15th Dec 2009 07:00
ENEGI OIL PLC
Trading symbols:
London Stock Exchange: ENEG
Bourse de Luxembourg: GB00B29T9605
15 December 2009
Enegi Oil Plc
('Enegi' or 'the Company')
Corporate and Operational Update and Placing
Enegi is pleased to announce a series of transactions that complete the process of repositioning the Company to generate future value for shareholders.
Highlights:
Farm-out agreement concluded with Dragon Lance Management Corporation, who managed the previous drilling campaign at Garden Hill South;
Garden Hill South well continues to produce on an interval basis, with production sold to a local refinery. The average production rate, when the well is flowed, has been approximately 200 bopd;
Option secured to pay CIVC Creditor Corporation C$1 million in return for full and final settlement and release of all obligations, including removal of its mortgage over certain of PDIP's hydrocarbon assets (the 'Option'); and
Conditional placing of 13 million ordinary shares at a placing price of 10 pence to raise £1,300,000 (before expenses) to exercise the Option, and to embark on a review of existing seismic data over PDIP's assets.
Farm-Out Agreement & Update on Garden Hill South
PDI Production Inc. ('PDIP'), the Company's wholly owned operating subsidiary, has signed a farm-out agreement with Dragon Lance Management Corporation ('DLMC') in respect of the PaP#1 ST3 well at Garden Hill South. As part of the agreement, DLMC has paid C$130,000 to PDIP. Under the terms of the farm-out agreement, to earn an interest in the PaP#1 ST3 well, DLMC will re-enter the PaP#1 ST3 well in Garden Hill South and stimulate the well using either foam/acid fraccing or alternative methods with a view to placing the well on long term production. DLMC will assume 100% of the total cost, risk and expense, to a maximum expenditure of C$2,500,000; an amount which the Company currently anticipates should be more than adequate funding to carry out the above described work. In return, DLMC will earn a 30% interest in the well. This farm-out agreement is only in respect of the PaP#1 ST3 well, and does not affect or diminish PDIP's 100% interest in the remainder of the Garden Hill South field.
To gain more familiarity with the well DLMC has been managing, and also contributing the funds required for, the resumption of operations at Garden Hill South. The well at Garden Hill South continues to be tested by producing and shutting-in on an interval basis to gather more information on the well. The average production rate, when the well is flowed, has been approximately 200 bopd. All oil produced is being delivered and sold to a local refinery in Newfoundland.
Good pressure build-up is being observed every time the well has been shut-in. In the most recent shut-in, the pressure recovered by over 8% at the end of the first day. This suggests that the well is connected to the main reservoir. As a result of the data gathered so far, the Company, PDIP and DLMC believe that it may be possible to significantly improve production by installing a pump down the well.
PDIP and DLMC are currently exploring the possibility of installing a pump prior to stimulating the well. Under the farm-out agreement, the cost of procuring and installing a pump will also be borne by DLMC.
Removal of CIVC Creditor Corporation Obligations
The Company has been able to secure an option for full and final settlement and release of all obligations to CIVC Creditor Corporation ('CCC'), including removal of the mortgage against certain of PDIP's assets, by paying CCC C$1 million.
As described in the Company's prospectus and subsequent disclosures, PL2002-01, EL1070 and EL1116 are subject to a number of obligations in favour of CCC. PDIP is currently obligated to make payments to CCC amounting to approximately C$1.1 million and, in addition, a 4% royalty interest payment will be due and payable on all production until an aggregate of approximately C$13 million is paid. Another obligation includes the requirement for PDIP to obtain prior approval from CCC before it can involve other parties in the development of the assets. All of the obligations are secured by a mortgage over certain of PDIP's hydrocarbon assets.
The Board considers that it is in the best interests of the Company to exercise the Option, and intends to do so, based on the following rationale:
it allows the Company (and PDIP) freedom to enter into any farm-outs to promote the development of the assets, without the need to obtain prior approval from CCC;
PDIP will no longer be required to make the 4% royalty interest payment from production. The Company will keep the share of production revenue that would otherwise be assigned to CCC, such as those expected from the GHS PaP#1 well following the foam/acid frac operation. Should operations on the GHS PaP#1 well proceed as planned, royalty payments to CCC from this single well alone, could be expected to be significant and could exceed C$1,000,000;
the settlement of obligations with CCC also removes the risk that CCC may take action to enforce its mortgage security and seize the assets of PDIP, based on PDIP's technical insolvency position which was disclosed previously. Neither PDIP nor the Company has received any formal or informal notice from CCC that it intends to take such action, but it would nevertheless be advantageous if this risk of dispute can be eliminated; and
if the Company does not exercise the Option, PDIP will in any event be required to make payments to CCC amounting to approximately C$1.1 million.
Placing
The Board of Enegi have conditionally placed 13,000,000 new ordinary shares of 1p each ("New Ordinary Shares") at a placing price of 10 pence to raise £1.3 million (approximately £1.24 million net of expenses). The New Ordinary Shares have been conditionally placed by the Company's joint broker, Fox-Davies Capital Limited. The funds have been raised primarily to exercise the Option to remove the Group's obligations to CCC and to remove the mortgage over PDIP's hydrocarbon assets.
As detailed in previous news releases, an additional 7.6 mmboe net mean risked resources has been added by the Company since it floated in March 2008, and the Company is working to de-risk its portfolio of assets. The intention is to use the remaining funds from the placement to review existing seismic data, with a view to embarking on a full seismic programme at a later date.
Application has been made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the New Ordinary Shares will commence on AIM at 8.00 a.m. on 16 December 2009.
Alan Minty, CEO of Enegi Oil commented:
"With full and final settlement of our obligations to CCC, and the completion of the DLMC farm-out, our restructuring exercise is complete and the Company is now in a strong position to deliver value for shareholders and return to what we do best - exploring and developing oil and gas assets.
We are delighted that DLMC is now our partner in developing the PaP#1 ST3 well in Garden Hill South. DLMC have significant experience of managing well operations, gained from drilling hundreds of wells, including our PaP#1 ST3 well. They have already contributed their own funds in the recent resumption of operations at Garden Hill South. That DLMC is now investing further funds to see that the well goes on long term production is a positive indication that the potential of the PaP#1 ST3 well may soon be realised."
Enquires
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Enegi Oil |
Tel: + 44 161 817 7460 |
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Alan Minty, CEO |
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Cenkos Securities |
Tel: + 44 207 397 8900 |
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Joe Nally |
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Stephen Keys |
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Fox-Davies Capital |
Tel: + 44 207 936 5200 |
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Daniel Fox-Davies |
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College Hill |
Tel: + 44 207 457 2020 |
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Nick Elwes |
www.enegioil.com
Qualified Persons
The information in this release has been reviewed by Barath Rajgopaul MSc (Mech. Eng.) C. Eng, a director of Enegi. Mr. Rajgopaul has over 25 years experience in the petroleum industry.
The Company
Enegi Oil Plc is an independent oil and gas group whose objective is the identification, development and operation of hydrocarbon opportunities. The Group's current operations are focused on assets on and around the Port au Port Peninsula in Newfoundland, which, although lightly explored, is in an active petroleum system with light oil having previously been discovered there. The Group's assets include interests in Garden Hill South, Shoal Point, Garden Hill Central, Garden Hill North and Lourdes.
Related Shares:
NUOG.L