Coro Energy plc, the Southeast Asian focused upstream oil and gas company, is pleased to announce that the Group has entered into a conditional sale and purchase agreement (the “SPA”) with Zenith Energy Ltd (“Zenith”) for the proposed disposal by Coro of its entire Italian Portfolio for a total consideration of £3.9 million (the “Disposal”).
The Disposal follows confirmation by the Company, in its H1 2019 interim results published on 12 September 2019, that Coro was firmly committed to its South East Asian growth strategy and that the Coro Board had, at that time decided to prioritise the divestment of the Group’s non-core Italian operations.
The initial £0.4 million consideration for the Disposal, payable by Zenith to the Group on Completion, will be settled through the issue of 6.7 million new Zenith Shares at an effective issue price of 6.0 pence per Zenith Share. Subject to the Italian Portfolio being disposed of achieving average daily production of 100,000 scm over a period of four successive months, a deferred consideration payment of £3.5 million will be made by Zenith to the Group through the issue of new Zenith Shares at an effective issue price equal to a 40% premium to the then prevailing Zenith share price at the time of issue.
Completion of the Disposal is conditional on, inter alia, the passing of the Resolution at the General Meeting and the approval of the Italian Ministry of Economic Development.
James Menzies, Coro’s Chief Executive Officer, commented:
“As the Company continues to focus on the investment opportunities in South East Asia, the disposal of our Italian portfolio removes non-core assets and streamlines our geographic focus. The Italian portfolio requires significant management time and capital expenditure to sustain its production and in-line with our stated strategy, we believe that focusing our resources on the rapidly growing South East Asian market will provide greater opportunity to maximise shareholder value.”
Background to, and reasons for, the Disposal
The Group continues to execute its South East Asian growth strategy following the acquisition of a 15% interest in the Duyung Production Sharing Contract (“PSC”) in the West Natuna basin, offshore Indonesia (which contains the Mako gas field) and the successful restructuring of the cash consideration payable in connection with the Company’s first deal in Indonesia – the acquisition of a 42.5% working interest in the Bulu PSC (which contains the Lengo gas field offshore East Java).
Completion of the Company’s acquisition of a working interest in the Bulu PSC was, as announced on 28 July 2019, conditional on, inter alia, joint venture pre-emption waiver (the “Waiver”) and regulatory government approvals (the “Approvals”) prior to a long stop date of 2 December 2019 under the Bulu acquisition agreement (the “Long Stop Date”).
The Company announced on 3 December 2019 that the parties to the Bulu acquisition agreement continue to progress the transfer of the participating interest in the Bulu PSC and that whilst the necessary Waiver had been received, receipt of the Approvals had been delayed. As a result, the Bulu Acquisition did not complete by the Long Stop Date. The Company confirms that the parties to the Bulu acquisition agreement are currently negotiating a further 6-month extension to the Long Stop Date to accommodate the additional time required for the Approvals to be received (the “Bulu Extension”) and intend to enter into the Bulu Extension as soon as is practicable. The Company will update Shareholders in relation to the Extension, as appropriate, in due course.
The Company was pleased to announce on 22 November 2019 that a planned two well appraisal programme at Duyung had been completed by the Duyung PSC partners, on time and within budget, and that the appraisal programme had confirmed, inter alia, the Mako field to be a simple, single gas tank system with the upper section of the reservoir demonstrating high permeability and good porosity sandstone. The valuable information collected from this appraisal campaign will be used to revisit the resource estimates for the Mako field and the Duyung PSC partners will be commissioning an independent assessment of resources, which are currently expected to be completed in Q1 2020.
In addition to progress at the Duyung PSC, the Group continues its business development activities in the region and the Directors see further opportunities for the Group to capture value and scale in South East Asia.
The Directors do not consider that the same opportunities currently exist for the Group in Italy, where recent legislation has imposed a ban on exploration activity in the country – greatly reducing the appeal of developing an Italian energy and projects business such as the Italian Portfolio held by Coro Europe.
Whilst the Italian Portfolio produces 100% of the Group’s current revenues (H1 2019: c.US$1.7 million), the currently producing assets in the Italian Portfolio have inherent production decline curves and Coro Europe will require investment to sustain and increase current levels of production.
The Board believes that incremental capital expenditure in South East Asia is a more value accretive use of the Group’s resources and, ultimately, has a greater possibility of generating greater returns for Shareholders than allocating additional capital to the development of the Italian Portfolio.
As a result, Coro Europe has become a non-core element of the Company’s portfolio and the Board has taken the decision to proceed with the Disposal.
Details of the Disposal
The Company’s wholly owned subsidiary, Cell A, has entered into a binding conditional sale and purchase agreement with Zenith for the Disposal by the Group of the entire issued share capital of Coro Europe, which holds the Group’s interests and liabilities in the Italian Portfolio.
The Disposal is conditional on, inter alia, the passing of the requisite Resolution at the General Meeting and receipt of necessary regulatory approvals including the approval of the Italian Ministry of Economic Development.
Under the SPA, the Consideration for the Disposal of Coro Europe will be £3,902,000, to be fully satisfied by:
(i) a payment of £402,000 to be settled by Zenith on Completion through the allotment and issue of 6,700,000 new Zenith Shares to Cell A (“Initial Consideration Shares”); and
(ii) subject to the average production of all hydrocarbon assets in which Coro Europe has an interest at Completion yielding not less than 100,000 scm/d of extracted product for a period of four consecutive months (the “Production Condition”), a further payment of £3,500,000 to be settled by Zenith on the first business day after satisfaction of the Production Condition through the allotment and issue of new Zenith Shares to Cell A as shall be calculated by dividing £3,500,000 by the London Stock Exchange plc closing price of Zenith Shares on such day plus 40% of such closing price (“Deferred Consideration Shares”).
The Initial Consideration Shares and the Deferred Consideration Shares will be subject to a six-month lock-in from issue. All proceeds received by the Group pursuant to any sale of the Initial Consideration Shares and/or the Deferred Consideration Shares, as proceeds from the disposal of the Italian Portfolio, must be retained within Cell A and its subsidiary companies pursuant to the security charge associated with Coro’s Eurobond issued in April 2019.
