Sound Energy divests Italian portfolio through acquisition by Saffron Energy

1/22/2018

MILAN -- Sound Energy, the African and European focused upstream gas company, has announced that it has entered into a binding conditional sale and purchase agreement with Saffron Energy Plc under which it is proposed that Saffron acquires Sound Energy's portfolio of Italian interests and permits through the acquisition by Saffron of the entire issued share capital of the Company's wholly owned subsidiary, Sound Energy Holdings Italy Limited (SEHIL). SEHIL holds all of Sound Energy's Italian oil and gas interests through its own wholly owned subsidiary, Apennine Energy SpA (APN). It is proposed that Saffron will be renamed Coro Energy plc. 

The Binding Agreement constitutes the first part of the transaction envisaged by the heads of terms announced on Oct. 5,2017 (the "Heads of Terms") and the acquisition of SEHIL by Saffron will result in the combination of the Italian oil and gas portfolios of Sound Energy and Saffron (the "Proposed Transaction"). 

The Binding Agreement is conditional on, inter alia, completion of a firm and conditional placing by Saffron (which will be subject to shareholder approval) to raise funds for working capital, the approval of shareholders of Saffron and re-admission of the entire issued, and to be issued, share capital of Saffron to trading on the AIM market of the London Stock Exchange plc (AIM), as well as the approval by Sound shareholders of the Sound Capital Reduction (as defined below). It is currently expected that these conditions will be satisfied by the end of April 2018. 

Under the Binding Agreement, and subject to Saffron shareholders approving the issue of new shares by Saffron, the consideration for the disposal of SEHIL will be fully satisfied through the issue of 185,907,500 new ordinary shares of £0.001 each in the capital of Saffron (the "Consideration Shares"), subject to any rounding of fractional entitlements. 

The Consideration Shares are intended to be issued by Saffron directly to Sound Energy's shareholders, pro rata to their holdings of Sound Energy shares on a record date (the "Repayment Record Date") expected to be set as March 26, 2018, with Saffron being bound to issue the Consideration Shares pursuant to the terms of a deed poll (the "Deed Poll") to all Sound Energy shareholders on the record at the Repayment Record Date (the "Repayment Record Date Shareholders"). Because the issuance of the Consideration Shares to Sound Energy shareholders in consideration for the transfer by the Company of the shares in SEHIL to Saffron will constitute an indirect capital repayment by Sound to its shareholders, Sound Energy will propose a capital reduction (the "Sound Capital Reduction"). The issuance of the Saffron shares directly to Sound Energy's shareholders will not be possible unless the Sound Capital Reduction receives Sound Energy shareholder approval of the same, at a general meeting to be convened on Feb. 8, 2018. A circular to Sound Energy shareholders convening the general meeting and containing details of the Binding Agreement and the proposed Capital Reduction will be posted in the coming days. 

Under the terms of the Binding Agreement, Sound Energy will retain: (i) its economic rights to receive the proceeds of any future sale of the land comprising the Badile permit and situated in the Piedmont Lombard basin in northern Italy owned by SEHIL (the "Badile Land"), which had an unaudited carrying value of £1.6 million as at June 30, 2017; and (ii) the benefit of expected SEHIL Italian VAT receivables totaling €4.0 million linked to Badile drilling costs (the "VAT"). Under the Proposed Transaction, Saffron has undertaken to remit the net proceeds of the Badile Land sale and the VAT to Sound Energy on receipt by SEHIL. 

Furthermore Saffron has agreed to grant Sound an overriding royalty of 5% on all revenue that may be derived from any wells drilled on the exploration license D.R.74 AP, colloquially referred to as 'Laura'. 

As at June 30, 2017 APN had unaudited total assets of £11.0 million inclusive of the Badile Land and the VAT. APN generated revenues of £0.8 million and a loss before tax of £4.9 million in the year ended Dec. 31, 2016 and unaudited revenues of £0.4 million and an unaudited loss before tax of £14.5 million in the six months ended June 30, 2017.

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