Ithaca Energy has entered into a Sale and Purchase Agreement with Dyas UK Limited for the sale of a portion of its interests in all of its oil and gas licenses and the provision of a convertible loan facility.
Dyas, with production of 24,000 barrels of oil equivalent per day, is a wholly owned subsidiary of SHV, the largest privately owned conglomerate in the Netherlands. The transaction is subject to the approval of the UK Department for Business, Enterprise and Regulatory Reform and Talisman Energy.
Notwithstanding difficult financial markets, this transaction provides the Company with the resources to complete the leasing of the Beatrice oilfield, the restoration of production from Beatrice Bravo and completion of the development of Jacky, which are anticipated to provide the Company in the first quarter of 2009 with an aggregate production of up to 7,500 bopd after giving effect to this transaction as well as provide funding for additional projects. Ithaca and Dyas will acquire a lease for a 100% interest in Beatrice from Talisman for a minimum of 3 years, extendable at Ithaca's election for the duration of production, in consideration for the sum of Pounds Sterling 10 million (approximately US$16.5 million), to be paid following commencement of production from Jacky. Beatrice currently produces approximately 2,000 bopd. A second platform, Beatrice Bravo is shut-in and Ithaca intends to restore production by connecting it to a pipeline to be constructed to Jacky. Bravo was producing approximately 800 bopd when it was shut in. Jacky is an Ithaca discovery immediately north of the Beatrice field.
The assets to be sold include:
Under the agreement it is proposed that Mr. Alexander Berger, the Managing Director of Dyas, will join Ithaca's Board of Directors.
"This is a very favourable, strategic and constructive transaction enabling the Company to retain a significant interest in each prospect, to secure the Beatrice oilfield, to finance its share of the cost of bringing production from the Beatrice Bravo platform on stream, the development costs of the Jacky oil discovery, to appraise the Stella gas/condensate discovery, to explore the Carna prospect and to provide the Company with the capital resources to source new prospects," said Lawrie Payne, CEO of Ithaca. "The transaction is consistent with our philosophy of establishing high initial interests in projects from which to obtain financial leverage by farming out and/or selling down at various stages of development. It provides a well respected strategic partner and leaves the Company strongly capitalized in an otherwise difficult market. We look forward to the Managing Director of Dyas joining the Board of Directors and contributing his knowledge to the growth of Ithaca."
The Agreement provides that Dyas will purchase 25.25% of Ithaca's interests in all assets currently owned by the Company for the consideration of Pounds Sterling 40 million (approximately US$65.6 million) cash effective November 1, 2008. As it is important that these funds be available to Ithaca prior to closing in order to enable it to maintain its capital program, Dyas has facilitated this by advancing forthwith the consideration amount to Ithaca as a loan until closing of the transaction at which time the loan will form the consideration for the acquisition.
In addition, Dyas will forthwith provide Ithaca with a senior secured loan with which to redeem in full the fully drawn Royal Bank of Scotland US$60 million Predevelopment Facility. This facility replaces and obviates the need for a previously announced arrangement of a US$290 million debt facility with six other banks. The new facility provided by Dyas will have a margin over US Dollar Libor of 4.5% and an initial term of two years. Dyas will have the option after two years to convert the loan into consideration for the purchase of an additional 15.15% of Ithaca's current interest in the same properties. This option is extendable by Dyas in two one-year tranches should the oil price average less than US$60 per barrel in the previous year, giving Ithaca an extended credit facility.
Should the transaction not close, Dyas has agreed to leave the loans in place for a period of two years. Should the option be exercised, the total aggregate consideration for the transaction will be approximately US$126.8 million. Based on the Company's latest evaluation of proven and probable reserves, Ithaca is selling 10 million barrels of oil equivalent ('MM boe') before the option at a price of US$6.56 per boe and should the option be exercised, 16MM boe at a price of US$7.93 per boe.
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