REG - Afentra PLC - Azule Acquisition & Sonangol Acquisition Update

AfentraAnnouncement

19/07/2023 07:00

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RNS Number : 4374G  Afentra PLC  19 July 2023

19 July 2023

AFENTRA PLC

('Afentra' or the 'Company')

 

Azule Acquisition & Sonangol Acquisition Update

 

SPA with Azule to acquire a further 12% of Block 3/05 and up to 16% of Block
3/05A

Amended Sonangol Acquisition to acquire 14% of Block 3/05 offshore Angola

Shares suspended

 

Afentra is pleased to announce that its wholly-owned subsidiary, Afentra
(Angola) Ltd, has signed a Sale and Purchase Agreement ('SPA') with Azule
Energy Angola Production B.V. ('Azule') to purchase a 12% interest in Block
3/05 and a 16%(1) interest in Block 3/05A, offshore Angola (together the
'Azule Acquisition') for a firm consideration of $48.5 million and deferred
contingent payments of up to $36 million subject to oil price, production and
development conditions.

In order to ensure support for this additional transaction and an appropriate
balance of equity interests in Block 3/05, Afentra has agreed with Sonangol
Pesquisa e Produção S.A. ('Sonangol') to amend the terms of the SPA dated as
at 20 April 2022 to reduce the interest being acquired by Afentra in Block
3/05 from 20% to 14% (the 'Amended Sonangol Acquisition'). The SPA terms for
the Amended Sonangol Acquisition will remain unchanged from those previously
announced with the exception that the acquisition consideration will be
reduced on a pro-rata basis to reflect the reduced interest acquired. The firm
and contingent considerations will therefore reduce to $56 million and up to
$35 million, respectively.

In accordance with the AIM Rules for Companies, the Company's ordinary shares
will be suspended from trading on AIM with effect from 7:30 a.m. today.
Trading in the Company's ordinary shares will remain suspended until such time
as either an admission document is published, or an announcement is released
confirming that the Amended Sonangol Acquisition and the Azule Acquisition are
not proceeding. The Company expects to publish the Admission Document in early
Q4 2023, with both the Azule Acquisition and the Amended Sonangol Acquisition
being subject to shareholder approval thereafter. We now expect both
transactions to complete, subject to shareholder approval, in Q4 2023.

Acquisition Highlights

·      Strategic rationale - combined with the previously announced
acquisition from INA, the Azule Acquisition and the Amended Sonangol
Acquisition provides Afentra with material equity in both Block 3/05 (30%) and
Block 3/05A (21.33%).(1) We will therefore significantly increase our exposure
to the upside potential of these material production and near-term development
assets with Block 3/05 benefitting from a recently extended licence term and
improved fiscal terms.

·      Azule Acquisition - acquisition of additional equity in Block
3/05 (12%) and Block 3/05A (16%)(1)

o  Initial consideration of $48.5m

o  Contingent consideration of up to $21m over 3 years subject to certain oil
price and Block 3/05 production hurdles and an annual cap of $7m

o  Contingent consideration of up to $15m linked to the successful future
development of certain Block 3/05A discoveries and associated oil price and
production hurdles

o  Significant associated cost pool(2) has a positive impact on asset
economics

o  Effective date of transaction 31 October 2022

·      Sonangol Acquisition - amended to acquire a reduced working
interest (from 20% to 14%) in Block 3/05

o  Initial consideration of $56m

o  Contingent consideration of up to $35m to be paid over ten calendar years
commencing 1 January 2023 subject to certain oil price, production hurdles and
an annual cap of $3.5m

o  Effective date remains 20 April 2022

·                      Combined Acquisitions - material
equity in both Block 3/05 (30%) and Block 3/05A (21.33%)(1)

o  Net 2P reserves of approx. 32 mmbbls and net 2C resources of approx. 20
mmbbls(3)

o  Production of approx. 6,000 bbl/d net (including production from Block
3/05A)

o  Increased exposure to significant upside potential:

§  Improved recovery from over 3 billion bbls of OIIP in Block 3/05

§  Development of multiple fully appraised discoveries in Block 3/05A

o  Decommissioning costs to date have been pre-funded by previous and
existing JV partners

·                      Funding - the Amended Sonangol
Acquisition and the Azule Acquisition will be financed through the existing
Mauritius Commercial Bank and Trafigura debt facilities that were utilised to
complete the INA acquisition and from existing cash on the balance sheet. The
cash payable at completion will be reduced depending on the level of cash
flows from the acquired assets between their respective effective dates and
their dates of completion.

Management Presentation - 10:00 am 19 July 2023

Afentra will be hosting a Management presentation audiocast via Investor Meet
Company today at 10:00 am
(https://www.investormeetcompany.com/afentra-plc/register-investor
(https://www.investormeetcompany.com/afentra-plc/register-investor) ) and a
short accompanying presentation has been uploaded to the Afentra
website: https://afentraplc.com/investors/
(https://afentraplc.com/investors/) .

Commenting on the update, CEO Paul McDade said:

"We are delighted to have agreed terms with Azule and signed the SPA
increasing Afentra's interest in the high-quality producing Block 3/05 and a
material increase in our Block 3/05A interest offering access to existing
discovered resources. This highly accretive transaction further demonstrates
the Company's commercial discipline and focus on robust cash flow, increasing
our net production to ~6 kbbl/d and 2P reserves to 32 mmbbls.(3)

As we continually seek to work closely and ensure support from Sonangol, we
have sought to amend the Sonangol Acquisition SPA to reduce the acquired
equity from 20% to 14%, reducing the upfront and contingent consideration on a
pro-rata basis. This helps to ensure a balanced equity ownership in Block 3/05
and to progress the Azule Acquisition; moreover, we view the combined
acquisitions as an attractive step forward for the business given the relative
value at which we are acquiring the combined interests. Finally, as
frustrating as it may be to suspend Afentra shares today, we continue to
highlight how attractively structured these acquisitions are given the
backdated effective dates - as demonstrated at completion of the INA
acquisition - and, in the meantime, we continue to work closely with our joint
venture partners to optimise the production and development of these
high-quality assets.

I would like to thank our shareholders for their continued patience through
these processes and hope they share in Afentra management's excitement about
the value creation implications of these deals. We look forward to the timely
publication of the Admission Document and the recommencement of trading
thereafter with an expectation to complete both Sonangol and Azule
transactions in Q4'23."

 

 

Azule Acquisition Overview

Afentra is acquiring a 12% non-operated interest in Block 3/05 and an up to
16%(1) non-operated interest in Block 3/05A for a total consideration of up to
$84.5m with an effective date of 31 October 2022. The consideration is
comprised of:

·      Initial cash consideration of $48.5m ($47.5m for Block 3/05,
$1.0m for Block 3/05A), subject to customary completion adjustments;

·      up to $21m in contingent payments payable on a sliding scale
above a Brent price of $75/bbl with an annual cap of $7m over the years 2023,
2024 & 2025; and

·      up to $15m in contingent consideration linked to the successful
future development of the Caco-Gazela and Punja discoveries (split $7.5m
equally), payable 1 year after first oil subject to a Brent price of $75/bbl
and production hurdles.

This represents a strategic increase in Afentra's equity in the high-quality
producing assets in Block 3/05 and the attractive developments in Block 3/05A
where production is currently being tested. The attractive acquisition cost
implies approx. $3.7/bbl (based on 2P reserves)(3) with contingent payments
agreed on a dollar increment basis above a $75/bbl threshold. Finally, Afentra
inherits an increased historical cost pool resulting in a higher NPV per
acquired barrel.

The Azule Acquisition is expected to be funded by a combination of the
existing debt facilities with Mauritius Commercial Bank and Trafigura, and
existing cash on the Company's balance sheet.

Amended Sonangol Acquisition

Afentra have worked with Sonangol to ensure that, post the Azule transaction,
there is an appropriate balance of equity interests across Block 3/05. This
has resulted in an agreement to adjust the equity being acquired from Sonangol
by Afentra from 20% to 14% with a pro-rata adjustment to the consideration and
all other terms remaining unchanged. This results in the firm consideration
reducing from $80m to $56m and the contingent consideration of up to $50m
reducing to up to $35m with a reduced cap of $3.5m per annum for an unchanged
period of 10 years commencing 1 January 2023 and an unchanged oil price hurdle
of $65/bbl. The effective date of the transaction of 20 April 2022 remains
unchanged.

Post completion of the Azule and Sonangol Acquisitions, the joint venture
partners across both Blocks 3/05 and 3/05A will be comprised as follows:

 

 Block 3/05 partners  Post completion interests
                      INA deal   Sonangol deal  Azule deal
 Sonangol (op.)       50%        36%            36%
 Afentra              4%         18%            30%
 M&P                  20%        20%            20%
 etu energias         10%        10%            10%
 NIS Naftagas         4%         4%             4%
 Azule Energy         12%        12%            0%

 

 Block 3/05A partners(1)  Post completion interests
                          INA deal   Sonangol deal  Azule deal
 Sonangol (op.)           33.33%     33.33%         33.33%
 M&P                      26.67%     26.67%         26.67%
 Afentra                  5.33%      5.33%          21.33%
 etu energias             13.33%     13.33%         13.33%
 NIS Naftagas             5.33%      5.33%          5.33%
 Azule Energy             16.00%     16.00%         0%

 

Strategic Rationale and Next Steps

The Azule Acquisition is consistent with the strategic objective set by
Afentra at the time of its launch in May 2021 to build a balanced cash flow
generative portfolio of assets where the Company can contribute to emissions
reduction to drive a sustainable transition. The Azule Acquisition and the
Amended Sonangol Acquisition increases Afentra's exposure to a high-quality
asset base with long-life, low-cost production, significant production
optimisation opportunities, material access to existing light oil and
associated gas discoveries in Block 3/05A with near-term tie-back development
potential to existing Block 3/05 infrastructure. The Azule Acquisition and the
Amended Sonangol Acquisition also increase Afentra's influence on the
initiation of measures to reduce emissions. In addition, the interests
acquired from Azule are being acquired at a low cost per barrel, have a high
historical cost pool resulting in higher value barrels, and come with the
security of having the Block 3/05 licence term extended with improved fiscal
terms expected to support the production period to 2040.

We continue to work closely with Sonangol at all levels to progress the
completion of the Amended Sonangol Acquisition and are pleased to have secured
Sonangol's support of Afentra's increased equity in Block 3/05 through the
Azule Acquisition. The transactions with Azule and Sonangol will lead to a
smaller and more focused joint venture grouping that is committed to
maximising the value of these material world-class assets for the benefit of
all stakeholders.

The Company will now publish an updated Admission Document in due course,
which will also convene a General Meeting at which the resolutions for
shareholders to approve the Amended Sonangol Acquisition and the Azule
Acquisition will be proposed. Subject to shareholder approval the Company will
proceed to obtain Governmental approval for both transactions with an
expectation to complete both transactions in Q4 2023.

Operations Update

Production from Block 3/05 has averaged approx. 19,100 bbl/d in June 2023 and
approx. 18,000 bbl/d for the first half of the year, demonstrating the benefit
of continued restoration works over Q1'23 in addition to the well intervention
activities underway in Block 3/05. Moreover, production uptime improved
quarter-on-quarter, from 77% in Q1'23 to 87% in Q2'23. Water injection has
averaged approx. 38,000 bbl/d for the first half of the year, a material
increase on the first half of 2022. The continued light well intervention
programme will focus on acid wash and stimulation across the Oombo, Pacassa,
Palanca and Bufalo fields. In Block 3/05A, at the Gazela field, long term
testing continues at approx. 1,200 bbl/d, enabling framing of potential low
cost development options. Future activities on Block 3/05 will consist of
additional well perforations and the installation of artificial lift on a
sample of production wells that Afentra is leading. A gas management
workstream has commenced to examine a holistic solution for gas which could
enable a material reduction of emissions in the medium to long term.

For further information contact:

Afentra plc +44 (0)20 7405 4133

Paul McDade, CEO

Anastasia Deulina, CFO

 

Buchanan (Financial PR) +44 (0)20 7466 5000

Ben Romney

Barry Archer

energy@buchanan.uk.com

 

Peel Hunt LLP (Nominated Advisor and Joint Broker) +44 (0)20 7418 8900

Richard Crichton

Paul Gillam

David McKeown

 

Tennyson Securities (Joint Broker) +44 (0)20 7186 9033

Peter Krens

 

About Afentra

Afentra plc (AIM:AET) is an upstream oil and gas company focused on
opportunities in Africa. The Company's purpose is to support a responsible
energy transition in Africa by establishing itself as a credible partner for
divesting IOCs and Host Governments. Afentra has 4% non-operated interests in
the producing Block 3/05 and adjacent development Block 3/05A offshore Angola
in the Lower Congo Basin. In addition, Afentra maintains a carried interest in
the Odewayne Block, onshore southwestern Somaliland.

 

Inside Information

This announcement contains inside information for the purposes of article 7 of
Regulation 2014/596/EU (which forms part of domestic UK law pursuant to the
European Union (Withdrawal) Act 2018) ('UK MAR'). Upon publication of this
announcement, this inside information (as defined in UK MAR) is now considered
to be in the public domain. For the purposes of UK MAR, the person responsible
for arranging for the release of this announcement on behalf of Afentra is
Paul McDade, Chief Executive Officer.

(1) Subject to final approval of the distribution of the China Sonangol
International ('CSI') interest to the remaining joint venture partners. This
increases the acquired working interest in Block 3/05A from Azule from 12% to
16% and the aggregated Afentra interest in the Block from 5.33% (4%
pre-redistribution of CSI interest) to 21.33% (16% pre-redistribution of CSI
interest).

(2) Approximately 1.8x (ratio) per percentage working interest relative to
Sonangol in Block 3/05

(3) Based on the Competent Persons Report on Block 3/05 effective 1 January
2023, estimating 2P reserves of 108 mmbbls (gross) and 2C resources of 43
mmbbls (gross). Block 3/05A 2C resources are based on an Afentra resource
estimate effective 1 January 2022 of 33 mmbbls (gross).

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