Loyz Energy Limited (Loyz Energy and together with its subsidiaries, the Group), a fast-growing Singapore-based upstream energy group Tuesday announced that it had June 8 entered into a binding memorandum of understanding (the MOU) for the acquisition of Primeline Energy Holdings, Inc. (PEH, and together with its subsidiaries, the Target Group) by way of a scheme of arrangement for a consideration (Consideration) of approximately $145.7 million (SGD 197.0 million) (the Proposed Acquisition).
PEH (www.primelineenergy.com), a company listed on TSX Venture Exchange in Canada (TSX-V), is an independent oil and gas exploration and production company focusing exclusively on upstream opportunities in China. The Target Group owns exploration and development rights in the East China Sea, China, via two petroleum contracts, namely (a) Block 25/34 and (b) Block 33/07. As at the date of the MOU, Victor Hwang Yiou Hwa (Hwang) holds, directly and indirectly, approximately 60.1 percent of the issued and paid-up share capital of PEH with the remaining 39.9 percent held by minority shareholders.
DETAILS OF TARGET ASSETS
Block 25/34 covers a total area of 32.7 square miles (84.7square kilometers) in the Lishui Basin in the East China Sea in which LS36-1, a producing gas field is situated. The gas field lies in close proximity to Zhejiang Province which has an estimated population of 50 million. Assuming the completion of the acquisition by PEH of Prime Petroleum Corporation from Hwang (PPC Acquisition), the Target Group will own 49 percent and China National Offshore Oil Company (CNOOC) will own 51 percent respectively of Block 25/34. CNOOC is the operator of Block 25/34. Based on the July 2014 report from McDaniel & Associates Consultants Ltd. (McDaniel, and its report, the Report), the estimated gross reserves for Block 25/34 are approximately 52,148 million cubic feet (MMcf) (1P – proved reserves), 68,088 MMcf (2P – proved and probable reserves) and 87,518 MMcf (3P – proved, probable and possible reserves) as of March 31, 2014.
CNOOC and Zhejiang Provincial Gas Development Co had, in October 2014, entered into a gas offtake agreement (Gas Sale Agreement) at approximately $14.50/Mcf (thousand standard cubic feet).
Based on the terms of the Gas Sale Agreement and McDaniel’s view of the sale price in the Report, together with the development costs spent to date and commercial arrangements made by PEH, as of Jan. 1, the estimated net present value after tax (at a discount rate of 10 percent) for the 49 percent stake in the LS36-1 field (assuming the completion of the PPC Acquisition) is approximately $294 million (2P – proved and probable reserves).
Block 33/07 is a much larger offshore area of approximately 2,269 square miles (5,877 square kilometers) and is currently in the exploration phase. According to the Report, the high estimated gross prospective resources are approximately 1,093.7 MMcf. CNOOC has the right to participate in up to 51 percent of the development and PEH is currently the operator for Block 33/07.
Commenting on the Proposed Acquisition, Managing Director of Loyz Energy, Adrian Lee said, “The Proposed Acquisition will allow the Group’s business scale, profits, cashflow from operations and net asset value to increase. This is expected to provide the Group with easier access to financing from financial institutions as well as debt and equity capital markets. This will in turn provide the Group with balance sheet flexibility to fund future value accretive acquisitions. The Proposed Acquisition, if completed, will also result in an increase in the Company’s market capitalization, which will potentially widen its investor base and may lead to an overall increase in investors’ interest and trading of the ordinary shares in the Company. Existing shareholders of PEH include Fidelity Worldwide, with an approximate 10 percent stake currently.”