Reconnaissance Energy Africa Ltd. (the “Company” or “ReconAfrica”) announces it has signed a letter agreement (“Letter Agreement”), for a strategic farm down of Petroleum Exploration Licence 73 (“PEL 73”), onshore Namibia with BW Energy Limited (“BW Energy”) (OSE: BWE), for a 20% working interest. In connection with the Letter Agreement, BW Energy has agreed to a strategic equity investment in the Company for US$16 million (approximately C$22 million), pursuant to the brokered equity offering, as defined below.
The Company has also entered into an agreement with Research Capital Corporation as the lead underwriter and sole bookrunner, on behalf of a syndicate of underwriters, in connection with an overnight marketed public offering of units of the Company (the “Units”) at a price of C$1.25 per Unit for gross proceeds of C$35 million (the “Offering”). Each Unit will be comprised of one common share of the Company (a “Common Share”), and one Common Share purchase warrant of the Company (a “Warrant”). Each Warrant will entitle the holder thereof to purchase one Common Share at an exercise price of C$1.75 at any time up to 24 months from closing of the Offering, subject to an acceleration provision as detailed further below.
The net proceeds from the Offering will be used for exploration activities, working capital and general corporate purposes.
Key Highlights of Letter Agreement:
Working interest sold to BW Energy is 20%
BW Energy to participate in two Damara Fold Belt exploration wells and a 3D seismic program, with an option to participate in two Rift Basin exploration wells over 2-year period
US$16 million (C$22 million), equity investment supporting the exploration program
US$45 million (C$62 million), bonus earned at declaration of commerciality (final investment decision), providing additional capital carry through to first production
US$80 million (C$109 million), of production bonuses based on certain cash flow milestones achieved by BW Energy
US$141 million (C$192 million), total potential consideration, including all incentives and production bonuses which is paid after achieving positive free cash flow
The joint venture structure preserves a 70% working interest in PEL 73 for ReconAfrica, exposing shareholders to significant upside on success
Provides alignment with strategic partner to explore both the Damara Fold Belt and Kavango Rift Basin with significant in country expertise on oil and gas monetization markets
Brian Reinsborough, President and CEO commented: “We are delighted to welcome BW Energy as our partner in Namibia where we plan to drill a multi-well exploration program and acquire a 3D seismic program in the Rift Basin. Our farm out joint venture process was thorough and comprehensive, which attracted significant interest from high quality companies of all sizes. BW Energy’s offer met our guidelines to ensure strategic alignment for a multi-well exploration drilling program while retaining significant upside exposure on success. We continue to execute our strategic priorities set out last year with the Company on track to drill a portfolio of opportunities in the Damara Fold Belt and the Kavango Rift Basin. The first well, Naingopo, is currently drilling, and is supported by BW Energy whose high-quality technical team will add significant value to the execution of our forward exploration plans. This partnership provides ReconAfrica with a strategic partner with a high-quality technical and operational team which compliments ours along with a shared view to expand the oil and gas potential in Namibia. Additionally, we look forward to continuing to work closely with NAMCOR, the Ministry of Mines and Energy in Namibia for the benefit of all parties, including Namibia and its people.”
Carl K. Arnet, BW Energy CEO commented: “The transaction will enable BW Energy to expand its footprint in a strategically important energy region and further our position as a leader in Namibia’s development towards energy independence. The data and insights gained through ReconAfrica’s exploration campaign will further our understanding of the geology and petroleum system in Namibia and help de-risk planned exploration and development of our Kudu licence.”
Strategic Farm Down Transaction
ReconAfrica is selling a 20% working interest in PEL 73, onshore northeast Namibia, to BW Energy, in exchange for total potential consideration of US$141 million (C$193 million), including US$16 million (C$22 million), equity investment and an additional US$45 million (C$62 million) in carry payments based on achievement of commerciality (final investment decision). These payments will be paid in two installments, one at FID and the second payment one year after production. In the event of development of discoveries, production milestone payments could total an additional US$80 million (C$109 million). Three separate production payments of US$25 million (C$34 million), are made after BW Energy reaches certain free cash flow milestones. An additional first production payment of US$5 million (C$7 million), is paid sixty days after the start of commercial production. On completion of the transaction, the ownership interests in PEL 73 will be; ReconAfrica 70%, BW Energy 20%, and NAMCOR 10%. ReconAfrica remains the operator of PEL 73.
Completion of the transaction is subject to the satisfaction of customary closing conditions, including entering into a definitive farm down agreement and approvals from NAMCOR (the state oil company of Namibia) and the Ministry of Mines and Energy in Namibia.
Multi-Well Exploration Drilling Campaign and Development Capital
The Joint Venture transaction has been structured to provide tiers of financing to cover capital requirements in each of the phases of exploration, development and production.
Together with the concurrent Offering, the Company has the financial runway to execute a high impact multi-well exploration drilling program with play opening exposure in the Damara Fold Belt, on a 100% working interest basis, to over 17.1 billion barrels of undiscovered original oil-in-place, consisting of 3.4 billion barrels of unrisked prospective oil resources, based on the most recent prospective resource report prepared by Netherland, Sewell & Associates Inc. (“NSAI”), dated March 12, 2024(1) (as announced in a press release dated March 14, 2024). On exploration success, the Company has built-in bonus payments to fund the program to first production. On commencement of commercial production, the transaction further exposes shareholders to certain production payments based on cash flow milestones.
Namibian Stock Exchange Listing
The Company intends to apply, in the near future, for a dual-listing on the Namibian Stock Exchange, alongside its existing listing on the TSXV in Canada, to further broaden our global exposure.
Equity Offering Details
The Company has granted to the Underwriters an option (the “Over-Allotment Option”), exercisable, in whole or in part, in the sole discretion of the Underwriters, to purchase up to an additional number of Units, and/or the components thereof, that in aggregate would be equal to 15% of the total number of Units to be issued under the Offering, to cover over-allotments, if any, and for market stabilization purposes, exercisable at any time and from time to time up to 30 days following the closing of the Offering.
All Units purchased by BW Energy will be subject to a six-month lock-up agreement.
In the event that, at any time four months and one day after the date of issuance and prior to the expiry date of the Warrants, the moving volume weighted average trading price of the Common Shares on the TSX Venture Exchange (“Exchange”), or other principal exchange on which the Common Shares are listed, is equal to or greater than C$3.70 for any 20 consecutive trading days, the Company may, within 10 business days of the occurrence of such event, deliver a notice to the holders of Warrants accelerating the expiry date of the Warrants to the date that is 30 days following the date of such notice (the “Accelerated Exercise Period”). Any unexercised Warrants shall automatically expire at the end of the Accelerated Exercise Period.
The Offering is expected to be completed pursuant to an underwriting agreement to be entered into by the Company and the Underwriters. The closing of the Offering is expected to occur on or about July 31, 2024 (the “Closing”), or such other earlier or later date as the Underwriters may determine. Closing is subject to the Company receiving all necessary regulatory approvals, including the approval of the Exchange to list, on the date of Closing, the Common Shares, and the Common Shares issuable upon exercise of the Warrants and the Underwriters’ broker warrants, on the Exchange. In addition, the Company will use commercial reasonable efforts to obtain the necessary approvals to list the Warrants on the Exchange.
In connection with the Offering, the Company intends to file a prospectus supplement, to the Company’s short form base shelf prospectus dated February 29, 2024, with the securities regulatory authorities in each of the provinces of Canada (except Québec). Copies of the base shelf prospectus and any supplement thereto to be filed in connection with the Offering, are and will be available under the Company’s profile on SEDAR+ at www.sedarplus.ca. The Units are being offered in each of the provinces of Canada (except Québec) and may be offered in the United States on a private placement basis pursuant to an appropriate exemption from the registration requirements under applicable U.S. law, and outside of Canada and the United States on a private placement or equivalent basis.