InfraStrata plc (AIM:INFA), the independent petroleum exploration and gas storage company, announces today that it has re-organised its business and agreed to sell exploration based assets to focus on its strategic gas storage project in Northern Ireland. This will involve several steps through which if they all complete will result in the Company divesting itself of most of its exploration assets in exchange for £540,000 cash and retained interests in each of the assets without obligations for future investment in respect of those assets.
Background to and reasons for the divestment
Confirmation from Larne Oil & Gas Limited in August 2015 that they were unable to meet their funding obligations on the PL1/10 and P2123 licences in Northern Ireland, including the repayment of costs already incurred, has negatively impacted InfraStrata’s cash position in a challenging market environment. With upcoming expenditure commitments in 2016 across the portfolio of exploration assets, the Board determined that the transfer of substantially all future commitments associated with the exploration assets in exchange for cash consideration and a retained interest in the assets represented the best outcome for the Company and shareholders. This transaction will avoid dilution for shareholders through equity fundraising for the purposes of exploration and enable the Company to focus on the development and monetisation of its gas storage project in 2016.
Terms of the transactions
InfraStrata has signed Sale & Purchase Agreements (“S&P Agreements”) with Corallian Energy Limited (“Corallian”) and Osmington Holdings Limited (“Osmington”), a wholly owned subsidiary of Corallian. Corallian and Osmington are recently incorporated UK companies. Under the S&P Agreements, InfraStrata will transfer its entire interests in UK offshore licences P1918, P2222 and P2235 to Corallian, and its 40% shareholdings in Brigantes Energy Limited (“Brigantes”) and Corfe Energy Limited (“Corfe”) (which between them hold interests in UK licences P1918, P2123, PL1/10, PEDL201, PEDL 237, PL090 and PEDL070) to Osmington. The effective date for these transfers is 1 October 2015.
The transfer of licence P2235 involves an amendment of the Asset Exchange Agreement with Fyrd Energy Limited (“Fyrd”) announced on 16 December 2014 (the “Fyrd Agreement”) under which InfraStrata acquired a 25% interest in licence P2235. Under the revised Fyrd Agreement, Fyrd will transfer its remaining 75% interest in licence P2235 to InfraStrata and in exchange, InfraStrata will transfer its 22.5% retained interest in the rights and intellectual property in its former Portland project (which are held directly by InfraStrata rather than via a new project company as originally contemplated in the Fyrd Agreement), excluding the gas pipeline rights and associated intellectual property, to Fyrd. The entire P2235 interest to be held by InfraStrata will then be transferred under the S&P Agreements to Corallian. In addition, the Portland gas pipeline rights and associated intellectual property will be transferred by InfraStrata to Osmington as part of the S&P Agreements.
The total consideration payable immediately under the S&P Agreements is £240,000 plus a net profits interest (“NPI”) instrument in each of P1918, P2222 and P2235 of 4% of Corallian’s anticipated interest in the licence at the time of drilling the first well on the licences (0.5%, 0.5% and 1% respectively of the gross) plus a 4% share of any future profits derived by Osmington from its shareholdings in Brigantes and Corfe, again in the form of NPI instruments.
The NPIs will entitle InfraStrata to that share of any future profits from the licences or from Brigantes and Corfe without making any further investment. The NPI instruments may be traded and sold by InfraStrata.
In addition to the above, Corallian has also agreed to acquire from InfraStrata a fully carried 10% interest in both the PL1/10 licence and offshore licence P2123 in Northern Ireland, for a cash consideration of £300,000 (the “NI Agreement”). The NI Agreement is subject to conditions precedent, notably a successful outcome of the ongoing farm-out process, on terms currently being negotiated with interested parties, for the Woodburn Forest-1 well in Northern Ireland licence PL1/10 (further details of which are below). InfraStrata and Corallian are looking to conclude the NI Agreement by February 2016.
InfraStrata, together with Brigantes, are farming out a combined 60% interest in the PL1/10 licence in order to complete the funding for the Woodburn Forest-1 well. The Company is pleased to report that it has now signed an agreement, together with Brigantes, with Ermine Resources Limited (“Ermine”) whereby Ermine will acquire a 15% interest (paying 20% of the Woodburn Forest-1 well costs) in the PL1/10 licence, subject to the full well funding being completed. InfraStrata and Brigantes are in discussions with a number of other parties with regard to completing the farm-out process for the remaining 45% so that the well can be drilled this coming winter.
Following satisfactory completion of all the transactions above and in addition to the retained NPI instruments, InfraStrata’s business will comprise its 65% interest in the Islandmagee gas storage project in Northern Ireland and a 10% interest in onshore licence PL1/10, fully carried through the Woodburn Forest-1 well. InfraStrata will remain as operator on PL1/10 and will be compensated accordingly. The cash proceeds from the transactions will be applied to the ongoing work programme on the Islandmagee gas storage project in preparation for monetisation during 2016.
The Company is in the final stages of completing its 2015 work programme following the drilling of the Islandmagee-1 well for its gas storage project and is also in discussions with a number of interested parties in relation to monetisation of its interest in the asset. A further update on the gas storage project will be provided later in November as previously stated.
The historic net cash investment in the assets being disposed of by the Group was £281,477. The Board determined the total consideration payable by Corallian and Osmington under the S&P Agreements and the NI Agreement based on a cash equivalent for farm-in terms being negotiated with other parties for a 10% interest in the Northern Ireland licences and a typical industry 4% NPI on the other exploration assets. However, the payment under the S&P Agreements is not conditional upon the NI Agreement being concluded. Transfer of the licence interests will be subject to regulatory authority approvals.
Andrew Hindle is a Director of InfraStrata and has made an investment in Corallian, but holds less than 20 per cent. of its issued share capital. Andrew Hindle has not taken part in the InfraStrata Board’s consideration and approval of the transactions with Corallian and Osmington.
Commenting on today’s announcement, Ken Ratcliff, Chairman of InfraStrata said:
“ Market sentiment towards investment in oil and gas exploration has continued to be negative during 2015, none more so than for AIM listed companies, and this is reflected in share prices and the challenges associated with raising new capital to invest in exploration. The disposal of most of our exploration interests to Corallian enables us to secure future participation in these assets through a company that can focus upon attracting the necessary financial investment required to take the assets forward in 2016.
At the same time the transactions provide absolute clarity regarding the Company’s long stated strategy of not using its own cash resources to fund major exploration expenditure whilst in the process of monetising the gas storage project. No further investment is expected to be required by InfraStrata in the assets sold, but the Company retains an upside in the event of any successful exploration through the retained NPI instruments and a retained operated interest in licence PL1/10, subject to a successful completion of ongoing farm-out negotiations with third parties.
The cash consideration from the Corallian transactions will provide short term capital for our immediate working capital needs and allow InfraStrata to sustain and add value to the Islandmagee gas storage work programme into 2016, as the Company seeks to optimise the timing and nature in which value can be secured from the project for shareholders.”