Nighthawk, the US focused shale oil development and production company, announced that it has agreed with Running Foxes Petroleum, Inc. ("RFP") a settlement of Nighthawk's outstanding claims, an option to purchase RFP's remaining 25 percent working interest in the Jolly Ranch project, a buy-back of RFP's entire holding of 102,236,422 shares in Nighthawk (the "RFP Holding") and the placing and direct subscription of, in aggregate, an equal number of new ordinary shares with existing investors and institutional investors.
Settlement - Key Points
- All existing Nighthawk claims on RFP under the terms of the Purchase and Sale Agreement ("PSA") dated Jan. 23, 2012 and the Joint Operating Agreement ("JOA") to be settled by a cash amount, an option to purchase RFP's remaining 25 percent working interest in the Jolly Ranch project and a waiver of certain amounts potentially owed by Nighthawk to RFP under the PSA
- The Company has conditionally purchased the RFP Holding for a total consideration of $4.14 million (GBP 2.56 million), at a price of 2.5 pence per ordinary share. These shares will be cancelled following their purchase. RFP will retain $2.30 million (GBP 1.42 million) of this consideration and the balance of $1.84 million (GBP 1.14 million) will be returned to Nighthawk
- The purchase of the RFP holding will be funded by the placing and direct subscription of, in aggregate, 102,236,422 new ordinary shares (the "New Shares") (the "Placing and Subscription"). Pursuant to the Placing and Subscription, the New Shares have been subscribed by existing investors and new institutional investors for a total consideration of $6.62 million (GBP 4.09 million), at a price of 4 pence per share
- The additional cash raised by the Placing and Subscription over the $4.14 million (GBP 2.56 million) required for the purchase of the RFP Holding will be used for further drilling and development work at Jolly Ranch
- As a result of the settlement, the purchase of the RFP Holding and the Placing and Subscription, Nighthawk will receive total cash of approximately $4.33 million (GBP 2.67 million)
Purchase Option - Key Points
- As part of the settlement RFP has granted Nighthawk an exclusive nine month option to purchase its remaining 25 percent interest in the Jolly Ranch project
- The option may be exercised at any time by Nighthawk
- The purchase price relates to the period during which the option is exercised:
- 0-4 months $10 million
- 4-6 months $11 million
- 6-9 months $12 million
- All costs and revenues relating to RFP's working interest accrue to Nighthawk during the option period
Share Buy-back and Placing and Subscription - Key Points
- RFP received the RFP Holding as part consideration for the sale in January 2012 of a 25 percent working interest in the Jolly Ranch project in Colorado, USA to Nighthawk
- The RFP Holding represents approximately 13.6 percent of the Company's current issued share capital
- The shares were subject to a lock-in agreement between RFP, Westhouse Securities Limited and the Company which extended until Jan. 23, 2013
- As part of the settlement arrangements Nighthawk has conditionally agreed to buy back the RFP Holding at a price of 2.5 pence per share
- The buy back of the RFP Holding requires shareholder approval at a general meeting of shareholders ("GM"), which is expected to be held on or about 26 October 2012. Prior to the GM, RFP shall waive all voting and dividend rights attaching to the RFP Holding. Upon receiving shareholder approval for the repurchase, the shares will be cancelled and there will be no dilution of shareholders' interests from the overall transaction
- Pursuant to the Placing and Subscription, the New Shares have been subscribed by existing shareholders and new institutional investors at a price of 4 pence per share
- A circular containing full details of the proposed buy back of the RFP Holding and notice of the GM which is expected to be held on or about Oct. 26, 2012 will be posted within the next few days
The Board of Nighthawk believes that this timely settlement of the numerous and complex issues with RFP is a significant step forward for the Company and its shareholders. The potential value of claims resulting from the audit process is unknown, but the time and resources required to pursue these claims would be considerable, with no guarantee of success.
The settlement adds substantially to the Company's cash reserves and enables Nighthawk to plan for additional drilling and work in 2012. Management and financial resources are freed up and a better future relationship with RFP is anticipated.
The nine month option to purchase RFP's remaining 25 percent working interest in Jolly Ranch provides time for Nighthawk to evaluate the results of its current drilling and development plans. The Board anticipates that if these plans are successful, the value of the Jolly Ranch acreage is likely to increase, adding value to the purchase option. In addition, the arrangement effectively gives Nighthawk full control over Jolly Ranch over the nine-month period, and puts the Company in an ideal position to consider farm-out and other deals with interested third parties.
Stephen Gutteridge, Chairman of Nighthawk, commented:
"Settlement of the outstanding issues with Running Foxes has many advantages. In particular, we will ensure that the extra cash now available is invested in Jolly Ranch, maintaining the momentum of our current development plans, and potentially adding more new wells to our 2012 program. We also believe that the option arrangement, with a purchase price range of $110 to $130 per gross acre, offers significant opportunity for value enhancement."