New Guinea Energy (ASX: NGE; OTCQX:NGELY; POMSOX:NGE) has signed an agreement to sell its 50% stake in Petroleum Prospecting Licence 269 in Papua New Guinea's Papuan Basin to Esso PNG Robin for US$40 million (A$43.7 million).
Importantly, the sale will improve the company's ability to focus on and fund exploration for oil in the country, particularly the Kaisy-1 lead near the southern coastline of PNG in PPL 267.
The company believes this target has the potential to contain more than 50 million barrels of in-place oil.
"With the materiality of this lead and its proximity to water borne transport routes, this target offers an exciting opportunity to significantly change the shape of the Company and to generate near-term production and material revenues," chief executive officer Grant Worner said.
He told Proactive Investors that the company plans to shoot seismic during the dry season in October or November to confirm the four way closure at Kaisy-1, which is currently imaged by six seismic lines.
This is expected to lead to a drill decision by January 2014 with the company making all the necessary government submissions for drilling.
Worner added that preparations to carry out drilling would take about six months with the well expected to spud in the third quarter of 2014. This includes testing to determine the stability of the land and whether preparations such as installing pylons would be needed for the company's owned rig to carry out drilling.
He also noted that NGE would seek farm-in partners for PPL 267. "We will like to share the risk with others."
PPL 269, which is farmed in by Talisman Energy (TSX:TLM, NYSE:TLM) and Mitsubishi is believed to host 12 trillion cubic feet of in place gas in 32 prospects and leads.
The sale is likely to increase the company's net assets by $18.25 million.
"Receiving $40 million will significantly strengthen NGE's balance sheet without diluting shareholders' equity, which is an excellent outcome for the Company and shareholders in a climate where it is difficult for junior explorers to access new funds," Worner said in a statement.
Certain rights and obligations under the Sale Agreement between Esso and NGE's wholly-owned subsidiary Kirkland do not become binding until a number of initial conditions precedent are satisfied over a period of 20 business days commencing from today.
The initial conditions precedent are:
- Esso giving Kirkland a notice that Esso wishes to proceed with the transaction;
- Kirkland obtaining the consent of the holder of the convertible bonds in NGE; and
- NGE providing a parent company guarantee to Esso.
Esso, a subsidiary of the world's largest publicly traded international oil and gas company ExxonMobil, is permitted to have discussions with the Operator of PPL269, Talisman, during this period, and has an absolute discretion to determine whether it is prepared to proceed with the acquisition of NGE's participating interest in PPL 269.
If the initial conditions precedent are met, Esso will be required to pay a US$4 million deposit to Kirkland.
Completion under the Sale Agreement is contingent on satisfaction of certain additional conditions precedent, including pre-emption rights not being exercised, a variation to the PPL being approved, and government and joint venture approvals being obtained.
The deal has an effective date of 26 July 2013 with initial conditions precedent to be satisfied or waived by 23 August 2013.
Esso will then pay the deposit by 6 September 2013 if it is proceeding with the acquisition while all remaining conditions are to be satisfied by 26 October 2014. NGE will then receive the balance of the payment ($36 million) at least 10 business days after the conditions are satisfied.
New Guinea Energy background
NGE possesses one of the last available highly prospective, onshore, independent acreage positions in South East Asia.
Prior to any sale of PPL 269 taking effect, the company has five onshore Petroleum Prospecting Licences (PPLs) covering more than 29,500 square kilometres and a royalty right over another 8,000 square kilometres in PPL 277, which runs parallel to ExxonMobil's US$19 billion PNG LNG liquefied natural gas project that is expected to make its first shipment in 2014.
This links part of the company's growth to future expansion of the PNG LNG project, allowing it to retain upside in PPL 277 without the risks or capital obligation.
NGE had sold PPL 277 to ExxonMobil and Oil Search (ASX: OSH) for $15 million up front and another $20 million upon a Petroleum Development Licence being awarded in addition to the ongoing royalty.
The sale agreement of PPL 269 to Esso highlights the prospectivity of New Guinea Energy's oil and gas acreage in Papua New Guinea.
Successful completion will leave the company well funded for future exploration though it remains keen to reduce its exposure to risk by seeking out fund-in partners.
The planned work on Kaisy-1 is especially interesting as the lead's proximity to water-borne transport paves the way for a rapid development if an oil discovery is made.
With this news, Proactive Investors expects New Guinea Energy to be positively re-rated from the $0.022 closing price on Thursday 25th July.
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