Acquisition of 75% Shareholding in Precision Energy

04 Dec 2018

Sirius Petroleum Plc

(“Sirius” or the “Company”)

Acquisition of 75% Shareholding in Precision Energy

Provides access to near-term production growth and low risk exploration potential

Complementary asset opportunity located adjacent to Ororo

Sirius Petroleum (AIM: SRSP), the Nigeria-focused oil and gas development and production company, is pleased to announce that it has entered into a conditional sale and purchase agreement with Precision Energy Group (“PEG”) to acquire a 75% shareholding in Precision Energy Tetra 109 (BVI) Ltd ( “Sirius JV” or the “Acquisition”, respectively), a wholly owned subsidiary of PEG. Sirius JV has in turn conditionally agreed to acquire a direct 40% equity and up to 80% economic interest in Tetrarch Limited (“Tetrarch”) from Tetrarch Holdings Limited (together with the Acquisition, the “Transactions”).



Bobo Kuti, CEO of Sirius, said: “The proposed acquisition would be a significant addition to the Sirius portfolio and we look forward to working with the co-owners of the asset and our operational partners to boost production on the Ejulebe field. We are also excited to explore the EJ-WSW prospect, which, if successful, could potentially add material reserves.”


OML 109

OML 109 is an Oil Mining Licence in shallow waters offshore Nigeria, initially awarded in 1991 as an Oil Prospecting Licence to Atlas Petroleum Ltd under the indigenous sole risk fiscal regime and as such has no government participation. In 1996 it was successfully converted to OML109, and in 2017 the licence was formally extended by the Nigerian government for a period of 20 years.


OML 109 is located approximately 30km due south of OML 95, where the Ororo field is located. Encompassing 191,000 acres or 773 square kilometres, the OML 109 block has only been addressed with three exploration wells in its entire history, the first in 1966. Extensive oil and gas infrastructure exists in and around the block, including that of the Ejulebe field.


The Ejulebe field comprises some 15 hydrocarbon-bearing horizons, producing oil, associated and non-associated gas (including condensate). The field has produced approximately 14 mmbbls since 1998, is currently producing c.250 bbl/d and has gross remaining 2P reserves of 4.7 mmbbls, according to the CPR.


The EJ-WSW and EJ-SW exploration prospects, which according to the CPR contain respectively gross unrisked P50 prospective resources of 32-38 mmboe and 32-53 mmboe are close to the Ejulebe field and are expected to have similar reservoir characteristics to the Ejulebe field.


The wider OML 109 “Joint Exploration and Development Area” contains prospects and leads that have been ascribed gross unrisked P50 prospective resources of 266mmboe, according to a Resource Review completed by Panterra Geoconsultants in February 2018.


OML 109 ownership structure and the Transactions


The acquisition by Sirius JV of the interest in Tetrarch is conditional upon, among other things, Sirius having arranged for an initial US$40 million of debt funding, to be provided to Sirius JV by a third-party lender, necessary to fund the drilling and completion of the EJ-9 development well on the Ejulebe field, together with 1 workover on an existing well (together “Stage A MWPC”) and one exploration well under the MWPC (“Stage B MWPC”). If the conditions are not satisfied within 45 days of signing, the Transactions will not proceed.


Following completion of the Transactions, Sirius JV’s shares in Tetrarch will be held in escrow, until the Stage A MWPC and Stage B MWPC are completed. If Stage A MWPC is not commenced within 90 days of the Transactions having completed, Tetrarch will have the right to terminate the Transactions. On completion of Stage A MWPC and Stage B MWPC Sirius JV will be entitled to a preferential cash flow of 80% of net revenues from Tetrarch for recovery of all approved costs funded by it pursuant to the MWPC with the balance shared pro-rata between all parties, then reverting to 40% following recovery of those costs with 60% going to the asset owners. If Stage A MWPC is completed, but Sirius JV does not spud the exploration well as set out in Stage B MWPC immediately after that, then all arrangements entered into between Sirius JV and Tetrarch in relation to OML 109 will terminate. These provisions are subject to Tetrarch’s sole risk rights. The MWPC is subject to approval by TPOS. Stage A MWPC and Stage B MWPC are budgeted to cost approximately US$40 million in aggregate for which Sirius will arrange a US$40 million debt facility for Sirius JV. Sirius estimates that, together with cash flows expected to be generated from Tetrarch, the US$40 million debt facility will be more than sufficient to cover both Stage A MWPC and Stage B MWPC. In the event of an overrun, further funding may be required to complete these stages of MWPC, in which case Sirius may be expected to procure such funding. The terms relating to such eventuality are to be included in the shareholders’ agreement between the parties, which is being negotiated.


In accordance with the above, Sirius has now signed a sale and purchase agreement to acquire a 75% stake in Precision Energy Tetra 109 (“Sirius JV”) from PEG and the interests being acquired by Sirius JV, implying a beneficial 30% equity interest in Tetrarch, for a nominal consideration of £1. Sirius is expected to arrange the funding required to finance the MWPC, amounting to at least US$40 million from a third-party funder with whom Sirius is in advanced discussions. If the conditions are not satisfied within 45 days of signing, unless such period is extended by the parties, the Acquisition will not proceed. For clarification, Sirius’ role with respect to the US$40 million debt financing is to source the debt financing and not to assume the debt liability itself, which will sit with Sirius JV.


The Acquisition is conditional, among other things, upon the acquisition of shares in Tetrarch by Sirius JV becoming unconditional (other than in relation to the provision of funding) and upon Sirius having arranged the US$40 million funding required to complete the acquisition of shares in Tetrarch by Sirius JV.


The obligations set out under the PSC and the MWPC are industry standard, and Sirius intends to procure petroleum services from third party service providers on behalf of Sirius JV and will obtain industry standard insurance before commencing any operations or making any material expenditures. On this basis, Sirius has provided a conditional parent company guarantee, under which, effective from the closing of the Transactions, Sirius will guarantee to Tetrarch prompt, faithful and full performance and payment of all obligations of Sirius JV under the MWPC in relation to the petroleum operations. If the closing of the Transactions does not take place within 45 days of signing then the Transactions will terminate, and the guarantee will automatically fall away.


The current owners of Tetrarch have advised Sirius that the losses attributable to the assets to be owned by Sirius JV for the six-month period ended 30th June 2018 are estimated to be US$750,000 (unaudited).


The Company is only able to ascribe a value to the Transactions which is equal to the consideration until such time that it is able to implement the Stage A MWPC. The Company will provide updates on the Acquisition and Transactions in due course. There can be no guarantee that the Acquisition and/or Transactions will complete.


Qualified Person Review

This release has been reviewed by and approved by Martin Richards MA (Oxon), MEng (Heriot-Watt), Subsurface Manager for Sirius Petroleum plc, who has over 30 years’ experience as a reservoir engineer in the oil industry and is a member of the Society of Petroleum Evaluation Engineers. Martin Richards has consented to the inclusion of the technical information in this release in the form and context in which it appears.


The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 (“MAR”). Upon the publication of this announcement via Regulatory Information Service (“RIS”), this inside information is now considered to be in the public domain.



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