DNO ASA, the Norwegian oil and gas operator, has entered into a $117.25 million transaction agreement pursuant to which RAK Petroleum will transfer its ownership of Mondoil Enterprises to DNO.
The all-share transaction comprises Mondoil Enterprises’ 33.33% indirect interest in privately-held Foxtrot International LDC whose principal assets are operated stakes in offshore production of gas and associated liquids in Côte d'Ivoire, forming a bridgehead for DNO in West Africa.
The effective date of the transaction is January 1 2022 covering transfer of 100% of Mondoil Enterprises share capital valued at $95 million, comprising 9.09% indirect working interest in Block CI-27 and 8% in Block CI-12 both held through the ownership in Foxtrot International, and $22.25 million including $21 million in cash and $1.25 million in working capital.
Share issuance
DNO will issue 78,943,763 shares as consideration at a share price of NOK14.38 ($1.46). The share price is based on the dividend adjusted weighted average share price of DNO over the 15 trading days prior to the transaction agreement date and the average USD/NOK exchange ratio reported by Norges Bank over the same trading period.
“As DNO targets expansion beyond the Kurdistan region of Iraq and the North Sea, the move into Côte d'Ivoire is an important first step into a highly prospective region offering a broad set of growth opportunities through acquisition of producing fields, development assets and exploration licenses,” said Bjørn Dale, DNO’s Managing Director. The company is already evaluating other opportunities in the region, he added.
Foxtrot International holds a 27.27% interest in and operatorship of Block CI-27 offshore Côte d'Ivoire containing the country’s largest reserves of gas, produced together with condensate and oil, from four offshore fields tied back to two fixed platforms, meeting more than three-quarters of the country’s gas needs.
Foxtrot International also operates an exploration licence offshore Côte d’Ivoire, Block CI-12, in which it holds a 24% interest.
Mahi gas field
In addition to the Foxtrot gas field, which began production in 1999, Block CI-27 contains the Mahi gas field, developed in 2012, as well as the Marlin oil and gas field and the Manta gas field which began production in 2016, following a four-year, $1 billion development campaign by the joint venture.
Gas produced from these fields is transported by pipeline to fuel power stations in Abidjan pursuant to a gas sale and purchase (take-or-pay) agreement put into force in June 1999 and subsequently increased to 140 million cubic feet per day with a base price of $6.00 per MMBtu, subject to an indexation formula which has lifted the current price to $6.47 per MMBtu.
In early 2020, in connection with the signature of amendments and extension of the production sharing contract and the gas sales agreement to 2034, the Block CI-27 joint venture embarked on a two-year, $350 million field development and onshore facilities construction project to supply gas to two new power stations.
Funding from cash flow
Cash flow from operations have funded these capital investments. This work is nearing completion following the drilling of three new and two side-track wells; the last well in the programme, a side-track, is currently progressing.
This additional processing and well capacity are slated to increase gas supply to over 230 million cubic feet per day, subject to electricity sector demand and well performance. Drilling of up to another two wells over the period of the extension is planned to maintain the higher production capacity of the license. During the first half of 2022, gross sales averaged 200 million cubic feet of gas and 1,500 barrels of oil and condensate per day. Oil and condensate (and limited quantities of gas) are sold to the local refinery at arms-length prices.
As further announced by RAK Petroleum, the transaction is subject to RAK Petroleum distributing, by way of a capital repayment, its DNO shareholding, including the transaction consideration shares, to its shareholders. This process is expected to be completed in October 2022.
DNO will receive 26,269,183 number of own shares from its 5.1% shareholding in RAK Petroleum which it will retain as treasury shares.
Shareholder approval
Completion of the transaction is conditional upon shareholder approval at an extraordinary general meeting of DNO resolving to issue the consideration shares. The formal notice of the extraordinary general meeting of DNO to be held on September 13, 2022 is attached and provides further information on the proceedings as well as a description of the terms and conditions of the transaction agreement.
RAK Petroleum, too, will hold an extraordinary general meeting to seek shareholder approval of the capital repayment plan.
DNO has conducted a due diligence of the assets to be acquired supported by third-party assessment of reserves and resources. The transaction has been negotiated by the independent members of DNO’s Board of Directors who, in addition to the attractive business merits also considered the advantage of increasing the company’s free float to attract institutional investors and of augmenting DNO’s gas exposure to reduce its carbon footprint. Pareto Securities AS has been retained as financial advisor to DNO and has provided the independent directors with a fairness opinion.
PricewaterhouseCoopers has, pursuant to section 10-2, cf section 2-6, of the Norwegian Public Limited Companies Act, issued an independent expert statement confirming that the value of Mondoil Enterprises at least corresponds to the value of the consideration shares.-- TradeArabia News Service
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