13th Jul 2005 07:01
Star Energy Group PLC13 July 2005 NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF IRELAND STAR ENERGY GROUP PLC PROPOSED ACQUISITION OF PENTEX MANAGEMENT LIMITED AND £35.0 MILLION PLACING Star Energy Group plc ("Star Energy" or the "Company"), the UK based energycompany, announces the proposed acquisition of Pentex Management Limited ("Pentex") and a Placing. Key points Proposed Acquisition • Pentex is a privately owned UK based energy company, which has oil and gas assets in the UK producing approximately 2,000 boepd (net) including approximately 1.4 mmscfd of gas (equivalent to approximately 230 boepd). • Pentex had Proven and Proven and Probable remaining reserves of 9.5 mmboe and 16.4 mmboe respectively, as at 1 January 2005. • Pentex's assets consist of operated interests in 15 onshore licenses and appraisal and exploration opportunities in the UK onshore sector (East Midlands Basin and Weald Basin). • In addition, the Directors believe that there may be potential for gas storage development opportunities in the Pentex portfolio. • The consideration for the Acquisition will be approximately $67.6 million (approximately £38.5 million), payable in cash on Completion, for the entire issued share capital of Pentex and, in addition, the existing Pentex Group's current debt of $14.4 million (approximately £8.2 million) will be refinanced. • A potential further payment of approximately £5.1 million will be payable if, inter alia, planning permission is obtained in respect of a gas storage project at Gainsborough. • The Directors believe that the Acquisition will be earnings enhancing in the first full year of ownership. Placing and New Debt Facilities • Placing to raise approximately £35.0 million by the issue of 19,125,684 New Ordinary Shares at 183.0 pence per share. • An additional debt facility of £20.0 million has been entered into. • Of the amount being raised in the Placing, £18.5 million will be used to fund the proposed Acquisition, £5.7 million will be used to accelerate the development of the potential Albury and Bletchingley gas storage facilities and the balance will be used for general corporate purposes • European Acquisition Capital Limited ("EAC") has entered into non-binding heads of terms to sell its stake in the Company to a leading Fortune 500 multinational oil and gas company (the "Prospective Purchaser"). The Prospective Purchaser has, in addition, indicated its intention to subscribe for 19.06 per cent. of the New Ordinary Shares at the Placing Price. Commenting on the proposed acquisition and the placing the Chairman, StephenGutteridge, stated: "The acquisition of Pentex will consolidate Star Energy's position as a leadingparticipant in the onshore UK oil and gas industry and as the key owner ofdepleted reservoir gas storage opportunities onshore UK. The Acquisition isexpected to increase production from Star Energy's current level ofapproximately 3,100 boepd (net) to approximately 5,100 boepd (net) and willsignificantly increase Star Energy's Proven and Probable reserves as at 1January 2005 from 14.7 mmboe to 31.1 mmboe. In addition to the increased oilreserves and production, the Acquisition may add further potential gas storageopportunities and provides operational synergies and incremental cash flowwithin the Enlarged Group." This summary should be read in conjunction with the full text of thisannouncement. Appendix I sets out the expected timetable of principal events Appendix II sets out the definitions used in this announcement. Appendix III sets out the glossary of terms used in this announcement. Enquiries: Star Energy Group plc +44 (0)20 7730 6663 Roland Wessel Colin Judd Hoare Govett Limited +44 (0)20 7678 8000 Andrew Foster Sean Wegerhoff Stephen Bowler College Hill +44 (0)20 7457 2020 Jim Joseph The circular setting out the full details of the Acquisition and Placingtogether with the form of proxy, is expected to be despatched to shareholderstoday. Copies of the circular can be obtained from or inspected at the offices ofNorton Rose, Kempson House, Camomile Street, London EC3A 7AN. The New Ordinary Shares are being offered and sold outside the United States inaccordance with Regulation S under the US Securities Act of 1933, as amended.The New Ordinary Shares have not been, and will not be, registered under the USSecurities Act, or under the securities legislation of any state of the UnitedStates. The relevant clearances have not been, and will not be, obtained fromthe Securities Commission of any province or territory of Canada; no document inrelation to the Placing has been, or will be, lodged with, or registered by, TheAustralian Securities and Investments Commission; and no registration statementhas been, or will be, filed with the Japanese Ministry of Finance in relation tothe Placing or the New Shares. Accordingly, subject to certain exceptions, theNew Ordinary Shares may not, directly or indirectly, be offered or sold withinthe United States, Canada, Australia or Japan or any other prohibited territoryor offered or sold to a resident of the United States, Canada, Australia orJapan. Members of the general public are not eligible to take part in the Placing.This announcement, in so far as it constitutes an invitation or inducement toparticipate in the Placing, is directed only at persons who have professionalexperience in matters relating to investments who fall within article 19(1) ofthe Financial Services and Markets Act 2000 (Financial Promotions) Order 2001(as amended) (the "Order") or are persons falling within article 49(2) (a) to(d) of the Order or to whom it may otherwise lawfully be communicated (all suchpersons together being referred to as "Relevant Persons"). This announcement,in so far as it constitutes an invitation or inducement to participate in thePlacing, must not be acted on or relied on by persons who are not RelevantPersons. Any investment or inducement activity in so far as relating toparticipation in the Placing is available only to Relevant Persons and will beengaged in only with Relevant Persons. Hoare Govett Limited, which is regulated by The Financial Services Authority, isthe Company's nominated adviser and broker for the purposes of the AIM Rules andis acting solely for the Company in relation to the Placing. Hoare Govett is notacting for, and will not be responsible to, any person other than the Companyfor providing the protections afforded to clients of Hoare Govett or foradvising any other person on the contents of this announcement or on anytransaction or arrangement referred to in this announcement. Hoare Govett'sresponsibilities as the nominated adviser to the Company are owed solely toLondon Stock Exchange plc. NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF IRELAND PROPOSED ACQUISITION OF PENTEX MANAGEMENT LIMITED AND PROPOSED PLACING FOR CASH OF 19,125,684 NEW ORDINARY SHARES 1. Introduction Star Energy announces today that the Company has entered into a conditionalagreement to acquire Pentex, a privately owned UK based energy company, whichhas oil and gas assets in the UK producing approximately 2,000 boepd (net)including approximately 1.4 mmscfd of gas (equivalent to approximately 230boepd). The consideration for the Acquisition will be approximately $67.6million (approximately £38.5 million) payable in cash on Completion for theentire issued share capital of Pentex, and, in addition, the existing PentexGroup's debt of $14.4 million (approximately £8.2 million) will be refinanced.A potential further payment of approximately £5.1 million will be payable if,inter alia, planning permission is obtained in respect of a gas storage projectat Gainsborough. The further payment will be satisfied by the issue by theCompany of the Loan Notes. In order to finance the cash consideration for the Acquisition and the relatedexpenses, the Company also announces today that it proposes to raiseapproximately £35.0 million (approximately £30.6 million net of expenses of theAcquisition and the Placing), pursuant to the Placing. The Placing is proposedto be carried out on a non-pre-emptive basis. Further details of the Placing areset out below. In addition, the Company has also entered into the New DebtFacilities for the provision of an additional £20.0 million of bank facilities.As a result, a total of £55.0 million will be raised, of which £38.5 millionwill be used to fund the proposed Acquisition. The balance, amounting to £12.1million (net of expenses), will be used to accelerate the development of thepotential Albury and Bletchingley gas storage facilities (amounting to £5.7million) and for general corporate purposes (amounting to £6.4 million). The Placing is conditional, inter alia, on the Sale and Purchase Agreement andthe New Debt Facilities becoming wholly unconditional in accordance with theirterms, on the passing of the Resolution and on Admission. 2. Rationale for the Acquisition The Directors believe that the Acquisition will consolidate Star Energy'sposition as a leading participant in the onshore UK oil and gas industry and asthe key owner of depleted reservoir gas storage opportunities onshore UK. TheAcquisition is expected to increase production from Star Energy's current levelof approximately 3,100 boepd (net) to approximately 5,100 boepd (net) and willsignificantly increase Star Energy's Proven and Probable reserves as at 1January 2005 from 14.7 mmboe to 31.1 mmboe. In addition to the increased oilreserves and production, the Acquisition may add further potential gas storageopportunities and provides operational synergies and incremental cash flowwithin the Enlarged Group. The Directors believe that the Acquisition will beearnings enhancing in the first full year of ownership. 3. Information on Star Energy Star Energy is a UK based energy company, comprising three business activities: • a developing gas storage business with one existing project (the Humbly Grove gas storage facility) and the opportunity to develop further projects from the Group's existing portfolio of assets; • the UK's second largest onshore oil production operation; and • a power generation business based on existing gas fired power generation. Star Energy is the UK's second largest onshore oil producer behind BP plc,currently producing approximately 3,100 boepd (net). Star Energy's onshore UKproducing assets are located in the Weald Basin, acquired with the purchase ofSOCO UK Onshore Limited in late 1999, and in the East Midlands, acquired fromROC Oil Company in May 2000. The Directors estimate that the Proven and theProven and Probable remaining recoverable oil reserves, as at 1 January 2005,relating to Star Energy's assets were 6.1 mmboe and 14.7 mmboe, respectively. Star Energy has a number of exploration prospects located within its licenceareas both in the East Midlands and the Weald Basin. These prospects are at anearly stage of evaluation by the Directors and will require significant furtherappraisal effort to determine their potential including the acquisition ofseismic data and the drilling of wells. However, in the near term the Directorsintend to focus on developing the Group's gas storage business. East Midlands Oil production Star Energy's East Midlands portfolio includes interests in six producingfields, one potential gas field development and seven exploration prospectscontained within eight licences. The Directors estimate that the Proven and the Proven and Probable remainingrecoverable oil reserves as at 1 January 2005 in these producing fields, were3.4 mmboe and 6.9 mmboe, respectively. These producing fields are centred on theWelton oil field north of Lincoln where a substantial gathering and processingfacility is located and from which the oil is transported by train to thirdparty storage facilities at Immingham. The oil is then sold by Star Energy tothe TotalFinaElf refinery at Immingham. The Welton gathering centre consists ofthe following infrastructure: • a process facility capable of separating at least 2,000 bbls of fluids per day and generating up to 3.0 MW of power from the associated gas; • storage facilities for approximately 17,000 bbls of crude oil; • rail sidings and terminal for the loading of railcars; • offloading and loading facilities for road tankers; and • an onsite office block incorporating a central control room for the operation of the gathering centre and associated well sites. The Group has drilled two infill wells on the Welton oil field and intends todrill an infill well on the Cold Hanworth oil field in 2005. The producing fields in the East Midlands, with details of each of theirrespective Proven and Proven and Probable remaining oil reserves, together withthe date of expiry of the relevant licences, are set out in the table below: Star Proven remaining Proven and Probable Energy's oil reserves remaining oil reserves interest (mmboe) (mmboe) LicenceField (%) (as at 01/01/05) (as at 01/01/05) expiry Welton 100 2.722 5.209 2014 Scampton South 100 0.007 0.021 2014 Scampton North 100 0.368 0.655 2014 Stainton 100 0.006 0.007 2014 Nettleham 100 0.021 0.060 2014 Cold Hanworth 100 0.311 0.972 2007Total 3.435 6.924 Figures are the Directors' estimates, as at 1 January 2005. Conversion of some of the producing oil fields to gas storage facilities willpostpone the incurring of abandonment costs, which would usually arise on thecessation of oil production, for the life of the gas storage facility. Exploration potential In the East Midlands licence areas, Star Energy has four licences that togethercontain seven potential exploration prospects, being located at Caenby,Hemswell, Willoughton, Spridlington, Beckering and two prospects in theGainsborough Trough area. The Directors estimate, based on currently availableinformation, that these prospects potentially contain, in aggregate, up to 75mmstb of oil, although recovery factors could be low. Weald Basin Oil and gas production Star Energy's Weald Basin portfolio includes interests in seven producingfields, one potential gas field development and six exploration prospectscontained within nine licences. The Directors estimate that the Proven and Proven and Probable remainingrecoverable oil reserves as at 1 January 2005 in these producing fields, were2.6 mmboe and 7.7 mmboe, respectively. Humbly Grove and Herriard production is processed at the Humbly Grove gatheringcentre where oil is processed and transported via a five mile pipeline to StarEnergy's rail terminal at Holybourne. The gathering centre comprises: • freehold site covering approximately 60 acres; • 10 MW of modern gas turbine power generation equipment; • gas compression equipment for gas re-injection; • crude oil storage tanks; • oil processing equipment; and • an onsite office block incorporating an automated control room linking satellite fields via telemetry. Production from all other Weald Basin oil fields is processed on site andtransported by road tanker to the Holybourne rail terminal. From Holybourne theoil is transported by rail to the Esso Petroleum Company's refinery at Fawley.Gas produced at Albury is used to generate electricity onsite and the resultingpower is exported to the local grid. The Group intends to drill two new infill wells on the Singleton oil fieldduring 2005. The producing fields in the Weald Basin, with details of each of theirrespective Proven and Proven and Probable remaining oil reserves, together withthe date of expiry of the relevant licences, are set out in the table below: Proven and Probable Proven remaining remaining oil reserves oil reserves (mmboe) Star Energy's (mmboe) (as at 01/01/05) LicenceField interest (%) (as at 01/01/05) expiry Albury (gas field) 62.500 0.120 0.198 2013 Singleton 79.125 0.741 2.717 2007 Storrington 75.000 0.341 1.052 2006 Palmers Wood 100.000 0.084 0.346 2014 Horndean 89.125 0.208 0.627 2006 Herriard 99.367 0.006 0.006 2015 Humbly Grove (see Note 1) 99.367 1.123 2.801 2015Total 2.623 7.747 Note 1: The Humbly Grove reserves estimates include incremental oil expected tobe gained from the implementation of the Humbly Grove gas storage project. Figures are the Directors' estimate (net to Star Energy), as at 1 January 2005. Conversion of some of the producing oil fields to gas storage facilities willpostpone the incurring of abandonment costs, which would usually arise on thecessation of production, for the life of the gas storage facility. Exploration potential In the Weald Basin licence areas, Star Energy has four licences that togethercontain six potential prospects, being located at Herriard North, Crockham Hill,Oxted, Baxters Copse, Burton Down and Storrington South. The Directors estimate,based upon currently available information, that Baxters Copse potentiallycontains up to 33 mmstb of oil and 8 BSCF of gas, Burton Down potentiallycontains up to 12 mmstb of oil or 7.5 BSCF of gas and the remaining prospectspotentially contain, in aggregate, up to 34 mmstb of oil, although recoveryfactors could be low. The Group intends to drill two appraisal wells at Albury and Bletchingley in2005 and 2006. Further information is set out in the paragraph entitled "Gasstorage business" below. Gas fired power generation Star Energy has gas fired power generation plants located on five of itsupstream operations sites with a total generating capacity of approximately 26MW, some 22 MW being located in the Weald Basin. Details of the respectivegenerating capacity of these plants is set out in the table below. With the exception of Albury (which is a gas producing field), these plantsutilise associated gas to generate electricity to help meet the electricityrequirements of Star Energy's upstream operations, which reduces operatingcosts. The excess electricity is sold, which generates additional revenues forStar Energy. Plant location CapacityStorrington 2 x 5 MWAlbury 2 x 1 MWHumbly Grove 2 x 5 MWSingleton 1 x 0.5 MWWelton 1 x 3.0 MWTotal 25.5 MW In 2005, as part of the Humbly Grove gas storage project, Star Energy relocatedone of the two 5 MW gas turbines from Storrington to Humbly Grove, giving atotal of 15 MW of generating capacity at Humbly Grove. This capacity willprimarily provide power for the gas storage operation but may be available forexport at other times. The Group entered into electricity off-take agreements with SmartestEnergy inSeptember 2003, under which SmartestEnergy has agreed to purchase electricityfrom the Group. These off-take agreements currently expire on 30 September 2005.SmartestEnergy has also agreed to supply electricity required by Star Energy'ssites when insufficient power for internal use is generated. Gas storage business Background The UK's gas consumption has been largely met from indigenous gas production formany years. According to the DTI, the UK became a net importer of gas in 2004for the first time since 1996. Looking ahead, declining indigenous gas production could lead to a significantgrowth in gas imports to meet annual demand. National Grid Transco expectsimports to meet over two thirds of UK demand within a decade. Many new importfacilities are being constructed to supply the UK market, but it is not clearhow much seasonal flexibility these will provide. With normal weather conditions gas demand is likely to be more than twice ashigh in the coldest month of the year than the warmest month of the year.Traditionally, the UK has dealt with periods of high demand using a number ofNorth Sea gas fields that have acted as 'swing' producers (i.e. producingsignificantly more gas in winter than in summer). It is this that has allowedthe UK to have a low gas storage to consumption ratio relative to mostcontinental European countries. However, as UK indigenous gas supplies continueto decline, their ability to meet swing demand diminishes. Furthermore, asignificant proportion of UK gas production is associated gas, which is producedalongside oil, and hence its use for swing production is limited. Considering the above problems, the Directors believe that there is a growingrequirement for gas storage facilities that can be used for supplying gas inperiods of high demand. These storage facilities are replenished in the summermonths when demand for gas is lower and used during the high demand wintermonths. Other European countries, such as France, Italy and Germany, have a muchlarger proportion of gas storage in relation to annual demand than the UK withstorage capacity of over 15 per cent. of the countries annual consumptioncompared to less than 5 per cent. in the UK. The amount of the gas storage iscorrelated to the amount of gas imported in these countries. The Directorstherefore believe that UK gas storage capacity will need to increase asindigenous gas supplies diminish. A seasonal gas storage facility, like the Humbly Grove facility, is a method ofstoring relatively cheap gas at times of low demand and selling it at higherprices at times of high demand. As a result the intrinsic value of the storagefacility is dependent on the seasonal pricing differentials that occur duringthe year in the gas market. Strategy The Group intends to exploit this potential growth market for gas storage byutilising its existing upstream portfolio, which includes a number of oil andgas fields (some of which are brownfield sites) that the Directors believe maybe suited to gas storage applications. The Directors also believe that thebrownfield nature of some of their facilities may aid the planning process.Several of these fields are located in the Weald Basin in the south of England,an area of significant household demand relative to the rest of the UnitedKingdom. The proximity to an area of the country which has a high level of gasdemand relative to supply may bring financial benefit in the future. The Directors believe that the Group's strategy exploits a number of advantages,including: • onshore development being inherently cheaper than offshore development; • the proximity to the NTS for many potential sites, lowering the cost of connection to the NTS; and • the ability to develop additional capacity in a relatively short time period (compared to SCs) once the approvals and permits have been obtained and the development project begins. In addition to generating a revenue stream in its own right, the Directorsbelieve that the introduction of gas storage can have significant benefits foroil production. The re-pressurisation of the reservoirs resulting from theinjection of gas can significantly enhance the productivity of existing oilwells and the storage scheme can extend the economic life of the field allowingoil production to continue for a longer period. Humbly Grove The Humbly Grove field is being re-developed as a gas storage facility with a3,146 GWh working capacity and, as the table below shows, on completion,expected in October 2005, would be one of the largest individual gas storagefacilities in the UK, representing approximately 8 per cent. of all current UKgas storage by capacity. DeliverabilityName Type Owner Capacity (GWh) (GWh/d)Rough DF offshore Centrica 30,300 455Hornsea SC Scottish & Southern 3,495 195 EnergyLNG Storage LNG Transco 2,806 525Facilities Hatfield Moor DF onshore Scottish Power 1,260 25 Hole House SC Energy Merchants Gas 300 30 StorageTotal 38,161 1,230Humbly Grove DF onshore Star Energy 3,146 78 Source: Ofgem consultation entitled "Consultation on an application by ScottishPower Energy Management Limited on behalf of Holford Gas Storage Limited for anexemption under section 19A(6)(a) of the Gas Act 1986" dated 24 March 2005. The £65 million 10 bcf Humbly Grove gas storage project started construction inApril 2004 with a target completion of October 2005. Civil works at the plantsite are substantially complete with buildings erected and clad, and most of thesteelwork erected. The mechanical and electrical work started in April 2005. Thedrilling of the four new gas storage wells started in November 2004 and the allfour wells have now been drilled. The 27 km pipeline from Humbly Grove to theTransco AGI at Barton Stacey has been installed and tested. The Directorsbelieve that the project is currently on budget and on schedule for commercialoperation in October 2005. Under the Humbly Grove gas storage scheme, gas will be injected into thereservoir when the market price is lower (principally during the summer months)and then produced back when the price is higher (principally during the wintermonths). In addition, the facility may also be used to exploit short-termvolatility in gas prices over and above the seasonal price differential. Star Energy has entered into a gas storage agreement with Vitol and an EPCcontract with Amec in relation to the Humbly Grove project. Other gas storage opportunities In addition to the Humbly Grove gas storage facility, Star Energy has aportfolio of other possible gas storage sites based on existing and potentialfields. The Directors believe that this gives Star Energy the potential torepeat the Humbly Grove business model and to become a significant player in theUK gas storage market. The table below sets out details of Star Energy'spotential gas storage projects compared to other UK potential storage projects. Name Type Developer Location Capacity Status (GWh)Aldbrough SC SSE/Statoil Aldbrough 4,427 Planning permission grantedByley SC Scottish Power Cheshire 1,758 Planning permission grantedFleetwood SC Cantaxx Lancashire 18,000 Public inquiry Oct 2005Caythorpe DF onshore Warwick Energy Yorkshire 3,000 Pre planningWelton and DF onshore Star Energy Lincolnshire 4,720 Planning submittedScampton NorthAlbury (phase 1) DF onshore Star Energy Surrey 1,750 Pre planning feasibility study completeAlbury (phase 2) DF onshore Star Energy Surrey 7,750 Conceptual engineeringBletchingley DF onshore Star Energy Surrey 9,500 Conceptual engineering Source: Ofgem consultation entitled "Consultation on an application by ScottishPower Energy Management Limited on behalf of Holford Gas Storage Limited for anexemption under section 19A(6)(a) of the Gas Act 1986" dated 24 March 2005.Planning status from the Directors. As stated above £5.7 million of the funds being raised under the Placing and theNew Debt Facilities will be used by the Company to accelerate the development ofthe potential Albury and Bletchingley gas storage facilities. These funds willbe used for, inter alia, planning applications, drilling financing and paymentsrelating to gas and electricity grid connections. Additionally, funding will be required to develop further to the Group's gasstorage projects once planning permissions are received and if, amongst otherthings, the FEED studies confirm the Directors current understanding of thereservoirs. The Directors currently anticipate that the Group will require further funds todevelop its next scheduled gas storage project, Albury, in Q3 2006 followingreceipt of planning permission. Albury Albury, in which Star Energy has a 62.5 per cent. interest, is expected to beStar Energy's next scheduled gas storage facility. The produced gas is currentlyused for power generation. The field has been producing since 1994, hence theGroup has detailed knowledge of the producing reservoir. Although Albury is somedistance from the NTS it is approximately 8 km from a major pipeline that orbitsLondon, but this pipeline runs at a lower pressure than the NTS. The Company carried out a feasibility study during 2004, which examined a numberof development options. In order to accelerate the development of this field theCompany proposes to carry out a FEED study and the studies necessary to confirmcosts of connection to (and potentially the reinforcement of) the gas andelectricity networks. The Company has identified two further potential reservoirs from existing 2Dseismic and well data. The Company has undertaken a 3D seismic survey which iscurrently being processed. The processing and interpretation of the 3D seismicsurvey will better define the reservoir structures and will be used to determinethe drilling targets for an appraisal well which is expected to commencedrilling in 2005. Subject to the successful outcome of the appraisal, drillingthese two further potential reservoirs could form the basis of a storagefacility of up to 9,500 GWh (30 bcf). Development of the Albury Phase 1 project is expected to be dependent on partnerapproval, securing capacity in the gas and electricity networks and obtainingfurther equity and debt funding for the capital cost of the project, currently,anticipated by the Directors to be approximately £50 million (gross), followingreceipt of planning permission which the Directors currently expect to receivein Q3 2006. The capital expenditure requirements for Albury Phase 2 are expectedto be approximately £84 million (gross) and further development work is expectedto be dependent on obtaining debt and equity funding at a future date. Welton The Welton gas storage project has an estimated capacity of 4,720 GWh (15 bcf),with peak injection and export capacity of approximately 94 GWh/d. Located northof Lincoln, Welton is an oil producing field as well as the gathering centre forthe Group's East Midlands production. A positive feasibility study has beencarried out and a planning application and environmental statement has beensubmitted to the Lincolnshire County Council. Progress through the planningstages is ongoing but is yet to be assessed. Lincolnshire County Council hasindicated the date for assessment to be July 2005. A separate application forthe Welton/Scampton North pipeline will need to be submitted in due course. TheDirectors believe that, subject to capacity being available in the gas andelectricity grids, gas storage operations could commence within 27 months ofplanning and financing being in place. As a result, if planning is approved inJuly 2005 the Directors expect commercial operations to commence in 2008. The Directors estimate that, following completion of the planning approvalprocess and the FEED study, the total capital expenditure needed for the Weltongas storage project will amount to approximately £75 million and developmentwork is expected to be dependent on obtaining debt and equity funding at afuture date. Bletchingley The Bletchingley field, located close to Reigate in Surrey, which was drilledbut not developed by Esso Production UK Inc. in the 1960s, is near to both gasand electricity grids and is also located close to one of Star Energy's majorproducing fields at Palmers Wood. Star Energy is planning to drill an appraisal well in Q1 2006 in order tofurther evaluate the potential of the field as both a gas producer andsubsequently a significant new gas store. If the appraisal well is successful infinding commercial gas accumulations and suitable reservoir characteristicsexist, the Directors believe that, subject to capacity being available in thegas and electricity grids, gas production could commence within 18 months ofplanning and financing being in place, with the conversion to a gas storagefacility taking place during the gas production phase. The Directors anticipatethat the storage facility, expected to be available for commissioning in 2009,could have a working capacity of up to 9,500 GWh (30 bcf), with the above groundequipment located at the nearby Palmers Wood site which is approximately 5 kmfrom the NTS. Total capital expenditure for the Bletchingley project isestimated by the Directors to be £125 million (excluding appraisal drilling). Development of the project is expected to be dependent on obtaining further debtand equity funding, anticipated by the Directors to amount to approximately £125million, at a future date. Financial information For the year ended 31 December 2004, Star Energy reported turnover of £17.1million (2003: £20.9 million), profit before interest, taxation, depreciationand amortisation of £3.0 million (2003: £8.2 million) after one-offadministrative expenses of £2.0 million (2003: £nil), loss before taxation of£2.1 million (2003: profit before taxation £0.5 million) and a loss per share of6.85 pence (2003: loss per share: 7.86 pence). The Group's combined oil and gas production averaged 3,502 boepd (net) for 2004(2003: 3,753 boepd (net)). 4. Information on Pentex Pentex is a privately owned UK based energy company, which has oil and gasassets in the UK producing approximately 2,000 boepd (net) includingapproximately 1.4 mmscfd of gas (equivalent to approximately 230 boepd). ThePentex Proven and Proven and Probable remaining reserves are estimated by RPSTroy-Ikoda to be 9.5 mmboe and 16.4 mmboe respectively, as at 1 January 2005.Further details of the Pentex reserves are set out below. The current management of Pentex acquired the assets following a managementbuyout in 2002 from the previous owners Sibir Energy plc. Pentex's assets consist of operated interests in 15 onshore licenses andappraisal and exploration opportunities in the UK onshore sector andadditionally gas storage potential related to the Gains-borough field in theEast Midlands. These are located in two core areas, the East Midlands Basin andthe Weald Basin in the South of England. Approximately two thirds of theproduction is from the East Midlands assets, with the balance from the WealdBasin. The portfolio offers exploration potential in which several prospects and leadshave been identified close to existing infrastructure in established hydrocarbonplays. In addition, Pentex has identified exploration potential on acreageoffered in the current 12th onshore licensing round and has been awarded fourpetroleum, exploration and development licences in the East Midlands area forwhich applications were submitted jointly with Egdon Resources. In addition, the Directors believe that there may be potential for gas storagedevelopment opportunities in the Pentex portfolio. Further details of theseopportunities are set out in the paragraph entitled "Gas storage business"below. Onshore exploration and production Oil production Pentex is a UK onshore oil and gas producer, currently producing approximately2,000 boepd (net). Pentex's onshore UK producing assets are located in the EastMidlands Basin, acquired from BP plc in 1989, and in the Weald Basin, acquiredfrom Lasmo (ULX) Limited in 1994. East Midlands Pentex's East Midlands operation includes interests in nine producing fields. The Proven and the Proven and Probable remaining recoverable oil reserves as at1 January 2005 in these producing fields were 6.1 mmboe and 10.0 mmboe,respectively. The fields comprise the Gainsborough/Beckingham, Corringham,Glentworth, East Glentworth, Rempstone, Long Clawson, South Leverton, Bothamsalland Egmanton fields. These producing fields are located in the Gainsborough trough centred onGainsborough where the gathering and processing centre is located and to whichproduction from most of the East Midlands fields is transported for processing.The oil is then transported by road tanker directly to the Immingham refinery.The Gainsborough gathering centre is the largest production centre, whichconsists of the following infrastructure: • a process facility for separating fluids and gas engine power generation plant generating up to 9 MW of power from the associated gas; • storage facilities for crude oil; • separation/heater-treater plant; • injection system and chemical injection facilities; and • offloading and loading facilities for road tankers. The producing fields in the East Midlands, with details of each of theirrespective Proven and Proven and Probable remaining oil reserves, together withthe date of expiry of the relevant licences, are set out in the table below: Pentex's Proven remaining Proven and Probable interest oil reserves remaining oil (mmboe) reserves (mmboe) (as Licence expiry (%) at 01/01/05)Field (as at 01/01/05) Gainsborough (gas) 100 1.013 1.397Gainsborough/Beckingham 100 2.473 3.988 2015*Corringham 100 0.399 0.692 2015Glentworth 100 0.530 1.001 2015East Glentworth 100 0.546 1.058 2014Rempstone 100 0.039 0.070 2006Long Clawson 100 0.827 1.387 2006South Leverton 100 0.039 0.067 2015Bothamsall 100 0.207 0.310 2015Egmanton 100 0.019 0.050 2008East Midlands 6.092 10.020 Figures extracted from the independently produced report by RPS Troy-Ikoda, anindependent petroleum consultant dated 13 July 2005. * In addition to the ML004 Licence there is a separate licence covering theWest Beckingham field which expires in 2014. Weald Basin Pentex's Weald Basin portfolio includes interests in two producing fields and asignificant new field (Avington). The Proven and Proven and Probable remaining recoverable oil reserves as at 1January 2005 in these producing fields. Pentex's interests in the Weald Basin consist of Stockbridge, Goodworth and therecently discovered Avington fields. Pentex operates and has a 100 per cent.interest in the Stockbridge and Goodworth producing fields and holds an operated50 per cent. interest in the Avington exploration licence. These fields areserved by its own processing facilities on three sites: Larkwhistle Farm, HillFarm and Folly Farm. All three gathering stations are situated in theStockbridge area. The oil is transported directly from each site by road tankersto the Hamble refinery, which is operated by BP plc. The producing fields in the Weald Basin, with details of each of theirrespective Proven and Proven and Probable remaining oil reserves, together withthe date of expiry of the relevant licences, are set out in the table below: Proven remaining Proven and Probable oil reserves remaining oil reserves Pentex's (mmboe) (mmboe) Licence interestField (%) (as at 01/01/05) (as at01/01/05) expiry Stockbridge 100 3.119 5.599 2007Goodworth 100 0.084 0.121 2026Avington 50 0.181 0.714 2006Weald Basin 3.384 6.434 Figures (net to Pentex) extracted from the independently produced report by RPSTroy-Ikoda, an independent petroleum consultant, dated 13 July 2005. Exploration potential Pentex has undertaken relatively little new geoscience work on many of thesefields recently. However, the Company was awarded four new exploration licencesin the recent 12th onshore licensing round, in respect of three of these newexploration licences, both Pentex and Egdon Resources have a 50 per cent.interest and for the other licence, each of Pentex and Egdon Resources has a 25per cent. interest and Greenpark Energy Limited has a 50 per cent. interest.Negotiations are taking place to provide that Greenpark shall have a 100 percent. interest above 3,000 feet and for Pentex and Egdon Resources to each havea 50 per cent. interest below that level. Gas fired power generation Pentex has a gas fired power generation plant located in Gainsborough with atotal generating capacity of approximately 9 MW, which utilises free andassociated gas from the Gainsborough/Beckingham field. The majority of power isexported and sold to SmartestEnergy and the remaining power is used to provideelectricity for the onsite facilities. Plant location Capacity Gainsborough 9x1 MWTotal 9 MW Gas storage business Pentex is in the process of studying gas storage potential at its Gainsboroughfield in the East Midlands basin. Preliminary subsurface and development studieshave been carried out and indicate that the Gainsborough field is suitable foruse as a gas storage facility. The Directors believe that the Gainsborough fieldhas a number of characteristics that make it suitable for conversion to gasstorage operations and the initial studies have demonstrated its potential toprovide seasonal storage service with a capacity of 2,517 GWh (8 bcf) anddeliverability of 37 GWh/day. The Directors intend to apply for planningpermission in the near future. A potential further payment of approximately £5.1million will be payable if planning permission is obtained in respect of theGainsborough gas storage project. The further payment will be satisfied by theissue by the Company of the Loan Notes. In addition to the potential gas storage facility located in Gainsborough, EastMidlands, the Star Energy management team want to carry out further studies toassess the suitability of other fields in the Pentex portfolio as potential gasstorage reservoirs. Financial information For the year ended 31 December 2004, the Pentex Group reported turnover of £11.0million (2003: £11.8 million), profit before amortization of negative goodwill,other income, interest and taxation of £5.8 million (2003: £2.0 million), profitbefore taxation of £6.7 million (2003: £2.0 million), and as at 31 December2004 had net assets of £0.9 million (2003: £1.2 million). 5. Financing of the Acquisition The consideration for the Acquisition, which is subject to adjustmentprovisions, will be approximately $67.6 million (approximately £38.5 million)payable in cash on Completion, for the entire issued share capital of Pentexand, in addition, the existing Pentex Group's current debt of $14.4 million(approximately £8.2 million) will be refinanced. A potential further payment ofapproximately £5.1 million will be payable if planning permission and aconnection agreement to the NTS is obtained in respect of the Gainsborough gasstorage project. The further payment will be satisfied by the issue by theCompany of the Loan Notes. In order to finance the cash consideration for the Acquisition and expensesrelated thereto, the Company has also announced today that it proposes to raiseapproximately £35.0 million (approximately £30.6 million net of expenses of theAcquisition and the Placing), pursuant to the Placing. The Placing is proposedto be carried out on a non-pre-emptive basis. Further details of the Placing areset out below. In addition, the Company has also entered into the New DebtFacilities for the provision of an additional £20.0 million of bank facilitiesin respect of which the Enlarged Group will enter into security arrangements infavour of ABN AMRO Bank N.V. 6. Details of the Placing of the New Ordinary Shares The Company is proposing to raise approximately £35.0 million (approximately£30.6 million net of expenses of the Acquisition and the Placing) by the issueof 19,125,684 New Ordinary Shares pursuant to the Placing. The New OrdinaryShares have been placed, subject to the Placing Agreement becoming unconditionalin all respects, at the Placing Price with institutional and other placees. Star Energy entered into a Placing Agreement with Hoare Govett on 13 July 2005under which, inter alia, Hoare Govett has agreed to procure placees for19,125,684 New Ordinary Shares at the Placing Price (or failing which tosubscribe itself), the proceeds of which shall be used towards satisfying theconsideration payable pursuant to the Sale and Purchase Agreement and the costsof the Acquisition and the Placing. The Placing has been underwritten by HoareGovett and is conditional, inter alia, upon the passing of the Resolution,Admission of the New Ordinary Shares and completion of the Sale and PurchaseAgreement and the New Debt Facilities. The Placing is subject, inter alia, to the Placing Agreement having otherwisebecome unconditional in all respects and not having been terminated inaccordance with its terms prior to Admission, and Admission, which conditionsmust be satisfied not later than 13 July 2005 or such later date as the Companyand Hoare Govett may agree, being no later than 15 August 2005. Application has been made for the New Ordinary Shares to be admitted to tradingon AIM. It is expected that Admission will take place and that dealings in suchNew Ordinary Shares will commence on 8 August 2005. CREST stock accounts inrespect of New Ordinary Shares to be held in uncertificated form are expected tobe credited on 8 August 2005 and share certificates in respect of New OrdinaryShares to be held in certificated form are expected to be despatched by 22August 2005. European Acquisition Capital Limited ("EAC') has disclosed to the Company thatit has entered into non-binding heads of terms to sell its stake in the Companyto a leading Fortune 500 multinational oil and gas company (the "ProspectivePurchaser"). The Prospective Purchaser has, in addition, indicated its intentionto subscribe for 19.06 per cent. of the New Ordinary Shares at the PlacingPrice. 7. Current trading and prospects Star Energy At Star Energy's annual general meeting held on 24 June 2005 the Companyprovided the following update: "Humbly Grove Construction of the Humbly Grove gas storage facility is progressing well andremains on budget and on schedule for commercial operations in October of thisyear. The 27 km pipeline from Humbly Grove to Barton Stacey, where it links toTransco's National Transmission System, has been installed and tested. Drillingof the four gas storage wells has been completed, although this took longer thananticipated. The summer months will see a period of intense activity centered onthe hook up of the major plant and equipment at the site. Other Gas Storage Projects The Company is continuing to make progress in accelerating the Albury andBletchingley gas production and storage projects. Drilling permitting isunderway for both sites as is the preparatory work required for the storagepermitting application. The planning application for the Welton gas project remains to be assessed byLincolnshire County Council. The Company's latest information is that the datefor assessment is July 2005 although the date has been the subject of continuedpostponement since the application was lodged in November 2003. Interim Production and Profitability Production in the first five months of 2005 has averaged approximately 3,100boepd. This is lower than expected caused by a combination of well down-time andproduction disruptions caused by the extended drilling activities at HumblyGrove. This has also affected the production of gas that the company convertsinto electricity for export and consequently electricity sales are lower thanbudget. The impact of this on our first half performance has been offset to some extentby higher oil prices and a reduced proportion of hedged production since the endof March 2005. Outlook The Company remains fully focussed on bringing the Humbly Grove gas storageproject on stream in October. The UK summer/winter gas price spreads remainstrong for the next few years, underpinning the value of the project and ourstrategy for further gas storage development. Having completed our first year asa listed Company, the Board is able to look to the future with confidence." Pentex Pentex has identified a significant number of development opportunities onseveral of its producing fields. Development upside relates to the existingGainsborough, Corringham, Glentworth, East Glentworth, Long Clawson andStockbridge fields and Avington discovery. In addition to exploration potential, upside exists in the form of gas storagepotential at the Gainsborough site. Enlarged Group Accordingly, the performance of the Enlarged Group for the year ending 31December 2005 is expected to be in line with the Board's expectations. 8. Extraordinary General Meeting In view of the structure of the Placing, the Companies Act requires the approvalof Star Energy shareholders in general meeting. Accordingly, a notice conveningan Extraordinary General Meeting of Star Energy to be held at the offices ofNorton Rose, Kempson House, 35-37 Camomile Street, London EC3A 7AN at 10.00 a.m.on 5 August 2005 is expected to be dispatched to shareholders today. The Resolution disapplies the statutory pre-emption rights in relation to theallotment for cash of New Ordinary Shares in connection with the Placing and inaddition in connection with rights issues and otherwise for cash up to anaggregate nominal amount of £2,000,000.00. This amount represents approximately25.20 per cent. of the ordinary share capital of Star Energy in issue followingcompletion of the Placing and the Acquisition. This power, which is in place ofall existing powers, will expire on the first anniversary of the passing of thisResolution. The Directors will not (without the prior approval of shareholdersin general meeting) use their authority to allot equity securities for cash inrespect of New Ordinary Shares representing more than 1.10 per cent. of theissued share capital following implementation of the Placing and theAcquisition. Star Energy may make an offer or agreement prior to the expiry of these powerswhich would or might require relevant securities to be allotted after theirexpiry and the Directors may allot relevant securities in pursuance of thatoffer or agreement as if the relevant powers had not expired. The Directors have no present intention of issuing any part of the unusedauthorised share capital, other than in connection with the Placing, nor willany issue which would effectively alter the control of Star Energy be madewithout the prior approval of Star Energy's shareholders in general meeting. 9. Irrevocable undertakings The Executive Directors have irrevocably undertaken to vote in favour of theResolution to be proposed at the Extraordinary General Meeting in respect of2,288,010 Ordinary Shares, representing 3.80 per cent. of the existing issuedshare capital of Star Energy. 10. Other The circular setting out the full details of the Acquisition and Placingtogether with the form of proxy, is expected to be dispatched to shareholderstoday. Copies of the circular can be obtained from or inspected at the offices ofNorton Rose, Kempson House, Camomile Street, London EC3A 7AN. The New Ordinary Shares are being offered and sold outside the United States inaccordance with Regulation S under the US Securities Act of 1933, as amended.The New Ordinary Shares have not been, and will not be, registered under the USSecurities Act, or under the securities legislation of any state of the UnitedStates. The relevant clearances have not been, and will not be, obtained fromthe Securities Commission of any province or territory of Canada; no document inrelation to the Placing has been, or will be, lodged with, or registered by, TheAustralian Securities and Investments Commission; and no registration statementhas been, or will be, filed with the Japanese Ministry of Finance in relation tothe Placing or the New Shares. Accordingly, subject to certain exceptions, theNew Ordinary Shares may not, directly or indirectly, be offered or sold withinthe United States, Canada, Australia or Japan or any other prohibited territoryor offered or sold to a resident of the United States, Canada, Australia orJapan. Members of the general public are not eligible to take part in the Placing.This announcement, in so far as it constitutes an invitation or inducement toparticipate in the Placing, is directed only at persons who have professionalexperience in matters relating to investments who fall within article 19(1) ofthe Financial Services and Markets Act 2000 (Financial Promotions) Order 2001(as amended) (the "Order") or are persons falling within article 49(2) (a) to(d) of the Order or to whom it may otherwise lawfully be communicated (all suchpersons together being referred to as "Relevant Persons"). This announcement,in so far as it constitutes an invitation or inducement to participate in thePlacing, must not be acted on or relied on by persons who are not RelevantPersons. Any investment or inducement activity in so far as relating toparticipation in the Placing is available only to Relevant Persons and will beengaged in only with Relevant Persons. Hoare Govett Limited, which is regulated by The Financial Services Authority, isthe Company's nominated adviser and broker for the purposes of the AIM Rules andis acting solely for the Company in relation to the Placing. Hoare Govett is notacting for, and will not be responsible to, any person other than the CompanyRelated Shares:
Star Energy