Regency has agreed to sell its 5% stake in Horse Hill Developments (HHDL), the consortium that owns a 65% participating interest and operatorship of licence PEDL 137 and the adjacent licence PEDL 246 in the UK Weald Basin, to Alba Mineral Resources (LON:ALBA) for £300,000 in cash.
The investment is currently carried on Regency's books at a cost of £383,900, so the sale price, which implies a total value of HHDL of £6mln, will result in a paper-based accounting loss of £83,900 for Regency.
Alba Minerals already held a 5% stake in HHDL so the sale doubles its interest. UK Oil & Gas Investments (LON:UKOG) is the largest stakeholder in HHDL, having recently upped its holding from 20% to 28% with the purchase of Angus Energy's 8% stake for £580,000.
Alba has agreed assume the outstanding cash calls owed to HHDL by Regency, being £60,000 in total. Alba intends to raise at least £300,000 through an issue of shares at no less than 0.25p a share to finance the purchase. The deal is also subject to due diligence.
Regency Mines hold 5.03% directly, and 2.35% indirectly, of Alba so it still has an interest in the success of the project.
It has agreed not to sell any of its Alba shares, except through Alba's brokers, for a 12-month period following conclusion of the deal.
It intends to grant the right to Alba (or its broker) the exclusive right for a period of 90 days following execution of the stake sale, to place up to one-third of its stake in Alba at a price that is not more than 10% below the volume weighted average price in the 10 trading days running up to the sale of said stake.
"Exploration at Horse Hill in 2014 was in our view successful with a significant and potentially commercial onshore oil discovery announced late last year, and Regency benefited both by being able to raise capital at higher prices and by being able to sell part of its Alba holding at a much higher price than was otherwise possible," claimed Andrew Bell, chairman of Regency.
"This transaction returns the initial Horse Hill investment cost to Regency, frees it of future obligations, and allows it to continue to participate in any future success," Bell said.
Michael Nott, Alba's chief executive officer, said the company was pleased with the deal.
"Exploration at Horse Hill has been successful with a significant and potentially commercial onshore oil discovery announced late last year. The drilling of the Horse Hill-1 well not only resulted in an oil discovery in the Jurassic Portland Sandstone but also revealed further opportunities for additional oil potential, particularly in the Kimmeridge Limestones," he said.
"Alba is now even better placed to benefit from further success at Horse Hill."
Shares in Regency Mines eased 0.005p to 0.09p while Alba's shares retreated to 0.338p from 0.375p overnight.