TIDMRHEP
RNS Number : 3344C
Rheochem PLC
04 March 2011
4 March 2011
Rheochem Plc
Disposal of drilling fluids business for up to A$45 million
Rheochem Plc ("Rheochem" or the "Company") (AIM: RHEP, ASX: RHE)
today announces that it has entered into an agreement with Newpark
Resources, Inc. ("Newpark") (NYSE: NR) ("Disposal Agreement") to
dispose of the Company's oilfield services and drilling fluids
business ("Drilling Fluids Business") by the sale of all the shares
it owns in Rheochem Limited, Rheochem Pacific Limited, PT Rheochem
Indonesia and Rheochem India Pvt. Ltd. ("Drilling Fluids
Subsidiaries") to Newpark's wholly-owned subsidiary, Newpark
Australia Pty Ltd. ("Purchaser") ("Disposal").
The Disposal is deemed to result in a fundamental change of
business as defined by Rule 15 of the AIM Rules. It is a
requirement of Rule 15 that any such disposal is conditional on the
consent of shareholders at a general meeting. The Disposal is
therefore conditional on the passing of an ordinary resolution of
the Company.
The Disposal is also a transaction to which Listing Rule 11.2 of
the ASX Listing Rules applies. The Company will therefore seek
shareholder approval for the Disposal pursuant to ASX Listing Rule
11.2.
Principal terms of the Disposal
The following are the key terms of the Disposal Agreement.
-- The Company will dispose of all the shares it owns in the
Drilling Fluids Subsidiaries.
-- The Disposal is conditional on a number of events occurring,
including Rheochem shareholders approving the transaction.
-- The sale price for the Drilling Fluids Business is up to a
maximum of A$45 million (approx GBP28 million). The sale price is
subject to adjustment in certain circumstances. Further details of
how the consideration will be paid are set out below.
-- Newpark will acquire the "Rheochem" name. Following the
transaction the Company's name is proposed to be changed to Lochard
Energy Group Plc.
-- The Company provides a number of warranties and indemnities
to the Purchaser, as is usual for this type of transaction.
-- Newpark is not a related party of the Company, nor of any of
the Company's directors.
DETAILS OF THE DISPOSAL
Description of the Drilling Fluids Business
The Drilling Fluids Business is carried on by the Drilling
Fluids Subsidiaries, which are owned by the Company in the
following proportions: Rheochem Ltd (100%), Rheochem Pacific
Limited (100%), PT Rheochem Indonesia (95%) and Rheochem India Pvt.
Ltd. (70%). The Drilling Fluids Subsidiaries specialise in the
provision of drilling fluids and engineering services to the oil
and gas exploration industry, including to coal bed methane
projects. The Drilling Fluids Subsidiaries also provide these
products and services to the geothermal industry, which utilises
similar drilling techniques.
The major assets that will be sold as part of the Disposal
are:
-- the drilling fluids blending plant and equipment located in
Dampier, Western Australia;
-- corporate offices and warehouse at Henderson, Western
Australia;
-- plant and equipment; and
-- stock.
Profits attributable to the Drilling Fluids Business
EBITDA of the Drilling Fluids Businesses for the 2009/2010 and
2008/2009 financial years were A$3.6 million and A$6.1m
respectively.
Payment of consideration
The maximum consideration payable to Rheochem in respect of the
Disposal is A$45 million (subject to adjustment in certain
circumstances). The consideration is payable as follows:
(1) a single payment of A$23.75 million (approx GBP14.8 million)
on completion of the transaction (adjusted for working capital
following completion); and
(2) subsequent earn-out payments conditional on EBITDA of the
Drilling Fluids Business for the period between 1 March 2011 and 29
February 2012 exceeding agreed levels.
The effect of the Disposal on the Company
The Drilling Fluids Business is the primary cash and revenue
generating division of the Company's business. On disposal, the
Company's business will comprise solely of oil and gas exploration
and production.
The first production of oil from the Company's 10 % interest in
the Athena offshore oil and gas development project (located in the
North Sea) ("Athena") is expected in the fourth quarter of 2011. If
the Disposal proceeds, the Company will not have a significant
source of revenue between the time the Disposal is completed and
the revenue stream from Athena begins.
However, once Athena comes into production, the Company expects
the first year revenue from its share of production to be more than
A$60 million compared with the A$20.4 million revenue received from
the Drilling Fluids Business in 2009/2010. Initial flow rates are
estimated by management to be around 2000 bopd Net to Zeus.
The proceeds from disposal of the fluids business in conjunction
with the expected revenues from Athena production will enable the
Company to explore the potential of its other assets including its
10North Sea exploration and appraisal blocks.
The application of sale proceeds
The proceeds from the Disposal will be applied as follows.
-- Repayment of bank debt at completion of the Disposal -
approximately A$6.4 million.
-- Funding the 10% share of the Athena Oilfield development -
approximately A$14million.
-- Working capital - approximately A$3.35 million.
The above accounts for the initial consideration of A$23.75
million received at completion of the Disposal. If Rheochem
receives any of the subsequent conditional payments, those proceeds
will be used for working capital and exploration costs.
CHANGE OF NAME
Following the Disposal, the Company will focus on its oil and
gas exploration and development operations. The Company proposes to
change its name to Lochard Energy Group Plc, to reflect this
revised focus.
The proposed change of name of the Company requires a special
resolution to be passed by the Company's shareholders in general
meeting. This resolution will be put forward at the general meeting
that will be convened for the purpose of seeking shareholder
approval for the Disposal.
CIRCULAR TO SHAREHOLDERS AND NOTICE OF MEETING
A circular to shareholders relating to the matters described in
this announcement will be posted to shareholders shortly. Included
in the circular will be a notice of an extraordinary general
meeting of the Company to be held at 15 Appold Street, London EC2A
2HB, where the Disposal and change of name (among other matters)
will be voted on.
Haydn Gardner, Chief Executive Officer of Rheochem Plc said:
"I am very pleased to announce this disposal, which completes
the strategic review of the Company and re-focuses the business on
oil and gas exploration and production. The sale of the fluids
business unlocks significant value for shareholders and allows us
to meet our commitments on the Athena field.
"The Company will be issuing an operational update shortly, to
provide the market and shareholders with a deeper insight into the
existing exploration, appraisal and production portfolio already
contained within the business. We are confident in the potential of
the portfolio to generate significant opportunities as we progress
the assets through the value chain."
- Ends -
For further information, call:
Rheochem
Haydn Gardner, CEO +61 8 9410 8200
Northland Capital Partners
Shane Gallwey +44 (0) 20 7492 4750
Financial Dynamics
Billy Clegg / Edward Westropp /
Alex Beagley +44 (0) 20 7269 7207
McCall Aitken McKenzie +44 (0) 14 1249 6452
Bill McCall (Scotland) +44 (0) 20 7464 4068
Keith Hughes (London)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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