FirstAfrica Oil Proposes Placing Shares to Raise $53.9 Million
FirstAfrica has announced a proposed placing of new ordinary shares to raise up to US$53.9 million. The company will also hold an extraordinary general meeting of shareholders at 10 a.m. on October 26, 2006 ("EGM"). At this EGM shareholders will be asked to consider and if thought fit approve, inter alia, the disapplication of pre-emption rights to enable the Company to issue new ordinary shares and raise new funds.
The Company has agreed with its advisers that it will seek to raise up to US$53.9 million (Â£28.7 million) by the issue of up to 5,734,042,400 new Ordinary Shares by way of a placing to Qualifying Investors at a price to be determined following discussion with Qualifying Investors, but which is subject to a minimum of 0.5p per Ordinary Share ("Placing"). Due to the size of the Placing relative to FirstAfrica's existing authorized share capital and its authorities to allot shares on a non pre-emptive basis, the Placing is conditional on the passing by shareholders at the EGM of the Resolutions.
Mirabaud Securities Limited, the Company's broker, has agreed that in the 14 business days commencing October 3, 2006 it will seek placees for up to 5,734,042,400 Placing Shares on a reasonable endeavours basis, pursuant to the Mirabaud Engagement Letter and the Placing Agreement. It is expected that marketing for the Placing will be completed by 20 October 2006 and the number of Placing Shares and the Placing Price will be announced on 24 October 2006. The size of the Placing will be dependent upon appetite from Qualifying Investors to take up the shares at a price to be agreed. The size of the Placing finally agreed with the Board may be reduced if the Board is successful in negotiating other sources of funds currently being pursued, including possible joint venture agreements with other oil companies. Therefore, in the event that the Company raises the necessary funds on more beneficial terms than through an equity fundraising, the Placing will be reduced accordingly.
Background to and reasons for the Fundraising
Following the completion of the EOV-7 well in September, which represented the completion of the drilling program to develop the EOV Field offshore Gabon, the board of FirstAfrica estimates that the Company requires US$78.9 million (Â£41.9 million) to, inter alia, complete the field development program of the EOV Field through to first oil and cash flow and to satisfy the general working capital requirements for the Group. Of this US$78.9 million, it is anticipated that US$53.9 million will be raised through the Placing or from alternative sources and a further US$25 million through a debt facility, currently in detailed discussions. At the time of the fundraising in June it was recognized that an additional US$ 41.5 million would be required to complete the EOV Field development. The main reasons for the increased requirement from what was envisaged in June stem from the additional drilling and completion costs, as well as the need for additional working capital required before production of first oil. More specifically, the additional costs relate to the following:
- the actual number of days drilling in the initial drilling program was more than estimated, primarily as a result of the decision to access deeper oil bearing structures on EOV-7;
- the first sale of oil from the EOV Field via the FPSO is now estimated to occur in the third quarter of 2007 requiring extra working capital prior to sales of oil;
- to secure the FPSO the Company now anticipates the prepayment of operating expenditure rather than the provision of a bank guarantee, resulting in the increase of initial operating expenses, albeit these costs are recoverable when the sale of oil commences;
- a power generation unit is required for the FPSO;
- additional well completion costs to acid treat wells EOV-4 and EOV-7; And
- the requirement to meet early Epaemeno exploration commitments prior to cash flows.
Expected timing for production and first sale of oil has been delayed to the third quarter of 2007 primarily because management was not able to progress negotiations to secure the FPSO until the Company had the results from the extended drilling program which gave the Board confidence that the number of barrels of oil that could be recovered daily from the EOV Field was sufficient to make the development of the field economic.
Update on EOV Field
FirstAfrica completed its production drilling of four wells in early September and, as announced on 7 September 2006, anticipates initial production of in excess of 7,000 bopd commencing in 3Q 2007 following installation of the production platform and completion of the wells.
As estimated by ECL in its January 2005 EOV Update Report, the EOV Field discovery area which was proven up by Marathon in 1999 has Proved plus Probable (2P) economic reserves of 10.5 million barrels of oil (gross) under the Gabon Government-approved Field Development Plan. FirstAfrica is finalizing an agreement for an FPSO for a 10-year period with an initial 2-year term pending production performance. Based on this initial 2-year contract, an oil price of US$55 per barrel, a discount rate of 10 per cent and an initial production rate of 7,500 bopd, economic consultant Equad Ltd, estimates that the project economics would deliver a Net Present Value of US$57 million. Following completion of the wells and then 6 to 12 months of production history, the Board would seek to extend the commitment period of the FPSO contract. As an illustration, Equad estimates that an initial 2-year period plus two one-year extensions would provide a Net Present Value of US$106 million.
The ECL Exploration Evaluation of the EOV Report dated August 2006 estimates that in the EOV block as a whole (not including the discovery area) there are 279 million barrels of unrisked STOIIP in several exploration prospects. These prospects have a relatively high 'Chance of Success' (about 1-in-5). It is the company's intention to fund future exploration and development from the cash flow generated by production from the EOV Field.
An audit of the reserves in the EOV Field is currently being conducted by Netherland, Sewell & Associates Inc, incorporating results from the four development wells. A preliminary audit result is expected by October 16, 2006 at which stage the initial reserve number is expected to be less than previous estimates, pending further reservoir evaluation and production performance, (although this is not expected to impact the economics stated above, which have been calculated on conservative assumptions). Shareholders will be advised as updated reserve estimates become available.
Update on Epaemeno
Epaemeno is FirstAfrica's wholly-owned onshore Gabon exploration block which
lies to the north of Shell's recent discoveries in the Awoun block, to the east
of Perenco's discoveries in the Ombena block and to the west of Maurel and
Prom's discoveries in the Omouejy block. ECL's Epaemeno Block Assessment Report
dated January 24, 2006 confirmed the prospectivity of the Epaemeno exploration
license. ECL's re-interpretation of previous Elf seismic data in this report
identified 6 prospects in the Epaemeno block with a total of 228 million barrels
of unrisked Prospective Resources (recoverable). Based on 'Chance of Success'
estimates of between about 1-in-6 and 1-in-10, these prospects have a combined
Expected Monetary Value of approximately US$280 million, based on an oil price
of US$55 per barrel and a discount rate of 10 per cent..
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