Shares and redeem the Subscription Notes (subject to certain conditions, further details of which are set out below). Accordingly, the arrangement provides a flexible means of accessing further equity financing to support the continued development of IOG's assets, while benefiting from any increases in the IOG share price that may be realised during this period.
Darwin has committed not to sell any shares in IOG for the duration of this transaction unless such sale is instructed by IOG or is permitted pursuant to the transaction agreements or relates to the warrants issued to Darwin pursuant to this transaction (as described below).
IOG has also agreed to issue 326,087 warrants to Darwin with an exercise price of 46p, expiring on 12 June 2017.
Darwin has also made an unsecured loan available to IOG of £517,500 (the “Loan”) which is to be repaid from the sale of the subscription shares over the next 12 months.
Further information on the Darwin funding arrangements are included in the Details of the Subscription section below.
The proceeds from the Loan and from any additional equity sales will be for ongoing spend on advancing the Company’s existing portfolio of assets including the Blythe site survey.
Following Admission, there will be a total of 65,156,854 ordinary shares in issue. For the purposes of calculating Total Voting Rights shareholders may use this number as the total number of shares in issue from the date of Admission.
Following Admission, excluding the warrants granted to Darwin (as described below), Darwin will be interested in 5,625,000 Ordinary Shares representing 8.63% of the issued share capital.
The Company is also pleased to announce that it has agreed to extend the repayment date of its existing loan with Weatherford Technical Services Limited (“Weatherford”) from 31 March 2015 to 30 September 2016. Further information is included in the Details of the Weatherford Loan section below.
Annual Report and Accounts and AGM
The Company will shortly be publishing its 2013 annual report and accounts and the Company’s AGM will be held on Friday 30 June 2014 at 2.30pm at One America Square, Crosswall, London, EC3N 2SG. The Board will provide further updates at the AGM.
Mark Routh, CEO of IOG said:
Since joining AIM on 30 September 2013, the Blythe and Skipper licences have been extended to 30 September 2015. APR, our partner and operator in these licences has been acquired and is fully funded. We have delivered significant growth in the portfolio with the award of a new licence to the east of Blythe (adding 42 BCF prospective net resources) and the pending Cronx acquisition (adding 17.6 BCF contingent net resources). We have applied to DECC to operate the Cronx licence and have thus put in place the necessary Health, Safety and Environmental systems and personnel required to operate. We also have a significant senior loan facility at final documentation stage. We have also strengthened the Board and have signed a gas marketing agreement with BP Gas Marketing to offtake our gas from the Blythe field development. We are also pleased to have agreed this flexible form of funding from Darwin that will allow us to capitalise on periods of high liquidity and share appreciation windows via an efficient capital raising platform. Based on independent reserve reports, the board of IOG believes its assets are worth considerably more than the current market capitalisation of the Company and accordingly we are exploring raising funding at asset level rather than via an equity raise. We are excited by the significant milestones ahead for the Company including submission of the Blythe FDP, securing a rig for the Skipper appraisal well, becoming an approved operator and completing the Cronx acquisition along with potential transformational licence awards in the 28th Round and the potential acquisition of producing assets. The strategy adopted by the Company is a proven one and we remain committed to building a significant development and production business focused on the UKCS.
Details of the Subscription:
Over a period of 36 months following Admission, the Company may instruct Darwin to sell Subscription Shares at IOG's direction (including at a minimum price set by the Company) and remit the proceeds (net of fees and expenses) to IOG as consideration for redeeming the Subscription Notes once the loan has been repaid.
Whilst the precise amount due to IOG on the redemption of Subscription Notes will depend on future share price trends, the redemption of all the Subscription Notes at 32p would raise gross proceeds (before the deduction of applicable fees and expenses and repayment of the loan) of approximately £1,800,000.
If at the end of the 36 month period commencing on Admission any Subscription Shares are still held by Darwin such that any Subscription Notes remain outstanding, there will be a further period, to be determined, (the "Additional Period") to redeem the remaining Subscription Notes and pay any remaining proceeds to IOG. If at the end of the Additional Period Darwin still holds any Subscription Shares, Darwin shall make a payment to IOG equal to the number of such Subscription Shares at the average price at which it has sold Subscription Shares during the Additional Period.
Darwin is entitled to a fee of 5% of the subscription price of the Subscription Shares and an additional fee of 5% of all amounts due to IOG following the sale of the Subscription Shares and, if applicable, at the end of the Additional Period (and such fees may be deducted from such payments).
The available funds available to IOG under the Loan will be £517,500. The repayment amount will be £575,000 if paid within 6 months. An additional 5% will be payable on any outstanding balance if paid within 12 months.
Details of the Weatherford Loan:
On 17 November 2011 The Company agreed to assume responsibility for the obligation to repay a loan to Weatherford due from the previous owner of the Skipper licence. It is considered by the Company to be part of the acquisition cost of Skipper.
The loan is unsecured and currently has an interest rate payable of 3% per annum. The total principal and interest at the end of March 2014 is $1,968,670.75.
Weatherford has agreed to extend the final repayment date from 31 March 2015 to 30 September 2016. The Company is incentivised to repay the loan by the 31 March 2015 and if it does not the interest rate will increase from 3% to 9% and also 500,000 warrants over ordinary shares will be issued in favour of Weatherford at a price of 32p and with an expiry date of 2 years after final repayment of the loan and interest.
Competent Person’s Statement:
In accordance with AIM Note for Mining and Oil & Gas Companies IOG discloses that Mark Routh, IOG’s CEO 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 33 years’ operating experience in the upstream oil and gas industry.
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.
IOG has four licences in the North Sea: In addition to the Blythe and Skipper licences co-owned 50% with Alpha Petroleum Resources Ltd., IOG has a 100% working interest in two licences awarded in the 27th licencing round. One is to the west of and adjacent to Skipper, the other is to the east of Blythe. Both these licences have potential resources that could be tied back to developments at Skipper and Blythe respectively. IOG will have a fifth licence upon completion of the Cronx acquisition.
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 Petroleum Resources Ltd (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 dated September 2013.)
The partnership is working towards submitting a Field Development Plan for Blythe by 4Q 2014. IOG is targeting first gas from the Blythe field in mid-2016 but the final development schedule has yet to be formalised.
Further information and maps of the Blythe field may be found on IOG’s website on:
The Blythe field CPR may be found at the following link:
The Skipper oil discovery is in Blocks 9/21a in the Northern North Sea in licence P1609 which is 50% co-owned by IOG and Alpha Petroleum Resources Ltd (operator). Skipper needs further appraisal by drilling a well to retrieve core and oil samples in order to design the optimum field development plan for the field. Skipper has independently verified gross 2C resources of 26.2 MMBbls which is 13.1 MMBbls net to IOG. 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 Competent Person’s Report dated September 2013.)
Further information and maps of the Skipper field may be found on IOG’s website on:
The Skipper field CPR may be found at the following link:
The Cronx acquisition is subject to completion.
The Cronx gas discovery is 14km north-west of the Blythe field in which IOG holds 50%. Cronx was discovered in 2007 by well 48/22b-6 drilled by Perenco UK Ltd. Subject to agreement with the co-owner of the Blythe field, Alpha Petroleum Resources Ltd and the successful development of Blythe, the gas export of Cronx would be via the Blythe hub which will be 50% owned by IOG.
IOG commissioned an independent Competent Person’s Report (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 pilot well in Q4 2014, subject to rig availability, the necessary permits and funding, which IOG currently estimates to be £:6.25m. 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. The well would be reused and extended into a producing well as part of the field development.
Further information and maps of the Cronx field may be found on IOG’s website on:
About the Senior Loan Facility:
The US$50 million senior loan facility is subject to completion of final documentation but has received the lender’s credit committee approval.
US$25 million of the facility is expected to be available for the Blythe field development, contingent upon certain conditions, including the following:
- the approval of a Field Development Plan;
- execution of an agreed hedging programme;
- standard security arrangements;
- provision of the balance of development and cost overrun funding;
- final confirmation of Capex and Opex being in line with the ERC Equipoise Competent Person’s Report dated September 2013; and
- finalisation of the lender's ongoing legal and technical due diligence review.
It is anticipated that the majority of IOG's equity contribution will be financed by equity and / or junior loans and will be spent on the Blythe field development prior to draw down of the Senior Loan facility.
Part or all of the balance of the facility will become available for drawdown by IOG upon the completion of the Blythe field development or sooner if appropriate assets are acquired by IOG and added to the borrowing base. The lender is supportive in principle of using the facility to acquire appropriate producing assets.
The facility is expected to have a tenor of five years and is subject to the entry into definitive documentation.
Glossary of key technical terms:
|"2P" “2C”||the sum of Proved Reserves plus Probable Reserves;
|"Bbl" or “Bbls”||a unit of volume measurement used for petroleum and its products (for a typical crude oil 7.3Bbls = 1 tonne, 6.29Bbls = 1 cubic metre);|
|"Block"||an areal subdivision of the UKCS of 10 minutes of latitude by 12 minutes of longitude measuring approximately 10 by 20 kilometres, forming part of a quadrant. Each quadrant is divided into a grid five blocks wide and six deep, and numbered 1 to 30 from NW to SE;|
|“BCF”||billions of cubic feet (of natural gas);|
|“BOE” "Contingent Resources”||barrels of oil equivalent; those quantities of petroleum estimated to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies;|
|"MMBbls" “MMBOE”||millions of barrels of oil; millions of barrels of oil equivalent;|
|"Probable Reserves"||those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated Proved plus Probable reserves;|
|"Proved Reserves"||those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods and government regulations. Proved reserves can be categorised as developed or undeveloped. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate; and|
|"Reserves"||those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must further satisfy four criteria: they must be discovered, recoverable, commercial and remaining (as of the evaluation date) based on the development project(s) being applied.|