Agreement to Sell 40% Stake in Greater Bualuang Area
Further to the Heads of Agreement announced on 5 June 2014, Salamander is pleased to announce that a definitive Share Sale and Purchase Agreement has now been signed with SONA Petroleum Berhard (“SONA”) to dispose of an effective 40% working interest in the B8/38 concession containing the Bualuang oil field and the surrounding G4/50 concession, both located in the Gulf of Thailand (together the “Transaction”).
Proposed Transaction Terms
Under the terms of the Transaction:
· SONA will pay a consideration of US$280 million in cash plus working capital adjustments based on the effective date of 1 January 2014.
· Salamander will pay for the costs associated with the drilling of two exploration wells in the G4/50 concession, up to a cap of US$15 million
· A contingent payment of up to US$15 million to be made by SONA to Salamander in the event of a commercial discovery in the G4/50 concession
Mitsui Oil Exploration Co Ltd (“MOECO”), from whom Salamander acquired its 100% interest in G4/50, holds back-in rights to up to 50% of the concession while the licence is in its exploration phase. In the event that MOECO exercises its back-in rights, Salamander’s and SONA’s effective working interests will each be diluted in proportion to their ownership in G4/50 (being 60 / 40).
The Transaction remains conditional, amongst other things, on approval by Salamander’s shareholders and SONA receiving regulatory approval from the Securities Commission of Malaysia and approval by its shareholders. The consideration will be met by SONA via existing cash resources and financing arranged with BNP Paribas the final documentation of which is a condition to closing of the Transaction. The Transaction is not subject to any other regulatory approvals.
The Transaction is in line with the Group’s stated strategy of active portfolio management to realise value from its assets over time. In particular the sale:
· Demonstrates and crystallises the value created in the B8/38 concession since the Group increased its stake through acquiring an additional 40% interest in the acreage for $105 million in 2010. Since that time the Bualuang field has seen material reserves and production growth and generated significant free cash flow.
· Reduces asset concentration risk within the Group’s portfolio
· Reduces the Group’s balance sheet exposure to the next phase of capital expenditure associated with the Bualuang field development
· Strengthens the balance sheet with the Group expected, subject to closing of the Transaction, to retire between US$200 and US$250 million of gross debt
· Provides sufficient cash to return US$50 million to shareholders, equivalent to approximately 11 pence per share.
The B8/38 concession is located in the Gulf of Thailand and contains the Bualuang oil field. The field was brought on-stream in 2008 and to date has produced over 17 million barrels of oil. It has two production platforms, Alpha and Bravo, and a Floating, Production, Storage & Offtake vessel (“FPSO”) which processes and stores Bualuang crude and from which cargoes are offloaded on a regular basis. Gross daily production in 2014 is expected to average between 11,000 and 14,000 barrels of oil per day (“bopd”).
The field is currently undergoing a phase of development drilling and infrastructure upgrade, with wells being drilled from the Bualuang Bravo Platform. The Bualuang FPSO is to be replaced with a Floating, Storage & Offtake vessel (“FSO”) and the Bualuang crude will be processed using newly installed modules located on the Bravo platform. The FSO is currently in the field awaiting hook up, once the facilities upgrade is completed, it is expected to result in substantial savings in operating costs.
Further exploitation of the field is anticipated through the design, construction and installation of a third platform, Charlie. This is currently at the conceptual design phase but is expected to be sanctioned later this year and will ultimately lead to the commercialisation of a proportion of the identified contingent resource in the field.
James Menzies, CEO of Salamander, commented:
“The transaction announced today, represents excellent value for shareholders. Since increasing our stake in the field in 2010, Bualuang has produced over 10 million barrels of oil and generated significant cash flow. This deal demonstrates that during that time, Salamander has more than doubled the value of the field under its stewardship against a flat commodity price.
Partially crystallising that value now allows us to significantly strengthen the balance sheet and return capital to shareholders while retaining a majority interest in, and operatorship of the field. Meanwhile, we are looking forward to both the continued development of the field and the exploration of the G4/50 concession together with our new partner.”
CONCLUSION OF FORMAL SALE PROCESS
Salamander announces that, further to the announcement made today in respect of a definitive conditional Share Sale and Purchase Agreement entered into between Salamander and SONA Petroleum Berhard (“SONA”) to dispose of an effective 40% working interest in the Greater Bualuang Area located in the Gulf of Thailand for a cash consideration of US$280 million (subject to adjustments) (the “Transaction”), the Formal Sale Process announced by Salamander on 1 May 2014 has been concluded and as such, Salamander is no longer in an offer period for the purposes of the City Code on Takeovers and Mergers.
As stated in May, Salamander had been considering a divestment of certain assets and, as part of that process, received a number of preliminary and conditional expressions of interest in relation to an offer for the Group, resulting in the commencement of the Formal Sale Process.
Following a thorough process involving a wide range of parties, the Board of Salamander is unanimously of the opinion that at this time, a combination of the Transaction, resultant cash return and the continued development of the Group’s portfolio represents the best value for shareholders. Salamander is no longer actively engaged with any parties in relation to an offer for the Group.
Charles Jamieson, Chairman of Salamander, commented:
“The SONA transaction meets all of the criteria the Group were seeking in divesting of a minority stake in one of our key assets, as part of its strategy. The Board has carefully considered all of the proposals received under the previously announced Formal Sale Process and believes that this transaction represents the best outcome for shareholders and the wider Group. Focus will now shift to delivering the next phase of growth from both the existing asset base and the wider opportunity set in South East Asia.”