OHM Off. Hydro

 

TIDMOHM 
 
RNS Number : 0775T 
Offshore Hydrocarbon Mapping PLC 
22 September 2010 
 

PRESS RELEASE 
22 September 2010 
         Offshore Hydrocarbon Mapping plc ("PLC", "Company" or "Group") 
 GBP2.0 million to be raised in placings of new ordinary shares; 
 divestment 
    of marine acquisition business; and $3.0 million WISE services agreement 
The Directors of Offshore Hydrocarbon Mapping plc ("PLC") are pleased to 
announce that detailed terms have been agreed with Sector Asset Management and 
its affiliates ("Sector") and Euro Trans Skips AS ("ETS")(together the "Concert 
Party") for: 
·     the investment by the Concert Party of GBP2.0 million in the Company by 
subscribing for 20 million new Ordinary Shares in two tranches at a price of 10 
pence per share, representing a premium of approximately 21.2% to the closing 
mid-market price on 21 September 2010 (the "Placings"); 
·     the sale to a new company to be formed and controlled by the Concert Party 
of the Group's two wholly owned subsidiaries (OHM Ltd ("OHM Ltd") and OHM 
Surveys Sdn Bhd ("OHM Malaysia") which together provide the Group's marine CSEM 
data acquisition services, for a combined consideration of $150,000  (together 
the "Disposals"); and 
·     establishment of a services agreement between the Company and OHM Ltd so 
as to enable them together to continue to provide a seamless integrated CSEM 
service to the oil industry following the Disposals. 
The terms in relation to the Placings and the Disposals (together the 
"Proposals") are non-binding and remain subject to a number of conditions, 
including: 
·     Publication of a circular to shareholders seeking consent: 
o  for the purposes of AIM Rule 15 to the Disposals, due to their size in 
relation to the Company; 
o  for the purposes of the Companies Act 2006, in order to effect the second 
tranche of the Placings. The Company currently has authority to issue 9.0 
million shares on a non pre-emptive basis and accordingly needs consent to issue 
a further 11.0 million shares to the Concert Party; 
and those resolutions being duly passed 
and 
·     Consent from a majority of independent shareholders (excluding the Concert 
Party)(the "Independent Shareholders") for a waiver of the requirement under 
Rule 9 of the Takeover Code for the Concert Party to make a mandatory offer  for 
the Company. The Company expects to obtain the formal consent from more than 50 
per cent. of the Independent Shareholders shortly in order to be able to 
approach the Takeover Panel for approval to such waiver. 
·     The Transfers (as defined below) taking place prior to completion of the 
Proposals ("Completion"). 
The first and second tranches of the Placings are not inter-conditional. The 
Placings and the Disposals, as well as the entering into of certain agreements 
ancillary thereto, will constitute related party transactions for the purposes 
of AIM Rule 13.  The Concert Party, as well as Skips AS Sol, with whom the 
members of the Concert Party are deemed to act in concert, propose, subject to 
agreeing the remaining terms of the Disposals, not to vote in relation to the 
shareholder resolutions referred to above. 
The Disposals will lead to the Group's CSEM data acquisition assets (tangible 
assets, intangible assets and working capital balances) leaving the Group for a 
consideration of $150,000 with the result that the Group's consolidated 
shareholders' equity will be reduced by approximately GBP6 million.  This will 
be reflected as an exceptional charge to the Group's profit and loss account. 
The Company's operational results for the year ended on 31 August 2010 should be 
in line with the revenue and EBITDA guidance provided in the trading update 
released on 29 June 2010. 
Prior to the Disposals, the Company and OHM Ltd each propose to transfer certain 
assets and employees so as to ensure that those assets and employees relating to 
the data acquisition business which are currently owned/employed by the Company 
will be transferred to OHM Ltd and any assets and employees within OHM Ltd which 
relate to the geophysical consulting business carried on by PLC and Rock Solid 
Images, Inc. ("RSI") are transferred to PLC (the "Transfers").  The anticipated 
result of the Transfers is that the correct assets will be held by the company 
carrying on the relevant business. These Transfers will be made at arm's length 
values and the net amount owing by PLC to OHM Ltd, which is likely to be 
approximately GBP800,000, will be deducted from the inter-company loan account 
balance due from OHM Ltd to PLC and forms an element of the GBP6 million 
write-off referred to above. It is intended that this asset transfer agreement 
will be entered into and completed prior to the Company completing the 
Disposals. 
Pending Completion, in the event of a material adverse change in the business of 
either of OHM Limited or OHM Malaysia the parties have reserved the right to 
terminate all agreements relating to the Proposals whereupon ETS would have the 
right to call upon OHM Limited to repay the Deferred Payments (as defined 
below), subject to a grace period of 45 days in the event that the termination 
was at the instigation of the Concert Party.  The Company has provided 
warranties relating to the proper disclosure to the Concert Party of any 
material adverse change prior to Completion which, if not complied with, would 
provide the Concert Party with the right of redress for a period of one year 
following Completion, subject to a cap of $2.0 million.  Further details of the 
Placings and the Disposals will be set out in a circular to shareholders to be 
published in due course once conditional binding agreements are reached relating 
to the Proposals.  The circular will (inter alia) explain why the Directors 
believe the Proposals to be in the best interests of shareholders, though the 
Directors would draw attention to the fact that, in their opinion, if the 
Proposals are not consummated in full in the near future the Group may run out 
of funding alternatives which would lead to the Directors seeking alternative 
though possibly less attractive options to avoid placing OHM Ltd and OHM 
Malaysia into administration. 
Background to and reasons for the Proposals 
Although business conditions for the Group have improved somewhat since April 
2010, the marine acquisition component of the Group continues to be loss making. 
This division continues to consume capital, including capital previously 
allocated to other areas of the Group's activities and significant capital 
investment will be needed in the near future to replace items of offshore survey 
equipment which are currently approaching the end of their useful lives. In the 
Directors' opinion, the marine acquisition business requires an additional $10 
million in the period to 31 December 2011 to fund working capital and investment 
which, given the Group's current financial position, and the state of the equity 
and debt capital markets in general, presents a major challenge.  The Concert 
Party is proposing to provide such funding to OHM Ltd and OHM Malaysia following 
the Disposals. 
The Directors believe that, though the market for marine CSEM will continue to 
improve, the continuing capital intensity of the marine acquisition business is 
unsustainable in the short term for the Group given its current capital 
resources. 
Additionally, the Directors believe that the Group's geophysical processing and 
interpretation consulting business, conducted principally through the Group's 
wholly owned subsidiary, RSI, requires working capital and investment over the 
next 18 months of approximately $3 million. This would be provided through part 
of the proceeds of the Placings, as well as the prepayment due under the WISE 
Services Agreement, details of which are set out below. 
As well as removing the burden on the Company of providing OHM Ltd and OHM 
Malaysia with near term working capital, the Disposals will also assist the 
Group's current working capital constraints in as much as OHM Ltd is currently 
due to pay ETS approximately $3 million in respect of the vessel charter 
agreements (as amended in August 2009), which is currently the subject of a 
letter of forbearance from ETS (the "Deferred Payments").  Following completion 
of the Proposals, this liability will no longer be a Group liability. 
OHM Ltd entered into a $2 million credit facility in December 2009 with 
affiliates of two of the Company's largest shareholders (East Hill Hedge Fund, 
LLC and certain of its affiliates ("East Hill") and ETS) which is now fully 
drawn. In order to implement the Disposals the Company will need to repay East 
Hill from the proceeds of the Placings the principal of $1 million (plus accrued 
interest and costs).  In addition ETS will be entitled to be repaid its 
principal of $1 million plus accrued interest.  The Directors intend to repay 
both these sums from the net subscription proceeds shortly after the Proposals 
have taken place. It is intended that both East Hill and ETS will release the 
security each has from the Group upon such repayment. 
 
The holdings of the Concert Party, together with Skips AS Sol, with whom the 
members of the Concert Party are deemed by the Takeover Panel to act in concert 
are, and will be, following completion of each tranche of the Placings, as 
follows: 
 
+------------+------------+----------+-----------+-----------+------------+------------+-----------+ 
| Concert    | Existing   | % of     | Ordinary  | % of      | Ordinary   | Ordinary   | % of      | 
| Party      | holding    | existing | Shares    | the       | Shares     | Shares     | the       | 
| Member     | of         | issued   | to be     | enlarged  | to be      | held       | enlarged  | 
|            | Ordinary   | share    | issued    | issued    | issued     | following  | issued    | 
|            | Shares     | capital  | on first  | share     | on         | the        | share     | 
|            |            |          | tranche   | capital   | second     | second     | capital   | 
|            |            |          | of        | following | tranche    | tranche    | following | 
|            |            |          | Placing   | the first | of         | of         | the       | 
|            |            |          |           | tranche   | Placing    | Placing    | Placings  | 
|            |            |          |           | of        |            |            |           | 
|            |            |          |           | Placing   |            |            |           | 
+------------+------------+----------+-----------+-----------+------------+------------+-----------+ 
| ETS and    | 19,904,457 | 21.99    | 3,000,000 | 23.02     | 3,666,667  | 26,571,124 | 24.04     | 
| its        |            |          |           |           |            |            |           | 
| affiliates |            |          |           |           |            |            |           | 
+------------+------------+----------+-----------+-----------+------------+------------+-----------+ 
| Sector     | 21,863,348 | 24.15    | 6,000,000 | 28.00     | 7,333,333  | 35,196,681 | 31.85     | 
| and its    |            |          |           |           |            |            |           | 
| affiliates |            |          |           |           |            |            |           | 
+------------+------------+----------+-----------+-----------+------------+------------+-----------+ 
| Skips      | 87,500     | 0.10     | None      | 0.09      | None       | 87,500     | 0.08      | 
| AS Sol     |            |          |           |           |            |            |           | 
+------------+------------+----------+-----------+-----------+------------+------------+-----------+ 
| Total      | 41,855,305 | 46.24    | 9,000,000 | 51.11     | 11,000,000 | 61,855,305 | 55.97     | 
+------------+------------+----------+-----------+-----------+------------+------------+-----------+ 
 
 
The Proposals represent the culmination of a protracted process for the Board. A 
range of alternative solutions for raising the necessary finance have been 
considered and tested, however the Directors do not believe these to be 
commercially viable in the Group's current circumstances. Whilst the Directors 
also considered placing OHM Ltd and OHM Malaysia into administration, this was 
considered to be a far less attractive alternative for the Group and its 
stakeholders as, among other things, the Company would likely lose access to 
some or all components of the Group's CSEM marine survey and processing 
capabilities, the OHM brand would be severely damaged and there would be a 
commensurate loss of employment for staff. 
Information on the Group following the Proposals (the "Remaining Group") 
Following the Disposals, the Remaining Group will no longer conduct CSEM surveys 
and will become a specialist interpreter of seismic, CSEM and well data. The 
Company is routinely asked to reprocess and interpret third party CSEM data and 
this change in the business model acknowledges the Group's comparative advantage 
in processing and interpretation. Data acquisition will no longer be core to the 
Group however the Company will continue to have a close working relationship 
with the divested businesses. 
The Remaining Group, with increased cash resources and improved financial 
stability as a result of the Proposals, will be able to concentrate its efforts 
and resources in developing and marketing its advanced capabilities in the 
integration of geophysical data types, with particular expertise in CSEM and 
seismic. The Directors believe that this transaction will: 
·     enable the Remaining Group to grow its share of the existing seismic 
inversion market, as well as maintaining a share of the CSEM data processing 
market; and 
·     unlock the value of the WISE integration technology already developed in 
the Group, which in the Directors' view is where the key value in CSEM lies and 
where the Remaining Group can best position itself for future growth. 
The Directors believe there are benefits  to shareholders in the development and 
growth of the Remaining Group's business, which should grow in value as 
non-seismic methods such as CSEM and magneto telluric ("MT") become more widely 
used, and demand for integration with seismic increases. 
At the same time, it is envisaged that the Remaining Group will, through its 
commonality of shareholders, and under the auspices of a services agreement and 
a relationship agreement (details of which are set out below), maintain close 
links with OHM Ltd and OHM Malaysia, thereby providing the Remaining Group with 
access to highly specialised data capture and marine survey functionality, 
without the need for the attendant capital commitment. 
WISE services agreement and relationship agreement 
In order for OHM Ltd and OHM Malaysia and the Remaining Group to continue to 
provide a seamless integrated CSEM service to the oil industry, the Company and 
OHM Ltd propose to enter into a services agreement (the "Services Agreement") 
for the provision of: 
·     CSEM processing and interpretation services to OHM Ltd and OHM Malaysia by 
the Remaining Group; and 
·     marine CSEM/MT data acquisition services to the Remaining Group by OHM Ltd 
and OHM Malaysia. 
Under the terms of the Services Agreement, OHM Ltd and OHM Malaysia will agree 
to prepay $3.0 million ("the Advance Payment")($2.0 million on completion of the 
Disposals and $1.0 million by 30 November 2010) to the Remaining Group to secure 
2,033 man-days of WISE Services at a rate of $2,200 per day, of which $1,475 per 
day is prepaid by way of the Advance Payment, with a balance of $725 per day 
payable as the man-days are utilised. WISE services are those services relating 
to the advanced combination of CSEM data and seismic information to provide 
analysis of rock and fluid properties. 
The Services Agreement will further provide for the provision by the Remaining 
Group of certain administrative and other management functions to OHM Ltd and 
OHM Malaysia and vice versa following completion of the Proposals. Such services 
will be provided at contracted rates which have been agreed between the parties 
on an arm's length basis. 
With a view to preserving the independence of the Company from its majority 
shareholders (with whom the Directors anticipate having close commercial 
dealings in the future, as described above) and the Company's suitability as an 
AIM company following completion of the Proposals, the Company proposes to enter 
into a relationship agreement with the Concert Party (the "Relationship 
Agreement").  The Relationship Agreement will provide that for so long as the 
members of the Concert Party control 25 per cent. or more of the voting rights 
in the Company, the majority of the members of the Board shall be independent of 
the Concert Party. 
Richard Cooper, PLC CEO commented: "The investment in PLC should allow the 
Remaining Group to build on its reputation for providing high quality seismic 
and CSEM interpretation services and further develop our WISE integration 
technology, including investigating new applications and markets for these 
services.  The existing Group has struggled to compete in the offshore marine 
CSEM acquisition market owing to a lack of investment capital and inefficiencies 
within the operating model. By divesting this business, the Group will remove 
significant current and future cash liabilities and free up management time and 
investment resources to allow us to concentrate on adding value to data using 
existing seismic and CSEM interpretation technology and newly developed WISE 
integration approaches. 
As importantly, we believe the combination of OHM Ltd's marine acquisition group 
with Euro Trans Skips AS and the OHM Leader and OHM Express vessels will create 
a secure partner with whom we can work to provide a seamless integrated CSEM 
data acquisition and data analysis service, which includes the full range of 
WISE technology." 
Contact: 
+---------------------------------------+---------------------+ 
| Offshore Hydrocarbon Mapping plc      | www.ohmsurveys.com  | 
+---------------------------------------+---------------------+ 
| Richard Cooper - Chief Executive      | 0870 429 6581       | 
| Officer                               |                     | 
+---------------------------------------+---------------------+ 
| Bob Auckland- Finance Director        | 0870 429 6581       | 
+---------------------------------------+---------------------+ 
| KBC Peel Hunt (Nominated adviser &    |                     | 
| Broker)                               |                     | 
+---------------------------------------+---------------------+ 
| Julian Blunt/David Anderson           | 020 7418 8900       | 
+---------------------------------------+---------------------+ 
| Aquila Financial Ltd (PR)             |                     | 
+---------------------------------------+---------------------+ 
| Peter Reilly                          | 0118 979 4100       | 
+---------------------------------------+---------------------+ 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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