LGO Picks Up Direct Interest in Byron's GOM Assets

LGO has announced the completion of a Heads of Agreement with Byron Energy to transfer the Company's shareholding in Byron Energy from an indirect to a direct ownership of its US Gulf of Mexico ("GOM") oil and gas assets and an opportunity for portfolio expansion. The direct interest in the assets will be held in the books of LGO at a cost of £14.5m, being the consideration paid for the interest in Byron Energy in 2008.

Deal Highlights

  • LGO has signed a Heads of Agreement to cancel its shareholding in private Australian company Byron Energy in exchange for a direct working interest in Byron Energy's oil production and development assets in the US GOM.
  • LGO is to convert its 28.94% interest in Byron Energy to a 7.25% direct working interest in Eugene Island Blocks 183 and 184 south and a 3.625% direct working interest in Blocks 172 and 184 north (collectively referred to as "Eugene Island Field").
  • Leed Petroleum PLC reported, as operator and majority owner of the Eugene Island Field, on February 25, 2009 that oil production had increased 20% to approximately 6,000 boepd.
  • LGO's 7.25% share of Eugene Island Field oil production at February 2009 reported rates which would equate to direct production and sales to LGO of approximately 435 boepd.
  • Conversion of LGO's shareholding in Byron Energy includes the ability to acquire up to 29% of Byron Energy's interest in all option properties in the GOM under the existing Leed Petroleum Plc / Byron Scouting Agreement.
  • LGO will also have the option to acquire up to a 20% direct working interest in properties acquired by Byron Energy with effect from December 8, 2008 by paying 30% of all costs.

US Gulf of Mexico Assets

Byron Energy's primary oil and gas property assets are located in the Eugene Island area in the Gulf of Mexico, where Byron Energy holds a 25% working interest in blocks 183 and 184 south and a 12.5% working interest in blocks 172 and 184 north, with the remaining interests held by the joint venture operator, Leed Petroleum. As announced on February 25, 2009, the initial development program for Eugene Island has been completed with wells A-6, A-7 and A-8 all contributing significantly to the stabilised gross field production of 6,000 boepd.

Under a historical Scouting Agreement between Byron Energy and Leed Petroleum, Byron Energy retains the option to acquire up to a 25% stake in Leed Petroleum's working interests in the following assets: Grand Isle block 95 and 100; South Marsh Island block 5, 6 and 8; Ship Shoal block 201 and 205; Main Pass block 115; Sorrento Field and West Cameron block 106.

As previously announced on March 19, 2009, Leed Petroleum and Byron Energy were the successful bidders on additional leases under the US Minerals Management Services on Eugene Island block 133 and Ship Shoal block 197.

Heads of Agreement with Byron Energy

The Heads of Agreement between LGO and Byron Energy will convert the Company’s 28.94% shareholding in Byron Energy to an equivalent direct interest in the various assets and options retained by Byron Energy in the GoM and Lower 48. This conversion translates the Company’s shareholding into a direct working interest in the Eugene Island asset (7.25% working interest in Blocks 183 and 184 south and a 3.625% working interest in Blocks 172 and 184 north) which is currently producing at about 6,000 boepd. The Heads of Agreement also entitles LGO to earn a direct working interest of up to 29% in all option properties covered by the Byron Energy Scouting Agreement (with Leed Petroleum) at 29% of the cost Byron Energy incurs to exercise any option.

LGO and Byron Energy shall also enter into a strategic alliance under which LGO can acquire up to a 20% working interest in any properties Byron Energy acquires in the US GoM and Gulf Coast (with effect from 8 December 2008) outside of the current Byron Energy option agreement with Leed Petroleum. This agreement shall be valid for an initial term of 3 years with an option to extend by a further 2 years and allow LGO to purchase the 20% interest at 30% of the Byron Energy acquisition price.

LGO announced on the March 20, 2009 that Byron Energy has also successfully bid on additional leases, outside the Byron Energy/ Leed Petroleum Scouting Agreement, under the US Minerals Management Service including West Cameron Area South blocks 489-491 and West Delta Area block 49. These leases would be on the basis of a direct 20% working interest to LGO.

The LGO/ Byron Energy Heads of Agreement sets out the parameters for the proposed transaction in order to convert LGO’s shareholding into a direct ownership of various Byron Energy assets in consideration for cancelling LGO's shares in Byron Energy. The agreement also sets out how both parties shall work together to complete the transaction and shall be subject to Byron Energy shareholder approval; LGO qualifying under Mineral Management Service requirements to acquire the working interests in the Eugene Island assets and compliance to AIM rules. The deemed transfer date for the transaction will be March 1, 2009, after which LGO will be liable for costs incurred and entitled to revenue earned in respect of LGO’s working interests in the Eugene Island Field.

Byron Energy's most recent audited financial statements to June 30, 2008 report US $1.6 million operating loss and net assets of US $1.7 million. Consideration will be the cancellation of the Company's existing 28.94% shareholding in Byron Energy as highlighted above. The Company will own an equivalent direct interest in the same underlying assets which Byron Energy previously held in the Gulf of Mexico.
LGO and Byron Energy shall undertake all necessary activities in compliance with US and UK securities laws and rules of the London Stock Exchange to expeditiously complete the transaction and shall keep all investors fully informed of progress.

The consideration for the transaction will continue to be recorded in the Company’s accounts as £14.5 million, being the cost of the Company's share acquisition in 2008. In addition LGO agrees to Byron Energy retaining sufficient cash flows from LGO's working interests in the Eugene Island Field until LGO's portion (estimated to be approximately US $1.7 million) of Byron Energy's current borrowing of US $6.2 million is repaid.

There are no reserve or resources figures determined in accordance with an AiM acceptable standard in regard to the interests in which LGO is now taking the direct interests but the intention is that either separately or in conjunction with Byron that LGO will commission such figures and make these available to the Market.

The precise terms of LGO's interests in the wells will be disclosed when the legal documentation is agreed and finalised including the material rights and obligations under the operating agreements, together with the level of net cash flow being paid directly out of such interests.

As a result of this proposed transaction, LGO will relinquish its board position in Byron.

David Lenigas, Executive Chairman, commented, "Today's announcement regarding our Gulf of Mexico interests is a coming of age step for Leni Gas & Oil. The Company now will retain a direct interest in our Gulf of Mexico portfolio with all the reporting and forecasting advantages this will bring to management of our global operations.

"This is a tremendous evolution of our relationship with Byron Energy in both continuing our joint acquisition activities and in becoming a true partner in the management of the existing Gulf of Mexico operations.

"With Eugene Island producing over 400 boepd net to LGO and numerous additional developments coming on-stream in the next few years, LGO look forward to working with our joint venture partners in the GoM to maximize the value of the assets, and with Byron Energy to expand the portfolio further."