REG - Afentra PLC - SPA with Sonangol for Blocks 3/05 & 23, Angola

AfentraAnnouncement

28/04/2022 07:00

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RNS Number : 6159J  Afentra PLC  28 April 2022

28 April 2022

 

AFENTRA PLC

Afentra signs Sale and Purchase Agreement with Sonangol

for Blocks 3/05 & 23 offshore Angola

 

Afentra plc ('Afentra' or the 'Company') is pleased to announce that its
wholly-owned subsidiary, Afentra (Angola) Ltd, has signed a Sale and Purchase
Agreement ('SPA') with Sonangol Pesquisa e Produção S.A. ('Sonangol') to
purchase interests in Block 3/05 and Block 23, offshore Angola (the
"Acquisition") for a firm consideration of $80 million and contingent payments
of up to $50 million (in aggregate) in the case of Block 3/05 and
consideration of $0.5 million in the case of Block 23.

Acquisition Highlights

•         Strategic rationale - facilitates a first entry for
Afentra into Angola, one of the Company's key target markets in West Africa,
with opportunities to build a material production business and contribute to a
sustainable transition

•         Block 3/05 - acquiring a 20% non-operated interest in a
high-potential long-life asset

o  Initial consideration of $80 million

o  Additional contingent consideration of up to $50 million to be paid in
respect of each of the ten calendar years commencing 1 January 2023

o  Stable production of c.4,000 bopd net with strong cashflow

o  Net 2P reserves of c.20 million barrels(1)

o  Oil in Place of over 3 billion barrels(1) provides significant resource
upside

o  Highly attractive asset economics with low breakeven oil price of $35/bbl

o  To date, decommissioning costs have been pre-funded by previous and
existing JV partners

 

•        Block 23 - acquiring 40% non-operated interest in a highly
prospective deepwater exploration and appraisal opportunity for a
consideration of $0.5 million

•        Funding - expected to be financed through new debt facilities
and existing cash on the balance sheet. Discussions with prospective debt
providers well advanced

 

Transaction Overview

Afentra is acquiring a 20% non-operated interest in Block 3/05 and a 40%
non-operated interest in Block 23 for a total consideration of up to $130
million. The consideration is comprised of $80 million cash up front, subject
to customary completion adjustments, up to $50 million in contingent payments,
payable in respect of each of the ten calendar years commencing January 1,
2023 and subject to certain oil price and production hurdles, and $0.5 million
in respect of Block 23. The Acquisition has an effective date of 20 April
2022.

This represents a strategic entry into a highly attractive West African
jurisdiction with an implied acquisition cost of ~$4/boe, based on 2P
reserves1.

The Acquisition is expected to be funded with new debt facilities and existing
cash on the balance sheet. Discussions with prospective providers of debt
finance are well advanced and will be finalised in due course.

While completion is expected in the third quarter of 2022, next steps in the
process include the conclusion of Afentra's due diligence exercise, the
provision of a bank guarantee in respect of the 10% transaction deposit and
the completion of the right of first offer process by Sonangol. Government
approvals and a license extension for Block 3/05 are anticipated to be
granted, with the publication of the AIM re-admission document and resumption
of trading anticipated to occur mid-year. In addition to the conditions
described above relating to regulatory consents, right of first offer, license
extension and due diligence, the Acquisition is subject to the receipt of
shareholder approval pursuant to an ordinary resolution to be proposed at a
General Meeting and re-admission of the enlarged group to trading on AIM.
Further details of the Acquisition and SPA will be set out in the re-admission
document.

Asset Overview: Block 3/05

Block 3/05, in which Afentra is acquiring a 20% non-operated interest, is
located in the Lower Congo Basin and consists of eight mature producing
fields. The discoveries were made by Elf Petroleum (now part of TotalEnergies)
in the early 1980s. Development was by shallow-water (40-100m) platforms that
included successful waterflood activities with first oil in 1985. Sonangol
assumed operatorship from 2005 and has focused on sustaining production
through workovers and maintaining asset integrity. No infill drilling
campaigns have taken place in the last 15 years. The asset has a diverse
portfolio of over 100 wells and currently produces from around 40 production
wells and has nine active water injectors. The facilities include 17 well-head
and support platforms and four processing platforms, with oil exported via the
Palanca FSO.

In 2021, the average daily gross production was 17,000 bopd, with an exit rate
of 21,000 bopd, and gross 2P reserves of approximately 100 million barrels1 at
year end 2021.

Block 3/05's existing Production Sharing Agreement (PSA) expires in 2025 and
this is expected to be extended to 2040. This extension is a condition to
completing the Acquisition. To date, the asset decommissioning costs have been
pre-funded.

Sonangol is an experienced operator with a sustained track record across the
leading and lagging indicators for safety and environmental considerations,
including CO2 emissions and flaring measurements. Afentra looks forward to
working with Sonangol to determine action plans to further reduce future
emissions.

Post completion of the Acquisition, the JV will be comprised as follows:
Sonangol (Operator, 30%), Afentra (20%), M&P (20%), ENI (12%), Somoil
(10%), NIS-Naftagas (4%) and INA (4%).

 

Asset Overview: Block 23

Block 23 is a 5,000 km2 exploration and appraisal block located in the Kwanza
basin in water depths from 600 to 1,600 metres and has a working petroleum
system. Whilst the large block is covered by modern 3D and 2D seismic data
sets, with no outstanding work commitments remaining, the majority of the
block remains under-explored.

The block contains the Azul oil discovery, the first deepwater pre-salt
discovery in the Kwanza basin. This discovery made in carbonate reservoirs has
oil in place of around 150 mmbo and tested at flow rates of around 3,000 -
4,000 bopd of light oil.

Post completion of the Acquisition, the JV is expected to be comprised of:
Namcor, Sequa and Petrolog(40% and operator); Afentra (40%) and Sonangol
(20%).

 

Strategic Rationale

The 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. These assets give Afentra exposure to a
high-quality asset base with long-life, low-cost production, access to
additional production optimisation opportunities, upside potential and
opportunities to reduce future emissions.

Angola is a jurisdiction where the Afentra team have significant knowledge and
previous experience. It offers an attractive operating environment, with good
fiscal terms which have been improved in recent years to attract new
investment. It is a material hydrocarbon province with a wealth of future
opportunities and was a key target country for the Company.

Afentra are acquiring a meaningful interest in Block 3/05 alongside an
experienced and credible operator and an aligned JV. Consistent with Afentra's
Purpose and Strategy, Afentra will be working alongside Sonangol to support
its transition strategy which is closely aligned with Afentra's ESG agenda. A
key outcome of the due diligence work to date has been to identify the
opportunity to work with the JV to enhance the environmental performance of
Block 3/05 through emissions reductions.

Commenting on the update, CEO Paul McDade said:

"We are delighted to have agreed terms with Sonangol and signed the SPA for
our entry into Block 3/05, Lower Congo basin and Block 23, Kwanza basin in
Angola. This transformative deal marks our first acquisition since launch last
year, and sees the Company enter Angola, a major oil and gas jurisdiction with
significant opportunities ahead to build a material business and positively
impact the energy transition in Africa.

This highly accretive transaction gives Afentra exposure to a high-quality
asset base, underpinned by strong cash flow from stable and long-life
production and 20 million barrels1 of net 2P Reserves. The assets, containing
over 3 billion barrels1 of oil in place, provide significant scope for further
value creation from production optimisation, infill drilling and incremental
developments. The attractive deal metrics and strong cashflow generation
demonstrate Afentra's commercial discipline and focus on robust cash flow. The
entry into Block 23 provides us the opportunity to work with Sonangol to
better understand and unlock the potential of this exciting and highly
prospective exploration area.

We are looking forward to partnering with Sonangol, which has run a very
pragmatic and transparent process, and supporting them in delivering an
effective energy transition strategy. We are also looking forward to
demonstrating our commitment to the ESG principles upon which Afentra was
launched and working to create value for all of our stakeholders.

The next steps will be to complete our due diligence process and to conclude
our discussions on the debt facility to fund the acquisition, with a view to
completing the transaction in the third quarter of 2022.

I would like to thank our shareholders for their patience through this process
and hope they share the management's excitement about the value creation
implications of this deal. We look forward to communicating on our progress as
we move towards the publication of the re-admission document and the
recommencement of trading thereafter."

1. OIIP and 2P Reserves are currently determined by Afentra and subject to
ongoing independent Competent Persons Report.

 

Management Presentation - 10am Thursday 28 April

Afentra's management team will host a live audiocast presentation today at
10am to provide further details on the Acquisition and the assets.

 

The live audiocast can be accessed via the following link:

https://webcasting.buchanan.uk.com/broadcast/625eab44841dd838fd0be737
(https://webcasting.buchanan.uk.com/broadcast/625eab44841dd838fd0be737)

A playback of the audiocast will be made available on the website:
www.afentraplc.com (http://www.afentraplc.com/)

Analysts and investors wishing to participate in the Q&A session can do so
by submitting questions to afentra@buchanan.uk.com
(mailto:afentra@buchanan.uk.com) , or via the chat function of the live
audiocast, and these will be addressed by management during the audiocast.

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

 Jon Krinks

 James Husband

 Peel Hunt LLP (Nominated Advisor and Joint Broker)

 +44 (0)20 7418 8900

 Richard Crichton

 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 a current 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.

 

Technical Information

 

The technical information contained in this announcement has been reviewed and
approved by Robin Rindfuss, Head of Sub-Surface at Afentra plc. Robin Rindfuss
has over 25 years of experience in oil and gas exploration, production and
development and is a member of the Society of Petroleum Engineers (SPE).  The
OIIP and 2P Reserves information set out herein are currently determined by
Afentra and are subject to the ongoing preparation of an independent Competent
Persons Report.

 

Continued suspension of trading

The Acquisition constitutes a reverse takeover in accordance with Rule 14 of
the AIM Rules for Companies. An AIM re-admission document setting out, inter
alia, details of the Acquisition (including a competent person's report on the
assets being acquired) will be published and sent to Afentra's shareholders
with a notice of general meeting.  Accordingly, the Company's ordinary shares
will remain suspended from trading on AIM until either the publication of an
AIM admission document or until confirmation is given that the Acquisition is
not proceeding. The Company will release further announcements as and when
appropriate.

 

Standard

Estimates of reserves and resources have been prepared in accordance with
the June 2018 Petroleum Resources Management System ("PRMS") as the standard
for classification and reporting.

 

 

 

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