TIDMHDY
RNS Number : 1080E
Hardy Oil & Gas plc
01 July 2019
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION 596/2014 ("MAR"). UPON THE PUBLICATION
OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS
INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.
1 July 2019
Hardy Oil and Gas plc
(LSE: HDY)
CONDITIONAL SALE OF HEPI
Hardy Oil and Gas plc ("Hardy" or "Company"), the oil and gas
exploration and production company focussed in India, announces
that it has entered into a conditional share purchase agreement
("SPA") to sell Hardy Exploration & Production (India) Inc.
("HEPI") to Hindustan Oil Exploration Company Limited ("HOEC") for
consideration of US$1,500,000 in cash ("Transaction").
HEPI is a wholly-owned subsidiary of the Company and is
incorporated in the US State of Delaware. HEPI holds interests in
three oil and gas block assets (together, the "Assets") located in
India. Further details of the Assets are set out below. As the
Company's shareholders are aware, and has been previously announced
by the Company, the Company and HEPI ("Group") have faced
significant challenges in respect of the Assets, including
protracted litigation with the Government of India ("GOI") and
disputes with partners and the GOI. These challenges have been
ongoing for an extended period of time and have resulted in the
Group being unable to operate or commercialise the Assets. As a
result of these challenges, the board of the Company ("Board")
determined that the Assets have no financial value and the Asset
CY-OS/2 was written-off in the Group's accounts for the half-year
ended 30 September 2018 and the other two Assets were written-off
in the Group's accounts in earlier financial periods. Given these
write-offs and the conclusion of the initial phase of a strategic
review of the Group, as outlined in the preliminary results
announcement of the Company for the year ended 31 March 2019, as
announced on 27 June 2019 ("2019 Preliminary Final Results
Announcement"), the directors of the Company ("Directors") have
concluded that attempting to realise some value in respect of the
Assets by way of a disposal of HEPI is in the best interests of the
Company and its shareholders.
Due to the difficulties associated with the Assets, HEPI has
been reliant on the Company to provide it with funds for it to
continue to trade and fund the ongoing litigation and disputes. The
ongoing funding requirements of HEPI are a significant financial
burden on the Company, particularly when it is not certain when, or
if, any of the Assets will start generating returns for
shareholders.
Following receipt of a number of approaches to acquire HEPI, the
Directors have concluded that the disposal of HEPI made in
accordance with the terms of the Transaction is in the best
interests of the Company and its shareholders.
Background to and reasons for the Transaction
The Group's ongoing objective has been to evaluate and exploit
oil and gas exploration rights in India by acquiring oil and gas
block assets, exploring and appraising their value and then
developing them with the ultimate goal of commencing oil and/or gas
production. The Group holds interests in the following three
Assets, all of which are licensed by HEPI:
-- CY-OS/2: HEPI has a 75% interest in CY-OS/2 with the
remaining 25% being held by GAIL (India) Ltd under the terms of a
production sharing contract;
-- PY-3: HEPI has an 18% interest in PY-3 with the remainder
being held by TATA Petrodyne Private Limited (21% interest), HOEC
(21% interest) and Oil & Natural Gas Corporation Limited (40%
interest) under the terms of a production sharing contract; and
-- GS-01: HEPI has a 10% interest in GS-01 with the remaining
90% held by Reliance Industries Limited who also acts as operator
under the terms of a production sharing contract.
As shareholders are aware, and as has been previously announced
by the Company, the Group has faced significant challenges in
recent years operating and commercialising the Assets. During the
financial year ended 31 March 2019 HEPI made a loss of
US$58,326,333.
The Board has explored numerous options to find a solution to
the challenges faced in respect of the Assets and the Directors
have concluded that the Transaction is the best option for the
Company and its shareholders for the following reasons:
-- the development work on each Asset has been suspended for an
extended period of time and so the Group has earned no revenue from
any of the Assets since 2011 due to ongoing litigation and disputes
and consequently, in recent years, the Group has been unable to
commercialise or realise any value from the Assets;
-- given the current status of the ongoing litigation and
disputes, the Group cannot predict when, or if, such matters will
be resolved or monetised in favour of the Group. Therefore the
Board is unable to determine when development work in respect of
each Asset will recommence (if at all);
-- the Transaction will eliminate the need to fund the ongoing
litigation and disputes going forward; and
-- the Transaction and Capitalisation and Waiver (as defined
below) would eliminate ongoing operational losses, indebtedness and
associated cash outflows which would arise if HEPI was to remain
within the Group.
As a result of the factors set out above, the Board unanimously
believes that the Transaction is in the best interest of the
Company and its shareholders. The Transaction is of sufficient size
relative to the Group to constitute a class 1 transaction for the
purposes of the Listing Rules and the Transaction is therefore
conditional upon the approval of shareholders. The Company is in
the process of preparing a circular in order to seek approval of
the Company's shareholders to the Transaction and to the associated
proposed transfer of the Company's listing from the Premium Segment
of the Official List to the Standard Segment ("Transfer of
Listing") (resulting from the Group no longer having an independent
business under FCA guidelines) which is expected to be posted to
the Company's shareholders, together with a notice of an
extraordinary general meeting, within the next few weeks. Further
announcements will be made in due course regarding the Transaction
and the Transfer of Listing.
Capitalisation and Waiver
As a result of the Company's continued financing of HEPI, as of
30 June 2019, HEPI owed the Company approximately US$124 million by
way of an intra-group debt ("Intra-Group Debt"). As part of the
Transaction, the Company proposes to (i) capitalise substantially
all of the Intra-Group Debt as at the date of completion of the
Transaction ("Completion") in consideration of the issue by HEPI of
further shares in HEPI; and (ii) waive its rights to the repayment
of the remainder of Intra-Group Debt such that the remainder of
Intra-Group Debt will be written off and HEPI will not have any
indebtedness to the Company following Completion ("Capitalisation
and Waiver"). This means that the Intra-Group Debt will no longer
appear in the Company's financial statements. In the event that
Completion does not occur, the Company will not proceed with the
Capitalisation and Waiver and the Intra-Group Debt will remain
outstanding.
Impact of the Transaction on the Company
Following Completion, HEPI will cease to be part of the Group
and the Company will be a "cash shell" with no subsidiaries or
operational assets. Given the Company will operate as a "cash
shell" post Completion, the approval of the Company's shareholders
will be sought in relation to the Transfer of Listing. Completion
of the Transaction requires resolutions approving both the
Transaction and the Transfer of Listing being passed by the
Company's shareholders.
Principal Terms of the Transaction
Pursuant to the terms of the SPA, HOEC has agreed to acquire the
whole of the capital stock of HEPI for cash consideration of
US$1,500,000. Under the terms of the SPA, HOEC is required to pay
the consideration to the Company's solicitors within five business
days of the date of signing of the SPA in order for the SPA to have
any force or effect. As the Company's solicitors have received the
consideration within the required period, the SPA is now binding.
The consideration will be released to Hardy on Completion.
Completion of the Transaction is conditional only on the
Company's shareholders passing (i) a resolution approving the
Transaction; and (ii) a resolution approving the Transfer of
Listing. Neither the Company nor HOEC has any right to terminate
the SPA between signing and Completion and the SPA is not subject
to any other conditions.
The Company is not giving any warranties, indemnities or tax
covenant to HOEC under the terms of the SPA except for warranties
as to title to the shares in HEPI, HEPI's share capital and its
capacity to enter into the SPA and sell the shares.
Information on HOEC
HOEC is an Indian oil and gas company with a portfolio of nine
assets based in various geographical locations around India. HOEC
holds a minority stake in PY-3 and was the first private oil and
gas company in India. HOEC was incorporated in 1983 and listed on
the Bombay Stock Exchange in 1990 (it is now listed on multiple
Indian stock exchanges). It has a number of successfully
commercialised assets and last year commenced full commercial
production from Dirok field PY-1. For 2018, HOEC had revenues of
approximately INR4,871.25 lakhs (US$7.0 million).
Current Trading, Use of Net Proceeds and Future Prospects
Information concerning the Company's current trading and
prospects was included in the 2019 Preliminary Final Results
Announcement on 27 June 2019:
"Our considerable efforts to enforce the CY-OS/2 Arbitration
Award, handed down in 2013, have not produced a meaningful outcome.
The GOI has consistently been allowed by the judicial institutions
in India, UK and US to abuse legal process and frustrate
enforcement.
While the CY-OS/2 award remains valid, having considered that it
has been over five years since the tribunal issued the award and
the GOI appeal in the Delhi High Court is expected to take a
considerable amount of time, the intangible asset associated with
the CY-OS/2 block was written down at the time of the Group's
interims in November 2018. This resulted in a significant increase
in the consolidated loss of the Group.
The Group is reporting a total comprehensive loss of $56.2
million for the year ended 31 March 2019 (FY19) compared to a loss
of $4.7 million for the year ended 31 March 2018 (FY18). This
included a write-down of $51.1 million of intangible assets
associated with past exploration expenditures on the CY-OS/2 asset.
General and administrative expenditure of $4.8 million included
legal expenses of over $2.5 million.
Conservation of cash resources is paramount for the Group and
the Board has acted to reduce certain legal and administrative
expenditures. The Group is considering other actions to reduce
ongoing administrative expenditures while the strategic review is
ongoing. The Group projects administrative expenses for FY20 to be
around $1.6 million.
Cash used in operating activities amounted to $5.4 million for
the year ended 31 March 2019 compared to a cash outflow of $5.4
million for the year ended 31 March 2018. The Group's capital
expenditure was marginal and investment income was $0.5
million."
Given the developments outlined in the 2019 Preliminary Final
Results Announcement, the Directors remain of the view that
attempting to realise some value in respect of the Assets by way of
a disposal of HEPI is in the best interests of the Company and its
shareholders. Following Completion, the Company will transfer its
listing from the premium segment to the standard segment of the
Official List and the net proceeds from the Transaction will be
retained to provide additional working capital for the Company and
will be added to the Company's cash resources for the Company to
seek new investment opportunities.
Commenting on the Transaction, Alasdair Locke, Chairman, said:
"The Board unanimously considers that the Transaction is in the
best interests of all shareholders. It reduces significantly the
outgoings associated with HEPI remaining part of the Group, it
draws a line under the protracted - and we believe unfair -
treatment of the Group by the Indian judiciary and it removes a
major element of uncertainty for investors.
"If approved by shareholders, the Transaction will result in
Hardy becoming a clean cash shell with a Standard main board
listing on the London Stock Exchange."
For further information please visit www.hardyoil.com or
contact:
Hardy Oil and Gas plc 012 2461 2900
Ian MacKenzie, Chief Executive Officer
Richard Galvin, Treasurer &
Corporate Affairs Executive
Arden Partners plc 020 7614 5900
Ciaran Walsh
Steve Douglas
Equity Sales: James Reed-Daunter
Tavistock 020 7920 3150
Simon Hudson
Barney Hayward
-ends-
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of this information may apply. For further information, please
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END
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July 01, 2019 12:24 ET (16:24 GMT)
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