Prax Exploration & Production does not plan to increase the financial terms of the proposed acquisition of UK North Sea firm Hurricane Energy after reaching a deal to acquire Hurricane Energy in mid-March.
Hurricane has one asset, the Lancaster oil field, that produces from a single well (“P6”) and riser via the Aoka Mizu FPSO. As at December 31, 2022, the Lancaster Field's proved and probable reserves were certified by ERCE Equipoise Limited ("ERCE") to be 6.6 mmbbls.
As at March 14, production from Lancaster was 7,710 bopd with a rising water cut, at 52% on the same date.
Under the agreement announced in Mach, each Hurricane shareholder will be entitled to receive "firm proceeds" of 4.15 pence for each Hurricane Share, comprising the transaction dividend of 3.32 pence per share in cash (£66.1 million); and the cash consideration of 0.83 pence per share in cash (£16.5 million).
In addition, each Hurricane Shareholder will be entitled to receive the "Supplementary Dividend" of up to 1.87 pence per share in cash (£37.2 million); and a "Deferred Consideration Unit", which may deliver up to 6.48 pence per share in cash (£129.1 million), plus such amount of the Supplementary Dividend Amount which is not declared as a dividend prior to the Scheme Effective Date.
For the Hurricane directors to be able to declare the Supplementary Dividend in full, Hurricane will need to have sufficient cash resources, in particular it will need to have received the proceeds, as planned, from the oil lifting from the Lancaster field scheduled for late April 2023.
If the April Lifting Payment has not occurred by the Scheme Effective Date or Hurricane does not otherwise have sufficient cash resources to declare and pay the Supplementary Dividend in full, the directors intend to declare and pay as much of the Supplementary Dividend as is permissible by law.
In such circumstances, Hurricane explained in March, the balance, subject to receipt of cumulative proceeds from the sale of no less than 450,000 bbls of oil from the Lancaster Field, will be added to the Deferred Consideration Units.
If the Supplementary Dividend is declared and paid in full, Hurricane Shareholders will receive dividends totaling 5.19 pence per share (£103.4 million), payable within 14 days of the Scheme becoming Effective.
If only the Firm Proceeds are received by Hurricane Shareholders, the acquisition values the entire issued ordinary share capital of Hurricane at approximately £82.7 million.
In a statement on Monday, April 24, Hurricane said :”As of April 23, 2023 at least 495,000 barrels of oil are currently available for lifting in the FPSO, and the next lifting is scheduled for later in April. As significant delays to the lifting are only likely caused by either weather or other extreme circumstances the Hurricane Directors believe that it is highly probable that the full £37.2 million will become payable under the acquisition, either via the Supplementary Dividend or via the DCUs.
No Increase
In a statement on Monday, Prax said it considers the financial terms of the acquisition to be full and fair.
“The financial terms of the Acquisition are therefore final and will not be increased, save that Prax reserves the right to revise the financial terms of the Acquisition where: (i) there is an announcement of a firm intention to make an offer for Hurricane by any third party; or (ii) the Panel otherwise provides its consent.
“Under Rule 32.2 of the Code, the mix or the composition of the Acquisition, including the Firm Proceeds, the Supplementary Dividend and the Deferred Consideration Units may not be altered in any way,” Prax said.
Further, Prax said that if, on or prior to the Effective Date, any dividend, distribution, or other return of value, other than the Special Dividends, is declared, made, or paid or becomes payable by Hurricane, Prax will be required to reduce the Cash Consideration payable under the terms of the Acquisition for the Hurricane Shares by an amount equal to the aggregate amount of such dividend, distribution or other return of value.”
If the acquisition lapses, except with the consent of the panel, Prax will not be able to make an offer for Hurricane for at least 12 months.
Institutional Shareholder Services ("ISS") and Glass, Lewis & Co. ("Glass Lewis") have both issued supportive FOR recommendations, advising their institutional shareholder subscribers to vote IN FAVOUR of the resolutions necessary to approve the Scheme at the Court Meeting and General Meeting.
ISS and Glass Lewis are leading independent, third-party proxy advisory firms which provide proxy voting recommendations to pension funds, investment managers, mutual funds, and other institutional shareholders.
Prax also said it has received irrevocable undertakings from Crystal Amber and Kerogen to vote, or procure a vote, to approve the Scheme at the Court Meeting and vote, or procure a vote, in favour of the Resolutions at the General Meeting in respect of a total of 894,181,210 Hurricane Shares, representing approximately 44.89 per cent. of the ordinary share capital of Hurricane in issue on the latest practicable date.
Antony Maris, Chief Executive Officer of Hurricane, commented:
"Hurricane's Board continues to believe that the terms of the offer are fair and reasonable. We are very pleased to note the recently announced endorsements of the recommended acquisition by leading corporate governance advisors, ISS and Glass Lewis, which are in line with the irrevocable commitments of support from the company's two largest Shareholders. This proposed transaction is in the best interests of our shareholders and we look forward to updating shareholders on the progress of the recommended acquisition in due course."
Prax has ambitions to grow into a fully integrated oil and gas company, with Hurricane as its first step in fulfilling the Group’s production target of 50,000 boepd in the medium term.