DNO ASA, the Norwegian oil and gas operator focussed on the Middle East and the North Sea, has entered into a USD 117.25 million transaction agreement in accord to which RAK Petroleum will transfer its ownership of Mondoil Enterprises to DNO. The all-share transaction encompasses Mondoil Enterprises LLCs 33.33% indirect interest in privately held Foxtrot International LDC whose principal assets are operated stakes in offshore production of gas and associated liquids in Cote d’Ivoire (also known as Ivory Coast), forming a foothold for DNO in West Africa.
The transaction is effective from January 1, 2022. It covers a transfer of 100% of Mondoil Enterprises share capital valued at USD 95 million, including 9.09% indirect working interest in Block CI-27 and 8% in Block CI-12 both held through the ownership in Foxtrot International, and USD 22.25 million comprising USD 21 million in cash and USD 1.25 million in working capital.
Share issuance
DNO will issue 78,943,763 shares as consideration at a share price of NOK 14.38 (USD 1.46). The share price is based on the dividend adjusted weighted average share price of DNO prior to the transaction agreement date over the fifteen trading days and the average USD/NOK exchange ratio reported by Norges Bank over the same trading period.
Bjorn Dale, President/Managing Director at DNO ASA said that as DNO targets expansion beyond the Kurdistan region of Iraq and the North Sea, the move into Cote d’Ivoire is a significant initial step into an extremely prospective region offering a comprehensive set of growth opportunities through acquisition of producing fields, development assets and exploration licenses. The firm is now evaluating additional opportunities in the region, Dale added.
Foxtrot International maintains a 27.27% interest in and operatorship of Block CI-27 offshore Cote d’Ivoire comprising the country’s largest reserves of gas, produced together with condensate and oil, from four offshore fields tied back to two fixed platforms, meeting more than three-quarters of the country’s gas requirements.
Foxtrot International also functions an exploration licence offshore Cote d’Ivoire, Block CI-12, in which it retains a 24% interest.
Mahi gas field
In early 2020, the Block CI-27 joint venture embarked on a two-year, USD 350 million field development and onshore facilities construction project to supply gas to two new power stations in relation to the signature of amendments and extension of the production sharing contract and the gas sales contract to 2034.
Gas produced from these fields is transported by pipeline to fuel power stations in Abidjan pursuant to a gas sale and purchase agreement imposed in June 1999 and at the right time augmented to 140 million cubic feet per day with a base price of USD 6.00 per MMBtu, subject to an indexation formula which has elevated the current price to USD 6.47 per MMBtu.
In early 2020, the Block CI-27 joint venture embarked on a two-year, USD 350 million field development and onshore facilities construction project to supply gas to two new power stations. in relation to the signature of amendments and extension of the production sharing contract and the gas sales contract to 2034.
DNO funding from cash flow
Capital investments have been funded by cash flow from operations. This work is nearing completion following the drilling of three new and two side-track wells – the last well in the programme, a side-track, is currently making progress.
This additional processing and well capacity are slated to increase gas supply to over 230 million cubic feet each day, subject to well performance and electricity sector demand. Over the period of the expansion, the drilling of another two wells is premeditated to preserve the higher production capacity of the license. In the first half of 2022, gross sales averaged two hundred million cubic feet of gas and 1,500 barrels of oil and condensate in a single day. Oil and condensate (and limited quantities of gas) are vended to the local refinery at inaccessible prices.
RAK Petroleum announced that the transaction is subject to RAK Petroleum distributing, over its DNO shareholding capital repayment, involving the transaction consideration shares to its investors. This progression is anticipated to be completed in October 2022.
DNO will obtain 26,269,183 number of own shares from its 5.1 percent shareholding in RAK Petroleum which it will retain as treasury shares.
Shareholder authorisation
Due completion of the transaction is conditional on approval by the shareholder at an extraordinary general meeting of DNO resolving to issue the consideration shares. The formal notice of the general meeting of DNO to be held on September 13, 2022, is attached, and delivers further information on the proceedings as well as a description of the terms and conditions of the transaction agreement.
RAK Petroleum will also hold an extraordinary general meeting to pursue shareholder approval of the capital repayment plan.
DNO has steered a due diligence of the assets to be acquired backed by third-party assessment of reserves and resources. The transaction has been negotiated by the independent members of DNO’s Board of Directors who, in addition to the attractive business merits also considered the benefit of increasing the business’s free float to appeal institutional investors and supplementing DNO’s gas exposure to lessen its carbon footprint. Pareto Securities AS has been retained as financial advisor to DNO and has presented the independent directors with a fairness opinion.