Coro Energy plc, the Southeast Asian focused upstream oil and gas company, is pleased to announce that the Group has entered into a conditional sale and purchase agreement (the "SPA") with Zenith Energy Ltd ("Zenith") for the proposed disposal by Coro of its entire Italian Portfolio for a total consideration of £3.9 million (the "Disposal").
The Disposal follows confirmation by the Company, in its H1 2019 interim results published on 12 September 2019, that Coro was firmly committed to its South East Asian growth strategy and that the Coro Board had, at that time decided to prioritise the divestment of the Group's non-core Italian operations.
The initial £0.4 million consideration for the Disposal, payable by Zenith to the Group on Completion, will be settled through the issue of 6.7 million new Zenith Shares at an effective issue price of 6.0 pence per Zenith Share. Subject to the Italian Portfolio being disposed of achieving average daily production of 100,000 scm over a period of four successive months, a deferred consideration payment of £3.5 million will be made by Zenith to the Group through the issue of new Zenith Shares at an effective issue price equal to a 40% premium to the then prevailing Zenith share price at the time of issue.
Completion of the Disposal is conditional on, inter alia, the passing of the Resolution at the General Meeting and the approval of the Italian Ministry of Economic Development.
A circular, which provides further details of the Disposal and includes a notice convening the General Meeting (the "Circular") will be sent to Coro Shareholders later today. A copy of the Circular will be available shortly from the Company's website at www.coroenergyplc.com.
James Menzies, Coro's Chief Executive Officer, commented:
"As the Company continues to focus on the investment opportunities in South East Asia, the disposal of our Italian portfolio removes non-core assets and streamlines our geographic focus. The Italian portfolio requires significant management time and capital expenditure to sustain its production and in-line with our stated strategy, we believe that focusing our resources on the rapidly growing South East Asian market will provide greater opportunity to maximise shareholder value."
Background to, and reasons for, the Disposal
The Group continues to execute its South East Asian growth strategy following the acquisition of a 15% interest in the Duyung Production Sharing Contract ("PSC") in the West Natuna basin, offshore Indonesia (which contains the Mako gas field) and the successful restructuring of the cash consideration payable in connection with the Company's first deal in Indonesia - the acquisition of a 42.5% working interest in the Bulu PSC (which contains the Lengo gas field offshore East Java).
Completion of the Company's acquisition of a working interest in the Bulu PSC was, as announced on 28 July 2019, conditional on, inter alia, joint venture pre-emption waiver (the "Waiver") and regulatory government approvals (the "Approvals") prior to a long stop date of 2 December 2019 under the Bulu acquisition agreement (the "Long Stop Date").
The Company announced on 3 December 2019 that the parties to the Bulu acquisition agreement continue to progress the transfer of the participating interest in the Bulu PSC and that whilst the necessary Waiver had been received, receipt of the Approvals had been delayed. As a result, the Bulu Acquisition did not complete by the Long Stop Date. The Company confirms that the parties to the Bulu acquisition agreement are currently negotiating a further 6-month extension to the Long Stop Date to accommodate the additional time required for the Approvals to be received (the "Bulu Extension") and intend to enter into the Bulu Extension as soon as is practicable. The Company will update Shareholders in relation to the Extension, as appropriate, in due course.
The Company was pleased to announce on 22 November 2019 that a planned two well appraisal programme at Duyung had been completed by the Duyung PSC partners, on time and within budget, and that the appraisal programme had confirmed, inter alia, the Mako field to be a simple, single gas tank system with the upper section of the reservoir demonstrating high permeability and good porosity sandstone. The valuable information collected from this appraisal campaign will be used to revisit the resource estimates for the Mako field and the Duyung PSC partners will be commissioning an independent assessment of resources, which are currently expected to be completed in Q1 2020.
In addition to progress at the Duyung PSC, the Group continues its business development activities in the region and the Directors see further opportunities for the Group to capture value and scale in South East Asia.
The Directors do not consider that the same opportunities currently exist for the Group in Italy, where recent legislation has imposed a ban on exploration activity in the country - greatly reducing the appeal of developing an Italian energy and projects business such as the Italian Portfolio held by Coro Europe.
Whilst the Italian Portfolio produces 100% of the Group's current revenues (H1 2019: c.US$1.7 million), the currently producing assets in the Italian Portfolio have inherent production decline curves and Coro Europe will require investment to sustain and increase current levels of production.
The Board believes that incremental capital expenditure in South East Asia is a more value accretive use of the Group's resources and, ultimately, has a greater possibility of generating greater returns for Shareholders than allocating additional capital to the development of the Italian Portfolio.
As a result, Coro Europe has become a non-core element of the Company's portfolio and the Board has taken the decision to proceed with the Disposal.
Details of the Disposal
The Company's wholly owned subsidiary, Cell A, has entered into a binding conditional sale and purchase agreement with Zenith for the Disposal by the Group of the entire issued share capital of Coro Europe, which holds the Group's interests and liabilities in the Italian Portfolio.
The Disposal is conditional on, inter alia, the passing of the requisite Resolution at the General Meeting and receipt of necessary regulatory approvals including the approval of the Italian Ministry of Economic Development.
Under the SPA, the Consideration for the Disposal of Coro Europe will be £3,902,000, to be fully satisfied by:
(i) a payment of £402,000 to be settled by Zenith on Completion through the allotment and issue of 6,700,000 new Zenith Shares to Cell A ("Initial Consideration Shares"); and
(ii) subject to the average production of all hydrocarbon assets in which Coro Europe has an interest at Completion yielding not less than 100,000 scm/d of extracted product for a period of four consecutive months (the "Production Condition"), a further payment of £3,500,000 to be settled by Zenith on the first business day after satisfaction of the Production Condition through the allotment and issue of new Zenith Shares to Cell A as shall be calculated by dividing £3,500,000 by the London Stock Exchange plc closing price of Zenith Shares on such day plus 40% of such closing price ("Deferred Consideration Shares").
The Initial Consideration Shares and the Deferred Consideration Shares will be subject to a six-month lock-in from issue. All proceeds received by the Group pursuant to any sale of the Initial Consideration Shares and/or the Deferred Consideration Shares, as proceeds from the disposal of the Italian Portfolio, must be retained within Cell A and its subsidiary companies pursuant to the security charge associated with Coro's Eurobond issued in April 2019.
Further key terms of the SPA are set out below.
Background to Zenith
Zenith is an international oil and gas production group, incorporated in Canada, listed on the TSX Venture Exchange (TSX-V: ZEE), the Standard segment of the Main Market of the London Stock Exchange (LSE: ZEN) and the Merkur Market of the Oslo Børs (ZENA:ME).
Zenith's strategy is defined by its focus on the acquisition and further development of proven onshore oil and gas fields where production has declined over time, but which hold significant untapped reserves and the possibility to produce sizeable volumes of oil and gas following investment in new field infrastructure, the application of modern production technology, and new management supervision. To maximise shareholder value, Zenith targets acquisitions of production opportunities that offer strong logistics and close proximity to refineries and pipelines. Zenith's management and directors have extensive financial and government experience and possess the technical knowledge to execute this strategy.
Zenith operates the largest onshore oilfield in Azerbaijan by cumulative acreage through its fully owned subsidiary, Zenith Aran Oil Company Limited, with an average daily production of 238 barrels per day and independently assessed proven + probable (2P) reserves of 30.6 million barrels of oil. Zenith also operates, or has working interests in, a number of gas production and exploration concessions in Italy with independently assessed 2P reserves of 16.3 BCF. Zenith's Italian operations also include the production of electricity and condensate.
Zenith's strategy is to identify and rapidly seize opportunities in the onshore oil & gas sector. Specific attention is directed to fields formerly controlled by oil majors and state oil companies. These assets often have significant untapped potential and the capacity to produce sizeable volumes of oil & gas with investment in technology and new management supervision.
Completion of the Disposal is conditional on, inter alia, the passing of the Resolution at the General Meeting of the Company. A Circular, which provides further details of the Disposal and includes a notice convening the General Meeting will be sent to Shareholders later today. A copy of the Circular will be available shortly from the Company's website at www.coroenergyplc.com.
The General Meeting is to be held at the offices of Watson Farley & Williams LLP, 15 Appold Street, London EC2A 2HB at 11:00 a.m. on 20 December 2019 at which a Resolution will be proposed to approve the Disposal.
If Shareholders do not pass the Resolution, Completion of the Disposal and issue of the Initial Consideration Shares will not proceed.
Recommendation and Voting Intentions
The Disposal constitutes a fundamental change of the Company's business for the purposes of Rule 15 of the AIM Rules and is therefore subject to the approval of Shareholders at the General Meeting.
The Directors consider the Disposal to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of the Resolution to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings of Ordinary Shares, representing approximately 1.55% of the Company's existing Ordinary Shares.
Terms defined in the Circular apply throughout this announcement, unless the context requires otherwise.
Zenith Energy Ltd., ("Zenith" or the "Company"), (LSE: ZEN; TSX.V: ZEE; OSE: ZENA-ME), the international oil & gas production company, is delighted to announce that it has signed a share purchase agreement ("SPA") with AIM quoted Coro Energy Plc ("Coro") for the acquisition of Coro's entire natural gas production and exploration portfolio in Italy ("Acquisition").
· The Acquisition will add material production to the Company's existing Italian operations, resulting in the creation of a significantly enlarged, revenue generating, low-risk production and exploration portfolio.
· Coro's Italian portfolio consists of 100% working interests in four producing natural gas concessions: Sillaro, Rapagnano, Casa Tiberi and Bezzecca, as well as one production concession which is development ready, S. Alberto. Two exploration concessions, Laura and Santa Maria Goretti complete the portfolio.
· The Acquisition will enable Zenith to increase gross production revenue in Italy by approximately 410% with an expected yearly gross revenue of approximately €3.6 million (equivalent to approximately £3.08 million; NOK 36.5 million or CAD$5.3 million).
· Zenith will become one of the largest natural gas production operators in Italy with a total cumulative production from its Italian portfolio of approximately 55,000 standard cubic meters per day ("scm/day") (approximately 322 barrels of oil equivalent "BOE" per day).
· The Acquisition assets generated €1.53 million in revenue (equivalent to approximately £1.31 million; NOK15.575 million or CAD$2.26 million) in the first six months of 2019 at an average cumulative production rate of 40,000 scm/ day (approximately 234 BOE per day).
· Independently assessed 2P reserves of 7.5 BCF as of January 1, 2018 (CGG Services (UK) Limited CPR - Reference No: BP512 - dated March 1, 2018).
· Production is expected to reach 113,000 scm/day following the completion of a series of targeted interventions planned during the next 6-9 months for which all necessary approvals have already been obtained.
· Consolidation of Italian portfolio will strengthen Zenith's credentials as a natural gas producer to support the acquisition of additional natural gas production assets in other regions, including Norway.
· Enhancement of Italian operational team with the addition of highly experienced technical management fully familiar with the domestic Italian energy production environment and the potential future productivity to be achieved from the Acquisition concessions.
· Zenith's significantly enhanced natural gas production activities in Italy are expected to give the Company increased relevance in the context of Italy-Azerbaijan natural gas industry cooperation in view of the imminent activation of the TAP (Trans Adriatic Pipeline).
Zenith and Coro entered into a conditional share purchase agreement in respect of the purchase of the entire issued capital of Coro Europe Limited by Zenith on December 2, 2019. The consideration for the Acquisition is payable in common shares in Zenith and is divided into two parts.
An initial £402,000 is payable at completion in common shares in the capital of Zenith ("Consideration Shares") at a price of £0.06 (equivalent to approximately NOK0.71 or CAD$0.10) per Consideration Share with a six-month hold period.
The second part of the consideration, up to £3.5 million, is also payable in shares at the closing price of Zenith shares on the issue date plus 40 per cent. of such closing price only in the event that production of natural gas extracted and recovered from the Acquisition's Italian assets exceeds an average of 100,000 scm/day over a period of four successive months (equivalent to approximately 590 BOE per day).
Completion of the Acquisition is conditional, inter alia, on the approval of sale by the Italian Ministry of Economic Development.
The Acquisition is also subject to final regulatory approval from the TSX Venture Exchange.
Andrea Cattaneo, Chief Executive Officer, commented:
"We are delighted to have signed this exciting SPA with Coro Energy. Upon completion of the acquisition, Zenith will have significantly enhanced its Italian operations with a material increase in revenue generation and natural gas production making it one of the leading natural gas producers in Italy.
There are a number of opportunities to increase production from current levels in the acquired assets through targeted relatively low-risk well interventions, also present in our existing Italian portfolio. Our newly enhanced technical team and financial resources will enable Zenith to apply renewed focus on its Italian portfolio.
We look forward to updating the market in due course regarding progress."