Zenith Energy has tweaked the terms under which it was to acquire the Congolese unit of Anglo African Oil & Gas (AAOG), reducing the price by 20%.
The two companies reached a deal at the beginning of the year under which Zenith was to pay £1 million for an 80% stake in the Congolese subsidiary. This company owns a 56% stake in the Tilapia oilfield. The payment was to come half in cash, half in Zenith stock.
Now, though, Zenith will pay £800,000 for the stake in cash only and in 10 monthly instalments. The first payment will be due on completion.
Had the deal not been altered, AAOG would have held around 20% of Zenith’s share capital and been forced to hold it for six months.
Forum Energy Services, which owns 21.87% of AAOG’s shares and is the largest single holder, has said it will back the change. This will be voted on at an AAOG general meeting. The deal also requires approval from Congo Brazzaville’s Minister of Hydrocarbons.
AAOG acknowledged the changed terms and called for its shareholders to attend the general meeting remotely.
Zenith had a put and call option to acquire the last 20% of the unit, but this has been terminated. The buyer had also planned to provide a secured loan facility, worth £250,000, but this has also been ended.
Zenith’s CEO Andrea Cattaneo said his company’s share price had fallen recently and that the new agreement reflected “an adjusted asset valuation commensurate with the decline in oil prices”. The cash would be “funded by means of our publicly announced EUR 25 million EMTN programme”.
Once the deal has been completed, AAOG will qualify as a cash shell on London’s Alternative Investment Market (AIM) and so would have to find a deal to carry out a reverse takeover.
Align Research’s Richard Jennings expressed scepticism to Energy Voice about the deal. “Zenith doesn’t have any money. It has been based on the printing of paper and collection of money from new cannon fodder. [Coronavirus] has blown a universe-sized black hole in Cattaneo’s outlook. AAOG and Zenith are both toast, desperately trying to stand up while a hurricane force wind is blowing around them,” Jennings said. “The termination of the put and call option shows bad intent as regards Zenith’s plans.”
Jennings has long been critical of the Zenith transaction and played a part in an alternative bid for AAOG in January. “Shareholders will never see any benefit from this deal. AAOG and Zenith … need to die. It is a travesty of epic proportions.”
Responding on behalf of Zenith Stefania Barbaglio said anger in the market place had been driven by low share prices, triggered by the coronavirus and oil crash. “The current market situation is difficult for oil and gas producers but it has also created opportunities that Zenith is pursuing and will be adequately able to fund them. Zenith board’s main priority is to build a portfolio that generates value for its shareholders and part of this is the deal in Congo.”
Barbaglio also denied there were problems with Zenith’s funding. The company has a euro bond programme and is “has always pursued a strategy of low company expenses”. The new agreement provides better terms for Zenith and better value for the company’s shareholders.
Updated: 15:10 with comments from Align Research’s Richard Jennings and Zenith’s Stefania Barbaglio.
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