Longboat Energy, established by the former management team of Faroe Petroleum plc to build a significant North Sea-focused E&P business, is pleased to announce it has reached agreement on a bilateral basis with three separate counterparties to acquire a significant, near-term, low-risk exploration drilling programme on the Norwegian Continental Shelf (“NCS”) structured as three farm-in transactions (together the “Farm-Ins” or the “Transactions”).
Longboat further announces its intention to carry out a proposed equity financing to raise gross proceeds of £35 million, to be conducted by means of a placing and subscription for new ordinary shares in the Company (the “Proposed Fundraising”). The net proceeds from the Proposed Fundraising will be used principally to finance the consideration for the Farm-Ins and costs associated with the high-impact drilling programme, as well as the acquisition of certain seismic data and general corporate costs.
The Transactions are classified as a reverse takeover pursuant to the AIM Rules for Companies and accordingly the Company's shares will be suspended from trading on AIM as of 7:30am today. The Company's ordinary shares will remain suspended from trading on AIM until such time as either an Admission Document setting out details of the proposed Farm-Ins is published or confirmation is given that the Transactions are not proceeding. Completion of the Farm-Ins and Proposed Fundraising are subject to approval by Longboat's shareholders at a general meeting to be convened in due course (the "General Meeting"). The Admission Document, which will include a notice of General Meeting, is expected to be issued following pricing of the Proposed Fundraising.
Highlights of the Proposed Farm-Ins
• High activity level: seven wells expected to be drilled in the next 18 months, with the first well expected to spud in Q3 2021 and a further three wells expected to drill before year-end;
• Significant resource potential: initial drilling programme targeting net mean prospective resource potential of 104 MMboe1 with an additional 220 MMboe1 of upside and follow-on prospectivity;
• Low cost, low risk portfolio: acquisition costs and drilling programme fully eligible for 78% Norwegian tax refund and Chances of Success in the range of 25-55%1 for all-but-one high-impact prospect;
• Norway delivering outstanding exploration results: Norwegian success rates of almost double global rates in 2020, year-to-date in 2021 at 70%2;
• Matches Longboat’s ESG objectives: a gas-weighted portfolio with all prospects within tie-back distance to existing infrastructure with the potential to reduce emissions per barrel produced and contribute positively to decarbonisation projects; and
• Value creation: Net Asset Value (“NAV”) creation potential of over $1 billion1 based on precedent transactions on the NCS for development assets.
The three separate Farm-Ins have each been negotiated on a bilateral basis to create a tailored exploration drilling portfolio with a balanced risk/reward profile. The Farm-Ins are corner-stoned with a single, multi-licence deal with a major oil & gas company which is one of the most active and successful explorers on the NCS. The Farm-Ins
represent an opportunity to take advantage of cyclical budget cuts in the sector to accelerate Longboat’s first steps towards building a full-cycle E&P company. The high-quality nature of the portfolio is evidenced by the vendors retaining interests in six of the seven targets included in the Farm-Ins.
The consideration for the Farm-Ins will be settled via a cost carry by Longboat on behalf of the vendors and is fully eligible for the Norwegian tax refund system. The post-tax cost to Longboat of the carry element of the transaction is approximately $7.8 million ($35 million pre-tax), representing $0.07 per prospective boe on a post-tax basis.
Proposed Fundraising Highlights
Longboat announces its intention to carry out a Proposed Fundraising to raise gross proceeds of £35 million. The Proposed Fundraising will consist of a placing of new ordinary shares (the “Placing Shares”) in the Company to qualifying existing and new investors (the “Placing”) as well as a direct subscription for new ordinary shares in the
Company (the “Subscription Shares”) by certain directors, founders and senior management of Longboat (the “Subscription”).
The Placing is being managed by Stifel Nicolaus Europe Limited and DNB Markets, a part of DNB Bank ASA (the “Joint Bookrunners”). The Placing is being conducted through a bookbuild process (the “Bookbuild”). On the current timetable, the Company expects to close the Bookbuild no later than 8:00 am on 10 June 2021, but the Joint Bookrunners and the Company reserve the right to close the Bookbuild earlier or later, without further notice.
In addition, to support the financing of the Farm-Ins, Longboat has arranged a NOK 600 million (£52 million) Exploration Finance Facility (“EFF”) provided by SpareBank 1 SR-Bank ASA and ING Bank N.V. The EFF finances 74% of exploration expenditure, reducing the working capital Longboat requires to fund the exploration portfolio. The
EFF will be available for drawing from January 2022 until the end of 2023 with a final maturity in 2024.
The Proposed Fundraising and EFF, alongside existing cash resources and Norwegian tax refunds, will be used to finance the consideration costs of the Farm-Ins and initial seven wells in the drilling programme, as well as the acquisition of certain seismic data and corporate costs.
Temporary Suspension of Trading
The Farm-Ins constitute a reverse takeover in accordance with Rule 14 of the AIM Rules for Companies. A further announcement with full details of the Farm-Ins will be issued on completion of the Proposed Financing and an AIM admission document setting out, inter alia, details of the Farm-Ins (including a competent person's report) will be published on Longboat's website, along with a notice of general meeting. Accordingly, at the request of the Company, the Company's ordinary shares will be suspended from trading on AIM with effect from 7:30 am today and will remain so until either the publication of an AIM admission document or until confirmation is given that none of the Farm-Ins is proceeding.
The Company will release further announcements as and when appropriate.
Helge Hammer, Chief Executive of Longboat, commented:
“After Faroe was sold for c.$900 million in 2019, the management team formed Longboat to replicate that success. I am very pleased that Longboat is taking over where Faroe left off with a unique opportunity for shareholders to invest in a high-impact, low-risk, multi-well exploration drilling programme. Thanks to our excellent industry relationships, developed over many years of operating in the North Sea, we have negotiated three bilateral agreements to deliver a bespoke drilling programme. We look forward to a busy period of almost continuous drilling and frequent catalysts during the next 18 months.
“This represents a unique opportunity which accelerates Longboat’s ambition to build a full-cycle E&P company.” For the purposes of UK MAR, the person responsible for arranging for the release of this announcement on behalf of Longboat is Julian Riddick, Company Secretary.
The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018.