Proposed Fundraising and Chuditch PSC Earn In

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24 March 2021

Baron Oil Plc

("Baron" or the "Company")

Proposed Earn In to increase indirect interest in the Chuditch discovery and prospects

Placing and subscription to raise £3.0 million

and

Notice of General Meeting

Baron Oil Plc (AIM:BOIL), the AIM-quoted oil and gas exploration company, is pleased to announce that it has entered into a conditional agreement whereby upon completion Baron will increase its shareholding in SundaGas (Timor-Leste Sahul) Pte. Ltd ("SundaGas TLS") from 33.33% to 85%, and thereby increase its indirect interest in the TL-SO-19-16 PSC (the "Chuditch PSC" or the "PSC"), offshore Democratic Republic of Timor-Leste ("Timor-Leste") from 25% to 63.75% (the "Earn In"). Upon completion, the Earn In will result in a 255% increase in Baron's net share of the currently estimated aggregate Mean prospective resources for the PSC to 2,248 BCF, equivalent to approximately 375 MMBOE. It is noted that the above estimates are not fully compliant with the 2018 SPE PRMS Prospective Resources standard.

As part of the Earn In, it is intended that SundaGas TLS' wholly owned subsidiary SundaGas Banda Unipessoal, Lda. ("SundaGas Banda") will enter into an agreement with Spectrum Geo Australia Pty Ltd., a wholly owned subsidiary of TGS-NOPEC Geophysical Company ASA, for the licensing and reprocessing of the 3D seismic data that is required under the Chuditch PSC work programme (the "Reprocessing Agreement"). The Board believes that the Reprocessing Agreement will enable the PSC work programme to be driven forward by unlocking access to the data and allowing the Company to input directly into the reprocessing project.

In order to fund, inter alia, the Earn In and the Chuditch PSC work programme until the end of the Firm Commitment Period ("FCP") in November 2022, Baron also announces that it has conditionally raised £3.0 million (before expenses) by way of a placing and subscription (together the "Fundraising") of a total of 6,000,000,000 new ordinary shares of 0.025p each ("Ordinary Shares") in the Company (the "New Ordinary Shares") at a price of 0.05 pence per share (the "Issue Price"), to be undertaken in two tranches.  Allenby Capital Limited ("Allenby Capital") and Turner Pope Investments (TPI) Limited ("TPI") are acting as joint brokers in connection with the Fundraising.

HIGHLIGHTS

·    Completion of the Earn In will result in a 255% increase in Baron's net share of Mean prospective resources to 375 MMBOE and increase its indirect interest in the Chuditch PSC to 63.75%

·    Baron has agreed to fund the remainder of the estimated US$3.5m Chuditch work programme to November 2022, which includes the licensing and processing of the 3D seismic data

·    Timor-Leste gas exploitation activity has been accelerating both regionally and locally, including plans for existing infrastructure to be extended 

·    The Board considers this move to be timely in order to gain prospective exposure to the South-East Asian liquid natural gas (LNG) market where demand for LNG is forecast to exceed supply in the medium to long term

·    Each of the directors is participating in the Fundraising

Andy Yeo, CEO of Baron, commented:

"There has been a marked increase in Timor-Leste gas exploitation activity recently and we are delighted to have had both the opportunity to increase our indirect interest in the Chuditch asset as well as the support of new and existing investors to fund this exciting project. We look forward to updating shareholders on progress."       

The Chuditch PSC

SundaGas Banda holds a 75% interest in the Chuditch PSC, with the remaining 25% interest in the PSC held by a subsidiary of the Timor-Leste state oil company Timor Gap, E.P., with its interest carried by SundaGas Banda. The PSC contains the Chuditch-1 gas discovery.

Gas in Timor-Leste is a strategic resource, and the Board is aware that gas exploitation activity has been accelerating both regionally and locally, including plans for existing infrastructure to be extended.  The Board considers the Earn In to be timely in order to gain prospective exposure to the South-East Asian liquid natural gas (LNG) market, as LNG import gas prices in South-East Asia are currently above pre-COVID levels and the medium to long term demand for LNG is forecast by, amongst others, Royal Dutch Shell to exceed supply.

On 8 January 2021, Baron announced a significant upgrade in the gross estimated Mean Prospective Resources to 3,527 BCF.  The prospective resource base within the Chuditch PSC licence area consists of the Chuditch-1 discovery, three adjacent prospects (Chuditch West, Chuditch South West and Chuditch North), and a previously unrecognised, significantly sized lead (Chuditch North East).  There is technical evidence indicating that the mapped limits of the prospects and lead may coincide with the gas water contact interpreted in the Chuditch-1 discovery, which leads the Board to believe that there is the potential for a single, large accumulation within the Chuditch PSC licence area.  The seismic reprocessing work programme is required to confirm the structural configuration of the Chuditch discovery and adjacent prospective areas prior to further drilling. It is noted that the above estimates are not fully compliant with the 2018 SPE PRMS Prospective Resources standard.

The significant gas accumulations in Timor-Leste waters, Bayu-Undan and Greater Sunrise, are both known to contain condensate in addition to gas.  The Directors believe that there is the potential for condensate to be within the Chuditch PSC licence area, which has yet to be evaluated.

On 26 February 2021, Baron announced that SundaGas Banda had been granted a 12-month extension to Contract Year 1 of the Chuditch PSC. Accordingly, the expiry date of Year 1 of the 3-year initial licence phase (the "Initial Period") is 8 November 2021.  The extension is expected to allow SundaGas Banda to complete the PSC commitment technical work programme and assess the viability of drilling of an appraisal well and potentially further exploration wells in a timely manner.

The work programme for the current Initial Period of the Chuditch PSC includes an obligation to reprocess 800 sq. kilometres of 3D and 2,000 kilometres of 2D seismic data in the first two-year period. Subject to satisfactory results from the 3D seismic reprocessing, the subsequent commitment is for a minimum of one well to be drilled in the third and final year of the Initial Period of the PSC, effectively a 'drill or drop' decision to be made by 19 December 2022.

The Earn In

Baron has entered into a conditional Amended and Restated Shareholders Agreement (the "Amended SHA") with SundaGas Resources Pte. Ltd ("SundaGas"), which outlines the terms of the Earn In and governs the future operation of SundaGas TLS. Upon completion of the Amended SHA, Baron will increase its shareholding in SundaGas TLS from 33.33% to 85% and thus its indirect interest in the Chuditch PSC from 25% to 63.75%. The Amended SHA is conditional upon SundaGas and Baron authorising SundaGas Banda to enter into the Reprocessing Agreement.  Timor-Leste's oil and gas regulator, Autoridade Nacional do Petróleo e Minerais (ANPM) has already confirmed its approval to the Reprocessing Agreement and the proposed conditional increase in Baron's interest in the Chuditch PSC.

In order to effect the Earn In, via the Amended SHA, Baron has agreed to make a payment of approximately US$1.2 million towards the Chuditch PSC work programme. In addition, Baron has agreed to fund all future costs associated with the Chuditch PSC until the end of the FCP in November 2022, estimated to be approximately US$3.5 million including the aforementioned payment of approximately US$1.2 million.

Following the Earn In, Baron and SundaGas will have indirect 63.75% and 11.25% interests in the Chuditch PSC respectively.  The existing US$1 million bank guarantee ("BG") in relation to the Chuditch PSC will remain in place. Baron contributed US$333,333 to the BG in 2020, with the remainder being provided by SundaGas.  There will be no change in the operator of the Chuditch PSC, which will remain as SundaGas Banda.

For the year ended 31 March 2020, SundaGas TLS's unaudited total comprehensive loss was US$393,206 and its unaudited total assets as at 31 March 2020 were US$1,604,171.

The Board views the Earn In as a low-cost means to secure a majority interest in a project that has a sufficient level of prospective resource to be of interest to major regional gas players and other potential funding partners. The Earn In represents the first step in the Board's new strategy, whereby the Company intends to acquire significant equity interests in oil and gas projects which present opportunities for high potential impact exploration and appraisal activity at low entry costs into established petroleum provinces. 

Chuditch PSC project strategy and anticipated milestones

The Board expects that the 3D seismic reprocessing work under the Reprocessing Agreement will deliver data 7 to 12 months from commencement.  The Board intends that seismic data interpretation, geological and other studies will occur in parallel during this period, and further expects that the results of the studies may have the potential to reclassify the resources in the Chuditch-1 discovery from Prospective to Contingent, as defined by the Society of Petroleum Engineers' ("SPE") Petroleum Resources Management System ("PRMS").

The Board believes that the following events represent key potential value inflection points for the Chuditch PSC project:

(i)            the final results of seismic reprocessing anticipated in the first quarter of 2022;

(ii)           the decision to enter into a drilling phase anticipated in the fourth quarter of 2022; and

(iii)          the potential drilling of high impact appraisal and exploration wells anticipated in 2023. 

Baron's other assets

Peru: Block XXI, Onshore Licence - Baron 100% interest

COVID restrictions remain in place in Peru, which continue to prevent activity in relation to progressing the El Barco-3X drilling project.  Block XXI remains in Force Majeure until the Company is able to conclude workshops and reach agreement regarding access to the site with the local community, which cannot occur until COVID restrictions are eased and free movement is allowed.  Baron intends to make a decision on the future drilling strategy for the El Barco-3X project later in 2021, following the easing of the COVID restrictions.  The Company is seeking a three-year licence extension option in relation to Block XXI.

UK: Inner Moray Firth, Offshore Licence P2478 - Baron 15% interest

Baron and its partners in Offshore Licence P2478 intend to reprocess existing 3D and 2D seismic data over 2021 and 2022, which is the outstanding obligation in relation to the licence before a "drill or drop" decision by July 2023. 

Use of the Fundraising's net proceeds and planned activity in 2021

As at 28 February 2021, Baron had net cash of approximately £1 million. The Board believes that an approximately US$3.5 million budget is required over the next two years in order to complete the outstanding Chuditch PSC firm work programme and arrive at a drilling decision. The majority of the net proceeds of the Fundraising will therefore be applied towards the Chuditch PSC project.  

The Board currently anticipates that approximately 65% of Baron's 2021 expenditure will be applied to the Chuditch PSC project, 5% to other assets, and 30% to Baron's general and administrative costs.

Details of the Fundraising

The Fundraising comprises a placing of 5,195,600,000 New Ordinary Shares and a subscription of 804,400,000 New Ordinary Shares. Of this, £762,500 has been raised using the authority granted to the Board at the annual general meeting held on 29 June 2020, through the proposed issue of 1,525,000,000 New Ordinary Shares (the "First Fundraising Shares") at the Issue Price (the "First Fundraising") on a non-pre-emptive basis.  A further £2,237,500 has been raised through the proposed issue of 4,475,000,000 New Ordinary Shares (the "Second Fundraising Shares") at the Issue Price (the "Second Fundraising"), which is conditional, inter alia, on obtaining approval from Shareholders of the necessary resolutions (the "Resolutions") at a General Meeting of the Company (the "General Meeting"), to provide sufficient authority to enable allotment of the Second Fundraising Shares and disapply statutory pre-emption rights which would otherwise apply to the allotment of the Second Fundraising Shares.

The First Fundraising is not conditional on the Second Fundraising. Therefore, should the Resolutions at the General Meeting not be passed, then the Second Fundraising will not proceed. In this instance, the Directors believe that the Company will have sufficient funds to complete the seismic reprocessing component of the PSC's work programme (so enabling the Company to complete the Earn In), following which the Directors may seek for the Company to raise additional funds, if appropriate. Even if the Second Fundraising does not proceed, the First Fundraising will still complete following First Admission (as defined below).

Neither the completion of the First Fundraising nor the Second Fundraising is conditional on the completion of the Earn In.

Director participation in the Fundraising

Andrew Yeo, Jon Ford and John Wakefield have subscribed for a total of 97,600,000 New Ordinary Shares at the Issue Price in the Fundraising (the "Director Participations"). The Director Participations form part of the Second Fundraising Shares. Details of the Director Participations are outlined in the table below.

General Meeting

The Company expects to publish shortly a circular to Shareholders which will contain notice of the General Meeting which is to be held at the offices of Armstrong Teasdale LLP at 200 Strand, London, WC2R 1DJ at 10:00 a.m. (UK time) on 12 April 2021.

Admission and total voting rights

Application has been made for the 1,525,000,000 First Fundraising Shares to be issued pursuant to the First Fundraising to be admitted to trading on AIM ("First Admission") and the date on which First Admission is expected to become effective is on or around 26 March 2021.

Upon First Admission, the Company's issued ordinary share capital will consist of 5,951,409,576 Ordinary Shares with one voting right each. The Company does not hold any Ordinary Shares in treasury. Therefore, the total number of Ordinary Shares and voting rights in the Company will be 5,951,409,576. With effect from First Admission, this figure may be used by Shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the FCA's Disclosure Guidance and Transparency Rules.

Application will also be made to the London Stock Exchange for the 4,475,000,000 Second Fundraising Shares to be issued pursuant to the Second Fundraising to be admitted to trading on AIM ("Second Admission") and, conditional, inter alia, on the approval of Shareholders at the General Meeting, the date on which Second Admission is expected to become effective is on or around 14 April 2021.

Upon Second Admission, the Company's issued ordinary share capital will consist of 10,426,409,576 Ordinary Shares with one voting right each. The Company does not hold any Ordinary Shares in treasury. Therefore, the total number of Ordinary Shares and voting rights in the Company upon Second Admission will be 10,426,409,576. With effect from Second Admission, this figure may be used by Shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the FCA's Disclosure Guidance and Transparency Rules.

Qualified 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 Jon Ford BSc, Fellow of the Geological Society, Technical Director of the Company. Mr Ford has more than 39 years' experience as a petroleum geoscientist. He has compiled, read and approved the technical disclosure in this regulatory announcement and indicated where it does not comply with the Society of Petroleum Engineers' standard.

Other

Forward Looking Statements

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not facts. They appear in a number of places throughout this announcement and include statements regarding the Directors' beliefs or current expectations. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Investors should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

Notice to Distributors

Solely for the purposes of the temporary product intervention rules made under sections S137D and 138M of the FSMA and the FCA Product Intervention and Product Governance Sourcebook (together, the "Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the Product Governance Requirements) may otherwise have with respect thereto, the New Ordinary Shares have been subject to a product approval process, which has determined that the New Ordinary Shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, as defined under the FCA Conduct of Business Sourcebook COBS 3 Client categorisation, and are eligible for distribution through all distribution channels as are permitted by the FCA Product Intervention and Product Governance Sourcebook (the "Target Market Assessment").

Notwithstanding the Target Market Assessment, distributors should note that: the price of the New Ordinary Shares may decline and investors could lose all or part of their investment; the Fundraising offer no guaranteed income and no capital protection; and an investment in the Fundraising is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Fundraising. Furthermore, it is noted that, notwithstanding the Target Market Assessment, Allenby Capital and TPI will only procure investors who meet the criteria of professional clients and eligible counterparties. For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of the FCA Conduct of Business Sourcebook COBS 9A and 10A respectively; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the New Ordinary Shares.

Each distributor is responsible for undertaking its own target market assessment in respect of the New Ordinary Shares and determining appropriate distribution channels.

Glossary

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