Sirius Petroleum (AIM: SRSP), the Nigeria-focused oil and gas development and production company, has 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 or 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”)
Tetrarch is an 80% shareholder in Tetra Energy Services Limited (“Tetra”), which wholly owns Tetra Petroleum Oilfield Services Ltd. (“TPOS”). TPOS has entered into a petroleum services contract (“PSC”) to provide certain petroleum services to the owners of the license known as OML 109.
Once the Transactions are completed and after recovery of its costs, Sirius will hold an effective indirect economic interest in the cash flows or TPOS through its economic interest in Tetrarch.
Subject to completion of the Transactions, Sirius JV intends to provide petroleum services to Tetrarch and therefore TPOS in relation to the PSC in which Sirius and its operational partners expect to take an active role in providing such services.
There is only nominal consideration on the Acquisition, which is conditional upon, among other things, Sirius sourcing for Sirius JV US $ 40 million or external debt funding, to be provided by a third-party funder, to be deployed minimum work program commitment (“MWPC”) on the Ejulebe field, producing a location in the North East corner of OML109. Sirius is in advanced discussions with a third-party funder for the provision of the required US $ 40 million debt funding, which is intended to be secured directly from the cash flows generated as a result of the Ejulebe MWPC.
The MWPC is designed to boost current production on the Ejulebe Field from around250 barrels of oil per day (“bbls / d”) to over 5,000 bbl / d, by providing for:
- Stage A – MWPC: workover on 1 existing well and new development well, EJ-9 and, at Sirius JV’s option, 2 additional work-overs or side-tracks of existing wells.
- Stage B – MWPC: 1 exploration well on the EJ-WSW prospect – the CPR prepared by PanTerra Geoconsultants, December 2017 (“CPR”) has attributed gross unrisked P50 resources or 32-38 mmboe.
EJ-WSW is located in close proximity to the Ejulebe field and the CPR notes that it is expected to have similar characteristics to the Ejulebe field. In addition, Ejulebe production facilities would allow fast-track development for early cash flow in the event of commercial discovery, and potential monetization of gas resources in accordance with the Nigerian government’s stated objectives. The CPR has a 51% Chance of Commerciality to the EJ-WSW exploration well.
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 eager to explore the EJ-WSW prospect, which, if successful, could potentially add material reserves.
OML 109 is an Oil Mining License in shallow waters offshore Nigeria, which was awarded in 1991 as an Oil Prospecting License 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 license was formally extended by the Nigerian government for a period of 20 years.
OML 109 is located approximately 30km due south or 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 includes some 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 or 4.7 mmbbls, according to the CPR.
The EJ-WSW and EJ-SW exploration prospects, which are according to the CPR container respectively gross unrisked P50 prospective resources or 32-38 mmboe and 32-53 mmbs 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 unanimated P50 prospective resources or 266mmboe, according to a Resource Review completed by Panterra Geoconsultants in February 2018.
OML 109 ownership structure and the Transactions
- Current owners of OML 109 since 1996 are Atlas Petroleum International Limited (“Atlas”) (70%) (Operator) and Summit Oil & Gas Worldwide Ltd (“SOGW”) (30%).
- Atlas and SOGW have entered into the PSC with TPOS, wholly owned subsidiary of Tetra (owned by Tetrarch 80% and Fomak Limited 20%), related to the exploration, development and production of hydrocarbons from OML 109. Tetra is an indigenous oil services company that provides the services to date.
- Sirius JV has agreed to acquire a 40% equity interest in Tetrarch from Tetrarch Holdings Limited for nominal consideration, and is intended to provide services to Tetrarch in relation to the PSC. This acquisition is not subject to any governmental consent, but compliance with local content regulations will be required.
- Sirius will secure its 30% beneficial equity interest in Tetrarch through the acquisition of 75% of Sirius JV.
The acquisition by Sirius JV of the interest in Tetrarch is conditional upon Sirius JV by a third-party lender 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 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 commended 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 a 60% going to the asset owners.
If Stage A MWPC is completed, but Sirius JV does not spud the exploration as well as set out in Stage B MWPC immediately after that, then all arrangements 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. Internship A MWPC and Internship 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.