logo-loader

UPDATE - Leni Gas and Oil signs up strategic partner for Spanish fields

Last updated: 20:58 18 Mar 2014 AEDT, First published: 21:58 18 Mar 2014 AEDT

europe350_5327fb47d4751

--ADDS BROKER COMMENTS--

Leni Gas and Oil (LON:LGO) has signed up a strategic partner to take on the group’s Spanish assets.

Over the past two years LGO has made a transition to focus on developing oilfield projects in Trinidad, and has been pursuing a partner for the Spanish business for quite some time.

Italian energy firm Pansoinco has signed heads of terms to acquire a 65% stake in the Ayoluengo field, and Leni’s other assets in Northern Spain.

In return Leni will receive a US$2.8mln cash payment upon closing the deal.

Under the proposed deal Pansoinco will become operator of the assets. It will assume all operating and development costs up until the end of January 2017.

Leni said it expects the partnership deal will see substantial investment in to Ayoluengo and Hontomin fields.

"A partnership with Pansoinco will bring the necessary experience and resources required to fully optimise the value of Spain for both parties," said chief executive Neil Ritson.

“As a result of this agreement LGO's anticipated next three years' Spanish cash flow will immediately be brought forward and will allow the company to put these funds to work increasing our Trinidad oil production."

Past financial results, for the twelve months to December 31 2012, show that the Spanish oilfields had turnover of £2.76mln and made a profit of £454,000. The assets had, at that time, a book value of £8.36mln.

With the signing of heads of terms Pansoinco has an exclusivity period, until April 30, to complete the transaction, and according to Leni closing of the deal is expected on or soon after that date.

Broker SP Angel said the new tie-up is a good step forwards for Leni, which will allow the value in all areas of its portfolio to be advanced.

Whilst pointing out that today’s deal sees a smaller cash return than a previous envisaged €9mln sale of the entire Spanish business, SP Angel reckons it is a much better deal overall.

The broker says it negates any need to invest in the asset, allows management to be focused on the growth areas and means Leni can benefit from any upside in the asset as a result of its ongoing development, with minimal downside.

Similarly, Old Park Lane Capital analyst Barney Gray describes it as a “great deal”.

“The company has effectively received upfront three years' future cash flow from Ayoluengo which it can put to very good use in Trinidad,” Gray said.

“Given that Pansoinco will be paying 100% of the costs on the licences, the Italian company will be incentivised to ramp up production as aggressively as possible over the next three years. At this point, LGO will resume a 35% working interest in a considerably larger asset.”

OzAurum to start drilling at Boca Rica Lithium Project

OzAurum Resources Ltd (ASX:OZM) CEO and managing director Andrew Pumphrey sits down with Proactive’s Jonathan Jackson to discuss an upcoming drilling program at Boca Rica Lithium Project in Brazil, following the identification of a spodumene zone. The company plans to start drilling in the next...

3 hours, 10 minutes ago