Kea Petroleum PLC Disposal of Assets and Notice of General Meeting (2932R)

TIDMKEA

RNS Number : 2932R

Kea Petroleum PLC

26 June 2015

Kea Petroleum plc

("Kea" or the "Company")

Disposal of Assets, Notice of General Meeting, Adoption of Investing Policy, Share Reorganisation and Closure of Formal Sale Process

The Company will shortly send a circular to its shareholders convening a general meeting to approve a number of matters. The following text has been taken from the circular. A copy of the circular will be available on the Company's website at www.keapetroleum.com.

Proposed Disposal of Assets and Related Matters

Shareholders will be aware that trading in our shares on AIM was suspended on 26 May 2015 pending clarification of our financial position. This followed our ultimately unsuccessful efforts to raise GBP3 million of new equity capital to enable us to take further our drilling activities on our PEP51153 licence area in New Zealand.

As we stated at the time our efforts have continued to find alternative ways to secure the survival of the Company for the benefit of all shareholders and I am writing to you now to bring you up to date and to explain to you our proposals for the near future for Kea, including news of proposed asset disposals and a new investment policy.

The Company has conditionally agreed to sell its 70% interest in PEP51153, the licence which includes the Puka wells and the Shannon prospect, to Caliera Fund Limited, a privately owned New Zealand company, for NZ$500,000 (approximately GBP222,550). That disposal, if consummated, represents a disposal of substantially the whole of the Company's assets, and will result in the Company being classified as an "investing company" under the AIM Rules for Companies, following an investment policy which must be approved by shareholders.

In addition we have entered a conditional heads of terms, subject to contract, to dispose of our interest in PEP381204, the licence which includes the Mauku prospect.

The net proceeds of the Disposals after costs will be applied in settlement of the Group's current creditors, and as working capital, but will not be sufficient to meet the ongoing costs of keeping the Company alive or delivering on its proposed investment policy. Accordingly we will be seeking to raise, through subscriptions by existing substantial shareholders (including directors and associate parties) and others, up to GBP1 million to cover ongoing costs of operations pending a new transaction constituting a reverse take-over which would be put to shareholders for approval in due course or otherwise implement its investing policy. To facilitate this fund raising we believe it is necessary to recognise the reduced value of the Company and the share price of the Company's shares immediately prior to suspension being below the current par value by reducing the par value of the ordinary shares to 0.1p per share from the existing figure of 1.0p per share.

The Company intends, dependent on the successful conclusion of the share reorganisation, and providing there is sufficient working capital from raising of further new funds, to seek to lift the suspension of it New Ordinary Shares to trading on AIM.

The purpose of this announcement is therefore:

   --        to give you more information regarding the Disposals and to seek your approval to them; 
   --        to explain to you our proposed investing policy and to seek your agreement to it; 
   --        to give you more details of the proposed share reorganisation; 

-- to seek your authority to issue further shares at a price not less than 0.1p per share to raise up to GBP1 million and to disapply the statutory pre-emption rights on such an issue.

Sale of Interest in PEP51153

Following an exhaustive marketing exercise conducted on the Company's behalf in the course of the strategic review announced in February 2015, Kea's subsidiary Kea Petroleum Limited has entered into an agreement with Caliera Fund Limited under which Caliera has agreed to acquire KPL's 70% interest in its joint venture with MEO New Zealand Pty Limited regarding PEP51153, the licence which includes the Puka wells and the Shannon prospect. The principal terms of the JV Disposal are as follows:

-- Caliera will pay NZ$500,000 (approximately GBP222,550) for KPL's interest in the JV, payable in cash on completion of the Disposal (less any deposits paid on account as described below);

-- Caliera will advance NZ$50,000 (approximately GBP22,255) against the purchase price provided KPL grants to Caliera as security for the advance a first charge over its assets and an assignment of its interest in the JV. Provided such security is granted Caliera will make further advances to ensure KPL can continue operations prior to completion of the JV Disposal;

   --      the JV Disposal is conditional upon: 

- the waiver by MEO of its pre-emptive rights to acquire KPL's interest in the JV and its consent to KPL giving a first charge over its interest as referred to above;

- the consent of the appropriate Minister of the Crown, to the transfer of KPL's interest in PEP51153 to Caliera pursuant to Section 41 of the Crown Minerals Act 1991;

   -        requisite shareholder approval from Shareholders to the Disposal; and 

- clarification to the satisfaction of Caliera, as to the status under the Crown Minerals Act 1991 of the well drilled by the JV and known as Puka 3.

-- if Shareholders do not approve the JV Disposal KPL will be required to refund the deposits paid on account of the purchase price and pay to Caliera a termination fee of NZ$250,000 (approximately GBP111,275) as full compensation for all costs (including opportunity costs) incurred by Caliera pending completion of the Disposal, or failure of a condition;

-- KPL will not hold or continue discussions or negotiations with any other party in respect of the sale of its interest in the JV.

The JV has been responsible for exploration and development of PEP51153, including drilling and operating the Puka wells and preparatory work on the Shannon prospect. Production at Puka was suspended in January 2015. In the year to 31 May 2015 the directors estimate that the losses attributable to PEP51153 were NZ$15.6M (approximately GBP6.9M), on a going concern basis. The value of KPL's interest in the JV in the books of the Company as at 31 May 2015 is estimated to be GBP10.35M.

Caliera is a private company which was incorporated in New Zealand in 2013. Caliera is primarily focussed on oil and gas exploration and production. As noted above, the conditional agreement to dispose of the Group's interest in PEP51153 is subject, inter alia, to the approval of the Company's shareholders and an appropriate resolution to that effect will be tabled at the forthcoming General Meeting.

Sale of interest in PEP381204

As a result of the marketing of the Company's New Zealand assets the Company's New Zealand subsidiary Kea Exploration Limited has entered into a heads of agreement, subject to contract, to assign its 100% interest in PEP381204, the licence which includes the Mauku prospect, to New Endeavour Resources (NZ) Limited on the following terms:

-- a purchase price of US$500,000 (approximately GBP222,550) payable in cash within 3 months of NZPAM approval to the assignment of PEP381204;

-- KEL will retain the right to receive a royalty of two and one half per cent (2.5%) on all petroleum products sold which are produced on PEP381204;

-- the agreement is currently non-binding and is subject to the execution of a formal assignment agreement between KEL and NER.

The NER Disposal is conditional upon NZPAM's approval to the assignment and to PEP381204 remaining compliant, which will require KEL to make an application for a Change of Conditions to the Permit Work Programme which is acceptable to NZPAM and to NER. The costs of the applications to NZPAM will be paid by NER.

The Company is currently in discussions with Methanex regarding an equitable share of any deal completed on PEP381204 in recognition of the JV agreement entered into between the Company and Methanex over the permit.

In the year ended 31 May 2015 the estimated losses attributable to PEP381204 were NZ$47,500 (approximately GBP21,000). The asset was fully written down in the Company's balance sheet at that date.

NER is a private company which was incorporated in New Zealand in 2010. NER's directors each have in excess of 30 years of international experience in exploration and development. NER was awarded PEP57070, an offshore Taranaki Exploration Permit, in 2014 and is continuing to build a portfolio of conventional opportunities. NER's strategy is to realise reserves in areas where complex geology hinders formation evaluation.

Investing Policy

On completion of the JV Disposal, the Company will be deemed to be an 'investing company' for the purposes of the AIM Rules, and will have one year in which to make an acquisition which will constitute a 'reverse takeover', or otherwise discharge its investing policy. For the Company to remain on AIM until such an acquisition its investing policy must first be approved by shareholders.

The Board proposes that the Company's Investing Policy should be to invest in and/or acquire companies and/or projects with potential for growth. The Directors will focus on making investments in the industry sectors with which they are most familiar, which in addition to the resources sector include technology, life sciences, property, leisure and hospitality. The overriding criterion, however, will be the potential for creating value for shareholders. The geographical focus will primarily be in regions in the world that the Board considers valuable opportunities exist and potential returns can be achieved.

Where appropriate, the Board may seek to invest in businesses where it may influence the business at a board level, add their expertise to the management of the business, and utilise their industry relationships and access to finance.

The Company's interests in a proposed investment and/or acquisition may range from a minority position to full ownership and may comprise one investment or multiple investments. The proposed investments may be in either quoted or unquoted companies; be made by direct acquisitions or farm-ins; and may be in companies, partnerships, earn-in joint ventures, debt or other loan structures, joint ventures or direct or indirect interests in assets or projects. The Board may focus on investments where intrinsic value may be achieved from the restructuring of investments or merger of complementary businesses.

The Board expects that investments will typically be held for the medium to long term, although short term disposal of assets cannot be ruled out if there is an opportunity to generate a potentially attractive return for Shareholders. The Board will place no minimum or maximum limit on the length of time that any investment may be held. The Company may be both an active and a passive investor depending on the nature of the individual investment.

There is no limit on the number of projects into which the Company may invest, and the Company's financial resources may be invested in a number of propositions or in just one investment, which may be deemed to be a reverse takeover under the AIM Rules. The Board intends to mitigate risk by appropriate due diligence and transaction analysis. Any transaction constituting a reverse takeover under the AIM Rules will also require Shareholder approval. The Board considers that as investments are made, and new promising investment opportunities arise, further funding of the Company may also be required.

Where the Company builds a portfolio of related assets it is possible that there may be cross holdings between such assets. The Company does not currently intend to fund any investments with debt or other borrowings but may do so if appropriate. Investments in early stage assets are expected to be mainly in the form of equity, with debt potentially being raised later to fund the development of such assets. Investments in later stage assets are more likely to include an element of debt to equity gearing. The Board may also offer New Ordinary Shares by way of consideration as well as cash, thereby helping to preserve the Company's cash for working capital and as a reserve against unforeseen contingencies including, for example, delays in collecting accounts receivable, unexpected changes in the economic environment and operational problems.

Investments may be made in all types of assets and there will be no investment restrictions on the type of investment that the Company might make nor the type of opportunity that may be considered.

The Company may consider possible opportunities anywhere in the world.

The Board will conduct initial due diligence appraisals of potential business or projects and, where they believe further investigation is warranted, intend to appoint appropriately qualified persons to assist. The Board believes its expertise will enable it to determine quickly which opportunities could be viable and so progress quickly to formal due diligence. The Company will not have a separate investment manager.

A resolution approving the Company's proposed investing policy will be proposed at the forthcoming General Meeting.

Funding and share reorganisation

The Directors do not believe it is possible to raise funds for the Company at or near the current par value of the Company's ordinary shares of 1p, which would value the company at approximately GBP1 million. The Directors believe that they need the flexibility to issue shares at a lower price to secure the equity finance necessary to maintain the Company's AIM quotation and discharge its existing liabilities to its creditors and suppliers. English company law does not allow the issue of shares at a price less than the par value and accordingly the Board has concluded that it is necessary to reduce the par value of the Company's ordinary shares.

Share Capital Reorganisation

As at 24 June 2015, being the latest practicable date prior to this announcement, the total issued share capital of the Company was GBP9,393,618.70 divided into 93,936,187 Existing Ordinary Shares and 93,936,187 Existing Deferred Shares.

It is proposed that to effect the Proposed Reorganisation each Existing Ordinary Share will be subdivided and converted into one New Ordinary Share of 0.1p and one New Deferred Share of 0.9 pence.

Ordinary Shares

As a consequence of, and immediately following, the Proposed Reorganisation becoming effective, each Shareholder's holding of New Ordinary Shares will be equal to the number of Existing Ordinary Shares held by them on the Record Date and each Shareholder's proportionate interest in the Company's issued ordinary share capital will, and thus the aggregate value of their holding should, remain unchanged as a result of the proposed Reorganisation.

The New Ordinary Shares will continue to carry the same rights as attached to the Existing Ordinary Shares.

The last day of trading on AIM in the Existing Ordinary Shares is expected to be 13 July 2015.

If approved, following the Proposed Reorganisation becoming effective, assuming no shares are issued between 24 June 2015 (being the latest practicable date prior to the release of this announcement) and the date the Proposed Reorganisation becomes effective (expected to be 8.00 am 14 July 2015), the Company's issued ordinary share capital will comprise 93,936,187 New Ordinary Shares.

Share certificates representing the Existing Ordinary Shares will remain valid in respect of the New Ordinary Shares and new certificates will not be issued. No adjustment will be made to the CREST accounts of Shareholders who hold their entitlement to Existing Ordinary Shares in uncertificated form.

New Deferred Shares

The New Deferred Shares will rank pari passu in all respects with the Existing Deferred Shares. They will be effectively valueless as they will not carry any rights to vote or dividend rights. In addition, holders of Deferred Shares will only be entitled to a payment on a return of capital or on a winding up of the Company after each of the holders of Ordinary Shares have received a payment of GBP10,000,000 on each such share. The Deferred Shares will not be listed or traded on AIM and will not be transferable without the prior written consent of the Board. No share certificates will be issued in respect of the Deferred Shares, nor will CREST accounts of shareholders be credited in respect of any entitlement to Deferred Shares.

Authority to issue shares

In order to be able to raise the funds which the Directors consider Kea needs to be able to continue as a going concern, the Company will require authority from Shareholders to allow for the creation and issue of up to 100 million new ordinary shares following the Proposed Reorganisation.

Authority to allot shares

Under the provisions of the Companies Act 2006, the Directors of the Company may only allot or grant rights over unissued shares if authorised to do so by the Company's articles of association or by its shareholders in a general meeting. Resolution 4, to be proposed as an ordinary resolution, will provide the Directors with an authority to allot or grant rights over new ordinary shares with a nominal value of GBP1,000,000. If given, the authority will expire on the earlier of 30 November 2015 or the date of the Annual General Meeting in 2015, unless revoked or varied by the Company from time to time in a subsequent general meeting.

Disapplication of pre-emption rights

Resolution 5 grants the Directors authority to allot equity securities for cash, without the need first to offer such shares to existing shareholders. The proposed limit on the nominal value of the equity securities that may be allotted for cash is GBP1,000,000. Resolution 5 is to be proposed as a special resolution. This means that for the resolution to be passed, at least three quarters of the votes cast must be in favour of the resolution.

Conclusion of Formal Sale Process

In connection to the proposed disposals of PEP51153 and PEP381204, the Board has decided to terminate the Formal Sale Process as defined in the Takeover Code. Therefore the Company is no longer in an "offer period" under the Takeover Code.

Recommendation

The Company's unallocated cash resources are now almost totally depleted and without additional funds it will not be able to continue. The Directors believe that the prospects of receiving new investment will be enhanced by the Disposals and by the adoption of the Investment Policy but will need additional funds to enable the discharge of that policy. If Shareholders do not approve all of the resolutions to be proposed at the General Meeting the Directors believe they will have no alternative but to settle the Company's creditors from the Company's remaining cash resources and commence the liquidation of the Company.

Accordingly the Directors unanimously recommend that shareholders vote in favour of all the resolutions to be proposed at the General Meeting, as they and those persons connected with them intend to do in relation to their Ordinary Shares (representing 15.66 % of Kea's existing ordinary share capital).

General Meeting

A General Meeting of the Company will be held at the Company's offices at 1(st) Floor, 5-8 The Sanctuary, London SW1P 3JS on 13 July 2015 at 12 noon.

Expected timetable of principal events

 
                                                2015 
 Posting of the Notice of GM and form        26 June 
  of proxy 
 Latest time and date for receipt of      12 noon on 
  forms of proxy                              9 July 
 General Meeting of the Company           12 noon on 
                                             13 July 
 Record date                               5pm on 13 
                                                July 
 Share reorganisation becomes effective      14 July 
 

Definitions

 
 "AIM Rules"                 the AIM Rules for Companies published 
                              by London Stock Exchange PLC; 
 "AIM"                       the market of that name operated 
                              by London Stock Exchange PLC; 
 the "Board" or              the directors of the Company; 
  the "Directors" 
 "Caliera"                   Caliera Fund Limited, a New Zealand 
                              company, the proposed purchaser 
                              of KPL's interest in the JV; 
 "Company" or "Kea"          Kea Petroleum PLC; 
 "Deferred Shares"           the Existing Deferred Shares 
                              and the New Deferred Shares; 
 "Disposal"                  the JV Disposal and the NER Disposal; 
 "Existing Deferred          the issued deferred shares of 
  Shares"                     9p each in the capital of the 
                              Company; 
 "Existing Ordinary          the issued ordinary shares of 
  Shares"                     1p each in the capital of the 
                              Company; 
 "General Meeting"           the general meeting of Shareholders 
                              convened for 13 July 2015; 
 "Group"                     Kea and its subsidiaries; 
 the "Investing              the Company's proposed investing 
  Policy"                     policy described in this announcement; 
 "JV"                        the joint venture between KPL 
                              and MEO regarding PEP51153; 
 "JV Disposal"               the proposed disposal of KPL's 
                              interest in the JV to Caliera 
                              as described in this announcement; 
 "KEL"                       Kea Exploration Limited, a wholly 
                              owned subsidiary of the Company 
                              incorporated in New Zealand; 
 "KPL"                       Kea Petroleum Limited, a wholly 
                              owned subsidiary of the Company 
                              incorporated in New Zealand; 
 "MEO"                       MEO New Zealand Pty Limited, 
                              KPL's joint venture partner in 
                              the JV; 
 "NER"                       New Endeavour Resources Pty Limited, 
                              a New Zealand company, the proposed 
                              purchaser of PEP381204; 
 "NER Disposal"              the proposed disposal of KPL's 
                              interest in petroleum exploration 
                              permit PEP381204 to NER as described 
                              in this announcement; 
 "New Deferred Shares"       the deferred shares of 0.9p each 
                              arising on the Proposed Reorganisation; 
 "New Ordinary Shares"       the ordinary shares of 0.1p each 
                              arising on the Proposed Reorganisation; 
 "NZPAM"                     New Zealand Petroleum and Minerals, 
                              part of the New Zealand Ministry 
                              of Business Innovation and Employment; 
 "Proposed Reorganisation"   the proposed reorganisation of 
                              the Company's share capital described 
                              in this announcement; 
 "Record Date"               the record date for the Proposed 
                              Reorganisation, being 13 July 
                              2015; 
 "Shareholders"              holders of the Existing Ordinary 
                              Shares; 
 "Takeover Code"             the City Code on Takeovers and 
                              Mergers; 
 

For further information please contact:

 
 Kea Petroleum plc                 Tel: [phone] 
  David Lees, Executive Director    9970 
 WH Ireland Limited (NOMAD)        Tel: [phone] 
  James Joyce                       1666 
  James Bavister 
 Buchanan                          Tel: [phone] 
  Mark Court                        5000 
  Sophie Cowles 
 

This information is provided by RNS

The company news service from the London Stock Exchange

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