Elixir Issues Quarerly Activities Update
Elixir Petroleum Ltd. on Monday released an update on its activities for the Third Quarter, which ended on March 31, 2007.
24th Licensing Round Award
The results of the much-delayed 24th UK Seaward Licensing Round were announced by the DTI in early February. Elixir and its bidding partners, DNO and Sosina Exploration, were successful in securing a promote license over Central North Sea Block 21/16b.
Block 21/16b is located in the northwest Central Graben area immediately to the south of the Dauntless and Durward oil fields. Four prospects in the Upper Jurassic Fulmar sands have been identified on the block. Further technical work has commenced in preparation for seeking farminees prior to drilling activity.
Elixir holds a 40% interest in the new license.
Focus on Northern North Sea
The drilling results to date in licenses along the northern margins of the Central North Sea basin on acreage held with Granby Oil & Gas have proved disappointing. Elixir now intends to focus its near term exploration efforts on its self-generated Northern North Sea licenses which are located in the center of a prolific oil producing basin.
The large Leopard prospect in Block 211/18b (Elixir's interest 56%) has already been partly farmed out. RWE Dea is taking up a 30% interest in return for paying more than 50% of the costs of a Leopard well. Given very encouraging long offset 2D seismic results linking Leopard with its Norwegian analog, the Borg oil field, the Company is confident of farming out the remainder of the cost exposure. Elixir would then be free-carried through the well with a residual interest in the region of 35-40%.
By Elixir's mapping Leopard is estimated to contain oil in place at the midcase level in excess of 1 billion barrels, if hydrocarbons are present. Assuming typical recovery factors for the region, this volume would equate to around 370 million barrels of gross recoverable reserves.
The tight North Sea drilling rig market is showing signs of easing. Assuming that another farminee can be secured soon, Elixir is hopeful that Leopard could be drilled in late 2007 or early in 2008.
Although smaller than Leopard, the Panther prospect in Block 211/8b (Elixir's interest 80%) to the east of BP's Magnus oil field has been advanced to farmout stage. An active marketing campaign is underway with the aim of attracting a farminee partner.
Panther is a dual Lower Cretaceous-Upper Jurassic play. A large shallow Palaeocene lead is also being evaluated in the northern portion of the block.
Block 15/13b (EXR 13.125%)
During the quarter the Guinea well in Block 15/13b was drilled by farmin partner, Nexen Petroleum UK Limited, using the Borgsten Dolphin semi-submersible drilling rig.
The well reached a total depth of 2,176m but failed to encounter any significant hydrocarbons in the primary Palaeocene Balmoral sands objective. It has subsequently been plugged and abandoned.
The Company retains a 13.125% working interest in Block 15/13b after Nexen and Gas Plus International BV completed their farmin obligations on the Guinea well. Elixir's share of the recent well costs were carried by the farminees through the well.
The deeper prospectivity of the block remains untested including a Jurassic prospect named Eagle. Further technical work will assess this deeper potential.
Proposed Merger with Gawler Resources
On 23 March 2007, Elixir announced an agreed proposal to merge with another ASX-listed company, Gawler Resources Limited ('Gawler'; ASX: GRL). Once complete the merger will create a balanced, diversified oil and gas exploration and production company, listed on the ASX and AIM and capitalized at approximately $31.5 million (£13.1 million) at current share prices. Elixir shareholders will represent 52% of the enlarged company and Gawler shareholders the remaining 48%.
The merged group will combine emerging Gulf of Mexico production with high impact North Sea exploration. It will be well-funded, allowing the development of the producing assets to run in parallel with an active and highly prospective exploration program.
The Boards of Elixir and Gawler believe the benefits of the merger are compelling. These include:
- A 30% working interest in the High Island A268 oil and gas development project in shallow water offshore Texas, which is due to come on stream in September this year and initially expected to produce at gross rates of around 20 million cubic feet of gas per day;
- A portfolio of North Sea exploration licenses containing drillable prospects, which, if any one is successful, will provide significant upside to the group's valuation;
- Access to US deal flow where management has demonstrated the ability to source quality new projects to grow the business;
- A board and management team with complementary skills and extensive experience in the technical, commercial and financial aspects of the international upstream industry;
- Immediate exposure for shareholders of both Elixir and Gawler to a more diversified portfolio of assets at varying stages of evaluation and development; and
- Balance sheet capacity to pursue the group's expanded business plans, facilitated later by first production cashflow.
The Merger Proposal
Elixir and Gawler have signed a Merger Implementation Agreement (MIA) under which the companies have agreed to merge by way of a Scheme of Arrangement ('Scheme'). As the continuing entity, Elixir will make an offer to Gawler shareholders.
Gawler's Board unanimously recommend that all Gawler share and option holders vote in favor of the merger proposal, in the absence of a superior offer. Gawler Board members intend to vote in favor of the proposal when a shareholders' meeting is convened. In addition Gawler's largest shareholder, Aurora Oil & Gas Limited ('Aurora'), has committed to vote in favor of the merger, in the absence of a superior offer.
Under the proposed merger terms Gawler share and option holders will receive:
- 1 Elixir share for each Gawler share held, and
- 1 Elixir share for every 5 Gawler options held.
In addition and consistent with the above terms, Aurora will receive for its existing 6 million Converting Shares in Gawler:
- 1 Elixir share for each Gawler Converting Share, and
- 1 Elixir share for every 5 options to be issued to Aurora upon completion of Milestone B under the terms of the Gawler Converting Shares.
The Elixir shares to be issued to Aurora will be subject to restrictions reflecting the milestone requirements currently applying to the Converting Shares.
At this time, Elixir and Gawler shareholders are not required to take any action in relation to the merger proposal or the Scheme. Gawler shareholders will be provided with a Scheme booklet outlining the proposal in greater detail in due course.
Key steps to be undertaken include:
- Lodging Scheme documents with the Australian Securities & Investments Commission (ASIC);
- Obtaining Court approval to hold a shareholder meeting to vote on the Scheme;
- Gawler share and option holder approval at that meeting;
- If Gawler share and option holders approve the Scheme, Court ratification of the Scheme; and
- Admission of the new Elixir shares to trading on ASX and AIM.
Placement and Funding Capacity
In order to progress development of the High Island oil and gas project, Elixir will provide Gawler with a total funding package of up to $5 million while the merger process occurs. The package will be made up of equity and debt funding elements.
Elixir has already subscribed approximately $2.6 million in a share and option placement in Gawler of 12,487,500 shares at $0.20 per share and an equivalent number of options at $0.01 per option (exercise price of $0.20; expiry date of 31 March 2009). This placement was made on the same terms as Gawler's recently completed placement offer under a Short Form Prospectus dated 19 February 2007.
Gawler has issued the first tranche of approximately 3.75 million shares and 3.75 million options under its existing 15% placing capacity. The issue of the remaining tranche of placement shares and options requires Gawler shareholder approval and will increase Elixir's holding in Gawler to 20.0%. A Gawler shareholder meeting to approve this placement will be held on 4th May 2007.
The balance of funds being provided to Gawler (approximately $2.4 million) for the High Island development will be in the form of a bridging loan. Gawler and Elixir envisage that, following the merger, the development of the High Island interest will be partially funded by a project finance facility.
Board and Management Structure
It is proposed that each of Elixir and Gawler will nominate three directors each to an expanded six-person Elixir board. The three Gawler nominees will be appointed to the Elixir board in a non-executive capacity on terms similar to those under which the current Elixir non-executives have been appointed.
The corporate head office of the combined entity will be in Perth with Elixir's existing office to be retained in the U.K.
Gawler and Elixir anticipate that the placement of the second tranche of shares and options will be completed in early May, subject to Gawler shareholder approval.
The Scheme is expected to be completed by the end of July 2007. Application will be made in due course for the new Elixir shares to be issued as part of the merger to be admitted to trading on ASX and AIM.
Further information on the merger proposal and placement will be lodged with
the ASX and will be included on the Gawler and Elixir websites.
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