TIDMROSE
RNS Number : 0637S
Rose Petroleum PLC
04 November 2019
Prior to publication, the information contained within this
announcement was deemed by the Company to constitute inside
information as stipulated under the Market Abuse Regulations (EU)
No. 596/2014 ("MAR"). With the publication of this announcement,
this information is now considered to be in the public domain.
4 November 2019
Rose Petroleum plc
("Rose" or the "Company")
Proposed Acquisition of McCoy Lease Interest and Equity
Fundraising
Rose Petroleum plc (AIM: ROSE), the Rocky Mountain-focused oil
and gas company, is pleased to announce it has entered into a
Letter of Intent ("LOI") with Captiva Energy Holdings II, LLC
("CEH") for the proposed acquisition of an initial 10% of CEH's
89.5% net working interest in the 317-acre McCoy lease located in
the Denver-Julesburg Basin ("DJ Basin") in Weld County, Colorado,
U.S. (the "Acquisition").
In addition, the Company will have an option to acquire, at its
sole discretion, up to a further 80% of CEH's 89.5% working
interest in the McCoy lease (the "Option").
The directors of the Company (the "Board") consider that the
proposed Acquisition will provide Rose with near-term, low-risk
horizontal development drilling exposure in the prolific Niobrara
shale play, and on acreage contiguous to other major DJ Basin
operators including Occidental Petroleum Corporation, Great Western
Operating Company LLC, and Crestone Peak Resources. The DJ Basin is
a mature oil basin currently undergoing a resurgence as vertical
production is replaced with successful one and two-mile horizontal
well developments. The McCoy lease is located in an active part of
the DJ Basin and a horizontal redevelopment of the existing
productive lease is proposed, with a forecast commencement date in
mid-2020 for an initial 12 well drilling programme with up to
two-mile long laterals (the "Initial Drilling Programme").
The Company expects to shortly conclude an equity fundraising to
raise up to GBP1.25 million (the "Placing") at 1.1p per share ("the
"Placing Price"), and a portion of the proceeds from the Placing
will be committed to the Acquisition. Further details on the
Placing can be found below.
Colin Harrington, Rose CEO, commented: "The DJ Basin is a
world-class, liquids-rich resource play with over 4,000 horizontal
wells drilled to date. There is significant infrastructure in place
with available capacity, and ready access to service providers and
contractors. Rose's new management team, as well as that of our
partner CEH, has significant experience delivering production from
horizontal development in close proximity to the McCoy lease.
"This proposed Acquisition, and associated Option, is the first
in a series of expected deals designed to build value via
attractively priced, low risk assets which can deliver production
in the short term. We believe the McCoy lease will be an excellent
addition to the Rose portfolio and will both complement and balance
our newly restructured Paradox Basin appraisal asset.
"I look forward to updating the market on our progress as we
build and grow our asset portfolio."
Highlights
The Acquisition has multiple commercial benefits:
-- A near-term, low risk development opportunity alongside
Captiva Energy Partners, LLC ("CEP"), a U.S. based industry partner
with a proven track record of successful horizontal development in
the immediate area;
-- An attractive entry cost when compared to similar
transactions, with consideration payable in Rose shares at a
premium to the Placing Price;
-- A robust, accretive project with strong well economics;
-- Near-term production programme proposed, with drilling anticipated within a year;
-- Optionality to acquire up to a further 80% of CEH's working
interest in the McCoy lease at Rose's sole discretion; and
-- Ongoing discussions to enlarge the project and secure a
significant funding partner for the project's development.
The Acquisition will give Rose access to prime acreage within
the prolific DJ Basin Niobrara shale play with optionality to
increase its working interest position significantly. It also marks
the beginning of a partner relationship with CEH and its management
team, which operates through CEP. This partnership will provide
further deal flow, access to proven competence and a wealth of
experience in the Rocky Mountain region. The deal fits well with
the stated Rose strategy targeting low-risk, low-entry cost
acquisitions which can deliver near-term production to balance the
Rose asset portfolio currently comprised of the longer-term Paradox
Basin appraisal asset.
CEP is managed by Paul Onsager and Bill Hayworth (the "Executive
Team"), two professional engineers, each with more than 30 years'
domestic US and international oil and gas industry experience with
the last five years focused almost exclusively on the DJ Basin.
Since founding CEP in 2016, the team executed a successful
horizontal development on farm-out acreage from Anadarko, sold a
horizontal development to Great Western Oil & Gas and purchased
CEH's interest in the McCoy lease from Vanguard Natural Resources.
Prior to CEP, Paul and Bill led a DJ Basin horizontal development
programme for a Colorado-based private equity backed oil and gas
firm. Prior to that, Paul was VP Operations for the Rockies Asset
team at Pioneer Natural Resources, former VP for Reservoir
Engineering at Norwest Corp and former Reservoir Engineering team
leader at the U.S. Bureau of Land Management. Bill is the former
President of PRB / Black Raven Energy and the former VP of
Operations at Intoil (both Rocky Mountain-focused oil companies),
and he has held senior engineering and operations roles at Unit
Corporation, Patrick Petroleum and Phillips Petroleum. Both Bill
and Paul are registered Professional Engineers in the State of
Colorado.
McCoy Lease Background
CEH initially acquired its interest in the McCoy lease from
Vanguard Natural Resources in September 2018. Since the
acquisition, CEH has invested additional capital related to
permitting and partner negotiations for the planning of a
horizontal redevelopment of the McCoy lease, and total cash
expenditure by CEH to date has been $2.7 million. Rose will be
purchasing its percentage of the McCoy lease at CEH's pro-rata
cost, which the independent directors of Rose believe is an
attractive valuation when compared to other acreage transactions in
the immediate area.
The McCoy lease offers near-term, low-risk horizontal
development drilling exposure that will target the proven Niobrara
and Codell Formations' chalk and sandstone reservoirs. These
formations both have existing commercial production from horizontal
wells on the lands directly off-setting the McCoy lease.
Pending definitive agreements with potential strategic partners
and mandatory consents, and following completion of the
Acquisition, Rose will have the right to participate in the
proposed Initial Drilling Programme, further details of which are
set out below. These wells will target the Niobrara and Codell
Formations.
Reserves and production data will be made public pending
completion of a Competent Person's Report ("CPR") and partnership
discussions.
The Acquisition (including the Option) is subject to, inter
alia, the completion of technical and financial due diligence by
Rose, execution of a formal sale and purchase agreement, successful
conclusion of partnership discussions, and approval of the
application for a Drilling Spacing Unit ("DSU") to accommodate the
drilling of up to two-mile laterals (for the proposed Initial
Drilling Programme) across multiple leasehold interests, including
the McCoy lease.
Next Steps
CEH and Rose are working with partners to implement a DSU on
which the Initial Drilling Programme is expected to commence in
mid-2020. Rose estimates that there is the potential to drill up to
26 wells within the proposed DSU.
As the Initial Drilling Programme will be across multiple
leasehold interests, Rose currently expects that the 10% working
interest in the McCoy lease being acquired will result in Rose
having an approximate 2.217% working interest in the Initial
Drilling Programme, rising to a maximum approximate 19.954% working
interest in the Initial Drilling Programme should the Option to
acquire the additional 80% working interest in the McCoy lease be
exercised in full.
The Company estimates that the total CAPEX for the 12 well
programme will be circa US$72m, or circa US$6m per well, and the
expected Estimated Ultimate Recovery from each of the wells will be
circa 850,000 barrels of oil equivalent (0.85mmboe).
The proposed low-risk Initial Drilling Programme would, if
successful, and based on current oil prices, generate significant
cashflows to Rose and would be accretive to shareholders.
Based on the proposed Initial Drilling Programme, Rose's CAPEX
on its initial acquisition of 10% of CEH's working interest
("Initial Tranche") is currently forecast to be $1.6 million, with
up to a further $12.6 million CAPEX should the Option be exercised
in full. In addition, Rose will also carry CEH to an equivalent
11.1% of Rose's CAPEX on the first 20 wells drilled on the lease.
The carry obligation on the Initial Tranche would be approximately
$175,000 and would be scaled upwards pro-rata for the first 20
wells if the Option is exercised.
Key Terms
Consideration to CEH for the Initial Tranche will be calculated
based on CEH's pro-rata portion of all back costs (including
acquisition and development costs) associated with the Initial
Tranche. As outlined above, CEH's back costs to-date have been $2.7
million, so the pro-rata portion net to Rose's interest is $270,000
(approximately GBP208,000) (the "Consideration"). The Consideration
will be satisfied by the issue of new ordinary shares of 0.1p in
Rose ("Ordinary Shares") to CEH, priced at 1.32p per share (being a
20% premium to the Placing Price) ("Initial Consideration
Shares").
In addition, Rose will also carry CEH to an equivalent 11.1% of
Rose's CAPEX on the first 20 wells drilled on the McCoy lease (the
"Carry"). If Rose exercises its Option to acquire a 50% working
interest or greater in the McCoy lease, it will also be responsible
for CEH's proportionate share of the plugging and abandonment costs
of the five existing vertical wellbores prior to horizontal
redevelopment.
As part of the proposed Acquisition, Rose will also receive the
Option, valid up to and including 28 February 2020, and extendable
at the sole discretion of CEH, to acquire up to a further 80% of
CEH's interest in the McCoy leasehold (excluding ownership of the
existing vertical wellbores) if Rose can demonstrate sufficient
means to fund its share of the related McCoy development CAPEX
budget for any additional working interest acquired, as well as
funding the Carry as described above. During this option period,
Rose can acquire any percentage that it chooses, in several
tranches, at its sole discretion. The price for the subsequent
tranches in the lease will be calculated on the same basis as the
Initial Tranche (linked directly to pro-rata back costs, adjusted
to reflect any subsequent development costs incurred by CEH) and
will also be payable in new Ordinary Shares. The number of shares
to be issued for exercising the Option will be determined by the
60-day volume weighted average price of Ordinary Shares on the date
the Option is exercised divided into the pro-rata back costs.
On completion of the Acquisition, an ongoing management fee will
be payable by Rose to the Executive Team of CEP (which, for the
avoidance of doubt, excludes Rick Grant and Colin Harrington) to
manage and oversee the project on Rose's behalf.
As outlined above, the Acquisition (including the Option) is
subject, inter alia, to completion of technical and financial due
diligence by Rose, execution of a formal sale and purchase
agreement, successful conclusion of partnership discussions, and
approval of the application for the DSU to accommodate the drilling
of up to two-mile laterals (for the proposed Initial Drilling
Programme) across multiple leasehold interests, including the McCoy
lease. As such, there can be no certainty that a final agreement
will be entered into to enable the Acquisition to proceed. The
Initial Consideration Shares will be issued when Rose and CEH enter
into the formal sale and purchase agreement for the
Acquisition.
Proposed Fundraising
In order to part-finance the Company's CAPEX obligations on the
Initial Tranche, which includes its contribution to the Initial
Drilling Programme in 2020, the preparation of a CPR and due
diligence on the Acquisition, as well as to provide the Company
with additional working capital, Rose is expected to shortly
conclude the Placing.
Origin Creek Energy LLC ("OCE") and Chris Eadie (Finance
Director of Rose) have indicated that they intend to participate in
the Placing for GBP480,000 and GBP10,000 respectively.
A further announcement with details of the Placing is expected
to be released shortly.
Related Party Transaction
CEH is indirectly controlled by OCE. The shareholders of OCE are
Rick Grant, the Chairman of Rose, and Colin Harrington, the CEO of
Rose and who are also directors of CEH and the directors of OCE.
Therefore, the Acquisition including the Option, should it proceed,
would be a related party transaction pursuant to rule 13 of the AIM
Rules for Companies.
Contacts:
Rose Petroleum plc Tel: +44 (0)20 7225 4599
Colin Harrington (CEO) Tel: +44 (0)20 7225 4599
Chris Eadie (CFO)
Allenby Capital Limited - AIM Nominated
Adviser Tel: +44 (0)20 3328 5656
Jeremy Porter / James Reeve / Liz Kirchner
Turner Pope Investments - Joint Broker Tel: +44 (0)20 3657 0050
Andy Thacker / Zoe Alexander
Cantor Fitzgerald Europe - Financial Tel: +44 (0)20 7894 7686
Adviser and Joint Broker
David Porter
Novum Securities Limited - Joint Broker Tel: +44 (0)20 7399 9427
Colin Rowbury
Media enquiries: Tel: +44 (0) 20 3633 1730
Allerton Communications peter.curtain@allertoncomms.co.uk
Peter Curtain
Dr Gregor Maxwell, BSc Hons. Geology and Petroleum Geology, PhD,
Technical Adviser to the board of Rose Petroleum plc, who meets the
criteria of a qualified person under the AIM Note for Mining and
Oil & Gas Companies - June 2009, has reviewed and approved the
technical information contained within this announcement.
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END
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