Lekoil Limited Proposed settlement of litigation and name change (9589I)

TIDMLEK

RNS Number : 9589I

Lekoil Limited

07 December 2022

Lekoil Limited

Proposed settlement of litigation and name change

7 December 2022: LEKOIL (AQSE: LEK) (the "Company"), the Cayman Islands litigation asset company with an investment in oil & gas assets in Nigeria, announces that it has reached agreement with, among others, Lekoil Nigeria Limited and Olalekan Akinyanmi, the former CEO of the Company, to terminate all legal proceedings and settle all claims made by or between the relevant participants.

Summary

As previously announced, certain disputes have arisen between, among others, the Company, Lekoil Nigeria Limited ("Lekoil Nigeria") and Mr Akinyanmi concerning the management of the Company, Lekoil Nigeria and related entities and the related proprietary interests, liabilities and contractual and non-contractual rights and obligations of the Company, Lekoil Nigeria and Mr Akinyanmi (as relevant). In order to resolve these differences, and with no admission of liability, the Company, Lekoil Nigeria and Mr Akinyanmi, among others, have entered into a settlement deed on 7 December 2022 (the "Deed") to agree to, among other things, the release and discharge of all relevant claims, the withdrawal of legal proceedings, surrenders of certain shares and other transactions, a new framework for their future relationship and fully and finally to resolve their differences, dispose of ongoing litigation and agree certain ancillary matters (the "LNL Arrangements").

The LNL Arrangements include:

-- the Company agreeing to surrender all of its shares in Lekoil Nigeria and transfer those of its subsidiaries involved in the operations of the Lekoil Nigeria group to Lekoil Nigeria;

   --    Lekoil Nigeria agreeing to surrender all of its ordinary shares in the Company; 

-- the Company waiving all rights to repayment in respect of any and all existing indebtedness due from Lekoil Nigeria, its subsidiaries or from Mr Akinyanmi under various loans;

-- the Company granting a new loan of approximately US$51.9 million to Lekoil Oil and Gas Investments Limited ("LOGI") (the "LOGI Loan") in consideration for the transfer of certain loans granted to Lekoil Nigeria and its related entities to LOGI, the release of security related to such loans and the waiver of any repayment of amounts due under such loans;

-- the stay and subsequent discontinuance and/or withdrawal of all claims and legal proceedings between the Company, Lekoil Nigeria and Mr Akinyanmi (and others); and

-- an agreement that Lekoil Nigeria and its associates will not purchase shares in the Company while the LOGI Loan is outstanding.

In addition, the Company has agreed to change its name to Fenikso Ltd and to cease using the "Lekoil" name or brand in connection with its continuing business.

In connection with the LNL Arrangements and on the terms of the Deed, the Company has also agreed with Savannah Energy Investments Limited ("Savannah Energy") to terminate the option agreement pursuant to which Savannah Energy has the option to take an assignment of a US$135 million loan between the Company and Mayfair Assets & Trust Limited ("Mayfair") (a subsidiary of Lekoil Nigeria) (the "Mayfair Loan").

The Company and Savannah Energy have also separately entered into an agreement on 7 December 2022 (the "SEIL Agreement") pursuant to which Savannah Energy will release its security interests over OPL 310 and Savannah Energy will surrender all of its shares in the Company, with the consideration for such share surrender, release of security and the termination of the Option Agreement being the payment of certain sums by the Company to Savannah Energy (including a portion of all amounts received by the Company pursuant to the LOGI Loan) (together, the "SEIL Arrangements" and with the LNL Arrangements, the "Transactions").

In view of the surrender of the Company's interests in shares in Lekoil Nigeria, the transfer of those of its subsidiaries involved in the operations of the Lekoil Nigeria group to Lekoil Nigeria and the transfer of certain loans granted to Lekoil Nigeria and its related entities to LOGI (such interests in the Lekoil Nigeria group being the "LNL Interests") and the size of the LNL Interests relative to the Company, the LNL Arrangements will result in a fundamental change in the business of the Company for the purpose of Rule 3.7 of the AQSE Rules and they are therefore conditional upon the approval of Shareholders, amongst other matters. That approval will be sought at an Extraordinary General Meeting of the Company which is expected to be held in late December 2022, details of which shall be notified in a circular to Shareholders to be issued on or around 9 December 2022. In accordance with the AQSE Rules, the Company's shares will be suspended from trading on AQSE until completion of the Transactions, which (subject to approval by Shareholders at the Extraordinary General Meeting) is expected to occur in late December 2022.

Background to and reasons for the Transactions

Background

The Company holds a 40% legal interest and a 90% economic interest in Lekoil Nigeria. Via its subsidiaries, Lekoil Nigeria has, among other interests, a 40% participating interest in the Otakikpo producing oil field and a 17.14% participating interest in exploration licence OPL 310. Following various equity capital raises since 2013, the Company has provided a number of inter-company loans to fund Lekoil Nigeria's operations.

The Company has been in dispute since early 2020 with Lekoil Nigeria in connection with a number of matters including the rights of the Company under the shareholders agreement in respect of Lekoil Nigeria and the various loans granted to Lekoil Nigeria and its related entities. As result of the disputes and the likelihood of recovery of the amounts due under such loans, the Company impaired its carrying value of such loans to approximately US$103.3 million as at 30 June 2022.

On 2 September 2021, the Company announced that it had entered into a convertible facility agreement (the "CFA1") with Hadron Master Fund (whose principal is Marco D'Attanasio), TDR Enterprises Ltd (a company controlled by Tom Richardson) and a non-related third party (together the "CFA1 Parties") to allow it to access up to GBP200,000 for working capital purposes. On 28 February 2022, the Company announced that Savannah Energy had entered into a convertible facility agreement (the "CFA2") and option agreement (the "Option Agreement") with the Company, together with the grant of certain related security by the Company over the loans owed by the Lekoil Nigeria group, in order to support the Company's restructuring.

Lekoil Nigeria brought legal proceedings against the Company seeking (among other remedies) orders to set aside CFA1, CFA2 and the Option Agreement with Savannah Energy and to set aside the issue of shares to the CFA1 Parties and Savannah Energy pursuant to those agreements. Additionally, the Company and Mr Akinyanmi have been in dispute regarding his termination as CEO of the Company and whether any amounts remain payable under a loan provided to him by the Company.

In order to resolve these differences, and with no admission of liability, the Company, Lekoil Nigeria, Mr Akinyanmi, Savannah Energy, the CFA1 Parties and the other shareholders of Lekoil Nigeria have entered into the Deed to agree to, among other things, the release and discharge of all relevant claims, the withdrawal of legal proceedings, surrenders of certain shares and other transactions, a new framework for their future relationship and fully and finally to resolve their differences, dispose of ongoing litigation and agree certain ancillary matters.

In connection with the resolution of such differences, the Company has also agreed with Savannah Energy to cancel the Option Agreement, whereby Savannah Energy had an option to take an assignment of the Mayfair Loan from the Company, and for Savannah Energy to surrender its entire shareholding in the Company (and release its security over certain assets of the Company), in consideration for the payment of approximately US$16.3 million to Savannah Energy.

The directors of the Company (the "Directors") consider that the proposed Transactions will allow the Company to move forwards without the additional costs of further legal proceedings in a highly uncertain funding environment. In addition, it will allow the Company to repay over US$2 million of liabilities that are due while allowing the Company to implement a new strategy for the benefit of shareholders. The Directors believe that the proposed terms of settlement are commercially advantageous, as they provide the Company with access to future cash-flow payments related to production from Otakikpo while also ending the costly disputes between the Company and Lekoil Nigeria. Additionally, the Company will be able to re-shape its shareholder base and reduce its expenses while it seeks to develop a new strategy in consultation with its remaining shareholders.

The implementation of these arrangements require the approval of Shareholders. If shareholders do not approve the relevant resolution at the Extraordinary General Meeting and completion of the Transactions does not occur, the Deed and the SEIL Agreement will be terminated and each party shall be entitled to reinstate and/or continue all relevant legal proceedings, while the Company will continue to incur significant costs with very limited assurance of being able to fund such proceedings, the risk of future insolvency and the possibility even in the event of success to recover any payments under the various loans owed by the Lekoil Nigeria group. Accordingly, the Directors believe that the proposed arrangements will provide greater certainty to the new direction of the Company and recommend that all Shareholders support the proposals.

Summary terms of the Transactions

Pursuant to the terms of the Deed, the Company has agreed to the following arrangements, subject to (among other matters) the passing of the Settlement Resolution at the Extraordinary General Meeting.

LNL Arrangements

Lekoil Nigeria has agreed to acquire the Ordinary Shares held by Mr Akinyanmi and certain persons associated with Lekoil Nigeria or Mr Akinyanmi, so as to increase its interest in the Company from 66,580,736 Ordinary Shares to 107,658,847 Ordinary Shares.

At Completion:

-- The Company shall surrender all of its shares in Lekoil Nigeria and transfer those of its subsidiaries involved in the operations of the Lekoil Nigeria group to Lekoil Nigeria;

-- Lekoil Nigeria shall surrender all of its shares in the Company, comprising 107,658,847 Ordinary Shares (the "LNL Settlement Shares"), representing approximately 14.2% of the issued shares in the Company;

-- LOGI shall enter into the LOGI Loan with the Company (in the amount of approximately US$51.9 million payable to the Company) in consideration for the Company transferring in part certain loans granted to Lekoil Nigeria and its related entities to LOGI, releasing any related security in respect of such transferred loans and waiving repayment of all remaining amounts due under such transferred loans;

-- Any and all amounts outstanding under any loan by the Company to Mr Akinyanmi shall be released in full;

-- The Company, Lekoil Nigeria, Mr Akinyanmi and Savannah Energy shall take all steps as may be necessary to discontinue or withdraw the various disputes between the parties, release and discharge any claims arising out of the various disputes and undertake not to commence any new claims in respect of the underlying matters;

-- The Company shall assign certain intellectual property rights to Lekoil Nigeria and shall cease to use the "Lekoil" name or brand (or any variation thereof) in its business or to hold out as having any interest in OPL 310, OPL 325, OPL 276 or Otakikpo following Completion; and

   --     The Lekoil Nigeria shareholders' agreement shall be terminated. 

The LNL Settlement Shares include certain shares held by those employees holding shares in the Company, including Mr Akinyanmi, which will be acquired by Lekoil Nigeria prior to Completion. Lekoil Nigeria and its associates, together with Mr Akinyanmi, have also undertaken not to purchase any shares in the Company from the date of the Deed until the LOGI Loan has been repaid in full.

The LOGI Loan shall be repaid by LOGI out of the proceeds of the liftings made under the offtake agreement with Shell Western (or any replacement offtake agreement), with the Company being entitled to receive approximately 8.65% of all such proceeds until the LOGI Loan has been repaid in full. Lekoil Nigeria and LOGI have agreed to grant certain security in respect of the repayment obligations under the LOGI Loan. The Company notes that current production at Otakikpo is approximately 7,000 barrels of oil per day, meaning that it would receive approximately 8.65% of the lifting proceeds of approximately one million barrels of oil per annum based on current production levels.

SEIL Arrangements

The Company entered into the Option Agreement with Savannah Energy granting it an option to be assigned the intercompany debt owed to the Company by Mayfair, its associated security related to OPL 310 and all rights and benefits of the Company with respect to the Mayfair Loan. A US$1 million payment is payable by Savannah Energy to the Company upon such exercise and assignment (which has not currently been exercised). Pursuant to the Option Agreement, the Company would be paid deferred consideration in the event that Savannah Energy obtains a working interest in OPL 310 (for example, upon enforcement of security for repayment of the Mayfair Loan) and OPL 310 is developed. Such deferred consideration (capped at US$50 million) is structured as a royalty of 0.5% on crude oil sales attributable to Mayfair's actual participating interest in OPL 310 (being a 17.14% participating interest).

Pursuant to the Deed, the Company has agreed to terminate the Option Agreement (and the associated security related to OPL 310).

Under the terms of a separate agreement with Savannah Energy, which is conditional upon the Settlement Resolution being approved by Shareholders, Savannah Energy shall surrender all of its shares in the Company (the "SEIL Shares"). Savannah Energy currently holds 179,997,756 Ordinary Shares. Savannah Energy has elected to convert GBP100,000 of the outstanding amount due under the CFA2 into Ordinary Shares, resulting in the issue of a further 20,000,000 Ordinary Shares to Savannah Energy at or prior to Completion in respect of such repayment and conversion.

In consideration for the surrender of Savannah Energy's interests in the existing and to be issued Ordinary Shares (representing approximately 25% of the issued and to be issued shares in the Company immediately prior to Completion), the termination of the Option Agreement, the release by Savannah Energy of any security interests in favour of it in respect of the Mayfair Loan and the release of all remaining amounts due under the CFA2, the Company shall enter into a loan agreement at or prior to Completion with Savannah Energy pursuant to which the Company shall agree to pay Savannah Energy certain upfront payments together with 25% of all amounts received by the Company from LOGI pursuant to the LOGI Loan, subject to a maximum total payment of approximately US$16.3 million. Savannah Energy has also undertaken not to exercise the Option Agreement prior to Completion (or the termination of the Deed, whichever is the earlier).

Other terms

It is expected that completion of the arrangements under the Deed will occur shortly following the receipt of the necessary approval of Shareholders at the Extraordinary General Meeting. The Deed is conditional upon (i) the relevant resolution being passed by Shareholders and (ii) the termination of the Option Agreement and release and discharge of certain security interests held by Savannah Energy over the Mayfair Loan (and certain other indebtedness), in each case by no later than 21 January 2023 (the "Long Stop Date") (or, at the discretion of Lekoil Nigeria, by no later than 30 business days after the Long Stop Date).

Issued Share Capital

In connection with the entry into the Deed and the SEIL Agreement and in satisfaction of certain outstanding directors' fees to Thomas Richardson and Marco D'Attanasio, the Company has agreed to issue a total of 10,616,438 Ordinary Shares prior to Completion to Thomas Richardson and Marco D'Attanasio. The Company has also agreed to issue a further 10,000,000 Ordinary Shares is satisfaction of other outstanding debts (including to one of the CFA1 Parties). Following the issue of such shares and the 20,000,000 Ordinary Shares to Savannah Energy noted above, the issued share capital of the Company shall comprise 799,394,177 Ordinary Shares immediately prior to Completion.

Following Completion and the surrender of the SEIL Shares and the LNL Settlement Shares, the issued share capital of the Company is expected to comprise 491,737,574 Ordinary Shares.

Based on the disclosures provided to the Company as at 5 December 2022 (the latest practicable date prior to the date of this announcement), the interests of the existing significant shareholders of the Company immediately following Completion are expected to be as follows:

 
 Shareholder                 Existing           Holding of            Ordinary         Holding of 
                      Ordinary Shares    Existing Ordinary    Shares following    Ordinary Shares 
                                                    Shares          Completion          following 
                                                                                       Completion 
 Savannah Energy 
  Investments 
  Limited(1)              179,997,756               23.72%                   0                 0% 
                    -----------------  -------------------  ------------------  ----------------- 
 Lekoil Nigeria 
  Limited(2)              107,658,847               14.19%                   0                 0% 
                    -----------------  -------------------  ------------------  ----------------- 
 Zion SPC - 
  Access Fund 
  SP                       74,377,015                9.80%          74,377,015             15.16% 
                    -----------------  -------------------  ------------------  ----------------- 
 Allan Gray 
  Investment 
  Management               48,947,756                6.45%          48,947,756              9.98% 
                    -----------------  -------------------  ------------------  ----------------- 
 Hadron Master 
  Fund                     46,025,000                6.06%          46,025,000              9.38% 
                    -----------------  -------------------  ------------------  ----------------- 
 IFM Independent 
  Fund Management          26,987,000                3.56%          26,987,000              5.50% 
                    -----------------  -------------------  ------------------  ----------------- 
 

(1) Excluding 20,000,000 Ordinary Shares to be issued to Savannah Energy prior to Completion.

(2) Including 41,078,111 Ordinary Shares acquired from Olalekan Akinyanmi and others.

Strategy in respect of the remaining Company in the event of the disposal of the LNL Interests

In the event that the disposal of the LNL Interests completes, the Company will comprise only of non-operating assets and will, under the AQSE Rules, be considered an enterprise company. The board of Directors (the "Board") expects to announce its revised strategy following Completion and having consulted with shareholders.

Use of Proceeds

The cash proceeds from the LOGI Loan will be used to pay certain creditors of the Company and the Company's payment obligations under the SEIL Arrangements. The balance will be used to pursue any future business opportunities to be determined by the Board or failing which the remaining funds shall be returned to Shareholders.

Change of Name

In connection with the LNL Arrangements, the Company has agreed to change its name and has agreed with Lekoil Nigeria that the Company's name will be changed to Fenikso Ltd, conditional on Shareholders' approval at the Extraordinary General Meeting (the "Change of Name").

If approved the Company's TIDM will change to "FNK" with effect from Completion.

Composition of the Board

To reflect the reduced operations of the Company following Completion, the Directors have determined to reduce the size of the Board while it considers the new strategy for the Company. The Directors expect that, following Completion, Guy Oxnard, Dipo Sofola and Adeoye Adefulu will resign from office as directors. It is also expected that Thomas Richardson will be appointed as interim Chairman with Pade Durotoye remaining as a non-executive director.

Further announcements regarding the proposed Board changes will be made as appropriate.

AQSE Rule 3.7

In accordance with AQSE Rule 3.7, the Transactions constitute a fundamental change of business of the Company. Following Completion, the Company would cease to own, control or conduct all or substantially all, of its existing business and will hold an interest in a loan due from LOGI.

Following completion of the Transactions the Company will become an enterprise company (for the purposes of the AQSE Rules) and as such will be required to make an acquisition or acquisitions which constitutes a reverse takeover under AQSE Rule 3.6 on or before the date falling two years from completion of the Transactions, failing which the Company's Ordinary Shares would then be suspended from trading on AQSE pursuant to AQSE Rule 5.1. Admission to trading on AQSE would be cancelled six months from the date of suspension should the reason for the suspension not have been rectified.

AQSE Rule 4.6

In accordance with AQSE Rule 4.6, the LNL Arrangements constitute a related party transaction with Lekoil Nigeria.

-- The Directors consider that, having exercised reasonable care, skill and diligence, the LNL Arrangements are fair and reasonable as far as the shareholders of the Company are concerned; and

In addition, in accordance with AQSE Rule 4.6, the SEIL Arrangements constitute a related party transaction with Savannah Energy.

-- The Directors consider that, having exercised reasonable care, skill and diligence, the SEIL Arrangements are fair and reasonable as far as the shareholders of the Company are concerned.

In accordance with AQSE Rule 4.6, the issue of 5,607,151 Ordinary Shares to Thomas Richardson in settlement of outstanding director's fees constitutes a related party transaction with such Director.

-- The Directors (excluding Thomas Richardson) consider that, having exercised reasonable care, skill and diligence, the issue of Ordinary Shares to Thomas Richardson is fair and reasonable as far as the shareholders of the Company are concerned; and

In addition, in accordance with AQSE Rule 4.6, the issue of 5,009,287 Ordinary Shares to Marco D'Attanasio in settlement of outstanding director's fees constitutes a related party transaction with such Director.

-- The Directors (excluding Marco D'Attanasio) consider that, having exercised reasonable care, skill and diligence, the issue of Ordinary Shares to Marco D'Attanasio is fair and reasonable as far as the shareholders of the Company are concerned.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

For further information, please visit www.lekoilplc.com or contact:

 
First Sentinel Corporate Finance Ltd (AQSE 
 Corporate Adviser) 
 Brian Stockbridge                               [phone] 
Tennyson Securities (Broker) 
 Peter Krens                                     [phone] 
                                             -------------------- 
 

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December 07, 2022 10:25 ET (15:25 GMT)