Burren Acquires Stake in Hindustan Oil Exploration Co.
Burren has acquired a 26.0% equity interest in Hindustan Oil Exploration Company ('HOEC') for a consideration of US$26.0 million, together with options and an open offer to all shareholders of HOEC to acquire additional shares in HOEC to enable Burren to acquire up to a 51% equity interest in HOEC. This transaction marks Burren's first corporate acquisition since its flotation in December 2003.
HOEC is India's only publicly quoted oil & gas exploration and production company outside the state controlled sector, with a market capitalisation as at 14 February 2005 of US$138 million. HOEC is based in Vadodara, Gujarat and its shares are quoted on the National Stock Exchange of India and the Bombay Stock Exchange.
HOEC has a portfolio of onshore and offshore assets in India, as follows:
(i) Cauvery : offshore south east coast, Tamil Nadu
A 100%* operating interest in the PY-1 block, the gas development plan for which has been approved by the Government of India with the aim of producing first gas by the end of 2006, and for which a gas sales agreement is under negotiation.
A 21% non-operating interest in the PY-3 block, which produces approximately 6,800 bopd and is operated by Hardy Exploration & Production (India) Inc
An 80%* operating interest in the CY-OSN-97/1 exploration block
(ii) Cambay : onshore / offshore Gujarat
Operated interests of between 25% and 50% in three small onshore oil and gas fields, of which one is producing
57%* interest in CB-OS/1 offshore exploration block, for which Oil & Natural Gas Corporation (ONGC) is operator
(iii) Assam: onshore
25% non-operating interest in block AAP-ON-94/1 for which Premier Oil is operator and where a first exploration well is due to spud shortly
* These percentages reflect recent increases in HOEC's equity interest which are still subject to Government approval.
In the year ended 31 March 2004, HOEC made a profit before tax of 215.3m Rupees (US$ 4.9m) on turnover of 496.5m Rupees (US$ 11.3m). At 31 March 2004, HOEC had net assets of 1,985.9m Rupees (US$ 45.4m).
In its annual report for the year ended 31 March 2004, HOEC published proven reserves data, limited to the PY-3 field, of 6.45 MMBO. Burren intends to review PY-3 and HOEC's other assets as quickly as possible with a view to including updated reserves information in Burren's statement of group reserves which is expected to be made at or around the time of its preliminary results for the year ended 31 December 2004.
On February 14, 2005 Burren entered into a share purchase agreement with a subsidiary of Unocal Corporation to acquire Unocal Bharat Limited which holds a 26% stake in HOEC.
Also on 14 February 2005, Burren, through Unocal Bharat Limited, entered into the following conditional agreements to acquire further shares in HOEC:
(i) an agreement with Infrastructure Leasing and Financial Services Corporation ('ILFSC') to acquire up to a 4.3% stake in HOEC. The agreement with ILFSC is conditional on regulatory approval and completion of the Open Offer referred to below and is expected to be completed by 14 August 2005; and
(ii) an agreement with Housing Development Finance Corporation ('HDFC') to acquire, at Burren's option, all or part of HDFC's 10.7% stake in HOEC. This option, which is subject to regulatory approval, is only capable of being exercised to the extent that Burren's aggregate shareholding in HOEC is, following completion of the agreements referred to above and the Open Offer referred to below, less than 51%.
The total cost of acquiring all the shares in HOEC included in the agreements described above (the 'Initial Purchases') is approximately US$41.4m.
The HOEC shares which are to be acquired from ILFSC and HDFC pursuant to the Initial Purchases are subject to an existing Shareholders Agreement between HOEC, Unocal Bharat Limited, HDFC, ILFSC and Hardy Oil & Gas (UK) Ltd. ('Hardy'), which owns 8.5% of HOEC. Burren understands that Hardy may be able to exercise pre-emption rights contained in the Shareholders Agreement. Were Hardy to do so, the maximum amount of shares in HOEC which Burren would own as a result of the Initial Purchases would be reduced to approximately 37%, compared with 41% were Hardy not to exercise those rights.
As a consequence of the Initial Purchases, under the rules of the Securities & Exchange Board of India ('SEBI'), Burren is obligated to make an open offer in cash (the 'Open Offer') to acquire not less than 20% of the outstanding share capital of HOEC at not less than a minimum offer price specified by SEBI based on the higher of (a) the average daily high and low prices for the 2 week period ending on the day before the Initial Purchases and (b) the average of the weekly high and low prices for the 26 week period ending on the day before the Initial Purchases (the 'Minimum Offer Price').
An Open Offer for 20% of the outstanding share capital of HOEC has therefore today been announced at the Minimum Offer Price. The Open Offer is not subject to any minimum level of acceptances. Burren expects that, if the Open Offer is taken up in full, the total consideration payable by Burren for the 20% stake in HOEC would be approximately US$25m. The Open Offer will close on April 27, 2005. Finian O'Sullivan and Atul Gupta have as of 14 February 2005 been appointed to the Board of HOEC, which now consists of 6 directors, and have become members of HOEC's executive committee.
Strategy and Rationale
Burren considers that HOEC represents an attractive opportunity to enter the Indian oil & gas industry via the acquisition of a significant interest in an important domestic oil and gas producing company.
Furthermore Burren believes that India represents a significant opportunity for oil & gas exploration and development taking into account the expected growth in India's energy requirements and the Indian Government's current efforts to attract the participation of non-state entities in the energy business. Burren intends to pursue Indian growth opportunities with a view to establishing India as the fourth leg of its business, complementing its existing interests in the Caspian, West Africa and North Africa.
Financing for the Initial Purchases and the Open Offer will come from Burren's existing cash resources and undrawn debt facilities.
In order to complete the development of the PY-1 gas field HOEC is likely to have a requirement for additional capital within the next 12 months and Burren intends to contribute to HOEC's capital needs. Burren is in the process of arranging a new US$100 million loan facility, to be underwritten by Natexis Banques Populaires, to finance its general group expenditure.
Commenting on the announcement Finian O'Sullivan, Chief Executive of Burren said:
'This investment in HOEC is very compelling for Burren. HOEC's existing cash
flow will fund its ongoing activities in the producing and exploration interests
in the Assam, Cambay and Cauvery Basins in 2005. The development of the PY-1 gas
field offers significant potential that should generate strong cash flow growth
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