ROC has agreed to acquire ARC Energy's 7.5% interest in WA-286-P, which contains the Cliff Head Oil Field in the northern part of the offshore Perth Basin. The consideration to be paid by ROC consists of an initial payment of A$9 million cash and additional payments up to a maximum of A$3.75 million, subject to certain reserve levels being achieved. The Effective Date of the Agreement will be April 1, 2003 and the transaction is subject to receipt of relevant government approvals and finalization of formal documentation.
The principal terms of the agreement are:
- Upon receipt of relevant Government approvals, ROC will provide ARC with an initial cash payment of A$9 million.
- Upon declaration of commerciality subsequent to completion of Front End Engineering Design studies ("FEED"), expected in 1Q04, ROC will provide ARC with a further cash payment of up to A$2 million, the precise magnitude of which will be linked to the proved and probable recoverable reserve estimates for the Cliff Head Oil Field as determined by an Independent Expert at that time. Specifically:
-For reserves less than 19 MMBO - no additional payment
-For reserves between 19 and 22 MMBO - A$1 million additional payment
-For reserves equal to or greater than 22 MMBO - A$2 million additional payment
-Any shortfall of this second cash payment below A$2 million would be payable if the initial 2P reserves are subsequently calculated by an Independent Expert to be at least 28 MMBO after at least nine months of production from Cliff Head.
- ROC will provide ARC with a third cash payment of up to A$1.75 million subject to one of the following events occurring prior to 1 April 2007, whichever is earlier:
-A new field discovery being declared commercial within WA-286-P.
-Initial 2P recoverable reserves at Cliff Head of at least 28 MMBO as calculated by an Independent Expert at a point in time at least nine months after production start-up at Cliff Head, subject to the WTI oil price averaging at least US$16/barrel during the first nine months of production.
- The Effective Date of the Agreement will be 1 April 2003.
- The transaction is subject to receipt of relevant government approvals and finalization of the formal documentation.
Discovered at the end of 2001, the Cliff Head Oil Field was successfully appraised during the following 14 months by three wells, two of which cored the reservoir and one of which conducted a production test that flowed at stabilized rates up to 3,000 BOPD, constrained by surface facilities, via an electrical submersible pump. The field, which covers about 6 sq km/1,500 acres, has a maximum vertical relief of approximately 100 meters and is situated approximately 11 km off the Western Australian coastline in 16 meters of water. The 33° API oil is somewhat waxy and viscous and, in broad terms, comparable to other crudes presently being produced in the adjacent onshore part of the northern Perth Basin. Pre-development studies are currently underway with the expectation that they will be completed during 3Q03 which, if the results are positive, would see Front End Engineering and Design ("FEED") studies initiated immediately thereafter with a completion date scheduled for 1Q04 and a target date for first oil production of 2005.
Commenting on the acquisition, ROC's Chief Executive Officer, Dr John Doran, stated that:
- "Win-win" is a grossly overused expression, but it is hard to think of a better way of describing this transaction. ROC gets to consolidate one of its core operated assets while ARC strengthens its balance sheet to better enable it to further develop its operated interests in the nearby onshore Perth Basin.
- This acquisition is a good example of the sort of deal that can be done when two companies have a clear view of their strategic objectives, a realistic view of the potential value of the relevant asset and a constructive and open-minded view about sharing downside risk and upside potential.
- The transaction is also the most recent expression of ROC's strategy of high grading its portfolio by increasing its interests in core assets and exiting peripheral properties. In the last nine months, in addition to this deal with Arc, ROC has increased its interest in its operated acreage offshore China (25% to 40%;) agreed to consolidate its interest in its operated area onshore Angola (45% to 60%); acquired new interests in three exploration permits adjacent to its existing acreage in the North Perth Basin and relinquished permits in Senegal and Mongolia. The end product is a portfolio which is increasingly focused on four core regions: Onshore UK, West Africa, China and Australia.