--ADDS BROKER COMMENT--
It is to acquire privately owned Rift Petroleum, which has assets offshore South Africa and onshore Zambia, through a share-based deal worth just over £19mln.
To buy a 15% stake in the Kenyan asset, Tower is paying Taipan US$4.5mln in cash, issuing new shares and committing US$1mln to a second well.
Crucially, an accompanying £19.3mln (US$32mln) equity funding also means Tower has the necessary cash to pay for its share of the Welwitschia-1 well, offshore Namibia, while retaining 30% of the project.
It is issuing 550mln new shares, priced at 3.5p each, to institutional and other investors.
Welwitschia is due to spud later this month, and is targeting almost 500mln barrels of prospective resources.
Tower also reminded investors that it is working to add assets in Cameroon, where it has now been named as ‘preferred bidder’ for the Dissoni Block. Talks are ongoing with the relevant departments of the Cameroon government.
Chief executive Graeme Thomson said: “These transactions, combined with our existing assets in Namibia and Western Sahara, and our ongoing negotiations in Cameroon, Madagascar and elsewhere, will transform Tower into a true Pan-African exploration company.
“On completion Tower will hold a diversified asset portfolio, in highly prospective hydrocarbon regions and at various stages of development, which should deliver numerous operational milestones in the coming months and years.
“Each asset has the individual potential to deliver substantial upside for our investors.”
Jeremy Asher, Tower’s chairman, meanwhile, said he hoped investors that had been impatient for news can now see why it has taken the company “a little time” to conclude the arrangements announced today.
He also emphasised that the placing announced on Wednesday was a better outcome than a possible farm-out of the Namibian asset.
“Protecting and growing shareholder value is at the forefront of our thinking on all matters, and the recovery in Tower's share price presented the opportunity to fund our remaining costs associated with the drilling of the Welwitschia-1 well through a placing that is far less dilutive to shareholder interests than a farm-out,” Asher added.
Robert Wiegold, broker at Shard Capital, in a note, said investors in Tower should feel confident now that the funding is in place for the Welwitschia programme.
“The Welwitschia well is potentially enormous and a company maker if successful,” he said.
Wiegold also points out that the new acquisitions provides Tower with much needed diversification.
The broker highlights the offshore South Africa assets, in particular, which he describes as being “highly prospective” and says that Tower is “in good company” here as oil majors Shell, Total, Anadarko and Exxon have all farmed into to surrounding licences.
Tower itself plans to farm out some of its newly acquired 50% interest in the two South African licences.
In more immediate term, however, investor attentions are expected to remain on Welwitschia.
“For now, though, all the focus will be on the Welwitschia drill, this of course is a high impact exploration well and as a result it carries a high level of risk,” Wiegold said.
“This play is not for the faint hearted, but from 3.5p we see upside potential from current levels.”
Elsewhere, Northland Capital said there was a lot to digest in Tower’s statement.
Northland said Tower’s decision to raise money for the Welwitschia well programme, rather than farm out project equity, was a sensible move. The broker also points out that a farm-out would still be possible in the future, albeit depending on the success or failure of the well.
“The recent rally has seen Tower’s share rise from a low of 1.2p last October to over 6p before settling at just below 5p prior to today’s announcement,” analyst Andrew McGeary said.
“Thus, it was a sensible step to put the measure in place to fund the commitments itself given its stronger share currency of late, albeit at a substantial discount.”
Like Shard Capital, Northland sees the Welwitschia programme as the near term catalyst for Tower’s shares.
“We expect Tower’s fortunes to be substantially tied to the performance of Welwitschia-1,” McGeary said.
“If Welwitschia-1 is successful then there remains significant upside potential, if not we would expect a major amount of equity value to be removed.”