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Baron Oil announces proposed reverse takeover transaction with SundaGas
14 Nov 2019
Baron Oil, the AIM-listed oil and gas exploration and production company focused on opportunities in the UK, Latin America and South East Asia, has entered into a non-binding Heads of Agreement ('HOA') with SundaGas, as a result of which, subject to, among other matters, the execution of a Sale and Purchase Agreement (the 'SPA'), Baron would acquire the entire issued share capital of SundaGas (Holdings).
SundaGas is a Singapore based private E&P company with a portfolio of operated gas and oil projects in SE Asia, with offices in Singapore and Jakarta and a new office about to open in Dili, Timor-Leste.
The Proposed Transaction will be classified as a reverse takeover pursuant to the AIM Rules and accordingly the Company's shares will be temporarily suspended from trading on AIM as of 07:30 a.m. today (Nov 14). Completion of the Proposed Transaction is therefore subject to certain matters including the completion of an appropriate SPA, approval by Baron's shareholders at a general meeting to be convened in due course, the raising of an appropriate level of equity, the grant of a Rule 9 waiver by the UK Takeover Panel in respect of the proposed issue of new shares to SundaGas and the admission of the enlarged group to trading on AIM. In order to convene the General Meeting, the Company is required to publish an AIM Admission Document which details, inter alia, the terms of the Proposed Transaction. It is currently expected that should the Proposed Transaction proceed, the AIM Admission Document will be published during Q1 2020.
The principal terms of the Heads of Agreement are summarised below.
Assets to be acquired:
1. Chuditch Block, offshore Timor-Leste
On 08 November 2019, SundaGas Banda Unipessoal ('SGB'), currently a wholly-owned subsidiary of SundaGas, executed the TL-SO-19-16 Production Sharing Contract covering the Chuditch offshore block in the Democratic Republic of Timor-Leste (the 'Chuditch PSC'). SGB holds a 75% operated working interest in the Chuditch PSC, in partnership with TIMOR GAP Chuditch Unipessoal, a subsidiary of the national oil company of the Democratic Republic of Timor-Leste. Under the terms of an agreement entered into between Baron and SundaGas on 23 September 2016, Baron is entitled to be issued shares for a 33.33% interest in SundaGas (Timor-Leste Sahul) ('SGTL'), the holding company of SGB. Such entitlement has been factored into the terms of the Proposed Transaction.
The Chuditch PSC is located approx. 185 kms south of Timor-Leste, 100 kms east of the producing Bayu-Undan field and 50 km south of the planned Greater Sunrise development. The Chuditch PSC covers approx. 3,571 km2, in water depths of 50-100 metres. It contains the Chuditch-1 gas discovery, which was drilled by Shell in 1998 and encountered a 25m gas column in the Jurassic Plover formation on the flank of a faulted structure. SundaGas consider that the Chuditch field contains material volumes of sales gas, with significant upside within and adjacent to the discovery itself, and in multiple exploration prospects and leads that have been identified along trend.
During the initial three-year term of the Chuditch PSC, SGB has an obligation to reprocess 800 km2 of 3D seismic to a pre-stack depth migration ('PSDM') and, if justified by the results of the PSDM, drill a well during the third year. SGB also has an obligation to post a bank guarantee of US$ 1 million to guarantee the work obligations to be carried out up to the decision to drill a well in the third year.
It is proposed that SundaGas will carry all costs incurred on the Chuditch PSC, including the Bank Guarantee, which will be repaid from the proceeds of the Fundraising. Should the Proposed Transaction not complete, Baron will have 90 days from the date of termination to repay the 33.33% share of such carried costs attributable to its beneficial interest in SGB held through SGTL.
2. Telen Block, offshore Indonesia
SundaGas Indonesia Telen (a wholly-owned subsidiary of Target) operates with a 100% working interest the Telen Production Sharing Contract (the 'Telen PSC'), offshore Indonesia, containing the Hiu Marah drill-ready prospect, which has independently audited best estimate prospective resources of 126 million barrels of oil and 208 billion cubic feet of gas. The Telen PSC was acquired from TOTAL in March 2018. SundaGas is currently running a process to farm out the drilling of the proposed Hiu Marah well which is currently required to be drilled by 8 October 2020. The exploration phase of the Telen PSC runs until 8 October 2022.
A performance bond of US $ 4.45 million has been previously provided by SundaGas in respect of the Telen PSC and it will remain in place following completion of the Proposed Transaction.
In addition to these assets, Target will come with an experienced technical team and operating capability and will continue to pursue new venture activities, concentrating on securing additional material assets in the SE Asia region.
As consideration for the Proposed Transaction, SundaGas will be issued pro-rata 2 new ordinary shares in Baron for every 1 ordinary share currently in issue. The total number of ordinary shares expected to be held and the percentage of ownership before the Fundraising, will be SundaGas: 3,852,819,512 (66.67%) and Baron existing shareholders: 1,926,409,576 (33.33%). In addition to the Fundraising, it is intended that the Company will carry out an appropriate share consolidation and that Baron will change its name to SundaGas Plc.
Completion of the Proposed Transaction would be subject to a number of conditions including but not limited to the execution of a detailed legally binding SPA, the completion of satisfactory due diligence, the grant of a Rule 9 Waiver, the publication of an AIM Admission Document by Baron, the Fundraising and shareholder approval at the General Meeting.
In addition, SundaGas will provide an unsecured loan facility to Baron of up to £200,000 to cover certain costs related to the Proposed Transaction at a nominal interest rate of one (1) per cent. per annum and repayable within 90 days in the event that Proposed Transaction does not proceed.
The HOA provides that, on completion of the Proposed Transaction, Dr Andy Butler and Paul Ebdale, each an existing director and a 50% shareholder of SundaGas, will join the board of Baron.
Although this is not a Related Party Transaction under the AIM Rules, it is noted that a director and an ultimate beneficial owner of SundaGas (Dr Andy Butler) is the nephew of Dr Malcolm Butler, Baron's Executive Chairman.
Temporary Suspension of Trading
By virtue of its size, and as mentioned above, the Proposed Transaction constitutes a reverse takeover in accordance with Rule 14 of the AIM Rules for Companies. Accordingly, at the request of the Company, the Company's ordinary shares will be suspended from trading on AIM with effect from 07:30 a.m. today and will remain so until either the publication of an AIM Admission Document setting out, inter alia, details of the Proposed Transaction or until confirmation is given that the Proposed Transaction has been terminated.
As part of the AIM Admission Document, a competent persons report will be prepared in respect of assets of Target.
Dr Malcolm Butler, Executive Chairman of Baron, commented:
'The SundaGas team brings impressive management and technical expertise in South East Asia and it makes sense for us to combine forces with them. The Chuditch PSC has the potential to contain a substantial gas accumulation and is an asset of significant value. This Proposed Transaction will be transformational for our shareholders and we look forward to reporting back on progress in due course.'
Source: Baron Oil