Egdon to Sell Interest in Avington Field
Egdon reported that its wholly owned subsidiary Egdon Resources Avington Limited ("ERA") has reached agreement to sell a 10% interest in the Avington oil field under license PEDL070, for £400,000 in cash.
Under the transaction, ERA has agreed to sell a 5% interest to IS E&P Limited and a further 5% interest in the license to IS NV Limited (together the "IS Companies"). The consideration payable by each of the IS Companies for their respective 5% interests will comprise £200,000 in cash payable on completion and the assumption of their pro-rata shares of a Net Profit Interest ("NPI") payable to Heyco Energy Holdings S.L. The NPI varies between 5 and 10% dependent upon oil price. The effective date of the transaction is June 1, 2011.
The transfers of interest are subject to approval by the Department of Energy and Climate Change.
Prior to the transaction ERA held a 16.67% interest in PEDL070. Egdon Resources U.K. Limited also holds a further 20% interest in the license meaning that on completion Egdon will retain an aggregate 26.67% interest in the license and the Avington oil field.
The Avington oil field is located in the County of Hampshire and is operated by Star Energy Oil UK Limited. Oil is currently produced from the Jurassic age Great Oolite reservoir from two wells, Avington-2Z and Avington-3Z. Production averaged approximately 70 barrels of oil per day in June 2011.
The sale will reduce Egdon's daily production by a maximum expectation of 7 barrels of oil per day and reduce its Proven and Probable reserves by an estimated 23,000 barrels of oil. The contribution to net profit from the 10% interest for the eleven months to end June 2011 after depreciation and amortization was £18,500 before tax (unaudited). The gross cash flow from the interest for the same period was £58,000 (unaudited). The carrying value of the asset sold as at June 30, 2011 was £422,390 (unaudited).
The proceeds of the sale, which will total £400,000 payable on completion, will be utilized on Egdon's active UK and French exploration, appraisal and development program where the Company believes it can generate a better return on investment.
The IS Companies are private companies involved in oil and gas exploration and production. InfraStrata is a 50% shareholder in both companies although both companies have independent boards. Egdon directors Ken Ratcliff and Walter Roberts are also directors of InfraStrata plc and Walter Roberts and John Rix have shareholdings in the IS Companies. As such an independent committee of Egdon directors comprising Philip Stephens, Alan Booth and Mark Abbott was set up to consider the offers and negotiate and approve the transaction.
Commenting on the sale Egdon's Managing Director Mark Abbott said, "These transactions realize a significant proportion of our expected future value from the transferred interest in cash at a time of strong oil price. Egdon believes it can utilize this cash on its higher potential projects in the UK and France to provide a better return for shareholders. We still retain a material interest in the Avington field and any upside which may be realized from future drilling".
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