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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
Code(s): SCL
Wrap Text

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 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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