Baron Oil in reverse takeover of Singapore-based E&P company

UK-based and AIM-listed oil and gas company Baron Oil has made a move to acquire a Singapore-based private E&P company, SundaGas, in a reverse takeover transaction.

Baron said on Thursday it had entered into a non-binding Heads of Agreement (HOA) with SundaGas, as a result of which, subject to, among other matters, the execution of a sale and purchase agreement (SPA), Baron would acquire the entire issued share capital of SundaGas.

SundaGas is a Singapore-based private E&P company with a portfolio of operated gas and oil projects in SE Asia, with offices in Singapore and Jakarta and a new office about to open in Dili, Timor-Leste.

The proposed transaction will be classified as a reverse takeover pursuant to the AIM Rules and accordingly the company’s shares were temporarily suspended from trading on AIM as of 07:30 a.m. Thursday.

Completion of the proposed transaction is therefore subject to certain matters including the completion of an appropriate SPA, approval by Baron’s shareholders at a general meeting to be convened in due course, the raising of an appropriate level of equity, the grant of a Rule 9 waiver by the UK Takeover Panel in respect of the proposed issue of new shares to SundaGas and the admission of the enlarged group to trading on AIM.

In order to convene the general meeting, the company is required to publish an AIM Admission Document which details, inter alia, the terms of the proposed transaction. It is currently expected that should the proposed transaction proceed, the AIM Admission Document will be published during 1Q 2020.

Assets offshore Timor-Leste & Indonesia 

Through the transaction, Baron will acquire Chuditch Block, located offshore Timor-Leste, and Telen Block, located offshore Indonesia.

As reported earlier in November, SundaGas Banda Unipessoal, currently a wholly-owned subsidiary of SundaGas, executed the TL-SO-19-16 Production Sharing Contract covering the Chuditch offshore block in Timor-Leste.

SGB holds a 75% operated working interest in the Chuditch PSC, in partnership with TIMOR GAP Chuditch Unipessoal, Lda, a subsidiary of the national oil company of Timor-Leste. Under the terms of an agreement entered into between Baron and SundaGas on September 23, 2016, Baron is entitled to be issued shares for a 33.33% interest in SundaGas (Timor-Leste Sahul) Pte. Ltd. (SGTL), the holding company of SGB. Such entitlement has been factored into the terms of the proposed transaction.

The Chuditch PSC is located approximately 185 kilometres south of Timor-Leste, 100 kilometres east of the producing Bayu-Undan field and 50 km south of the planned Greater Sunrise development. The Chuditch PSC covers approximately 3,571 km2, in water depths of 50-100 metres. It contains the Chuditch-1 gas discovery, which was drilled by Shell in 1998 and encountered a 25m gas column in the Jurassic Plover formation on the flank of a faulted structure.

SundaGas considers that the Chuditch field contains material volumes of sales gas, with significant upside within and adjacent to the discovery itself, and in multiple exploration prospects and leads that have been identified along trend.

During the initial three-year term of the Chuditch PSC, SGB has an obligation to reprocess 800 km2 of 3D seismic to a pre-stack depth migration (PSDM) and, if justified by the results of the PSDM, drill a well during the third year. SGB also has an obligation to post a bank guarantee of $1 million to guarantee the work obligations to be carried out up to the decision to drill a well in the third year.

It is proposed that SundaGas will carry all costs incurred on the Chuditch PSC, including the Bank Guarantee, which will be repaid from the proceeds of the fundraising. Should the proposed transaction not complete, Baron will have 90 days from the date of termination to repay the 33.33% share of such carried costs attributable to its beneficial interest in SGB held through SGTL.

Telen Block

SundaGas Indonesia Telen B.V. (a wholly-owned subsidiary of Target) operates with a 100% working interest the Telen Production Sharing Contract, offshore Indonesia, containing the Hiu Marah drill-ready prospect, which has independently audited best estimate prospective resources of 126 million barrels of oil and 208 billion cubic feet of gas.

The Telen PSC was acquired from Total in March 2018. SundaGas is currently running a process to farm out the drilling of the proposed Hiu Marah well which is currently required to be drilled by October 8, 2020. The exploration phase of the Telen PSC runs until October 8, 2022.

A performance bond of $4.45 million has been previously provided by SundaGas in respect of the Telen PSC and it will remain in place following completion of the proposed transaction.

In addition to these assets, Target will come with an experienced technical team and operating capability and will continue to pursue new venture activities, concentrating on securing additional material assets in the SE Asia region.

As consideration for the proposed transaction, SundaGas will be issued pro-rata 2 new ordinary shares in Baron for every 1 ordinary share currently in issue.

The total number of ordinary shares expected to be held and the percentage of ownership before the fundraising, will be SundaGas: 3,852,819,512 (66.67%) and Baron existing shareholders: 1,926,409,576 (33.33%).

In addition to the fundraising, it is intended that the company will carry out an appropriate share consolidation and that Baron will change its name to SundaGas Plc.

In addition, SundaGas will provide an unsecured loan facility to Baron of up to £200,000 to cover certain costs related to the proposed transaction at a nominal interest rate of one percent per annum and repayable within 90 days in the event that proposed transaction does not proceed.

The HOA provides that, on completion of the proposed transaction, Dr Andy Butler and Paul Ebdale, each an existing director and a 50% shareholder of SundaGas, will join the board of Baron.

Dr Malcolm Butler, Executive Chairman of Baron, commented: “The SundaGas team brings impressive management and technical expertise in South East Asia and it makes sense for us to combine forces with them.

“The Chuditch PSC has the potential to contain a substantial gas accumulation and is an asset of significant value. This proposed transaction will be transformational for our shareholders and we look forward to reporting back on progress in due course.”

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