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President Energy PLC - Subscription for new ordinary shares by Trafigura

RNS Number : 8701O
President Energy PLC
03 June 2020
 

 

3 June 2020

 

PRESIDENT ENERGY PLC

("President" or the "Company")

 

Subscription for new ordinary shares by Trafigura

Intended conversion of debt into equity

Intended reduction of Group debt by at least US$10.1 million

Placing of new ordinary shares to raise up to US$3.1 million

Retail offer of new ordinary shares on PrimaryBid

Market update

 

 

TRANSACTION HIGHLIGHTS:

 

·      The international commodity trader Trafigura has agreed to substantially increase its stake in President pursuant to a subscription (the "Subscription") of US$6 million for 258,745,946 new ordinary shares in President at a price of 1.85 pence per share (the "Subscription Shares" and "Subscription Price" respectively). All subscription monies will be applied in fully repaying the remaining 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 stated that it intends, upon the passing of certain resolutions at a general meeting to be held on 22 June, to convert at least US$4.1 million of debt under the existing unsecured loan facility between IYA Global Limited and President ("IYA Loan Facility") into an amount of new ordinary shares in the Company (the "Conversion Shares") at a price of 1.85 pence per share (the "Conversion") that will enable Peter Levine (through his investment vehicles) to hold 29.95 percent of the Company's enlarged share capital. It is intended that the exact amount of debt to be converted will be determined following the closing of the retail offer described hereafter. It is also intended that the maturity date for the repayment of the relevant facility be extended until 31 December 2024

·      The net effect of the Subscription and the Conversion will be to reduce net debt of the Group by a minimum of approximately US$10.1 million resulting in a reduction of at least US$16 million in the calendar year to date with third party financial debt (excluding IYA) now only US$3.7 million

·      The Company is also raising up to US$3.1 million at a price of 1.85 pence per share by the placing of up to 134,611,399 new ordinary shares in the Company conditional upon the passing of the resolutions described hereunder (the "Placing")

·      As part of the Placing, certain directors and employees in the Company are intending to subscribe for a total of 15,136,619 new ordinary shares in the Company

·      In addition to the Placing, there will be an offer made by the Company on the PrimaryBid platform of new ordinary shares in the Company (the "Retail Offer Shares") at the Subscription Price (the "Retail Offer"), to provide existing shareholders and retail investors with an opportunity to participate. A separate announcement will be made shortly regarding the Retail Offer and its terms

·      The Subscription, Conversion, Placing and the Retail Offer are conditional upon the passing of the resolutions (the "Resolutions") at the general meeting of the Company more particularly referred to later in this announcement

·      Irrevocable undertakings amounting to approximately 35.6% of the Company's current issued share capital have been received in support of the Resolutions 

·      After the Subscription, the intended Conversion and the Placing but subject to the Retail Offer, Trafigura will hold approximately 18.3 per cent of the entire enlarged issued share capital in the Company and Peter Levine (through his investment vehicles) will hold 29.95 per cent

·      The board of directors of the Company (the "Board") is proposing to obtain necessary shareholder approval, where required, to implement the above at a general meeting to be held on 22 June 2020 (the "General Meeting"). A circular will be published shortly (the "Circular"), setting out the details of the proposals and a notice of general meeting, and will be posted to shareholders.

 

Directors and employee participation in the Placing

Certain Directors and other employees (together, the "PDMRs") of the Company intend to subscribe directly with the Company for Placing Shares in the Placing at the Placing Price. The intended participation by Directors is as per the table below:

 

Number of Placing Shares acquired

Resultant shareholding post Placing

% of Enlarged Issued Share Capital

Rob Shepherd

8,108,108

9,170,502

0.5

Jorge Dario Bongiovanni

3,547,296

3,704,475

0.2

 

In addition, other employees intend to subscribe for a total of 3,481,215 Placing Shares.

The participation of the PDMRs in the Placing will (at the time commitments are entered into) constitute a related party transaction under AIM Rule 13.

Peter Levine, Chairman of the Company, commented:

"We are pleased that Trafigura has expanded their interest in the Company, thereby having a major interest in the future growth and success of our Group.

"In difficult times for our industry, there will always be those, perhaps the few, who rise to the challenge and come through it the better and stronger for it being able to grasp opportunities as they arise. President is now well placed to be one of those."

Martin Urdapilleta, General Manager Argentina of Trafigura commented:

"Trafigura is pleased to continue to expand its cooperation with President, whilst ensuring that the Company maintains a lean balance sheet and optimal cost structure.

"We believe that the current times, while certainly challenging for the entire industry, offer growth and consolidation opportunities as well and we are excited to cooperate with President, as we do with other producers in Argentina and other parts of the world, to support their future growth initiatives."

NOTE

Trafigura, already an important off-taker of the Group, is an international commodity trading and logistics company with extensive interests in the energy sector and whose reported turnover in 2019 was some US$171.5 billion. It operates the Bahia Blanca refinery in Argentina to which President sells its oil from the Rio Negro assets.

 

President Energy will be hosting an analyst and investor conference call at 10:00 (BST) on 4 June 2020. Please find below dial-in details:

 

Conference call dial-in details:

 

·      United Kingdom Toll-Free:       0800 358 9473 PIN: 96698489#

·      United Kingdom Toll:               +44 333 300 0804 PIN: 96698489#

 

 

 

  

Contact:

 

President Energy PLC

Peter Levine, Chairman

Rob Shepherd, Group FD

 

 

+44 (0) 207 016 7950

 

finnCap (Nominated Adviser and Broker)

Christopher Raggett, Charlie Beeson

+44 (0) 207 220 0500

 

 

Tavistock (Financial PR)

Nick Elwes, Simon Hudson

+44 (0) 207 920 3150

 

 

 

Introduction

President Energy (AIM: PPC), the upstream oil and gas company with a diverse portfolio of production and exploration assets focused primarily in Argentina, today announces the following proposals relating to the Subscription, the Conversion, the Placing and the Retail Offer (the "Proposals") .

The Proposals

(i)       Trafigura has agreed, conditionally on the passing of the Resolutions, to exercise its rights to subscribe for the Subscription Shares at the Subscription Price on the terms more particularly referred to below;

(ii)      it is intended that IYA, conditionally on the passing of the Resolutions, will inter alia exercise its rights to convert part of its debt under the IYA Loan Facility into the Conversion Shares on the terms more particularly referred to below, and extend the maturity of the IYA Loan Facility until 31 December 2024;

(iii)     the Company is raising up to US$3.1 million under the Placing at a price of 1.85 pence per share comprising up to 134,611,399 new ordinary shares (the "Placing Shares") conditional on the passing of the Resolutions;

(iv)     As part of the Placing, certain directors and employees in the Company are intending to subscribe for a total of 15,136,619 new ordinary shares in the Company; and

(v)      there will be an offer made by the Company on the PrimaryBid platform of new ordinary shares in the Company at the Subscription Price to provide existing shareholders and retail investors with an opportunity to participate. A separate announcement will be made shortly regarding the Retail Offer and its terms.

In relation to the Subscription, the Company has agreed with Trafigura to amend the terms of the subscription agreement entered into with Trafigura on 20 January 2020 (the "Subscription Agreement") as detailed in the announcement of the Company made on 20 January 2020 (the "Announcement") such that the amended subscription price for each Subscription Share of 1.85 pence per Ordinary Share replaces the original price under the Subscription Agreement of 4.65 pence per share.

In relation to the Resolutions, irrevocable undertakings amounting to approximately 35.6% of the Company's currently issued share capital have been received in support thereof. 

It is further intended, subject to the passing of the Resolutions that an amendment to the IYA Loan Facility be made reducing the conversion price from 4.65 pence per share to 1.85 pence per share. In addition it is intended that the maturity date of IYA Loan Facility will be extended until 31 December 2024. It is intended that the Conversion Shares will be issued to PLLG Investments Limited ("PLLG").

It is intended that completion of the Subscription, the Conversion and the issue of the Placing Shares will take place on 23 June 2020, the day following the passing of the Resolutions.

Application will be made to the London Stock Exchange for the Subscription Shares, the Conversion Shares, the Placing Shares and the Retail Offer Shares to be admitted to trading on AIM with dealings expected to commence on 23 June 2020.

The net effect of the Subscription and the Conversion will be to reduce the net debt of the Company by a minimum of US$10.1 million. Net debt of the Company will have accordingly been reduced by an aggregate total of at least US$16 million since the start of the year 2020, with the concomitant material saving on finance costs.

This reduction will transform the balance sheet of the Company and will have a material beneficial effect on cash flow, profits and prospects.

The net proceeds of the Placing and the Retail Offer will be used for general working capital purposes.

Following the completion of the Proposals:

(i)       the Company's third-party financial debt (excluding amounts owed to IYA) will only be US$3.7 million of which US$2.3 million is repayable in 12 months;

(ii)      The debt to IYA would be similarly reduced to a maximum of US$12.1 million, representing a 33% reduction since the start of the year.

(iii)     Trafigura will own 334,743,721 ordinary shares representing around 18.3% of the Company's enlarged issued share capital (excluding the Retail Offer Shares); and

(iv)     PLLG will own ordinary shares representing 29.95% of the Company's enlarged share capital.

Background to the Proposals

The world, and in particular the oil and gas industry, has dramatically changed in only a few months since the 20 January 2020 announcement of the original arrangements with Trafigura and IYA.

This change has nowhere been more dramatically reflected than in oil prices and the significant decline in the share prices of publicly listed oil stocks including that of President.

The Proposals reflect the new reality for our industry where the key factors to future success are strong and strategic partners, solid financials with good liquidity, low debt and a plan for growth with the ability to deliver.

Trafigura is a world leading international commodity trader with a turnover of US$171.5 billion in 2019, and is also a major player in the Argentine and South American market as the offtaker of many oil companies on that continent. As well as supplying refined oil and gas to the Argentine domestic market, it is the owner of the Bahia Blanca refinery to which President supplies oil.

The Proposals provide the Company with a strong strategic industry partner having a major stake aligned with a driven management all committed to a dynamic growth plan for President Energy.

All money invested by Trafigura in the Company pursuant to the Subscription will be advanced to President Petroleum S.A. ("PPSA") and PPSA shall use such money solely for the purpose of satisfying in full all of its liabilities to Trafigura Argentina under the previously announced Prepayment and Off-Take Arrangements.

Whilst IYA had intended to initially convert US$2.875 million outstanding under the IYA Loan Facility, the intention is that this sum be increased to reflect the increase in the share capital of the Company pursuant to the issue of ordinary shares under the Placing and the Retail Offer which have taken place since January 2020 as previously announced by the Company as well as to take account of the Retail Offer. The effect of this will be to maximise the amount of reduction of monies owing under the IYA Loan Facility but always so that Peter Levine and his related parties holding in the Company does not exceed 29.95% of the entire issued share capital of President.

Further, under the Proposals it is intended that the maturity date for repayment of the IYA Loan Facility will be extended to 31 December 2024 with the option on the part of the Company to repay the facility in part or whole without penalty at any time prior to that date. This extension will permit the Company to deploy its cash to develop the Company without having to allot cash to repay any material near term debt.  

The Circular will shortly be sent to shareholders to explain the background to and reasons for the Proposals and to set out why the Directors consider the Proposals fair and reasonable and recommend them to the members.

General Meeting

Shareholders' approval will be sought in respect of the Resolutions.

The General Meeting will be convened for 11.00 a.m. on 22 June 2020 for this purpose. A form of proxy to be used in connection with the General Meeting will be enclosed with the Circular which will contain the form of notice to members and the Resolutions and will be posted to shareholders shortly.

Irrevocable Undertakings

PLLG and Trafigura who are the registered holders of 450,451,237 ordinary shares, representing approximately 35.6 per cent. of the Company's issued share capital at the time of the General Meeting, have provided undertakings to vote in favour of all of the Resolutions.

Recommendation

The Directors consider the Proposals to be in the best interests of the shareholders as a whole. Accordingly, the Directors unanimously recommend that the shareholders vote in favour of the Resolutions to be proposed at the forthcoming General Meeting.

 

 

Market update

Full Year Audited Results for the Year Ended 31 Dec 2019

The Company will publish audited results for full year 2019 during the week commencing 22 June.

It is currently expected that turnover, adjusted EBITDA and cash operating profit (after all administrative expenses and workovers, but before depreciation) are all expected to be in line with the unaudited numbers published on 3 February 2020.

After a careful review, reflecting a conservative approach in changing circumstances, the Company has decided to provide for the non-cash impairment of the values it carries in its accounts for the non-producing Paraguay exploration and non-core producing Puesto Guardian assets. This involves a material non-cash reduction of approximately US$88 million in the carrying value of these assets which combined with projected non-cash depreciation of US$10.5 million is expected to result in a net after tax loss of loss of circa US$95 million in the financial statements of the Group.

However this in no way affects, impacts or reflects adversely on the Group's current trading, financial prospects and independent audited reserves and will certainly not prohibit in due course writing back value for those assets into the accounts if or when conditions improve, particularly Puesto Guardian where the licence extends to 2050, with all work commitments already fulfilled. The impairments taken in these accounts will mitigate, going forward, the level of any future possible non-cash impairment of those assets as well as their depreciation. At the same time and in the same vein, it is to be noted that President has not taken any benefit into the accounts for the profitable producing Angostura asset it acquired last year for nil consideration payable to the seller, notwithstanding it has positive independent audited reserves.

Following on from this, the Company is intending in due course to take the necessary steps in relation to the Group's share premium account to allow the declaration of dividends in the future should circumstances permit.

Q1 Argentine unaudited results

The unaudited results for Q1 2020 for Argentina demonstrate the solidity of the Company notwithstanding the more than 50% decline in oil prices in March as a result of the global spread of Covid-19. Management accounts demonstrate:

·      Group turnover of US$9.6 million

·      each of the Argentine and USA operations operationally profitable; and

·      net cash profit in Argentina of US$3.45 million after all G&A, foreign exchange, and finance charges are taken into account but before depreciation.

The performance this current quarter will obviously be impacted by low oil price, mitigated somewhat by the significant reductions in opex and G&A achieved since March (see below). 

Current Group production is approximately 3,000 boepd with no producing wells currently shut in.

Oil Prices

On 18 May 2020, a Government decree (the "Decree") was issued inter alia setting a fixed reference price for Argentina standard Medanito crude at US$45 per barrel subject to local usual quality discounts. President's core production from its Neuquen basin assets fall under the Medanito category. The Decree has been issued against the backdrop of a phased and orderly exit from the lockdown in the country with many industries now back at work in many provinces, road traffic materially increasing and demand for hydrocarbons showing increases. 

As referred to in the Company announcement of 19 May 2020, the Decree stipulated other terms and conditions related to the fixed price including but not limited to:

(i)       the immediate coming into effect of such legislation and royalties payable to the provinces calculated using US$45 per barrel;

(ii)      the term of the relevant price provisions being until either 31 December 2020 or such time as ICE Brent price exceeds a level of US$45 per barrel for more than 10 consecutive days in any period, whichever time shall first occur. In any event the price will be subject to periodic review;

(iii)     provisions supporting, subject to demand levels of activity on the part of producers;

(iv)     subject to demand mandatory requirements for refiners to pay producers on such fixed price basis and prohibiting refiners from buying crude abroad instead of domestically produced feedstock; and

(v)      anti-monopoly and restrictive practices provisions.

Out of an abundance of caution, the practical implications of the Decree, its implementation and effect upon President is being considered by the Company inter alia in relation to demand, off-take levels and level of royalties payable. Further comment will be made once the effect on the ground becomes clear.

A copy of the Decree in its original Spanish language version is now available on the Company's website together with a translation into English the accuracy of which is not warranted.

Gas production

President's gas production in Argentina remains in line with expectations, at or around 1,000 boepd (6MMScft/d) with variations principally due to pressure constraints in the main regional pipeline; this is due to current reduction in industrial usage which is expected to increase as more industry gets back to work and the colder winter months begin to take effect. Realisation prices to the end of April were an average of approximately US$1.6 per MMBtu. The prices for the five months of the Argentine winter, which commenced in May, show positive increases with June prices of approximately US$2.6 per MMbtu and further increases in subsequent months quite possible as industry upward demand gathers pace. 

In Louisiana, production and offtake continues as normal at prevailing market prices in that state. Realised oil prices for March were approximately US$30.7 per barrel but only some US$14 per barrel in April partially offset by higher gas prices as this constitutes approximately 50% of total production.

Current production in Louisiana even in the lows of April remained cash flow positive and profitable with average May realised oil prices of US$25.3 per barrel nearly double from the depths of last month and June starting higher, all of which is against the background of a helpful reduction in opex as referred to below.

Net backs and G&A

The Company, already before the crisis a leader in its peer group in this regard, continues to successfully focus on margins and cash preservation and is achieving further economies in both operational expenses and general and administrative expenses.

The Company has materially reduced the break-even level of the figures referred to in the announcement of 12 March 2020, with opex in Argentina and Louisiana being reduced by between 20-30% since that time.

With regards to net backs generally, we are particularly focusing on our lowest margin concession, Puesto Guardian in Argentina, and whilst currently producing, we will not hesitate to shut this in should it be expedient to do so. The Concession runs till 2050, and having no future work commitments, the Company is in an excellent position to be very flexible with that asset where the volume of long life oil reserves still in the ground and their produceability are clear and demonstrative.

The level of G&A, like operational expenses, has been materially reduced across the board. In Argentina, this has resulted in cuts of approximately 30% compared to February 2020 with a similar figure at Group level. Louisiana too will see a reduction.

Working in the time of Coronavirus

The first priority is the welfare and health of our employees and families as well as our contractors working in the field. President monitors and checks on the health of all its employees and follows strict guidelines. Measures include restricting numbers travelling to fields in vehicles, monitoring health of operatives daily and social distancing. These necessary extra precautions have had no impact on production levels.

The Company has successfully transitioned to 100% home working for all of our administration and office staff in Argentina, with everyone equipped with all necessary IT infrastructure. Moral is excellent with a strong sense of togetherness throughout. There has been no decrease in efficiency and we are working as normal and this is something we are considering extending in some form in the new normal environment in due course. President has no UK or Louisiana offices so the Company is well used to working remotely.  

Capex for 2020

With regards to our development plans for 2020, we would like to drill at least two wells - one gas and one oil - before the end of the year and are reviewing budgets accordingly.

Licence extension for the Rio Negro key asset

As part of our planning for the future, working with our partner EDHIPSA, the provincial oil company in Rio Negro, we have now formally applied, according to our legal right, to extend the term of the important Puesto Flores and Estancia Vieja Concession by a further 10 years from the current expiry date of 2027 to 2037. It is calculated, according to the statutory laid down formula, that the cost for such extension would be in the region of US$1 million.

The extension, which, subject to Provincial approval, we hope will be granted later this year, will enable President to better plan for longer life capex and measured production programmes whilst at the same time beneficially extending the current cut-off in its reserves calculation in that concession by a decade as well as spreading depreciation over a much longer period. The current reserves figure for that concession only takes into account hydrocarbons that can be produced until 2027 i.e. the current expiry. 

 

Glossary

 

"Boepd" barrels of oil equivalent per day

"MMBoe" million of barrels of oil equivalent

 

 

 

Notes to Editors

 

About President

 

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.

 

About Trafigura

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.


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 [email protected] or visit www.rns.com.
 
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