Hague and London Oil PLC Strategic and Operational Update (8573X)

TIDMHNL

RNS Number : 8573X

Hague and London Oil PLC

11 May 2016

Hague and London Oil PLC

("Company", "HALO")

Strategic and Operational Update

Hague and London Oil PLC (AIM: HNL), the hydrocarbon exploration company, is pleased to announce a proposed portfolio restructuring and strategic repositioning towards lower risk opportunities whilst retaining exposure to higher risk exploration. The restructuring will result in HALO focusing on lower risk assets with a clear, near-term path to revenue generation, whilst also bringing sufficient near-term liquidity to the Company without diluting its current shareholders or incurring indebtedness.

Highlights of the restructuring:

-- HALO will focus on lower risk assets with well-understood geology, near-term commercial potential, and with locations in established hydrocarbon and political jurisdictions.

-- Along with the current assets in the United Kingdom Continental Shelf, HALO is currently pursuing a number of assets in Europe (including the Netherlands) as part of the sharpened focus.

-- Higher risk assets are to be spun out into a wholly owned subsidiary of HALO, Vermeer Exploration BV ("Vermeer"), including all licence interests in Western Sahara and French Guyana.

-- 51% of Vermeer's shares are to be sold by HALO to a group of investors for a consideration of US$500,000; HALO will retain a 49% interest.

-- Further higher risk and potentially higher reward opportunities will be pursued by Vermeer in the future.

-- HALO announces the acquisition of interests in five additional Western Sahara blocks, which will be assigned along with the three existing blocks to Vermeer.

-- HALO has applied for an extension of the Guyane Maritime permit (through its ownership in Northpet Investments Ltd) with an increased working interest of up to 7.5%.

-- The Duyung Farm-In Agreement, offshore Indonesia, has been terminated by HALO as a result of delayed approvals and approaching or missed deadlines for operations.

-- The corporate budget has been reduced as part of the corporate and operational review; capital expenditures will be minimal and overheads have been reduced.

-- As a result of this comprehensive restructuring, HALO is positioned to benefit from a lower risk and lower cost profile targeting immediately value-accretive projects for near-term growth, whilst retaining some exposure to high-impact exploration without incurring any dilution or indebtedness for current HALO shareholders. The Company will be fully funded for 2016.

Repositioning HALO

In the current climate of depressed commodity prices, the appetite of equity markets for high-risk exploration has significantly deteriorated, thus affecting industry valuations and access to capital. HALO's current portfolio and the wide range of opportunities under negotiation have fallen in two distinct and seemingly opposed risk profiles: there are high risk, potentially high reward opportunities in frontier territories; and also lower risk, producing, or near-term producing, or near-field exploration assets in established hydrocarbon provinces with stable political environments and well understood geologies with existing marketing infrastructure. It is HALO's intention to refocus the business on the latter, given the current state of the industry and capital markets. Though these jurisdictions have traditionally been viewed as higher cost, recent events have seen significant capital and operating cost reductions.

In the medium term, however, HALO's management expects a recovery and the need to replace reserves to stimulate industry and market appetite for frontier exploration. For this reason management believes that HALO should not wholly abandon those projects with a longer-term perspective. The formation of Vermeer, a private vehicle focused on higher risk ventures, will reposition HALO towards lower risk opportunities whilst maintaining exposure to higher risk higher impact assets and injecting liquidity without diluting shareholders or burdening the balance sheet with debt.

Creation of Vermeer Exploration BV

Vermeer will be created as a fully owned subsidiary of HALO and the parent entity of Maghreb Exploration Ltd, which currently holds HALO's interests in the three Western Sahara licences. As part of its strategy to focus on higher risk, higher reward opportunities, the entity will proceed to acquire further assets to build out its portfolio. By way of example, Vermeer is currently involved in a process of acquiring five blocks in Western Sahara from Premier Oil Plc, expanding its Western Sahara position to eight blocks in total. This transaction is not expected to require upfront cash payments, and the full terms will be disclosed as and when required. Northwest Africa has seen continued interest recently, despite industry conditions, due to the large-scale discoveries in Senegal and Mauritania.

As part of this portfolio-building process, Vermeer has also agreed to participate in an extension of the Guyane Maritime licence, offshore French Guyana. The original licence period expires in June 2016 and the partnership is currently re-aligning itself with respect to a possible extension. The Company currently owns 44% of Northpet Investments Ltd, the holder of 2.5% of Guyane Maritime and has agreed to pursue a three-year extension of the Guyane Maritime licence, with at least one existing partner, whereby Northpet Investments Ltd would participate with a 7.5% working interest, with the extension and assignment of interest being subject to a French Government approval process.

The extension would allow Vermeer to benefit, at a much higher working interest, from the significant investment (in excess of US$1bn) made to date in a proven hydrocarbon basin with significant remaining potential within an environment where drilling costs are a fraction of what they once were. The licence also has the benefit of more than US$80 million invested in 3D seismic data; all of this prior to a recent large-scale oil discovery in nearby Guyana that has served to renew interest in these basins. Vermeer will continue to grow its portfolio of higher risk, higher reward assets through the acquisition of undervalued or distressed assets, with low entry cost or capital expenditure requirements.

As part of the restructuring, HALO will divest 51% in Vermeer Exploration BV to a group of private investors, including Andrew Cochran and Bill Phelps, for the total consideration of $500,000 (the "Transaction"); the first half would be payable on completion of the share transfer transaction and the second half payable on successful extension of the licence in French Guyana. This liquidity injection will provide HALO with sufficient funding to take the Company into 2017 within its current budget.

Vermeer will operate as a private entity, with its own board and representation from HALO as a major shareholder. Through a standard industry support contract, HALO will continue to support Vermeer with technical, commercial and legal resources. HALO may decide to sell a further stake and/or decide not to participate in future share issues such that its ownership of Vermeer is reduced in the future.

The Transaction comprises a related party transaction pursuant to the AIM Rules for Companies. The Independent Director considers, having consulted with the Company's Nominated Adviser, that the terms of the transaction are fair and reasonable as far as the Company's shareholders are concerned.

Duyung

In September 2015, HALO announced that it had entered into a conditional agreement to acquire 85% in the Duyung Production Sharing Contract, located in the Natuna Sea, Indonesia. Upon completion, HALO committed to carry its partner for its net 15% working interest share of costs, capped at US$10 million (gross) inclusive of the funding of an initial US$0.5 million of working capital in preparation of drilling operations for the Mako South-1X well, including rig services and environmental permits needed to secure support and services contracts.

The transaction was subject to customary regulatory and government approvals. Since the signing of the agreement, HALO has put a considerable amount of effort, along with the presumptive 15% partner (West Natuna Exploration Ltd ("WNEL")), to complete the transaction and had secured extensions in the absence of timely progress within the approvals process. Despite HALO's and WNEL's best efforts to secure these approvals in a timely manner, within an extended "long-stop" date agreed by HALO and WNEL, none of the approvals had been received prior to the start of April 2016. Therefore the Farm-In Agreement has now been terminated, with an effective date of April 1(st) 2016, while the Duyung licence expires on January 15(th) 2017.

Whilst Duyung was identified by the management as an exciting opportunity last year, the approvals process took longer than anticipated and ultimately challenged the Company's ability to perform drilling operations within a safe, reasonable and responsible manner prior to the licence expiry at the start of next year. Alternative structures for the Farm-In Agreement were considered and the longstop date had been extended, but the drilling deadline remained firm. Working capital expenditures, however, during the period were lower than anticipated due to delays to the granting of operational permits.

The termination of the transaction does not affect the prospects of HALO's business, especially in the context of the proposed restructuring and with respect of other opportunities currently pursued in jurisdictions aligned with the new strategic focus and risk profile of the Company. No further costs associated with Duyung will be incurred or paid by the Company, after the effective date of the Termination. Additionally, there will be no need to fund any aspect of drilling operations associated with Duyung going forward

Andrew Cochran, Chairman and Interim CEO, commented:

"One key to success in the oil & gas sector is the ability to move fast in order to adjust to the changing markets and identify the right opportunities for growth, coupling these with the limited and unique pools of available capital. This is what this restructuring will enable us to do. It helps us create a more focused portfolio for the Company going forward whilst bringing additional liquidity to HALO for the pursuit of lower risk opportunities, closer to home, in the current environment. The creation of Vermeer with a clear strategy of pursuing higher risk, longer-term, further afield but potentially higher reward opportunities offers to HALO shareholders some exposure to frontier exploration without the full risk or a negative impact on the Company's balance sheet. This structure will ultimately create a more focused, lower-risk portfolio for HALO, which appeals to a different category of investor than that of Vermeer. HALO's management and founding shareholders will continue to back both entities in our belief in their potential to create value for all stakeholders."

For further information please contact:

 
 
                                          +44 20 7520 
 Hague and London Oil PLC                 9268 
 Andrew Cochran, Chairman 
  and Interim CEO 
 Natalia Erikssen, IR/PR enquiries 
 
 Stifel Nicolaus Europe Limited         +44 20 7710 
  (NOMAD & Broker)                       7600 
 Callum Stewart / Ashton Clanfield

This information is provided by RNS

The company news service from the London Stock Exchange

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