Dominion Petroleum looks to deliver growth with US$55mln fundraiser

Dominion Petroleum Limited (LON:DPL) announced today it is raising US$55m via a placing and sale of new and consolidated shares. The funds will help advance key projects in Africa as it continues to fend off takeover interest.

The proposed placing will comprise 8,622,781 existing consolidated shares and will be aimed at both new and existing institutional shareholders. Immediately prior to the placing shares, the company intends to consolidate on a 20 for 1 basis. The shares to be issued and sold in the placing will therefore be consolidated shares.

The funds will be used to strengthen its balance sheet as it looks to progress key projects in Africa.

The company said it has “received a number of indicative and conditional approaches” to acquire or merge with the company for shares, the most recent approach being a nil premium, all share offer.

Dominion management however has given short shrift to these offers, concluding they were “opportunistic and materially undervalued the company and its assets”. The company stresses that no such discussions are ongoing.

The fund raiser announced today is aimed at adding valuing to the company, so maximising shareholder value, through supporting growth of the company on the back of its promising projects ion Africa.

The company said that in recent months it has received industry interest regarding potential farm-ins into its Block 7 and Block 9 assets offshore Tanzania and Kenya, underpinning the future availability of capital to develop these assets.

In May Dominion entered into a production sharing contract with the Kenyan Ministry of Energy for a 100% working interest and operatorship of the Block L9 in the Lamu Basin, offshore Kenya.

Block L9, in which Dominion has a 60% stake, was one of the last remaining opportunities for unlicensed acreage along the whole of the deepwater East African margin and Dominion believes it represents an ideal opportunity for organic expansion in this increasingly attractive area. Around $11m of the proceeds will be used to progress work in Kenya.

In Tanzania, Dominion has been granted a one year extension to the initial exploration period for Block 7 (100% Dominion). The extension removes any obligation for the company to relinquish any portion of Block 7 until May 2012, providing Dominion with more time to more fully evaluate the acreage before the mandatory 50% relinquishment.

Around $US6m of the proceeds from the fundraiser will be dedicated to development in Tanzania.

Funds will also help support the company’s moves, announced earlier this month, to acquire a 75% interest in an offshore Malta production sharing contract and further exploration work on the territory.

Around $US12m of the proceeds will be spent on exploration and development in Malta.

In addition, some $US18m of the funds raised has been earmarked for the repurchase and cancellation of all the senior secured convertible notes and repayment of any additional amounts owing to noteholders.

Andrew Cochran, chief executive of Dominion said: "This is a huge accomplishment in the corporate restructuring we embarked upon over the past year.  The company will have a greatly improved capital structure going forward and sufficient working capital to meet the needs of the expanding portfolio.

He added: “Offshore Tanzania and Kenya are coming along nicely…the new prospects mean that we can now establish our partnering strategy for deepwater East Africa.”

Meanwhile the expansion into offshore Malta “represents a material operated position in another emerging deepwater basin under reasonable terms and commitments.  The Mediterranean basin represents a potentially new 'core' area for Dominion; we'll kick-off 3D [seismic surveying] in Malta as soon as we can".

In addition to the company’s interests in Kenya, Tanzania and Malta, Dominion has two exploration blocks in Uganda, with 95% interest in each, and estimated to total nearly 100 million barrels in the un-risked prospective category.

In the Democratic Republic of Congo it has a 46.75% interest in one block, estimated to hold 33 million barrels in the un-risked prospective category.

Broker Ambrian responded positively to the fund raising announcement today, noting that subject to a successful accelerated book build, one of the major uncertainties and impediments for Dominion’s share price progression will have been “substantially reduced”.

Ambrian analysts added that the convertible loan notes, in particular, were viewed as a material overhang on the company and this morning’s cancellation of a large portion of this senior secured debt “ought to be viewed positively”.

The analysts also believe that through the low-cost farm in to Mediterranean Oil & Gas’ Maltese acreage, also announced in today’s statement, Dominion has added “a further potentially significant new ‘core’ exploration area”.

The broker is confident about Dominion’s prospects, noting that it “is building a very prospective portfolio” and that over the next 12 months all its assets will continue to be progressed.

Commitments on most of its blocks include various licence costs along with further seismic data acquisition, reprocessing and interpretation efforts.  This will likely be accompanied by a farm out on one or more of their licence areas as attention starts to focus on a more active phase of exploration via the drill bit, says Ambrian.

For now Ambrian is maintaining its ‘hold’ recommendation for Dominion. It has put its target price for the stock under review.

Dominion shares midday stood at 3.83p, down 1.18p.