SEY.L Regulatory News (SEY)

19 Jan 2007 14:00

Sterling Energy PLC19 January 2007 THIS ANNOUNCEMENT, INCLUDING THE APPENDIX, IS NOT FOR RELEASE, PUBLICATION ORDISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, JAPAN, CANADA OR AUSTRALIA. 19 JANUARY 2007 STERLING ENERGY PLC ("Sterling" or the "Company") US$145 MILLION ACQUISITION OF WHITTIER ENERGY CORPORATION ("WHITTIER") PLACING TO RAISE GBP £26.12 MILLION Sterling, the AIM listed (symbol: SEY) independent oil & gas exploration andproduction company operating in the Gulf of Mexico and Africa, today announcesthat it has entered into a merger agreement to acquire Whittier EnergyCorporation, a NASDAQ listed onshore US Gulf Coast exploration and productioncompany (the "Acquisition"). HIGHLIGHTS * The terms of the merger agreement value the entire issued and to beissued share capital of Whittier at US$145 million (approximately £74 million),plus the assumption of an estimated US$43 million (approximately £22 million) ofnet liabilities. * The Acquisition represents: - A 26.0% premium to the closing price of Whittier on 18 January 2007 - A value of US$15.8 per boe (US$2.6 per mcfge) of proven plus probable reserves * The Acquisition is expected to complete in late April 2007, subject to receipt of Whittier shareholder approval. * The Acquisition is to be financed from approximately equal amountsof existing cash plus new equity and debt. For these purposes, £26.12 million(approximately US$50 million) gross has been raised through an institutionalplacing of 163,250,000 new ordinary shares at 16p and a new US$100 million bankdebt facility has been arranged with Natixis. The acquisition significantly strengthens Sterling's production business andwill allow it to fund a greater level of exploration activity. In particular,following the Acquisition, Sterling's enlarged group will have: * A near doubling of reserves, production and cash flow: - 2P reserves estimated to increase from 12.9 mmboe to 24.8 mmboe - Current production estimated to increase from 3,400 boepd to 6,500 boepd - Annualised cash flow from operations is estimated to increase from US$35 million to US$80 million * A material and balanced US business with significant upside: - Combined US net production over 28 mmcfged (4,700 boepd) - Over 50% reserves operated - Strengthened management and technical team * A portfolio of near term exploration projects with substantial upside: - Over 40 low risk wells planned, complementing Sterling's 2007 exploration programme, which together with Whittier is targeting 60 mmboe of net unrisked reserves * A stronger platform from which to pursue additional high impact opportunities: - Increased US activities - Africa / Middle East - Sector consolidation Commenting today, Harry Wilson, Chief Executive of Sterling Energy Plc, said: "The acquisition of Whittier materially strengthens Sterling's position in thesector and creates new opportunities for us to grow. Adding significant onshoreUS production and development assets to our existing offshore Gulf of Mexicoassets, Whittier both de-risks and significantly increases the scale of our cashgeneration. This will allow us to build on our existing portfolio ofexploration projects and provide us with greater flexibility to pursue newopportunities on a bigger scale." Enquiries Sterling Energy Plc (01582 462 121) Web site: www.sterlingenergyplc.com Harry Wilson Graeme Thomson Rothschild (020 7280 5000) Neeve Billis Evolution Securities (020 7071 4300) Rob Collins Citigate Dewe Rogerson (020 7638 9571) Media enquiries: Martin Jackson / George Cazenove Analyst enquiries: Nina Soon An investor presentation regarding the Acquisition will be available onSterling's website: www.sterlingenergyplc.com DISCLAIMER Evolution Securities Limited is acting as nominated adviser and broker to theCompany for the purpose of the AIM Rules. Evolution Securities Limited, which isauthorised and regulated in the United Kingdom by the Financial ServicesAuthority, is acting exclusively for the Company in relation to the Placing.Evolution Securities Limited is not acting for any other person in connectionwith the matters referred to in this announcement and will not be responsible toanyone other than the Company for providing the protections afforded to clientsof Evolution Securities Limited or for giving advice in relation to the mattersreferred to in this announcement. Rothschild, which is authorised and regulated in the United Kingdom by theFinancial Services Authority, is acting exclusively as financial adviser for theCompany in relation to the Acquisition. Rothschild is not acting for any otherperson in connection with the matters referred to in this announcement and willnot be responsible to anyone other than the Company for providing theprotections afforded to clients of Rothschild or for giving advice in relationto the matters referred to in this announcement. This announcement, including the appendix, has been issued by the Company and isthe sole responsibility of the Company. This announcement, including the appendix, does not constitute a prospectus orlisting particulars relating to the Company and has not been approved by the UKListing Authority, nor does it constitute or form any part of any offer orinvitation to purchase, sell or subscribe for, or any solicitation of any suchoffer to purchase, sell or subscribe for, any securities in the Company underany circumstances, and in any jurisdiction, in which such offer or solicitationis unlawful. Accordingly, copies of this announcement, including the appendix,are not being and must not be mailed or otherwise distributed or sent in or intoor from the United States, Canada, Australia or Japan or any other jurisdictionif to do so would constitute a violation of the relevant laws of, or requireregistration thereof in, such jurisdiction or to, or for the account or benefitof, any United States, Canadian, Australian or Japanese person and any personreceiving this announcement, including the appendix, (including, withoutlimitation, custodians, nominees and trustees) must not distribute or send it,in whole or in part, in or into or from the United States, Canada, Australia orJapan. In accordance with the guidelines of the AIM Market of the London StockExchange, Harry Wilson, BSc (Hons) Physics (1973), Chief Executive Officer ofSterling Energy Plc, who has been involved in the oil industry for over 33years, is the qualified person that has reviewed the technical informationcontained in this press release. STERLING ENERGY PLC Acquisition of Whittier Energy Corporation 1. Introduction The Board of Sterling is pleased to announce that it has entered into a mergeragreement to acquire the entire issued and to be issued share capital ofWhittier. 2. Terms of the Acquisition and Valuation The terms of the Acquisition are US$11 cash per Whittier share, valuing theentire issued and to be issued share capital of Whittier at US$145 million withSterling additionally assuming US$43 million of net liabilities. The Acquisition represents: * A 26.0% premium to the closing price of Whittier on 18 January 2007 * A value of US$24.1 per boe (US$4.0 per mcfge) of proven reserves * A value of US$15.8 per boe (US$2.6 per mcfge) of proven plus probable reserves * An expected 2P payback of approximately four years Irrevocable proxies have been received to vote in favour of the Acquisition inrespect of approximately 15% of Whittier shares from Whittier Ventures andWhittier's Directors and senior management. The Board of Whittier has undertaken to recommend that Whittier Stockholdersadopt the Acquisition, which is expected to be completed in late April 2007,subject to receipt of Whittier Stockholder approval. 3. Information on Whittier Whittier Energy Corporation is an independent oil and gas exploration andproduction company listed on the NASDAQ stock exchange and headquartered inHouston, Texas. Whittier acquires, develops and exploits producing properties inthree core areas consisting of the Permian Basin, South Texas and the Texas/Louisiana Gulf Coast. It currently operates five properties in Texas and threein Louisiana. It also owns significant non operated working interests in theabove areas as well as minor interests in Wyoming, Oklahoma and Alabama.Whittier generates exploration and exploitation projects which are typicallydrilled with industry partners and also participates in prospects generated byothers. For the 9 months ended 30 September 2006, Whittier reported profits before taxof US$9.2 million and net assets as at that date of US$74.0 million. During Whittier's 2006 drilling campaign 40 wells were drilled with a successrate of 85%. By year end production is estimated to have reached 19 mmcfged. Further information on Whittier is available on the company's website:www.whittierenergy.com 4. Information on Sterling Energy Plc Sterling has built a portfolio of production assets in the Gulf of Mexico (USA)and West Africa, which helps underpin, through cash flow, the Company'sexploration programme focussed predominately on Africa. Sterling's original US core area, the shelf waters of the Gulf of Mexico, hasbeen expanded to include the onshore Texas and Louisiana Gulf Coast. Inaddition to production from Mauritania, Sterling has built a portfolio ofAfrican exploration interests including Madagascar, Gabon and Cameroon. Sterling's stated strategy is to build a profitable oil and gas company whichhas exciting exploration potential by: * Buying production with appraisal and development potential * Acquiring low cost exploration licences with substantial upside * Taking advantage of corporate opportunities which fit its profile Sterling's business model has been to build a production portfolio generatingcash flow with which it can fund an exploration programme with significantupside potential. The objective for Sterling is to create maximum value for shareholders whileminimising the potential risks of the business. Further information on Sterling is available on the company's website:www.sterlingenergyuk.com 5. Reason and Benefits of the Acquisition The Board of Sterling believes that the acquisition of Whittier significantlystrengthens Sterling's business and provides a strong platform for futuregrowth. Following the Acquisition the enlarged group will have: * A near doubling of reserves, production and cash flow from operations * A material and balanced US business with significant upside * An exciting portfolio of near term exploration projects * A stronger platform from which to pursue additional high impactgrowth opportunities Sterling estimates that the Acquisition will add 46.9 bcfe (7.8 mmboe) of provenreserves, based upon independent reports. Furthermore Sterling's: * 2P reserves are expected to increase by over 90% from 77.4 bcfe (12.9 mmboe) to 148.6 bcfe (24.8 mmboe) * Current production is expected to increase over 90% from 3,400 boepd to 6,500 boepd * Annualised cash flow from operations is expected to more than double to US$80 million Whittier provides an attractive portfolio complementing Sterling's existingassets in the region and experienced personnel with a demonstrable track recordof growth, strengthening Sterling's existing management and technical team. Theenlarged group's combined US business will have: * Current net production of 28 mmcfged (4,700 boepd) * Reserves/production ratio of 11 years * Over 50% of its reserves operated * 77% of reserves in gas Over 50% of Whittier's production through to Q4 2008 has been hedged with anestimated current mark to market value of US$4.4m. In addition to the 2P reserves, Sterling estimates there to be approximately afurther 48 bcfge (8.0 mmboe) in possible reserves and identified explorationprospects. The Whittier portfolio offers 95 exploration and developmentdrilling locations (of which 38 new wells, including 16 as operator, will betargeted in 2007), together with extensive undeveloped land and seismic datafrom which to generate new drilling locations. With this background, Sterlingbelieves Whittier will provide significant potential for production growth overthe next two years. The acquisition of Whittier will increase the US contribution to Sterling'sproduction and cash flow from approximately 50% to around 75% whilst alsospreading overall portfolio risk. This secure cash flow base provides a strongplatform from which to: * Exploit Sterling and Whittier's existing exploration portfolio,with a 2007 drilling programme offering 60 mmboe of unrisked reserve potentialand significant medium term programme in Madagascar and other interests. * Pursue additional high impact exploration, asset acquisition andsector consolidation opportunities in the US, Africa and Middle East. 6. Financing of the Acquisition The all cash Acquisition will be funded by a combination of: * Internal cash resources * Debt financing commitment from Natixis * Equity cash placing Sterling has agreed to pay a consideration of US$145 million plus the assumptionof US$43 million of net liabilities. The Company has agreed a US$100 millionacquisition bridge facility with Natixis (the "New Facility") of which US$23.5million is to be used to repay Sterling's existing debt facility. Sterling hasalso completed a placing of 163,250,000 new ordinary shares of 1p each in theCompany ("New Ordinary Shares"), at a placing price of 16p each, to raise £26.12million ("the Placing"). The Directors of Sterling have subscribed for, inaggregate, 600,000 New Ordinary Shares as part of the Placing. However, theplacing is not contingent on the completion of the proposed acquisition ofWhittier. The additional funds required over and above the Placing and the NewFacility will be provided from the Company's existing cash resources. The New Ordinary Shares represent approximately 11.6 per cent. of the Company'spreviously existing issued share capital and approximately 10.4 per cent. of theCompany's issued share capital immediately following the Placing. The NewOrdinary Shares will rank pari passu in all respects with the existing OrdinaryShares. The Placing has been fully underwritten by Evolution Securities and isconditional upon, inter alia, the admission of the New Ordinary Shares totrading on AIM ("Admission"). Accordingly, application has been made to theLondon Stock Exchange for the New Ordinary Shares to be admitted to trading onAIM. It is expected that Admission will become effective and dealings in the NewOrdinary Shares will commence on AIM on 22 January 2007. Following the Acquisition, Sterling will have total debt of approximately US$120million. In addition the company will have access to US$25 million undrawn debtfacility and after deducting the estimated cash portion of the Acquisition, willcurrently have approximately US$30 million cash for working capital and furtherinvestment purposes. 7. Sterling Trading update Current Sterling cash balances are approximately US$80 million and its drawndown bank debt is US$23.5 million. Sterling currently has six exploration wells and at least four appraisal/development wells planned for 2007. It believes that this diverse programmeoffers substantial upside to its reserve base. The first well in the programmeof approximately 45 wells (including those of Whittier), on the North Theallprospect, reached target depth and has been logged in the last few days. Gas wasencountered in several horizons but unfortunately in tight reservoirs, yieldinguncommercial quantities. Despite this, the company has net unrisked potentialfrom the remaining 2007 drilling programme of over 60 mmboe, which has thepotential to add significantly to Sterling's year end net 2P reserves ofapproximately 12.9 mmboe. Drilling is due to commence on the significant ThunderStud prospect in late January. In addition, following completion of the AKGfarm-in, announced in November 2006, the 25 well Austin Chalk infill programmeis due to start shortly. The West African drilling programme is expected tocommence in Guinea Bissau in February, with two wells, one fully carried. Amainly carried well in Gabon is planned for July and a fully carried well isanticipated in AGC later in the year. In the fourth quarter of 2006, US production was an estimated 8.6 mmcfged (1,400boepd), lower than the third quarter's 9.3 mmcfged (1,600 boepd), due to plannedpipeline shut-ins for replacement and extension. Recent production has returnedto previous levels, averaging 9.4 mmcfged (1,600 boepd). Based on reports byindependent consulting engineers, year-end 2P USA reserves were estimated at 54bcfge, including the recent successful GA303 well. There were a further three attributable cargoes of Chinguetti production sold inthe second half of 2006. This brought Sterling's share for the second half toUS$26 million and a total for the year to US$57 million. In addition, a total ofUS$4 million of income has arisen in the year from Premier Oil throughSterling's royalty interest. Sterling commissioned an independent review of its Mauritanian interests by RISC(UK) Limited, as of the end of 2006. This valued the Company's Mauritanianinterests at US$87-121 million (NPV10). RISC estimate ultimate Chinguetti 2Pfield reserves of 51 mmbbl (NPV10 net to Sterling of US$50-71 million), lowerthan the 80 mmbbl used in the interim results. At the end of June 2006, thetangible net book value of these producing interests was US$143 million,together with US$27 million for the related intangibles. An infill well iscurrently being drilled at a net cost to Sterling of US$8 million and aprogramme of 4-D seismic and other work is planned for 2007. A review of thecarrying value of these interests will be performed in connection with thepreparation of the annual results. An update on plans for the furtherdevelopment of the Chinguetti field, as well as other discoveries such as Tiof,is expected from the operator in the coming months. Recent gross field production has been approximately 22,000 bopd and netremaining reserves estimated at 3.9 mmbbl. The Company intends to adopt International Financial Reporting Standards ("IFRS") for its accounts for the year ended 31 December 2006. This will, inevitably,result in revisions to prior period financial statements. 8. Board Appointment In addition, Sterling is pleased to announce that Dr. Richard Stabbins has beenappointed a non-executive director of Sterling. Dr. Stabbins, aged 63, is a geologist and former chairman of the PetroleumExploration Society of Great Britain. He has over 30 years' experience in theinternational hydrocarbon industry and has held senior positions with Murphy Oiland Ranger Oil. He was formerly exploration director of Goal Petroleum plc and anon-executive director of AIM-quoted Fusion Oil & Gas plc until its acquisitionby Sterling in late 2003. 9. Summary In summary, Whittier will provide Sterling with a strong platform for furthergrowth, with: * A near doubling of reserves, production and cash flow from operations * A material and balanced US business with significant upside * An enlarged portfolio of near term exploration projects with significant upside * A stronger platform to pursue additional high impact growth opportunities The acquisition of Whittier materially strengthens Sterling's position in thesector and creates exciting new opportunities for growth. Appendix Terms and Conditions of the Acquisition Under the terms of the merger agreement, an indirect, wholly-owned subsidiary ofSterling will merge with and into Whittier, whereby each outstanding share ofWhittier common stock will be converted into the right to receive US$11 in cash.Whittier will be the surviving entity in the merger and, as a result of themerger, will become an indirect, wholly-owned subsidiary of Sterling. The merger agreement sets out the conditions to closing of the transaction. Italso contains certain termination rights, mutual representations and warrantiesand various covenants, including certain limitations on the operation of thebusiness of Whittier in the period prior to closing and non-solicitationobligations of Whittier. The Acquisition is subject to the fulfillment of several customary conditions,including receipt of the approval of a majority of Whittier's stockholders,making certain federal regulatory filings, and there having been no materialadverse effect on Whittier since the date of the merger agreement. TheAcquisition is being recommended by the Board of Directors of Whittier, who willrecommend that Whittier stockholders vote in favour of the Acquisition, subjectto certain limitations in the event Whittier receives a superior takeoverproposal meeting certain conditions. The Acquisition requires clearance under US foreign investment laws. Each ofSterling and Whittier must use their "reasonable best efforts" to make therequired filings and to obtain the required regulatory approvals if necessary. Whittier will immediately begin the preparation of the US proxy material, whichwill be sent to the US Securities and Exchange Commission (SEC) for review.Once Whittier receives clearance from the SEC, it will mail the proxy materialto Whittier stockholders and announce the date of the shareholder meeting, whichis anticipated to occur approximately 30 days subsequent to the mailing of theproxy materials. The merger agreement may be terminated by mutual agreement of Sterling andWhittier. It also may be terminated by either party if a final judgment, order,decree, ruling or regulation restrains the Acquisition, if the other partybreaches the agreement such that the closing conditions cannot be satisfied (orcured within 60 days), if Whittier's stockholders do not approve theAcquisition, or if the Acquisition has not been consummated by 19 July 2007, theend date. Additionally, Sterling may terminate the agreement if the Board ofDirectors of Whittier recommends or accepts a superior takeover proposal meetingcertain conditions or by Whittier if, prior to its shareholder meeting, itaccepts a superior takeover proposal meeting certain conditions and paysSterling the required termination fee. Whittier is required to make an immediate payment to Sterling of US$5.5 millionunder the following circumstances: * if Whittier terminates because it determined to accept a superiortakeover proposal meeting certain conditions prior to its stockholders meetingand Sterling did not adequately improve its offer; or * if Sterling terminates because the Board of Directors of Whittierrecommends a superior takeover proposal meeting certain conditions prior to itsstockholders meeting and Sterling did not adequately improve its offer; or * if Sterling terminates because Whittier breaches or fails toperform in any material respect its non-solicitation covenants or agreements. Whittier is also required to make a payment to Sterling of US$5.5 million underthe following circumstances if Whittier consummates an alternative transactionfor the sale of 20% or more of the outstanding voting securities or assets ofWhittier within 12 months following the termination of the merger agreement: * if either Sterling or Whittier terminates because the Acquisitionis not consummated by the end date; * if either Sterling or Whittier terminates because any finaljudgment, order, decree, ruling or regulation restrains the Acquisition; * if either Sterling or Whittier terminates because the Whittiershareholder vote was not obtained; or * if Sterling terminates because Whittier breaches or fails toperform in any material respect any of its representations, warranties,covenants or other agreements. Voting agreements have been executed with approximately 15% of the Whittierstockholders, with the result that these stockholders have agreed to vote infavour of the transaction. Definitions and glossary of terms Definitions "Acquisition" the acquisition of Whittier by Sterling; "Board" or "Directors" the directors of the named company; "Evolution Securities" Evolution Securities Limited; "NASDAQ" National Association of Securities Dealers Automated Quotations "Rothschild" N M Rothschild & Sons Limited; "Sterling" or the "Company" Sterling Energy PLC; "United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland; "United States" or "US" the United States of America, its territories and possessions; "Whittier" Whittier Energy Corporation; "Whittier Stockholders" holders of Whittier Stock. Glossary bbls - barrels of oil bcf - billion cubic feet of gas bcfge - billions of cubic feet gas equivalent boe - barrels of oil equivalent bopd - barrels of oil per day boepd - barrels of oil equivalent per day GBP - British Pound Sterling H1 - period from 1 January to 30 June mcf - thousand cubic feet of gas mcfged - thousand cubic feet of gas equivalent per day mmbbl - millions of barrels mmboe - millions of barrels of oil equivalent mmcfgd - million cubic feet of gas per day mmcfged - millions of cubic feet of gas equivalent per day US$ - US Dollar WI - working interest 2P - proven and probable 3P - proven, probable and possible This information is provided by RNS The company news service from the London Stock Exchange