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Phoenix Global Res (PGR)

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Friday 16 February, 2018

Phoenix Global Res

Accelerated Business Plan and Operational Overview

RNS Number : 0715F
Phoenix Global Resources PLC
16 February 2018


16 February 2018 7:00 am




Phoenix Global Resources plc

("Phoenix", "PGR" or the "Company" and together with its subsidiary undertakings the "Group")


Additional Funding to Support Accelerated Business Plan and Operational Overview



Phoenix Global Resources plc (AIM: PGR; BCBA: PGR), the independent Argentina-focused oil and gas exploration and production company, is pleased to announce additional funding arrangements to support an accelerated business plan for 2018 and provides an operational overview for 2017.




·    US$100 million of existing Bridging and Working Capital Facility from Mercuria Energy Trading S.A., part  of the Mercuria Group, to be converted into new Phoenix shares at 37 pence per share

·    Remaining US$60 million of existing Bridging and Working Capital Facility restructured into a new      convertible revolving credit facility (the "New Convertible RCF") of US$160 million from the Mercuria Group, providing additional funds of US$100 million

·    US$11 million cash interest cost savings for remainder of 2018 as a result of the debt restructuring

·    Reduced leverage and additional funds support an accelerated 2018 business plan

·    Capital expenditure set to increase from approximately US$90 million in 2017 to up to US$190 million in 2018

·    Up to US$120 million of this capital expenditure will target Vaca Muerta and unconventional projects in the Neuquén basin in 2018

·    Pro-forma Argentina production of 11,070 boepd for the full year 2017 (H2 2017: 11,469 boepd vs. H1 2017: 10,664 boepd)

·    Average realised prices of US$50 per bbl and US$4.1 per mmbtu in 2017


The Board continues to be encouraged by the political climate in Argentina and the Government's pro-business and pro-market policy agenda, including tax, labour and capital market reforms. The significant investment by many of the world's largest oil and gas companies over the past two years is testament to these changes and the attractiveness of the Argentine unconventional oil and gas industry.  Furthermore, the de-regulation of the oil price in late September 2017 has been a positive and welcome development for the industry.


Sir Michael Rake, Non-Executive Chairman of Phoenix said:


"The additional commitment from Mercuria Group, allows Phoenix to strengthen its balance sheet and accelerate its plans for growth. Mercuria's support and flexibility reaffirms the positive outlook for Argentina and significant potential of our Vaca Muerta unconventional assets."


Anuj Sharma, CEO of Phoenix said:


"I am excited to announce our accelerated business plan for 2018.  This business plan will allow Phoenix to further de-risk its highly attractive asset base, bringing the best unconventional technology and expertise to deliver value to its shareholders."



Accelerated 2018 Business Plan


2018 represents the first full year of Phoenix following the August 2017 combination of the Andes Energia and Trefoil operations.


The Company plans to accelerate its drilling and completion programme in 2018 and based on results obtained from its exploration and development activities during the coming year, it expects to double its capital expenditure from approximately US$90 million in 2017 to up to US$190 million. 


Neuquén basin ¹


The 2018 planned drilling programme is focused on accelerating the appraisal and development of Phoenix's significant Vaca Muerta and other unconventional resources in the Neuquén basin. The Company plans to spend up to US$120 million of total budgeted 2018 capital expenditure on developing these unconventional resources in the Neuquén basin. This activity is expected to de-risk a significant portion of its unconventional acreage and also provide the basis for robust production growth going forward.


In the Mendoza Province, during 2017, the Company drilled nine vertical wells in the Puesto Rojas area, of which five wells were designed to appraise the unconventional Vaca Muerta and Tight Agrio formations. Further unconventional exploration and development activity is planned pending the finalisation of the new unconventional oil and gas regulations in Mendoza Province. On 28 December 2017, a public hearing took place in the city of Malargüe regarding the new regulations, with the decree formalising them now expected to be published in Q1 2018.


The Company's 2018 business plan focuses on the drilling and completion of further vertical development and exploration wells in the Puesto Rojas area, targeting additional prospects in the unconventional Vaca Muerta and Tight Agrio formations, as well as drilling selected conventional targets. The drilling plan for the Company's unconventional assets, together with the acquisition and processing of additional seismic data in the southern Puesto Rojas and La Brea concessions, is designed to prepare these assets for large scale unconventional development. 


In the second half of the year, the Company plans to drill and complete its first horizontal wells in the Puesto Rojas area, following appraisal of its vertical wells to identify which horizons are likely to deliver the best rates and economic return.


In the Neuquén Province, the Company intends to move forward with its investment plans on its Mata Mora and Corralera licences. The Company plans to drill and complete unconventional horizontal wells under its existing agreement with GyP and hopes to commence the drilling of its first horizontal well on its Mata Mora block in the first half of 2018.


In addition, the Company plans to continue to invest in the Chachahuen development, with our operating partner YPF, participating in approximately 80 new wells in the year.  Chachahuen should continue to deliver low risk and low cost production growth.


Approximately 85% of the 2018 planned capital expenditure is focused on the Neuquén basin, of which the majority will be deployed in Phoenix operated assets.


Cuyo and Austral basins


In 2018, Phoenix plans to invest in additional exploration and development wells in its Cuyo basin licences to increase oil production and its Santa Cruz Sur licences in the Austral basin to increase gas production.


Approximately 15% of the 2018 planned capital expenditure is focused on the Cuyo and Austral basins.



Additional Funding - conversion of debt and new convertible revolving credit facility


In order to commence our accelerated business plan the Company has sourced both additional debt and equity funding to achieve a balanced capital structure and reduce the Group's overall funding costs.


As of 12 February 2018, the Group's net debt stood at approximately US$176 million taking in to account approximately US$9 million cash on hand. The US$160 million Bridging and Working Capital Facility from Mercuria Group was fully drawn and in addition, Phoenix had drawn Argentine bank loans of approximately US$25 million. 


The Company has agreed with Mercuria Group to convert US$100 million of the Bridging and Working Capital Facility into 194,387,299 new ordinary shares of Phoenix at a price of 37 pence per share (based on an exchange rate of £1:US$1.39037) and to restructure the remaining US$60 million into the New Convertible RCF. The New Convertible RCF of US$160 million will provide additional funds of US$100 million and bears interest at a rate of 4% over 3-month LIBOR with a maturity date of 31 December 2021. The US$100 million reduction of debt and lower interest rate on the US$60 million equates to a US$11 million cash interest cost saving for the remainder of 2018. The New Convertible RCF has a 17-month repayment grace period and will be amortised in eleven equal quarterly repayment instalments from 30 June 2019 until maturity. Mercuria Group will have the right to convert all or part of the outstanding principal of the New Convertible RCF into additional new ordinary shares of Phoenix at a price of 45 pence per share at any time from 30 June 2018 until 10 business days prior to the maturity, subject to appropriate shareholder resolutions in relation to the authority to allot and disapplication of pre-emption rights in relation to such shares having been approved. The Company intends to propose the relevant resolutions at its annual general meeting to be held later this year.


In combination, these actions reduce Phoenix's current leverage and near-term cash interest payments, whilst providing the necessary additional liquidity to execute the 2018 capital expenditure programme. As a result, the Company now has further flexibility and capacity to raise additional debt from other sources as required.


The Company continues to review the timetable for the potential move to the Official List of the London Stock Exchange, which is unlikely to be before the anniversary of the RTO (completed in August 2017), as well as considering other funding options to finance the 2019 capital expenditure and the accelerated business plan.




2017 Operational Overview


Pro-forma Argentina net working interest production for the year ended 31 December 2017 was approximately 11,070 boepd compared to 11,253 boepd for 2016. Second half of the year average daily production increased to 11,469 boepd compared to 10,664 boepd in the first half.


Drilling activity in the second half of 2017 was designed to meet the Company's existing licence commitments, increase production from its conventional production and further appraise the unconventional resources in the Puesto Rojas licence area.


Neuquén basin


During 2017, Phoenix drilled nine wells in the Puesto Rojas licence area, of which four conventional wells were drilled in the Cerro Pencal field. The five unconventional wells drilled in 2017 were appraising the Vaca Muerta and Tight Agrio formations, three in the Cerro Pencal field and one in each of the Cerro del Medio and the Puesto Rojas fields. Including CP-1010, drilled in late 2016, the Company drilled six wells specifically designed to appraise the unconventional Vaca Muerta and Tight Agrio formations prior to August 2017, when planned future activity was deferred pending finalisation of the regulations for unconventional drilling and completions activities in the Mendoza Province.


The initial results from the Company's unconventional programme in both the Vaca Muerta and Tight Agrio formations have been encouraging. Phoenix continues to appraise and evaluate these wells and plans to provide more information on the well performance when we publish our full year results. Phoenix plans to resume this unconventional programme following finalisation of the Mendoza Province unconventional oil and gas regulations.


In the Chachahuen concession, together with its operating partner YPF, Phoenix participated (20%) in approximately 112 new wells.


Cuyo and Austral basins


During 2017, Phoenix drilled an exploration well on its Atamisqui concession, which showed positive results during the logging programme. The well was awaiting completion as of the year-end.


Four development wells were drilled in the Santa Cruz Province where Phoenix has 70% participating interest.  Two wells were completed during H2 2017 and one was completed in January 2018, with one still waiting on completion.


In addition, the Company also participated (12.6%) in a successful non-operated exploratory well in its Angostura concession in Austral basin in the Tierra del Fuego Province.



Related Party Transaction


Mercuria Group is a substantial shareholder of the Company and a related party under the AIM Rules. The conversion of the Bridging and Working Capital Facility into New Ordinary Shares, the agreement to restructure the remaining debt between Mercuria Group and the Company and the entering into of the New Convertible RCF constitute related party transactions (the "Transactions") under the AIM Rules. The directors of the Company, except for the two Mercuria Directors (being Mercuria's designated directors under the Relationship Agreement between Phoenix and certain Mercuria Group companies), having consulted with the Company's nominated adviser, Stockdale Securities Limited, consider that the terms of the Transactions are fair and reasonable insofar as the Company's shareholders are concerned.



Admission to trading and total voting rights


Application has been made for admission of the 194,387,299 New Ordinary Shares to trading on AIM and dealings in the New Ordinary Shares are expected to commence at 8.00 a.m. on 20 February 2018. The New Ordinary Shares will rank pari-passu with the Company's existing issued ordinary shares.


Following admission of the 194,387,299 New Ordinary Shares, the total number of shares in issue will be 2,731,565,525. The Company does not hold any Shares in treasury. This figure may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.



Holding in Company


Following admission of the New Ordinary Shares, the Mercuria Group will control 2,167,910,078 ordinary shares in Phoenix, which will represent 79.37 per cent. of the Company's enlarged share capital.


For further information, please contact:


Phoenix Global Resources plc

Anuj Sharma, CEO

Philip Wolfe, CFO


T: +54 11 5258 7500

T: +44 (0) 203 912 2805



Stockdale Securities


Antonio Bossi

Ed Thomas


T: +44 (0) 207 601 6100


Panmure Gordon


Adam James

Atholl Tweedie


T: +44 (0) 207 886 2500




Billy Clegg

Owen Roberts

James Crothers


T: +44 (0) 203 757 4980


Capitalised terms used but not defined in this announcement shall have the meaning set out in the re-admission document published by the Company on 24 July 2017.

This announcement contains certain forward-looking statements, beliefs or opinions, with respect to certain of the Company's current expectations and projections about future prospects, developments, strategies, performance, anticipated events or trends and other matters that are not historical facts. These forward-looking statements, which sometimes use words such as "aim", "anticipate", "believe", "intend", "plan" "estimate", "expect" and words of similar meaning, include all matters that are not historical facts and reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this announcement is subject to change without notice and, except as required by applicable law, neither the Company, nor any of its advisers, nor any of their respective affiliates nor any of their respective directors, officers, employees, advisers or representatives assumes any responsibility or obligation to update, amend or revise publicly or review any of the forward-looking statements contained in this announcement. Any forward-looking statements speak only as of the date of this announcement. No statement in this announcement is or is intended to be a profit forecast or profit estimate or to imply that the earnings of the Company for the current or future financial years will necessarily match or exceed the historical or published earnings of the Company. Past performance of the Company or any part of the Group cannot be relied on as a guide to future performance and persons reading this announcement are cautioned not to place undue reliance on such forward-looking statements.

Notes to editors

Phoenix Global Resources plc is an independent exploration and production company with a balanced portfolio of conventional and unconventional assets in Argentina holding over 10 million licenced gross acres (of which more than 5 million are operated); 61.7 million boe net working interest 2P reserves; and pro-forma Argentina production of 11 kboepd net working interest on average in 2017. The Company has a strong and growing production base from a diversified portfolio across hydrocarbon basins and significant exposure to the Vaca Muerta formation with over 1 million gross acres in various concessions.  The Vaca Muerta formation is currently one of the few economically producing shale oil formations outside of North America with production of approximately 75k boepd.

¹The Company's Neuquén basin assets are located in the provinces of Mendoza, Neuquén and Rio Negro. 

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