HONG KONG – Oil and gas company Sino Oil and Gas Holdings Ltd. (formerly Genesis Energy Holdings Ltd.) has entered an acquisition agreement with an independent third party for the acquisition of the entire issued share capital of Orion Energy International Inc. at an aggregate price of HK$2.34 billion (approximately US$301 million.)
Orion holds a 70% interest in the joint exploration, development, and production of a coalbed methane (CBM) field in Sanjiao Block located in Shanxi and Shaanxi Provinces in the PRC pursuant to a production sharing contract. The PRC partner of the project is currently PetroChina Company Ltd.
The purchase price is anticipated to be made up of The consideration for the acquisition of HK$2.34 billion is to be satisfied (i) as to HK$780.0 million in cash; (ii) as to HK$780.0 million by the issue and allotment of 1.56 billion consideration shares at the issue price of HK$0.50; and (iii) as to HK$780.0 million by issue of convertible bonds to the Vendor. The convertible bonds have a maturity of three years, with a lock-up period of one year. The initial conversion price is HK$0.50.
Pursuant to the agreement, if the reserves of the CBM field is verified to be reaching a specified level of 663.8 billion cubic feet (bcf) in one year, or in other words, such aggregate reserves of the entire Sanjiao Block under the production sharing contract be not less than 1,013.8 bcf, then the consideration will be increased by HK$156 million, to be satisfied by the issue and allotment of 312 million new shares.
The issue price and conversion price of HK$0.50 is equivalent to the closing price of HK$0.50 as quoted on the Stock Exchange on the last trading day; and represents a premium of 2.04% over the average of the closing prices of HK$0.49 for the last five consecutive trading days, or a discount of 2.15% to the average of the closing prices of HK$0.511 for the last ten trading days.
Upon completion of the acquisition and the issue of consideration shares, the independent third party will hold 19.16% in the enlarged issued share capital in the company.
Orion entered into a production sharing contract in 2006. Pursuant to the contract, Orion as a foreign partner was engaged to provide relevant technology and assign its competent experts to explore, develop, produce and sell CBM or CBM products extracted from the contract area. The PRC partner shall facilitate local approvals and liaison with local and government bodies. The profit sharing ratio between Orion and the PRC partner is 70:30.
Conditions precedent of the acquisition agreement include confirmation that the aggregate of proven and probable reserves of the CBM field attributable to Orion is not less than 200 bcf, and that the valuation of Orion is not less than HK$2.73 billion.
Beginning in 1999, a large number of exploration pilot wells were drilled in the Sanjiao Block to evaluate the CBM potential. Since the production sharing contract became effective in June 2006, seven additional multilateral directional wells were drilled by Orion to gather more reservoir data. Trial gas production from Orion's wells commenced in May 2009.
Gas pipeline construction close to the Sanjiao Block is underway and expected to be completed in early 2011. When the pipeline construction is completed, the pipeline will have a capacity of 96.7 million cubic feet per day. In addition to gas pipeline transportation, Orion is considering transporting and selling its CBM as compressed natural gas or liquefied natural gas.
Sino Oil and Gas Holdings invests in and operates a number of oil and gas assets in China and the US, and continuously seeks suitable investment opportunities to expand its asset portfolio and revenue base. With the recent introduction of new strategic investors into the Company, it is seeking to join hands with them to further its oil and gas asset portfolio in Greater China.
The acquisition is subject to the approval of the shareholders at a special general meeting.