Recommended Acquisition Stratic Energy Corporation

 

TIDMENQ TIDMSE. 
 
RNS Number : 4140Q 
EnQuest PLC 
03 August 2010 
 

Not for release, publication or distribution, in whole or in part, in or into or 
from Australia, Japan or any other jurisdiction where to do so would constitute 
a violation of the relevant laws of such jurisdiction 
 
                          ENQUEST PLC, 03 August 2010 
              RECOMMENDED ACQUISITION OF STRATIC ENERGY CORPORATION 
 
Independent oil and gas production & development company, EnQuest PLC 
("EnQuest", the "Group" or the "Company") is pleased to announce that it has 
entered into an Arrangement Agreement (the "Arrangement Agreement") to acquire 
the entire issued share capital of Stratic Energy Corporation ("Stratic") (the 
"Acquisition"). 
 
ANNOUNCEMENT HIGHLIGHTS 
 
* EnQuest set to acquire Stratic, in a transaction recommended by Stratic's 
Board 
* the acquisition increases EnQuest's North Sea 2P reserves by 7.27MMboe 
* the purchase price equates, adjusted for tax, to paying US$11.2 per barrel of 
2P reserves 
* the acquisition consolidates EnQuest's 27.7% position in West Don with an 
additional 17.25% working interest, estimated to increase EnQuest's production 
by approximately a net 900 bopd 
* it provides EnQuest with a substantial 19% interest in the Crawford field 
development 
 
Stratic shareholders shall be entitled to receive 0.089626 EnQuest shares per 
Stratic share. Based on EnQuest's average closing price on the London Stock 
Exchange between 28 July to 2 August 2010, this equates to an offer of 17.00 
Canadian cents (the "Offer Price") for each existing Stratic share, valuing the 
issued and to be issued share capital of Stratic at approximately US$45.7 
million (the "Offer Value").  The Offer Price represents a 70% premium to 
Stratic's closing price on Friday 30 July (the Toronto Stock Exchange was closed 
on Monday 2 August) and a 9% premium to Stratic's three month volume weighted 
average price of 15.56 Canadian cents. This purchase price is the equivalent, 
adjusted for tax, to paying approximately US$11.2 per barrel for 2P reserves. 
All amounts are in US dollars, unless otherwise stated. 
 
As part of the transaction EnQuest will refinance Stratic's US$74.7 million net 
debt (as at 30 June), consisting of bank debt of US$18.9 million, convertible 
bonds of US$66.7 million and cash of US$10.9 million. EnQuest has agreed with 
the providers of its existing $280 million committed banking facility to 
increase the facility size by $70 million. 
 
EnQuest Chief Executive Amjad Bseisu said: 
 
"I am delighted to announce EnQuest's first acquisition since our listing in 
April. The acquisition of Stratic is in line with our strategy to deliver 
sustainable growth in shareholder value through the exploitation of existing 
reserves and pursuit of selective acquisitions.  The acquisition of Stratic 
provides a meaningful 7.27MMboe increase in our 2P reserves in the North Sea. 
It immediately enhances our production profile, it consolidates EnQuest's 
working interest in West Don and it adds a working interest in the Crawford 
development to our asset base." 
 
The Acquisition has been unanimously recommended by the Stratic Board of 
directors and shall be effected by means of a Plan of Arrangement (the "Plan of 
Arrangement").  A Plan of Arrangement is a Canadian court process used for the 
acquisition of a company and an Arrangement Agreement is a binding contract 
entered into by both parties following mutual due diligence. Completion of the 
Acquisition is subject to court and Stratic shareholder approval and other 
customary closing conditions being satisfied. The proposed transaction will 
require Stratic to publish an information circular and to hold a special meeting 
for its shareholders to consider and vote on the Plan of Arrangement - the 
resolution requires a majority of not less than two thirds of the votes cast. 
It is anticipated that this process should take 8 to 10 weeks.  An application 
for the listing of additional EnQuest shares will occur following completion of 
the Plan of Arrangement. 
 
ACQUISITION DETAILS 
 
The Board and management of EnQuest believe that the acquisition of Stratic 
enhances EnQuest's portfolio delivering further opportunities for development 
and growth.  Key features of this acquisition include: 
 
* further enhancement of EnQuest's position in the North Sea 
 
* addition of 7.27MMboe of proved and probable ("2P") reserves 
 
* an increase in EnQuest's annualised production levels. In its Interim 
Management Statement in May 2010, EnQuest indicated its full year 2010 
production target was 18,000 bopd.  Through its additional 17.25% working 
interest in West Don, EnQuest estimates that this transaction will provide an 
increase in production of approximately 900 net bopd from the date of deal 
completion.  Further additional production will be provided when the Crawford 
field starts production, estimated by EnQuest to be in 2013. 
 
* provision of a substantial 19% working interest in the Crawford field and 
associated prospects.  Crawford provides 4.93MMbbl of 2P reserves and a proposed 
field development focusing on the deeper Triassic and shallower Tertiary (Sele) 
reserves.  A field development plan is expected to be submitted around the end 
of this year. 
 
* the consolidation of EnQuest's operated working interest in the West Don field 
from 27.7% to 44.95%; providing EnQuest with an additional 2.34MMbbl of 2P 
reserves 
 
* benefits from tax losses of US$100.0m and US$15.0m of capital allowances, both 
figures are approximate 
 
* a purchase price equivalent to approximately $11.2 per barrel of 2P reserves, 
adjusted for the tax losses and allowances above 
 
* other potential opportunities arising from Stratic's contingent resources in 
the UK and Netherlands 
 
Overview of Stratic 
Stratic is a Canadian incorporated oil and gas company currently focused 
primarily on the UK North Sea. Its shares are currently listed on the TSX 
Venture Exchange (ticker "SE") and the AIM market of the London Stock Exchange 
(ticker "SE").   At 30 July 2010, Stratic had 272,635,224 shares in issue, with 
an additional 2,205,102 shares to be issued as a result of the transaction, 
giving a total of 274,840,326. 
 
 Stratic has a 19% interest in licence P.209 covering Block 9/28a which 
contains the Crawford field (4.93MMBoe net 2P reserves) and 17.25% interest in 
the West Don oil field (2.34MMBoe net 2P reserves), which EnQuest operates and 
in which it already has a 27.7% working interest. 
 
Stratic also has interests in other parts of the UK North Sea (including the 
Cairngorm and Bowmore discoveries), in the Dutch sector of the North Sea 
(Horizon West) and in its smaller residual interests in Slovenia and Morocco. 
 
Over the last year Stratic has been implementing a disposal programme of its 
non-core assets outside the UKCS. In April 2010, it completed the sale of its 
Italian business for a cash consideration of EUR33.0 million.  On May 7 2010, 
Stratic announced that it had reached agreement for the sale of its Turkish 
business for a cash consideration of $3.45 million. 
 
Conference call for analysts and institutional investors 
 
There will be a conference call at 09:00 London time (BST), this will include a 
short summary of the main points of today's announcement, followed by an 
opportunity for questions. 
 
[phone] - Standard International Access       Password: EnQuest 
 
 
Details of Stratic Assets 
 
Assets 
Stratic currently has interests in 15 blocks and part blocks in the UK and Dutch 
North Sea. 
 
UK North Sea 
 
Block 9/28a (Area B) - Crawford 
Stratic has a 19% interest in Licence P.209 covering Block 9/28a which contains 
the Crawford field and associated prospects. The Crawford field owners, led by 
operator Fairfield Energy, drilled a successful appraisal well late in 2007 
confirming the extension of the Triassic Cormorant formation into the previously 
undrilled northern area of the field, and also proving up a shallower Tertiary 
accumulation in the Sele Formation.  The Crawford partners are working towards 
submitting a field development plan for the Triassic and Tertiary reserves. 
Further prospective resource potential exists in the Tertiary formations of the 
Crawford licence which has been de-risked by the 9/28a-18 well. 
 
Block 211/13b - West Don 
Stratic owns a 17.25% stake in the West Don field through a 50% interest in 
Licence P.1200 covering Block 211/13b which contains the northern part of the 
West Don field. A commercial settlement with the partners in the adjacent block 
211/18a has fixed working interests for the life of the West Don field. The West 
Don field is operated by EnQuest, and commenced production on 28 April 2009. 
 
Blocks 16/2b - Cairngorm 
Stratic holds a 100% working interest and operates block 16/2b in the central 
North Sea area.  Stratic's interest in block 16/2b was acquired in December 
2004, and the licence has entered a second term following the drilling of the 
16/2b-5A well in 2008/9.  The block contains an extension of the fractured 
granite oil discovery drilled in 1990 by well 16/3a-11, and which tested in 
excess of 2,000 bopd.  Stratic completed a 3D seismic data acquisition programme 
during 2006, which was used to locate the 16/2b-5A well. The 16/2b-5A well was 
drilled jointly with Nippon Oil Exploration and Production UK Limited (NOEPUK) 
in late 2008.  The well was plugged and abandoned having discovered uncommercial 
hydrocarbons in the Tertiary. 
 
Blocks 15/23c, 15/24a, 15/28a, 15/29e and 15/30b - Bowmore Area 
Stratic holds a 15.0% working interest in blocks 15/23c, 15/24a, 15/28a and 
15/29e.  NOEPUK is the operator of all of these blocks.  In the first half of 
2010 the 15/23d-15 Bugle North well was drilled as a joint well by the 
partnership groups led by NOEPUK in block 15/23c and Nexen in block 15/23d.  The 
well was drilled to appraise the Nexen operated Bugle discovery, and was plugged 
and abandoned after encountering minor quantities of hydrocarbon in the target 
horizon. 
 
Dutch North Sea 
 
P8a Horizon West Production Licence 
Stratic holds a 48% interest in the Horizon West unit through a 60% working 
interest in block P8a in the Dutch North Sea which contains the western part of 
the Horizon West oil field.  The Horizon West discovery may be developed as a 
satellite to the adjacent Horizon field, which is operated by Chevron 
Exploration and Production Netherlands B.V. and located approximately 7 km to 
the east. 
 
F Quad 
Stratic has a 10% interest (post completion of farm-in agreement with Sterling 
Resources) in Blocks F14, F16, F17a, F18 and L1b in the Dutch sector of the 
North Sea.  These blocks contain a number of undeveloped shallow oil discoveries 
and are adjacent to the NOGATS gas export system. Sterling Resources has signed 
a letter of intent to farm into the acreage, leaving Stratic with a 10% (post 
EBN back-in) fully carried interest in the licences. 
 
Slovenia 
Petisovci-Dolina Field 
 
Stratic holds a 48.75% working interest in the joint venture arrangements 
covering the Petisovci-Dolina field. Stratic has been reviewing the nature of 
the reservoirs to assess their commerciality. 
 
Morocco 
Guercif East and Guercif West Permits 
Stratic has a 20% fully carried interest in two exploration permits, Guercif 
East and Guercif West onshore Morocco in the Neogene basins to the north of the 
Atlas mountains. The forward carried work programme includes the drilling of one 
well. 
 
Reserves 
EnQuest estimates that at year end 2009, Stratic's net working interests in both 
Crawford and West Don equated to 7.27MMbbl of 2P reserves. 
 
Recommendation 
The Board of Stratic consider the terms of the Acquisition to be fair and 
reasonable and unanimously recommend Stratic shareholders vote in favour of the 
Plan of Arrangement, as they have agreed to do in respect of their own 
beneficial interests in Stratic shares. 
 
Financial Information 
For the year ended 31 December 2009, Stratic's average daily production was 
1,169 boepd.  It incurred a loss before tax of $47.9 million, including 
recognised gains of $23.2 million mainly relating to the Breagh sale, and 
write-downs of $41.5 million mainly in respect of assets in the Netherlands and 
Turkey.  As at 31 December 2009, Stratic had gross assets of $162.6 million. 
 
Advisors 
In connection with the Acquisition, Perella Weinberg Partners are acting as 
financial advisors and Blake, Cassels & Graydon LLP are acting as legal advisers 
to EnQuest. 
 
Note: EnQuest recently published extensive information on the details of its 
business as part of its Prospectus, ahead of the commencement of trading in 
EnQuest PLC shares on 6 April 2010. The prospectus can be obtained via 
www.enquest.com. 
 
Ends 
 
 
For further information please contact: 
 
EnQuest PLC 
            Tel: [phone] 
Amjad Bseisu (Chief Executive Officer) 
Jonathan Swinney (Chief Financial Officer) 
Michael Waring (Head of Communications & Investor Relations) 
 
 
Finsbury 
                Tel: [phone] 
Andrew Mitchell 
Conor McClafferty 
 
Notes to editors 
 
EnQuest Background 
 
EnQuest PLC (www.enquest.com) is an independent oil and gas production and 
development company focused on the UK Continental Shelf ("UKCS").  Its assets 
include the Thistle, Deveron, Heather, Broom, West Don and Don Southwest fields. 
 Gaffney, Cline & Associates ("GCA") certified that as at 1 January 2010, 
EnQuest's assets had total net proved plus probably oil and NGL reserves of 
80.5MMBbl.  As at 1 January 2010, GCA has also net certified oil and gas best 
estimate (2C) contingent resources for individual assets.  The aggregate of the 
oil 2C contingent resources on an unrisked basis is 67.5MMBbl, and of the gas 
contingent resources is 30.6Bcf (See Note 1 below.) 
 
On 6 April 2010, EnQuest was formed from the demerged UK North Sea assets of 
Petrofac Limited and Lundin Petroleum AB.  EnQuest was admitted to trading on 
both the London Stock Exchange and the NASDAQ OMX Stockholm.  On listing, 
EnQuest PLC went into the FTSE 250 index and OMX Nordix Index.  Its assets 
include the Thistle, Deveron, Heather, Broom, West Don and Don Southwest fields. 
 It has interests in 16 production licences covering 26 blocks or part blocks in 
the UKCS, of which 15 licenses are operated by EnQuest. 
 
EnQuest believes that the UKCS represents a significant hydrocarbon basin in a 
low-risk region, which continues to benefit from an extensive installed 
infrastructure base and skilled labour.  EnQuest believes that its assets offer 
material organic growth opportunities, driven by exploitation of current 
infrastructure on the UKCS and the development of low-risk near field 
opportunities, rather than exploitation of high-risk exploration opportunities. 
 
EnQuest intends to deliver sustainable growth in shareholder value by focusing 
on exploiting its existing reserves, commercialising and developing discoveries, 
converting its significant contingent resources into reserves and pursuing 
selective acquisitions.  EnQuest is focused on increasing production from its 
existing assets in its core hub areas. It believes that it has excellent 
operational, execution, subsurface and integration skills and it seeks to become 
the development partner of choice in the UKCS. 
 
EnQuest believes that it has the technical skills, the operational scale and the 
financial strength to achieve its objectives and to take advantage of the 
production and development opportunities in the UKCS. 
 
Note (1) GCA warns that there may be a significant risk that accumulations 
containing contingent resources will not achieve commercial production and that 
it is inappropriate to aggregate contingent resources. 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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