Business news

Andes Energia PLC (“Andes” or the “Company”) (AIM: AEN; BCBA: AEN) is pleased to announce the conditional combination with Trefoil Holdings, the holding company that indirectly owns over 99.99% of Petrolera El Trébol S.A. (“PETSA”), the operating company for the oil and gas exploration and production business of Mercuria Energy Group Limited (“Mercuria EG”) in Argentina. The combination is to be effected through the acquisition of the entire issued share capital of Trefoil Holdings in consideration for the issue of 1,899,106,385 Consideration Ordinary Shares, up to 46,049,727 Deferred Consideration Shares, the Mercuria Warrants and rights to be issued the Settled Claim Shares to Upstream Capital, a subsidiary of Mercuria EG. The Consideration Shares to be issued to Upstream Capital will represent 75.38% of the Enlarged Share Capital with existing Andes Shareholders holding 24.62%. The resulting ownership of Mercuria EG in the Enlarged Group will be approximately 78%.

In addition, the Company announces proposed changes to the Board which will be chaired by Sir Michael Rake and its intention to rename the Enlarged Group as Phoenix Global Resources plc (AIM: PGR; BCBA: PGR).

The combination of the asset bases in Argentina is expected to create a stronger Enlarged Group with the potential to develop conventional and unconventional assets, particularly in Argentina. The Transaction is expected to generate economic, technical and operating synergies that the Directors believe will create one of the leading Argentinian independent exploration and production companies with significant exposure to the Vaca Muerta formation, a world class resource. The Enlarged Group will have the following strengths:

Scale to realise Argentine potential
• Over 10 million licenced gross acres in Argentina (of which over 5 million are operated)
• 63 million boe net working interest 2P reserves and production of over 11,500 net working interest boepd on average in 2016
• Balanced portfolio of existing production and near-term production growth potential from identified development opportunities from its conventional asset base as well as further growth potential from its unconventional assets which are predominantly in the Vaca Muerta formation

Strong, independent board
• Enlarged Group’s Board will be chaired by Sir Michael Rake
• In addition, Board will comprise: Chief Executive Officer, Anuj Sharma; Chief Financial Officer, Philip Wolfe; and seven further non-executive directors, of whom four will be independent
• Directors and Proposed Directors are committed to the highest standards of corporate governance

Financial resources to actively pursue the Vaca Muerta opportunity
• Work programme to be funded through Bridging and Working Capital Facilities Agreement with an affiliate of Mercuria EG, comprised of a Term Loan in the principal amount of approximately US$87 million and a revolving credit facility in the principal amount of approximately US$73 million, conditional on Completion and Admission
• Enlarged Group will have an improved financial profile with pro-forma 2016 revenues of US$181.9 million and pro-forma 2016 EBITDA of US$56.9 million
• Directors and Proposed Directors believe that the Enlarged Group will be in a better position to access additional capital

Highly experienced and qualified management and operating team
• Enlarged Group will have its corporate head office in London, country head office in Buenos Aires and a regional office in Mendoza
• Enlarged Group will have approximately 118 employees of whom 112 will be based in Argentina. Directors and Proposed Directors believe this represents one of the leading operating teams in Argentina
• Directors and Proposed Directors believe that the team has a proven record of success with a track record of growing reserves, production and cash flows - from 2013 to 2016, PETSA achieved a strong production growth record (31 per cent. compound annual growth rate on operated assets) in conventional production

Strong and growing production supporting potential for further growth
• Portfolio is diversified across hydrocarbon basins in Argentina
• Lower risk and mature proved producing reserves, accounting for 36 per cent. of 2P reserves on a net entitlement basis, provide a stable production base and present an opportunity for further conventional growth in addition to serving as a platform for unconventional growth opportunities
• Directors and Proposed Directors believe production from Enlarged Group’s gas reserves (28 per cent. of 2P reserves on a net entitlement basis), may allow it to benefit from Argentina’s attractive pricing mechanisms
• Directors and Proposed Directors expect many of the combined assets to have lower operating costs following Completion

Significant exposure to the Vaca Muerta formation
• In first quarter 2017, PETSA made a discovery in the Vaca Muerta formation in the Puesto Rojas area - resource study demonstrated potential of the Puesto Rojas licence, highlighting that it contains more than 400 million boe (best estimate) of recoverable resources
• Combined position of over 1 million gross acres in various concessions with Vaca Muerta potential with key Vaca Muerta assets in the Puesto Rojas, Corralera, and Mata Mora areas
• Vaca Muerta formation currently one of the few economically producing shale oil formations outside of North America with production of over 65,000 boepd
• Vaca Muerta formation is a key global target for upstream investment with approximately US$7 billion of investments confirmed globally in 2017, expectations for US$12-15 billion of investments in 2018 and expected investments in excess of US$20 billion annually thereafter

An active work programme of development and exploration drilling leading to potentially transformative platform
• Work programme on conventional assets is expected to deliver a doubling of net working interest production by the end of 2021
• Enlarged Group intends to proactively explore, appraise and make use of the world class potential of its unconventional resource base in the Vaca Muerta formation - current drilling programme in the Vaca Muerta formation includes drilling several wells by the end of 2018
• Work programme to be funded through existing debt facilities, the new facilities under the Bridging and Working Capital Facilities Agreement and cash flows from existing production and is expected to cost US$165 million on a net working interest basis until the end of 2018

Combination constitutes a reverse takeover under the AIM Rules requiring the approval of Independent Shareholders at a General Meeting – Independent Directors recommend that Independent Shareholders vote in favour of the Resolutions
• The Independent Directors and Nicolas Mallo Huergo recommend that Independent Shareholders vote in favour of the Waiver Resolution in respect of obligations under Rule 9 of the City Code
• The Independent Directors who own Ordinary Shares intend to vote in favour of the each of the Resolutions to be proposed at the General Meeting, in addition, Nicolas Mallo Huergo intends to vote in favour of each of the Resolutions (other than the Waiver Resolution). Following this announcement and the publication of the Admission Document, it is expected that the suspension in the trading of the Company’s Ordinary Shares will be lifted today. The current arrangements for the trading of the Ordinary Shares on the Buenos Aires Stock Exchange will remain in place. An Admission Document is being posted to shareholders, together with the Notice of General Meeting, and will be available shortly on the Andes Energia website, www.andesenergiaplc.com.ar. A General Meeting will be held at the offices of CMS Cameron McKenna Nabarro Olswang LLP, at Cannon Place, 78 Cannon Street, London EC4N 6AF at 10.00 a.m. on 9 August 2017. Application will be made for the Enlarged Share Capital to be admitted to trading on AIM, conditional on Completion. If Resolutions 1 to 3 are passed at the General Meeting, it is expected Admission will become effective and dealings in the Enlarged Share Capital will commence on AIM on 10 August 2017.

Nicolas Mallo Huergo, current Chairman of Andes Energia and future non-executive Director of Phoenix Global Resources said:
“The Transaction is expected to generate operating synergies and create a leading Argentinian independent exploration and production company with significant exposure to the Vaca Muerta formation, a world class resource play.”

“I am delighted that Sir Michael Rake has agreed to succeed me as Chairman of the new Board which is committed to the highest standards of corporate governance.”

Sir Michael Rake, proposed Chairman of Phoenix Global Resources said:
“I see great potential in Argentina as the political climate improves and becomes more pro-business. As a country, it is blessed with world class shale resources. With the scale, assets, financial resources and team the combination provides, I am confident the Enlarged Group will benefit from these encouraging trends.”

Anuj Sharma, CEO of Andes Energia said:
“I expect the combination to create a stronger independent exploration and production company, and one of the most attractive Vaca Muerta asset positions in Argentina. We have an active work programme of development and exploration drilling which would not only enable us to help deliver attractive growth, by developing the Company’s conventional reserve base, but also take forward our substantial unconventional resources including our position in the Vaca Muerta.”

Daniel Jaeggi, President of Mercuria Energy said:
“Building upon our long-term view on investment in energy in the Americas, we are pleased to announce this next step in our cooperation with Andes Energia. We first invested in Andes in 2013, and this brings our relationship to the next level. We look forward to the enlarged group developing and expanding its business in Argentina, notably its significant exposure to the world class Vaca Muerta shale. Mercuria is expecting to remain a significant long-term shareholder in Andes, and we have confidence in the Board of directors and management of the Company, under the supervision of Sir Michael Rake, to grow the Enlarged Group using the best corporate governance practices.”