Noreco seeks long-term financing
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Stavanger, 21 October 2013 - Norwegian Energy Company ASA (Noreco) is announcing plans today for a refinancing solution which will provide it with a sound platform for continued operation. Several of the largest bondholders and the company’s main shareholders, representing 33 per cent of the shares, have already signalled their support for this solution, which involves refinancing all bond debt and raising new equity.
A more detailed description of and basis for the proposed solution is provided in a separate stock market announcement issued by Noreco today.
“When the proposed solution has been approved we will have a good financial basis for continued operation,” says Noreco chief executive officer Svein Arild Killingland.
“We have equity interests in a number of exciting licenses, as demonstrated most recently by the promising Gohta discovery in the Barents Sea. With the proposed solution we will be well positioned to pursue these opportunities in the coming years.
“We are grateful to our two principal shareholders, who have once again demonstrated their willingness to make a commitment to the company,” Mr. Killingland continues.
New bond loans
The proposed solution means that all bond debt will be replaced by new loans. While the total principal will remain unchanged at about NOK 3.1 billion, interest costs will be significantly reduced and the maturity profile tailored to a greater extent to the company’s expected cash flows.
This proposal involves exchanging existing bond loans for a NOK 1.4 billion senior secured callable bond issue on Huntington and the Danish producing assets, a new NOK 600 million Oselvar senior secured callable bond, a new second lien callable bond issue of NOK 736 million running for seven years and a senior convertible bond issue of NOK 367 million falling due after five years.
Annual interest terms for the proposed new loans range from 4.0 per cent for the convertible bond to between 6.0 and 6.75 per cent for the first and second lien bonds respectively.
It is furthermore proposed to raise up to NOK 530 million in new equity through a private placement of NOK 400-430 million, followed by a subsequent issue for existing shareholders of up to NOK 100 million on the same terms. The Company’s two largest shareholders, IKM Industri-Invest AS and Sabaro Investments Ltd., have pre-committed to subscribe and will at least be allocated shares for NOK 100 million and NOK 139 million respectively in the private placement, subject to approval of the refinancing proposal by all bondholders' meetings. The pre-commitments are made at a price per share of NOK 0.10.The third largest shareholder, Lyse Energi AS, has informed Noreco that they will support the equity issue and the refinancing proposal.
The issue price in the private placement will be determined through a book-building process. The minimum order and allocation has been set to the number of shares that equals an aggregate purchase price of at least EUR 100,000 per investor, in compliance with applicable prospectus regulations. Existing shareholders will be given preference on allocation. In addition, the company may give existing bondholders preferred allocation over new investors.
Guarantee obligations and negative liquidity effect
The importance of a full refinancing of the Company has become evident by a series of recent events. Lower production volumes, a reduced RBL facility and the potential guarantee obligation related to the removal of the Siri satellites facilities are expected to have an overall negative liquidity effect of up to NOK 1.6 billion compared to expectations at the start of the year.
The status of the producing fields has not improved since the previous regular production report. Total output so far in October has averaged close to 4,000 barrels of oil equivalent (boe) per day. The Huntington field is still producing at about 40 per cent of capacity, and it is unclear when it can be expected that production will be ramped up. Further information is expected within this week.
As previously reported and pursuant to the licence agreement the partners in the respective licences have agreed that security must be provided for future removal expenses on the Nini, Nini East and Cecilie fields by 1 January 2014. Noreco’s share of these costs is estimated at about DKK 500 million. The final amount and manner of which such security shall be furnished has not been determined. To cater for this, the Refinancing Proposal assumes and takes into account a cash deposit of the full amount to be placed in a designated escrow account.
In connection with the work on refinancing, the company has undertaken a new review of balance sheet items in its financial statements. The following incidents could potentially have a negative effect on Noreco’s income statement and balance sheet at 30 September 2013.
- An updated reservoir model is expected to reduce Noreco’s Oselvar reserves to roughly four million boe, with an impairment effect of about NOK 306 million before tax and NOK 82 million after tax. The likelihood is now that the production well due to start up in 2016 will not be drilled.
- If Noreco’s licence partners choose not to continue developing the Amalie field, the company will write down the carrying amount of this licence by NOK 256 million before tax and NOK 192 million after tax. The amount will then be booked as exploration costs in the P&L accounts.
- The licences in the Danish fields Nini, Nini East and Cecilie could be subject to a combined impairment charge in the order of NOK 256 million before tax and NOK 192 million after tax as a result of higher operating expenses and a revised production profile.
- About NOK 218 million in residual goodwill at 30 September 2013 is expected to be written down in equal increments over the 2014-2018 period.
- Exploration write-off of NOK 18 million before tax and NOK 7 million after tax as a result of the relinquishment of the P1650 licence in the UK.
As mentioned above Noreco is in the process of relinquishing licence P1650 (Crazy Horse) on the UK continental shelf and has informed its licence partner Trapoil that Noreco no longer intends to drill the Crazy Horse well. Trapoil and Noreco conditionally agreed on 18th October 2013 to amend the existing legal arrangements between them.
The decision will reduce Noreco’s exploration commitment in the short term, and was necessary in view of the company’s difficult financial position. This relinquishment may impact Noreco’s opportunities to achieve new licences on the UK continental shelf.
The company has reduced its holding in PL 484 Verdande on the Norwegian continental shelf from 40 to 30 per cent, as Explora Petroleum AS has acquired 10 per cent equity interest from Noreco, subject to regulatory approval. Noreco is the operator of this licence, and the prospect is expected to be drilled no later than the second quarter of 2014.
The way forward
The proposed solution requires the support of the bondholders and will be formally considered at a bondholder meeting due to take place on or around 5 November 2013.
Plans call for an extraordinary general meeting of the company to give formal approval for the two issues of new shares. This meeting will be held on or around 13 November.
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Noreco will host a conference call today, 21 October 2013, at 14:30 CET. Please dial in 5-10 minutes prior to the start time using the number / Confirmation Code below
Confirmation Code: 6292656
Participants, Local - London, United Kingdom: Tel.: +44 (0) 20 3427 1907
Participants, Local - Oslo, Norway: Tel.: +47 2316 2729
Participants, Local - New York, United States of America: Tel.: +1 212 444 0895
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For further information, please contact
Svein Arild Killingland, CEO. Tel.: +47 913 40 786
Ørjan Gjerde, CFO and Investor contact. Tel.: +47 900 35 738
Geir Arne Drangeid, Investor and media relations. Tel.: +47 913 10 458
About Norwegian Energy Company ASA
Noreco is an independent Norwegian oil company. The company’s focus is to explore, develop and produce oil and gas in the North Sea region. Since incorporation in 2005, the company has grown through license rounds, successful exploration and acquisitions. Noreco operates in Norway, Denmark and United Kingdom, and employs around 70 oil and gas professionals. Noreco is listed on the Oslo Børs (ticker NOR).
For further information, please visit: www.noreco.com