Kistos PLC (AIM:KIST)
Kistos (LSE: KIST), the low carbon intensity hydrocarbon producer pursuing a strategy to acquire assets with a role in energy transition, is pleased to announce that it has reached a conditional agreement to acquire all of the outstanding shares of Mime Petroleum A.S. (“Mime”) from Mime Petroleum S.a.r.l. (the “Vendor”).
On completion, the acquisition will add 24 MMboe of 2P reserves (operator estimate) plus 30 MMboe of 2C resources, increasing total Group reserves plus resources to approximately 80 MMboe. The acquisition will also add over 2,000 boe/d of production immediately and help to boost Group output to in excess of 15,000 boe/d in 2025 once the Jotun FPSO is on production. Management estimates enlarged Group production in 2023 will be in the range of 8,500 and 10,500boe/d.
Transaction terms
- Through its wholly owned subsidiary Kistos PLC (AIM:KIST), Kistos has conditionally agreed to acquire 100% of the issued and to be issued share capital of Mime from the Vendor.
- The consideration for the transaction is US$1 plus the issue of up to 6 million warrants exercisable into new Kistos ordinary shares at a price of 385p each, which represents a premium of 31.4% based on the last trading date prior to this announcement of 293 pence on 18 April 2023. 3.6 million of the warrants can be exercised between completion of the transaction and 18 April 2028. The balance will be exercisable from 1 June 2025 until 18 April 2028.
- On 31 March 2023, Mime had cash of US$109MM and it is due to receive a tax refund of US$80 MM in December 2023. At completion, Mime will repay US$75MM of its debt and the enlarged Group will assume the remaining US$225MM. A payment to Mime’s bondholders of up to US$45MM in 2025 is contingent on certain operational milestones being achieved.
Balance sheet impact of acquisition terms US$MM*
Mime cash at bank (31st March 2023) 109
Tax refund due (December 2023) 80
Payment to Bondholders (at completion) (75)
Debt retained by the enlarged Group (at completion) (225)
Adjusted total (111)
Contingent amount (maximum payable in 2025) (45)
* Assumes an exchange rate of NOK10.5 : US$1
- Completion of the transaction is conditional on receiving customary regulatory approvals.
Overview of Mime
- Mime is headquartered in Oslo, Norway. It has an experienced management team and is focussed on development and production projects on the Norwegian Continental Shelf (NCS).
- Mime holds a 10% interest in the Balder joint venture (comprising the Balder and Ringhorne fields) and a 7.4% stake in the Ringhorne East unit, all operated by Var Energi A.S.A.
- Based on operator estimates, 2P reserves at Balder and Ringhorne were 23.6 MMboe net to Mime at the end of 2022. In addition, Kistos estimates Mime has net 2C resources of 29.8 MMboe, largely comprised of additional upside in Balder and Ringhorne plus the 2021 King oil discovery. Including Mime, total Group resources will be approximately 80 MMboe.
- Mime’s share of production from Balder and Ringhorne is expected to be over 2,000 boe/d in 2023. This will increase significantly once the Balder X project is onstream, with production for the enlarged Group expected to be over 15,000 boe/d in 2025 once the Jotun FPSO is onstream.
- Balder X comprises the Balder Future and Ringhorne Phase IV drilling projects and is designed to extend the life of the Balder Hub. It includes upgrading the Jotun FPSO, which is more than 70% complete and is forecast by the operator to sail away in the first half of 2024.
- Kistos expects Mime’s capital expenditure in 2023 to be up to US$130MM. Tax relief is available on this expenditure at a rate of 78% and is expected to result in a further significant tax refund in December 2024.
- Scope 1 and Scope 2 CO2 emissions from the Balder Hub are expected to fall by more than 50% to approximately 7.5kg per boe once Balder X is onstream. This is well below both the global and the North Sea average.
Financial position of the enlarged Group
- On 31 March 2023, Mime had cash at bank of US$109MM. Kistos cash at bank on the same date was €262MM and net cash (being cash less face value of debt) was €181MM. In 2022, Mime Petroleum made an unaudited pre-tax loss of US$103MM including an impairment charge of US$71MM.
- In addition to its cash balances, Mime is due to receive a tax refund of US$80MM in December 2023, which relates to capital expenditure incurred in 2022.
- Pursuant to an agreement with the holders of Mime’s Nordic Bonds, at completion Mime will repay US$75MM of outstanding bonds and will owe the following amounts:
- US$120MM of Super Senior bonds, which will attract interest of 9.75% per annum, 4.50% of which is payable in cash and 5.25% of which is payable-in-kind in the form of additional Super Senior bonds. The maturity date of the Super Senior bonds is 17 September 2026.
- US$105MM of so-called “MIME02” bonds, which will attract an interest rate of 10.25% payable-in-kind. The maturity date of the MIME02 bonds is 10 November 2027.
- The Mime debt being retained by Kistos or retired by Mime, less Mime’s cash balances at 31 March 2023 and less the tax refund due in December 2023, equates to approximately US$111MM.
- A contingent payment of US$45MM will be made to the MIME02 bondholders in the event 500,000 bbl (gross) have been offloaded and sold from the Jotun FPSO by 31 December 2024. This will decline to $30MM from 1 January 2025 to 28th February 2025, to US$15MM from 1 March 2025 to 31 May 2025, and to zero thereafter.
- If 500,000 bbl (gross) has not been offloaded and sold from the Jotun FPSO by 31 May 2025, the holders of Mime’s Nordic Bonds will be allocated up to 2.4 million warrants exercisable into Kistos ordinary shares at a price of 385p each. The warrants can be exercised between 30 June 2025 and 18 April 2028. Simultaneously, up to 1.9 million of the 5.5 million warrants issued as consideration for the Mime shares will be cancelled.
- Excluding contingent amounts payable, Kistos estimates that on a pro forma basis at 31 March 2023, the enlarged Group would have had net cash of €5MM, comprising cash of €293MM and outstanding Nordic Bonds of €288MM (€0.92 to US$1.00).
Commenting on the proposed acquisition, Andrew Austin, Kistos’ Executive Chairman, said:
“After a period during which commodity price volatility and fiscal uncertainty has made it difficult to agree deals in the UK and the Netherlands, I am very pleased to be able to announce Kistos’ expansion into Norway. Kistos has evaluated several transactions in the UK and Dutch sectors, but the imposition of punitive windfall taxes and a lack of fiscal certainty have meant that both countries remain difficult places to commit capital and ensure continuity of shareholder returns.”
“I expect Mime to be a platform for growth on the NCS and I believe Mime’s management team – whose strategy and goals are aligned with ours – can help us achieve that. Critically, as well as providing us with visibility on a rising production profile over the next few years, principally though it’s oil, the hydrocarbons produced at Balder will also enable us to maintain our industry-leading Scope 1 and Scope 2 CO2 emissions in the medium-term.”
After some time wondering if the tax system had ended any chances of the acquisitive Kistos putting any deals to bed it is good to see the firm doing what is another milestone deal which will significantly enhance shareholder value. A flash blog as I am seeing companies today but I am hoping for an extended meeting and interview with AA early next week.
This is a very smart and particularly cheap deal by the looks of it, at $4.63/2P boe it stacks against nearest peer Var Energi who are valued at c.$8, and done with no cash, warrants and repayment of Mime debt in due course. It makes Kistos more geographically compelling being in the UK, the Netherlands and Norway where I wouldn’t be surprised to see more M&A activity before long.
It gives material production pretty quickly, a decent, nay good reserves book in a well spread portfolio, now even better and of course traditional Austin upside. Importantly it leaves Kistos more strongly financed so no change there and I would suspect that after closing they will announce finals, pay off the bond and then be ready to pay dividends in due course but that is only my speculation. Another great deal, exceptionally cheap and definitely worth the wait….
Hunting PLC (LSE:HTG)
Hunting PLC (LSE:HTG) (Hunting PLC (LSE:HTG)), the international energy services group, issues the following Trading Update for Q1 2023, ahead of its Annual General Meeting that will take place today at 10:30a.m. BST in London.
Highlights
Strong start to the year with EBITDA of $22.6 million during Q1 2023.
Sales order book remaining strong at c.$0.5 billion.
North America reports a strong performance, driven by domestic and international orders completed.
Key OCTG orders continue to be completed, with strong cash generation to occur in H2 2023.
Full year guidance remains unchanged with EBITDA of c.$88 million targeted.
Commenting on Q1 2023 trading and the market outlook, Hunting’s Chief Executive, Jim Johnson said:
“Hunting has begun 2023 strongly with an EBITDA ahead of management’s expectations. March 2023 was a particularly strong month as international orders were completed within the US Manufacturing business unit. Activity across the global energy industry is robust with opportunities in oil and gas, carbon capture and geothermal developments accelerating as post-COVID growth, energy security requirements and energy transition legislation is announced.
“The Group’s strong sales order book remains materially unchanged at c.$0.5 billion, as new orders have been secured in the period.
“In summary, at this point in the year, the Board is comfortable with market expectations, and reiterates its expectations for continued growth in year-on-year revenue and EBITDA, as previously indicated at the Group’s 2022 full year results.”
Having been very positive about Hunting after my last meeting it is pleasing to have them repeat the solid trading news today, ahead of expectations particularly in March. I was rather hoping for a one-to-one around now but even if I get a call with any further details I will add in future blogs, in the meantime suffice it to say that I am incredibly happy with my strong positive call on Hunting.
Trading Statement
EBITDA in Q1 2023 was $22.6 million, which compares to $6.7 million in Q1 2022 and $15.8 million in Q4 2022. EBITDA margin has strengthened in the reporting period driven by higher facility utilisation and some improvements to pricing, and is in line with market guidance of c.10% for the year as a whole.
As previously indicated, working capital has increased in the quarter consistent with the ramp up in activity, with the Group moving into a net debt position in the period. Working capital is expected to peak during H1 2023, with net debt in the range $30m – $50m targeted by the end of June 2023, followed by cash generation in H2 2023, with management targeting positive cash and bank by year-end. The final dividend recommended for 2022 of 4.5 cents per share is due for payment on 12 May 2023, which will absorb c.$7.2 million.
Hunting Titan has traded in line with expectations during the quarter, driven by North American and international demand, despite the marginally lower US onshore rig count since the year-end. Adoption of the H-3 Perforating System has continued to increase within the US market, which has supported margin improvement within the segment. International sales, which include individual components and systems, continue to accelerate as US drilling techniques are adopted globally, in particular in areas such as South America and the Middle East.
The North America operating segment, which now excludes the Group’s Subsea Technologies interests, has reported a particularly strong start to the year as new orders for premium connections and accessories have been secured. Orders received have been for both the domestic US and Canada markets as well as international activity, including South America where offshore drilling developments in Brazil and Guyana are expanding. The Group’s Advanced Manufacturing businesses report new order wins in both energy and non-oil and gas industries. As part of the Group’s accelerating efforts in the geothermal and carbon capture sub-segments of the global energy industry, testing of the Group’s proprietary connection technology has started, in order to align Hunting’s products with the operating conditions of carbon capture injection projects.
Hunting’s newly formed Subsea Technologies operating segment has traded ahead of management’s expectations as recently secured orders for titanium and steel stress joints for FPSO operations in South America have started to be completed. The segment’s Stafford and Enpro businesses report increased levels of enquiries as momentum in the offshore segment of the global oil and gas industry increases.
The EMEA operating segment has reported a good start to the year, with the Tubacex order continuing in the Netherlands and UK. The segment has reported a broadly break-even result in the year-to-date, reflecting the improving market environment. The Group’s licenced Organic Oil Recovery technology has reported good results from pilot tests being completed by a range of clients. Management believe that sizable orders will be received in 2023 as major field treatments commence.
Hunting’s Asia Pacific operating segment reports strong growth in the year-to-date as activity in the Middle East, Africa and Asia Pacific increases. Tender activity is likely to reach pre-pandemic levels during the year. The segment has continued work on the CNOOC contract in the period, with deliveries expected through to the end of Q3 2023.
Prior Period Financial Information
From 1 January 2023, the Group is now reporting across five operating segments: Hunting Titan, North America, Subsea Technologies, EMEA and Asia Pacific. The following information presents the Group’s prior period results based on this new reporting format.
Year ended 31 December 2022
Total Segmental Revenue
$m
Inter-segment revenue
$m
Total external revenue
$m
EBITDA
$m
Adjusted result
$m
Adjusting items
$m
Reported result
$m
Hunting Titan
266.0
(8.2)
257.8
24.7
15.9
(5.6)
10.3
North America
280.6
(24.5)
256.1
26.7
9.2
–
9.2
Subsea Technologies
69.1
(0.1)
69.0
3.4
(1.1)
(7.0)
(8.1)
EMEA
71.5
(2.2)
69.3
(2.1)
(6.0)
–
(6.0)
Asia Pacific
80.4
(6.8)
73.6
(0.7)
(3.4)
–
(3.4)
Total from operations
767.6
(41.8)
725.8
52.0
14.6
(12.6)
2.0