Update on Reverse Takeover & Resumption of Trading

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

 

28 January 2020

 

 

Baron Oil Plc

("Baron" or "the Company")

 

Update on Proposed Reverse Takeover with SundaGas

and

Resumption of Trading on AIM

 

Further to the Company's announcement of 14 November 2019, Baron Oil Plc (AIM:BOIL) provides an update on the proposed acquisition of SundaGas (Holdings) Pte. Ltd (the "Target").

The parent company of the Target, SundaGas Pte. Ltd ("SundaGas"), is a Singapore based private E&P company with a portfolio of operated gas and oil projects in South East Asia and offices in Singapore, Indonesia and Timor-Leste.

Owing to uncertainties around the potential capital requirements of the combined group, along with complications in relation to the required restructuring of the SundaGas subsidiaries, the parties have agreed amicably that the current Reverse Takeover ("RTO") exercise should be terminated.

The uncertainties encountered would involve additional costs and time to resolve and give rise to a material risk that the RTO would not be completed in the required timeframe (in accordance with AIM Rule 41 of the AIM Rules for Companies, Baron would have the admission of its shares to trading on AIM cancelled six months after trading in its shares was suspended). Accordingly, Baron confirms the expected recommencement of trading in its shares on AIM with effect from 7.30am on 28 January 2020.

Baron will now revert to developing its portfolio of assets as an independent exploration company. Its interests will consist of its entitlement to invest with SundaGas in the large Chuditch gas accumulation offshore Timor-Leste, together with a near-term drilling opportunity in Peru and assets capable of holding substantial Prospective Resources in the UK.

 

TIMOR-LESTE - Offshore Chuditch PSC

The TL-SO-19-16 Petroleum Sharing Contract ("Chuditch PSC") is located approximately 185 kilometres south of Timor-Leste, 100 kilometres east of the producing Bayu-Undan field and 50 kilometres south of the planned Greater Sunrise development. The Chuditch PSC covers approximately 3,571 sq.kilometres, in water depths of 50-100 metres. It contains the Chuditch-1 gas discovery, which was drilled by Shell in 1998 and encountered a 25 metre gas column in the Jurassic Plover formation on the flank of a faulted structure. SundaGas, the designated Operator, considers that the Chuditch field contains material volumes of sales gas, with significant upside in multiple exploration prospects and leads that have been identified along trend.

Baron will invest in the project via its entitlement to a one third shareholding in SundaGas (Timor-Leste Sahul) Pte. Ltd. ("SundaGas TLS"), equating to an indirect 25% interest in the Chuditch PSC. The sole asset of SundaGas TLS is ownership of the Timor-Leste holding company that is a signatory to the Chuditch PSC. This entitlement derives from the New Venture agreement signed with SundaGas in 2016 that granted the Company the right to access certain opportunities in South East Asia at the same time and under the same terms and conditions as SundaGas.

Significant progress has been made since the conditional award of the Chuditch PSC on 8 November 2019. The Joint Operating Agreement has been signed and, following the delivery of the required US$1 million Bank Guarantee by SundaGas, the Chuditch PSC was declared to be fully in effect on 19 December 2019. An office has now been established in Dili, the Timor-Leste capital, a General Manager appointed, and SundaGas is now progressing with its planned 2020 activities. During the first two years of the initial three-year term of the Chuditch PSC, there is an obligation to reprocess 800 sq. kilometres of 3D seismic and 2,000 line kilometres of 2D seismic data. 

As disclosed on 14 November 2019, as part of the RTO arrangements, SundaGas agreed to provide an unsecured loan facility to Baron of up to £200,000 to cover certain costs related to the RTO. As the external RTO costs to date have been minimal, this loan facility has not been utilised and will now be withdrawn.

In order for Baron to exercise its entitlement in SundaGas TLS, the Company will be required to reimburse its share of costs incurred since the Chuditch PSC was signed on 8 November 2019, including the Bank Guarantee, which were planned to be repaid from the proceeds of the RTO fundraising. Such costs have been carried by SundaGas since the Chuditch PSC was signed and, under the terms of a Carry Agreement, SundaGas has agreed to continue to carry Baron for its share of such additional costs attributable to its pending interest in SundaGas TLS until 26 April 2020, or such later date as shall be mutually agreed, when costs accruing to that date will become payable. Thereafter, subject to completion of payment for such costs, Baron will maintain its interest by continuing to pay one third of the costs incurred on the Chuditch PSC by way of additional investment into SundaGas TLS. Based on the SundaGas forward budget for Q1 2020, Baron estimates that the total monies that will fall due on 26 April 2020 under the Carry Agreement will be approximately US$500,000.

 

PERU - Onshore Block XXI

A re-evaluation of the El Barco Prospect has now been completed by Baron management, incorporating data from the nearby San Pedro offshore field that produces from the Amotape Basement reservoir.

On this basis, we have increased the 2U (P50) unrisked recoverable Prospective Resources of El Barco to 8.5 million barrels of oil recoverable from the higher risk Amotape, with some associated gas, and 14.7 billion cubic feet of gas recoverable from the low risk, shallower Mancora Sand.

The following tabulation of Unrisked Prospective Resources has been computed by Baron management using deterministic methodology and complies with the 2018 SPE PRMS:

 

UNRISKED PROSPECTIVE RESOURCES	1U (P90)	2U (P50)	3U (P10)
Mancora Sand - GAS Initially In Place BCF	3.4	18.4	69.6
Mancora Sand - GAS Recoverable BCF	2.6	14.7	59.2
Geological Chance of Success: 55%
Amotape Basement - OIL Initially In Place MMBBLS	3.9	24.2	80.9
Amotape Basement - Recoverable MMBBLS	1.2	8.5	32.4
Geological Chance of Success: 27%

 

An experienced local operator with onshore drilling capability has expressed a desire to drill the well, farming-in by contributing a substantial portion of the costs in return for equity in the Block. Drilling this well would be a low-cost operation, estimated at US$1.4 million (gross) with two independent reservoir targets which would offer shareholders drilling activity during 2020 and the potential for significant additional value on discovery.

Baron currently holds a 100% Interest in Block XXI though Gold Oil SAC, its local subsidiary.

 

UK: Dorset - Offshore Licence P1918 and Onshore Licences PEDL330 and PEDL345

Following the drilling of the Colter exploration well (98/11a-06) and its sidetrack (98/11a-06z) in 2019, efforts are now concentrated on the P1918 Colter South Prospect. The P1918 group has notified the Oil & Gas Authority that it will proceed into the Second Term of the Licence, which expires on 31 January 2021, and has reduced the Licence to incorporate just the area surrounding the Colter and Colter South Prospects. As previously announced, Colter South has Corallian estimated Pmean recoverable Prospective Resources of 16 million barrels of oil equivalent. This represents the Operator's informal estimate, which was not stated to be to SPE PRMS standards.  Licence PEDL345 includes the onshore portion of the Purbeck Prospect which is currently being re-interpreted.

Baron holds an 8% Interest in these licences.

 

UK: Inner Moray Firth ("IMF") - Offshore Licences P2470 and P2478

The Corallian-operated group is preparing to reprocess the existing 3D seismic data on Licences P2470 and P2478 in the Inner Moray Firth. Interesting prospects have already been identified in P2478, including Dunrobin and Golspie, each of which has substantial potential at Jurassic and Triassic reservoir levels, and it is hoped that drillable locations will be defined through the reprocessing effort. As previously announced, the Corallian preliminary estimate of Pmean recoverable Prospective Resources for Dunrobin is 187 million barrels of oil equivalent and the Golspie follow-on prospect has preliminary Corallian estimated Pmean recoverable Prospective Resources of 21.5 million barrels of oil equivalent. In each case, these represent the Operator's informal estimates, which were not stated to be to SPE PRMS standards.

Baron holds a 15% interest in each of the two IMF Licences.

 

Forward Strategy

At the current time, the board is evaluating priorities for 2020 which, subject to appropriate levels of funding, will include the financing of the Chuditch costs set out above as well as provisional plans to drill a well in Peru.  As at 31 December 2019, Baron's net cash position, excluding the US$160,000 Performance Bond in Peru, was approximately £346,000. Further updates relating to the Forward Strategy will be made in due course.

 

Competent Person's Statement

Pursuant to the requirements of the AIM Rules - Note for Mining and Oil and Gas Companies, the technical information and resource reporting contained in this announcement has been reviewed by Dr Malcolm Butler BSc, PhD, FGS, Executive Chairman of the Company. Dr Butler has more than 45 years' experience as a petroleum geologist.  He has compiled, read and approved the technical disclosure in this regulatory announcement, which complies with the Society of Petroleum Engineers' standard.

 

Dr Malcolm Butler, Executive Chairman of Baron, commented

"Baron and SundaGas have agreed jointly that the uncertainties that have arisen involve risks to the completion of the RTO that do not justify continuation of the process. However, Baron's shareholders will still benefit from the Company's entitlement to invest in a one third shareholding in SundaGas TLS, equating to a 25% indirect interest in the highly prospective Chuditch PSC. In addition, Baron will retain its full existing interests in Peru and the UK and will continue to operate on a low overhead basis."

"The board continues to be very excited by the potential value that can be crystallised by investing in the Chuditch PSC, both in its initial phases via seismic reprocessing, and thereafter as part of an appraisal and exploration drilling programme. We look forward to updating shareholders on all our projects in due course, including the provisional plans to drill in Peru later this year."

 

For further information, please contact:

Baron Oil Plc	+44 (0)20 7117 2849
Dr Malcolm Butler, Executive Chairman
Andy Yeo, Managing Director
SP Angel Corporate Finance LLP	+44 (0)20 3470 0470
Nominated Adviser and Joint Broker
Stuart Gledhill, Stephen Wong
Turner Pope Investments (TPI) Limited	+44 (0)20 3657 0050
Joint Broker
Andy Thacker, Zoe Alexander

                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Glossary

BCF	Billion cubic feet.
Geological chance of success	The estimated probability that exploration activities will confirm the existence of a significant accumulation of potentially recoverable petroleum.
Oil equivalent	Volume derived by dividing the estimate of the volume of natural gas in billion cubic feet by six in order to convert it to an equivalent in million barrels of oil and adding this to the estimate of the volume of oil in millions of barrels.
MMBBLS	Million barrels of oil
SPE PRMS Prospective Resources	The Society of Petroleum Engineers' ("SPE") Petroleum Resources Management System ("PRMS") is a system developed for consistent and reliable definition, classification, and estimation of hydrocarbon resources prepared by the Oil and Gas Reserves Committee of SPE and approved by the SPE Board in June 2018 following input from six sponsoring societies: the World Petroleum Council, the American Association of Petroleum Geologists, the Society of Petroleum Evaluation Engineers, the Society of Exploration Geophysicists, the European Association of Geoscientists and Engineers, and the Society of Petrophysicists and Well Log Analysts.  quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. The total quantity of petroleum that is estimated to exist originally in naturally occurring reservoirs, as of a given date.  Crude oil in-place, natural gas in-place, and natural bitumen in-place are defined in the same manner.
SPE PRMS Unrisked Prospective Resources	Denotes the unrisked estimate qualifying as SPE PRMS Prospective Resources.
1U Prospective Resources	Denotes the low estimate qualifying as Prospective Resources. Reflects a volume estimate that there is a 90% probability that the quantities actually recovered will equal or exceed the estimate.
2U Prospective Resources	Denotes the median or best case estimate qualifying as Prospective Resources. Reflects a volume estimate that there is a 50% probability that the quantities actually recovered will equal or exceed the estimate.
3U Prospective Resources	Denotes the high estimate qualifying as Prospective Resources. Reflects a volume estimate that there is a 10% probability that the quantities actually recovered will equal or exceed the estimate.
Pmean	Reflects an unrisked median or best case volume estimate of resource derived using probabilistic methodology. This is the mean of the probability distribution for the resource estimates and is often not the same as 2U as the distribution can be skewed by high resource numbers with relatively low probabilities.