Recommended Acquisition Strat
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ENQUEST PLC, 03 August 2010
RECOMMENDED ACQUISITION OF STRATIC ENERGY CORPORATION
Independent oil and gas production & development company, EnQuest PLC ("EnQuest", the "Group" or the "Company") is pleased to announce that it has entered into an Arrangement Agreement (the "Arrangement Agreement") to acquire the entire issued share capital of Stratic Energy Corporation ("Stratic") (the "Acquisition").
ANNOUNCEMENT HIGHLIGHTS
§ EnQuest set to acquire Stratic, in a transaction recommended by Stratic's Board
§ the acquisition increases EnQuest's North Sea 2P reserves by 7.27MMboe
§ the purchase price equates, adjusted for tax, to paying US$11.2 per barrel of 2P reserves
§ the acquisition consolidates EnQuest's 27.7% position in West Don with an additional 17.25% working interest, estimated to increase EnQuest's production by approximately a net 900 bopd
§ it provides EnQuest with a substantial 19% interest in the Crawford field development
Stratic shareholders shall be entitled to receive 0.089626 EnQuest shares per Stratic share. Based on EnQuest's average closing price on the London Stock Exchange between 28 July to 2 August 2010, this equates to an offer of 17.00 Canadian cents (the "Offer Price") for each existing Stratic share, valuing the issued and to be issued share capital of Stratic at approximately US$45.7 million (the "Offer Value"). The Offer Price represents a 70% premium to Stratic's closing price on Friday 30 July (the Toronto Stock Exchange was closed on Monday 2 August) and a 9% premium to Stratic's three month volume weighted average price of 15.56 Canadian cents. This purchase price is the equivalent, adjusted for tax, to paying approximately US$11.2 per barrel for 2P reserves. All amounts are in US dollars, unless otherwise stated.
As part of the transaction EnQuest will refinance Stratic's US$74.7 million net debt (as at 30 June), consisting of bank debt of US$18.9 million, convertible bonds of US$66.7 million and cash of US$10.9 million. EnQuest has agreed with the providers of its existing $280 million committed banking facility to increase the facility size by $70 million.
EnQuest Chief Executive Amjad Bseisu said:
"I am delighted to announce EnQuest's first acquisition since our listing in April. The acquisition of Stratic is in line with our strategy to deliver sustainable growth in shareholder value through the exploitation of existing reserves and pursuit of selective acquisitions. The acquisition of Stratic provides a meaningful 7.27MMboe increase in our 2P reserves in the North Sea. It immediately enhances our production profile, it consolidates EnQuest's working interest in West Don and it adds a working interest in the Crawford development to our asset base."
The Acquisition has been unanimously recommended by the Stratic Board of directors and shall be effected by means of a Plan of Arrangement (the "Plan of Arrangement"). A Plan of Arrangement is a Canadian court process used for the acquisition of a company and an Arrangement Agreement is a binding contract entered into by both parties following mutual due diligence. Completion of the Acquisition is subject to court and Stratic shareholder approval and other customary closing conditions being satisfied. The proposed transaction will require Stratic to publish an information circular and to hold a special meeting for its shareholders to consider and vote on the Plan of Arrangement - the resolution requires a majority of not less than two thirds of the votes cast. It is anticipated that this process should take 8 to 10 weeks. An application for the listing of additional EnQuest shares will occur following completion of the Plan of Arrangement.
ACQUISITION DETAILS
The Board and management of EnQuest believe that the acquisition of Stratic enhances EnQuest's portfolio delivering further opportunities for development and growth. Key features of this acquisition include:
§ further enhancement of EnQuest's position in the North Sea
§ addition of 7.27MMboe of proved and probable ("2P") reserves
§ an increase in EnQuest's annualised production levels. In its Interim Management Statement in May 2010, EnQuest indicated its full year 2010 production target was 18,000 bopd. Through its additional 17.25% working interest in West Don, EnQuest estimates that this transaction will provide an increase in production of approximately 900 net bopd from the date of deal completion. Further additional production will be provided when the Crawford field starts production, estimated by EnQuest to be in 2013.
§ provision of a substantial 19% working interest in the Crawford field and associated prospects. Crawford provides 4.93MMbbl of 2P reserves and a proposed field development focusing on the deeper Triassic and shallower Tertiary (Sele) reserves. A field development plan is expected to be submitted around the end of this year.
§ the consolidation of EnQuest's operated working interest in the West Don field from 27.7% to 44.95%; providing EnQuest with an additional 2.34MMbbl of 2P reserves
§ benefits from tax losses of US$100.0m and US$15.0m of capital allowances, both figures are approximate
§ a purchase price equivalent to approximately $11.2 per barrel of 2P reserves, adjusted for the tax losses and allowances above
§ other potential opportunities arising from Stratic's contingent resources in the UK and Netherlands
Overview of Stratic
Stratic is a Canadian incorporated oil and gas company currently focused primarily on the UK North Sea. Its shares are currently listed on the TSX Venture Exchange (ticker "SE") and the AIM market of the London Stock Exchange (ticker "SE"). At 30 July 2010, Stratic had 272,635,224 shares in issue, with an additional 2,205,102 shares to be issued as a result of the transaction, giving a total of 274,840,326.
Stratic has a 19% interest in licence P.209 covering Block 9/28a which contains the Crawford field (4.93MMBoe net 2P reserves) and 17.25% interest in the West Don oil field (2.34MMBoe net 2P reserves), which EnQuest operates and in which it already has a 27.7% working interest.
Stratic also has interests in other parts of the UK North Sea (including the Cairngorm and Bowmore discoveries), in the Dutch sector of the North Sea (Horizon West) and in its smaller residual interests in Slovenia and Morocco.
Over the last year Stratic has been implementing a disposal programme of its non-core assets outside the UKCS. In April 2010, it completed the sale of its Italian business for a cash consideration of €33.0 million. On May 7 2010, Stratic announced that it had reached agreement for the sale of its Turkish business for a cash consideration of $3.45 million.
Conference call for analysts and institutional investors
There will be a conference call at 09:00 London time (BST), this will include a short summary of the main points of today's announcement, followed by an opportunity for questions.
+44 (0) 20 3003 2666 - Standard International Access Password: EnQuest
Details of Stratic Assets
Assets
Stratic currently has interests in 15 blocks and part blocks in the UK and Dutch North Sea.
UK North Sea
Block 9/28a (Area B) - Crawford
Stratic has a 19% interest in Licence P.209 covering Block 9/28a which contains the Crawford field and associated prospects. The Crawford field owners, led by operator Fairfield Energy, drilled a successful appraisal well late in 2007 confirming the extension of the Triassic Cormorant formation into the previously undrilled northern area of the field, and also proving up a shallower Tertiary accumulation in the Sele Formation. The Crawford partners are working towards submitting a field development plan for the Triassic and Tertiary reserves. Further prospective resource potential exists in the Tertiary formations of the Crawford licence which has been de-risked by the 9/28a-18 well.
Block 211/13b - West Don
Stratic owns a 17.25% stake in the West Don field through a 50% interest in Licence P.1200 covering Block 211/13b which contains the northern part of the West Don field. A commercial settlement with the partners in the adjacent block 211/18a has fixed working interests for the life of the West Don field. The West Don field is operated by EnQuest, and commenced production on 28 April 2009.
Blocks 16/2b - Cairngorm
Stratic holds a 100% working interest and operates block 16/2b in the central North Sea area. Stratic's interest in block 16/2b was acquired in December 2004, and the licence has entered a second term following the drilling of the 16/2b-5A well in 2008/9. The block contains an extension of the fractured granite oil discovery drilled in 1990 by well 16/3a-11, and which tested in excess of 2,000 bopd. Stratic completed a 3D seismic data acquisition programme during 2006, which was used to locate the 16/2b-5A well. The 16/2b-5A well was drilled jointly with Nippon Oil Exploration and Production UK Limited (NOEPUK) in late 2008. The well was plugged and abandoned having discovered uncommercial hydrocarbons in the Tertiary.
Blocks 15/23c, 15/24a, 15/28a, 15/29e and 15/30b - Bowmore Area
Stratic holds a 15.0% working interest in blocks 15/23c, 15/24a, 15/28a and 15/29e. NOEPUK is the operator of all of these blocks. In the first half of 2010 the 15/23d-15 Bugle North well was drilled as a joint well by the partnership groups led by NOEPUK in block 15/23c and Nexen in block 15/23d. The well was drilled to appraise the Nexen operated Bugle discovery, and was plugged and abandoned after encountering minor quantities of hydrocarbon in the target horizon.
Dutch North Sea
P8a Horizon West Production Licence
Stratic holds a 48% interest in the Horizon West unit through a 60% working interest in block P8a in the Dutch North Sea which contains the western part of the Horizon West oil field. The Horizon West discovery may be developed as a satellite to the adjacent Horizon field, which is operated by Chevron Exploration and Production Netherlands B.V. and located approximately 7 km to the east.
F Quad
Stratic has a 10% interest (post completion of farm-in agreement with Sterling Resources) in Blocks F14, F16, F17a, F18 and L1b in the Dutch sector of the North Sea. These blocks contain a number of undeveloped shallow oil discoveries and are adjacent to the NOGATS gas export system. Sterling Resources has signed a letter of intent to farm into the acreage, leaving Stratic with a 10% (post EBN back-in) fully carried interest in the licences.
Slovenia
Petisovci-Dolina Field
Stratic holds a 48.75% working interest in the joint venture arrangements covering the Petisovci-Dolina field. Stratic has been reviewing the nature of the reservoirs to assess their commerciality.
Morocco
Guercif East and Guercif West Permits
Stratic has a 20% fully carried interest in two exploration permits, Guercif East and Guercif West onshore Morocco in the Neogene basins to the north of the Atlas mountains. The forward carried work programme includes the drilling of one well.
Reserves
EnQuest estimates that at year end 2009, Stratic's net working interests in both Crawford and West Don equated to 7.27MMbbl of 2P reserves.
Recommendation
The Board of Stratic consider the terms of the Acquisition to be fair and reasonable and unanimously recommend Stratic shareholders vote in favour of the Plan of Arrangement, as they have agreed to do in respect of their own beneficial interests in Stratic shares.
Financial Information
For the year ended 31 December 2009, Stratic's average daily production was 1,169 boepd. It incurred a loss before tax of $47.9 million, including recognised gains of $23.2 million mainly relating to the Breagh sale, and write-downs of $41.5 million mainly in respect of assets in the Netherlands and Turkey. As at 31 December 2009, Stratic had gross assets of $162.6 million.
Advisors
In connection with the Acquisition, Perella Weinberg Partners are acting as financial advisors and Blake, Cassels & Graydon LLP are acting as legal advisers to EnQuest.
Note: EnQuest recently published extensive information on the details of its business as part of its Prospectus, ahead of the commencement of trading in EnQuest PLC shares on 6 April 2010. The prospectus can be obtained via www.enquest.com.
Ends
For further information please contact:
EnQuest PLC Tel: +44 (0)20 7925 4900
Amjad Bseisu (Chief Executive Officer)
Jonathan Swinney (Chief Financial Officer)
Michael Waring (Head of Communications & Investor Relations)
Finsbury Tel: +44 (0)20 7251 3801
Andrew Mitchell
Conor McClafferty
Notes to editors
EnQuest Background
EnQuest PLC (www.enquest.com) is an independent oil and gas production and development company focused on the UK Continental Shelf ("UKCS"). Its assets include the Thistle, Deveron, Heather, Broom, West Don and Don Southwest fields. Gaffney, Cline & Associates ("GCA") certified that as at 1 January 2010, EnQuest's assets had total net proved plus probably oil and NGL reserves of 80.5MMBbl. As at 1 January 2010, GCA has also net certified oil and gas best estimate (2C) contingent resources for individual assets. The aggregate of the oil 2C contingent resources on an unrisked basis is 67.5MMBbl, and of the gas contingent resources is 30.6Bcf (See Note 1 below.)
On 6 April 2010, EnQuest was formed from the demerged UK North Sea assets of Petrofac Limited and Lundin Petroleum AB. EnQuest was admitted to trading on both the London Stock Exchange and the NASDAQ OMX Stockholm. On listing, EnQuest PLC went into the FTSE 250 index and OMX Nordix Index. Its assets include the Thistle, Deveron, Heather, Broom, West Don and Don Southwest fields. It has interests in 16 production licences covering 26 blocks or part blocks in the UKCS, of which 15 licenses are operated by EnQuest.
EnQuest believes that the UKCS represents a significant hydrocarbon basin in a low-risk region, which continues to benefit from an extensive installed infrastructure base and skilled labour. EnQuest believes that its assets offer material organic growth opportunities, driven by exploitation of current infrastructure on the UKCS and the development of low-risk near field opportunities, rather than exploitation of high-risk exploration opportunities.
EnQuest intends to deliver sustainable growth in shareholder value by focusing on exploiting its existing reserves, commercialising and developing discoveries, converting its significant contingent resources into reserves and pursuing selective acquisitions. EnQuest is focused on increasing production from its existing assets in its core hub areas. It believes that it has excellent operational, execution, subsurface and integration skills and it seeks to become the development partner of choice in the UKCS.
EnQuest believes that it has the technical skills, the operational scale and the financial strength to achieve its objectives and to take advantage of the production and development opportunities in the UKCS.
Note (1) GCA warns that there may be a significant risk that accumulations containing contingent resources will not achieve commercial production and that it is inappropriate to aggregate contingent resources.
This information is provided by RNS
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