Wentworth Resources the independent, Tanzania-focused natural gas production company, provides an update on its operations, future capital returns strategy and the offer from Etablissements Maurel & Prom S.A.
Operational and Financial Update
The Company continues to deliver strong performance with record production levels achieved in the first half of 2023 and continuing into the second half of the year.
Average daily production year to date was 105 MMscf/d, a new record for Mnazi Bay, and ahead of the annual average guidance of 90 - 100 MMscf/d. This strong production, alongside an ongoing exemplary safety record which remains a key priority for Wentworth, highlights the quality of the Mnazi Bay asset.
The Company's financial position underscores the robust nature of the business with cash as at 31 October 2023 of $44.6 million and zero debt. However, given that historic cost pools were fully depleted in Q2 this year, the Company is currently deriving its entitlements from profit gas with only ongoing operating costs currently replenishing the pool. As a result, revenues are substantially lower relative to production levels than in previous years and are expected to continue at a lower level throughout the remainder of 2023 and into 2024 until such time as the planned re-investment programme in the Mnazi Bay field commences.
The Government of Tanzania's re-examination of the historic cost pool audit for the years 2013 - 2015 remains unresolved with the Operator. Wentworth's maximum exposure is approximately $14 million.
Based on expected production, continued timely receipt of gas sales revenue and no repayment of the disputed costs, cash is expected to remain broadly flat in the near term.
2024 work programme
During Q4 2023, the Mnazi Bay partners agreed the annual Work Programme and Budget for 2024. This includes a material capital expenditure programme with the drilling of two wells and the addition of compression to the Gas Production Facility at Mnazi Bay.
Further details will be announced upon formal budget approval, which is expected to be in early 2024. This re-investment is critical for the future optimization of the Mnazi Bay field and to support Tanzania in its goal for universal access to energy for its people.
It is anticipated that Wentworth's share of this work programme will be funded from existing cash resources and will form a key part of the capital allocation policy for 2024. Capital costs incurred are expected to materially replenish the cost pools allowing for rapid recovery via enhanced cost gas revenues.
Offer by Etablissements Maurel & Prom S.A. ("M&P")
On 5 December 2022, the boards of Wentworth and M&P announced that they had reached agreement on the terms of a recommended all cash offer by M&P for the entire issued, and to be issued, share capital of Wentworth (the "Acquisition"). The Acquisition is to be implemented by means of a scheme of arrangement pursuant to Article 125 of the Jersey Companies Law. The circular in relation to the Scheme was published and made available to Wentworth Shareholders on 25 January 2023 (the "Scheme Document").
The Acquisition was approved by Wentworth Shareholders at the Court Meeting and the General Meeting which were held on 23 February 2023, but remains subject to the satisfaction or (where capable of being waived) waiver of the other Conditions to the Acquisition as set out in Part III (Conditions to and certain further terms of the Acquisition and the Scheme) of the Scheme Document.
These Conditions include, inter alia, (i) consent from the Minister responsible for petroleum affairs in Tanzania under the Petroleum Act 2015 (the "Act") and any other applicable laws; (ii) the waiver of any right of first refusal or pre-emption right to which the Tanzania Petroleum Development Corporation is entitled in respect of the Mnazi Bay asset; and (iii) approval from the Tanzanian Fair Competition Commission ("FCC"), in each case on terms satisfactory to M&P, acting reasonably.
On 9 June 2023, Wentworth received a letter from TPDC notifying Wentworth Gas Limited, the Company's main operating subsidiary, of its decision purportedly to exercise its right of first refusal in respect of Wentworth's interest in the Mnazi Bay asset pursuant to section 86(7) of the Tanzanian Petroleum Act, Cap 392 (the "ROFR"), which TPDC continues to assert.
Consequently, on 11 July 2023, Wentworth was notified that the FCC had issued a decision notice that the application for FCC approval shall not be determined at this time and that this application will be marked closed by the FCC. Further, the decision included confirmation from the FCC that TPDC has the right to pre-emption of the M&P proposed transaction to acquire Wentworth.
Following TPDC's notification of its decision purportedly to exercise its ROFR, discussions have been ongoing between M&P and relevant Tanzanian stakeholders regarding the satisfaction of the above-mentioned Conditions. Wentworth understands that the Minister of Petroleum and the FCC are waiting to understand any agreement reached with TPDC prior to making any determination.
Wentworth also understands that these discussions have covered, inter alia, the resultant equity interest in the Mnazi Bay licence to be held by M&P and TPDC should M&P's Acquisition complete, related matters of taxation in Tanzania, resolution of the 2013 - 2015 disputed cost pool, future capital investment in the Mnazi Bay asset and the apportionment of M&P's transaction costs in connection with the Acquisition.
During this period of discussions between M&P and relevant Tanzanian stakeholders, Wentworth has maintained its strong and empathetic stakeholder relationships in-country with regular visits and meetings by Katherine Roe, the Company's CEO. Wentworth has remained supportive of both assisting in the completion of the Acquisition, consistent with the Board's recommendation to shareholders, and listening to the related concerns of Tanzanian stakeholders.
To date, these discussions have not resulted in any clear indication or certainty that the above-mentioned Conditions will be satisfied or (if capable of waiver) waived by M&P by the agreed Long Stop Date of 31 December 2023, which the Board notes is rapidly approaching. If (i) these Conditions are not satisfied or (where capable of waiver) waived by M&P prior to the Long Stop Date and (ii) the Panel agrees that they are Conditions relating to material official authorisations or regulatory clearances and the action that needs to be taken to obtain the authorisation or clearance to satisfy these Conditions is not sufficiently clear or is sufficiently clear but would give rise to circumstances which are of material significance to M&P in the context of the Acquisition, the Acquisition will lapse and will become incapable of completing.
There can be no certainty that, if the Conditions are not satisfied or (if capable of waiver) waived before the Long Stop Date, the Board will be prepared to agree to any extension of the Long Stop Date, if requested by M&P.
Dividend and Future Capital Returns
If any dividend, distribution or other return of value in respect of the Wentworth Shares is declared, paid, made or becomes payable prior to the completion of the Acquisition, M&P has the right pursuant to the agreed terms of the Acquisition to reduce the consideration payable for each Wentworth Share under the terms of the Acquisition by the amount per Wentworth Share of such dividend, distribution or other return of value.
Further, as a result of the "no increase" statement made by M&P in its announcement on 20 February 2023, which prevents M&P from improving the financial terms of the Acquisition (other than in the specific circumstances set out in that announcement), this is a right which M&P must exercise under the Takeover Code.
As a result of this, the Board is not proposing to declare, pay or make any dividend, distribution or other return of capital in respect of Wentworth Shares unless and until the Acquisition lapses.
As soon as practicable after the Long Stop Date or should the Acquisition lapse prior, it is the Board's intention to consider as an immediate priority the declaration of a dividend (payable as an interim dividend so as to not require shareholder approval) representing the FY 2022 final dividend, the interim H1 2023 dividend plus an additional "special" dividend in recognition of both the strong performance of the Company and the patience and forbearance of all shareholders during the period since the announcement of the Acquisition, noting in particular, the time that has been taken up by discussions between M&P and Tanzanian stakeholders in relation to the above-mentioned Conditions. The Board is currently undertaking a full capital allocation analysis to determine the appropriate level of any return whilst ensuring sufficient liquidity and financial flexibility to meet its future commitments.
The Company had previously postponed its 2023 Annual General Meeting, typically held in June each year, due to the ongoing implementation of the Acquisition. The AGM will now be held in December and the Notice of AGM, containing all details of Resolutions and how to vote, is expected to be published in the coming week.
Katherine Roe, Chief Executive of Wentworth, commented:
"We thank shareholders for their patience and support during the extended period of implementation of the proposed M&P Acquisition. The Board continues to work for a positive resolution of the Acquisition before the Long Stop Date of 31 December 2023. In the event that the Acquisition lapses, we will consider as an immediate priority the making of significant dividend distributions with respect to FY 2022 and 2023.
"We will continue to update shareholders regularly between now, the upcoming AGM and the Long Stop Date."
Terms used but not defined in this announcement shall have the meaning given to them in the Scheme Document.
In accordance with Rule 26 of the Code, a copy of this announcement will be available on the Company's website at www.wentplc.com/investors/offer-for-wentworth/, where a copy of the Scheme Document can also be found. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.