KEA PETROLEUM PLC THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to what action to take, you should consult your stockbroker, solicitor, accountant or other appropriate independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all your shares in Kea Petroleum plc, please forward this document and the accompanying Form of Proxy to the person through whom the sale or transfer was effected, for transmission to the purchaser or transferee.
(Incorporated and registered in England and Wales with Registered Number 7023751)
NOTICE OF GENERAL MEETING AND PROPOSED ISSUE OF SHARES AND APPROVAL OF THE ISSUE OF SHARES UNDER RULE 21.1 OF THE CITY CODE ON TAKEOVERS AND MERGERS
A General Meeting will be held at the Company's offices at 1st Floor, 5-8 The Sanctuary, London SW1P 3JS on 8 May 2015 at 12 noon. A Form of Proxy for the General Meeting is enclosed and should be completed and returned as soon as possible. To be valid, it must reach the Company's registrars, Capita Asset Services, no later than 48 hours before the meeting, being 12 noon on 6 May 2015. Completion and return of the Form of Proxy will not prevent you from attending and voting at the General Meeting in person, should you so wish.
In this document, the following expressions shall have the following meanings, unless the context otherwise requires:
Bbl barrel of oil.
Bopd barrels of oil per day.
Discovery a discovery is a petroleum accumulation for which one or several exploratory wells have established through testing, sampling and/or logging the existence of a significant quantity of potentially moveable hydrocarbons.
Mmbbls million barrels of oil.
Mean resources the statistically expected volume.
P10 a 10% probability that a stated volume will be equalled or exceeded.
P90 a 90% probability that a stated volume will be equalled or exceeded.
PEP Petroleum Exploration Permit.
Prospect a project associated with a potential accumulation that is sufficiently well defined to represent a viable drilling target.
Prospective resources those quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations.
Reservoir a subsurface rock formation containing an individual natural accumulation of moveable petroleum that is confined by impermeable rock/formations.
Takeover Code the City Code on Takeovers and Mergers.
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(Incorporated in England and Wales with Registered Number 7023751)
Directors: Registered Office:
Ian Gowrie-Smith (Executive Chairman) 1st Floor David Lees (Executive Director) 5-8 The Sanctuary Peter Wright (Finance Director) London John Bentley (Non-Executive Director) SW1P 3JS Peter Mikkelsen (Non-Executive Director)
22 April 2015
Dear Shareholder
Proposed Share Issue - General Meeting - 8 May 2015
I have referred in recent announcements to our relatively new Shannon prospect in New Zealand (the "Shannon Prospect"). The Shannon Prospect is ready to drill and is located directly beneath our Puka production station. In the past five years we have spent more than £22 million on the PEP51153 licence area, which includes Puka and Shannon.
I have also referred in recent announcements to the impact of the current oil price and the effect it has had on the funding of exploration projects. Whilst we continue in discussions to secure a farm-in partner under the strategic review process, as at the date of this document, no deliverable proposal has been put forward to the Board. In addition there can be no certainty that any such proposal will be made nor as to the terms on which any such proposal might be made. For the avoidance of doubt, I confirm that the Company has entered into discussions with regard only to the securing of a farm-in partner under the strategic review process and not with regard to the securing of a takeover bid (either by way of general offer or scheme of arrangement) for the Company.
We have therefore been investigating alternative funding opportunities to drill the Shannon Prospect ourselves by issuing up to 300 million new Kea ordinary shares of 1p each ("Ordinary Shares"), giving shareholders the potential for significant upside albeit not without risk. (Please see the section head "Risk" below.).
The new Ordinary Shares in Kea will be made available through Primarybid.com, which has similarities to crowdfunding. Those intending to subscribe for new Ordinary Shares ("Bidders") bid via Primarybid.com, setting a maximum price per share and monetary amount for which they are willing to subscribe. On completion of the bidding process, allocations are made to Bidders at the highest price necessary to complete the fundraising through Primarybid.com (the "Fundraising").
The intention is for the bidding process to raise a minimum of £3M and shareholders, current, past or new can bid to buy Ordinary Shares at a minimum of 1p per Ordinary Share, albeit that the Fundraising is open to any person eligible to use the Primarybid.com service. Bidding may be at prices in excess of 1p per Ordinary Share and therefore if the total bidding exceeds £3M and prices are in excess of 1p then a scale back process will work as described in the final section of this document headed "Primarybid.com".
The Board of Directors is aware that investors may be able to purchase Ordinay Shares in the secondary market below the minimum placing price of 1p, however only the issue of new Ordinary Shares
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through Primarybid.com will raise the capital needed by Kea. Trades in the secondary market will not raise any new capital for the Company.
Primarybid.com has been made available through Darwin Strategic Limited ("Darwin"), from whom the Company has previously successfully raised over £2.7M, net of costs, to facilitate the drilling of Puka-3, the installation of new pipework and a new downhole pump in Puka-2. Darwin is authorised and regulated by the Financial Conduct Authority.
Use of funds
The Shannon Prospect is a potential oil field in the Tikorangi limestone formation, some 1,000 meters underneath Puka Mount Messenger sand reservoir. This same limestone formation produced
24.0Mmbbls on the next door mining permit in a field called Waihapa not owned by the Company.
The Directors have determined that the Company's principal goal should be to enable the drilling of the Shannon-1 well in 3rd quarter of 2015. Shannon-1 would we believe be a high impact well, in a prospect that the Company estimates has a gross unrisked mean prospective resource of 9.62Mmbbls. Kea has a 70% interest in the permit (PEP 51153) (the "Exploration Permit") and our joint venture partner MEO New Zealand Ltd ("MEO") holds 30%.
Since its admission to AIM five years ago Kea has invested in the region of £22M to determine the potential of its Licence area PEP51153, which contains the Puka oil field and production station. The total combined knowledge of 2D and 3D seismic studies, drilling the Douglas well down to the Tikorangi, drilling Puka-1, 2, 3 and the Wingrove-2 wells to the Mount Messenger reservoir, as well as the reprocessing and re-mapping of data from all the wells and the seismic provide us with an increasingly sophisticated understanding of the permit area.
Due to the previously announced cash constraints facing the Company, Kea's future is precarious, and it is frustrating that Kea has an exciting prospect ready to drill and located immediately under our Puka production station. The Company has therefore been investigating the possibility of raising funds for the preparation and drilling of a well to test the Shannon Prospect in the Tikorangi limestone as well as meeting operational and corporate overheads to the end of the drilling stage. It is also a priority of the Company to resume production from Puka-1 & -2 and drilling Shannon-1 has the additional potential of making a further Mount Messenger intersection, which could increase volumes from Puka-
1 & -2 to a positive cash-flow in today's price environment.
Upside potential
In the current oil price environment, many companies are reassessing their expensive offshore portfolios, as onshore conventional prospects can withstand lower prices. If we make a discovery in the Shannon Prospect of 9.62Mmbbls recoverable, then over 15 years, presuming an average of US$70/bbl (in the opinion of the directors a reasonably conservative forward view), this translates into US$673M of gross income. Assessed costs of production and capital expenditure for these volumes are approximately US$30/bbl, leaving a net income to the Company of US$40/bbl.
In addition, fractured limestone reservoirs often have very high initial flow rates. In the adjoining Waihapa field, their production wells began with flow rates between 1,000 bopd up to 10,000 bopd. Translated, even at today's prices of ~$60/bbl, that is from US$60,000 to US$600,000 gross income per day attributable to the Shannon Prospect during an initial production period should the Shannon-1 well achieve such flow rates.
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Even if Shannon-1 is not a success, there is a potential second prize for Kea. The Shannon-1 well is expected to intersect the Mount Messenger sandstone reservoir, above the oil-water contact, that Kea has previously penetrated from the shallower Puka wells. As a safety net for investors in any future fundraising, the well will be drilled so there is a fall back production scenario from the Mount Messenger reservoir if, as expected, it contains oil. Production from another Mount Messenger well with similar characteristics to Puka-1 and Puka-2 would improve the economics of resuming production from these wells. However, there is no guarantee that an intersection of oil at the Mount Messenger level will sufficiently change the economics of the field to justify restarting production, especially at current prices.
We anticipate that there will be significant interest in the Company in the lead up to and during the drilling of Shannon-1, should we raise sufficient funds to drill it.
The total capital we would need to raise in any future fundraising would be in the region of £3.0M, and these funds would be used for the preparation and drilling of a well to test the Shannon Prospect in the Tikorangi limestone as well as to meet operational and corporate overheads to the end of the drilling stage.
Our 30% joint venture partner in the Exploration Permit, MEO, has indicated that it may be prepared to contribute toward drilling the prospect. Kea will continue to try and find a farm-in partner to assist in the drilling of Shannon-1 via the formal process previously announced through Rockpoint Corporate Finance Ltd. Nevertheless the funds which we are seeking would be aimed to provide Kea with sufficient capital to drill Shannon-1 independently. Under the terms of the joint venture agreement with MEO, if Kea funds the whole of the drilling, it is primarily entitled to the full benefit of production but MEO has the right at a later date to buy back into the well by reimbursing Kea for its proportionate share of the costs incurred plus a substantial penalty payment.
Risk
There is considerable risk for anybody deciding to bid or subscribe for new Ordinary Shares in the Company. The Company's financial position is precarious and its current working capital position is tight with sufficient funds for operations until shortly after the forthcoming general meeting. The Company is unlikely to survive in its present form, if at all, if the necessary funds are not raised through Primarybid.com or through other means.
The Company will not accept any subscription via Primarybid.com if the total amount to be raised is not sufficient to meet its funding requirements for the cost of drilling the Shannon-1 well and the Company's ongoing working capital until the end of the drilling campaign in Q3 2015; the Directors have concluded that the minimum subscription of £3 million must be raised before any new Ordinary Shares will be issued.
The Company's geologists have assessed the likelihood of Shannon-1 being a success as approximately
20% and with internal estimates of gross un-risked prospective mean resources of approximately
9.62Mmbbls, 18.22Mmbbls on an unrisked P10 basis and 2.57Mmbbls on an unrisked P90 basis. Additionally our geologists believe there is approximately a 50% probability of finding a Mount Messenger oil column on the way down to the Shannon Prospect, although it is not presently certain how much value such a Mount Messenger completion might mean for a Kea shareholder. There is a probability of complete loss, even if we make a Mount Messenger reservoir intersection.
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Primarybid.com
The Primarybid.com facility will enable all current UK shareholders, as well as new potential shareholders, to bid for new Ordinary Shares in Kea at a price of not less than 1p for each new Ordinary Share. By using Primarybid.com potential subscribers can place a bid for new Ordinary Shares, by setting a maximum price and a monetary amount for which they are willing to subscribe. Primarybid.com provides the opportunity for those private investors wishing to purchase small parcels of shares to participate in a placing, something that is often not available with conventional placings. Further details on Primarybid.com are provided at the end of this document.
In order to use the Primarybid.com platform, any interested party should access www.Primarybid.com and undertake the appropriateness assessment and a review of the terms and conditions applicable to the facility.
The Directors of the Company reserve the right to submit bids through the Primarybid.com structure.
Conclusion
Success with drilling Shannon-1 would have a major impact on the future of the Company. Commercialisation of an oil discovery could be expeditious given the current production infrastructure on the Puka site.
The Directors estimate that a discovery of a field with 9.62Mmbbls of recoverable oil producing at
1,000bopd places a net present value on Kea's current share of the field in excess of US$120M (£80M). With a placing of £3M at the minimum price of 1p per Ordinary Share Kea would be capitalised at approximately £4M and the potential upside for investors would therefore be very significant.
As outlined frankly above there is considerable risk involved with drilling Shannon-1, but the rewards could be very high.
General Meeting
Authority to issue shares
In order to be able to raise these funds Kea will require Shareholder approval to allow for the creation of 400M new ordinary shares.
The Directors have insufficient authority from shareholders to issue the maximum number of shares required for the proposed fundraising. As a result the Directors have decided to convene a general meeting (the "General Meeting") to seek and obtain authorities which would cover all of such shares. The General Meeting will be held on 8 May 2015 at 12 noon, and the Primarybid.com book will remain open until 7 May 2015.
To ensure that the Directors will have the authority in the medium term to issue further shares to meet any further funding requirements, the Board is taking the opportunity afforded by the General Meeting of seeking shareholders' authority to permit the issue for cash of up to a further 100 million Ordinary Shares, in addition to the up to 300 million ordinary shares for the Fundraising through Primarybid.com.
Rule 21.1 Approval
As the Company is currently in an offer period (as defined in the Takeover Code), pursuant to Rule 21.1 of the Takeover Code, the Board must not, without the approval of the Shareholders, take any action which may result in any offer or bona fide possible offer being frustrated or in Shareholders being denied the opportunity to decide on its merits or take certain actions, including issuing any shares in
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circumstances where, as part of its strategic review the Company, has been and remains in receipt of approaches by third parties in relation to a potential farm out of its assets and which may or may not lead to a formal offer for the Company. The Fundraising will therefore require Shareholder approval pursuant to Rule 21.1.
Details on Primarybid.com
Primarybid.com is an online platform dedicated to equity crowdfunding for AIM-listed companies.
Primarybid.com provides a new channel for the Company to raise equity from private investors. Primarybid.com allows private investors to bid directly for new shares in the Company at prices of their choosing, subject to certain limited restrictions.
The Company has full discretion as to whether to proceed with a share placing to raise capital through Primarybid.com. The Company can consider any number of bids presented through the Primarybid.com platform and determines the final placing price at which new shares will be issued. Shares may only be issued to the extent that the Company has the requisite shareholder authorities to fulfil the issue.
Everyone whose bid was higher than the final placing price will receive full allocation of their bid; everyone whose bid was at the final placing price may receive their full allocation or may be scaled back. Everyone whose bid was below the final placing price will receive no shares as their bid was unsuccessful. The Directors will not proceed with the fundraising at an issue price below 1p per ordinary share.
Primarybid.com provide execution only services to individuals looking to invest in AIM-listed companies. Nothing on Primarybid.com is to be regarded as either information or any opinion or advice or an offer to buy, sell or otherwise deal in securities in a particular way.
Primarybid.com will provide the Company with ongoing access to an aggregated book of bids submitted. Investors will have access to all postings on Primarybid.com and will be able to state their interest in a company and give details on how much money they are willing to invest in that company at a particular share price.
Once a pre-agreed threshold of bids is achieved Primarybid.com will contact the Company with an offer for a placing with a range of preferred share prices given by investors. Alternatively the Company can ask to see their bid book at any time.
Even though the Company will be able to see the bid book at any time, these bids are only firmly committed by an investor outside of market hours. Once the market has closed for the day, the Company can treat all bids as firm and can elect to proceed with its placing with all or some of the bids. In the event a placing at a certain price is agreed between the Company and investors, an RNS announcement would be made prior to the market opening the following day.
On completion of the placing, the Company will transfer the relevant shares to Primarybid.com who will then transfer funds to the Company and arrange settlement of shares with the relevant investors.
Full details, including details of who may apply for shares through Primarybid.com and how existing eligible shareholders may apply for Ordinary Shares, can be found on www.Primarybid.com.
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Recommendation
For the reasons stated above, the Directors consider it important that the Company is in a position to drill the Shannon-1 well and believe raising the required funds through Primarybid.com is in the best interests of the Company and its shareholders. The Directors also consider it important that they have the ability to raise further capital to meet the Company's ongoing working capital requirements, and to take advantage of any upturn in the equity markets, which continue to be challenging for junior oil and gas exploration companies.
The Company's current cash resources are expected to be sufficient for its immediate working capital needs until shortly after the date of the General Meeting. If the Company does not raise sufficient funds, the Company would not have cash resources to meet its ongoing commitments in relation to exploration activities, or maintain current levels of working capital expenditure and would need to consider alternative options including disposals of assets, likely to be at "fire sale" values if achievable at all, or a sale of the Company at a price that the Directors believe would not recognise the potential long-term value of the business. In addition, should the Company or its subsidiaries be forced to make an arrangement with creditors or suffer some other insolvency event then title to its exploration assets could be lost.
Accordingly the Directors unanimously recommend that shareholders vote in favour of all three resolutions to be proposed at the General Meeting, as they and those persons connected with them intend to do in relation to their Ordinary Shares (representing 15.66% of Kea's existing ordinary share capital).
Yours sincerely
Ian Gowrie-Smith
Executive Chairman
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(Company Number 7023751)
Notice of General Meeting
Notice is hereby given that a General Meeting of Kea Petroleum plc (the "Company") will be held at the offices of the Company at 1st Floor, 5-8 The Sanctuary, London, SW1P 3JS on 8 May 2015 at
12 noon to transact the following business, of which Resolutions 1 and 3 will be proposed as ordinary resolutions and Resolution 2 as a special resolution:
1. THAT the Directors of the Company be and are hereby generally and unconditionally authorised pursuant to and in accordance with Section 551 of the Companies Act 2006 (the "Act") to exercise all powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company ("Rights"), in substitution for all previous powers granted to them (but without prejudice to the continuing power of the Directors to allot shares in the Company and to grant Rights pursuant to an offer or agreement made by the Company before the date this resolution is passed) up to a maximum aggregate nominal amount of £4 million and provided that such authority shall expire on the earlier of the conclusion of the next following Annual General Meeting of the Company or 30 November 2015 unless and to the extent that such authority is renewed or extended prior to such date so that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted in pursuance of such offer or agreement as if the authority conferred hereby had not expired. This authority is without prejudice to the continuing authority of the Directors to allot relevant securities in pursuance of an offer or agreement made before the expiry of the authority pursuant to which such offer or agreement was made.
2. THAT, subject to Resolution 1 in the notice of General Meeting being passed without amendment, the Directors be and they are hereby empowered pursuant to section 570 of the Act in substitution for all such powers previously given (but without prejudice to the continuing power of the Directors to allot equity securities pursuant to an offer or agreement made by the Company before the date this Resolution is passed) to allot equity securities (within the meaning of section 560 of the Act) pursuant to the authority for the purposes of section 551 of the Act conferred by Resolution 1, as if section 561 of the Act did not apply to such allotment provided that this power shall expire on the earlier of the conclusion of the next following Annual General Meeting of the Company or 30 November 2015 unless and to the extent that such authority is renewed or extended prior to such date so that the Company may before such expiry make an offer or agreement which would or might require the Directors to allot equity securities in pursuance of such an offer as if the authority conferred hereby had not expired.
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3. THAT, conditional upon the passing without amendment of Resolutions 1 and 2 in the notice of
General Meeting, the issue of the shares pursuant to the authority for the purposes of section
551 of the Act conferred by Resolution 1, be approved for the purposes of Rule 21.1 of the City Code on Takeovers and Mergers in circumstances where as part of its strategic review the Company has been and remains in receipt of approaches by third parties in relation to a potential farm out of its assets and which may or may not lead to a formal offer for the Company.
BY ORDER OF THE BOARD
David Smith
Secretary
22 April 2015
Registered Office:
5-8 The Sanctuary
London
SW1P 3JS
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1. ENTITLEMENT TO ATTEND AND VOTE
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that only those members registered on the Company's register of members at:
• 12 noon on 6 May 2015; or,
• if this General Meeting is adjourned, at 12 noon on the day two days prior to the adjourned meeting, shall be entitled to attend and vote at the meeting.
2. APPOINTMENT OF PROXIES
If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the Annual General Meeting and you should have received a proxy form with this notice of meeting. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form.
A proxy does not need to be a member of the Company but must attend the Meeting to represent you. Details of how to appoint the Chairman of the Meeting or another person as your proxy using the proxy form are set out in the notes to the proxy form. If you wish your proxy to speak on your behalf at the Meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them.
You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, you may photocopy the proxy form provided and submit all such forms to Capita Asset Services.
A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the Meeting.
3. APPOINTMENT OF PROXY USING HARD COPY PROXY FORM
The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote.
To appoint a proxy using the proxy form, the form must be:
• completed and signed;
• sent or delivered to Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, BR3 4TU; and
• received by Capita Asset Services no later than 12 noon on 6 May 2015.
In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company.
Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form.
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4. APPOINTMENT OF PROXY BY JOINT MEMBERS
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company's register of members in respect of the joint holding (the first-named being the most senior).
5. CHANGING PROXY INSTRUCTIONS
To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded.
Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-copy proxy form, please contact Capita Asset Services.
If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence.
6. TERMINATION OF PROXY APPOINTMENTS
In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment as above. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice.
The revocation notice must be received by Capita Asset Services no later than 12 noon on 6 May 2015. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid.
Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated.
7. ISSUED SHARES AND TOTAL VOTING RIGHTS
As at 6 pm on 20 April 2015, the Company's issued ordinary share capital comprised 93,986,957 ordinary shares of 1p each. Each ordinary share carries the right to one vote at a General Meeting of the Company and, therefore, the total number of voting rights in the Company as at 6 pm on 20 April
2015 is 93,986,957.
8. COMMUNICATION
Except as provided above, members who have general queries about the Meeting should call the shareholder helpline of Capita Asset Services on +44 (0) 871 664 0300. Calls cost 10p per minute plus network extras. Lines are open 8.30 am to 5.30 pm (no other methods of communication will be accepted).
You may not use any electronic address provided either in this Notice of General Meeting or any related documents to communicate with the Company for any purposes other than those expressly stated.
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