Scirocco Energy, the AIM investing Company targeting attractive production and development opportunities within the European energy market, is pleased to provide a strategy update.
- In March 2019, Scirocco Energy announced the launch of a new strategy to create long-term, sustainable value in European energy market.
- In a further development in its strategic focus, the Company confirms that it has identified various near-term investment opportunities within the low-carbon space, including renewable energy, circular economy and energy storage and transfer.
- Target acquisitions under review are consistent with the Company's goal of acquiring cash generative investments within the European energy market whilst broadening the target market and improving risk/reward.
- To support this increased focus within the low-carbon space, the Company announces the appointment of Mr. Muir Miller as an Independent Non-Executive Director, adding specialist experience to support this strategy development as Scirocco moves into the execution phase.
While the current portfolio remains a key focus of the Company as it progresses efforts to realise full value from those investments, the Board believes the evolution of its strategy will better enable long-term value creation for its shareholders. The additional areas of investment being screened represent a compelling market opportunity, with strategically consistent assets that complement Scirocco's ambitions to be part of the energy transition space, as the world looks to embrace a more sustainable energy future.
In particular, Scirocco is presently focused on three core areas of investment:
- Energy - assets which generate energy for sale as gas/biogas or power;
- Circular - assets which recover a valuable component of an industrial, municipal or agricultural waste stream for re-use, generally reducing system carbon footprint; and
- Vector - assets involved in the storage, transmission or delivery of energy within a low carbon context.
The Company's goal is to acquire a focused portfolio of cash generative assets within the sustainable energy and circular economy sector. By constructing a portfolio within this space, the Board believes it will offer shareholders and investors exposure to cash generative investments with an attractive risk/reward ratio within the sustainable energy ecosystem and the ability to deliver shareholder value through dividends and capital growth.
The Company is in advanced dialogue regarding its first transaction in the sustainable energy space through the acquisition of an energy generation asset and is actively progressing with the due diligence process. Whilst there is no guarantee that the transaction will complete, the Board is reassured by the progress to date and will update shareholders and the market in due course. Any investment will be conditional upon shareholder approval being obtained for a change in the Company's investing policy. Further updates on convening the necessary general meeting will be made as and when appropriate.
The Board will continue to consider compelling opportunities around natural gas given its prominent role within the energy transition as a bridging fuel. However, with an increased focus on business development within the low-carbon space, the Board is setting new targets based around total shareholder return on deployed equity within relevant assets rather than the previously set hydrocarbon production targets. Based on the pipeline of opportunities within its new area of focus, the Board is targeting an enterprise value invested asset base of £150 million, capable of generating cash flow of circa £20 million per annum, within five years.
Appointment of INED
As part of this strategy development, the Company has appointed Mr Muir Miller as an Independent Non-executive Director with immediate effect. He is a Chartered Engineer and Member of the Institution of Mechanical Engineers with over two decades of senior executive experience, with particular focus on the renewable energy sector. Most recently, Mr Miller was Managing Director of Peel Energy, part of the privately owned, diverse and entrepreneurial Peel Group, a leading infrastructure, transport and real estate investor in the UK, with collective investments owned and under management of more than £5 billion. Peel Energy is an agile low carbon development company that is active in a number of technology sectors with the capacity to develop, build, own and operate assets. During a 10-year period, Mr Miller lead a team that developed and sold £121 million of assets without requiring any long-term equity investment from Peel Holdings, clearing over £61 million in cash profit.
Prior to joining Peel Energy, he was Business Development Manager at Energy Power Resources, with an installed capacity of 113MW of dedicated biomass assets, 70MW of landfill gas assets, and 100 MW of wind assets in France, UK and Sweden. Between 2005 and 2007, Mr Miller was CEO of Novera Macquarie Renewable Energy, a joint venture with annual turnover of £32 million and one of the largest independent renewable energy operators in the UK with a total installed generating capacity of 117.5MW across 53 geographically diverse sites.
Mr Miller will chair Scirocco's Sustainability Committee which is in the process of being formed.
To coincide with the appointment of Mr Miller, and in line with Scirocco's commitment to cost discipline and maintaining an appropriately sized board, Mr Fitzpatrick has notified the Company of his intention to stand down from the Board and, in any event, that he will not seek re-election at the Company's annual general meeting this year. Mr Fitzpatrick has played an important role in the establishment of Scirocco and remains a material and supportive shareholder.
The Company continues to review its legacy portfolio, looking at the best way to maximise shareholder returns with the existing assets representing significant as yet unrealised value.
The recently completed transaction between Aminex and ARA Petroleum validates the commerciality of the Ruvuma project and brings in a well-capitalised and experienced operator to drive the project forward. ARA is presently progressing plans for the 2021 seismic acquisition programme including the tendering and contracting work and for the drilling of the Chikumbi-1 well in early 2022. Both of these activities will significantly advance the asset towards a final investment decision on field development which the joint venture aims to take in late 2022, targeting first gas by 2025. The Board looks forward to updating shareholders as progress is made on delivering the development programme at the Ntorya gas discovery in the Ruvuma PSA.
Scirocco continues to engage with multiple parties who have expressed interest in its non-operated stake in Ruvuma alongside the Company's wider Tanzania portfolio. A formal sales process covering the portfolio commenced in Q1 2020, as announced on 2 March 2020, following the confirmation by the Tanzania authorities of the licence extension. This process led the Company to execute non-disclosure agreements with interested counterparties who have reviewed the material available in the data room. Progress was delayed by the ongoing restrictions associated with COVID19 and the anticipated completion of the APT / AEX farm-in, which completed on 23 October 2020.
Following this, a revised work programme was submitted to the Tanzanian authorities and the activity path to progress the asset towards commercialisation has been agreed between the Joint Venture partners. These critical steps have been the trigger for re-engaging discussions and the Company is engaged in advanced dialogue with a number of interested parties on a sale of its Tanzanian natural gas assets. The Company continues to be the recipient of unsolicited expressions of interest and has received a number of indicative proposals for its Tanzanian assets which it is considering. Whilst there is no guarantee that any divestment transaction will complete, the Board is extremely encouraged with the progress of discussions and will update shareholders and the market in due course.
Commenting on the update, Alastair Ferguson, Chairman of Scirocco, said:
"Both the energy and capital markets have changed considerably since this Board set its original strategy around European Energy almost two years ago. The combination of an abundance of compelling opportunities and wider investor appetite in the low-carbon space with an improved risk-reward ratio has resulted in us increasingly focusing our business development in this area. We are presently screening a pipeline of opportunities around which we believe we can grow the business and deliver sustainable shareholder value underpinned by steady cash flow, reliable dividends, and a positive ESG story. Scirocco is wholly supportive of energy transition and it is our ambition to be a part of that long-term movement.
We retain investments in hydrocarbons, notably our 25% interest in the world class Ruvuma gas discovery in Tanzania and continue to progress discussions as we seek to unlock and realise the inherent value of that investment.
With regards to the Board changes, we thank Jon for his considerable contribution to the Company in recent years which has been pivotal in stabilising the business and getting it to a position where we can deliver long-term growth. We welcome Muir to our Board and look forward to adding his experience to the pool of renewables experience we possess. Muir has a proven track record of strategic direction, business plan execution and successful delivery of low carbon assets, so we will benefit from his considerable experience as we progress our strategy within this area. Muir will head up our newly established Sustainability Committee that will be responsible for developing an effective ESG strategy that supports our growth ambitions."