Aleem Khan

Aus­tralia's Range Re­sources Ltd, an oil and gas op­er­a­tor in the cen­tral Trinidad, will merge with an­oth­er Aus­tralian oil and gas com­pa­ny, In­ter­na­tion­al Pe­tro­le­um.

Range is quot­ed on the Aus­tralian (ASX) and Lon­don stock ex­changes (LSE). In­ter­na­tion­al Pe­tro­le­um trades on the Aus­tralian stock ex­change. Both com­pa­nies had been los­ing mon­ey.

For the year end­ed De­cem­ber 31 2012, In­ter­na­tion­al Pe­tro­le­um gen­er­at­ed rev­enue of US$0.1 mil­lion and a loss be­fore in­come tax of ap­prox­i­mate­ly US$9.8 mil­lion. This com­pares with Range's full year rev­enue of ap­prox­i­mate­ly US$31 mil­lion and loss be­fore tax of ap­prox­i­mate­ly US$12 mil­lion for the year end­ed 30 June 2012.

"Range pro­pos­es to merge with In­ter­na­tion­al Pe­tro­le­um on a ra­tio of three Range or­di­nary shares for every two In­ter­na­tion­al Pe­tro­le­um or­di­nary shares (3:2 ba­sis) sub­ject to var­i­ous con­di­tions, in­clud­ing fi­nal due dili­gence and reg­u­la­to­ry ap­provals," Pe­ter Lan­dau, Range's ex­ec­u­tive di­rec­tor, said in a state­ment on April 24. Based on Range's cur­rent share price (on the LSE's Al­ter­na­tive In­vest­ment Mar­ket (AIM)), this val­ues In­ter­na­tion­al Pe­tro­le­um at ap­prox­i­mate­ly AU$105 mil­lion, Lan­dau said.

In­ter­na­tion­al Pe­tro­le­um holds high­ly prospec­tive as­sets in Rus­sia, Kaza­khstan, and Niger with to­tal 3P (proved, prob­a­ble and pos­si­ble) re­serves of 233 mil­lion bar­rels (mmb­bls) of oil and best es­ti­mate prospec­tive re­sources of 761 mmb­bls of oil and 157 bil­lion cu­bic feet (bcf) of gas.

"The merg­er will cre­ate a lead­ing ASX and AIM list­ed oil and gas com­pa­ny with a strong pro­duc­tion growth pro­file from the on­go­ing de­vel­op­ment of its sig­nif­i­cant re­serves and re­sources base. The key near term fo­cus of the merged en­ti­ty will be the ex­pan­sion and de­vel­op­ment of the projects in Trinidad, Rus­sia and on­shore Africa," Lan­dau said.

The merged en­ti­ty would hold es­ti­mat­ed 1P (proved), 2P (proved and prob­a­ble) and 3P re­serves of 23.6 mmb­bls, 100 mmb­bls and 264 mmb­bls of oil, re­spec­tive­ly, and best es­ti­mate prospec­tive re­sources of 802 mmb­bls of oil and 156 bcf of gas.

Com­bined cur­rent pro­duc­tion for the merged en­ti­ty would be ap­prox­i­mate­ly 1,000 bar­rels of oil per day (bopd), with a tar­get of in­creas­ing pro­duc­tion to an es­ti­mat­ed 10,000 bopd from con­ven­tion­al op­er­a­tions and an ad­di­tion­al es­ti­mat­ed 3,000 bopd from un­con­ven­tion­al op­er­a­tions by the end of 2015.

The com­pa­ny will be look­ing to ap­point Chris Hop­kin­son as man­ag­ing di­rec­tor of the merged en­ti­ty. Hop­kin­son is cur­rent­ly chief ex­ec­u­tive of­fi­cer (CEO) of In­ter­na­tion­al Pe­tro­le­um and has over 23 years' ex­pe­ri­ence in the oil and gas in­dus­try, the state­ment said. The board of In­ter­na­tion­al Pe­tro­le­um has unan­i­mous­ly agreed to rec­om­mend the pro­posed merg­er in the ab­sence of a su­pe­ri­or pro­pos­al, the state­ment said.

Key as­sets for merged en­ti­ty

Range Re­sources holds 100 per cent of three on­shore pro­duc­tion li­cens­es, and a ful­ly op­er­a­tional drilling sub­sidiary in Trinidad. Cur­rent, in­de­pen­dent­ly as­sessed proved (1P) re­serves in place of 17.5 mm­bls, and 3P re­serves of 25.2 mm­bls and an ad­di­tion­al 40.5 mm­bls of un­risked best es­ti­mate prospec­tive re­sources.

Cur­rent pro­duc­tion across the fields stands at around 800 bopd, with a num­ber of ac­tiv­i­ties cur­rent­ly un­der­way (util­is­ing Range's own drilling and workover equip­ment) aimed at in­creas­ing con­ven­tion­al pro­duc­tion to 6,000 bopd in 2015 along with 3,000 bopd from the com­pa­ny's wa­ter­flood projects. Wa­ter­flood­ing is a method of sec­ondary re­cov­ery in which wa­ter is in­ject­ed in­to the reser­voir for­ma­tion to dis­place resid­ual oil.

In­ter­na­tion­al Pe­tro­le­um holds in­ter­ests in five projects in Rus­sia, name­ly the Kransnolenin­sky project (75 per cent), Yuzh­no-Sar­dakovsky project (100 per cent), Za­pad­no-Novo­molodezh­ny project (100 per cent), Yanchin­sky project (100 per cent) and Druzh­ny project (75 per cent).

Dur­ing the pe­ri­od Au­gust to De­cem­ber 2012, In­ter­na­tion­al Pe­tro­le­um pro­duced 25,000 bar­rels of oil from well num­ber 52 at the Za­pad­no-Novo­molodezh­ny project at an av­er­age flow rate of 197 bopd, which is pro­ject­ed to in­crease to 300 bopd with a planned pump up­grade this quar­ter.

Fol­low­ing the planned com­ple­tion of 16 kilo­me­tres of pipeline dur­ing the fourth quar­ter 2013 or the first quar­ter of 2014, an ad­di­tion­al 10 wells are pro­posed to be put in­to pro­duc­tion, which are pro­ject­ed to in­crease pro­duc­tion by a fur­ther 4,000 bopd, the state­ment said. An ad­di­tion­al 20 well tar­gets have been mapped, pro­vid­ing ex­cel­lent po­ten­tial to fur­ther in­crease pro­duc­tion.

In De­cem­ber 2012, In­ter­na­tion­al Pe­tro­le­um was award­ed pro­duc­tion shar­ing con­tracts ("PSC") over four high­ly prospec­tive li­cens­es in the south east of Niger: Man­ga 1, Man­ga 2, Ab­o­rak and T�n�r� Ouest, cov­er­ing a com­bined area of over 70,000 square kilo­me­tres, the state­ment said.

In­ter­na­tion­al Pe­tro­le­um said the blocks "are lo­cat­ed in the high­ly sought-af­ter West African Rift Sub­sys­tem, which is a com­po­nent of the West­ern Cen­tral African Rift Sys­tem and in­clude parts of the Ter­mit and N'Dgel Ed­gi rift basins. Re­cent­ly in­creased ac­tiv­i­ties by a range of in­ter­na­tion­al or­gan­i­sa­tions have high­light­ed the sig­nif­i­cant un­tapped po­ten­tial of this vast­ly un­der­ex­plored re­gion."

Lan­dau said: "Range Re­sources and In­ter­na­tion­al Pe­tro­le­um have ex­cel­lent project and man­age­ment syn­er­gies, with ad­vanced oil and gas projects across East­ern Eu­rope, Trinidad, Cen­tral Asia, Latin Amer­i­ca and Africa. The merged en­ti­ty will have sol­id oil and gas pro­duc­tion that is tar­get­ed to in­crease sub­stan­tial­ly, backed by a con­sid­er­able re­serve and re­source base. The pro­posed man­ag­ing di­rec­tor, Chris Hop­kin­son has im­mense tech­ni­cal and op­er­a­tional ex­pe­ri­ence which will dri­ve the merged com­pa­ny's pro­duc­tion growth in the short and medi­um term."

Range said In­ter­na­tion­al Pe­tro­le­um's pro­duc­tion as­sets in Rus­sia will com­ple­ment Range's "own core Trinidad as­sets in build­ing a very sig­nif­i­cant pro­duc­tion base to grow from. In­ter­na­tion­al Pe­tro­le­um's re­cent­ly ac­quired as­sets in the African na­tion of Niger will al­so be a strong ex­plo­ration up­side fit with our own port­fo­lio of large po­ten­tial on­shore projects."

More ro­bust com­pa­ny

The state­ment said the merg­er will build "a stronger, more ro­bust com­pa­ny with greater fi­nan­cial and tech­ni­cal re­sources, with a par­tic­u­lar fo­cus on ap­ply­ing its on­shore ex­plo­ration and de­vel­op­ment ex­per­tise to grow­ing pro­duc­tion from its pipeline of projects.

"We will be able to share peo­ple and tech­ni­cal re­sources in or­der to max­imise re­turns for our share­hold­ers. Range will al­so pro­vide In­ter­na­tion­al Pe­tro­le­um share­hold­ers with greater liq­uid­i­ty by our dual list­ings on the Aus­tralian Stock Ex­change and AIM mar­ket in Lon­don. We feel con­fi­dent our re­spec­tive share­hold­ers will be ex­cit­ed by the val­ue cre­at­ing op­por­tu­ni­ties that will be gen­er­at­ed through this trans­ac­tion."

Range has con­di­tion­al­ly agreed with the board of di­rec­tors of In­ter­na­tion­al Pe­tro­le­um to merge with In­ter­na­tion­al Pe­tro­le­um util­is­ing a ra­tio of three Range Re­sources or­di­nary shares for every two In­ter­na­tion­al Pe­tro­le­um or­di­nary shares (3:2 ba­sis).

Ac­cord­ing to the state­ment, "the merg­er would be un­der­tak­en by way of Range ac­quir­ing all the is­sued cap­i­tal of In­ter­na­tion­al Pe­tro­le­um. Sub­ject to var­i­ous con­di­tions, this would be done through ei­ther an off-mar­ket scrip takeover of­fer to In­ter­na­tion­al Pe­tro­le­um share­hold­ers or a pro­posed scheme of arrange­ment to be vot­ed on by In­ter­na­tion­al Pe­tro­le­um share­hold­ers."

Un­der ASX rules, takeovers may be on-mar­ket or off-mar­ket. In an off-mar­ket bid, each share­hold­er in the tar­get com­pa­ny re­ceives a let­ter of of­fer from the bid­der. Share­hold­ers whom wish to sell their shares to the bid­der sign and re­turn the let­ter. The of­fer may be cash, scrip (shares in the bid­der), or a mix­ture of cash and scrip.

Range to lend In­ter­na­tion­al Pe­tro­le­um US$15m

The pro­posed merg­er would al­so be made on the ba­sis that two di­rec­tors from In­ter­na­tion­al Pe­tro­le­um, (Si­mon) Christo­pher Hop­kin­son and Pierre Godec, would be in­vit­ed to join the Range board on com­ple­tion of the merg­er. The com­po­si­tion of the board of the new en­ti­ty would then com­prise: Sir Sam Jon­ah (cur­rent Range non-ex­ec­u­tive chair­man); Chris Hop­kin­son (cur­rent In­ter­na­tion­al Pe­tro­le­um di­rec­tor and pro­posed man­ag­ing di­rec­tor); Pe­ter Lan­dau (cur­rent Range ex­ec­u­tive di­rec­tor); An­tho­ny East­man (cur­rent Range fi­nance di­rec­tor); and Pierre Godec (cur­rent In­ter­na­tion­al Pe­tro­le­um non-ex­ec­u­tive di­rec­tor); Mar­cus Ed­wards Jones (cur­rent Range non-ex­ec­u­tive di­rec­tor).

Range said it has re­ceived com­mit­ments from a num­ber of in­sti­tu­tion­al in­vestors to raise ap­prox­i­mate­ly AU$20 mil­lion through the is­sue of 338.983 mil­lion Range or­di­nary shares. Ap­pli­ca­tion will be made for the place­ment shares to be ad­mit­ted for trad­ing on the ASX and AIM mar­kets, the state­ment said. Funds raised through the place­ment will be used to fund a se­cured loan to In­ter­na­tion­al Pe­tro­le­um and for op­er­a­tional and work­ing cap­i­tal re­quire­ments.

"Range has agreed to ad­vance a to­tal of US$15 mil­lion to In­ter­na­tion­al Pe­tro­le­um by way of a se­cured loan in the com­ing days," the state­ment said. "In­ter­na­tion­al Pe­tro­le­um will use these monies to re­pay debt and meet work­ing cap­i­tal re­quire­ments. Se­cu­ri­ty will be pro­vid­ed over In­ter­na­tion­al Pe­tro­le­um's Russ­ian as­sets."

The loan will bear a coupon in­ter­est rate of 8.0 per cent per an­num and in the event that the pro­posed merg­er is not com­plet­ed, will be re­payable with­in 12 months.

Range an­tic­i­pates it will pro­vide de­tails of the struc­ture of the merg­er pro­pos­al (ie takeover bid or pro­posed scheme of arrange­ment) to­geth­er with an agreed takeover bid or merg­er im­ple­men­ta­tion agree­ment with­in ap­prox­i­mate­ly four weeks. This would con­tain an agreed tar­get timetable for the merg­er trans­ac­tion. The com­pa­ny said the prepa­ra­tion of the for­mal bid or scheme doc­u­men­ta­tion would then be fi­nalised as quick­ly as prac­ti­ca­ble for send­ing to In­ter­na­tion­al Pe­tro­le­um share­hold­ers.