Addax Petroleum to Acquire two Pan-Ocean Energy Subsidiaries
Addax Petroleum has agreed to acquire two subsidiaries of Pan-Ocean Energy for C$1.605 billion in cash and will assume net debt estimated to be C$30 million. The subsidiaries are: PanAfrican Energy Corporation (Mauritius) Limited ("PanAfrican") which owns and operates Pan-Ocean Energy's oil exploration, production and marketing business in Gabon, West Africa and Pan-Ocean Energy UK Ltd. which provides management and operational services to Pan-Ocean Energy and together represent substantially all of the operations of Pan-Ocean Energy.
Commenting on the acquisition, Jean Claude Gandur, President and Chief Executive Officer of Addax Petroleum said, "This is an excellent opportunity to acquire an attractive production and reserves portfolio in Gabon which is a perfect complement to Addax Petroleum's existing suite of assets and provides an obvious geographic extension to our strategically focused operations in West Africa."
"These properties offer high quality development opportunities with significant upside potential. Our extensive analysis has revealed the likelihood of substantial near term reserve development which will lead to material production and reserves increases in the near future," said Jim Pearce, Chief Operating Officer of Addax Petroleum.
These Gabonese assets are currently producing in excess of 10,000 bbls/d of medium to light crude oil and Addax Petroleum expects production to reach approximately 18,000 bbls/d by year end upon completion of a transportation pipeline in the second half of 2006. McDaniel & Associates Consultants independently evaluated oil reserves as of December 31, 2005 at 67.5 million proved plus probable barrels and 121.3 million proved plus probable plus possible barrels. The portfolio also includes significant onshore and offshore exploration potential comprising over 716 thousand net acres (approximately 55% offshore).
The acquisition of PanAfrican offers exciting growth opportunities for Addax Petroleum and represents an excellent fit for Addax Petroleum's growth strategy:
Expansion and Diversification in West Africa - Combining these operations will create one of the largest independent E&P companies in West Africa. With the addition of PanAfrican's operations in Gabon, on a consolidated basis Addax Petroleum will have over 100,000 bbls/d of production, 264 million proved plus probable reserves and 400 million proved plus probable plus possible barrels of oil in West Africa. Addax Petroleum's 2P reserve life index will increase and Addax Petroleum will have almost 2 million net acres of land in four jurisdictions in West Africa. The establishment of a new and immediate production hub in Gabon complements Addax Petroleum's existing production base in Nigeria. Gabon is a very stable country with a history and tradition in oil exploration and production.
Enhanced Production Growth Profile - The near and longer term production growth from PanAfrican's assets enhance Addax Petroleum's existing growth profile and on closing will add over 10,000 bbls/d of medium to light oil production (29 degrees to 36 degrees API) to Addax Petroleum. Upon the completion of a transportation pipeline in Gabon anticipated in the second half of 2006, production constraints will be removed and production is expected to increase to approximately 18,000 bbls/d by year-end. With the current drilling programs, Addax Petroleum expects 2007 production to be in excess of 30,000 bbls/d and significant further production growth in 2008 through the development of existing discoveries.
Substantial Reserves Base with Development and Exploration Upside - Addax Petroleum believes that PanAfrican has significant development and exploration potential within the properties which could lead to meaningful future reserve additions. Significant proved plus probable reserve growth is expected as PanAfrican's 54 million barrels of possible reserves are developed in the near term. Additionally, Addax Petroleum has identified exciting exploration potential on these properties which currently have relatively sparse seismic coverage but an excellent historical success rate.
Complementary Technical and Operational Expertise - Addax Petroleum expects to retain key Pan-Ocean Energy and PanAfrican personnel whose substantial technical and operational expertise in Gabon will be supplemented with Addax Petroleum's demonstrated West Africa capabilities. Additionally, given the similarities between Addax Petroleum's Nigeria assets and PanAfrican's Gabon assets, Addax Petroleum and PanAfrican should be able to quickly assess and develop further potential in Gabon.
Attractive Financial and Operational Accretion for Addax Petroleum's Shareholders - Addax Petroleum estimates that this acquisition will generate approximately US$350 million in cash flow for 2007 (assuming a Brent crude oil price of US$60/bbl). The all-cash acquisition is expected to provide cash flow accretion of 30% per share, production per share accretion of 31% and reserves per share accretion of 44% to Addax Petroleum shareholders.
Wholly owned subsidiaries of PanAfrican own interests in eight licenses in Gabon, four onshore and four offshore, of which seven are pursuant to Production Sharing Contracts ("PSCs") and one, Ibelekia, is pursuant to a Technical Evaluation Agreement. Four of the PSCs are in production (Maghena, Panthere NZE, Etame and Remboue) while the fifth PSC (Awoun) is expected to commence production in early 2007. The following table summarizes these interests:
Net Producing License Operator Acres(1) Interest(1) Fields Discoveries --------------------------------------------------------------------- Maghena PanAfrican 151,324 92.50% Tsiengui - Panthere PanAfrican 27,671 92.50% Obangue Autour, Mokabou, NZE Pomarin Etame Vaalco 240,006 31.36% Etame Avouma, Ebouri, Marin(2) Tchibala Remboue PanAfrican 30,411 92.00% Remboue - Awoun Shell 110,770 40.00% - Koula, Damier Iris(2) Sterling 35,887 23.78% - - Energy Themis(2) Sterling 53,424 23.78% - - Energy Ibekelia(2) Sterling 66,994 40.00% - - Energy --------------------------------------------------------------------- Total 716,487 --------------------------------------------------------------------- --------------------------------------------------------------------- (1) After giving effect to the Government of Gabon's back-in rights (2) Offshore licenses
SUMMARY OF THE TRANSACTION
The transaction will be effected as a Scheme of Arrangement under Jersey Law as Pan-Ocean Energy is a Jersey incorporated company. The arrangement is subject to approval by a three quarters majority of holders of Pan-Ocean Energy Class A and Class B Shares, each class voting separately and approval of the Royal Court of Jersey and majority of the minority approval of each class. The officers and directors of Pan-Ocean Energy have entered into a lock-up agreement with Addax Petroleum which provides that, subject to terms and conditions, they will vote all of their Class A and Class B Shares in favor of the transaction. The officers and directors of Pan-Ocean Energy own approximately 99.6% of the outstanding Class A Shares and 1.8% of the outstanding Class B Shares.
An independent committee of the Board of Directors of Pan-Ocean Energy and the Boards of Directors of Pan-Ocean Energy and Addax Petroleum have unanimously approved the transaction, completion of which is conditional on the approval of Pan-Ocean Energy shareholders, requisite regulatory and court approvals as well as satisfaction of other customary conditions.
The meeting of Pan-Ocean Energy shareholders to approve the transaction is expected to take place as soon as possible in accordance with the court approved timetable. The transaction prohibits any discussion regarding any other business combination or sale of material assets, contains provisions to enable Addax Petroleum to match any competing, unsolicited proposal and, subject to certain conditions, provides for expense reimbursement and a termination fee.
Addax Petroleum will fund the acquisition through a combination of internal cash resources and firm financing commitments from a syndicate of lenders. Subsequent to the acquisition, Addax Petroleum expects its ratio of pro forma debt to 2007 estimated cash flow from operations to be less than 1 times.
Scotia Waterous is acting as exclusive financial advisor and Fasken Martineau DuMoulin LLP is acting as legal advisor to Addax Petroleum.
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