Jadestone Energy plc (the "Company" and together with its subsidiaries, "Jadestone" or the "Group"), an independent oil and gas production company focused on the Asia-Pacific region, announces its intention to conduct a minimum US$85 million financing (the "Proposed Financing").
The Proposed Financing consists of a US$50 million equity fundraise (the "Equity Fundraise"), underwritten by a US$50 million equity underwrite facility (the "Equity Underwrite Facility"), and a US$35 million standby working capital facility (the "Standby Working Capital Facility"), each provided by the Company's largest shareholder, Tyrus Capital S.A.M. and funds managed by it ("Tyrus").
The Equity Fundraise will be structured as set out below:
• a placing (the "Placing") of new ordinary shares (the "Placing Shares") to existing and new institutional shareholders (including entities affiliated to certain directors);
• a subscription (the "Subscription") of new ordinary shares (the "Subscription Shares") by certain directors (and affiliated entities) and certain other parties; and
• an incremental open offer (the "Open Offer") of up to €8 million (c. US$8.6 million at today's exchange rate), offering existing shareholders who have not participated in the Placing an ability to acquire shares at the Offer Price;
The Placing is being conducted through an accelerated bookbuild process (the "Bookbuild") which will be launched immediately following this Announcement and will be made available to eligible institutional investors on the terms and conditions of the Placing set out in Appendix 1 to this Announcement (the "Placing Terms and Conditions"). The Bookbuild is expected to close at or around 6.00 p.m. on 6 June 2023. However, the Company and Stifel Nicolaus Europe Limited ("Stifel"), acting as sole bookrunner to the Company in connection with the Placing, reserve the right to close the Bookbuild earlier or later, without further notice. Pricing for the Placing and Equity Fundraise (the "Offer Price") will be decided by the Company and Stifel as part of the Bookbuild process.
Tyrus, the Company's largest shareholder with a shareholding of 26.45% as at 30 April 2023, is underwriting the proceeds of the Proposed Financing through the provision of debt facilities, as well as taking up its pro rata 26.45% interest in the Placing, equating to approximately US$13.2 million.
The Company is poised to deliver significant near-term production growth from existing assets and new developments, as well as additional M&A upside:
• Montara: routine operations now restored following restart of the gas system in late April 2023, with current production1 of approximately 7,000 bbls/d, supporting the April 2023 to December 2023 average guidance of c.6,000 bbls/d;
• Akatara: development c.35% complete and on track for commissioning in H1 2024, prior to first gas. Akatara is estimated to be a 40% IRR project, a major contributor to the over 50% production growth in 2024 compared to implied 2023 mid-point guidance;
• PenMal: infill drilling campaign during H2 2023 targeting 2 mmstb of gross incremental reserves, with pre-drill IRR estimates of c.90%;
• Further infill drilling: further wells on Stag (2024), Malaysia (2025) and Montara (2026) in the planning phase;
• Development: PNLP2, an asset redevelopment opportunity in Malaysia, and the Vietnam gas development, provide further production growth potential from 2025 onwards;
• M&A opportunities: the Company is currently in advanced negotiations on a further M&A opportunity with current attributable net production of approximately 2,400 bbls/d in its core region of focus and is seeing an uptick in opportunities coming to market. Whilst discussions are advanced there can be no certainty that the acquisition will be entered into or, if entered into, will complete, as completion will be subject to usual third party consents and approvals. The Company does not anticipate this potential acquisition requiring further equity financing;
• Based on current expectations, the Company aims to deliver a diversified production portfolio of over 20 kboe/d from seven assets across different geographies by mid-2024.
The Proposed Financing seeks to provide Jadestone with balance sheet resilience and financial flexibility, protecting it in a reasonable downside scenario as it progresses a number of catalysts to deliver significant near-term production growth from existing assets and new developments, as well as additional M&A upside.
Paul Blakeley, President and CEO commented:
"With Montara back to routine operations, development at Akatara progressing to plan, three accretive acquisitions completed, and a new RBL facility backed by four international banks, we have reached an inflection point for the business. However, given the anticipated evolution of the RBL borrowing base prior to first gas at Akatara, and the necessity of providing all stakeholders with confidence that we are funded for the next phase of growth, we believe it is prudent to secure additional financial protection, resulting in the proposed transaction announced today. Following the eight-month shut-in at Montara which eroded our balance sheet, this financing is expected to underpin our future liquidity needs and provide additional flexibility to the business.
"I understand that the need for additional funding at this point in time will come as a surprise to many of our shareholders, however it was a decision not taken lightly. We understand how frustrating this must be and we are committed to improving Jadestone's governance and communications in the future.
"I am particularly grateful to Tyrus for its key role in the proposed financing, and to all our shareholders who have committed to participate in the equity placing. It is now time to look forward with renewed confidence to the growth and diversification of our production base to over 20 kboe/d in 2024, in turn delivering significant cash flow growth and restoring balance sheet strength. In parallel, we continue to pursue a number of acquisition opportunities, particularly focused on those which fit well within the RBL structure, and we remain encouraged by the active M&A market in the region."
Background to the Proposed Financing
• Jadestone has a balanced portfolio of production and development assets in Australia, Malaysia, Indonesia, Thailand and Vietnam delivering current production1 of approximately 17,800 boe/d and with 2P Reserves and 2C Resources as at 31 December 2022 of 64.8 mmboe and 104.3 mmboe, respectively;
• As at 30 June 2022, the Company had US$161.6 million in cash resources with no debt, had average H1 2022 production of 15,008 boe/d, and was operating in a US$102.53/bbl average Brent price environment. Given this positive backdrop, the Company has since:
o announced and completed three attractive acquisitions, being a 16.67% interest in the CWLH fields offshore Australia (previously named 'North West Shelf'), the 10% interest in the Lemang PSC it did not already own and a 9.52% interest in the Sinphuhorm gas field onshore Thailand;
o committed to 2023 and 2024 capital spending including FID on the c.40% IRR Akatara gas development, as well as drilling at Stag (30% IRR) and the operated Peninsular Malaysia ("PenMal") assets (90% IRR); and
o repurchased US$17.9 million of shares through a share buyback programme;
• Defects in an oil cargo tank and water ballast tank in the Montara Venture FPSO identified in June and August 2022 respectively resulted in a shutdown between August 2022 and March 2023 as the Company undertook remediation work on the asset;
• As a result of the Montara shutdown, and with elevated capital spend in the period, at 31 May 2023 the Company had net debt of US$8.8 million (US$41.2 million cash, US$50.0 million Interim Facility debt);
• On 22 May 2023, Jadestone announced it had secured a US$200 million reserve-based lending ("RBL") facility, with an uncommitted accordion of US$160 million;
o as is typical with RBL facilities, the borrowing base is subject to semi-annual redeterminations to establish available debt capacity;
o the borrowing base will be constrained below US$200 million prior to Akatara passing an RBL completion test (expected H2 2024), at which point it is expected to significantly increase its contribution to the borrowing base as it changes from a development asset to a producing asset;
• Jadestone expects to initially drawdown around US$135 million of the RBL funds, however, the borrowing base implied by the current banking model is expected to reduce to c.US$88 million in Q2 2024, prior to Akatara being included in the borrowing base as a producing asset, and immediately post the peak of the Company's investment programme;
• The borrowing base is predicated on various forward-looking parameters including production, oil prices, hedging positions, and phasing of operating and capital expenditure. The Company expects to enhance the Q2 2024 borrowing base through various mechanisms, including utilising a capex add-back mechanism3 (subject to agreement by the RBL banks). Additional hedging and acquisitions are expected to bring additional borrowing base availability/capacity. Under the terms of the RBL facility, the Company is required to hedge 50% of forecast oil production over the Q4 2023 to Q3 2025 period. To date, 3,494,000 barrels of oil, representing 64% of required hedge volumes, have been hedged at a weighted average price of US$70.66/bbl. The hedging programme is expected to complete by the end of June 2023;
• Whilst the Company expects to be in a position to manage the liquidity of the business in the ordinary course, the Proposed Financing seeks to provide balance sheet resilience and protect the Company in a reasonable downside scenario;
• Jadestone is now at an inflection point for its growth and cash flows, with 50% year-on-year production growth expected in 2024 with diverse production of over 20 kboe/d from seven assets in different geographies once the Akatara project is onstream;
• Following the current period of higher capital spending, the Company expects to be significantly cash generative, with 2025 net cash expected to be in the region of between US$75-150 million at an oil price in the US$65-85/bbl range;
• Jadestone has a focused growth strategy and is well positioned to build a leading Asia-Pacific independent E&P.
Overview of the Proposed Financing
• The Company intends to secure a minimum of US$85 million through a combination of the Equity Fundraise, the Equity Underwrite Facility and the Standby Working Capital Facility, underpinned by the support of the Company's largest shareholder, Tyrus;
• Proposed Financing to be structured as:
o a US$50 million placing to existing and new institutional investors via an accelerated bookbuild process and subscription, including subscriptions by certain directors;
§ Tyrus to take-up its pro rata 26.45% interest in the Placing, equating to approximately US$13.2 million, which along with the other proceeds of the Placing, Subscription and Open Offer will be deducted from the available amount under the Equity Underwrite Facility;
§ the Company has consulted extensively with its major institutional shareholders prior to launching the transaction and intends to respect the principles of pre-emption in the allocation process of the Placing;
o an incremental up to €8 million (c. US$8.6 million) open offer, primarily to allow non-institutional shareholders to participate in the Equity Fundraise at the Offer Price;
• The Company has signed binding documentation with Tyrus to provide the US$50 million Equity Underwrite Facility and the US$35 million Standby Working Capital Facility. The key terms of these facilities are:
o maturity of 31 December 2024;
o 13.5% and 15% annual interest on drawn amounts under the Equity Underwrite Facility and Standby Working Capital Facility, respectively;
o 5% annual interest on undrawn amounts;
o arrangement fee of US$2.15 million under the Equity Underwrite Facility and 4.3% of the initial facility size (subject to a minimum fee of US$1 million) on the Standby Working Capital Facility;
o The facilities can be terminated or refinanced without penalty;
• The size of the Equity Underwrite Facility will reduce pro-rata by the total amount raised pursuant to the Equity Fundraise (including Tyrus' equity participation). Should the Equity Fundraise raise at least US$50 million, the amount available under the Equity Underwrite Facility will be extinguished;
• The size of the Standby Working Capital Facility will be reduced pro-rata with the size of the Equity Fundraise (including the Open Offer), to the extent that this is above US$50 million. The Company does not expect to draw on the Standby Working Capital Facility;
• As part of the US$50 million Equity Underwrite Facility and the US$35 million Standby Working Capital Facility, the Company has agreed that whilst the facility agreements remain in place it will seek the consent of Tyrus to any future M&A activity;
• In consideration of the support provided to the Company under the facilities, Tyrus will be granted 36 month Warrants representing 30 million ordinary shares, or 6.7% of the current issued share capital, at an exercise price of 50 pence per share. The exercise price under the Warrants is subject to adjustment on certain customary corporate events including share capital sub-divisions and consolidations, capitalisation issues and issues of shares and options (excluding employee options) at a greater than 10% discount to the prevailing market price.
Overview of the Equity Fundraise
• Pursuant to the Placing and the Subscription, the Company intends to raise proceeds of US$50 million, at the Offer Price. The Placing will be effected by way of a placing of new Ordinary Shares in the Company for non-cash consideration.
• The Placing is being conducted through the Bookbuild, which will be launched immediately following this Announcement and will be made available to eligible institutional investors on the Terms and Conditions set out in Appendix 1 to this Announcement. The Bookbuild is expected to close at or around 6.00 p.m. on 6 June 2023. However, Stifel and the Company reserve the right to close the Bookbuild earlier or later, without further notice.
• Pricing for the Placing and Equity Fundraise (the "Offer Price") will be decided by the Company and Stifel as part of the Bookbuild process.
• The Company's largest shareholder, Tyrus, has indicated its intention to participate in the Placing at its pro rata level, through an investment of approximately US$13.2 million.
• The final number of Placing Shares that will be allocated to Tyrus will be confirmed following the close of the Bookbuild.
• The directors have also indicated their intention to participate in the Equity Fundraise for up to US$552,640 of new Ordinary Shares at the Offer Price.
• The Company acknowledges that pursuant to the Placing and the Subscription it is seeking to issue new ordinary shares on a non-pre-emptive basis. The Company has consulted extensively with its major institutional shareholders prior to launching the Equity Fundraise and intends to respect the principles of pre-emption in the allocation process of the Placing.
• The Board has also considered the effect of the Placing and Subscription on its retail shareholders and has therefore determined to undertake the Open Offer to provide existing shareholders who have not participated in the Placing with the opportunity to take part in the Equity Fundraise at the Offer Price. Through the Open Offer, the Company is further seeking to raise up to an additional €8 million (c. US$8.6 million at today's exchange rate), subject to successful completion of the Placing and Subscription.
• Details of the Open Offer will be announced following the completion of the Placing and Subscription. The Company expects to send, on or about 9 June 2023, a shareholder circular containing details of the Open Offer, together with an Open Offer application form (where applicable).
Annual Results and Shareholder Returns
The Company intends to publish its full year audited results for the year ended 31 December 2022 on 7 June 2023.
In line with the Company's dividend policy, the results will not support the payment of a final dividend in respect of this period. The Company intends to focus on strengthening Jadestone's balance sheet before reinstituting shareholder returns once the Akatara development is on stream in 2024, or earlier if the financial position of the Company permits.
Corporate Governance
The Board intends to combine recent shareholder feedback with the findings of the independent board evaluation in late-2022 into actions intended to strengthen the Company's corporate governance. Further announcements will be made in due course.
In addition, Tyrus has provided notice to the Company in accordance with its rights under the relationship agreement entered into in November 2018 that it intends to nominate one non-executive director for appointment to the Board. The appointment will be subject to usual regulatory requirements and the Company will make a further announcement in respect of such proposed appointment in due course.
