Oslo, 26 May 2023
Santa Cruz Acquisition
Interoil Exploration and Production ASA (the "Company" or "IOX") is pleased to announce the execution of a Purchase and Sale Agreement (the "PSA") whereby Interoil and the Argentine company Selva María Oil S.A. (“SMO”, and with Interoil each a “Buyer” and together the “Buyers”) have agreed to acquire from Echo Energy Plc (“Echo”) and its subsidiaries Eco Energy CDL OP Ltd. and Eco Energy TA OP Ltd. (both such subsidiaries together with Echo, the “Sellers”) (i) 65% of the aggregate interest and assets in and to five exploitation concessions located in the Province of Santa Cruz, Argentina, namely CA-1 “Campo Bremen”, CA-4 “Moy Aike”, CA-6 “Chorrillos”, CA-10 “Palermo Aike” and CA-9 “Océano” (the “Exploitation Concessions’), and the related joint venture (the “UTE”, as well as (ii) a 95% interest in and to the transport concession (the “Transport Concession”) owned by Echo on the Océano area (the “Transaction”, and the interest and assets contemplated thereunder, the “Transferred Interests”).
The execution of the PSA represents a progress for the materialization of the proposed acquisition of the Transferred Interests announced by the Company on May 9th, 2023.
Under the PSA, which follows substantially the Transaction details set out in the initial Term Sheet executed by the parties and announced by the Company on May 9, 2023, the Buyers have agreed to pay an aggregate consideration for the purchase of the Transferred Interests comprising:
- A fixed cash consideration of £825,000, payable by means of an upfront payment of £75,000 upon execution of the PSA (which payment has already been made), with the balance of £750,000 payable at Closing;
- A payment in kind of £400,000 via transfer to Sellers of IOX shares at a subscription price of 1.15 NOK per share, to be made at Closing;
- A first contingent payment of up to £400,000, provided that accrual of such contingent consideration shall not exceed a threshold of 10% of the net profits over the production referenced below, after taxes and investments, obtained by UTE as from the moment when both of the following conditions occur: (x) production by the UTE must be in excess of 4,000 BOE/p/d during a term of at least 60 consecutive days; and (y) any and all amounts invested by Buyers in the Transaction have been repaid to Buyers, and aggregate losses of the UTE have been balanced with profits; and provided further that any accrual of contingent consideration (notwithstanding the amount of contingent consideration accrued and whether any contingent consideration at all has been accrued or not) shall be fully terminated upon the elapse of 5 years as from Closing;
- A second contingent payment of up £100,000, provided that accrual of such contingent consideration shall not exceed a threshold of 10% of the net profits over the production referenced below, after taxes and investments, obtained by the UTE as from the moment when both of the following conditions occur: (x) production by the UTE must be in excess of 6,000 BOE/p/d during a term of at least 60 consecutive days; and (y) any and all amounts invested by Buyers in the Transaction have been repaid to Buyers, and aggregate losses of the UTE have been balanced with profits; and provided further that any accrual of contingent consideration (notwithstanding the amount of contingent consideration accrued and whether any contingent consideration at all has been accrued or not) shall be fully terminated upon the elapse of 5 years as from Closing;
- Furthermore, the Buyers will enter into a Guarantee Assistance Agreement at Closing to provide a guarantee to cover Echo’s remaining 5% interest in the joint venture; and
- Also, at Closing IOX shall enter into an option agreement with Echo granting Echo an option to drill an exploratory well at Campo Nuevo (Maná) Colombia during a term of 5 years as from Closing, and to recover twice the cost through a 35% stake in the production, remaining after such recovery with the right to 10% of production (the “Drilling Option”), as well as a purchase option over Interoil’s Colombian assets exercisable if Echo had exercised the Drilling Option, and after completion and testing the exploratory well, at consideration amounting to the valuation made by a recognized international investment bank appointed by the Buyers.
Additionally, at Closing Buyers (or their assignees) will subscribe Echo shares for an aggregate amount £ 75,000, at a value of 0.065GBP per Echo share.
For a term of 6 month from Closing, Echo will also retain an option to repurchase a 5% interest in the joint venture and related assets for a consideration of £ 100,000.
Upon Closing, the proposed acquisition of the Transferred Interests shall increase the participation of the Company in the Exploitation Concessions and the UTE that prior to the Transaction amounts to 8.34%, and in addition shall provide the Company with an interest in the Transport Concession.
In accordance with the PSA the final determination of the participating interest to be eventually acquired from the Sellers by each Buyer shall be determined not later than 3 Business Days prior to Closing. Closing Date is expected to occur on June 26, 2023 provided that the conditions precedent to Closing are satisfied or waived, including inter alia the approval of the transaction by an Extraordinary Meeting of Shareholders of Echo.
In the event that Echo fails to obtained the required approval of its shareholders, Buyers may terminate the PSA on that basis and the Sellers shall be required to reimburse to Buyer within 2 business days the upfront payment of £ 75,000 made together with the execution of the PSA plus an amount of £ 60,000. If Sellers fail to make such payment timely, the transfer by Sellers to Buyers of a 10% participating interest in the Exploitation Concessions, the UTE and the Transport Concession and related rights shall be deemed completed.
New Gas Sales contract awarded to the Santa Cruz UTE
The UTE Santa Cruz has received Government approval to its filing before the Argentine National Secretariat of Energy for an application under the Gas Plan regime (Gas Plan 5.2) promoting gas production. Such approval awards to the UTE a new gas sales contract for prices substantially above those payable under current existing agreements.
The new conditional contract under Gas Plan 5.2 (Santa Cruz Sur Basin) shall be entered into with ENARSA (Energía Argentina Sociedad Anónima) and is for production volumes outside of those delivered under the existing gas contracts with industrial clients.
The new contract is applicable across all the Santa Cruz concessions and shall be in force from May 2023 to December 2028. The contract structure provides for a base volume and an incremental volume with different prices. Thus, the base volume of 1.06 MMscf/d (gross 100% JV) attracts a price of US$3.46 per MMBTU. In turn, any incremental production volume delivered above the aforementioned base volume, and above the existing gas contracts with industrial clients, would achieve a gas price of US$9.975 per MMBTU until April 2026, a price of US$ 9.50 per MMBTU from May 2026 to December 2026 which reduces to US$ 5.90 per MMBTU for the remaining period of the Gas Plan contract through December 2028. These prices are materially above the existing average sales prices achieved by the UTE.
Achieving these incremental production volumes requires an activity investment of around US$ 5.3 million with an operational programme that includes approximately 13 individual workovers/well interventions.
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Interoil Exploration and Production ASA is a Norwegian based exploration and production company - listed on the Oslo Stock Exchange - with focus on Latin America. The Company is operator of several production and exploration assets in Colombia and Argentina. Interoil currently employs approximately 50 people and is headquartered in Oslo.
This information is subject to the disclosure requirements pursuant to section 5 -12 of the Norwegian Securities Trading Act.