Central Petroleum Ltd (Company or Central) announced Wednesday that it has signed an agreement to purchase the material onshore assets of Magellan Petroleum Australia (MPA) consisting primarily of the Palm Valley and Dingo fields in the Amadeus Basin near Alice Springs in Australia's Northern Territory for $31.5 million (AUD 35 million). The consideration will be paid as $18 million (AUD 20 million) cash and approximately 39.5 million shares in Central to MPA. Central will issue the shares and pay $13.5 million (AUD 15 million) of the $18 million (AUD 20 million) cash on completion. The balance of $4.5 million (AUD 5 million) is due to be paid April 15.
The acquisition also includes the significant in-place compression, processing and transportation infrastructure, 4 producing wells at Palm Valley and 2 existing wells ready for production at Dingo Field.
Central Petroleum Managing Director, Richard Cottee said, “The acquisition provides Central with infrastructure and production revenues, and synergies between its Surprise production and Palm Valley production which can also be utilized to support any exploration success in the future. As part of the acquisition Central will be offering employment to employees of MPA”.
Necessary third party consents have to be obtained before completion. The agreement is also subject to the usual financing provisions that a material adverse change event does not occur before completion. Completion is scheduled to occur in the beginning of March 2014 but must occur before March 31.
The cash component is to be paid out of a loan facility with Macquarie Bank. The Macquarie Bank Facility comprises of $18 million (AUD 20 million) for the acquisition and $27 million (AUD 30 million) for the development of the Dingo Field and construction of a 31 mile (50 kilometer) export pipeline to Alice Springs in order to service a gas sale contract with Power and Water Corporation of the Northern Territory. Details of this contract were announced by Magellan Petroleum Corporation (MPC) – the ultimate parent of MPA in the attached release. Importantly, however, this pipeline will be owned by the Company and available for transporting future gas reserves which the Company hopes will result from its current and significant exploration activity in the Amadeus Basin. The Macquarie Bank Facility requires Central to grant 15 million unlisted Central Petroleum options to Macquarie Bank, 6 million of which will be granted on completion. The options have an exercise price of $0.45 (AUD 0.50) with an exercise period of 30 months. On completion MPA has the right to nominate a director to Central’s board.
The Palm Valley and Dingo Field reserves, derived under the SEC rules required by the NASDAQ rather than the SPE-PRMS rules required by the ASX, have been reported by MPC on pages 12 and 13 of their 2013 Annual Report which can be found at their website (http://ir.magellanpetroleum.com/ar).
Cottee said, “Our base case for the acquisition gives an Equity IRR (geared) of 19 percent on the assumption that current BBSW interest rates remain constant, current contracted volumes and price for Palm Valley remain constant, no new gas contracts are entered into from the Dingo Field and no optimization or de-risking occurs. Central has already identified a range of optimization and market strategies that could materially enhance this return.
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