Fastnet Oil & Gas PLC Proposed adoption of Investing Policy/Notice of GM (7549V)

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RNS Number : 7549V

Fastnet Oil & Gas PLC

11 August 2015

11 August 2015

Fastnet Oil & Gas plc

("Fastnet" or the "Company")

Fundamental change of business, proposed new Investing Policy, proposed name change and Notice of General Meeting

Introduction

Fastnet (AIM: FAST, ESM: FOI), announces its intention to undertake a fundamental change in its business pursuant to the AIM Rules and ESM Rules, adopt the Investing Policy and change its name to Fastnet Equity plc (together the "Proposals"). The Proposals are conditional upon Shareholders approving the Investing Policy at the General Meeting.

Fastnet's existing oil and gas assets

The Group currently retains oil and gas exploration assets in offshore Morocco, consisting of the Foum Assaka Licence, and offshore Ireland consisting of the Celtic Sea Assets, which is a portfolio of licensing options. The Group's assets are split by geography into two separate subsidiaries being Pathfinder Hydrocarbon Ventures Limited, in respect of the Foum Assaka Licence offshore Morocco, and Fastnet Oil and Gas (Ireland) Limited in respect of the Celtic Sea Assets.

Background to the Proposals

The Company was admitted to trading on AIM and the ESM and simultaneously raised GBP10.0 million in June 2012 with the strategy of identifying early stage exploration opportunities in the Celtic Sea and in Africa. Within a year of being admitted to trading, the Group had established a portfolio of interests in potentially high impact exploration prospects in both onshore and offshore Morocco and offshore Ireland.

In June 2013, Fastnet completed what was at the time the largest ever 3D seismic programme in the Celtic Sea covering 1,910km(2) over two option areas, creating the only modern 3D seismic database in the Company's area of interest. In December 2013, Fastnet successfully executed a farm-out of half of its interest in the Foum Assaka Licence, offshore Morocco, to SK Innovation incorporating re-imbursement of back costs, and a US$100 million capped carry on an exploration well which was drilled in April 2014. The SK Innovation farm-out agreement also provided for a carry of Fastnet's working interest in an additional well, provided it was an appraisal well. If an appraisal well was not drilled, the SK Innovation agreement provided for a carry on a future exploration well at SK Innovation's sole discretion. As a result the total cost to Fastnet from acquisition of the Foum Assaka Licence to completion of the FA-1 exploration well, in April 2014, was restricted to US$2.75 million. The FA-1 exploration well drilled was not a commercial success and, accordingly, a subsequent appraisal well was not warranted. Therefore the future carry for Fastnet on the Foum Assaka licence is subject to SK Innovation's election to participate in a second exploration well, which the Board currently considers is unlikely.

As part of the Company's growth strategy, it accelerated progress in relation to its exclusive option (the "Option") to farm into the eight exploration permits comprising the Tendrara Lakbir Petroleum Agreement (the "Tendrara-Lakbir Licence"), the commercial terms of which were improved and extended in July 2014.

In conjunction with the ongoing technical work in Ireland and Morocco, the Company continued in its significant and extensive efforts to farm-out the Group's Celtic Sea Assets and to secure a partner to share drilling costs on the Tendrara-Lakbir Licence.

However the overall worldwide decline in oil prices, which commenced in Q3 2014, has had a materially adverse impact on economic conditions within the oil and gas sector. In particular, it has resulted in a strategic shift in the forward planning of many large oil and gas companies which, the Board believes, has resulted in the delay of decisions and/or changes in strategy regarding farm-in opportunities for exploration assets. As a consequence of the decline in oil prices and despite implementing an extensive marketing process, the Company has been unable to successfully conclude a farm-out of its Celtic Sea Assets to date or of the Tendrara-Lakbir Licence onshore Morocco, prior to the expiry of the Option on 31 December 2014. In addition to the oil price affecting the sector as a whole, the Board believes that Fastnet's offshore Morocco portfolio has become a higher risk / lower potential reward asset as a result of exploration activities and results from other operators in offshore Morocco over the last 24 months.

On 31 May 2015, Fastnet's licensing options in the Celtic Sea relating to the Molly Malone and Mizzen licences expired. In June 2015, Fastnet applied, as part of an open tender process, for licensing options over portions of the original licensing option areas. The award of these licence options remains subject to grant by Minister of State at the Department of Communications, Energy and Natural Resources and it is at the Company's sole discretion to accept the award of these options within 28 days of the award notification. If the Investing Policy is approved by Shareholders, the Company will elect not to accept the award of these options.

The Board undertook a detailed asset review of its oil and gas portfolio in Q4 2014 in light of the rapidly changing economic conditions in the oil and gas sector. The purpose of the asset review was to ensure that Fastnet's corporate strategy to create shareholder value by growing the Company's business and monetise its assets remained on track.

In December 2014, the Board appointed Carol Law as Chief Executive Officer of the Company. This was at a time when the Company's share price was declining rapidly as a consequence, the Board believes, of the decline in oil prices and associated adverse market sentiment regarding the oil and gas sector, particularly for small cap oil and gas exploration companies. The Board announced at that time that its focus was set firmly on restoring and creating shareholder value by implementing its long held strategy of monetising existing assets and continuing to manage prudently its significant cash reserves. The Board also announced its intention to keep all options for the Company under review over the medium term.

Since December 2014, the Company has undergone a comprehensive review of general and administrative costs, which were reduced from December 2014 by more than 40 per cent. to US$1.9 million per year on an annualised basis. These costs have been reduced further in recent weeks and, subject to Shareholder approval of the Investing Policy, the Board intends to make further reductions to such costs to reduce them to below US$0.6 million per annum on an annualised basis.

In the context of the Company's ongoing review, the Board is now of the opinion that the current economic conditions in the oil and gas sector are likely to persist for the medium term. The Board believes that these economic conditions have created an environment in which it is not possible for Fastnet to find partners to carry, with acceptable terms and conditions, some or all of the Company's exploration costs on its oil and gas assets going forward. During the course of 2015, the Company has conducted detailed due diligence on a broad range of merger and acquisition ("M&A") opportunities in the oil and gas sector. However, the Company has not been able to identify an M&A opportunity, in the oil and gas sector, which would create value for Shareholders and therefore be a suitable use of the Company's available cash of US$15.9 million (as at 31 July 2015). During this period, the Board has received certain unsolicited approaches with respect to opportunities outside the oil and gas sector. These have included opportunities in the healthcare sector but, to date, the Company has not pursued these.

In light of the current economic climate within the oil and gas sector, the Board has determined that it is not in the best interests of Shareholders to either pursue M&A opportunities in that sector or to expend further resources on the Company's existing oil and gas assets. In addition, the Company's share price has consistently traded at a discount to the Company's cash balance (equating to 3p per Ordinary Share at 31 July 2015 or 2.8p per Ordinary Share when adjusted for current liabilities) since Q4 2014, implying limited if any value is being attributed to the Group's oil and gas exploration assets.

As a consequence and in order to source opportunities aimed at delivering enhanced value for Shareholders, beyond both the current share price and the current adjusted cash value per Ordinary Share of 2.8p, the Board has elected, subject to Shareholder approval, to undertake a fundamental change in its business pursuant to the AIM Rules and ESM Rules and accordingly to seek Shareholder approval to adopt the Investing Policy, focused on investments in the healthcare sector.

Having undertaken a review, the Board believes that more value can be achieved for Shareholders by utilising the Company's existing listings on AIM and the ESM and applying the Group's corporate infrastructure and cash resources to the proposed Investing Policy. The Board believes that the healthcare industry, particularly the biopharma sector, is experiencing strong momentum and there exist significant M&A and value creation opportunities for both small cap and large cap companies. Furthermore the Board believes that it has access to an international pipeline of such opportunities that could lead to value creation for the Shareholders. The sector is experiencing high activity levels in the UK and also in Ireland, a country where the Company has an existing operating base, with the required management, commercial, fiscal, operational and technical expertise all located in the Irish market.

The Board's intentions with the Group's existing assets

Offshore Morocco

Fastnet's running costs in respect of its partnership share in the Foum Assaka Licence are approximately US$25,000 per month based on the approved budget to 31 December 2015. Additionally, should the partnership proceed with drilling a further exploration well and SK Innovation elect not to participate in a second exploration well, the Company would be exposed to the cost and would be required to seek further financing or secure a partner to finance Fastnet's 12.5 per cent paying interest in the Foum Assaka Licence.

The Board is of the view that it is not in Shareholders' interests to maintain this financial exposure given the higher risk / lower potential reward for exploration assets offshore Morocco in the past two years coupled with the prevailing oil price environment. The Board has therefore, subject to the Investing Policy being approved, decided to withdraw from the partnership and surrender its 12.5 per cent. paying interest in the Foum Assaka Licence and will notify the participants in the partnership ("JOA Parties") accordingly. In addition to its pro-rata share for the approved work program and budget items until 31 December 2015, being approximately US$25,000 per month, once notice has been served on the JOA Parties, the Company will also be obligated to pay any cash calls made on the JOA Parties up until 30 September 2015. In addition, the Company will be responsible for all costs associated with respect to filing changes with the other JOA Parties and the relevant government authorities. The Board estimates that the total liabilities in respect of all of the above should not exceed an aggregate sum of US$150,000.

Celtic Sea Assets

It is the Board's intention to terminate all further expenditure on its Celtic Sea portfolio of licensing options. Fastnet will seek to secure a possible disposal or similar transaction of these options before they expire. All costs incurred to date in respect of the Company's Celtic Sea work programmes has been accrued for and is included in the current liabilities figure of US$600,000 (as at 31 July 2015). The Company has other potential liabilities in respect of rental fees and work programmes in respect of certain parts of its Celtic Sea portfolio. The Board estimates that these amounts do not exceed US$150,000 in aggregate.

Financial position

As at 31 July 2015 the Company had a cash balance of US$15.9 million and current liabilities of US$0.6 million. During the course of 2015 the Company has undergone a comprehensive review of general and administration costs and has successfully reduced overheads by over 40 per cent since December 2014 to US$1.9 million on an annualised basis. These costs have been reduced even further in recent weeks and, subject to Shareholder approval of the Investing Policy, the Board intends to make further reductions in the annual running costs to reduce it to below US$0.6 million per annum.

Investing Policy

If the Investing Policy is approved by Shareholders at the General Meeting, the Company will be required to make an acquisition or acquisitions which will constitute a reverse takeover under the AIM Rules or otherwise implement its Investing Policy within 12 months of the General Meeting, failing which, the Company's Ordinary Shares would then be suspended from trading on AIM and ESM. If the Investing Policy has not been implemented within 18 months of the General Meeting, the admission to trading on AIM and ESM of the Ordinary Shares would be cancelled and the Directors will convene a general meeting of the Shareholders to consider whether to continue seeking investment opportunities or to wind up the Company and distribute any surplus cash back to Shareholders.

The proposed Investing Policy is to acquire companies or businesses in the healthcare sector, particularly those in the biopharma sector. The businesses will typically have attributed to them some or all of the following characteristics:

   --     Strong  management team with attractive track records 
   --     An established entity with existing intellectual property 
   --     Markets and products / services with significant commercial opportunities 
   --     Revenue generating or near to medium term revenue generation capabilities 

The Company will initially focus on opportunities located in Europe but will also consider businesses in other geographical regions. The Directors believe that they have a broad collective range of sources of potential opportunities but also intend to appoint one or more additional directors with the relevant industry experience, subject to the Investing Policy being approved by Shareholders. The Directors will identify and assess potential investment targets and, where they believe further investigation is required, intend to appoint appropriately qualified external professionals to assist. The initial objective of the Directors is to create incremental capital appreciation and any revenue generated by the Company will be applied to further the Investing Policy or will be used in the day to day management of the Company. Dividends may be declared at some future date depending on the financial position of the Company and the availability of distributable accounting profits.

The Directors intend that the Company takes an equity interest in a proposed investment which is likely to be a majority position to 100 per cent. ownership. The Company's financial resources are likely to be invested in potentially one or more investments in a single transaction which will be deemed to be a reverse takeover pursuant to Rule 14 of the AIM Rules and ESM Rules, in which case the approval of the Shareholders will be required. Proposed investments may be made in quoted or unquoted securities in companies or partnerships at any stage of development.

Proposed changes to the Board

Subject to the approval of the Investing Policy by Shareholders at the forthcoming GM, the Company will become an Investing Company. Based on the decision by the Board to change the focus of the Company from the oil and gas sector to unrelated sectors, Carol Law will resign as a Director and employee upon approval of the Investing Policy at the GM but will continue as a consultant to the Company as she serves out her three month contracted notice period.

It is expected that further changes will be made to the Board, with the appointment of parties with the appropriate knowledge and expertise base to make investments in the healthcare and/or biopharma industry sectors. Details of any such further changes will be announced in due course.

Change of Name

In line with the Company's proposed fundamental change of business the Board proposes that the name of the Company be changed to Fastnet Equity plc. The change of name requires the approval of the Shareholders.

Change of Registered Office

The Company's registered office has been changed to Ivybridge House, 1 Adam Street, London WC2N 6LE.

General Meeting

The General Meeting has been convened for 2pm on 28 August 2015 to be held at the Conrad London St James, 22-28 Broadway, London SW1H 0BH.

Defined terms in this announcement have the same meaning as given to them in the circular to Shareholders dated 11 August 2015, unless otherwise stated, and which is available on the Company's website, www.fastnetoilandgas.com.

Ends

For further information please contact:

 
                                  +353 (1) 644 
 Fastnet Oil & Gas plc             0007 
 Cathal Friel, Non-Executive 
  Chairman 
 
                                  +44 (0) 20 
 Shore Capital                     7408 4090 
 Nomad 
 Bidhi Bhoma, Edward Mansfield 
 
 Corporate Broking 
 Jerry Keen 
 
                                  +353 (1) 679 
 Davy                              6363 
 (ESM Adviser & Joint 
  Broker) 
 John Frain, Anthony Farrell 
 
                                  +44 (0) 20 
 Camarco                           3757 4980 
 Billy Clegg, Georgia 
  Mann 
 

This information is provided by RNS

The company news service from the London Stock Exchange

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