LONDON--(BUSINESS WIRE)--The Company is pleased to announce that it has reached agreement to invest £12.5m in CPS Energy Resources Plc ("CPS"), an oil and gas exploration company focused on Africa and working in partnership with Oando Plc ("Oando"), one of Africa's largest oil and gas exploration companies, listed on the Johannesburg Stock Exchange. One of Oando's trading subsidiaries, Oando Energy Resources Inc, is listed on the Toronto Stock Exchange.
Currently, the principal asset of CPS is an 80.75% interest in Oil and Gas Block OPL 236 which, at over 1,600 Sq Km, is one of the largest concessions ever granted in Nigeria. The Block is onshore within the oil rich Niger Delta, and is surrounded on each side by proven oil and gas fields, including the Shell Imo River fields which are Nigeria's largest onshore fields with oil production rates of approximately 25,000 barrels a day.
In 2012, Nigeria was the twelfth largest oil producer in the world and the largest in Africa. The country has an abundance of gas (rich in liquid and low in sulphur) in gas reservoirs or produced along with oil as associated gas in the Niger Delta region. These reserves make Nigeria the country with the 9th largest gas reserves globally. Worldwide, Nigeria flares the second largest amount of natural gas after Russia; however, it also has one of the lowest net electricity generation rates per capita in the world. As a result, the Federal Government of Nigeria has a plan to achieve by 2020 an annual target of 40,000 MW of electricity. Over the next three years, the power sector is estimated to require up to 3.5 billion cubic feet per day ("BCFD") of gas, and could possibly require more than 5 BCFD when power plants under the National Integrated Power Projects ("NIPP") scheme are privatised. In March 2014, it was announced by the Nigerian Government that gas prices would be allowed to rise to international levels over the next three years to 2017, this would significantly increase the economic value of the discovered gas on the Licence.
To date, five survey wells have been drilled on the Licence including one by Gulf Oil (Chevron). This well was appraised by Gulf Oil, using open hole wire line log testing, the well was classed as a gas discovery before being plugged prior to Gulf's takeover by Chevron.
Gulf Oil believed the field discovery to be 204 billion cubic feet (BCF) of Gas Initially in Place ("GIIP"), based on their single well discovery. Significant upside may exist, both on the discovery, and on the remaining Licence. The existing discovery requires further appraisal and more exploration of the Licence is required in order to fulfil its potential. After all costs of extraction, and using industry standard methodology, the net value of the gas discovery alone is estimated to be in excess of US $240m.
In addition to these gas reserves, likely oil resources are estimated by Degeconek Ltd, consultants to the West African oil industry, to exceed 400m barrels. However, how much of this proves to be economically recoverable is dependent on further analysis.
In 2014, two reports were commissioned by CPS from two London based firms; Senergy Ltd undertook a petrophysical review of the area around Ukana 1, the well dug by Gulf Oil, whilst Count Geophysics Ltd ("Geo Count") undertook an analysis of existing seismic data. Combining the Western and Eastern structure model on the block, Geo Count have estimated that the GIIP could be 582 BCF as set out in the Geo Count structure 2 model. The liquids price is assumed in the report to be 100 USD per barrel with a 2% annual escalation and gas is taken to be 7.5 USD per MSCF which is the price already agreed in the Nigerian market for 2015. With all costs of extraction taken into account, based on 582 BCF, this estimate would suggest the western part of the block alone is valued in excess of US$600m. Further tests are now required to confirm the analysis.
As already mentioned, the gas price rises announced by the Nigerian Government in March 2014 would, when implemented, have a significant positive impact on these estimated valuations.
In April 2014, the European Union announced that it wanted to reduce its dependence on Russian gas. Ten member states of the EU import 80% or more of their gas from Russia and the European Union as a whole 25%.
The operator of the Licence, Oando Exploration and Production Ltd, is a subsidiary of Oando plc and operates 13 other Licences in Africa. This company entered into a Production Sharing Agreement with the Nigerian National Petroleum Corporation in 2008 and, in 2012, granted an option to CPS Energy Resources plc allowing them to farm into this agreement. This option has now been exercised which gives CPS the right to farm into the Production Sharing Agreement with an 80.75% interest in the Block. Under the terms of the option agreement, CPS will provide US $30m of financing over 3 years. The Production Sharing Agreement lasts until 2028.
In 2014, Nigeria became the largest economy in Africa, overtaking South Africa. It is one of a group of four nations referred to as the MINT countries, these being Mexico, Indonesia, Nigeria and Turkey. The term was originally coined by former Goldman Sachs economist, Jim O'Neill, who had previously coined the BRIC term. O'Neill's premise is that Nigeria, along with its fellow MINT countries, are the next economic powerhouses of the world. They are bound by a few key themes; young populations, good geographical location and, apart from Turkey, commodity producers.
Under the terms of the transaction, Worthington will subscribe for £12.5m of new CPS ordinary shares at a price that equates to 27.5% of the agreed likely stock market value of CPS (i.e. a discount of 72.5%) when, as expected, it lists in 2015. Worthington is, inter alia, currently reviewing comparable listed companies in order to agree this discounted valuation prior to investing.
In order to help fund the deal, and pending the granting of shareholder approval at the Company's next General Meeting for the allotment and issue of new equity securities, existing loan note holders have agreed to exercise their conversion rights, and to place the shares resulting from the conversion with institutional and other investors. They have agreed to re-invest the proceeds in the Company by acquiring new loan notes with a conversion price of £1.95 per share.
Following the conversion into 5,000,000 shares, as set out above, application to list the shares for trading will be made to the FCA. The total number of ordinary shares in issue will then be 19,498,783.
Commenting on the investment, WRN CEO Doug Ware said, "Oil and gas is an attractive investment area for us. We are hopeful that this transaction and our new relationships in Africa will lead to further oil and gas opportunities in the region over the coming months. Nigeria has a thriving economy, and is now receiving international recognition as an economic powerhouse for the future. We are therefore very glad to have secured an opportunity to have a meaningful exposure in this important emerging market. We will announce more details in relation to this investment opportunity in due course."
About Worthington Group Plc ("Worthington")
Worthington (Stock Exchange LSE: WRN) is a British investment company that celebrates its 60th anniversary as a London Stock Exchange main market listed company this year. The company has four areas of investment focus: property, litigation claims, new economy and emerging markets. The Company believes that exceptional shareholder returns can be achieved by utilising its main market Sterling paper to acquire investments in these sectors worldwide.
Note: Forward-looking statements contained in this announcement, including Worthington's strategy and plans, as well as expectations for future revenue and earnings, reflect Worthington's current views and assumptions with respect to future events and are subject to certain risks, uncertainties and assumptions. There are many factors that may cause actual results achieved to differ materially from expectations for future results and expectations that may be expressed in or form an assumption of such forward-looking statements. Such factors include risks related to the day to day business of Worthington, client volatility, sales fluctuations, the general economic climate, political and environment and other risks, cancellations, software failures and interruption to service to customers due to technical problems, acquisition delays and failure as well as other uncertainties related to the results of Worthington including risks of delays or closure of projects, price falls, currency fluctuations and changes in contract terms, legislation and administrative practices, as well as competition risk and other unforeseen factors. If one or more of such risks or factors of uncertainty were to materialise, or should one or more of the statements provided prove to be incorrect, actual developments may differ materially from the forward-looking statements contained in this announcement.