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Scl - Sacoil Agrees Farm In Agreement With Total In Respect Of Block Iii And

Release Date: 04/03/2011 13:03:03      Code(s): SCL
SCL - SacOil agrees farm in agreement with Total in respect of Block III and    
withdrawal of cautionary                                                        
SacOil Holdings Limited                                                         
Incorporated in the Republic of South Africa                                    
(Registration number: 1993/000460/06)                                           
Share code: SCL                                                                 
ISIN: ZAE000127460                                                              
("SacOil" or "the Company")                                                     
SacOil agrees farm in agreement with Total in respect of Block III and          
withdrawal of cautionary                                                        
1. Introduction                                                                 
The board of SacOil (the "Board") is pleased to announce that one of its        
subsidiaries, Semliki Energy SPRL ("Semliki"), a company incorporated in the    
Democratic Republic of Congo ("DRC"), has concluded a farm in agreement (the    
"Agreement") with TOTAL E&P RDC ("Total") pursuant to which Total will          
acquire a 60 per cent undivided interest in Block III (the "Block III Sale      
Interest") and will become the operator of Block III ("Operator"). The          
Government of the DRC, acting through the Minister of Hydrocarbons, has         
approved the Agreement and Total being appointed the Operator.                  
SacOil currently owns 50 per cent of the issued capital of Semliki which in     
turn holds the oil concession rights pertaining to Block III, Albertine         
Graben in the DRC ("the Block III Rights").                                     
SacOil and the other shareholder of Semliki, Divine Inspiration Group ("DIG")   
(collectively "the Initial Shareholders") have committed to transfer an         
aggregate 15 per cent shareholding in Semliki to the DRC government leaving     
the Initial Shareholders with an effective 85 per cent interest in Block III    
before the implementation of the Agreement.                                     
In terms of the Production Sharing Contract signed on 4 December 2007 (the      
"Block III PSC"), within 6 months of the issue of Presidential Ordinance        
approving the Block III PSC, the partnership between South Africa Congo Oil     
Company (Proprietary) Limited and the DRC national oil company, Cohydro         
(collectively the "Block III Contracting Party") was required to transfer the   
rights held by the Block III Contracting Party under the Block III PSC (the     
"Block III Rights") to a locally incorporated company. Presidential Ordinance   
approving the Block III PSC was issued in June 2010 and Semliki was             
established to hold the Block III Rights in November 2010.                      
2. Conditions of the Agreement                                                  
The principal outstanding conditions precedent to the Agreement, are as         
follows:                                                                        
- Total executive committee approval;                                           
- Completion to the satisfaction of Total of a due diligence investigation of   
the Block III interest;                                                         
- Completion of documents required to effect the Agreement; and                 
- Approval of the Agreement by a majority of SacOil shareholders in general     
meeting.                                                                        
It is expected that all conditions will be satisfied on or about 31 March       
2011 and consequently that completion will take place by that date.             
3. Background to Block III                                                      
In June 2010, the Honourable President Joseph Kabila, President of the DRC,     
and the Honourable Adolphe Muzito, Prime Minister of the DRC, issued and        
gazetted Presidential Ordinance No 10/042 approving the Block III PSC.          
Pursuant to the issue of the Presidential Ordinance the Block III PSC became    
of force and effect. As required by DRC law and the provisions of the Block     
III PSC, the Block III Rights were subsequently transferred to Semliki, a       
company incorporated in the DRC.                                                
Block III is located within the Albertine Graben area of the Rift Valley,       
close to the border between the DRC and Uganda. The Albertine Graben is a       
proven petroleum discovery region, containing mature bituminous shales, as      
evidenced by numerous oil seeps and recent positive drilling results in         
adjacent oil concessions.                                                       
Over 800 million barrels of recoverable oil have been discovered in the         
Albertine Graben, the largest fields being Kingfisher (200 million barrels)     
and Giraffe-Buffalo (300 million barrels). The total resource base is           
estimated at two billion barrels. To date, the majority of the exploration      
has been within the borders of Uganda, but the DRC concessions are considered   
to be highly prospective, with Block III being close to recent significant      
discoveries.                                                                    
Block III is 3,177 square kilometres in extent, and is situated mostly in low   
land (the Semliki river plain) flanked by rift margins. It has been             
identified as oil and gas prone with the main source kitchen believed to be     
below deeper parts of Lake Albert. It is considered possible that a smaller     
kitchen is located in the southern part of Block III. Furthermore, Kibuku oil   
seeps suggest that oil is likely to be found in the northern part of the        
block.                                                                          
4. Rationale for the Agreement                                                  
The Board has concluded that, in order to effectively explore and evaluate      
the oil deposits of Block III, it is necessary to form a relationship with a    
major international oil company which has the necessary financial capacity,     
technical skills and operating expertise to operate the asset. Following        
careful consideration of a number of potential participants, SacOil entered     
into detailed discussions with Total during 2010. These discussions have        
resulted in the conclusion of the Agreement.                                    
As a consequence of the Agreement, SacOil will be entitled to immediate gross   
cash proceeds in an amount of US$7.5 million, which will permit cash flow to    
be released which can be utilised to fund the Company`s Nigerian activities.    
SacOil will furthermore receive immediate cash proceeds in an amount of         
US$1.4 (net of costs in relation to Block III) in full and final settlement     
of a loan advanced to DIG in respect of, inter alia, the Block III Rights.      
Total shall also carry Semliki and DRC Government`s share of the Block III      
exploration costs (the "Carried Costs") from the date of Completion until the   
date on which a final investment decision is made to develop Block III,         
including, but not limited to, the approval of the field`s development plan     
and the conversion of the exploration license to a production license. (the     
"FID Date");                                                                    
Following the Completion of the Agreement SacOil will be significantly de-      
risked in terms of exploration, development and other costs.                    
Total, in its capacity as Operator, will use its reasonable endeavours to       
ensure that one exploration well is drilled by the Block III Contracting        
Party in Block III before 31 December 2012 (assuming Completion occurs before   
31 March 2011).                                                                 
5. Consideration                                                                
Initial consideration                                                           
In consideration for the Block III Sale Interest, Total shall make payment to   
Semliki in an aggregate amount of US$15.0 million (including compensation for   
Semliki`s back costs in an agreed amount of US$6.0 million) on Completion.      
Contingent consideration                                                        
Total shall also make payment to Semliki of the following:                      
a) A bonus payment of US$58.0 million at the FID Date; and                      
b) A further bonus payment of US$50.0 million at the date first production of   
petroleum in Block III occurs with a commercial purpose.                        
Should Total or an affiliate, within a period of five years from Completion,    
sell the Block III Sale Interest or part of thereof to a third party for an     
amount in excess of ten times the consideration (exclusive of Carried Costs)    
received by Semliki at the time ("Relevant Consideration"), Total will pay to   
Semiliki 50 per cent of the excess received over ten times the Relevant         
Consideration.                                                                  
6. Pro forma financial effects of the Agreement                                 
The table below sets out the unaudited pro forma financial effects of the       
Agreement on SacOil`s basic loss and diluted loss per share, headline loss      
and diluted headline loss per share, net asset value per share and tangible     
net asset value per share.                                                      
The unaudited pro forma financial effects have been prepared to illustrate      
the impact of the Agreement on the unaudited, published financial information   
of SacOil for the six months ended 31 August 2010, had the Agreement occurred   
on 1 March 2010 for income statement purposes and on 31 August 2010 for         
balance sheet purposes, adjusted for the the acquisition by SacOil, through a   
wholly owned Nigerian subsidiary, of a 20 per cent working interest in the      
OPL 233 licence in Nigeria ("the OPL 233 Acquisition") which was announced on   
7 December 2010, the issue of 46 666 666 SacOil Ordinary Shares to the Public   
Investment Corporation for cash amounting to R70 000 000 wich was announced     
on 21 February 2011 ("Issue to PIC"), the acquisition by SacOil, through the    
joint venture between SacOil and Energy Equity Resources Limited, of 20 per     
cent participating interest in OPL 281 under the OPL 281 Production Sharing     
Contract which was announced on 28 February 2011 ("OPL 281 Acquisition") and    
the the restructure of SacOil`s proposed investment in the Block III Rights     
and oil concession rights pertaining to Block I, Albertine Graben in the DRC    
("the Restructure") which was approved by Shareholders in general meeting on    
20 September 2010.                                                              
The pro forma financial effects have been prepared using accounting policies    
that comply with International Financial Reporting Standards and that are       
consistent with those applied in the audited, published financial statements    
of SacOil for the year ended 28 February 2010.                                  
The unaudited pro forma financial effects set out below are the                 
responsibility of the directors of SacOil and have been prepared for            
illustrative purposes only and because of their nature may not fairly present   
the financial position, changes in equity, results of operations or cash        
flows of SacOil after the implementation of the Agreement.                      
After OPL         
                                                              233               
                                                              Acquisition,      
                                                              the Issue to      
PIC and the       
                                              Before the      OPL 281           
                                             Transactions 1   Acquisition 2     
Loss per share (cents)                          (2.21)         (2.78)           
Diluted loss per share (cents)                  (2.21)         (2.78)           
Headline loss per share (cents)                 (2.21)         (2.78)           
Diluted headline loss per share (cents)         (2.21)         (2.78)           
Net asset value per share (cents)               13.39           29.86           
Tangible net asset value per share (cents)      13.39          (27.54)          
Weighted average  number of shares in issue                                     
(`000)                                          314 800        361 467          
Diluted weighted average number of                                              
shares in issue (`000)                          314 800        361 467          
Number of shares in issue (`000)                321 635        368 302          
                                          After OPL 233                         
                                          Acquisition, the                      
Issue to PIC, the                     
                                          OPL 281                               
                                          Acquisition, the                      
                                          Restructure and                       
the Agreement 3     % Change 4        
Loss per share (cents)                           (25.68)       (823.7)          
Diluted loss per share (cents)                   (25.68)       (823.7)          
Headline loss per share (cents)                  (6.78)        (143.9)          
Diluted headline loss per share (cents)          (6.78)        (143.9)          
Net asset value per share (cents)                 52.57          76.1           
Tangible net asset value per share (cents)       (32.53)       (18.1)           
Weighted average number of shares in issue                                      
(`000)                                           362 263         0.2            
Diluted weighted average number of                                              
shares in issue (`000)                           362 263         0.2            
Number of shares in issue (`000)                 369 098         0.2            
Notes:                                                                          
1. The "Before the Transactions" basic loss, diluted loss, headline loss and    
diluted headline loss per share have been extracted without adjustment from     
the unaudited, published results of SacOil for the six months ended 31 August   
2010. The "Before" net asset value and tangible net asset value per share       
have been calculated from the financial information presented in the            
unaudited, published results of SacOil for the six months ended 31 August       
2010.                                                                           
2. The "After the OPL 233 Acquisition, the Issue to PIC and the OPL 281         
Acquisition" assumes:                                                           
a. Payment by SacOil of 50 per cent of the US$0.3 million upon execution of     
the OPL 233 Farm in agreement, converted at 6.87 to US$1, being the closing     
rate on 3 December 2010, which has been capitalised in terms of IFRS 6:         
Exploration for and Evaluation of Mineral Resources;                            
b. A short-term obligation of 50 per cent of US$7.8 million, converted at       
R6.87 to US$1, in respect of that portion of the OPL 233 farm-in fee payable    
upon receipt of consent from the Federal Government of Nigeria for the Farm     
in and which have been capitalised in terms of IFRS 6: Exploration for and      
Evaluation of Mineral Resources;                                                
c. A long-term obligation of US$10.0 million, converted at R6.87 to US$1, in    
respect of SacOil`s 20 per cent share of the costs of the minimum work          
programme and which have been capitalised in terms of IFRS 6: Exploration for   
and Evaluation of Mineral Resources;                                            
d. The payment of transaction costs in respect of the OPL 233 Acquisition of    
R300 000;                                                                       
e. The issue of the 46 666 666 new SacOil Shares at 150 cents per SacOil        
share;                                                                          
f. The payment of transaction costs in respect of the Issue to PIC of           
R2 500 000.                                                                     
g. Payment by SacOil of 50 per cent of the initial amounts of US$8.75           
million, US$3.75 million and US$7.5 million in respect of the OPL 281 Farm in   
Agreement, converted at 7.12 to US$1, being the closing rate on 24 February     
2011, which has been capitalised in terms of IFRS 6: Exploration for and        
Evaluation of Mineral Resources;                                                
h. A long-term obligation of US$12.5 million, converted at R7.12 to US$1, in    
respect of the further farm-in fee and which has been capitalised in terms of   
IFRS 6: Exploration for and Evaluation of Mineral Resources; and                
i. The payment of transaction costs in respect of the OPL 281 Acquisition of    
R300 000.                                                                       
3. The "After the OPL 233 Acquisition, the Issue to PIC, the OPL 281            
Acquisition, the Restructure and the Agreement" assumes:                        
a. The adjustments detailed in note above;                                      
b. SacOil (Proprietary) Limited acquired the Block 3 Rights as a part of the    
Restructure and has been consolidated into SacOil as SacOil controls the        
management and decisions of SacOil (Proprietary) Limited. The Block 3 Rights    
held by SacOil (Proprietary) Limited were fair valued following the             
Restructure;                                                                    
c. Transfer of the Block III Interest to Total for a consideration of US$15.0   
million, converted at R6.88 to US$1.0, being the closing rate on 3 March        
2011. Due to its nature the Contingent Consideration has not been raised in     
respect of the Agreement as the probability of the Contingent Consideration     
materialising cannot be measured realiably at this stage;                       
d. A loss on implementation of the Agreement of R68.4 million by SacOil and     
the allocation to outside shareholders of their share of the loss on            
implementation of the Agreement amounting to R68.4 million;                     
e. Settlement of the loan to DIG amounting to R12.6 million through the         
receipt of R9.9 million (US$1.4 million converted at R6.88 to US$1, being the   
closing rate on 3 March 2010) from DIG in cash and capitalisation of costs      
amounting R2.7 million; and                                                     
f. The payment of transaction costs of R4.2 million relating to the Agreement   
including the settlement of an amount of R1.7 million due to Renaissance BJM    
(Proprietary) Limited ("Renaissance"), in part settlement of the fee due to     
Renaissance for advisory services rendered in respect of the Agreement and      
which will be settled through the issue of 796 577 SacOil ordinary shares       
based on the closing price of SacOil`s ordinary shares on the JSE on 3 March    
2011 of R2.16. The payment of the advisory fees due to Renaissance through      
the issue of SacOil ordinary shares constitues a specific issue of shares for   
cash in terms of the JSE Listings Requirements, details of which will be        
announced in due course.                                                        
4. Measured as the "After the OPL 233 Acquisition, the Issue to PIC, the OPL    
281 Acquisition, the Restructure and the Agreement" column as a percentage of   
the "After the OPL 233 Acquisition, the Issue to PIC and the OPL 281            
Acquisition" column.                                                            
7. Documentation                                                                
The Agreement is classified as a Category 1 transaction in terms of the JSE     
Listings Requirements and, accordingly, a circular will be posted to            
shareholders in due course.                                                     
8. Withdrawal of cautionary announcement                                        
Further to previous announcements, the last of which was made on 16 February    
2011, SacOil shareholders are no longer required to exercise caution when       
dealing in their SacOil securities.                                             
Bryanston                                                                       
4 March 2011                                                                    
Sponsor                                                                         
BDO Corporate Finance                                                           
Corporate Adviser                                                               
Renaissance BJM Securities (Proprietary) Limited                                
Legal Adviser                                                                   
Deneys Reitz Inc                                                                
Contacts                                                                        
SacOil                                                                          
Robin Vela, Chief Executive Officer                                             
Tel: +27 (0) 11 575 7232                                                        
Tavistock (Public Relations)                                                    
Jonathan Charles / Jos Simson                                                   
Tel: +44 (0) 20 7429 6666                                                       
The Riverbed Agency                                                             
Raphala Mogase                                                                  
Tel: +27 (0) 11 783 7903                                                        
About SacOil                                                                    
SacOil is listed on the JSE Limited ("JSE") under the Oil and Gas subsector     
and has a current market capitalisation of approximately R1.5 billion (some     
GBP130.0 million).                                                              
SacOil`s core strategy is to become a leading independent African upstream      
oil & gas company with a balanced portfolio of Pan-African assets. SacOil`s     
interests are in all phases of the upstream cycle - exploration, appraisal      
and near production and are currently in the DRC and Nigeria.                   
On 7 December 2010 the Company announced its first near production deal with    
Nigdel United Oil Company Limited to acquire a 20 per cent working interest     
in the OPL 233 licence. Oil concession block OPL 233 is located immediately     
off the coast of the central delta region of Nigeria and adjacent to the        
giant Apoi field (>600mmbbls).                                                  
On 1 March 2011 the Company announced its second near production deal with      
Transnational Corporation of Nigeria PLC of Nigeria ("Transcorp") to acquire    
a 20 per cent participating interest in the OPL 281 license. Oil concession     
block OPL 281 is located onshore in the western delta region of Nigeria and     
adjacent to the widely publicised Shell divestment block OML 42.                
About Total S.A.                                                                
Total S.A. is a leading multinational energy company with operations in more    
than 130 countries. Together with its subsidiaries and affiliates, Total S.A.   
is the fifth largest publically traded integrated international oil and gas     
company. Total S.A. engages in all aspects of the petroleum industry,           
including upstream operations (oil and gas exploration, development and         
production, LNG) and downstream operations (refining, marketing and the         
trading and shipping of crude oil and petroleum products). Total S.A. is also   
a major act player in chemicals (base and speciality chemicals).                
The Total S.A. global exploration expenditure budget for 2010 amounts to        
US$1.8 billion. The Total S.A. strategy for exploration involves developing     
partnerships with industry players who have already identified resources, the   
acquisition of resources and the establishment of partnerships with host and    
national companies.                                                             
Date: 04/03/2011 13:03:02 Supplied by www.sharenet.co.za                     
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