The proposed acquisition is subject, inter alia, to finalization of a mutually acceptable sale and purchase agreement between the parties, shareholder approval and the consent of the Government of Bangladesh. The LOI provides for Cairn and Shell to enter into a sale and purchase agreement, pursuant to which Cairn would acquire the following principal assets:
The Sangu gas field was discovered by Cairn in 1996 and commenced production in June 1998. Remaining proven plus probable reserves net to Cairn's existing 37.5% interest at 30th June 2003 were 423 bcf of gas on a working interest basis (70.5 mmboe) and 242 bcf of gas on an entitlement basis (40.4 mmboe). Gross production from Sangu during the first half of 2003 averaged 136 mmscfd. Cairn's net share of production on a working interest and entitlement basis was 51 mmcfd (8.5 mboepd) and 47 mmcfd (7.8 mboepd) respectively.
Cairn's interests following the proposed acquisition would be:
The consideration for the Acquisition is:
In addition, the existing carry agreements between Cairn and Shell will be terminated.
The Cash Consideration will be adjusted to reflect net working capital movements between the economic effective date and the closing date including any accrued royalty payments and carry reimbursements. It is anticipated that the adjusted Cash Consideration will be met from existing bank facilities.
Shell will retain operatorship of the assets until the closing date, following which Cairn will assume operatorship under the terms of transfer of operatorship agreements to be agreed between Cairn and Shell. This will include the transfer of Shell's Bangladesh national employees to Cairn.
Bill Gammell, Chief Executive, commented:" Acquiring Shell's interests in Bangladesh will provide Cairn with additional low cost and long life production in Cairn's core business area and is expected to provide excellent financial returns and materially enhance shareholder value.
This deal further enhances Cairn's ability to take advantage of the rising demand in the Bangladesh domestic gas market and the strong positive cash flow from the increased interest in Sangu can be utilized to continue to pursue exploration opportunities in our core focus area of South Asia."
Dominic Gardy of Shell, commented: "Concluding this agreement with Cairn, our existing partner in Bangladesh, will not only fit within the overall strategic development of Shell's global portfolio, it will also provide the best guarantee that after our departure the business will continue to be run to proper environmental, social and operational standards, in the best interests of Bangladesh and its people. We much appreciate the help and support of the Government of Bangladesh and PetroBangla in making the transition as seamless as possible."
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