Loyz Energy, a Singapore-based upstream energy group, announced that it has entered into a binding memorandum of understanding for the acquisition of Primeline Energy Holdings (PEH) by way of a scheme of arrangement for a cost of approximately US$146 million.
PEH, an independent oil and gas exploration and production company which focuses exclusively on upstream opportunities in China, owns exploration and development rights in the East China Sea, China, via two petroleum contracts, namely block 25/34 and block 33/07.
Details of block 25/34 and block 33/07
Block 25/34 covers a total area of 84.7sq km in the Lishui basin in the East China Sea in which LS36-1, a producing gas field is situated. The gas field lies in close proximity to Zhejiang Province which has an estimated population of 50 million.
Assuming the completion of the acquisition by PEH of Prime Petroleum Corp, PEH will own 49% and operating partner, China National Offshore Oil Company (CNOOC), will own 51% of block 25/34. As of 31 March 2014, the estimated gross reserves for block 25/34 are approximately 52,148 MMcf of 1P reserves, 68,088 MMcf of 2P reserve and 87,518 MMcf of 3P reserves, according to a report by McDaniel & Associates Consultants.
CNOOC and Zhejiang Provincial Gas Development Co. had, in October 2014, entered into gas sale agreement at approximately $14.50/MCF. Based on the terms of the gas sale agreement and McDaniel's view of the sale price in their report, together with the development costs spent to date and commercial arrangements made by PEH, as of 1 January 2015, the estimated net present value after tax (at a discount rate of 10%) for the 49% stake in the LS36-1 field is approximately $294 million of 2P reserves.
Block 33/07 is a much larger offshore area of approximately 5,877sq km and is currently in the exploration phase. According to the McDaniel’s report, the high estimated gross prospective resources are approximately 1,093.7 MMcf. CNOOC has the right to participate in up to 51% of the development and PEH is currently the operator for Block 33/07.
Consideration for the proposed acquisition
The $146 million cost was arrived at on a willing-buyer, willing-seller basis and on arm's length basis, taking into account, among others, the indicative valuation of PEH and Loyz Energy.
The acquisition cost shall be satisfied entirely by the issue of 1,790,930,143 new ordinary shares in the capital of Loyz Energy at an issue price of $0.08 per share.
Upon completion of the proposed acquisition, Loyz Energy intends to seek a transfer of its listing from Catalist to the mainboard of Singapore Exchange Securities Trading.
Image: Lishui basin map/Primeline Energy Holdings