20 January 2020
PRESIDENT ENERGY PLC
("President" or the "Company")
Subscription for new Ordinary Shares by Trafigura
Conversion of debt into equity
Immediate reduction of Group debt by US$5.95 million and potentially up to US$14.8 million
· The international commodity trader Trafigura has agreed to take a significant stake in President pursuant to a subscription to raise up to US$10 million, comprising an initial subscription of US$4 million for 75,997,775 new ordinary shares in President ("Ordinary Shares") at a price of 4.04 pence per share (the "Initial Subscription Shares") and, at Trafigura's option, potential further subscriptions of up to US$6 million through the issue of further new Ordinary Shares at a price of 4.65 pence per Ordinary Share. All subscription monies will be applied in paying down the advances made by the Trafigura group to the Company and its subsidiaries (the "Group") referred to in President's announcement of 25 July 2019.
· IYA Global Limited ("IYA"), a company beneficially owned by Peter Levine, has agreed to convert up to US$4.825 million of debt outstanding under the existing unsecured loan facility between IYA Global Limited and President dated 2 January 2018 (as amended) into new Ordinary Shares in President. IYA has agreed to initially convert US$ 1.95 million of such debt at the price of 4.04 pence per Ordinary share. It is also proposed that the existing loan facility be amended so that up to a further US$2.875 million being part of the outstanding loan becomes convertible at the discretion of IYA at a price of 4.65 pence per Share, being on the same commercial terms as the Trafigura subscription to be converted at same times and in proportionate amounts to the further subscriptions by Trafigura.
· The net effect of the initial subscription and the initial conversion will be to reduce net debt of the Group by US$5.95 million with the potential to reduce net debt by US$14.8 million in aggregate with the resultant benefits to the balance sheet, cash flow and profits.
· After the initial subscription and the initial conversion, Trafigura will hold 6.09% of the entire enlarged issued share capital of the Company and Peter Levine (through his investment vehicles) will hold 29.99%.
· The Group is now projected to be free of all financial third-party debt (other than IYA) by end H1 2021.
· The Board of Directors of the Company ("Board") is proposing to obtain necessary shareholder approval, where required, to implement the above at a general meeting to be held on 6 February 2020. A circular will be published shortly, setting out the details of the proposals and a notice of general meeting, and will be posted to shareholders.
Peter Levine, Chairman, commented:
"We welcome Trafigura as a significant stakeholder in President.
Trafigura, already an important off-taker of the Group, is an international trading and logistics company with extensive interests in the energy sector and whose reported turnover in 2019 was some US$171.5 billion.
The practical effect of both the subscriptions and conversions announced today will immediately reduce debt by a minimum of nearly US$6 million and potentially nearly US$15 million which will benefit both the balance sheet and profit and loss account. The Group on present projections will be free of all of its existing third party financial debt within the next 18 months.
Despite the significant vagaries of 2019 layered on top of the normal day to day challenges, the Group made sound progress last year. Each and every month the Group delivered operational profits (after taking account of all G&A but before depreciation) with operational free cash flow and positive adjusted EBITDA. Further selective unaudited information of the performance last year will be given at or around the end of this month.
With reduced debt and concomitant lower servicing requirements combined with a substantial and supportive international industry partner as a significant shareholder alongside myself and other shareholders, we are well placed to deliver on our strategy to generate growth not only organically but also through being able to take advantage of appropriate opportunities in various jurisdictions as they arise in the future."
Martin Urdapilleta, General Manager, Argentina, of Trafigura commented:
"Trafigura is very pleased to become a significant and we hope long term committed shareholder in President, a company with a proven and strong management team, a defined strategy and in our view great potential.
Aligned with President on both a commercial and now shareholder level, we look forward to working with President and assisting in their future growth plans."
President Energy PLC
Peter Levine, Chairman
Rob Shepherd, Group FD
+44 (0) 207 016 7950
finnCap (Nominated Adviser)
Christopher Raggett, Scott Mathieson
+44 (0) 207 220 0500
Whitman Howard (Broker)
Hugh Rich, Grant Barker
+44 (0) 207 659 1234
Tavistock (Financial PR)
Nick Elwes, Simon Hudson
+44 (0) 207 920 3150
President Energy (AIM: PPC), the upstream oil and gas company with a diverse portfolio of production and exploration assets focused primarily in Argentina, announces the taking of a significant stake in the Company by Trafigura and the conversion of debt by IYA into equity which will together result initially in a further reduction of Group balance sheet debt of nearly US$6 million with the potential to reduce net debt by US$14.8 million in aggregate.
Trafigura, the international commodity trader has agreed to become a significant shareholder in President by way of a subscription for new Ordinary Shares in President, pursuant to the terms of a subscription agreement dated 20 January 2020 (the "Subscription Agreement") (the "Subscription"). The Subscription comprises:
i. an initial subscription by Trafigura for 75,997,775 new Ordinary Shares (the "Initial Subscription Shares") at a price of 4.04 pence per share (the "Initial Share Subscription Price"), being the volume weighted average middle market for the 5 days prior to the date of the Subscription Agreement (the "Initial Subscription"); and
ii. potential further subscriptions by Trafigura for additional new Ordinary Shares (the "Additional Subscription Shares") at a price of 4.65 pence per share, being a 15% premium to the Initial Share Subscription Price, up to an aggregate subscription amount of US$6 million (the "Additional Subscriptions").
Application has been made to London Stock Exchange plc (the "London Stock Exchange") for the Initial Subscription Shares to be admitted to trading on AIM and admission of those shares is expected to become effective on 23 January 2020. Following admission of the Initial Subscription Shares, the issued share capital of the Company will be 1,211,280,665 Ordinary Shares and this figure may be used by shareholders as a denominator for the calculations by which they will determine if they are required to notify their interest in, or change to their interest, the Company, under the Disclosure Guidance and Transparency Rules published by the UK Financial Conduct Authority.
The right for Trafigura to subscribe for the Additional Subscription Shares, which may take place at Trafigura's option at any time up until 30 September 2020, is conditional on the passing of the Resolutions to be proposed at the General Meeting (both as defined below).
All money invested by Trafigura in the President pursuant to the Subscription will be advanced to President Petroleum S.A., the Company's wholly owned subsidiary ("PPSA") and PPSA shall apply such money solely for the purpose of satisfying its liabilities to Trafigura under the existing prepayment and off-take arrangements.
The net effect of the Initial Subscription and the initial Loan Conversion (as described below) will be to immediately reduce net debt of the Company by US$5.8 million which benefits the balance sheet and cash flow/profits. Any monies comprising the Additional Subscription will likewise be applied in reducing the net debt of the Company.
In addition to the terms of the Initial Subscription and the Additional Subscriptions, the Subscription Agreement contains the right for Trafigura to appoint an observer or director to the board of President if its interest in the Ordinary Shares exceeds 3% or 10% respectively of the entire issued equity at the relevant time. Trafigura has also agreed to a six month lock-in in relation to the Initial Subscription Shares and a further three month lock-in over any Additional Subscription Shares.
The Subscription Agreement also provides Trafigura with anti-dilution protection for such a time as Trafigura (together with its associates) holds an interest in the ordinary shares representing at least 3% of the entire issued share capital of the Company at the relevant time.
President views the above provisions as positive, demonstrating Trafigura's interest in maintaining a significant position with regard to the Company and its commitment in working together with President on a long term basis.
In addition, President and Trafigura have entered into a strategic terms agreement with a view to future cooperation.
In parallel with the entry into the above arrangements, IYA Global Limited (a company beneficially owned by Peter Levine, the Chairman and largest shareholder) ("IYA") and the Company have conditionally agreed to revised arrangements with regard to certain monies owed to IYA by the Company, as follows;
i. the Company has agreed to convert US$1.95 million of debt outstanding under the existing unsecured loan facility entered into between the Company and IYA dated 2 January 2018 (as amended) (the "Existing Loan Facility") into 37,048,915 new Ordinary Shares (the "Initial Loan Conversion Shares") at a price of 4.04 pence per share (the "Loan Conversion") being the same price as the initial Subscription Price; and
ii. the Company has further agreed that the Existing Loan Facility be amended (to become the "Amended Loan Facility") so that a further amount of US$2.875 million being part of the amount outstanding under the Amended Loan Facility could be converted into new Ordinary Shares at a price of 4.65 pence per share (the "Further Loan Conversion") being the same price as the Additional Subscription Price.
The Loan Conversion Shares will be issued to PLLG Investments Limited ("PLLG"). Following admission of the initial Loan Conversion Shares becoming effective in accordance with Rule 6 of the AIM Rules, PLLG will own 374,453,462 ordinary shares in the Company, representing 29.99% of the Company's enlarged issued share capital. It is intended that the Further Loan Conversion will be utilised by PLLG to maintain its holding at that level going forwards.
The Loan Conversion and the amendment of the Existing Loan Facility so as to become the Amended Loan Facility are conditional on the passing of the Resolutions to be proposed at the General Meeting. Application has been made to the London Stock Exchange for the Loan Conversion Shares to be admitted to trading on AIM. It is expected that, subject to the passing of the Resolutions at the General Meeting, admission of the Loan Conversion Shares will take place on 7 February 2020.
Related Party Transactions
The amendment of the Existing Loan Facility and issue of the Loan Conversion Shares to PLLG as well as the Further Loan Conversion arrangements are classified as related party transactions for the purposes of Rule 13 of the AIM Rules. Accordingly, the directors of the Company, excluding Peter Levine (who is not considered to be independent), consider, having also consulted with finnCap Limited in its capacity as the Company's nominated adviser, that the amendment of the Existing Loan Facility and the terms of IYA's and PLLG's participation in the Loan Conversion and the Further Loan Conversion are fair and reasonable insofar as the shareholders are concerned.
Circular and General Meeting
The board is proposing resolutions to obtain the necessary shareholder approval related to the above (the "Resolutions") at a general meeting to be held at 11.00 a.m. on 6 February 2020 (the "General Meeting").
A circular will shortly be posted to shareholders (the "Circular") setting out the reasons for the proposals referred to in this announcement. The notice convening the General Meeting will also be set out in the Circular. The Circular will be available for download on the Company's website at www.presidentenergyplc.com.
Current Trading and Prospects
President's hydrocarbon interests are extensive and multi layered covering three countries. The common thread running through them all is that President operates all its fields, facilities and pipelines with its own in-country management teams. Producing oil and gas in both Argentina and the USA, the Company also has extensive and potentially significant exploration assets in Argentina and Paraguay.
In the last two and a half years, President has invested over US$57 million in the Rio Negro Province, Argentina alone in acquisition and capital costs and expenditure with a further approximately US$5 million currently being spent there on the new pipeline and infrastructure which President is building. The result has been the gaining of a significant critical mass of assets in Rio Negro.
With the adverse effects of both the Argentinian Decree 566 and the lengthy stoppages in Louisiana step by step receding in the rear-view mirror, President is getting back to business.
In Argentina the newly acquired Angostura block is being integrated into the Group with new larger, more cost effective and efficient compressors being installed. In relation to capital expenditure, as well as infrastructure in the fields, the building of the new 16km gas pipeline is on track to be completed and commissioned by the end of February with completion of the welding and burying of the pipe expected by the end of this week. From the date of full commissioning, gas production will materially escalate as shut in wells will be brought on-stream, timed to benefit from the usual winter increase in prices which normally starts in May which historically can mean a 100% uplift from the relatively low summer prices currently being paid.
The Company is now planning to re-commence drilling new vertical wells in the latter part of H1 2020 with an initial three well programme slated for Rio Negro Province. The Company has agreed terms in principle with the preferred drilling contractor. Further details of the wells will be announced in due course.
Later in the year, the Company is planning to drill further wells both in the Rio Negro Province and the Puesto Guardian Concession, Salta Province, Argentina.
In Louisiana, daily production is back to levels not seen since before the flooding in the spring of 2019. The review of the reprocessed seismic data at Jefferson Island (operator with 20%) has taken longer than originally anticipated. As a result, the schedule for drilling there has been pushed back until the end Q1 2020. Two good prospects have been identified as targets.
In Paraguay, the farm out process continues. While this process continues, further extensive sub-surface studies have lent encouragement to and support for the exploration prospectivity of the Pirity Block.
The Company maintains its previously stated projections for average 2020 production of in excess of 4000 Boepd.
Finally, President expects to issue the results of an updated independent reserves report in February 2020 on its Argentine assets as at 31 December 2019. Notwithstanding depletion by production during the year and that no new wells were drilled, the report is expected to show stability in the level of proven and probable reserves compared to the previous year which had net 2P reserves in Argentina of approximately 25 MMboe. It is expected that there will be a material increase in 3P possible reserves due to the significant amount of field and sub-surface work undertaken there in 2019.
As stated above, at or around the end of this month the Company expects to issue further unaudited information relating to the trading and financial performance of the Group last year.
"Boepd" barrels of oil equivalent per day
"MMBoe" million of barrels of oil equivalent
Notes to Editors
President Energy is an oil and gas company listed on the AIM market of the London Stock Exchange (PPC.L) primarily focused in Argentina, with a diverse portfolio of operated onshore producing and exploration assets.
The Company has operated interests in Puesto Flores, Estancia Vieja, Puesto Prado, Angostura and Las Bases, Rio Negro Province and in the Puesto Guardian Concession, in the Noroeste Basin in NW Argentina. Alongside this, President Energy has cash generative production assets in Louisiana, USA and further significant exploration and development opportunities through its acreage in Paraguay and Argentina.
The Group is also actively pursuing value accretive acquisitions of high-quality production and development assets in Argentina capable of delivering positive cash flows and shareholder returns. With a strong institutional base of support, including the IFC, part of the World Bank Group, an in-country management team as well as a Board whose interests are aligned to those of its shareholders, President Energy gives UK investors rare access to the Argentinian growth story combined with world class standards of corporate governance, environmental and social responsibility.
Founded in 1993, Trafigura is one of the largest physical commodities trading groups in the world. Trafigura sources, stores, transports and delivers a range of raw materials (including oil and refined products and metals and minerals) to clients around the world. The trading business is supported by industrial and financial assets, including 49.3 percent owned global oil products storage and distribution company Puma Energy; global terminals, warehousing and logistics operator Impala Terminals; Trafigura's Mining Group; and Galena Asset Management. The Company is owned by over 700 of its 8,000 employees who work in 80 offices in 41 countries around the world. Trafigura has achieved substantial growth over recent years, growing revenue from USD12 billion in 2003 to USD 171.5 billion in 2019. The Group has been connecting its customers to the global economy for more than two decades, growing prosperity by advancing trade. Visit: https://www.trafigura.com
This announcement contains inside information for the purposes of article 7 of Regulation 596/2014.