· Offer to convertible bondholders of early conversion to newly issued shares
of approximately SEK 1 billion
· Fully underwritten rights issue of approximately SEK 700 million
The Board of Directors of PA Resources AB (publ) (“PA Resources” or the
“Company”) has resolved to offer convertible bondholders of the Company early
conversion to new shares, subject to approval from an extraordinary general
meeting. The Board of Directors also proposes the extraordinary general meeting
to authorize the Board of Directors to resolve upon a subsequent fully
underwritten rights issue in an amount of approximately SEK 700 million. The
proposed transactions will significantly strengthen the Company’s financial
position at the same time as they enable long-term production growth and value
creation.
Too high indebtedness given current production
· The Azurite field in the Republic of Congo (Brazzaville) has during the past
two years performed far below expectations, which has considerably weakened the
Company’s financial position and flexibility in relation to the plan presented
in 2010.
· As a consequence of the failure in the Azurite field/Mer Profonde Sud, the
Board of Directors has resolved to write down the asset together with the Marine
XIV-license, which has been returned, with a total of SEK 1,495 million.
· In the Company’s view, the current production rate is too low to balance the
current indebtedness. The imminent refinancing risk has brought great insecurity
regarding the Company’s ability to develop its assets, and has had a negative
impact on the pricing of the Company’s shares, convertible bonds and outstanding
bond loans.
· Shareholders' equity amounted to SEK 956 million as per 30 September 2012
and was thereby lower than the specified minimum level of equity pursuant to
terms and conditions for the outstanding bond loans, of SEK 2 billion.
Furthermore, equity in relation to capital employed was below the specified
minimum level of 40 percent. The proposed transactions will, assuming full
acceptance, increase equity to more than SEK 2.5 billion and equity in relation
to capital employed to more than 40 percent. The lenders have been informed and
discussions have been initiated to obtain a so called waiver during the period
prior to the completion of the proposed transactions.
Set-off of convertible bond loan and a subsequent rights issue
· The Board of Directors of PA Resources has resolved upon a new issue of
shares to the holders of the Company’s convertible bond 2008/2014, subject to
approval from an extraordinary general meeting which is planned to be held on 7
December 2012. The subscription price is set at SEK 0.15 per new share meaning
each convertible bond entitles the holder to subscribe for 116 new shares
through set-off of an amount of SEK 17.40 per convertible bond, corresponding to
the nominal value of the convertible bond plus accrued interest as per 6
November 2012 (the “Offer”). The total nominal value of the convertible bonds,
including accrued interest as per 6 November 2012, amounts to SEK 1,072 million.
· Several large convertible bondholders, whose holdings in aggregate
correspond to more than 40 percent of the outstanding convertible bonds, have
expressed their support for the proposed transactions and have stated their
intention to participate in the Offer.
· The Offer is subject to the underwriting agreement entered into between the
Company and Carnegie Investment Bank AB ("Carnegie") (the "Underwriting
Agreement") not being terminated, which can be effected, inter alia, should the
Offer not reach an acceptance level exceeding 90 percent of the total nominal
amount of the convertible bonds.
· The Board of Directors of PA Resources has also proposed that the
extraordinary general meeting authorizes the Board of Directors to resolve upon
a subsequent rights issue in an amount of shares of approximately SEK 700
million at a subscription price of SEK 0.10 per new share (the “Rights Issue”).
The Rights Issue is conditional upon the completion of the Offer.
· The right to subscribe for new shares in the Rights Issue will be
distributed by approximately 50 percent to the current shareholders in the
Company and the remaining approximately 50 percent to shareholders who have
obtained shares through set-off of convertible bonds in the Offer.
· The Rights Issue is fully underwritten by a underwriting consortium, in
which Gunvor Group participates with SEK 200 million.
Flexibility and continued ability to develop prioritized assets
· The Offer and the Rights Issue (together the "Transactions") will, assuming
full acceptance after transaction related costs, in total increase equity by
approximately SEK 1,576 million, while reducing net debt by approximately SEK
1,500 million.[1] (http://#_ftn1)
· The Company’s estimated cash flow in combination with the proceeds from the
Rights Issue enables planned maintenance investments in producing fields in the
following years. The Company also anticipates that its balance sheet, in
combination with debt financing, will support planned amortizations of the
outstanding bond loans of, in aggregate, approximately SEK 950 million during
2013.
· The strengthened financial position is also expected to visualize and secure
asset values by strengthening the Company's position in negotiations regarding
various asset related transactions.
Q3 report and webcast telephone conference today, 7 November 2012, at 11.00 a.m.
CET
PA Resources publishes the quarterly report for the third quarter 2012 today at
08.15 a.m. CET. For more information see the separate press release and the Q3
report. A webcast telephone conference will be held today at 11.00 a.m. CET
where the President and CEO Bo Askvik will present the background to and facts
about the Transactions and comment on the Q3 report. The presentation will be
webcasted live on www.paresources.se where the presentation also will be
available. After the presentation, a recorded version will be available.
Shortcut to the webcast:
http://storm.zoomvisionmamato.com/player/paresources/objects/hdzab5y0/
For participation by telephone, please call:
Sweden: +46 (0)8 505 598 53
UK: +44 (0)203 043 24 36
Background and motives
Substantial asset portfolio and positive cash flow from producing fields
PA Resources has a substantial asset portfolio of producing fields, fields under
development, and assets which the Company has not yet begun developing. In
addition, the Company has a number of assets with great exploration potential.
The current production is generating a positive operating cash flow, and during
the third quarter of 2012 the average production amounted to 7,700 barrels of
oil per day.
The production rates and the operating cash flow have improved substantially
since the Aseng field was brought into production in late 2011. The field has
produced above plan and the development investments have been recovered already
during the second quarter of 2012. The Company is currently planning for
additional development and exploration projects in connection to the producing
Aseng field.
Lower production from the Azurite field than expected
In 2010, PA Resources presented a plan aiming to increase the producing assets
from 32 million barrels of oil equivalents in 2010 to 50 million barrels of oil
equivalents in 2014. This plan was to a large extent based on a successful
development of the Azurite field in the Republic of Congo (Brazzaville). During
the past two years it has however become evident that the significant investment
that was made by PA Resources in the field have generated a considerably lower
return than anticipated – the actual production from Azurite during 2012 turned
out to be almost 10,000 barrels per day lower than the plan presented in 2010.
The Company has on two previous occasions revised the field’s reserves downwards
which resulted in a write-down of SEK 1,436 million during the fourth quarter of
2011. The total cash flow since 2010 has been more than SEK 2.9 billion below
the plan, and the total investments in the field will most likely not be
recovered. The low production rates have also provided less favorable credit
terms and higher costs. Consequently, the Company has been forced to accelerate
the amortization of the credit facilities linked to the asset, which has
significantly weakened the Company’s financial position and flexibility.
The annual review of the Company's asset values, which has been moved forward,
results in a required impariment of SEK 1,495 million, as per 30 September 2012.
The Azurite field/ Mer Profonde Sud is written down by SEK 1,321 million, and in
addition the Marine XIV license in the Republic of Congo has been returned at
the beginning of the fourth quarter of 2012 resulting in a required write-down
of SEK 174 million, which is also reported as per 30 September 2012.
Weakened financial position and reduced flexibility
As described above, the disappointment in the Azurite field has resulted in the
current production rate, in the Company’s view, being too low to balance the
current indebtedness. The associated refinancing risk has brought great
insecurity regarding the Company’s ability to develop its assets and has had a
negative impact on the pricing of the Company’s shares, convertible bonds and
outstanding bond loans. The weakened financial position in relation to the plan
has also led to difficulties for the Company to, at reasonable values, dispose
assets or enter into so called farm-out agreements, which is an important part
of the Company’s business model.
In the light of the above, it is the view of the Board of Directors that PA
Resources has come to a situation where the Company is required to take actions
to substantially reduce debt in relation to the assets and cash flow, and also
to provide additional liquidity to the Company. If the Transactions are not
carried out, the Company is of the opinion that a formal restructuring process
will be required.
Two-step transaction that substantially strengthens the Company’s financial
position
The Transactions, as proposed by the Board of Directors, mean that convertible
bondholders are offered to set-off their convertible bonds against newly issued
shares in PA Resources, after which the Company carries out a fully underwritten
rights issue of shares in an amount of approximately SEK 700 million. The right
to subscribe for shares in the Rights Issue will be distributed by approximately
50 percent to the current shareholders in the Company and the remaining
approximately 50 percent to shareholders who have obtained shares in the Offer.
Assuming full acceptance in the Offer and full subscription in the Rights Issue,
the Company’s net indebtedness will be reduced from approximately SEK 3,410
million to SEK 1,910 million, while equity will increase from approximately SEK
956 million to SEK 2,532 million.[2] (http://#_ftn2)
Financial position following the proposed Transactions enabling the business
plan
The Company’s financial position will be significantly strengthened through the
Transactions. The Company’s cash flow in combination with the proceeds from the
Rights Issue enables planned maintenance investments in producing fields in the
following years. The Company also anticipates that its balance sheet, in
combination with debt financing, will support planned amortizations of the
outstanding bond loans of, in aggregate, approximately SEK 950 million during
2013.
The Company also anticipates that it, with continued use of alternative
refinancing solutions and a sustained net indebtedness in line with the level
following the Transactions, will be able to use the cash flow from producing
fields to continue the development of the prioritized assets. The prioritized
development projects currently include the Danish discoveries Broder Tuck and
Lille John in the license 12/06, the Elyssa and Zarat fields in the Zarat
license in Tunisia, and Block I with the Aseng field in Equatorial Guinea. In
addition, selective and limited exploration activities will be carried out.
In order to adapt the size of future investments to the Company’s financial
position following the Transactions and to diversify the Company’s exposure to
single projects, the Company intends to actively continue to reduce its interest
in certain of the prioritized assets, through so called farm-outs. The Company
is currently involved in several discussions regarding such transactions and the
Company is of the opinion that the Transactions will improve the potential to
finalize those discussions.
Given the Company’s assumptions regarding future farm-outs, the investments to
develop prioritized assets of approximately 30 million barrels of oil to
producing reserves and to continue selective exploration activities are
estimated to approximately SEK 1.8 billion during the period 2013–2018, which
results in a development cost of approximately USD 9 per barrel. Given the
Company’s assumptions on production during the period 2013–2018, the Company is
estimated to hold a net cash position by the end of 2018 of approximately SEK
600 million.
According to PA Resources the value of the Company’s assets, given the
prevailing plan, amounts to approximately SEK 8.5 billion, of which SEK 2.3
billion comprises producing fields and SEK 3.9 billion prioritized development
assets. The remaining SEK 2.3 billion represent the Company’s exploration
assets.[3] (http://#_ftn3)
Altogether the Management and Board of Directors are of the opinion that the
Company has an attractive underlying asset base that is currently burdened by an
excessive indebtedness. The proposed Transactions will create a strong basis for
long-term production growth and value creation.
The Offer to the convertible bondholders
· Set-off of claims according to the convertible bonds is made against newly
issued B-shares in PA Resources. In order to administratively enable the Rights
Issue to be distributed to existing shareholders and to the convertible
bondholders who have subscribed for shares through the Offer, the Board of
Directors proposes that the upcoming extraordinary general meeting resolves upon
a registration of a new series of shares, B-shares, after which the Company’s
existing shares become A-shares. Following completion of the Transactions, the B
-shares will automatically be converted to A-shares.
· Holders of the Company’s convertible bond 2008/2014 are offered to set-off
each convertible bond, with a nominal value including accrued interest as of 6
November 2012 of SEK 17.40, against 116 newly issued B-shares in PA Resources at
a subscription price of SEK 0.15 per new share.
· The maximum of new B-shares issued upon full acceptance level in the Offer
amounts to 7,144,496,260, corresponding to approximately 92 percent of the share
capital in PA Resources before the Rights Issue.
· The Offer is conditional upon:
1. The Underwriting Agreement entered into between the Company and Carnegie not
being terminated by Carnegie. Carnegie has, inter alia, the right to terminate
the Underwriting Agreement should the Offer not be accepted to the extent that
more than 90 percent of the claim according to the convertible bond 2008/2014
(including accrued interest as of 6 November 2012) is used as payment through
set-off against new B-shares, or in case the required waivers are not given in
relation to non-fulfilled terms and conditions relating to the Company’s
outstanding bond loans.
2. That the shareholders in PA Resources on the upcoming extraordinary general
meeting make the required decisions to issue new shares in connection with the
Offer.
PA Resources reserves the right to withdraw the Offer in the event that any of
the above conditions will not be fulfilled.
The Rights Issue
· The Rights Issue amounts to approximately SEK 700 million. Existing
shareholders are entitled to subscribe for approximately 50 percent and those
who have obtained B-shares through the Offer are entitled to subscribe for the
remaining approximately 50 percent. The subscription price is set at SEK 0.10
per new share.
· The final number of shares that each A- and B-share will entitle to
subscribe for will be announced in connection with the Offer being completed and
the outcome thereof being announced.
· The Rights Issue is fully underwritten by a underwriting consortium, in
which Gunvor Group participates with SEK 200 million.
· The Rights Issue is conditional upon the completion of the Offer.
Underwriting commitments
Several large convertible bondholders, whose holdings in aggregate correspond to
more than 40 percent of all convertible bonds outstanding, have expressed their
support for the proposed Transactions and have stated their intention to
participate in the Offer.
The Rights Issue is underwritten in its entirety by a consortium of Swedish and
international investors, many of which have previously invested in securities
issued by the Company. The single largest underwriter is Gunvor Group having
committed to underwrite an amount of SEK 200 million. The underwriting
commitments are subject to certain conditions, including that the Underwriting
Agreement between the Company and Carnegie not has been terminated.
In case the guarantors are required to subscribe for shares pursuant to their
undertakings, certain of them previously having invested in the Company’s
corporate bonds, have a right to pay for such shares by set-off of part of their
bond holdings. Of the total underwriting commitments, approximately SEK 120
million may be honored by set-off of the Company’s Swedish bonds and
approximately SEK 50 million may be honored by set-off of the Company’s
Norwegian bonds.
The part of the Rights Issue that is not underwritten by the consortium is
underwritten by Carnegie in accordance with the terms and conditions of the
Underwriting Agreement it has entered into with the Company. Carnegie has, inter
alia, the right to terminate the Underwriting Agreement should the Offer not be
accepted to the extent that more than 90 percent of the claim according the
convertible bond 2008/2014 (including accrued interest as of 6 November 2012),
through set-off, is used for payment for new B-shares, or in case the required
waivers are not given in relation to non-fulfilled terms and conditions relating
to the Company’s outstanding bond loans.
Un-audited pro forma report – effects of the Offer and the Rights Issue
The pro forma balance sheet and key ratios set out below represent summarized
financial information derived from PA Resources’ interim report for the period 1
January–30 September 2012 where the Offer is reflected as if all convertible
bondholders had accepted the Offer as per 30 September 2012 and the planned
Rights Issue had been completed on the same date.
Indicative timetable for the Offer
5 December 2012 Estimated date for the publication of
the prospectus regarding the Offer
6–17 December 2012 Estimated acceptance period
7 December 2012 Extraordinary general meeting approves
the Board of Directors’ resolution on the Offer and authorizes the Board of
Directors to resolve upon the Rights Issue
PA Resources reserves the right to extend the acceptance period for the Offer,
as well as the right to postpone the settlement date.
The timetable, terms and conditions and prospectus for the Rights Issue will be
announced as soon as possible following the announcement of the outcome of the
Offer.
Financial and legal advisors
Carnegie is acting as book runner and financial advisor to PA Resources.
Advokatfirma DLA Nordic KB and Advokatfirman Vinge KB are acting as legal
advisors to PA Resources. Gernandt & Danielsson Advokatbyrå KB is acting as
legal advisor to Carnegie.
Stockholm, 7 November 2012
PA Resources AB (publ)
For additional information, please contact:
Bo Askvik, President and CEO, PA Resources
+46 (0)70 819 59 18, ir@paresources.se
PA Resources AB (publ) is an international oil and gas group which conducts
exploration, development and production of oil and gas assets. The Group
operates in Tunisia, Republic of Congo (Brazzaville), Equatorial Guinea, United
Kingdom, Denmark, Greenland, the Netherlands and Germany. PA Resources has oil
production in West and North Africa. The parent company is located in Stockholm,
Sweden. In 2011, PA Resources reported sales of SEK 2,154 million. The share is
listed on NASDAQ OMX in Stockholm, Sweden (segment Mid cap). For further
information please visit www.paresources.se.
The above information has been made public in accordance with the Securities
Market Act and/or the Financial Instruments Trading Act. The information was
published at 08:10 AM CET on 7 November 2012.
IMPORTANT NOTICE
The information in this press release is not for release, publication or
distribution, directly or indirectly, in or into the United States, Australia,
Hong Kong, Japan, Canada, Singapore or South Africa. The distribution of this
press release in certain other jurisdictions may be restricted. The information
in this press release shall not constitute an offer to sell or the solicitation
of an offer to purchase any securities in PA Resources in any jurisdiction. This
press release does not constitute, or form part of, an offer or solicitation to
purchase or subscribe for securities in the United States. The securities
referred to herein may not be offered or sold in the United States absent
registration or an exemption from registration as provided in the U.S.
Securities Act of 1933, as amended. PA Resources does not intend to register any
portion of the offering of the securities in the United States or to conduct a
public offering of the securities in the United States. Copies of this
announcement are not being distributed or sent and may not be distributed or
sent to the United States, Australia, Hong Kong, Japan, Canada, Singapore or
South Africa.
This document has not been approved by any regulatory authority. This document
is a press release and not a prospectus and investors should not subscribe for,
or purchase any securities referred to in this document, except on the basis of
information that will be provided in the prospectus to be published by PA
Resources on its web site in due course.
EUROPEAN ECONOMIC AREA
PA Resources has not resolved to offer to the public shares or rights in any
Member State of the European Economic Area other than Sweden and any other
jurisdiction into which the offering of shares or rights may be passported.
Within such Member States of the European Economic Area other than Sweden (and
any other jurisdiction into which the offering of shares or rights may be
passported) and which has implemented the Prospectus Directive (each, a
“Relevant Member State”), no action has been undertaken as of this date to make
an offer to the public of shares or rights requiring a publication of a
prospectus in any Relevant Member State. As a result hereof, the shares or
rights may only be offered in Relevant Member States: (a) to a qualified
investor (as defined in the Prospectus Directive); (b) to any legal entity
meeting two or more of the following criteria: (1) an average of at least 250
employees during the last financial year; (2) a total balance sheet of more than
EUR 43 million and (3) an annual net turnover of more than EUR 50 million, as
shown in its last annual or consolidated accounts; or (c) in any other
circumstances, not requiring PA Resources to publish a prospectus as provided
under Article 3(2) of the Prospectus Directive.
For the purposes hereof, the expression an “offer to the public of shares or
rights” in any Relevant Member State means the communication, in any form, of
sufficient information on the terms of the offer and the shares or rights to be
offered so as to enable an investor to decide to purchase any securities, as the
same may be varied in a Relevant Member State due to the implementation of the
Prospectus Directive in that Member State and the expression “Prospectus
Directive” means Directive 2003/71/EC including any relevant implementing
measure in each Relevant Member State.
Carnegie is acting for PA Resources and no one else in connection with the
Exchange Offer and the Rights Issue and will not be responsible to anyone other
than PA Resources for providing the protections afforded to its clients or for
providing advice in relation to the Exchange Offer and the Rights Issue and/or
any other matter referred to in this announcement.
Carnegie accepts no responsibility whatsoever and makes no representation or
warranty, express or implied, for the contents of this announcement, including
its accuracy, completeness or verification or for any other statement made or
purported to be made by Carnegie, or on its behalf, in connection with PA
Resources and the new shares, the Exchange Offer or the Rights Issue, and
nothing in this announcement is, or shall be relied upon as, a promise or
representation in this respect, whether as to the past or future. Carnegie
accordingly disclaims to the fullest extent permitted by law all responsibility
and liability whether relating to damages, contract or otherwise which it might
otherwise have in respect of this announcement or any such statement.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements that reflect management’s
current views with respect to future events and potential financial performance.
Although PA Resources believes that the expectations reflected in such
statements are reasonable, no assurance can be given that such expectations will
prove to have been correct. Accordingly, results can differ materially from
those set out in the forward-looking statements as a result of various factors.
You are advised to read this announcement, and the prospectus and the
information incorporated by reference therein once available, in their entirety
for a further discussion of the factors that could affect the PA Resources’
future performance and the industries in which the Company operates. In light of
these risks, uncertainties and assumptions, it is possible that the events
described in the forward-looking statements in this announcement may not occur.
----------------------------------------------------------------------
[1] (http://#_ftnref1) Based on a pro forma balance sheet as per 30 September
2012. For more information see “Un-audited pro forma report – effects of the
Offer and the Rights Issue”
[2] (http://#_ftnref2) Based on a pro forma balance sheet as per 30 September
2012. For more information see “Un-audited pro forma report – effects of the
Offer and the Rights Issue”
[3] (http://#_ftnref3) The valuation is based upon independent reserve reports
conducted by third parties, an oil price of 110 USD/barrel, an USD/SEK exchange
rate of 6.53 and a discount factor of 10%.
