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Ann: GENERAL: AOR: Mosman announces proposed acquisition of...

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    • Release Date: 26/08/15 16:25
    • Summary: GENERAL: AOR: Mosman announces proposed acquisition of operating assets
    • Price Sensitive: No
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    					AOR
    26/08/2015 16:25
    GENERAL
    NOT PRICE SENSITIVE
    REL: 1625 HRS Aorere Resources Limited
    
    GENERAL: AOR: Mosman announces proposed acquisition of operating assets
    
    25 August 2015
    Mosman Oil and Gas Limited
    ("Mosman" or the "Company")
    Proposed acquisition of NZ producing oil and gas assets from Origin Energy
    Ltd
    Further to recent announcements on a potential acquisition, Mosman Oil and
    Gas Limited (AIM: MSMN) the New Zealand ("NZ") and Australia focussed oil
    exploration and development company, today provides further information on
    the proposed acquisition being the proposed acquisition of NZ producing oil
    and gas assets which include the Rimu, Kauri and Manutahi fields from Origin
    Energy Limited ("Origin") (the "Project" or the STEP Project").
    It is proposed that the Project will be acquired for a total consideration of
    NZ$10 million (approximately ?4.2 million). Subject to funding Mosman is
    currently expected to own a 40% interest in the Project. Mosman expects to
    partner with a privately owned independent oil company, which will acquire
    the balance of the project interest.
    The proposed acquisition remains subject to the Company entering into
    acquisition documentation and Mosman will provide further updates in due
    course.
    Proposed Acquisition Highlights
    - Proposed Acquisition of onshore NZ oil and gas assets.
    - The Project is expected to be operated under a joint operating agreement
    ("JOA") and Mosman is expected to be the operator. The assets being acquired
    include the Rimu Production Station and two petroleum mining permits. The
    Project is expected to be renamed the South Taranaki Energy Project ("STEP").
    
    - Total expected consideration of NZ$10 million (approximately ?4.2 million)
    to be paid in two tranches, the first tranche of NZ$7 million is expected to
    be payable upon completion of the acquisition and the second tranche of NZ$3
    million is expected to be due six months following completion. A 5% deposit
    will be paid by Mosman upon execution of the relevant SPA. Mosman's total
    contribution towards the consideration for its currently expected 40%
    interest in the acquisition is expected to be NZ$4 million (approximately
    ?1.68 million), the first tranche being NZ$2.8m (approximately ?1.2m) and the
    second tranche being NZ$1.2m (approximately ?0.5m). Mosman's first tranche of
    consideration will be reduced by the deposit of NZ$0.5M (approximately
    ?0.2m), which is expected to be paid by Mosman.
    - The Project assets include fully operational and established oil and gas
    processing facilities, equipment, permits, excellent infrastructure,
    assignment of key employee contracts and the assignment of relevant
    commercial contracts including oil and gas sales contracts. The facilities
    were the subject to a major refurbishment in 2014 and since restart in
    October 2014 have been producing an average 603 boepd. *
    - Origin is divesting the assets following a strategic review that the assets
    will be a better fit with a smaller Operator
    - STEP currently produces oil, condensate, gas, LPG and electricity, which
    deliver several revenue streams with payments being received in both US$ and
    NZ$. The Project also includes:
    o 2P reserves of 1.9 Bcf gas and 1.4 MMbbl oil*
    o 2C resources of 13.7 Bcf gas and 4.1 MMbbl oil*
    o Prospective resources upwards of 179Bcf and 166MMbls*
    - Historically the Project has produced over 10 Bcf (10.9 PJ) gas and 1.58
    MMbbl oil*
    - Current production of 603 boepd *(average production from October 2014 to
    July 2015) generates revenue of approximately NZ$8m per annum at current oil
    price and exchange rates.
    - Mosman has identified 12 low-cost projects that are expected to initially
    significantly increase production at an estimated cost of NZ$ 2.6 million.
    - Mosman intends to finance the proposed acquisition through a combination of
    existing cash, sale of royalty on future production, and debt. In addition,
    equity may be raised for the acquisition or for working capital and to
    accelerate development of the Project.
    - The proposed acquisition, when agreed is expected to be conditional upon a
    number of conditions precedent including; Mosman providing reasonable
    assurance of its financial capability to pay the total
    consideration due for the Project assets on or before completion and the
    granting of certain approvals from the NZ Government before settlement.
    *Represents numbers supplied by the vendor that have been subject to due
    diligence by Mosman. Prepared to be consistent with the Society of Petroleum
    Engineers definitions as set out in Appendix 2
    The Board of Mosman is well aware of the current oil price; volatility of oil
    price; and general equity market conditions. The STEP Project is being
    pursued for the following reasons.
    - The oil price has made quality assets available at a good price. This is
    possibly the best time to acquire reserves and production, both of which are
    attributes of the proposed acquisition
    - The proposed acquisition is in NZ$, which has seen an overall fall against
    the Pound and the US$ recently.
    - The oil sale price from production from the STEP is linked to Brent oil
    pricing, whilst the recent reduction in Brent oil prices is large in US$; it
    is moderated in NZ$ terms by the weaker NZ$.
    - This project currently produces more gas than oil; and gas is sold in the
    domestic market priced in NZ$, offsetting NZ$ operating costs.
    - The proposed acquisition, following execution of the relevant
    documentation, will not be completed for some months, and should the oil
    price experience further volatility then the following effects/conditions
    apply:
    o if the oil price increases, then revenues will be higher and focus will be
    on increasing oil production
    o if the oil price falls below, and remains below, US$40/bbl for a period of
    15 consecutive business days at any time between the date of execution of the
    agreement and the settlement, there is expected to be a requirement for
    parties to meet and discuss such an event.
    - In any event, following the initial 12 low cost projects, there is further
    potential in the short to medium term for production to be increased at low
    cost from existing wells funded from operational cash flow.
    - Larger production growth projects in future can be considered and funded
    from cash flow as/when oil prices increase.
    The Chairman of Mosman, John W Barr, said: "The proposed STEP Project is
    expected to be a transformational deal for Mosman as it is expected, upon
    agreement of the relevant documentation and completion, to deliver immediate
    production, reserves, facilities and cash flow. Numerous opportunities to
    increase production in the short term post completion have been identified
    and there is also significant upside production growth in the further
    development of the producing Manutahi oil field that has an identified oil
    originally in place figure of 30 million bbls.*
    "We look forward to providing a further update in the near term when the
    documentation for the proposed acquisition has been agreed."
    Historical Financial Information
    The STEP Project forms part of Origin's NZ operations which in turn are part
    of Origin's overall oil and gas operations. In addition, Origin applies a
    distribution of overheads to its various operations. Accordingly it has not
    been possible to isolate the STEP operations as a discrete financial
    reporting centre independent of the current corporate structure.
    Mosman has prepared a ground up cash flow financial model taking into account
    current production; future production potential; oil and gas prices, exchange
    rates; fixed and variable costs; and operation development requirements such
    as the identified 12 low-cost projects that could potentially significantly
    increase production with an estimated cost of NZ$ 2.6 million following
    completion of the proposed acquisition.
    The Mosman cash flow model is dependent on many variables including the
    matters referred to above. It will also be influenced by the final finance
    arrangements which include existing cash, sale of royalty on future
    production, and debt.
    Given the planned reduction in current corporate overheads, and the
    anticipated operational success of the short term identified 12 low-cost
    upgrades referred to in this announcement, Mosman expects that the Project
    will be largely self-funding, apart from the NZ$2.6 million of investment
    referred to above.
    Joint Operating Agreement
    Mosman expects to enter into a joint operating agreement with its partner on
    the STEP Project.
    The JOA is expected to provide for the establishment of a joint operating
    committee ("JOC"), to provide for the overall supervision and direction of
    joint operations on the Project. Mosman and its partner will each appoint a
    representative to the JOC. All decisions, approvals and other actions of the
    JOC will require the representatives of both Mosman and its partner to vote
    in favour.
    Mosman is expected to act as operator of the Project and will do so in
    accordance with the directions of the JOC.
    Management and Operational Continuity Plan in Place
    Upon agreement of the proposed acquisition, Mosman is expected to be
    appointed the operator of the JOA and as part of that process it expects to
    retain key operational staff.
    Mosman's transition plans for the proposed acquisition provide it and
    stakeholders with the operational guidelines to manage the transition safely
    and efficiently and also addresses the following:
    o Short term (three months) to full (six months) transition planning;
    o Company resources and structure requirements;
    o Scheduling and financial estimates;
    o NZ regulatory health safety and environmental compliance;
    o Plant integrity, PECPR requirements;
    o Seamless production and revenue streams;
    o Efficient transfer of all information.
    Initial Production and Operational Upgrades
    Having completed detailed due diligence, Mosman's technical team has
    identified areas that would have the potential to significantly increase
    production levels within a reasonable time period.
    As proposed operator, Mosman has prioritised and verified a list of
    opportunities that are expected to increase production, following completion
    of the acquisition, quickly and at modest cost, some of which are as simple
    as changing level sensors to avoid false alarms.
    Initial potential production upside projects include:
    - Restoring production to shut-in wells (workovers);
    - Minor clean-up operations such as coiled tubing;
    - Improving Manutahi D plant uptime by connecting additional (existing) tanks
    to increase retention time for solids settling, reducing the frequency of
    production shut down.
    In the medium term, Mosman, as operator, would increase production via:
    - Well projects targeting increased production at medium cost such as
    re-completions, water flood and facility de-bottlenecking.
    - Larger investment projects, such as development drilling campaigns.
    Subsequent Production Growth Opportunities
    The oil in the Manutahi field is in a good quality reservoir at modest depth
    of 1,100m. The initial development wells were vertical wells. One of these
    has been a steady producer for more than ten years. Subsequent wells were
    completed with gravel packs, which was not successful as they became packed
    off with fine solids.
    In a thermal water flood pilot containing one central oil producer and two
    water injector wells, Origin has also demonstrated that horizontal wells are
    effective producers flowing at several hundred of barrels of oil per day.
    This is a process known as Cold Heavy Oil Production with Sand ("CHOPS")
    which allows for the both the viscosity of the 17 degree API oil and brings
    the fine solids to surface with the produced oil. Origin also demonstrated
    the benefits of re-injection of the hot produced water, which is expected to
    increase the recovery factor.
    As proposed operator, Mosman's current plans following agreement and
    completion of the proposed acquisition are to increase water injection
    (voidage replacement to maintain reservoir pressure) and to develop the
    Manutahi oil field with further horizontal wells. Whilst further work is
    required, initial studies confirm the Origin mapping and target recoverable
    oil of 4 million barrels (approximately a 10% recovery factor).
    Facilities and Production Infrastructure*
    The facilities and production infrastructure were the subject of a major
    health and safety and environmental review in 2014 when operations were
    closed for more than 6 months.
    Agreement of Proposed Acquisition, Completion and Risk
    Once the relevant acquisition documentation has been agreed, completion of
    the acquisition would be anticipated to occur within a few months but would
    remain conditional on a number of factors including financing, various NZ
    Government approvals (and other regulatory approvals that are normal for the
    transfer of petroleum permits of this kind including the change in
    operatorship). In addition to the purchase consideration, at completion the
    proposed acquisition will require initial working and development capital.
    The proposed acquisition remains subject to the Company and its partner
    entering into formal acquisition documentation.
    Existing Mosman Portfolio
    The proposed acquisition does not alter the previously announced operational
    plans for Mosman's extensive portfolio of existing exploration permits.
    Details of STEP Project Mining Permits
    The STEP Project include two petroleum mining permits, further details of
    which are as follows:
    PMP 38151 (Rimu)
    Granted: 30 January 2002
    Term: 30 years
    Expiry: 29 January 2032
    Area: 18.42 sq. km
    Permit: to explore for, develop and produce Petroleum, including gas, LPG,
    oil and condensate.
    PMP 38155 (Kauri)
    Granted: 14 April 2005
    Term: 30 years
    Expiry: 13 April 2035
    Area: 35.24 sq. km
    Permit: to explore for, develop and produce Petroleum, including gas, LPG,
    oil and condensate.
    Competent Person's Statement
    The information contained in this announcement has been reviewed and approved
    by Andy Carroll, Technical Director for Mosman, who has over 35 years of
    relevant experience in the oil industry. Mr Carroll is a member of the
    Society of Petroleum Engineers.
    Enquiries
    Mosman Oil & Gas Limited
    John W Barr, Executive Chairman
    Andy Carroll, Technical Director
    [email protected]
    [email protected]
    NOMAD and Broker
    SP Angel Corporate Finance LLP
    Stuart Gledhill / Richard Hail
    +44 (0) 20 3470 0470
    Gable Communications Limited
    John Bick / Justine James
    +44 (0) 20 7193 7463
    [email protected]
    End CA:00269124 For:AOR    Type:GENERAL    Time:2015-08-26 16:25:05
    				
 
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