Oryx Petroleum and Zeg Oil & Gas Announce Strategic Investment
01 March 2016
Calgary, Alberta, March 1, 2016
$30 million cash investment, $20 million proposed work commitment, and agreement to reduce indebtedness by $57 million through equity conversion
Oryx Petroleum Corporation Limited (“Oryx Petroleum” or the “Corporation”) and Zeg Oil and Gas Ltd (“Zeg Oil”), today announce that they have entered into a definitive agreement whereby Zeg Oil has subscribed for and been issued 75.7 million common shares of the Corporation for consideration of $30 million. In addition, Oryx Petroleum intends to contract with an affiliate of Zeg Oil for the provision of $40 million of drilling and other services related to the appraisal and early production of the Zey Gawra field in the Hawler license area in the Kurdistan Region of Iraq (the “Zey Gawra Contracts”). It is intended that $20 million of consideration for work performed under the Zey Gawra Contracts will be paid through the issuance of an additional 50.5 million common shares of Oryx Petroleum.
As of December 31, 2015, Netherland, Sewell & Associates, Inc. (“NSAI”), an independent oil and gas consulting firm, estimates that the Zey Gawra field contains gross (100%) proved plus probable oil reserves of 112 million barrels, representing 31% of the 366 million barrels of gross (100%) proved plus probable oil reserves attributable to the Hawler license area.
Zeg Oil is a privately held company based in the Kurdistan Region of Iraq that provides a broad range of engineering and construction services to the energy sector.
The Corporation has also entered into a definitive agreement with the Addax and Oryx Group (“AOG”) to extinguish $57 million of principal and accrued interest under the $100 million credit facility provided by AOG to Oryx Petroleum in March 2015, in consideration for 143.4 million common shares of the Corporation. The closing of the subscription by AOG for common shares of the Corporation in consideration of extinguishing debt is subject to minority shareholder approval and acceptance by the Toronto Stock Exchange.
All share issuances in connection with the aforementioned agreements have been, or are proposed to be, based on an Oryx Petroleum share price of C$0.55 per common share and a fixed Canadian Dollar-United States Dollar exchange rate of 0.7207. Provided all of the transactions contemplated above are approved and are completed, AOG will own 58% and Zeg Oil will own 32% of the Corporation’s common shares outstanding.
Corporate Re-organisation
Oryx Petroleum has recently effected a corporate re-organisation as part of its efforts to reduce costs and to align management and staff requirements with the Corporation`s reduced scope of activities in the near to medium term. The re-organisation included issuing notices of termination to Michael Ebsary, Chief Executive Officer, Craig Kelly, Chief Financial Officer, and Paul Shillington, Chief Legal Officer. Vance Querio, currently Chief Operating Officer, is expected to be formally appointed Chief Executive Officer in the coming weeks. Mr. Kelly´s and Mr. Shillington´s responsibilities will be assumed by remaining employees to be named in due course. Mr. Ebsary, Mr. Kelly and Mr. Shillington will serve out their extended notice periods in advisory capacities to ensure a smooth transition of responsibilities.
In conjunction with the Zeg Oil Investment, Zeg Oil has the right to nominate two appointees to the board of directors of the Corporation. The two nominees are expected to replace Michel Contie, who has resigned from the board of directors, and Michael Ebsary, who intends to resign from the board of directors to facilitate the transactions.
Comments
Commenting today, Oryx Petroleum’s Chief Executive Officer, Michael Ebsary, stated:
“We are delighted to announce a strategic investment by Zeg Oil into Oryx Petroleum. Zeg Oil brings not only funding but access to engineering and construction expertise, very relevant subsurface knowledge and critical local and regional relationships. Importantly, the investment will allow us to pursue the efficient appraisal and initial production of the Zey Gawra field and thus significantly improve our near and medium term cash flow profile. We very much look forward to working with Zeg Oil on the Zey Gawra project.”
The Zeg Oil Investment
The key elements of the equity investment by Zeg Oil are as follows:
- Zeg Oil acquired ownership and control of 75,683,994 common shares of Oryx Petroleum by private placement, issued from treasury and representing, on a non-diluted basis, approximately 38% of the issued and outstanding common shares of Oryx Petroleum, for total cash consideration of $30 million based on an Oryx Petroleum share price of C$0.55 per common share and a Canadian Dollar-United States Dollar exchange rate of 0.7207 (the “Zeg Oil Investment”).
- The $30 million Zeg Oil Investment is to be used by Oryx Petroleum to fund its share of the costs for appraisal and early production of the Zey Gawra field in the Hawler license area in the Kurdistan Region of Iraq (the “Zey Gawra Project”) and to fund working capital needs.
- The Zeg Oil Investment closed today, before markets opened with all funds received. As a result of the Zeg Investment, on the date of this press release, Zeg Oil owns and controls 75,683,994 common shares of Oryx Petroleum, representing approximately 38% of the common shares.
- The common shares are being issued pursuant to the exemption in Section 2.10 of National Instrument 45-106 – Prospectus Exemptions on the basis that: (i) Zeg Oil is not an individual; (ii) Zeg Oil is purchasing the common shares as principal; (iii) the cash purchase price for the common shares was greater than C$150,000 and was paid at the time of distribution; and (iv) only securities of Oryx Petroleum are being distributed to Zeg Oil pursuant to the Zeg Investment.
The Zey Gawra Contracts
The Zey Gawra Contracts are expected to have an aggregate value of $40 million and are expected to include the following work components:
- New, dedicated production facilities in the Zey Gawra area with a tie-back pipeline from the Zey Gawra field, all of which will be owned by the Hawler Area PSC. Most of the long-lead equipment is already available, and the system is expected to be operational in the second half of 2016. Importantly, the new facilities are expected to be connected to existing facilities at Khurmala where associated natural gas produced from the Zey Gawra field will be processed and then delivered to end users. Previous plans assumed natural gas produced at Zey Gawra would be processed at Demir Dagh potentially requiring sizable capital expenditures.
- Sidetrack drilling of the Zey Gawra-1 discovery well and re-entry and re-completion of the ZAB-1 well, being the original discovery well on the Zey Gawra field. Both wells are expected to be completed for production and on-stream during the second half of 2016. Subject to the results of the first two wells, one or more new wells may be drilled at the Zey Gawra field during the second half of 2016.
Oryx Petroleum´s share of total consideration is expected to include the issuance of 50,455,996 common shares of Oryx Petroleum by private placement with value of $20 million based on an Oryx Petroleum share price of C$0.55 per common share and a Canadian Dollar-United States Dollar exchange rate of 0.7207.
The Zey Gawra Contracts are subject to negotiation of definitive agreements, the acceptance of the Toronto Stock Exchange and approval of shareholders, if required. The Zey Gawra Contracts are expected to constitute related party transactions under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions. Subject to obtaining all required approvals, the Zey Gawra Contracts are expected to be executed in the second quarter of 2016.
AOG Proposed Debt Re-Capitalisation
- AOG has executed a subscription agreement whereby the Corporation will issue 143,367,988 common shares of Oryx Petroleum to AOG in return for the extinguishment of $57 million of the principal and accrued interest owed under the $100 million credit facility provided by AOG to Oryx Petroleum in March 2015 (the “AOG Equity Subscription”). The AOG Equity Subscription assumes an Oryx Petroleum share price of C$0.55 per common share and a Canadian Dollar-United States Dollar exchange rate of 0.7207.
- The AOG Equity Subscription is subject to approval of the Corporation’s shareholders (excluding AOG and Zeg Oil) and acceptance of the Toronto Stock Exchange. The Corporation’s board of directors has called a special meeting of shareholders to be held on April 18, 2016 to consider the AOG Equity Subscription. Shareholders of record at the close of business on March 14, 2016 (excluding AOG and Zeg Oil) will be entitled to notice of and to vote at the special meeting.
Pro-Forma Shares Outstanding and Ownership
- Following completion of the Zeg Oil Investment, the Zey Gawra Contracts and the AOG Equity Subscription, the Corporation will have total common shares outstanding of 399,636,461 with AOG owning 58% and Zeg Oil owning 32%.
2016 Capital Program
Oryx Petroleum is in the process of modifying its previously announced 2016 work program such that expenditure levels will not exceed funds currently available or expected to be available as a result of the aforementioned transactions and from expected cash flow from operations. Oryx Petroleum believes this combination of transaction provides it with funding sufficient to meet the requirements of the Zey Gawra Project and to cover other forecasted expenditures until the end of 2016. As such, previously planned drilling of new wells targeting the Demir Dagh Cretaceous reservoir will be deferred until adequate funding is available.