Independent oil and gas company African Petroleum has set the expected date for the completion of the proposed merger with a privately held Africa-focused company PetroNor.
African Petroleum agreed to combine with PetroNor for an all-share consideration of around 816 million shares in African Petroleum in March 2019. The company said on Thursday that the completion of the transaction would occur by the end of June 2019.
PetroNor holds a 10.5% indirect interest in the PNGF Sud fields and the right to negotiate entry into a 14.7% indirect interest in an exploration license covering the PNGF Bis fields, both offshore Congo.
Subject to shareholder approval and other customary conditions, African Petroleum will, at the completion of the transaction, change its name to PetroNor E&P Limited. The board of directors of African Petroleum unanimously recommended the transaction.
As per the terms of the transaction, existing African Petroleum shareholders will receive one for one warrants to preserve a potential upside from the company’s existing exploration portfolio in The Gambia and Senegal.
The combining of the two companies will provide African Petroleum with diversified, low-risk, long-life, and high-quality producing assets with current net production of around 2,300 bbl/d and medium-term exploration upside in a well-established operating jurisdiction, the firm said.
African Petroleum further said the would also enable the company to strengthen its ability to preserve and develop the company’s portfolio in The Gambia and Senegal through access to PetroNor’s existing cash, future cash flow, and assets with additional debt capacity.
It is worth noting that the closing of the deal was initially expected to occur by the end of April 2019.
Jens Pace, CEO of African Petroleum and proposed CEO of the combined company, said: “This is a truly transformative transaction that diversifies our portfolio considerably while simultaneously strengthening our position with regards to ongoing arbitration and farm-down processes.
“We have been proactively seeking opportunities to diversify our footprint away from pure-exploration, and this proposed combination with PetroNor delivers all the criteria we sought.
“The combined company will benefit from a proven reserve base generating strong and predictable cash flow and material upside potential from the Congo assets, as well as considerable exploration upside from our existing portfolio.”
African Petroleum said that PNGF Sud is operated by Perenco who was also expected to become the operator of PNGF Bis.
According to the company, the transaction will transform African Petroleum from a pure-play exploration company into a full cycle E&P company.
PetroNor’s Congo assets, located in shallow waters offshore Congo (Brazzaville), have estimated net 2P reserves of 8.5 mmbbl and net production of approximately 2,300 bbl/d from four fields currently in production, in addition to net 2C contingent resources of 7.6 mmbbl as of January 1, 2019.
Early production from PNGF Bis is targeted through an extended test production of Loussima SW, estimated to begin in 2020 through the use of an existing mobile offshore production unit.
In addition to its Congo assets, PetroNor is in negotiations regarding the acquisition of a producing asset offshore Nigeria “with significant upside potential.”
“With the continued uncertainty related to African Petroleum’s licenses in The Gambia and Senegal, the transaction will bring much-needed stability and downside protection to the company, while maintaining substantial upside potential towards the existing assets,” the company said.
The Gambia and Senegal arbitration
The situation in The Gambia and Senegal is a complex one with arbitration underway for several of the company’s assets there.
Namely, oil major BP earlier in May struck an offshore exploration deal with the Gambian government for Offshore Block A1, previously held by African Petroleum.
The Gambian government in 2017 said it had ended talks with African Petroleum for the extension of exploration rights over blocks Block A1 and Block A4, stripping the company of its rights in the blocks.
The company replied by stating that it still reserved its rights in relation to the A1 license and would continue with its efforts to protect its interest in the A1 license through an ongoing ICSID arbitration process which also includes arbitration for the A4 license.
In Senegal, operatorship over Rufisque Offshore Profond block was awarded to Total after it was taken away from African Petroleum. The company also initiated an arbitration process last year over its rights there as well as over the Senegal Offshore Sud Profond block.