RNS Number:5073A
Venture Production PLC
19 July 2007
19 July 2007
VENTURE PRODUCTION plc
Announcement of Strategic Investment in Venture
Venture Production plc, the Aberdeen based, UK independent oil and gas
production company, today announces that 3i Group plc and its affiliates ("3i")
and ArcLight Capital Partners, LLC and its co-investors through an affiliate
("ArcLight") (3i and ArcLight together being "the Investors") have agreed to
make a significant strategic investment in Venture.
In aggregate, 3i and ArcLight will, subject to Venture shareholder approval,
make a total investment of over #200 million in Venture. Combined with their
existing interests this new investment is intended to give each an approximate
9.9% stake in Venture on a fully diluted basis.
The 3i and ArcLight investments will consist of several elements as follows:
- #151 million in newly issued 3.25% unsecured convertible bonds ("CBs")
due 2010. The CBs are convertible into newly issued Venture ordinary shares
at a conversion price of 915p per share. After an initial holding period of
six months the CBs will be convertible into 16.5 million new shares
equivalent to 11.6% of Venture's fully diluted share capital. The issue of
the CBs will be subject to Venture shareholder approval. The conversion price
represents a premium of 20.6% to the closing price on 18th July, 2007 the
last trading day prior to this announcement and a 27.3% premium to the
volumetrically weighted average share price over the one month prior to this
announcement;
- Conversion of ArcLight's existing North Sea Gas Partners ("NSGP")
interest into new Venture ordinary shares. ArcLight will convert its interest
in NSGP into 6.03 million newly issued Venture ordinary shares at a price of
772p per share;
- 3i's existing investment in Venture. This consists of 3.59 million
shares, which were acquired in 2006 as a result of the sale of CH4 Energy
Limited ("CH4") to Venture. CH4 was a Southern North Sea gas production
company in which 3i had a significant investment; and
- Additional market purchases. 3i and ArcLight intend to acquire
additional Venture shares through market purchases to take each of the
Investors' stakes in Venture up to approximately 9.9% on a fully diluted
basis.
The Investors have indicated that in principle (subject to terms and their
respective internal approvals) they have an interest in providing additional
future funding through further equity capital subscription, alongside other
sources of equity and debt capital, to support Venture in its North Sea growth
strategy.
As part of this strategic investment, provided that 3i and ArcLight each achieve
a fully diluted interest of at least 9.0%, they will each be entitled to
maintain a non-executive director on Venture's Board.
The transactions described above will, taken together, bring in two strategic
long term investors into Venture, both of whom have extensive experience of
investing in the upstream energy sector. This investment will both strengthen
the Company's immediate capital base and provide additional financing capacity
to support its medium to long term North Sea growth strategy, particularly for
potential acquisitions.
Commenting on the news, Mike Wagstaff, Chief Executive of Venture said:
"We are delighted to be able to announce these substantial investments by two of
Venture's long term financial partners. Today's investment commitment totals
over #200 million and represents a huge vote of support for Venture's business
model and strategy, its team and our competitive position within the North Sea
as we enter what we expect to be a period of consolidation within the basin this
is an exciting. In addition, the investment in the Company represents a
validation of the going concern value of Venture and the future growth potential
of our business. I look forward to developing and growing Venture's business
alongside both 3i and ArcLight over the coming months and years."
Graeme Sword, Partner and Head of 3i's Oil, Gas and Power team explained:
"3i is delighted to be making this further growth capital investment in Venture.
We have been a strong supporter of the business and the management team since
Venture was founded in 1997. We believe that there is considerable opportunity
for both new investment and consolidation in the North Sea and with 3i and
ArcLight's investment in the company, Venture is the right platform to take full
advantage of this trend."
Commenting on the sale of NSGP for shares and the additional new investment in
Venture, Robb Turner, Senior Partner at ArcLight, stated:
"Our significant involvement with Venture and its management team over the last
two years has demonstrated to us that the company is uniquely positioned to be
successful as an operator, developer and asset acquiror in the North Sea.
Through this series of transactions we will gain greater exposure to Venture's
overall corporate strategy and value creation potential, and be better able to
support the Company's growth. We view Venture as a core relationship for
ArcLight, and we will welcome the opportunity to consider future investment in
Venture should the company's growth require additional strategic investment."
ENDS
Contact:
Venture Production plc
Mike Wagstaff, Chief Executive
Marie-Louise Clayton, Finance Director
Rod Begbie, Corporate Development Director +44 1224 619 000
Patrick Handley, Brunswick +44 207 404 5959
John MacDonald, Weber Shandwick +44 1224 806 600
3i plc
Graeme Sword, Partner and Head of Oil, Gas and Power +44 1224 638 666
Rachel Richards, Senior Press Officer +44 20 7975 3573
ArcLight
Heidi Milne, Director of Investor Relations +1 617 531 6304
Letter from the Chairman of the Company
Venture Production plc
(Incorporated and registered in Scotland under number SC169182)
Directors: Registered Office:
John Charles Morgan (Chairman) 34 Albyn Place
Mark Patrick Nicholls (Senior Non-executive Director) Aberdeen
Michael John Wagstaff (Chief Executive) AB10 1FW
Marie-Louise Clayton (Finance Director)
Jonathan David Murphy (Chief Operating Officer)
Roderick McIntosh Begbie (Corporate Development Director)
Thomas Blades (Non-executive Director)
Thomas Ehret (Non-executive Director)
Alan Morrison Jones (Non-executive Director)
Laurence William Kinch (Non-executive Director)
19 July 2007
To Shareholders and, for information only, to the holders of options under the
Share Option Schemes
Dear Shareholder,
Proposed investments by ArcLight and the 3i Investors
and proposed increase in borrowing powers
Introduction
Venture Production plc ("the Company" or "Venture Production") announced on 19
July 2007, a strategic partnership with, and proposed capital subscriptions by,
ArcLight and the 3i Investors to further the strategic objectives of the
Company. The Company is proposing to raise #151 million (before expenses)
through the conditional subscription by ArcLight and the 3i Investors for cash
for the Convertible Bonds, and has agreed to acquire the interest held by
ArcLight in NSGP which the Group does not already own, in exchange for the issue
of 6,033,906 Ordinary Shares valued at #46.6 million to ArcLight.
As the Convertible Bonds are not being offered to existing Shareholders and
contain terms allowing the holders to convert them into new Ordinary Shares, it
is necessary to disapply statutory pre-emption rights which requires the
approval of Shareholders. In addition, Shareholders' approval is required for an
amendment to the Articles in order to increase the borrowing powers of the
Company to allow the Company to increase its debt facilities in the future. The
Acquisition is not conditional upon Shareholders' approval and no such approval
is sought.
The purpose of this document is to provide you with details of the Bond
Subscription and the Acquisition and to explain why the Board considers that
these are in the best interests of Shareholders as a whole and recommends that
you vote in favour of the Resolutions to be proposed at the Extraordinary
General Meeting.
Background to and reasons for the Bond Subscription and the Acquisition
Since it entered the UK sector of the North Sea in April 2000, Venture
Production has built its business through the acquisition and development of
proved but underexploited or 'stranded' reserves. Generally, this involves
significant additional capital investment in the oil and gas fields after
acquisition to increase production and recoverable reserves.
Venture Production has chosen to focus its activities in specific core areas
within the North Sea to build production hubs consisting of multiple fields
sharing common geological characteristics, hydrocarbon type, production
facilities, export route and common ultimate market for its production. Building
these production hubs offers Venture Production economies of scale and
efficiencies of operations which Venture Production believes gives it a
competitive advantage in these areas. Venture Production currently has four
production hubs: the more mature 'Trees', 'A' Fields and GKA hubs and the
recently acquired GMA hub.
Venture Production has boosted the average annual production from these three
more mature hubs from approximately 1.4 Mboepd in 2000 to approximately 43.3
Mboepd in 2006 and increased proved and probable ("2P") reserves in these three
hubs from 31 MMboe at the end of 2005 to 106 MMboe at the end of 2006. Over the
same period, in these three hubs Venture Production has recovered in excess of
its total investment from operating cashflow.
Over the last three years, Venture Production has focused on becoming a low-
cost, efficient development and production operator and today ranks as the sixth
largest independent operator in the UK sector of the North Sea by gross operated
production. In a mature basin such as the North Sea, Venture Production
believes that its operating capability, size, scale and strategic and geographic
focus give it a strong competitive position.
In recent months, driven by the fundamentals in the global oil and gas industry,
Venture Production has seen a significant increase in levels of asset trading
activity in the UKCS compared to the last few years. This activity is
consistent with historical patterns seen in other mature basins such as the US
Gulf of Mexico where, as the basin matures, ownership of substantial proportions
of the basin's oil and gas reserves has migrated from larger international oil
companies to more regionally focused independents.
Venture Production believes that it is competitively positioned to capitalise on
this consolidation trend, which it believes will create significant
opportunities for Venture Production to expand its business. Venture Production
is therefore seeking to strengthen its financial position to take advantage of
this opportunity. In addition to raising capital through the Bond Subscription,
Venture Production is currently negotiating an increase in the amount and
flexibility of its debt facilities to better enable it to expand its business
through acquisitions.
Through the Bond Subscription and the Sale and Purchase Agreement, Venture
Production is seeking to bring two longer term strategic investors into Venture
Production to make an investment of over #200 million to support Venture
Production in building its North Sea business. Both ArcLight and 3i are
experienced North Sea investors with substantial capital resources and a history
of supporting Venture Production through sizeable investments in the Company. In
addition, the Investors have each expressed an interest in considering
substantial additional future equity investments if requested (subject to
agreement of terms and their respective internal approvals) to help Venture
Production execute its North Sea consolidation strategy. This strategic
investment is intended to form the basis of a longer term relationship with the
Investors which involves the addition of one representative from each Investor
to the Board of Venture Production. It is the intention of the Board that, if
further equity is required to fund future investments all the then current
Shareholders will be given the opportunity to participate in accordance with
investor protection committee guidelines and the listing rules of the UK Listing
Authority.
In Venture Production's experience, acquisition opportunities are competitive.
In order to be successful, it is necessary to move rapidly and decisively and to
offer certainty of funding to vendors. The Bond Subscription and the further
potential funding by the Investors provides Venture Production with considerable
additional financial firepower and credibility as a potential purchaser of
assets in this context. Furthermore, both Investors have considerable experience
in the oil and gas sector, adding further capabilities to the Board as described
below.
If over time the Board determines that the Group has accumulated capital in
excess of that required to execute the Company's ongoing acquisition and
development strategy, then it is intended that any such surplus capital will be
returned to Shareholders. The Board has demonstrated its commitment to efficient
capital management and capital returns to Shareholders through the recently
announced ordinary and special dividends totalling #66 million.
Strategic relationship with ArcLight and 3i
Venture Production has had a successful relationship with 3i and ArcLight, which
are both large private equity investors with long and successful track records
of investing in the upstream energy sector.
3i is a world leader in private equity and venture capital with operations in
Europe, the United States and Asia. 3i is active across all stages of funding.
From early-stage venture capital to growth capital, buyouts and infrastructure,
3i invests approximately #1.4 billion a year in some of the most exciting and
ambitious companies in the world. 3i is the only FTSE 100 company in its sector
and has total funds under management of some #7.0 billion. 3i's Oil, Gas & Power
team manages an investment portfolio with a value of approximately #500 million
across the UK, Norway, the US and Singapore. 3i was a founding investor in
Venture Production in 1997 and subsequently made a number of investments in the
Company up to the time of its flotation in 2002. 3i currently has a 2.6 per
cent. stake in the Company as a result of Venture Production's acquisition of
3i's stake in CH4 Energy Limited, a private southern North Sea gas production
company, for which 3i received Ordinary Shares as partial consideration.
ArcLight Capital Partners, LLC ("ArcLight Capital Partners") is one of the
world's leading energy investing firms with more than $6.8 billion under
management. ArcLight Capital Partners invests broadly across the entire energy
value chain including oil, gas, and coal resources and infrastructure; power
generation; and electric and gas transmission and distribution. Founded in 2001,
it is headquartered in Boston with an office in New York City. In April 2006,
Venture Production announced the formation of NSGP with ArcLight Capital
Partners and its co-investors ("the ArcLight Group") to acquire and develop gas
fields in the southern North Sea alongside Venture Production with an initial
total financial commitment of $300 million. In addition, in late 2006, Venture
Production and ArcLight Capital Partners formed North Sea Infrastructure
Partners ("NSIP") to build and acquire infrastructure in the North Sea. NSIP is
currently constructing the GKA export pipeline and owns a 25 per cent. stake in
the ETS pipeline.
Although the 3i Investors and ArcLight are independent of one another and, for
the purposes of the City Code on Takeovers and Mergers are understood not to be
acting in concert with one another, both Investors have been supporters of
Venture Production for some time and share Venture Production's view of the
attractive opportunity created by the likely ownership changes of the North Sea
oil and gas fields and believe that Venture Production is well placed to
capitalise on these trends over the next several years.
Description of the Convertible Bonds
The Convertible Bonds will be constituted pursuant to the Bond Instrument.
#151,000,000 in principal amount will be issued, of which #75,500,000 is
proposed to be issued to each of ArcLight and the 3i Investors under the terms
of the Subscription Agreement. The Convertible Bonds will bear a coupon of 3.25
per cent. per annum of the principal amount outstanding, payable in semi annual
instalments in arrears. To the extent not then converted, purchased or redeemed,
the Convertible Bonds will be redeemed on the final maturity date being three
years from the date of constitution of the Bonds, or may become redeemable at
any time following an event of default under the Bond Instrument.
The Convertible Bonds will be convertible at the option of the holder into
Ordinary Shares at any time from six months after their issue at a conversion
price of 915 pence per Ordinary Share, representing a premium of approximately
27.3 per cent. over the volume weighted average price of the Ordinary Shares
during the four weeks prior to the announcement of the Bond Subscription. The
Convertible Bonds will also be convertible during the first six months following
their issue in the event of a change of control of the Company. The conversion
price is subject to adjustments to reflect the impact on the market value of the
Ordinary Shares of any future discounted rights issues, capital distributions
and certain other changes to the Company's share capital. The Convertible Bonds
will not be listed on any exchange, will be freely transferable and do not carry
any rights to vote at general meetings of the Company.
The Company has agreed to use reasonable endeavours to ensure that any new
Ordinary Shares resulting from the conversion of the Convertible Bonds are
admitted to the Official List and to trading on the Main Market operated by the
London Stock Exchange within 40 business days of conversion. Any such new
Ordinary Shares will, when issued, rank in full for all dividends and other
distributions declared, made or paid thereafter and otherwise pari passu with
the then existing issued Ordinary Shares.
Bond Subscription arrangements
The Company has entered into the Subscription Agreement with ArcLight and the 3i
Investors under which ArcLight and the 3i Investors have conditionally agreed to
subscribe for the Convertible Bonds at par. The Bond Subscription is conditional
upon, inter alia, the passing of a special resolution authorising the
Subscription Agreement and the allotment of Ordinary Shares pursuant to the Bond
Subscription. The Subscription Agreement also contains customary warranties
given by the Company in favour of ArcLight and the 3i Investors in relation to
the Company and its business. 3i and ArcLight will each receive an arrangement
fee of #500,000 or if Shareholders do not approve the Bond Subscription they
will each receive a break fee of #1,000,000.
NSGP Acquisition
As part of the overall strategic relationship, the Company has entered into the
Sale and Purchase Agreement with ArcLight's affiliate under which the Company
will acquire the entire issued share capital of NSGP which it does not already
own. The Company already holds a 33 per cent. interest in NSGP. The
consideration for the Acquisition will be the issue by the Company of the New
Ordinary Shares to ArcLight's affiliate. Using a price of 772 pence per Ordinary
Share (being the volume weighted average price of an Ordinary Share for the 5
trading days prior to and including 18 July 2007, being the day before the Bond
Subscription and the Acquisition were announced), this values NSGP at
approximately #69.8 million. In addition to its interests in the Ensign and
Amanda discoveries and Agatha exploration prospect, NSGP currently contains
#24.5 million in cash. In accordance with the termination provisions of the NSGP
partnership agreements, the NSGP interest has been valued on the basis of an
arm's length market based valuation.
The Board believes that the acquisition of the ArcLight Group's interests in
NSGP in this way simplifies the structure of the Group and has the benefit of
consolidating ArcLight's interests at the holding company level in a manner
equivalent with those of 3i and other existing shareholders. The Acquisition is
separate from and not conditional on ArcLight's subscription for the Convertible
Bond.
The purchase of NSGP by the Company is not subject to or conditional upon
Shareholders' approval and no such approval is being sought. It is anticipated
that the Acquisition, and the issue of Ordinary Shares as consideration, will be
completed on or about 24 July 2007.
Application will be made for Admission and it is expected that, conditional upon
the Sale and Purchase Agreement otherwise becoming wholly unconditional and not
being terminated in accordance with its terms, dealings in the New Ordinary
Shares will commence on 24 July 2007. The New Ordinary Shares will, when issued,
rank in full for dividends and other distributions declared, made or paid on or
after Admission and otherwise pari passu with the existing issued Ordinary
Shares. Immediately upon Admission, the Company's issued share capital is
expected to be 142,088,209 Ordinary Shares (assuming no exercise of options
under the Share Option Schemes or the exercise of conversion rights under the
existing #29,000,000 4.25 per cent. convertible unsecured bonds 2010 issued by
the Company). The New Ordinary Shares will be eligible for settlement through
CREST.
Appointment of Directors
The Company has agreed that each of ArcLight and the 3i Investors shall be
entitled to nominate a person to be appointed as a non-executive director to the
Board of the Company. Each of ArcLight and the 3i Investors shall be entitled to
exercise this right immediately upon completion of the Bond Subscription. If the
respective aggregate interests of the 3i Investors or ArcLight in the issued
share capital of the Company have not reached at least 9.0 per cent. on or
before 31 December 2007, they will lose the right to non-executive Board
representation. In calculating these aggregate interests, it is assumed that (a)
the Convertible Bond has been fully converted into Ordinary Shares and that the
total issued share capital has been diluted accordingly, (b) the conversion of
the existing #29,000,000 4.25 per cent. convertible unsecured bonds 2010,
constituted by the Company pursuant to an instrument dated 18 July 2005 has
taken place in full, and (c) employee options and other awards under employee
incentive arrangements will be disregarded.
After 31 December 2007, if the respective shareholdings of the 3i Investors or
ArcLight fall below 7.5 per cent. of the diluted share capital of the Company
(as described above), they will lose the right to non-executive Board
representation. However, if their respective shareholdings are reduced to
between 5 per cent. and 7.49 per cent. as a result of inter alia the Company
issuing equity in consideration for an acquisition, each of ArcLight and the 3i
Investors will be able to nominate an observer who will be entitled to attend
but not vote at Board meetings.
The 3i Investors and ArcLight have indicated to Venture Production that it is
their intention to increase their shareholdings in the Company up to 9.9 per
cent. through market purchases over time.
The Company notes that the appointment of the two non-executive directors under
this provision will reduce the proportion of independent non-executive directors
on the Board. In order to maintain appropriate independent non-executive
representation on the Board, the Company intends to appoint one or two further
independent non-executive directors to the Board once appropriate candidates
have been identified. Although after taking account of any such appointments,
the Company may not fully comply with the Combined Code on Corporate Governance
in terms of independent non-executive representation, the Board nevertheless
believes that, given the size of the Board, the diversity and independence of
interests represented thereon and the strength of the independent non-executive
directors, the interests of Shareholders taken as a whole will be fully
protected.
DEFINITIONS
The following definitions apply throughout this document, unless the context
requires otherwise:
"3i" 3i Group plc
"the 3i Investors" together, 3i Group plc, 3i Global Growth
2006-08 LP, 3i Pan European Growth 2006-08 LP,
Oil Gas & Power Co-invest 2006-08 LP, and
Global Growth Co-invest 2006-08 LP
"Acquisition" the proposed acquisition of the shares in NSGP
held by ArcLight by the Company under the terms
of the Sale and Purchase Agreement
"Admission" application to the Financial Services Authority
and to the London Stock Exchange for admission
of the New Ordinary Shares to listing on the
Official List and to trading on the main market
of the London Stock Exchange becoming effective
"ArcLight" ArcLight Capital Partners, LLC through its
affiliate NSGP Holdings Limited
"Articles" the articles of association of the Company
"Board" or "Directors" the board of directors of the Company, whose
names appear on page 5 of this document
"Mboepd" millions of barrels of oil equivalent per day
"Bond Instrument" the instrument to be executed by the Company
constituting the Convertible Bonds
"Bond Subscription" the proposed subscription by ArcLight and the
3i Investors for the Convertible Bonds
"Company" or "Venture Venture Production plc
Production"
"Convertible Bonds" the #151,000,000 3.25 per cent. unsecured
convertible bonds due 2010 proposed to be
issued by the Company to the 3i Investors and
ArcLight pursuant to the Bond Subscription
"CREST" a relevant system (as defined in the
Regulations) in respect of which CRESTCo is the
Operator (as defined in the Regulations)
"CRESTCo" Euroclear UK & Ireland Limited
"CREST Manual" the CREST manual published by CRESTCo as
amended or updated from time to time
"Extraordinary General Meeting" the extraordinary general meeting of the
or "EGM" Company convened for 2.00 p.m.
on Wednesday 15 August 2007 (or any adjournment
of it)
"Form of Proxy" the proxy form sent to Shareholders with this
document for use by Shareholders at the
Extraordinary General Meeting
"Investors" together, the 3i Investors and Arclight
"London Stock Exchange" London Stock Exchange plc
"MMboe" millions of barrels of oil equivalent
"New Ordinary Shares" the 6,033,906 Ordinary Shares allotted and
issued pursuant to the Sale and Purchase
Agreement
"NSGP" North Sea Gas Partners Limited
"Official List" the Official List of the UK Listing Authority
"Ordinary Shares" ordinary shares of 0.4 pence each in the
capital of the Company
"Registrars" Lloyds TSB Registrars, The Causeway, Worthing
BN99 6DA
"Regulations" the Uncertificated Securities Regulations 2001
No. 3755, as amended from time to time
"Resolutions" the resolutions to be proposed at the EGM
whereby pre-emption rights are disapplied in
respect of the issue of the Convertible Bonds
and the borrowing powers in the Articles are
increased
"Sale and Purchase Agreement" the agreement entered into by the Company and
ArcLight relating to the acquisition of NSGP
"Shareholders" holders of Ordinary Shares
"Share Option Schemes" the unapproved share option scheme established
by the Company on 7 May 1998; the employee share
option scheme established by the Company in
March 2002; the share incentive plan
established by the Company in October 2003; the
long term incentive plan which ran from
1 January 2003 to 31 December 2006; the long
term incentive plan established by the Company
in June 2006; the employee annual bonus plan
established by the Company in 2006; and the
annual deferred share bonus plan
established by the Company on 2 June 2005
"Subscription Agreement" the conditional agreement entered into by the
Company, the 3i Investors and ArcLight details
of which are set out in the paragraph on page 9
of this document entitled "Bond Subscription
arrangements"
"Subscription Proceeds" the #151,000,000 (before expenses) proposed to
be raised by the Company pursuant to the Bond
Subscription
UKCS United Kingdom Continental Shelf
"UK Listing Authority" the Financial Services Authority acting in its
capacity as the competent authority for the
purposes of Part IV of the Financial
Services and Markets Act 2000, as amended from
time to time
"US" or "United States" or " the United States of America, its possessions
United States of America" and territories, all areas subject to its
jurisdiction or any political sub-division
thereof, any state of the United States of
America and the District of Columbia
Unless otherwise indicated, all references in this document to "pounds
sterling", "#", "pence" or "p" are to the lawful currency of the United Kingdom.
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCGUUPWMUPMUAB
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