Iona Energy Signs Huntington Sale & Purchase Agreement

Source: www.gulfoilandgas.com 12/28/2012, Location: Europe

Iona Energy Inc. (Iona) is pleased to announce it has entered into a definitive Sale and Purchase Agreement with Carrizo Oil & Gas, Inc. (Carrizo) to acquire the entire share capital of its wholly owned subsidiary, Carrizo UK Huntington Limited (Carrizo UK), including its interest in License P1114 of UK North Sea Block 22/14b including the near-producing Huntington oil field development (Huntington). In addition to customary closing conditions and purchase price adjustments, the transaction is subject only to final approval of the United Kingdom's Department of Energy and Climate Change (DECC), and is expected to close prior to the end of January 2013.

Included in the Sale and Purchase are:

- A 15% non-operated working interest in the Huntington oil field;
- Royalties equivalent to 2.55% of total gross oil and gas production from the Huntington Joint Venture Partners (the "Royalties");
- A 100% interest in that part of the yet-to-be licensed 27th License Round award covering Block 22/14d that contains the 3D seismically mapped extension of the Jurassic discovery which underlies Huntington; and
- Carrizo UK's ring-fenced tax losses totaling USD$111 million as at the transaction effective date of July 1st, 2012.

Under the terms of the agreement, Iona paid to Carrizo a USD$6 million non-refundable deposit upon signing the Sale and Purchase Agreement, and will additionally pay to Carrizo:

- cash consideration of USD$152 million on closing, including standard financial adjustments, at the transaction effective date of July 1st, 2012; and
- a deferred payment of USD$18 million from first producing field revenues
- normal working capital adjustments from the effective date up to the date of closing

Upon completion of the acquisition of Carrizo's interest in Huntington, the working interests on License P1114 will be E.ON Ruhrgas UK E&P (25% Operator), Premier Oil plc (40%), Norwegian Energy Company ASA (20%), and Iona (15%).

Huntington consists of Paleocene reservoir oil, located in Block 22/14b in the Central North Sea. Huntington has been developed with four production and two water-injection wells and will be tied back to Teekay's Floating Production Storage and Offloading (FPSO) vessel, the Voyageur Spirit. The FPSO arrived at its final location on October 2nd, 2012. Final hook-up of risers, completion and commissioning are now taking place, with first oil expected in the first half of 2013.

Initial stabilized gross production rates are estimated to be 30,000 bbls of oil per day (bopd) and 27 MMscf of gas per day (MMscf/d), or 4,500 bopd and 4.0 MMscf/d, totaling 5,175 boepd net to Iona (not including approximately net 765 bopd and 0.68 MMscf/d attributed to the Royalties). Management believes peak production rates will be considerably governed by the processing capacity of the FPSO, and as a result production decline rates in the first 24 months are expected to be slight. Given the API of 43 degrees and other qualities of the Huntington crude oil, Iona anticipates a slight premium to Brent quality priced crude.

As developed and under current market conditions, Iona estimates reserves for its interest in Huntington to be, 3.5 MMbbls Proved Reserves, 6.0 MMbbls Proved plus Probable Reserves, and 7.3 MMbbls Proved plus Probable plus Possible Reserves respectively (excluding volumes attributed to the Royalties from the Huntington Joint Venture Partners). Iona expects to include the working and royalty interests in Huntington to its 2012 year-end independent reserves evaluation due to be completed no later than April 30th, 2013.

Carrizo has also agreed to assign its 100% interest in that part of Block 22/14d containing a 3D seismically mapped extension of the Jurassic discovery underlying the Huntington field. This agreement is subject to confirmation of the award of Block 22/14d to Carrizo in the UK's 27th License Round and to DECC approval of this assignment to Iona.

Iona's existing cash, a $60 million bridge financing with a Canadian institutional investor, and a senior secured reserves based lending facility (RBL) with a group of lenders for up to USD$200 million will provide financing for this acquisition. The Company has agreed to terms with a group of RBL lenders and is subject to, amongst other things, continued due diligence, credit or investment committee approvals, definitive documentation and final agreements expects to close both financings on or before January 31, 2013.

Iona's Chief Executive Officer, Neill Carson commented, "We are delighted with the acquisition within our target metrics of meaningful near-term production at Huntington. We believe this transaction is an enabler that will ultimately deliver the booked pre-tax value of USD$1.2 billion in Iona's other 38 million barrels of oil equivalent 2P reserves. I would also like to acknowledge the effort of our entire team in getting this agreement executed."

Brad Gunn, Iona's Chief Financial Officer, noted, "This deal clearly represents a strategic cornerstone for Iona Energy and we expect this acquisition will unlock our USD$200 million credit facility and provide significant 2013 and 2014 cash flow. By utilizing Carrizo UK's and Iona's tax losses, the majority of future Huntington cash flows are expected to surpass our obligations and fully fund our development aspirations at Orlando and Kells."


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Related Categories: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

Related Articles: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 


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