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Diversified Gas &Oil (DGOC)

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Wednesday 31 January, 2018

Diversified Gas &Oil

Proposed Acquisitions and Placing

RNS Number : 5524D
Diversified Gas & Oil PLC
31 January 2018
 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, HONG KONG, JAPAN, SOUTH AFRICA, NEW ZEALAND OR SINGAPORE OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

 

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE AN ADMISSION DOCUMENT AND DOES NOT CONSTITUTE OR FORM PART OF ANY OFFER OR INVITATION TO SELL OR ISSUE, OR ANY SOLICITATION OF ANY OFFER TO PURCHASE OR SUBSCRIBE FOR, ANY ORDINARY SHARES IN THE CAPITAL OF THE COMPANY, NOR SHALL IT (OR ANY PART OF IT), OR THE FACT OF ITS DISTRIBUTION, FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH OR ACT AS ANY INDUCEMENT TO ENTER INTO, ANY CONTRACT OR COMMITMENT WHATSOEVER.

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO.596/2014. ("MAR"). IN ADDITION, MARKET SOUNDINGS (AS DEFINED IN MAR) WERE TAKEN IN RESPECT OF CERTAIN OF THE MATTERS CONTAINED IN THIS ANNOUNCEMENT, WITH THE RESULT THAT CERTAIN PERSONS BECAME AWARE OF SUCH INSIDE INFORMATION, AS PERMITTED BY MAR. UPON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN AND SUCH PERSONS SHALL THEREFORE CEASE TO BE IN POSSESSION OF INSIDE INFORMATION

 

31 January 2018

 

Diversified Gas & Oil PLC

("DGO" or the "Company")

Proposed Acquisition of Alliance Petroleum Corporation and
certain gas and oil assets in the Appalachian Basin

Placing of 166,400,000 new Ordinary Shares of 1 pence each at 80 pence per Ordinary Share

 

Diversified Gas & Oil PLC (AIM: DGOC), a US based gas and oil producer, is pleased to announce that it has signed a conditional sale and purchase agreement to acquire the entire share capital of Alliance Petroleum Corporation ("Alliance Petroleum"). The Board also announces that the Company has agreed in principle to acquire certain producing gas and oil assets from a major NYSE listed energy company ("the Appalachian Vendor"). The wells of both Alliance Petroleum and the Appalachian Vendor are close to the Company's existing operations in the Appalachian Basin in the eastern United States, principally in Pennsylvania and West Virginia, with some wells in Ohio.

 

The Alliance Petroleum Acquisition is to be acquired for a total cash consideration of US$95.0 million (£66.9 million) and the cash consideration for the Appalachian Gas Acquisition is US$85.0 million (£59.9 million).

 

On Completion of the Acquisitions, the Company anticipates that its total net working interest production will increase by 173 per cent. to approximately 28,133 boed, and its net working interest PDP reserves will grow by 217 per cent to 173.2 MMboe, resulting in an annualised EBITDA of US$70-75 million.

 

The Company is also pleased to announce an oversubscribed conditional placing of 166,400,000 new Ordinary Shares of 1 pence each (the "Placing Shares") at a price of 80 pence per share (the "Placing Price"), raising net proceeds of US$180 million (the "Placing"), to fund the Acquisitions. Mirabaud Securities LLP and Stifel Nicolaus Europe Limited were Joint Bookrunners for the Placing.

 

Highlights

The Acquisitions - Alliance Petroleum

·      On 31 January 2017 the Company entered into a conditional purchase and sale agreement to acquire the entire share capital of Alliance Petroleum, a subsidiary of Lake Fork Resources Acquisition Corporation (the "Alliance Petroleum Acquisition")

·      Total consideration of US$95 million (£66.9 million), comprising cash consideration of US$70 million and the assumption of US$25 million of outstanding debt, to be repaid immediately on completion of the acquisition

·      Acquiring approximately 13,000 producing, operated wells in the Appalachian Basin, principally in Pennsylvania and West Virginia and also in Ohio, in close proximity to the Company's existing operations in the eastern United States

·      PDP reserves of 49.3 MMboe and net daily production of 53 Mcfe (8.8 kboe) per day with production 99 per cent gas

 

The Acquisitions - the Appalachian Gas Acquisition

·      The Company has reached an agreement in principle to acquire certain producing gas and oil assets from the Appalachian Vendor, a subsidiary of a major NYSE listed energy company (the "Appalachian Gas Acquisition")

·      Total cash consideration of US$85 million (£59.9 million)

·      Acquiring approximately 11,000 producing operated wells in the Appalachian Basin, principally in Pennsylvania and West Virginia in close proximity to the Company's existing operations

·      PDP reserves of 69.3 MMboe and net daily production of 54 Mcfe (9.0 kboe) per day with production 99 per cent gas

 

The Placing

·      The Company has conditionally raised net proceeds of US$180 million in an oversubscribed placing, through the issue of 166,400,000 new Ordinary Shares of 1 pence each at a price of 80 pence per share

·      Net proceeds of the Placing will be used to fund the consideration for the Acquisitions

·      The Placing Price represents a 1.27 per cent premium to the mid-market closing price of 79 pence on the 30 January 2018, being the latest practicable date prior to release of this announcement

 

Commenting on the Acquisitions and the Placing, CEO, Rusty Hutson said:

 

"These transformative transactions come almost exactly one year after we joined AIM.  At that time we stated that acquisitions would be a core part of our growth strategy as we capitalise on the unique opportunity presented in our region of focus.

 

"We have achieved significant growth since our Admission to AIM and the objectives that we set ourselves at Admission. Upon completion of these Acquisitions, DGO will be the largest producer on AIM, with a strong and stable business underpinned by low-cost production from a low-risk, long-life reserve base in a favourable operating environment.

 

"We are also one of a handful of UK listed independent E&Ps to pay a regular dividend, and the increased cash flow and EBITDA provided by these acquisitions will enhance our ability to return more cash to shareholders.  Our attention now turns to completing these transactions, leveraging our experience of integrating new assets into our portfolio, and achieving operating efficiencies and cost savings from an already low-cost base. We are delighted with the strong support shown during the Placing by both new and existing shareholders, and look forward to repaying their faith in the business and management team."

 

 

Appendix 1 to this Announcement (which forms part of this Announcement) sets out the terms and conditions of the Placing. Persons who choose to participate in the Placing, by making an oral or written offer to acquire Placing Shares, will be deemed to have read and understood this Announcement in its entirety (including Appendix 1) and to be making such offer on the terms and subject to the conditions herein, and to be providing the representations, warranties, agreements, acknowledgements and undertakings contained in Appendix 1.

 

This summary should be read in conjunction with the full text of the following Announcement and its Appendices including, in particular, the risks and other factors that should be considered, which are set out in Appendix 2 to this Announcement.

 

 

For further information contact:

Diversified Gas & Oil PLC

Rusty Hutson Jr., Chief Executive Officer

Brad Gray, Finance Director

Eric Williams, Chief Financial Officer

www.diversifiedgasandoil.com

 

+ 1 (205) 408 0909

 

Smith & Williamson Corporate Finance Limited

(Nominated Adviser & Joint Broker)

Russell Cook

Katy Birkin

 

+44 20 7131 4000

 

Mirabaud Securities LLP (Joint Bookrunner)

Peter Krens

Edward Haig-Thomas

 

+44 20 3167 7222

 

Stifel Nicolaus Europe Limited (Joint Bookrunner)

Callum Stewart

Nicholas Rhodes

Ashton Clanfield

 

+44 20 7710 7600

 

Buchanan (Financial Public Relations)

Ben Romney

Chris Judd

Henry Wilson

[email protected]

 

+44 20 7466 5000

 

 

 

Background to, and reasons for, the Acquisitions and the Placing

 

DGO was founded in 2001 to acquire, develop and operate producing gas and oil wells in the Appalachian Basin in Pennsylvania, Ohio and West Virginia, in the eastern United States.  With the rapid emergence of shale gas and oil across the United States in the mid to late 2000s, the Company saw an opportunity to acquire and consolidate conventional assets being divested by other industry participants. The Company established a strong asset base, increasing gross production from c.1,000 gross boed in 2010 to 4,333 gross boed in 2016.

 

In February 2017, the Company's shares were admitted to trading on AIM raising US$50 million. Since IPO the Company has made three acquisitions, including the acquisition, through a Reverse Takeover of certain of the gas and oil assets of Titan Energy LLC. The Company currently has PDP reserves of 54.4 MMboe and net production of approximately 10,300 boed.  The Company is also committed to returning cash to shareholders and pays a dividend, with its stated policy to pay c.40% of free cash flow to Shareholders and in 2017 it paid 3.98 US cents per share.

The Board has continued to review further potential acquisition opportunities, and has now identified two significant opportunities, details of which are set out below.

 

 

The Acquisitions

 

Alliance Petroleum Acquisition

 

The Company has entered into a conditional sale and purchase agreement to acquire Alliance Petroleum Corporation, a subsidiary of Lake Fork Resources Acquisition Corporation ("LFRA"), pursuant to which DGO will agree to purchase all of the outstanding shares of capital of stock of Alliance Petroleum.

 

The total consideration for the Alliance Petroleum Acquisition is US$95.0 million (£66.9 million) comprising the purchase price of US$70 million (£49.3 million), plus repayment of certain debts of Alliance Petroleum in the amount of US$25.0 million (approximately £17.6 million), to be satisfied in cash at closing.  The purchase price for the Alliance Petroleum Acquisition is subject to adjustment in accordance with the terms of the Alliance Petroleum Acquisition Agreement. The Alliance Petroleum Acquisition is scheduled to be completed on 7 March 2018.

 

The assets of Alliance Petroleum comprise approximately 13,000 producing gas wells close to the Company's existing operations in the Appalachian Basin principally in Pennsylvania and West Virginia, with some wells in Ohio. Alliance Petroleum has proven reserves of approximately 49.3 MMboe with an estimated NPV10 of US$168 million (£118.3 million), as estimated by Wright & Co., the Company's independent reserves auditor. Current net daily production is approximately 53 Mcfed (8.8 kboed). Based on trading in the 11 months to 30 November 2017 Alliance Petroleum generated unaudited annualised pre-tax profits of US$13.5 million (£9.5 million).

 

The Alliance Petroleum Acquisition Agreement contains certain undertakings and warranties given by LFRA in relation to Alliance Petroleum, which are usual for a transaction of this nature.  Claims under the warranties generally must be brought within eight months of the closing of the Alliance Acquisition. The Alliance Petroleum Acquisition Agreement contains certain special warranties, such as those related to Alliance Petroleum's organisation and capital structure for which there is no time limit for claims to be brought.

 

The Alliance Petroleum Acquisition Agreement is capable of termination by the DGO prior to closing if LFRA commits a material breach of or fails to perform its representations, warranties and covenants and such breach or failure to perform is not cured within ten days after receiving notice thereof.

 

DGO has agreed to use reasonable efforts to continue the employment of certain of Alliance Petroleum's senior management at their respective current rates of benefits and pay for a minimum period of twelve months following closing of the Alliance Petroleum Acquisition and will not terminate such employees except for cause

 

If the conditions to closing are not satisfied due to breach by either party to the Alliance Petroleum Acquisition Agreement, the non-breaching party that elects to terminate the Alliance Petroleum Acquisition Agreement has the right to receive the deposit of US$1.75 million delivered by the Company that is held in escrow pending completion of the Alliance Petroleum Acquisition. The receipt of this deposit would be LFRA's sole remedy.

 

Appalachian Gas Acquisition

 

The Company has agreed in principle terms of a sale and purchase agreement with the Appalachian Vendor for the conditional acquisition of certain oil and gas leaseholds, wells, working interests, licenses, related equipment and other assets. The consideration for the Appalachian Gas Acquisition is US$85.0 million (approximately £59.9 million), which will be payable in cash on Completion. The consideration for the Appalachian Gas Acquisition will be subject to adjustment in accordance with the terms of the Appalachian Gas sale and purchase agreement. The Appalachian Gas Acquisition is scheduled to be completed on 30 March 2018.

 

The Appalachian Gas assets comprise approximately 11,000 producing gas wells, close to the Company's existing operations in the Appalachian Basin, principally in Pennsylvania and West Virginia, close to the Company's existing operations. The Appalachian Gas assets represent proven reserves of approximately 69.3 MMboe with an NPV10 of US$178 million (£125.4 million) as estimated by Wright & Co. Current net daily production is approximately 54 Mcfed (9.0 kboed). In the 12 months to 31 December 2017 the Appalachian Gas assets are estimated to have generated operating profits of approximately US$14.5 million (£10.2 million).

 

The Appalachian Gas Acquisition Agreement and related documents are expected to contain certain warranties and indemnities which will be disclosed on entry into the agreement.

 

 

The Placing

 

The Company has conditionally raised US$189.0 million (£133.1 million), before expenses through the Placing of 166,400,000 Placing Shares at 80 pence per Placing Share from certain existing and new institutional investors. Estimated net proceeds of the Placing are US$180.0 million (£126.8 million).  The Placing has been undertaken by Mirabaud and Stifel as Joint Bookrunners. The Placing Price represents a premium of approximately 1.27 per cent. to the Company's closing mid-market price of 79p on 30 January 2018 being the latest practicable date prior to release of the announcement. 

 

Use of Proceeds

The Proceeds of the Share Placing and the Company's existing resources will be applied as set out below:

 

                                                                                                                               US$m

Alliance Petroleum acquisition                                                                           70.0

Alliance Debt repayment                                                                                     25.0

Appalachian consideration                                                                                  85.0

Additional working capital                                                                                     3.4

Costs                                                                                                                        11.5

                                                                                                                                194.9

 

The issue of the Placing Shares is conditional, inter alia, on the passing of the Resolutions at the General Meeting.  The Placing Shares will represent approximately 53.42 per cent. of the Enlarged Share Capital on Admission. The Placing is not underwritten or otherwise guaranteed.

 

On 31 January 2018, the Company, Mirabaud, Stifel and Smith & Williamson entered into the Placing Agreement pursuant to which Mirabaud and Stifel agreed, subject to certain conditions, to use their reasonable endeavours to procure subscribers for the Placing Shares pursuant to the Placing.

 

The Placing is conditional, inter alia, upon:

(i)        the Resolutions to be proposed at the General Meeting being passed without amendment;

(ii)       compliance by the Company in all material respects with its obligations under the Placing Agreement;

(iii)     each of the Acquisition Agreements having been signed, and not terminated; and

(iv)      Admission having become effective by not later than 8.00 a.m. on 27 February 2018.

 

Under the Placing Agreement, which may be terminated by Mirabaud, Stifel or Smith & Williamson in certain circumstances (including force majeure) prior to Admission, the Company and the Directors have given certain warranties and indemnities to Mirabaud, Stifel and Smith & Williamson concerning, inter alia, the accuracy of the information contained in this document.

 

Application has been made for the Placing Shares to be admitted to trading on AIM, subject to the passing of the Resolutions at the General Meeting. It is expected that Admission will become effective and that dealings in the Placing Shares will commence on AIM on 20 February 2018.

 

The Placing Shares will rank, on issue, pari passu in all respects with the Existing Ordinary Shares including the right to receive all dividends and distributions paid or made in respect of the Ordinary Shares including the final dividend expected to be paid in May 2018. The Placing Shares will be issued free from all liens, charges and encumbrances.

 

Current Trading and Prospects

 

2017 was a year of significant growth for DGO as the Company delivered on all of the objectives it set out at the time of its admission to AIM in February.  Completing a total of three acquisitions through the year, including the transformative acquisition of assets from Titan Energy which completed fully in October, DGO ended the year with daily production rate of approximately 10.3 kboed.

 

The Board is pleased to report that trading for the year to 31 December 2017 remains in line with market expectations and prospects for 2018 look very encouraging. The Company continues to extract significant improvements in operational efficiencies across the portfolio. For the period from 1 June to 30 November 2017 the average operating cost across the Company was US$7.46 per boe.

 

The Board continues to evaluate acquisition opportunities. Following completion of the Share Placing the Company will have unutilised headroom within its current debt facility of approximately US$35 million. The Board is evaluating various options to restructure the current debt facility and is confident that it will be in a position to conclude this process shortly. This will enable the Company to pursue further attractive acquisition opportunities, while avoiding the need to raise further equity share capital in the foreseeable future.

 

The Company expects to announce its full year results to 31 December 2017 on or before 30 April 2018 and anticipates that it will recommend a final dividend for payment in May 2018.

 

General Meeting

 

The issue of the Placing Shares is conditional upon, inter alia, the approval by Shareholders of the Resolutions to be proposed at the General Meeting of the Company which has been convened for 11.00 a.m. on 19 February 2018. A notice convening the General Meeting to be held at Buchanan Communications Ltd, 107 Cheapside, London, EC2V 6DN will shortly be sent to Shareholders  

 

The issue of the Placing Shares is conditional, inter alia, on Shareholders passing the appropriate Resolutions being proposed at the General Meeting. If Shareholders do not pass the appropriate Resolutions, the issue of the Placing Shares and/or the Acquisitions will not proceed.

 

Recommendation and Voting Intentions

 

The Directors consider that the issue of the Placing Shares is in the best interests of Shareholders as a whole and unanimously recommend that Shareholders vote in favour of the Resolutions, as the Directors intend to do in respect of their own beneficial holdings of 44,377,481 Ordinary Shares, representing approximately 29.5 per cent. of the Existing Ordinary Shares. If the Resolutions are not passed, the Company will be unable to issue the Placing Shares and the Company will not be able to proceed with the Acquisitions.

 

 

Important Information

The above summary should be read in conjunction with the full text of the Announcement and its Appendices including, in particular, the risks and other factors that should be considered, which are set out in Appendix 2 to this Announcement.

Appendix 1 to this Announcement (which forms part of this Announcement) sets out the terms and conditions of the Placing. Persons who choose to participate in the Placing, by making an oral or written offer to acquire Placing Shares, will be deemed to have read and understood this Announcement in its entirety (including Appendix 1) and to be making such offer on the terms and subject to the conditions herein, and to be providing the representations, warranties, agreements, acknowledgements and undertakings contained in Appendix 1.

The Company will shortly post a Circular to Shareholders to provide Shareholders with information regarding the Acquisitions and the Placing, and to convene a General Meeting at which the Resolutions seeking Shareholder authority for the issue of the Placing Shares will be put to Shareholders. A copy of the Circular and Notice of meeting will be available on the Company's website www.diversifiedgasandoil.com.

Further information about the Acquisitions and the Placing is set out below. Additional information about the Company and its assets, financial information and constitutional documents can be found on the Company's website. Conversions from US$ to GBP in this announcement have been conducted at an exchange rate of 1.42:1 being the relevant exchange rate on 31 January 2018.

This Announcement contains 'forward-looking statements' concerning the Company that are subject to risks and uncertainties. Generally, the words 'will', 'may', 'should', 'continue', 'believes', 'targets', 'plans', 'expects', 'aims', 'intends', 'anticipates' or similar expressions or negatives thereof identify forward-looking statements.  Forward looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of the Company's operations; and (iii) the effects of government regulation on the Company's business.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.  Many of these risks and uncertainties relate to factors that are beyond the Company's ability to control or estimate precisely, such as (i) price fluctuations in crude oil and natural gas; (ii) changes in demand for the Company's respective products; (iii) currency fluctuations; (iv) drilling and production results; (v) reserves estimates; (vi) loss of market share and industry competition; (vii) environmental and physical risks; (viii) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (ix) legislative, fiscal and regulatory developments including regulatory measures addressing climate change; (x) economic and financial market conditions in various countries and regions; (xi) political risks, including the risks of renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement of shared costs; and (xii) changes in trading conditions.  The Company cannot give any assurance that such forward-looking statements will prove to have been correct.  The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document.  The Company does not undertake any obligation to update or revise publicly any of the forward-looking statements set out herein, whether as a result of new information, future events or otherwise, except to the extent legally required.

The price of shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of the shares. Past performance is no guide to future performance and persons who require advice should consult an independent financial adviser.

This announcement is not for publication or distribution, directly or indirectly, in or into the United States of America. This announcement is not an offer of securities for sale into the United States. The securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, except pursuant to an exemption from registration. No public offering of securities is being made in the United States.

The distribution of this Announcement and the offering of the Placing Shares in certain jurisdictions may be restricted by law. No action has been taken by the Company or any of the Joint Bookrunners that would permit an offering of such shares or possession or distribution of this Announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this Announcement comes are required by the Company and the Joint Bookrunners to inform themselves about, and to observe, any such restrictions.

This Announcement is not for release, publication or distribution, in whole or in part, directly or indirectly, in or into Australia, Canada, Japan or the Republic of South Africa or any jurisdiction into which the publication or distribution would be unlawful. This Announcement is for information purposes only and does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire shares in the capital of the Company in the United States, Australia, Canada, the Republic of South Africa or Japan or any jurisdiction in which such offer or solicitation would be unlawful or require preparation of any prospectus or other offer documentation or would be unlawful prior to registration, exemption from registration or qualification under the securities laws of any such jurisdiction.

Smith & Williamson, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as nominated adviser to the Company in relation to the Placing and is not acting for any other persons in relation to the Placing. Smith & Williamson is acting exclusively for the Company and for no one else in relation to the matters described in this Announcement and is not advising any other person and accordingly will not be responsible to anyone other than the Company for providing the protections afforded to clients of Smith & Williamson, or for providing advice in relation to the contents of this Announcement or any matter referred to in it.

Mirabaud, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as joint bookrunner to the Company in relation to the Placing and is not acting for any other persons in relation to the Placing. Mirabaud is acting exclusively for the Company and for no one else in relation to the matters described in this Announcement and is not advising any other person and accordingly will not be responsible to anyone other than the Company for providing the protections afforded to clients of Mirabaud, or for providing advice in relation to the contents of this Announcement or any matter referred to in it.

Stifel, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as joint bookrunner to the Company in relation to the Placing and is not acting for any other persons in relation to the Placing. Stifel is acting exclusively for the Company and for no one else in relation to the matters described in this Announcement and is not advising any other person and accordingly will not be responsible to anyone other than the Company for providing the protections afforded to clients of Stifel, or for providing advice in relation to the contents of this Announcement or any matter referred to in it.

This Announcement has been issued by, and is the sole responsibility of, the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by either Smith & Williamson, Mirabaud or Stifel by any of their respective affiliates or agents as to or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

All Reserves and Resources definitions and estimates shown in this report are based on the 2007 SPE/AAPG/WPC/SPEE Petroleum Resource Management System ("PRMS").

This Technical Information has been reviewed by D. Randall Wright, President of Wright & Company, Inc. primary technical person in charge of the estimates of reserves and associated cash flowand economics on behalf of Wright & Company, Inc. D.Randall Wright has a Master of Science degree in Mechanical Engineering from Tennessee Technological University, is a qualified Reserves Estimator as set forth in the "Standards Petertaining to the Estimating and Auditing of Oil and Gas Reserves Information" promulgated by the Society of Petroleum Engineers. He is also qualified as a Competent Person as defined by the AIM Market of the London Stock Exchange (AIM). This qualification is based on more than 44 years of practical experience in the estimation and evaluation of petroleum reserves with Texaco, Inc., First City National Bank of Houston, Sipes., Wiliamson & Associates, Inc., Williamson Petroleum Consultants, Inc., and Wright & Company, Inc.

D.Randall Wright is a registered Professional Engineer in the state of Texas (TBPE #43291), granted in 1978, a member of the Society of Petroleum Engineers and a member of the Order of the Engineer.

Information to Distributors

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the "Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the Product Governance Requirements) may otherwise have with respect thereto, the Placing Shares have been subject to a product approval process, which has determined that the Placing Shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, Placees should note that: the price of the Placing Shares may decline and investors could lose all or part of their investment; Placing Shares offer no guaranteed income and no capital protection; and an investment in Placing Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Placing.  Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Joint Bookrunners will only procure investors who meet the criteria of professional clients and eligible counterparties.  For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to Placing Shares.
 

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise:

"Alliance Petroleum Acquisition"

the proposed acquisition of Alliance Petroleum Corporation, a subsidiary of Lake Fork Resources Acquisition Corporation, pursuant to the terms of the Alliance Petroleum Acquisition Agreement;

"Alliance Petroleum Acquisition Agreement"

the conditional agreement between (1) Alliance Petroleum and (2) the Company relating to the Alliance Petroleum Acquisition;

"Acquisitions"

the Alliance Petroleum Acquisition and Appalachian Gas Acquisition, as applicable;

"Admission"

the admission of the Placing Shares to trading on AIM;

"AIM"

the market of that name operated by the London Stock Exchange;

"Appalachian Gas Acquisition"

the proposed acquisition of certain producing gas and oil assets from the Appalachian Vendor, pursuant to the terms of the Appalachian Gas Acquisition Agreement;

"Appalachian Gas Acquisition Agreement"

the conditional agreement between (1) the Appalachian Vendor and (2) the Company relating to the Appalachian Gas Acquisition;

"Board" or "Directors"

the directors of the Company;

"Business Day"

a day (other than a Saturday or Sunday) on which commercial banks are open for general business in London, England;

"Company" or "DGO"

Diversified Gas & Oil PLC;

"Completion"

completion of the Acquisitions;

"Consideration"

the total cash consideration to be paid in accordance with the terms of the Alliance Petroleum Acquisition Agreement and the Appalachian Acquisition Agreement;

"Existing Ordinary Shares"

the 145,076,087 Ordinary Shares in issue at the date of this document;

"Enlarged Share Capital"

the issued share capital of the Company on Admission comprising the Existing Ordinary Shares and the Placing Shares;

"Debt Facility"

the three year secured credit facility of up to US$110 million made available by the Lenders under the facility agreement entered into in June 2017;

"Form of Proxy"

the form of proxy relating to the General Meeting being sent to Shareholders with this document;

"General Meeting" or "GM"

the General Meeting of the Company to be held at Buchanan Communications Ltd, 107 Cheapside, London, EC2V 6DN at 11.00 a.m. on 19 February 2018, notice of which is set out at the end of this document;

"Group"

the Company and its subsidiary undertakings;

"Lenders"

AG Energy Funding, LLC and MSD Credit Opportunity Fund, L.P.;

"London Stock Exchange"

London Stock Exchange plc;

"Mirabaud"

Mirabaud Securities LLP, the Company's joint bookrunner;

"Ordinary Shares"

ordinary shares of 1p each in the capital of the Company;

"Placing"

the conditional placing by Mirabaud and Stifel on behalf of the Company of the Placing Shares pursuant to the Placing Agreement;

"Placing Agreement"

the conditional agreement dated 31 January 2018 between the Company (1), Mirabaud (2), Stifel (3) and Smith & Williamson (4) relating to the Placing, details of which are set out in paragraph 3 of this document;

"Placing Price"

80 pence per Placing Share;

"Placing Shares"

166,400,000 new Ordinary Shares to be issued at the Placing Price by the Company pursuant to the Placing;

"Regulatory Information Service"

one of the regulatory information services authorised by the London Stock Exchange to receive, process and disseminate information in respect of AIM quoted companies;

"Resolutions"

the shareholder Resolutions set out in the notice of General Meeting at the end of this document;

"Shareholders"

holders of the Ordinary Shares;

"Stifel"

Stifel Nicolaus Europe Limited, the Company's joint bookrunner;

"UK"

the United Kingdom;

"United States" or "US"

the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia;

"£" or "Sterling"

pounds sterling, the lawful currency of the United Kingdom; and

"$" or "US$"

United States dollars, the lawful currency of the United States.

 

Glossary

boed

barrels of oil equivalent per day

Kboe

thousand barrels of oil equivalent

kboed

thousand barrels of oil equivalent per day

Mcfe

thousand standard cubic feet equivalent

MMboe

million barrels of oil equivalent

NGLs

natural gas liquids

NPV10

the current value of future cash flows, discounted at a rate of 10 per cent. per annum

PDP reserves

Proven developed producing reserves

 

 

 

APPENDIX 1 - TERMS AND CONDITIONS OF THE PLACING

 

IMPORTANT INFORMATION FOR PLACEES ONLY REGARDING THE PLACING.

THIS ANNOUNCEMENT, INCLUDING THE APPENDICES (TOGETHER, THE "ANNOUNCEMENT") AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. PERSONS INTO WHOSE POSSESSION THIS ANNOUNCEMENT (INCLUDING THE APPENDICES) COMES ARE REQUIRED BY THE COMPANY, MIRABAUD AND STIFEL TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY SUCH RESTRICTIONS.

THIS ANNOUNCEMENT DOES NOT ITSELF CONSTITUTE AN OFFER OR INVITATION TO UNDERWRITE AN OFFERFOR SALE OR SUBSCRIPTION OF ANY SECURITIES IN THE COMPANY.

MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE PLACING. THE TERMS AND CONDITIONS SET OUT HEREIN ARE FOR INFORMATION PURPOSES ONLY AND ARE ONLY DIRECTED AT, AND BEING DISTRIBUTED TO, PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING AND DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR BUSINESS AND WHO HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS AND ARE: (A) IF IN A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA ("EEA"), PERSONS WHO ARE QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE EU PROSPECTUS DIRECTIVE (WHICH MEANS DIRECTIVE 2003/71/EC, AS AMENDED FROM TIME TO TIME, AND INCLUDES ANY RELEVANT IMPLEMENTING DIRECTIVE MEASURE IN ANY MEMBER STATE OF THE EEA TO THE EXTENT IMPLEMENTED IN THE RELEVANT MEMBER STATE OF THE EEA) (THE "PROSPECTUS DIRECTIVE") ("QUALIFIED INVESTORS"); (B) IF IN THE UNITED KINGDOM, PERSONS WHO FALL WITHIN THE DEFINITION OF "INVESTMENT PROFESSIONALS" IN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, AS AMENDED ("THE ORDER") OR ARE PERSONS FALLING WITHIN ARTICLE 49(2) OF THE ORDER AND ARE "QUALIFIED INVESTORS" AS DEFINED IN SECTION 86(7) OF THE FSMA; AND (C) ANY OTHER PERSON TO WHOM IT MAY OTHERWISE LAWFULLY BE COMMUNICATED; AND, IN EACH CASE, WHO HAVE BEEN INVITED TO PARTICIPATE IN THE PLACING BY MIRABAUD AND STIFEL (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS").

EACH PLACEE SHOULD CONSULT WITH ITS OWN ADVISERS AS TO LEGAL, TAX, BUSINESS AND RELATED ASPECTS OF A SUBSCRIPTION FOR THE PLACING SHARES.

Persons (including individuals, funds or otherwise) who have chosen to participate in the Placing, by making an oral or written offer to subscribe for Placing Shares will be deemed to have read and understood this Announcement, including this Appendix, in its entirety and to be making such offer on the terms and conditions, and to be providing the representations, warranties, acknowledgements, and undertakings contained in this Appendix.

In this Appendix, unless the context otherwise requires, "Placee" means a Relevant Person (including individuals, funds or others) by whom or on whose behalf a commitment to subscribe for Placing Shares has been given. In particular, each such Placee represents, warrants and acknowledges that:

1.              it is a Relevant Person (as defined above) and undertakes that it will acquire, hold, manage or dispose of any Placing Shares that are allocated to it for the purposes of its business;

2.              in the case of any Placing Shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the Placing Shares acquired by it in the Placing have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Member State of the European Economic Area which has implemented the Prospectus Directive other than Qualified Investors or in circumstances in which the prior consent of Mirabaud and Stifel has been given to the offer or resale; or (ii) where Placing Shares have been acquired by it on behalf of persons in any member state of the EEA other than Qualified Investors, the offer of those Placing Shares to it is not treated under the Prospectus Directive as having been made to such persons;

3.              (i) it is not in the United States and (ii) it is not acting for the account or benefit of a person in the United States, unless in the case of this clause (ii), acting with investment discretion for such person or, if such person is a corporation or partnership, the person agreeing to purchase the Placing Shares is an employee of such person authorised to make such purchase;

4.              it is acquiring the Placing Shares for its own account or is acquiring the Placing Shares for an account with respect to which it exercises sole investment discretion and has the authority to make and does make the representations, warranties, indemnities, acknowledgements and agreements contained in this Announcement; and

5.              it understands (or, if acting for the account of another person, such person understands) the resale and transfer restrictions set out in this Appendix.

 

The Company, Mirabaud and Stifel will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.

Details of the Placing

Mirabaud and Stifel have entered into an agreement with the Company (the "Placing Agreement") under which, subject to the conditions set out in that agreement, each of Mirabaud and Stifel will agree to use its reasonable endeavours to procure subscribers for the Placing Shares at the Placing Price.

The Placing is conditional upon the Placing Agreement becoming unconditional in all respects.

The Placing Shares will, when issued, rank pari passu in all respects with the existing issued Ordinary Shares, including the right to receive dividends and other distributions declared, made or paid following Admission.

Application for admission to trading

Application will be made to the London Stock Exchange for admission of the Placing Shares ("Admission") to trading on AIM. It is expected that Admission will become effective and that dealings in the Placing Shares will commence on AIM at 8.00 a.m. on 20 February 2018.

Participation in, and principal terms of, the Placing

Mirabaud and Stifel are arranging the Placing severally and not jointly or jointly and severally as agents for and on behalf of the Company. Participation in the Placing will only be available to Placees who may lawfully be, and are, invited to participate by Mirabaud and Stifel.

Mirabaud and Stifel will determine in their absolute discretion the extent of each Placee's participation in the Placing, which will not necessarily be the same for each Placee and this will be confirmed orally by Mirabaud and Stifel as agents of the Company ("Confirmation"). No element of the Placing will be underwritten. Confirmation will constitute an irrevocable legally binding commitment upon that person (who will at that point become a Placee) to subscribe for the number of Placing Shares allocated to it at the Placing Price on the terms and conditions set out in this Appendix (a copy of the terms and conditions having been provided to the Placee prior to or at the same time as such oral confirmation) and in accordance with the Company's articles of association. For the avoidance of doubt, the Confirmation constitutes each Placee's irrevocable legally binding agreement, subject to the Placing Agreement not having been terminated, to pay the aggregate settlement amount for the Placing Shares to be subscribed for by that Placee regardless of the total number of Placing Shares (if any) subscribed for by any other investor(s).

Mirabaud and Stifel reserve the right to scale back the number of Placing Shares to be subscribed by any Placee in the event of an oversubscription under the Placing. Mirabaud and Stifel also reserve the right not to accept offers for Placing Shares or to accept such offers in part rather than in whole.

Each Placee will be required to pay to Mirabaud or Stifel (as applicable), on the Company's behalf, the Placing Price for each Placing Share agreed to be acquired by it under the Placing in accordance with the terms set out herein. Each Placee's obligation to acquire and pay for Placing Shares under the Placing will be owed to Mirabaud or Stifel and the Company. Each Placee has an immediate, separate, irrevocable and binding obligation, owed to Mirabaud or Stifel, to pay to them (or as they may direct) in cleared funds an amount equal to the product of the Placing Price and the number of Placing Shares such Placee has agreed to subscribe for. Each Placee will be deemed to have read and understood the Appendices in their entirety, to the participating in the Placing upon the terms and conditions contained in the Appendices, and to be providing the representations, warranties, agreements, acknowledgements and undertakings, in each case as contained in the Appendices. To the fullest extent permitted by law and applicable Financial Conduct Authority ("FCA") rules (the "FCA Rules"), neither (i) Mirabaud or Stifel, (ii) any of their respective directors, officers, employees or consultants, or (iii) to the extent not contained within (i) or (ii), any person connected with Mirabaud or Stifel as defined in the FCA Rules ((i), (ii) and (iii) being together "affiliates" and individually an "affiliate"), shall have any liability to Placees or to any person other than the Company in respect of the Placing.

Irrespective of the time at which a Placee's participation in the Placing is confirmed, settlement for all Placing Shares to be acquired pursuant to the Placing will be required to be made at the same time, on the basis explained below under 'Registration and Settlement'.

Completion of the Placing will be subject to the fulfilment of the conditions referred to below under 'Conditions of the Placing' and to the Placing not being terminated on the basis referred to below under 'Termination of the Placing Agreement'. In the event that the Placing Agreement  does not otherwise become unconditional in any respect or is terminated, the Placing will not proceed and all funds delivered by the Placee to Mirabaud or Stifel in respect of the Placee's participation will be returned to the Placee at the Placee's risk without interest.

By participating in the Placing, each Placee agrees that its rights and obligations in respect of the Placing will terminate only in the circumstances described below and will not otherwise be capable of rescission or termination by the Placee.

By participating in the Placing, each Placee is deemed to have read and understood this Announcement, including the Appendices, in its entirety and to be making such offer on the terms and conditions, and to be providing the representations, warranties, acknowledgements, and undertakings contained in the Appendices.

To the fullest extent permissible by law, neither the Company, Mirabaud, Stifel nor any of their affiliates shall have any liability to Placees (or to any other person whether acting on behalf of a Placee or otherwise). In particular, neither Mirabaud, nor Stifel nor any of their affiliates shall have any liability (including to the extent permissible by law, any fiduciary duties) in respect of Mirabaud's or Stifel's conduct of the Placing.

Conditions of the Placing

The obligations of Mirabaud and Stifel under the Placing Agreement in respect of the Placing Shares are conditional on, amongst other things:

(a)            the Company having complied with its obligations under the Placing Agreement (to the extent that such obligations fall to be performed prior to Admission); 

(b)            the posting (or where relevant its availability on the Company's website having been notified to the Company's shareholders (the "Shareholders")) before 2 February 2018, of the circular (the "Circular") and the form of proxy to the Shareholders;

(c)            the due passing at the Company's general meeting on 19 February 2018 of all of the resolutions proposed without amendment; and

(d)            Admission having occurred not later than 8.00 a.m. 20 February 2018 or such later date as the Company, Mirabaud and Stifel may agree, but in any event not later than 8.00 a.m. on 27 February 2018.

 

If (i) any of the conditions contained in the Placing Agreement in relation to the Placing Shares are not fulfilled or waived by Mirabaud and Stifel by the respective time or date where specified, (ii) any of such conditions becomes incapable of being fulfilled or (iii) the Placing Agreement is terminated in the circumstances specified below, the Placing will not proceed and the Placee's rights and obligations hereunder in relation to the Placing Shares shall cease and terminate at such time and each Placee agrees that no claim can be made by the Placee in respect thereof.

Each of Mirabaud and Stifel, at its discretion and upon such terms as it thinks fit, may waive compliance by the Company with the whole or any part of any of the Company's obligations in relation to the conditions in the Placing Agreement. Any such extension or waiver will not affect Placees' commitments as set out in this Announcement.

None of Mirabaud, Stifel and the Company or any other person shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise) in respect of any decision they may make as to whether or not to waive or to extend the time and/or the date for the satisfaction of any condition to the Placing nor for any decision they may make as to the satisfaction of any condition or in respect of the Placing generally, and by participating in the Placing each Placee agrees that any such decision is within the absolute discretion of Mirabaud and Stifel.

Termination of the Placing Agreement

Each of Mirabaud and Stifel is entitled (but after, where practicable, having consulted with the Company) at any time before Admission, to terminate the Placing Agreement in relation to its obligations in respect of the Placing Shares by giving notice to the Company if, amongst other things:

(a)            the Company fails, in any material respect, to comply with any of its obligations under the Placing Agreement; or

(b)            it comes to the notice of Mirabaud or Stifel that any statement contained in the Circular, the investor presentation (the "Presentation") issued in connection with the Placing or this announcement was untrue, incorrect or misleading at the date of such Presentation or this announcement or has become untrue, incorrect or misleading in each case in any respect which Mirabaud or Stifel (acting reasonably) considers to be material in the context of the Placing or that any matter which Mirabaud or Stifel considers to be material in the context of the Placing has arisen which would, if the Placing were made at that time, constitute a material omission therefrom; or

(c)            any of the warranties given by the Company in the Placing Agreement has ceased to be true and accurate in any respect which Mirabaud or Stifel (acting reasonably) considers to be material in the context of the Placing by reference to the facts subsisting at the time when notice to terminate is given; or

(d)            there happens, develops or comes into effect: i) a general moratorium on commercial banking activities in London declared by the relevant authorities or a material disruption in commercial banking or securities settlement or clearance services in the United Kingdom; or ii) the outbreak or escalation of hostilities or acts of terrorism involving the United Kingdom or any other relevant jurisdiction the laws or regulations of which apply to a member of the Group or the Group's assets ("Relevant Jurisdiction") or the declaration by the United Kingdom or any other Relevant Jurisdiction of a national emergency or war or any other occurrence of any kind which in any such case (by itself or together with any other such occurrence) in the reasonable opinion of Mirabaud or Stifel is likely to materially and adversely affect the market's position or prospects of the Group taken as a whole; or iii) any other crisis of international or national effect or any change in any currency exchange rates or controls or in any financial, political, economic or market conditions or in market sentiment which, in any such case, in the reasonable opinion of Mirabaud or Stifel is materially adverse.

 

Upon such termination, the parties to the Placing Agreement shall be released and discharged (except for any liability arising before or in relation to such termination) from their respective obligations under or pursuant to the Placing Agreement subject to certain exceptions.

By participating in the Placing, Placees agree that the exercise by Mirabaud or Stifel of any right of termination or other discretion under the Placing Agreement shall be within the absolute discretion of Mirabaud or Stifel and that they need not make any reference to Placees and that they shall have no liability to Placees whatsoever in connection with any such exercise or failure so to exercise.

No prospectus

No offering document, prospectus or admission document has been or will be submitted to be approved by the FCA or submitted to the London Stock Exchange in relation to the Placing and Placees' commitments will be made solely on the basis of the information contained in this Announcement (including the Appendices) released by the Company today, and subject to the further terms set forth in the contract note to be provided to individual prospective Placees.

Each Placee, by accepting a participation in the Placing, agrees that the content of  this Announcement (including the Appendices) is exclusively the responsibility of the Company and confirms that it has neither received nor relied on any other information, representation, warranty, or statement made by or on behalf of the Company, Mirabaud, Stifel or any other person and none of Mirabaud nor Stifel nor the Company nor any other person will be liable for any Placee's decision to participate in the Placing based on any other information, representation, warranty or statement which the Placees may have obtained or received. Each Placee acknowledges and agrees that it has relied on its own investigation of the business, financial or other position of the Company in accepting a participation in the Placing. Nothing in this paragraph shall exclude the liability of any person for fraudulent misrepresentation.

Registration and settlement

Settlement of transactions in the Placing Shares following Admission will take place within the system administered by Euroclear UK & Ireland Limited ("CREST"), subject to certain exceptions. The Company reserves the right to require settlement for and delivery of the Placing Shares (or a portion thereof) to Placees in certificated form if, in the opinion of Mirabaud or Stifel, delivery or settlement is not possible or practicable within the CREST system or would not be consistent with the regulatory requirements in the Placee's jurisdiction.

Participation in the Placing is only available to persons who are invited to participate in it by Mirabaud or Stifel.

A Placee's commitment to acquire a fixed number of Placing Shares under the Placing will be agreed orally with Mirabaud or Stifel. Such agreement will constitute a legally binding commitment on such Placee's part to acquire that number of Placing Shares at the Placing Price on the terms and conditions set out or referred to in the Appendices and subject to the Company's Articles of Association.

Each Placee allocated Placing Shares in the Placing will be sent a trade confirmation in accordance with the standing arrangements in place with Mirabaud and/or Stifel, stating the number of Placing Shares allocated to it at the Placing Price, the aggregate amount owed by such Placee to Mirabaud and/or Stifel and settlement instructions. Each Placee agrees that it will do all things necessary to ensure that delivery and payment is completed in accordance with either the standing CREST or certificated settlement instructions that it has in place with Mirabaud and/or Stifel.

Each Placee agrees that it will do all things necessary to ensure that delivery and payment is completed in accordance with the standing CREST or certificated settlement instructions that it has in place with Mirabaud or Stifel. Settlement should be through Mirabaud against CREST ID: 834, account designation: CLEARING, or through Stifel against CREST ID: 601. For the avoidance of doubt, Placing allocations will be booked with a trade date of 20 February 2018 and settlement date of 20 February 2018.

The Company will deliver the Placing Shares to the CREST accounts operated by Mirabaud or Stifel as agents for the Company and Mirabaud or Stifel will enter their delivery (DEL) instruction into the CREST system. The input to CREST by a Placee of a matching or acceptance instruction will then allow delivery of the relevant Placing Shares to that Placee against payment. The Placing Shares will be held as nominee for the relevant Placee.

It is expected that settlement will take place on 20 February 2018, on a delivery versus payment basis.

Interest is chargeable daily on payments not received from Placees on the due date in accordance with the arrangements set out above at the rate of two percentage points above LIBOR as determined by Mirabaud or Stifel.

Each Placee is deemed to agree that, if it does not comply with these obligations, the Company may sell any or all of the Placing Shares allocated to that Placee on such Placee's behalf and retain from the proceeds, for the Company's account and benefit, an amount equal to the aggregate amount owed by the Placee plus any interest due. The relevant Placee will, however, remain liable for any shortfall below the aggregate amount owed by it and may be required to bear any stamp duty or stamp duty reserve tax (together with any interest or penalties) which may arise upon the sale of such Placing Shares on such Placee's behalf.

If Placing Shares are to be delivered to a custodian or settlement agent, Placees should ensure that the trade confirmation is copied and delivered immediately to the relevant person within that organisation. Insofar as Placing Shares are registered in a Placee's name or that of its nominee or in the name of any person for whom a Placee is contracting as agent or that of a nominee for such person, such Placing Shares should, subject as provided below, be so registered free from any liability to UK stamp duty or stamp duty reserve tax. Placees will not be entitled to receive any fee or commission in connection with the Placing.

Representations and warranties

By participating in the Placing, each Placee (and any person acting on such Placee's behalf) acknowledges, undertakes, represents, warrants and agrees (as the case may be) the following:

That it:

6.              represents and warrants that it has read this Announcement, including the Appendix, in its entirety and that its acquisition of Placing Shares is subject to and based upon all the terms, conditions, representations, warranties, acknowledgements, agreements and undertakings and other information contained herein and undertakes not to redistribute or duplicate this Announcement;

7.              acknowledges that it has received this Announcement solely for its use and has not redistributed or duplicated it;

8.              acknowledges and agrees that no offering document, prospectus or admission document has been or will be prepared in connection with the Placing and represents and warrants that it has not received a prospectus, admission document or other offering document in connection with the Placing or the Placing Shares;

9.              acknowledges that its participation in the Placing shall also be subject to the provisions of the Placing Agreement and the memorandum and articles of association of the Company in force both before and immediately after Admission;

10.            acknowledges that the ordinary shares in the capital of the Company are admitted to trading on AIM, and the Company is therefore required to publish certain business and financial information in accordance with the rules and practices of AIM (collectively, the "Exchange Information"), which includes a description of the nature of the Company's business and the Company's most recent balance sheet and profit and loss account and that it is able to obtain or access such Exchange Information without undue difficulty and is able to obtain access to such information or comparable information concerning any other publicly traded company without undue difficulty;

11.            acknowledges that none of Mirabaud, nor Stifel nor the Company nor any of their respective affiliates nor any person acting on behalf of any of them has provided, and will not provide, it with any material regarding the Placing Shares or the Company other than this Announcement; nor has it requested any of Mirabaud, Stifel, the Company, any of their respective affiliates or any person acting on behalf of any of them to provide it with any such information;

12.            acknowledges that the content of this Announcement is exclusively the responsibility of the Company and that neither Mirabaud, nor Stifel nor any person acting on their behalf has or shall have any liability for any information, representation or statement contained in this Announcement or any information previously published by or on behalf of the Company and will not be liable for any Placee's decision to participate in the Placing based on any information, representation or statement contained in this Announcement or otherwise. Each Placee further represents, warrants and agrees that the only information on which it is entitled to rely and on which such Placee has relied in committing itself to subscribe for the Placing Shares is contained in this Announcement and any information previously published by the Company by notification to a Regulatory Information Service, such information being all that it deems necessary to make an investment decision in respect of the Placing Shares and that it has neither received nor relied on any other information given or representations, warranties or statements made by Mirabaud, Stifel or the Company or their respective affiliates and none of Mirabaud nor Stifel nor the Company nor their respective affiliates will be liable for any Placee's decision to accept an invitation to participate in the Placing based on any other information, representation, warranty or statement. Each Placee further acknowledges and agrees that it has relied on its own investigation of the business, financial or other position of the Company in deciding to participate in the Placing;

13.            represents and warrants that it if it has received any confidential price sensitive information about the Company in advance of the Placing, it has not (i) dealt in the securities of the Company; (ii) encouraged or required another person to deal in the securities of the Company; or (iii) disclosed such information to any person, prior to the information being made generally available;

14.            acknowledges that none of Mirabaud nor Stifel nor any person acting on their behalf nor any of their respective affiliates has or shall have any liability for any publicly available or filed information, or any representation relating to the Company, provided that nothing in this paragraph excludes the liability of any person for fraudulent misrepresentation made by that person;

15.            represents and warrants that it has complied with its obligations in connection with money laundering and terrorist financing under the Proceeds of Crime Act 2002, the Terrorism Act 2000, the Terrorism Act 2006, the Criminal Justice (Money Laundering and Terrorism Financing) Act 2010 and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and any related or similar rules, regulations or guidelines, issued, administered or enforced by any government agency having jurisdiction in respect thereof (the "Regulations") and, if it is making payment on behalf of a third party, it has obtained and recorded satisfactory evidence to verify the identity of the third party as may be required by the Regulations; 

16.            if a financial intermediary, as that term is used in Article 3(2) of EU Directive 2003/71/EC (the "Prospectus Directive") (including any relevant implementing measure in any member state), represents and warrants that the Placing Shares subscribed for by it in the Placing will not be acquired on a non-discretionary basis on behalf of, nor will they be acquired with a view to their offer or resale to, persons in a member state of the European Economic Area which has implemented the Prospectus Directive other than to qualified investors, or in circumstances in which the prior consent of Mirabaud or Stifel has been given to the proposed offer or resale;

17.            represents and warrants that it has not offered or sold and will not offer or sell any Placing Shares to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and which will not result in an offer to the public in the United Kingdom within the meaning of section 85(1) of the Financial Services and Markets Act 2000 ("FSMA");

18.            represents and warrants that it has not offered or sold and will not offer or sell any Placing Shares to persons in the European Economic Area prior to Admission except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted in and which will not result in an offer to the public in any member state of the European Economic Area within the meaning of the Prospectus Directive (Directive 2003/71/EC) (including any relevant implementing measure in any member state);

19.            represents and warrants that it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) relating to the Placing Shares in circumstances in which section 21(1) of FSMA does not require approval of the communication by an authorised person;

20.            represents and warrants that it has complied and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the Placing Shares in, from or otherwise involving, the United Kingdom;

21.            represents and warrants that it is a person falling within Article 19(5) and/or Article 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or is a person to whom this Announcement may otherwise be lawfully communicated;

22.            acknowledges that any offer of Placing Shares may only be directed at persons in member states of the European Economic Area who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive and represents and agrees that it is such a qualified investor;

23.            represents and warrants that it and any person acting on its behalf is entitled to subscribe for Placing Shares under the laws of all relevant jurisdictions which apply to it and that it has all necessary capacity and has obtained all necessary consents and authorities to enable it to commit to this participation in the Placing and to perform its obligations in relation thereto (including, without limitation, in the case of any person on whose behalf it is acting, all necessary consents and authorities to agree to the terms set out or referred to in this Announcement) and will honour such obligations, and that its subscription of the Placing Shares will be in compliance with applicable laws and regulations in the jurisdiction of its residence, the residence of the Company, or otherwise.

24.            acknowledges and agrees that the Placing Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or jurisdiction of the United States, or the relevant Canadian, Japanese, Australian or South African securities legislation and therefore the Placing Shares may not be offered, sold, transferred or delivered directly or indirectly into the United States, Canada, Japan, Australia or the Republic of South Africa or their respective territories and possessions, except subject to limited exemptions;

25.            warrants that it has complied with all relevant laws of all relevant territories, obtained all requisite governmental or other consents which may be required in connection with the Placing Shares, complied with all requisite formalities and that it has not taken any action or omitted to take any action which will or may result in Mirabaud, Stifel, the Company or any of their respective directors, officers, agents, employees or advisers acting in breach of the legal or regulatory requirements of any territory in connection with the Placing;

26.            acknowledges and agrees that its purchase of Placing Shares does not trigger, in the jurisdiction in which it is resident or located: (i) any obligation to prepare or file a prospectus or similar document or any other report with respect to such purchase; (ii) any disclosure or reporting obligation of the Company; or (iii) any registration or other obligation on the part of the Company;

27.            undertakes that it (and any person acting on its behalf) will make payment for the Placing Shares allocated to it in accordance with this Announcement on the due time and date set out herein, failing which the relevant Placing Shares may be placed with other subscribers or sold as each of Mirabaud or Stifel may in its discretion determine and without liability to such Placee;

28.            acknowledges that none of Mirabaud nor Stifel nor any of their affiliates, nor any person acting on behalf of any of them, is making any recommendations to it, advising it regarding the suitability of any transactions it may enter into in connection with the Placing and that participation in the Placing is on the basis that it is not and will not be a client of Mirabaud or Stifel for the purposes of the Placing and that neither Mirabaud nor Stifel has any duties or responsibilities to it for providing the protections afforded to its clients or for providing advice in relation to the Placing nor in respect of any representations, warranties, undertakings or indemnities contained in the Placing Agreement nor for the exercise or performance of any of its rights and obligations thereunder including any rights to waive or vary any conditions or exercise any termination right;

29.            undertakes that the person whom it specifies for registration as holder of the Placing Shares will be (i) itself or (ii) its nominee, as the case may be. None of Mirabaud, Stifel nor the Company will be responsible for any liability to stamp duty or stamp duty reserve tax resulting from a failure to observe this requirement. Each Placee and any person acting on behalf of such Placee agrees to participate in the Placing and it agrees to indemnify the Company, Mirabaud and Stifel in respect of the same on the basis that the Placing Shares will be allotted to the CREST stock accounts of Mirabaud or Stifel who will hold them as nominee on behalf of such Placee until settlement in accordance with its standing settlement instructions;

30.            acknowledges that these terms and conditions and any agreements entered into by it pursuant to these terms and conditions and any non-contractual obligations arising out of or in connection with such agreements shall be governed by and construed in accordance with the laws of England and Wales and it submits (on behalf of itself and on behalf of any person on whose behalf it is acting) to the exclusive jurisdiction of the English courts as regards any claim, dispute or matter arising out of any such contract, except that enforcement proceedings in respect of the obligation to make payment for the Placing Shares (together with any interest chargeable thereon) may be taken by the Company, Mirabaud or Stifel in any jurisdiction in which the relevant Placee is incorporated or in which any of its securities have a quotation on a recognised stock exchange;

31.            acknowledges that each of Mirabaud and Stifel and their affiliates will rely upon the truth and accuracy of the representations, warranties and acknowledgements set forth herein and which are irrevocable and it irrevocably authorises each of Mirabaud and Stifel to produce this Announcement, pursuant to, in connection with, or as may be required by any applicable law or regulation, administrative or legal proceeding or official inquiry with respect to the matters set forth herein;

32.            agrees to indemnify on an after tax basis and hold the Company, Mirabaud and Stifel and their respective affiliates harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements, agreements and undertakings in the Appendices and further agrees that the provisions of the Appendices shall survive after completion of the Placing;

33.            represents and warrants that it will acquire any Placing Shares subscribed for by it for its account or for one or more accounts as to each of which it exercises sole investment discretion and it has full power to make the acknowledgements, representations and agreements herein on behalf of each such account;

34.            acknowledges that its commitment to subscribe for Placing Shares on the terms set out herein and in the relevant contract notes will continue notwithstanding any amendment that may in future be made to the terms of the Placing and that Placees will have no right to be consulted or require that their consent be obtained with respect to the Company's conduct of the Placing. The foregoing representations, warranties and confirmations are given for the benefit of the Company, Mirabaud and Stifel. The agreement to settle a Placee's subscription (and/or the subscription of a person for whom such Placee is contracting as agent) free of stamp duty and stamp duty reserve tax depends on the settlement relating only to the subscription by it and/or such person direct from the Company for the Placing Shares in question. Such agreement assumes, and is based on a warranty from each Placee, that neither it, nor the person specified by it for registration as holder, of Placing Shares is, or is acting as nominee or agent for, and that the Placing Shares will not be allotted to, a person who is or may be liable to stamp duty or stamp duty reserve tax under any of sections 67, 70, 93 and 96 of the Finance Act 1986 (depositary receipts and clearance services). If there are any such arrangements, or the settlement relates to any other dealing in the Placing Shares, stamp duty or stamp duty reserve tax may be payable. In that event the Placee agrees that it shall be responsible for such stamp duty or stamp duty reserve tax, and none of the Company, Mirabaud nor Stifel shall be responsible for such stamp duty or stamp duty reserve tax. If this is the case, each Placee should seek its own advice and notify Mirabaud or Stifel accordingly;

35.            understands that no action has been or will be taken by any of the Company, Mirabaud, Stifel or any person acting on behalf of the Company, Mirabaud or Stifel that would, or is intended to, permit a public offer of the Placing Shares in any country or jurisdiction where any such action for that purpose is required;

36.            in making any decision to subscribe for the Placing Shares, confirms that it has knowledge and experience in financial, business and international investment matters as is required to evaluate the merits and risks of subscribing for the Placing Shares. It further confirms that it is experienced in investing in securities of this nature in this sector and is aware that it may be required to bear, and is able to bear, the economic risk of, and is able to sustain a complete loss in connection with the Placing. It further confirms that it relied on its own examination and due diligence of the Company and its associates taken as a whole, and the terms of the Placing, including the merits and risks involved;

37.            represents and warrants that it has (a) made its own assessment and satisfied itself concerning legal, regulatory, tax, business and financial considerations in connection herewith to the extent it deems necessary; (b) had access to review publicly available information concerning the Company that it considers necessary or appropriate and sufficient in making an investment decision; (c) reviewed such information as it believes is necessary or appropriate in connection with its subscription of the Placing Shares; and (d) made its investment decision based upon its own judgment, due diligence and analysis and not upon any view expressed or information provided by or on behalf of Mirabaud or Stifel;

38.            understands and agrees that it may not rely on any investigation that Mirabaud or Stifel or any person acting on their behalf may or may not have conducted with respect to the Company, or the Placing and neither Mirabaud nor Stifel has made any representation to it, express or implied, with respect to the merits of the Placing, the subscription for the Placing Shares, or as to the condition, financial or otherwise, of the Company, or as to any other matter relating thereto, and nothing herein shall be construed as a recommendation to it to subscribe for the Placing Shares. It acknowledges and agrees that no information has been prepared by Mirabaud, Stifel or the Company for the purposes of this Placing;

39.            accordingly it acknowledges and agrees that it will not hold Mirabaud or Stifel or any of their affiliates or any person acting on their behalf responsible or liable for any misstatements in or omission from any publicly available information relating to the Company or information made available (whether in written or oral form) in presentations or as part of roadshow discussions with investors relating to the Company (the "Information") and that neither Mirabaud or Stifel nor any person acting on behalf of Mirabaud or Stifel makes any representation or warranty, express or implied, as to the truth, accuracy or completeness of such Information or accepts any responsibility for any of such Information; and

40.            understands that the Placing Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority  of any state or other jurisdiction of the United States, and accordingly, may not be offered or sold or otherwise transferred in the United States except pursuant to a registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act and, in connection with any such transfer, the Company shall be provided, as a condition to transfer, with a legal opinion of counsel, in form and by counsel reasonably satisfactory to the Company, that no such Securities Act registration is or will be required and with appropriate certifications by the transferee as to appropriate matters.

41.            if Placees are purchasing the Placing Shares outside the United States, each Placee (and any person acting on such Placee's behalf) agrees, represents and warrants as follows:

(a)            it is aware that the Placing Shares are being offered outside the United States in reliance on Regulation S promulgated under the Securities Act;

(b)            it is, at the time of the offer and acceptance of the Placing Shares, outside the United States for the purposes of Regulation S; and

(c)            it did not purchase or otherwise acquire the Placing Shares based on or due to directed selling efforts (as defined in Rule 902 under the Securities Act), including based on an advertisement in a publication with a general circulation in the United States, nor has it seen or been aware of any activity that, to its knowledge, constitutes directed selling efforts in the United States.

 

The foregoing representations, warranties and confirmations are given for the benefit of the Company, Mirabaud and Stifel. 

In addition, Placees should notethat they will be liable for any stamp duty and all other stamp, issue, securities, transfer, registration, documentary or other duties or taxes (including any interest, fines or penalties relating thereto) payable outside the United Kingdom by them or any other person on the subscription by them of any Placing Shares or the agreement by them to subscribe for any Placing Shares.

Each Placee and any person acting on behalf of each Placee acknowledges and agrees that either Mirabaud or Stifel, or any of their affiliates may, at their absolute discretion, agree to become a Placee in respect of some or all of the Placing Shares.

When a Placee or person acting on behalf of the Placee is dealing with Mirabaud or Stifel, any money held in an account with Mirabaud or Stifel on behalf of the Placee and/or any person acting on behalf of the Placee will not be treated as client money within the meaning of the rules and regulations of the FCA made under FSMA. The Placee acknowledges that the money will not be subject to the protections conferred by the client money rules; as a consequence, this money will not be segregated from Mirabaud or Stifel money in accordance with the client money rules and will be used by Mirabaud or Stifel in the course of its own business; and the Placee will rank only as a general creditor of Mirabaud or Stifel.

All times and dates in this Announcement may be subject to amendment. Mirabaud or Stifel shall notify the Placees and any person acting on behalf of the Placees of any changes.

Past performance is not a guide to future performance and persons needing advice should consult an independent financial adviser.

 

 

Appendix 2 - Certain Risks

 

Any investment in the Company is subject to a number of risks. Accordingly, prospective investors should carefully consider the risks set out below as well as the other information contained in this Announcement and any other publicly available information about the Company before making a decision whether to invest in the Company. The risks described below are not the only risks that the Company faces. Additional risks and uncertainties that the Directors are not aware of or that the Directors currently believe are immaterial may also impair the Company's operations. Any of these risks may have a material adverse effect on the Company's business, financial condition, results of operations and prospects. In that case, the price of the Ordinary Shares could decline and investors may lose all or part of their investment. Prospective investors should consider carefully whether an investment in the Company is suitable for them in light of the information in this document and their personal circumstances.

Before making an investment, prospective investors are strongly advised to consult an investment adviser authorised under FSMA who specialises in investments of this kind. A prospective investor should consider carefully whether an investment in the Company is suitable in the light of his or her personal circumstances, the financial resources available to him or her and his or her ability to bear any loss which might result from such investment.

The following factors, which are not presented in any order of priority, do not purport to be a complete list or explanation of all the risks involved in investing in the Company. In particular, the Company's performance may be affected by changes in the market and/or economic conditions and in legal, regulatory, tax and operational requirements.

 

Risks relating to the Placing and the Shares

Conditional nature of the Placing and Placing not underwritten

The Placing is conditional on shareholder approval being granted at the General Meeting and there is no guarantee that the conditions of any element of the Placing will be satisfied. The Placing is not underwritten. If any element of the Placing does not proceed then the Company will not receive the proceeds in respect of that element of the Placing.

Valuation of shares

The Placing Price has been determined by the Company and may not relate to the Company's net asset value, net worth or any established criteria or value. There can be no guarantee that the Ordinary Shares will be able to achieve higher valuations or, if they do so, that such higher valuations can be maintained.

Investment in AIM securities

An investment in shares traded on AIM may be less liquid and is perceived to involve a higher degree of risk than an investment in a company whose shares are listed on the Official List. Prospective investors should be aware that the value of the Ordinary Shares may go down as well as up and that the market price of the Ordinary Shares may not reflect the underlying value of the Group. Investors may therefore realise less than, or lose all of, their investment.

AIM Rules

The AIM Rules are less onerous than those of the Official List. Neither the FCA nor the London Stock Exchange has examined or approved the contents of this document. Shareholders and prospective investors (as appropriate) should be aware of the risks of investing in AIM quoted shares and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser.

Dilution of ownership of Ordinary Shares

Shareholders' proportionate ownership and voting interest in the Company may be reduced pursuant to the Placing subject to certain exceptions.

Share price volatility

The market price for the Company's Ordinary Shares is likely to fluctuate in response to a variety of factors, many of which are outside the Company's control.

Potential investors should be aware that the value of securities and the income from them can go down as well as up.

The price which investors may realise for their holding of Ordinary Shares, and when they are able to do so, may be influenced by a large number of factors, some of which are specific to the Company and others of which are extraneous.

Investors should therefore consider carefully whether investment in the Company is suitable for them, in light of the risk factors outlined above, their personal circumstances and the financial resources available to them.

Dividends

The dividend policy of the Company is dependent upon its financial condition, cash requirements, future prospects, compliance with the financial covenants in the Facility Agreement, profits available for distribution and other factors deemed to be relevant at the time and on the continued health of the markets in which it operates. The Company has announced that it is seeking to restructure its current debt facility.  Should this not be possible, the terms of the current Facility Agreement may restrict the Company's ability to pay a dividend at a level consistent with the Company's stated dividend policy.  

Currency and foreign exchange risk

The Company's principal operations are located the United States, but the registered office of the Company is in UK.  Both the Company's revenues and the majority of its operational costs are denominated in US Dollars and so exchange rate fluctuations between the GB Pound and the US Dollar will have limited impact on the Company's financial performance.

Restrictions on transfers under US legislation

The Ordinary Shares have not been registered in the United States under the Securities Act or under other applicable securities law and are subject to restrictions on transfer contained in such law. They may not be resold in the United States, except pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities law.

Resales of the Ordinary Shares

The Ordinary Shares constitute "restricted securities," as defined in Rule 144 under the Securities Act, and, accordingly, are not freely tradable in the United States. The Company does not intend to list the Ordinary Shares on an established securities exchange, have them quoted on an automated inter-dealer quotation system or otherwise create a public market in the United States for resale of the Ordinary Shares.

 

Risks Relating to the Acquisitions

The Acquisitions may not complete

The Company has agreed the terms of the Acquisitions with the vendors but the conditional Acquisition Agreements have not yet been signed.  Once signed the Acquisition Agreements are subject to the satisfaction completion of due diligence certain conditions precedent contained in each of the Acquisition Agreements.  If either of the Acquisition Agreements are not signed the Placing will not proceed.  It is possible that once signed either of the Acquisition Agreements might not complete.

The Company may not be able fully to realise the benefits of the Acquisitions

The Company's success will partially depend upon the Company's ability following the Acquisitions to integrate the Alliance Petroleum business and the Appalachian Gas assets into the Group without significant disruption to its business.  The Acquisitions follow the successful acquisition and integration of the Titan acquisition that was completed in October 2017.  Although the Directors believe that such disruption is unlikely, issues may come to light during the course of integrating the Acquisitions into the Group that may have an adverse effect on the financial condition and results of operations of the Enlarged Group. There is no assurance that the Company will realise the potential benefits of the Acquisition including, without limitation, recurring revenue from the Acquisition's assets to the extent and within the time frame contemplated. If the Company is unable to integrate the Acquisitions successfully into the Group then this could have a significantly negative impact on the results of operations and/or financial condition of the Company. The Company's success will partially depend on there being no adverse change in either of both of the Acquisitions' assets between the date of this announcement and the date of the completion of the Acquisition.

Due diligence on the assets being acquired

Given the nature of the Acquisitions Assets and the fact that most of the assets are underground, it is not possible to undertake a physical inspection of all of the assets being acquired. The Company has carried out due diligence on a sample of the assets being acquired, however, the due diligence carried out will not reveal all defects in the physical condition or ownership of those assets. Whilst the Acquisition Agreements provide some contractual protection as to the ownership and condition of the Alliance Petroleum and the Appalachian Gas assets, any warranty claims will be subject to customary contractual limitations and common law rules which may restrict the Company's ability to recover all or a substantial proportion of any losses suffered. A material level of defects could have an adverse impact on the Enlarged Group's ability to implement its business plan and could adversely impact the Enlarged Group's ability to realise the benefits of the Acquisition or delay their realisation.

 

Risks relating to the Company and the markets in which the Company operates

Financial resources

The consideration and associated costs in relation to the Acquisitions be financed through the Proceeds of the Placing.  The Company may require additional funds at some future date and may attempt to raise additional funds through equity or debt financings or from other sources.  Any additional equity financing may be dilutive to holders of Ordinary Shares and any debt financing beyond the facilities, if available, may require restrictions to be placed on the Group's future financing and operating activities. The Enlarged Group may be unable to obtain additional financing beyond the facilities on acceptable terms or at all if market and economic conditions, the financial condition or operating performance of the Enlarged Group or investor sentiment (whether towards the Enlarged Group in particular or towards the market sector in which the Enlarged Group operates) are unfavourable. The Company's inability to raise additional funding may hinder its ability to grow in the future or to maintain its existing levels of operation.

Impact of leverage

Following completion of the Placing the Company's balance sheet will be significantly less geared with no change to its existing borrowings and debt service obligations. The Directors are contemplating opportunities to secure new debt facilities the terms of which are not yet certain and details are not finalised.  Should the Company be unable to secure further debt this may impact upon the Company's future prospects by:

·        restricting the Group's ability to make strategic acquisitions or pursue other business opportunities;

·        together with the financial and other restrictive covenants under the terms of the indebtedness, limiting the Enlarged Group's ability to obtain additional financing, dispose of assets or pay cash dividends other than as permitted by the terms of the indebtedness;

·        requiring the Enlarged Group to sell or otherwise dispose of assets used in the business in order to fund debt service obligations;

·        limiting the Enlarged Group's flexibility in planning for, or reacting to, changes in the business and the industry in which it operates;

Any of these consequences or events could have a material adverse effect on the Group's ability to satisfy future debt obligations.

The Enlarged Group will require cash to meet obligations under its indebtedness and sustain the business operations, and the Enlarged Group's ability to do so will depend on many factors beyond its control.

The Group's ability to meet its obligations under its indebtedness, including making principal, interest and other payments when due, as well as its ability to fund ongoing business operations, will depend upon future operating performance and the Group's ability to generate cash, which, in turn, will be affected to some extent by general economic conditions and by financial, competitive, legislative, regulatory and other factors.

If, on the maturity date of any of the indebtedness, the Group does not have sufficient cash flows from operations and other capital resources to repay and redeem the debt in full or pay other debt obligations, as the case may be, the Group may be required to undertake alternative financing plans, such as refinancing or restructuring the debt, selling assets, reducing or delaying capital investments or raising additional debt or equity financing in amounts that could be substantial or on unfavourable terms. The Group's access to debt, equity and other financing as a source of funding for operations and for refinancing maturing debt will also be subject to many factors, including the cash needs of the Group and the then prevailing conditions in the financial markets, including in the corporate bond, term loan and equity markets.

In the longer term, if the Company were unable to generate sufficient cash flows to satisfy its debt obligations or to refinance its indebtedness on acceptable terms, or at all, it would materially and adversely affect its business, prospects, financial condition and results of operations, as well as its ability to pay the principal and interest on its indebtedness.  Any failure to refinance its indebtedness, on or prior to the applicable maturity date, may result in the Group defaulting on such indebtedness.

The Group is subject to finance covenants that will limit its financial and operating flexibility, which could materially and adversely affect its business, financial condition and results of operations

The Facility Agreement will inter alia, restrict the Group's ability to:

·        incur or guarantee additional indebtedness and issue certain preferred stock;

·        create or incur certain liens;

·        make certain payments, including dividends or other distributions, with respect to shares in the Company or its restricted subsidiaries;

·        sell, lease or transfer certain assets;

·        engage in certain transactions with affiliates;

·        consolidate or merge with other entities;

·        impair the security interests for the benefit of holders of indebtedness of the Enlarged Group;

·        enter into unrelated business or engage in prohibited activities; and

·        amend certain documents.

All these restrictions and limitations are subject to exceptions and qualifications. The covenants to which the Group is subject could limit its ability to plan for, or react to, market conditions, as well as adversely affect its ability to finance operations, strategic acquisitions, investments or other capital needs, implement business plans, pursue business opportunities and engage in other business activities that may be in its best interests.

Fluctuations in interest rates and the LIBOR rate may negatively impact the financial prospects and profitability of the Group

The interest rate payable under the Facility Agreement is linked to the LIBOR rate. Fluctuations in interbank interest rates and the LIBOR rate are influenced by factors outside of the Group's control (such as the fiscal and monetary policies of governments, central banks and United States and UK and international political and economic conditions) and can affect the Group's financial prospects and profitability.

The Facility is (with limited exceptions) secured against assets of DGO in the event of default by the Group

In the event that the Group defaults under the Facility Agreement, the finance parties will have the right to enforce the security granted over the assets of DGO. The rights under security arrangements are standard for the type of debt arrangements under the Facility Agreement and rank from step-in rights to rights to sell assets. Any enforcement action would materially affect the prospects of the Company.

Risks relating to the Enlarged Group's activities and the oil and gas industry

There are numerous factors which may affect the success of the Group's business which are beyond its control including local, national and international economic, legal and political conditions. The Group's business involves a high degree of risk which a combination of experience, knowledge and careful evaluation may not overcome.

Title matters and payment obligations

There is no guarantee that an unforeseen defect in title, changes in law or change in the interpretation of law or political events will not arise to defeat or impair the claim of the Group to any properties which it currently owns or may acquire which could result in a material adverse effect on the Group, including a reduction in any revenues generated.

Success of acquisition strategy not guaranteed

Returns ultimately achieved by investors in the Company will be reliant upon the quality and performance of the assets being acquired directly or indirectly by the Company, including the Acquisitions. The success of the Company's strategy also depends on the Directors' ability to identify potential assets, and the acquisition of the assets on favourable terms and to generate value from the assets. No assurance is given that the strategy to be used will be successful under all or any market conditions or that the Company will be able to invest its capital directly or indirectly to acquire assets on attractive terms and to generate returns for investors.

Prospective investments and growth strategy execution risks

In order to expand its operations, the Group may expend costs on, inter alia, conducting due diligence into potential investment opportunities in further businesses, assets or prospects/projects that may not be successfully completed or result in any acquisition being made, which could have a material adverse effect on its business, operating results and financial condition.

Risks relating to taxation

There can be no certainty that the current taxation regime in the UK or overseas jurisdictions within which the Group currently operates or may operate in the future will remain in force or that the current levels of corporation taxation will remain unchanged. There can be no assurance that there will be no amendment to the existing taxation laws applicable to the Group, which may have a material adverse effect on the Enlarged Group's financial position.

Any change in the Group's tax status or in taxation legislation in the UK or the United States could affect the Group's ability to provide returns to Shareholders. 

The Enlarged Group is subject to income taxes in the United States and United Kingdom, and its domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions.

The Enlarged Group's effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses arising from stock option compensation, the valuation of deferred tax assets and liabilities and changes in federal, state or international tax laws and accounting principles. Increases in the Enlarged Group's effective tax rate could materially affect the Enlarged Group's net financial results.

In addition, the Group may be subject to income tax audits by many tax jurisdictions. Although the Directors believe that the Group's income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

Lastly, due to the Enlarged Group's parent company being a UK based entity with operations and assets in the United States, any changes in United States federal tax law or tax rulings unfavourable to the Enlarged Group structure related to non U.S. owned parent companies could have a material impact on the Enlarged Group's effective tax rate, cash flows and results of operations.

Investors who are in any doubt as to their tax position or who are subject to tax in jurisdictions other than the UK are strongly advised to consult their professional advisers.

Dependence on key executives and personnel

The future performance of DGO will to a significant extent be dependent on its ability to retain the services and personal connections or contacts of key executives and to attract, recruit, motivate and retain other suitably skilled, qualified and industry experienced personnel to form a high calibre management team.

Such key executives are expected to play an important role in the development and growth of the Group, in particular by maintaining good business relationships with regulatory and governmental departments and essential partners, contractors and suppliers.

In addition, attracting and retaining additional skilled personnel may be required to ensure the development of the Group's business. The Company faces significant competition for skilled personnel in the oil and gas sector.

Although certain key executives and personnel have entered into service agreements or letters of appointment with the Company, there can be no assurance that the Group will retain their services. The loss of the services of any of the key executives or personnel may have a material adverse effect on the business, operations, relationships and/or prospects of the Group.

Labour

Certain of the Group's operations may be carried out under potentially hazardous conditions. Whilst the Company intends to operate in accordance with relevant health and safety regulations and requirements, the Group remains susceptible to the possibility that liabilities might arise as a result of accidents or other workforce-related misfortunes, some of which may be beyond the Group's control. Further, the Group may struggle to recruit engineers and other important members of the workforce required to run a full exploration or appraisal programme. Shortages of labour, or of skilled workers, may cause delays or other stoppages during exploration and appraisal activities.

Retention of key business relationships

The Group relies significantly on strategic relationships with other entities, on good relationships with regulatory and governmental departments and on third parties to provide essential contracting services.

There can be no assurance that its existing relationships will continue to be maintained or that new ones will be successfully formed, and the Group could be adversely affected by changes to such relationships or difficulties in forming new ones.  Any circumstance which causes the early termination or non-renewal of one or more of these key business alliances or contracts could adversely impact the Group, its business, operating results and prospects.

Credit market conditions

Events in the credit markets in recent years have restricted the supply of credit to the oil and gas industry, as financial institutions have applied more stringent lending criteria or exited the market entirely. If current market conditions worsen, it will be more costly and more difficult for the Group to secure any significant debt facilities or indeed such facilities may no longer be available.

Market perception

Market perception of junior extraction companies, in particular those operating in energy markets, as well as all oil and gas companies in general, may change, which could impact on the value of investors' holdings and the ability of the Group to raise further funds through the issue of further Ordinary Shares in the Company or otherwise.

Insurance coverage and uninsured risks

DGO insures its operations in accordance with industry practice and plans to insure the risks it considers appropriate for the Group's needs and circumstances.  However, the Group may elect not to have insurance for certain risks, due to the high premium costs associated with insuring those risks or for various other reasons, including an assessment in some cases that the risks are remote.

No assurance can be given that the Group will be able to obtain insurance coverage at reasonable rates (or at all), or that any coverage it or the relevant operator obtains, and any proceeds of insurance, will be adequate and available to cover any claims arising. The Group may become subject to liability for pollution, blow-outs or other hazards against which it has not insured or cannot insure, including those in respect of past activities for which it was not responsible. Any indemnities the Group may receive from such parties may be difficult to enforce if such sub-contractors, operators or joint venture partners lack adequate resources.

In the event that insurance coverage is not available or the Group's insurance is insufficient to fully cover any losses, claims and/or liabilities incurred, or indemnities are difficult to enforce, the Group's business and operations, financial results or financial position may be disrupted and adversely affected.

The payment by the Group's insurers of any insurance claims may result in increases in the premiums payable by the Company for its insurance cover and adversely affect the Group's financial performance. In the future, some or all of the Enlarged Group's insurance coverage may become unavailable or prohibitively expensive.

Functioning insurance market

Operational insurance policies are usually placed in one year contracts and the insurance market can withdraw cover for certain risks, which can greatly increase the costs of risk transfer. Such increases are often driven by factors unrelated to the Group such as well control elsewhere in the world and wind storm damage.

Bank default

Recent credit market events have demonstrated the possibility of banks, previously thought to be secure, defaulting on their deposits. A good rating from a reputable rating agency does not provide adequate protection against default risk and as a corporate depositor the Group may fall outside any deposit protection schemes. However, if one or more of the Group's banks defaults on its deposits it would have a material adverse effect on the Group's ability to fund its commitments. In such an economic environment the Enlarged Group would be unlikely to be able to sell assets at reasonable values or raise equity finance and consequently might be unable to continue its business.

Future litigation

From time to time, the Group may be subject, directly or indirectly, to litigation arising out of its proposed operations. Damages claimed under such litigation may be material or may be indeterminate, and the outcome of such litigation may materially impact the Group's business, results of operations or financial condition. While the Group assesses the merits of each lawsuit and defends itself accordingly, it may be required to incur significant expenses or devote significant resources to defending itself against such litigation. In addition, the adverse publicity surrounding such claims may have a material adverse effect on the Group's business.

 

General Exploration, Development and production risks

Development and production risks

There can be no guarantee that any hydrocarbons discovered will be developed into profitable production, or that hydrocarbons will be discovered in commercial quantities or developed to profitable production. The business of development and exploitation of hydrocarbon deposits is speculative and involves a high degree of risk, which even a combination of careful evaluation, experience and knowledge may not eliminate. Hydrocarbon deposits assessed by the Group may not ultimately contain economically recoverable volumes of resources and even if they do, delays in the construction and commissioning of production projects or other technical difficulties may result in any projected target dates for production being delayed or further capital expenditure being required.

The operations and planned drilling activities of the Group may be disrupted, curtailed, delayed or cancelled by a variety of risks and hazards which are beyond the control of the Group, including unusual or unexpected geological formations, formation pressures, geotechnical and seismic factors, environmental hazards such as accidental spills or leakage of petroleum liquids, gas leaks, ruptures or discharge of toxic gases, industrial accidents, occupational and health hazards, technical failures, mechanical difficulties, equipment shortages, labour disputes, fires, power outages, compliance with governmental requirements and extended interruptions due to inclement or hazardous weather and ocean conditions, explosions, blow-outs, pipe failure and other acts of God. Any one of these risks and hazards could result in work stoppages, damage to, or destruction of, the Group's facilities, personal injury or loss of life, severe damage to or destruction of property, environmental damage or pollution, clean-up responsibilities, regulatory investigation and penalties, business interruption, monetary losses and possible legal liability which could have a material adverse impact on the business, operations and financial performance of the Group. Although precautions to minimise risk are taken, even a combination of careful evaluation, experience and knowledge may not eliminate all of the hazards and risks. In addition, not all of these risks are insurable.

Natural gas, NGLs and oil price volatility, or a prolonged period of low natural gas, NGLs and oil prices, may have an adverse effect upon the Company's revenue, profitability, future rate of growth, liquidity and financial position.

DGO's revenue, profitability, future rate of growth, liquidity and financial position depend upon the prices for natural gas, NGLs and oil. The prices for natural gas, NGLs and oil have historically been volatile, and we expect this volatility to continue in the future. The prices are affected by a number of factors beyond our control, which include: weather conditions and seasonal trends; the supply of and demand for natural gas, NGLs and oil; regional basis differentials; national and worldwide economic and political conditions; new and competing exploratory finds of natural gas, NGLs and oil; the ability to export liquefied natural gas; the effect of energy conservation efforts; the price and availability of alternative fuels; the availability, proximity and capacity of pipelines, other transportation facilities, and gathering, processing and storage facilities; and government regulations, such as regulation of natural gas transportation and price controls.

The US market prices for natural gas, NGLs and oil were depressed throughout 2015 and 2016.  In addition, the market price for natural gas in the Appalachian Basin continues to be lower relative to NYMEX Henry Hub as a result of the significant increases in the supply of natural gas in the Northeast region in recent years.  Due to the volatility of commodity prices, the Company is unable to predict future potential movements in the market prices for natural gas, including in the Appalachian basin, NGLs and oil and thus cannot predict the ultimate impact of prices on our operations.

Hydrocarbon resource and reserve estimates

No assurance can be given that hydrocarbon resources and reserves reported by the Company in the future are present as estimated, will be recovered at the rates estimated or that they can be brought into profitable production. Hydrocarbon resource and reserve estimates may require revisions and/or changes (either up or down) based on actual production experience and in light of the prevailing market price of oil and gas. A decline in the market price for oil and gas could render reserves uneconomic to recover and may ultimately result in a reclassification of reserves as resources.

The Company has relied on reports prepared by Wright & Co as its professional advisor for the purpose assessing the quantity of resources and reserves owned by the Company.  There are uncertainties inherent in estimating the quantity of resources and reserves and in projecting future rates of production, including factors beyond the Group's control. Estimating the amount of hydrocarbon resources and reserves is an interpretive process and, in addition, results of drilling, testing and production subsequent to the date of an estimate may result in material revisions to original estimates.

If the assumptions upon which the estimates of the Group's hydrocarbon resources have been based prove to be incorrect, the Group (or the operator of an asset in which the Group has an interest) may be unable to recover and produce the estimated levels or quality of hydrocarbons set out in this document and the Group's business, prospects, financial condition or results of operations could be materially and adversely affected.

Capital expenditure estimates may not be accurate

Estimated capital expenditure requirements are estimates based on anticipated costs and are made on certain assumptions. Should the Enlarged Group's capital expenditure requirements turn out to be higher than currently anticipated (for example, if there are unanticipated difficulties in drilling or connecting to infrastructure or price rises) the Group or its partners may need to seek additional funds which it may not be able to secure on reasonable commercial terms to satisfy the increased capital expenditure requirements. If this happens, the Group's business, cash flow, financial condition and operations may be materially adversely affected.

Production operations may produce unforeseen issues

The planned production operations involve risks common to the industry, including blowouts, oil spills, explosions, fires, equipment damage or failure, natural disasters, geological uncertainties, unusual or unexpected rock formations and abnormal geological pressures. In the event that any of these occur, environmental damage, injury to persons and loss of life, failure to produce oil or gas in commercial quantities or an inability to fully produce discovered reserves could result. The occurrence of any of these events could have a material adverse effect on the Group's business, prospects, financial condition and operations.

Delays in production, marketing and transportation

Various production, marketing and transportation conditions may cause delays in oil production and adversely affect the Enlarged Group's business.

The marketability and price of oil and natural gas that may directly or indirectly be acquired or discovered by the Group will be affected by numerous factors beyond the control of the Group. The Group is also subject to market fluctuations in the prices of oil and natural gas, deliverability uncertainties related to the proximity of reserves to adequate pipeline and processing facilities, and extensive government regulations relating to price, taxes, royalties, licences, land tenure, allowable production, the export of oil and natural gas, and many other aspects of the oil and natural gas business. Any or all of these factors may result in an adverse impact on the financial returns anticipated by the Company.

Decommissioning costs

Decommissioning costs will be incurred by the Group at the end of the operating life of some of the Group's properties. The ultimate decommissioning costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial results.

Third party contractors and providers of capital equipment are in short supply and can be expensive

The contracting or leasing services and equipment from third-party providers and suppliers may be problematic in that such equipment and services can be in short supply and may not be readily available at the times and places required. In addition, the costs of third-party services and equipment have increased significantly over recent years and may continue to rise. This may, therefore, have an adverse effect on the Group's business. In addition, the failure of a third party provider or supplier of equipment or services could have a material adverse impact on the Group's business and the results of its operations.

Risk of loss of oil and gas rights

The Group's activities are dependent upon the maintenance of appropriate leases (which includes the continuation of production from applicable existing wells), licences, concessions, permits and regulatory consents which may be withdrawn or made subject to qualifications. Although DGO believes that the authorisations in relation to all of the Group's interests in the Appalachian Basin will not be withdrawn and will be maintained (as the case may be), there can be no guarantee that such authorisations will not, in the future, be withdrawn, fail to be renewed or granted. There can be no assurance as to the terms of such future grants or renewals.

Natural disasters

Any interest held by the Group is subject to the impacts of any natural disaster such as earthquakes, epidemics, fires and floods etc. No assurance can be given that the Group will not be affected by future natural disasters.

Environmental factors

The Group's operations are, and will be, subject to environmental regulation (with regular environmental impact assessments and evaluation of operations required before any permits are granted to it) in the Appalachian Basin and any other regions in which the Group may operate in the future. Environmental regulations are likely to evolve in a manner that will require stricter standards and enforcement measures being implemented, increases in fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their directors and employees. Compliance with environmental regulations could increase the Group's costs. Should the Company's operations not be able to comply with this mandate, financial penalties may be levied. Environmental legislation can provide for restrictions and prohibitions on spills, releases of emissions of various substances produced in association with oil, condensate and natural gas operations. In addition, certain types of operations may require the submission and approval of environmental impact assessments. The Group's operations will be subject to such environmental policies and legislation.

Environmental legislation and policy is periodically amended. Such amendments may result in stricter standards of enforcement and in more stringent fines and penalties for non-compliance. Environmental assessments of existing and proposed projects may carry a heightened degree of responsibility for companies and their directors, officers and employees. The costs of compliance associated with changes in environmental regulations could require significant expenditure, and breaches of such regulations may result in the imposition of material fines and penalties. In an extreme case, such regulations may result in temporary or permanent suspension of production operations. There can be no assurance that these environmental costs or effects will not have a materially adverse effect on the Group's future financial condition or results of operations.

 

It should be noted that the factors listed above are not intended to be exhaustive and do not necessarily comprise all of the risks to which the Group is or may be exposed or all those associated with an investment in the Company. In particular, the Company's performance is likely to be affected by changes in market and/ or economic conditions, political, judicial, and administrative factors and in legal, accounting, regulatory and tax requirements in the areas in which it operates and holds its major assets. There may be additional risks and uncertainties that the Directors do not currently consider to be material or of which they are currently unaware which may also have an adverse effect upon the Group.

If any of the risks referred to in this Appendix 2 crystallise, the Group's business, financial condition, results or future operations could be materially adversely affected. In such case, the price of the Ordinary Shares could decline and investors may lose all or part of their investment.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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