ADM Energy PLC, an oil and gas investing company quoted on AIM, is pleased to advise that it has entered into a sale and purchase agreement ("Agreement") with EER (Colobus) Nigeria Limited ("EER") to acquire, subject to satisfaction of certain conditions, a participating interest of 2.25% from EER in oil mining lease no. 113, which includes the Aje field ("Block"), in which it already has an interest of 2.7%. Consideration for the acquisition is $3,000,000, to be satisfied by the issue of $2,000,000 of new ordinary shares at 7 pence per share ("Consideration Shares") and $1,000,000 in cash at the time of completion.
Highlights of the Agreement
- ADM will acquire 25% of the interests, rights and obligations held by EER in the Block subject to conditions.
- On completion, ADM's participating interest will increase to approximately 4.9%.
- Corresponding revenue and cost bearing interests increasing to 9.2% and 12.3% respectively.
- Upon completion, ADM's net 2P reserves will increase from 8.9 MMboe (as announced on 2 May 2019) to 16.4 Mmboe.
- Post completion, net daily production is expected to increase to approximately 273 bopd from 148 bopd.
OML 113 covers an area of 858km² in the western Nigeria offshore Dahomey basin, some 24km south of the coast and 64km from Lagos, in water depths ranging from 100 to 1,000 metres. The West African Gas Pipeline (WAGP) intersects the northwest part of the licence. There are currently five partners in the licence: Yinka Folawiyo Petroleum Company Limited, New Age Exploration Nigeria Limited, Pan Petroleum Aje Limited, EER and ADM.
Interest in OML 113
Since 2016, ADM has held a participating interest in the Block of 2.7% with corresponding revenue interest and cost bearing interest of 5.0% and 6.7% respectively. EER holds an undivided participating interest in the Block of 9.0% with a revenue interest of 16.8% and a cost bearing interest of 22.5%. On completion, ADM's interest will consolidate to a participating interest of 4.9% with corresponding revenue and cost bearing interests increasing to 9.2% and 12.3% respectively.
On 2 May 2019, the Company reported the results of an updated Competent Person's Report ("CPR") produced by AGR TRACS International Limited which included production data up to 31 December 2018. The table below updates this information to show the corresponding estimates for the 2.25% interest being acquired (subject to completion) for which the net attributable 2P reserves are approximately 7.5 MMboe. On completion, ADM's net attributable 2P reserves are estimated to increase to 16.4 MMboe. Based on the current average daily production for 2019 of 2,967 bopd, as announced on 23 January 2020, ADM's net daily production will increase from 148 bopd to 273 bopd on completion.
The increase in ADM's net 2P reserves following completion is based on an extrapolation of reserves data from the latest CPR, announced on 2 May 2019, and is outlined in the table below. The information in this table has not been updated since the last reported CPR and, therefore, does not take into consideration production from 1 January 2019 onwards.
Details of the Agreement
Completion of the transaction is conditional upon the consent of the Nigerian Minister of Petroleum Resources for the transfer of the interest from EER to ADM. Subject to completion, ADM will acquire 25% of the interests, rights and obligations held by EER in the Block such that, on completion, ADM's participating interest will increase to 4.9% with corresponding revenue and cost bearing interests increasing to 9.2% and 12.3% respectively. Further, ADM shall be responsible for a corresponding interest in EER's alleged outstanding disputed unpaid cash calls with the operator of the Block which, for ADM as a purchaser of 1/4 of EER's interest in the Block, represents approximately $1,500,000 plus applicable interest. Subject to verification through audit, should it be determined that all or a portion of the outstanding cash calls are due, it is the intention that any sums deemed outstanding by the partners will continue to be settled from production revenue at the project level.
ADM is required to pay a refundable deposit of $250,000 within 90 days of signing the Agreement. Upon completion and following the issue of the Consideration Shares, EER and any connected person or other person to whom the Consideration Shares may be issued and their associates ("Relevant Shareholders") will enter into a relationship agreement, lock-in agreement and orderly market agreement with ADM. Under the terms of the relationship agreement, the Relevant Shareholders will have the right to nominate a director to be appointed to the Board of ADM from completion, subject to normal regulatory approval, and such right shall continue until such time as the Relevant Shareholders cease to hold 20% or more of the entire issued share capital of the Company.
It is expected that the requisite consents and authorisations may take a number of months to be received such that a long stop date of 180 days after signing of the Agreement has been agreed, following which either party is entitled to terminate the transaction.
Related Party Transaction
Osamede Okhomina, the CEO of the Company, is a non-executive director of EER. Accordingly, the signing of the Agreement in respect of the proposed acquisition of the interest from EER and related documents constitutes a related party transaction pursuant to Rule 13 of the AIM Rules for Companies. Accordingly, the independent directors (comprising the Board of ADM other than Osamede Okhomina), having consulted with the Company's nominated adviser, consider that the terms of the transaction are fair and reasonable insofar as the Company's shareholders are concerned.
Osamede Okhomina, CEO of ADM, said: "In keeping with our strategic development agenda, I am pleased to announce our first investment under the Company's new leadership. OML 113 is well known to us and it is a fantastic asset that covers the spectrum of field types from current oil production to several appraisal plays. It is also very wet-gas rich which provides the potential for the operator to be able to bring into the market, alongside dry gas, resources like condensate and LPG.
"As envisaged under the intended Strategic Alliance signed earlier this month, we have proposed this project as one Trafigura may consider investing in. We look forward to updating the market further in due course."
Yinka Ogundare, CEO of EER, commented: "We are very pleased with this transaction that was structured to help further consolidate our working relationship with ADM. The transaction would result in deepening our collaborative relationship and help the partners and the operator develop the asset further."
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