Addax Petroleum Corporation has agreed to acquire two subsidiaries of Pan-Ocean Energy Corporation Limited for C$1.605 billion in cash and will assume net debt estimated to be C$30 million. The subsidiaries are: PanAfrican Energy Corporation (Mauritius) Limited which owns and operates Pan-Ocean Energy's oil exploration, production and marketing business in Gabon, West Africa and Pan-Ocean Energy UK Ltd. which provides management and operational services to Pan-Ocean Energy and together represent substantially all of the operations of Pan-Ocean Energy.
These Gabonese assets are currently producing in excess of 10,000 bbls/d of medium to light crude oil and Addax Petroleum expects production to reach approximately 18,000 bbls/d by year end upon completion of a transportation pipeline in the second half of 2006. McDaniel & Associates Consultants independently evaluated oil reserves as of December 31, 2005 at 67.5 million proved plus probable barrels and 121.3 million proved plus probable plus possible barrels. The portfolio also includes significant onshore and offshore exploration potential comprising over 716 thousand net acres (approximately 55% offshore).
The acquisition of PanAfrican offers exciting growth opportunities for Addax Petroleum and represents an excellent fit for Addax Petroleum's growth strategy:
Expansion and Diversification in West Africa –
Combining these operations will create one of the largest independent E&P companies in West Africa. With the addition of PanAfrican's operations in Gabon, on a consolidated basis Addax Petroleum will have over 100,000 bbls/d of production, 264 million proved plus probable reserves and 400 million proved plus probable plus possible barrels of oil in West Africa. Addax Petroleum's 2P reserve life index will increase and Addax Petroleum will have almost 2 million net acres of land in four jurisdictions in West Africa. The establishment of a new and immediate production hub in Gabon complements Addax Petroleum's existing production base in Nigeria. Gabon is a very stable country with a history and tradition in oil exploration and production.
Enhanced Production Growth Profile – The near and longer term production growth from PanAfrican's assets enhance Addax Petroleum's existing growth profile and on closing will add over 10,000 bbls/d of medium to light oil production (29° to 36° API) to Addax Petroleum. Upon the completion of a transportation pipeline in Gabon anticipated in the second half of 2006, production constraints will be removed and production is expected to increase to approximately 18,000 bbls/d by year-end. With the current drilling programs, Addax Petroleum expects 2007 production to be in excess of 30,000 bbls/d and significant further production growth in 2008 through the development of existing discoveries.
Substantial Reserves Base with Development and Exploration Upside – Addax Petroleum believes that PanAfrican has significant development and exploration potential within the properties which could lead to meaningful future reserve additions. Significant proved plus probable reserve growth is expected as PanAfrican's 54 million barrels of possible reserves are developed in the near term. Additionally, Addax Petroleum has identified exciting exploration potential on these properties which currently have relatively sparse seismic coverage but an excellent historical success rate.
Complementary Technical and Operational Expertise –
Addax Petroleum expects to retain key Pan-Ocean Energy and PanAfrican personnel whose substantial technical and operational expertise in Gabon will be supplemented with Addax Petroleum's demonstrated West Africa capabilities. Additionally, given the similarities between Addax Petroleum's Nigeria assets and PanAfrican's Gabon assets, Addax Petroleum and PanAfrican should be able to quickly assess and develop further potential in Gabon.
Attractive Financial and Operational Accretion for Addax Petroleum's Shareholders –
Addax Petroleum estimates that this acquisition will generate approximately US$350 million in cash flow for 2007 (assuming a Brent crude oil price of US$60/bbl). The all-cash acquisition is expected to provide cash flow accretion of 30% per share, production per share accretion of 31% and reserves per share accretion of 44% to Addax Petroleum shareholders.