Nido Petroleum Ltd. (ASX: NDO) and Otto Energy Ltd. (ASX: OEL) have executed a sale and purchase agreement (SPA) whereby Nido will acquire 100% of the shares in Galoc Production Co. WLL (GPC), the holder of Otto’s 33% working interest in the Galoc oil field, located in service contract 14C1 in the Philippines.
Under the terms of the SPA, Nido will pay Otto $108 million based on the value of GPC as of July 1, 2014. Nido will pay Otto a $10.8 million deposit and will assume all production rights and liabilities associated with Otto’s 33% working interest (including abandonment costs), with effect from July 1, 2014. Completion of the transaction is conditional on Otto shareholder approval.
The Otto board has unanimously recommended Nido’s cash offer, deeming it superior to the existing $101.4 million sale and purchase agreement for GPC entered into with Risco Energy Investments Pte Ltd. on Sept. 22. ASX has confirmed that Nido shareholder approval is not required for this transaction pursuant to Listing Rules 11.1.2 and 11.1.3.
Nido intends to fund the acquisition through a combination of existing cash reserves and debt. As part of the funding arrangements, Nido’s major shareholder, Bangchak Petroleum Public Co. Ltd. of Thailand, has committed to providing Nido a revolving debt facility on an arm’s length basis in order to provide Otto shareholders certainty of funding for the offer.
The proposed Bangchak facility agreement is for up to $120 million with an initial interest rate of 6% per annum plus LIBOR. The interest rate increases by 2% annually with a maximum rate of 12% plus LIBOR. The security package for the loan, which is conditional upon shareholder and other approvals, involves a second ranking charge over the company’s account for the receipts from Galoc production. Nido intends to seek shareholder approval for the loan security package at its next Annual General Meeting in 2015.
If Nido’s offer is successful, the company’s interest in the Galoc oil field will increase to 55.88% and it will assume operatorship of the project. The acquisition will increase Nido’s production base to more than 4,000 barrels of oil per day.
Risco has waived its right to match the Nido SPA, and the Risco SPA has been terminated. Similar to the terminated Risco transaction, completion of the Nido transaction is conditional on Otto shareholder approval. Otto will issue a Notice of Meeting seeking shareholder approval for the transaction, with a General Meeting to be held in January 2015.