TIDMLMS
RNS Number : 8430V
LMS Capital PLC
12 August 2020
12 August 2020
LMS Capital PLC
INVESTMENT IN A PORTFOLIO OF OIL AND GAS PRODUCING ASSETS IN
ROMANIA
-- Leadership of an investment group to acquire an interest in
Dacian Petroleum ("Dacian") in Romania
-- Dacian will, conditional on obtaining necessary Romanian
Government approvals, acquire a business operating onshore oil and
gas fields currently producing approximately 1,400 barrels of oil
equivalent per day ("boepd") with significant production upside and
unrecovered reserves
-- Approvals expected late Q3 or Q4 with a backstop date of 8 January 2021
-- LMS investment of US$9.05 million in loan and equity capital
to acquire a 32% holding in Dacian
-- Co-investors include Dacian management, LMS Directors and others
LMS Capital PLC ("LMS") announces that it is leading an investor
group (the "Investor Group") which has conditionally agreed to
finance the acquisition by Dacian Petroleum ("Dacian") from the
Romanian state oil company, OMV Petrom, of a business (the
"Business") operating 40 oil and gas fields with 190 active and 900
inactive wells located in Romania.
The acquisition by Dacian is conditional upon Dacian obtaining
certain Romanian Government regulatory approvals ("Approvals").
There is a backstop date of 8 January 2021, by which time, if the
Approvals have not been obtained, the acquisition agreement will
terminate.
The fields included in the Business are currently producing
approximately 1,400 boepd (60% gas and 40% oil), and have
substantial unrecovered reserves.
The Investor Group includes LMS, Directors of LMS (Chairman,
Robbie Rayne, Managing Director, Nick Friedlos and Non-executive
Director, James Wilson) ("LMS Directors"), other private investors
and Dacian's management.
LMS Capital will invest a total of US$9.05 million in loan and
equity capital to acquire a 32% holding in Dacian, with the
remaining share capital being held by Dacian's founder group (50%)
and other co-investors including the LMS Directors (18%).
Following its return to self-managed status in 2019, LMS'
investment focus is on property, energy, and late-stage private
equity. The Company has already announced backing for two teams
which will seek opportunities in the property sector.
This transaction represents the first investment in the energy
sector. LMS's focus on the energy sector includes both existing oil
and gas assets, and also renewables and clean technologies.
Rationale for the acquisition
The acquisition offers:
-- the opportunity to acquire a business that is operationally cash flow positive from day one;
-- an attractive entry price, based on reserves in place;
-- a local team with prior knowledge of the assets;
-- the prospect of significant increased production gains from
applying straightforward workovers and maintenance to assets which
historically have not been a strategic focus for their current
owner;
-- a robust business plan that is expected to produce target
returns, and can withstand energy prices below current levels.
Returns
The transaction is expected to be operationally cash flow
positive from completion and is expected to produce consistent
returns to investors through both regular interest and dividend
payments, and the repayment of acquisition-related debt over a
four-year period. The investment is expected to meet LMS' long term
return criteria of 12% to 15% per annum.
The investment will be structured as unsecured loans which carry
a coupon of 14% per annum, and a subscription for share capital for
a nominal sum. LMS will hold $9.05 million of 14% loans and 32% of
the ordinary shares.
Entry price
LMS believes that, in relation to likely reserves, the
acquisition price represents an attractive entry point into an
existing business operating mature oil and gas producing
assets.
Team with relevant experience and local knowledge of the
assets
The Dacian team is highly experienced, with oil industry
experience and detailed prior knowledge of the assets included in
the Business which, given their relatively small size, were not
historically a high priority for investment by the current owner.
The four founders have over 100 years of experience in the oil and
gas industry with their roles ranging from direct operation of oil
and gas fields in locations specifically including Romania, senior
leadership of multi-national oilfield service companies and
regional management of oilfield service operations in Eastern
Europe. The team in Romania will be led by one of the founder
shareholders who has held senior engineering and management roles
in the oil and gas industry and has also held senior roles in the
services sector working internationally including five years in
Romania. The senior management team includes, in addition to the
founders, individuals who have worked in the oil industry in
Romania, in some cases for many years.
Opportunity to add value
The Business being acquired is small and has not received
investment over recent years. This situation creates the
opportunity to significantly increase production levels, at a low
cost per unit of increase achieved, through a series of workover
and enhancement projects.
Robust operating model
Consideration has been given to the volatility recently seen in
oil prices and investor returns have been evaluated in a number of
scenarios.
The workover and enhancement projects are individually
relatively low cost, can be completed typically in less than one
month, can be funded from operating cash flows and should payback
their cost quickly. Individual projects can be timed and scoped in
response to market conditions including oil and gas prices.
Background information
OMV Petrom SA is a Romanian integrated oil company controlled by
Austria's OMV. It is one of the largest corporations in Romania and
is the largest oil and gas producer in South Eastern Europe.
In 2017 OMV Petrom announced the sale of the Business as part of
its operating strategy to divest of smaller, onshore Romanian
fields to allow it to focus on larger international opportunities
including offshore drilling and production in the Black Sea.
Dacian's management commenced initial exploratory meetings in early
2018.
Information on Dacian Petroleum
Dacian Petroleum was formed in October 2018, and was formally
qualified as an operator by the Romanian oil and gas authority
(NAMR) in March 2019.
Dacian Petroleum's mission is to build a long-life oil and gas
production company for the purpose of rehabilitating old oil and
gas producing properties which would benefit from the application
of established methods to recover remaining oil and gas reserves.
The main features of the Business being acquired are:
-- 40 oil and gas fields, 190 active wells, the land rights,
equipment and assets used in production, and a workforce of some
200 individuals currently employed in the Business
-- Current production of approximately 1,400 boepd (60% gas; 40% oil)
-- Local independent petroleum engineering assessment has
concluded that there are substantial remaining hydrocarbons in
place for these fields, with likely overall recovery factor of only
21% to date for oil and 53% for gas
-- OMV Petrom's internal 3P reserves estimate and estimates done
by local third parties indicate 3P reserves of c.10.5 million to 13
million barrels of oil equivalent (boe)
Dacian's team has developed an operational plan, comprising a
series of relatively small workover and enhancement projects across
the fields included in the Business which have the potential to
achieve significant increases in production over the first three
years of ownership. These projects rely on established methods and
technology used in the industry.
Financing the acquisition
The total consideration payable by Dacian for the acquisition of
the Business is approximately $17.8 million, with approximately $10
million payable at closing of the acquisition and approximately $8
million of deferred consideration (the "Deferred Consideration").
In addition to the cash consideration due at closing, Dacian is
raising an additional $4 million to fund transaction costs and
working capital for the Business. Dacian's obligations with respect
to the Deferred Consideration are supported by a personal guarantee
(the "Personal Guarantee") from one of Dacian's founders.
The capital raising by Dacian of US$14 million comprises:
-- the issue to the Investor Group of US$14 million Unsecured
Loans ("Loans") maturing after 7 years and bearing interest at 14%;
and
-- the issue to the Investor Group of 50% of the ordinary shares
in the company for a nominal consideration.
Dacian is also required by the vendor to cash collateralise a
performance guarantee ("Performance Guarantee") in relation to
certain obligations in respect of the Business. This guarantee is
for $5 million and is required to be set aside out of operating
cash flows over the first three years.
So long as Dacian is current with its obligations to the vendor
in connection with the Deferred Consideration and the Performance
Guarantee, and without calling upon the Personal Guarantee and has
adequate reserves for its liabilities, interest on the Loans can be
paid at the end of each year.
The principal amount of Loans cannot be repaid until all
obligations under the Deferred Consideration and the Performance
Guarantee have been satisfied, together with the first $2.8 million
of outstanding calls, if any, under the Personal Guarantee. The
balance of any calls under the Personal Guarantee over and above
$2.8 million will only be repaid after the Loans have been
satisfied.
No dividends can be paid on the Common Shares until obligations
to the vendor have been fully satisfied and the Loans and interest
thereon has been repaid in full and any outstanding amounts under
the Personal Guarantee.
LMS Capital is investing $9.05 million in Loans and subscribing
for equity, resulting in a holding of 32% in the share capital of
Dacian. Other members of the Investor Group will hold 18% and the
founder group will hold 50%.
Regulatory approvals and completion
LMS and the Investor Group will deposit funds in escrow at the
point when there is clarity around the expected date of the
Approvals. Once the Approvals have been obtained, funds will be
released from escrow and completion of the transaction will occur.
If Approvals are not obtained funds will be returned to investors.
There is a back-stop date of 8 January 2021 at which point, if
completion has not occurred the conditional acquisition agreement
will terminate and funds be returned to investors.
Investor group
LMS' investment represents approximately 15% on the company's
NAV and is the maximum it can invest in any one transaction under
its current investment policy.
LMS Directors, Robert Rayne, James Wilson and Nick Friedlos are
investing $1.075 million, $1.075 million and $0.1 million
respectively which in total is equal to less than 25% of the amount
being invested by LMS.
Other private investors are investing the balance of $2.7
million required by Dacian to acquire the Business and to operate
it.
All investors - LMS, the LMS Directors and the other private
investors are investing on identical terms, including the same
proportions as between Senior Notes and Ordinary Shares in
Dacian.
Commenting on the investment, Robbie Rayne, Chairman of LMS
Capital said:
"I am delighted to be able to announce this significant
transaction in LMS's new era of self management. It shows our
ability to access deal flow arising from long term relationships in
sectors where we have established and long experience, and our
ability to execute transactions as well as introducing
co-investors. The sunset exploitation of historical oil and gas
production assets is in our view, an important part of the world's
energy transition. The deal is expected to generate income and cash
flows for LMS in the early years, and has been acquired at an
attractive price leaving room for significant upside. We look
forward to working with the Dacian team to unlock the value of the
Business."
ENQUIRIES:
LMS Capital PLC - 0207 935 3555
Robbie Rayne, Chairman
Nick Friedlos, Managing Director
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
PFUUASBRRBUWAAR
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