Mosman Sells 2% Royalty in its STEP Assets in NZ to Ridge Royalty Corp.
Mosman Oil and Gas Limited, the New Zealand (NZ) and Australia focussed oil exploration and development company, reported Tuesday that it has signed an agreement in respect of Mosman’s proposed acquisition of up to a 70 percent interest in the South Taranaki Energy Project (STEP) assets in New Zealand (STEP Acquisition) by selling a 2 percent royalty to Canadian based Ridge Royalty Corp. (Ridge) for $2.5 million (NZD 4 million or approximately GBP 1.68 million) (STEP Royalty).
The sale of the STEP Royalty for $2.5 million (NZD 4 million) provides funding for 40 percent of Mosman’s purchase of the recently announced STEP Acquisition. Mosman is also actively negotiating other funding alternatives to finance the balance of up to 70 percent of the STEP Acquisition. The remaining 30 percent of the STEP Acquisition is being acquired by WRDLS Pty Ltd.
The total consideration for the STEP Acquisition is $6.4 million (NZD 10 million or approximately GBP 4.2 million) to be paid in two tranches following the 5 pecent deposit which was paid by Mosman in early September. Mosman’s acquisition costs, based on 70 percent ownership, would be $4.5 million (NZD 7 million or approximately GBP 2.9 million), the first tranche being $3.1 million (NZD 4.9 million or approximately GBP 2.1 million) and the second tranche being $1.3 million (NZD 2.1 million or approximately GBP 0.9 million). As announced, Mosman intends to finance its share of the STEP Acquisition through a combination of existing cash, sale of a royalty on future production, debt, equity, and convertible securities.
STEP Royalty Highlights
- Ridge and Mosman have executed a binding agreement to record the terms and conditions of the STEP Royalty over the STEP assets. Mosman’s wholly-owned subsidiary Petroleum Creek Limited (PCL) will grant Ridge a 2 percent Gross Overriding Royalty on all production from the STEP assets accruing to PCL’s 70 percent interest in the STEP assets
- The STEP Royalty is conditional upon certain conditions precedent including:
- Execution of a Definitive Agreement by Sept. 30
- Mosman satisfying the conditions precedent for the STEP Acquisition from Origin
- Receipt of the required regulatory approvals from the NZ Government to grant the royalty
- Such other conditions as are customary for a transaction such as this
- In addition to the STEP Royalty, Mosman has granted Ridge a right of first refusal for a two-year term to acquire similar royalties on Mosman’s ten other current oil and gas projects in its Australia and New Zealand portfolio
The STEP Royalty is in addition to the NZ Government ad valorem royalty of 5 percent of net sales revenues, and certain inherited royalty rights previously granted by Origin to Swift Energy New Zealand Limited (Swift Energy) in 2007 when Origin acquired the STEP assets. The Swift Energy 10 percent royalties are not currently payable and they would only come in to effect once a production volume threshold is exceeded. This threshold volume is greater than the current 2P reserves and Mosman does not anticipate they will come in to effect in the near term, if at all. Swift Energy also has certain working interest buy back rights should the project meet certain milestones which have not yet been achieved, and these rights expire in November 2017. Based on current 2P reserve and 2C resource estimates*, and Mosman’s proposed operational activities, Mosman currently believes that Swift Energy’s buyback rights will expire before the threshold volumes are reached.
*Represents data supplied by Origin that has been subject to due diligence by Mosman.
The Chairman of Mosman, John W Barr, said: “We are delighted to have secured a large proportion of the funding for the STEP Acquisition, one which the Board sees great value in and believes will be transformational for Mosman. The sale of the STEP Royalty to Ridge is an effective funding mechanism as it delivers funding for our minimum target of 40 percent of the STEP Acquisition and does not involve any share dilution or debt. We continue to actively negotiate several other funding options to finance up to 70 percent of the STEP Acquisition. Mosman is also very pleased to have granted Ridge a right of first refusal to acquire similar royalties on Mosman’s other projects as this presents a means of potentially funding those in future.”
About Ridge Royalty Corp.
Ridge Royalty Corp is a Canadian corporation that is actively acquiring oil and gas royalties in the U.S., Australia and NZ.
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