(Horizon Petroleum, 12.Jan.2023) — Horizon Petroleum Ltd. (TSXV: HPL.H) has entered into a letter of intent dated December 9, 2022 (the “LOI“) with a private European company (the “Vendor“) under which Horizon will acquire all of the outstanding shares of its European oil and gas subsidiary company (“SUB“) (the “Transaction“) through the issuance of common shares and preferred shares of Horizon to the Vendor’s shareholders. SUB has interests in certain onshore oil and gas properties in Europe with significant oil reserves and resources and potential access to a large delineated but undeveloped natural gas resource.
Additional information on the Transaction will be provided in a subsequent news release upon execution of the definitive agreement for the Transaction.
- Acquisition of all outstanding shares of SUB. SUB owns the 100 % working interest of the Project A oilfield under a Production Sharing Agreement which is currently producing and selling heavy oil in Europe.
- SUB has executed Heads of Agreements to acquire three additional onshore PSAs in the same country. All three of the additional PSAs have historically produced oil and natural gas and Horizon believes there are significant undeveloped natural gas resources also associated with the additional PSA’s.
- This acquisition greatly enhances Horizon’s strategy to establish Horizon as a European oil and gas production company with assets in Poland and Europe that have significant potential to increase oil and gas production over the next few years.
- Combined Management and Board with extensive international experience and expertise including Co-founders of Canacol Energy the second largest natural gas producer in Colombia.
Our strategy is to evaluate, acquire and develop previously discovered gas and oil resources in the proven natural gas and oil basins located onshore Europe with an initial focus of developing the Lachowice natural gas field in south-western Poland and with the proposed transaction, further development of oil and gas reserves in Europe.
The current energy crisis in Europe has underscored the importance of natural gas in the energy matrix. Natural gas has been recognised by the European Union as a key source of energy during the transition to cleaner sources of energy. The Company sees significant opportunity in Eastern and Central Europe to develop previously discovered natural gas and oil accumulations thereby increasing domestic production and reducing dependence on imports of Russian hydrocarbons and the use of coal in power generation.
We think it is important to build a diversified portfolio of assets with reserve and production potential that can build the company’s asset value and cashflows which will generate high rates of return for our shareholders. We are actively screening, evaluating and pursuing business development opportunities to add reserves and production potential in Europe and also in the greater Mediterranean region. We aim to reduce geopolitical and operational risk by targeting assets in a number of jurisdictions and geological basins.
The proposed transaction fits this strategy bringing significant oil production, reserves and resources with large gas development upside potential.
The Transaction is an arm’s length transaction and when completed, is intended to be a “reverse takeover” for the purposes of the requirements of the TSX Venture Exchange (the “TSX-V“) and to enable the Company to qualify as a Tier 1 Oil & Gas Issuer on the TSX-V. None of the directors and officers of Horizon or their associates and affiliates have any interest in the business of the Vendor or SUB, or is otherwise an insider of, or has any relationship with, the Vendor and SUB or their direct or indirect shareholders.
The Horizon shares to be issued to the shareholders of the Vendor in the Transaction will be issued pursuant to exemptions from the prospectus requirements of applicable securities legislation, and may be subject to escrow conditions as required by the TSX-V.
The parties have agreed to use their best efforts to complete the Transaction documents by late February, 2023. Both Horizon and the Vendor intend to hold shareholders’ meetings in Q1, 2023 to approve the Transaction. Trading in the common shares of the Company is currently halted and will remain halted until further notice in accordance with the policies of the TSX-V.
Upon completion of the Transaction, the Company will have its head office located in Calgary, Alberta. SUB will become a wholly owned subsidiary of the Company.
The Company plans to change its name to Megas Energy Ltd. subject to approval of the TSX-V and shareholders. The common shares of the Company are expected to be listed on the TSX-V under a new trading symbol.
Conditions to the Completion of the Transaction
The obligations of Horizon and the Vendor to consummate the Transaction shall be subject to, among other things: (i) the receipt of all necessary regulatory, Horizon Shareholder approval and TSX-V approval, including, without limiting the generality of the foregoing, the approval of the Transaction in accordance with the TSX-V policies; (ii) the receipt of all necessary shareholder and board of director approvals; (iii) the confirmation of the representations and warranties of each party to the LOI; (iv) the absence of any material adverse effect on the financial and operational condition or the assets of each of the parties and SUB (v) the delivery of standard completion documentation; and (vi) other conditions precedent customary for a transaction such as the Transaction. The conditions listed above are for the benefit of, and may be waived by, Horizon and the Vendor as it relates to the obligations of the other party to perform or obtain the same.
SUB is a limited liability company incorporated in Switzerland and is engaged in exploration, development and production of oil in Europe.
SUB holds the Project A production sharing agreement (“PSA“) with a state company (“Stateco” and a national government agency (“GovAgency“) which covers the producing large Project A oilfield.
SUB is the operator of the Project A onshore oil field with a 100% working interest and operates the field through its wholly-owned operating subsidiary SUB A.
In 2018, the Stateco, executed the Heads of Agreement with SUB for three additional onshore oil fields with existing production of medium to heavy oil with significant undeveloped natural gas: Project B, Project C and Project D (together, the “New Fields“).
Upon the finalization and signing of the PSAs for the New Fields, SUB will hold 100% interest in four onshore oil fields in Europe. The PSAs are under final review by GovAgency and SUB expects to complete the PSAs for the New Fields and to takeover operations by mid 2023. Finalization of the current financing and the takeover of the New Fields is expected to provide significant increases to SUB’s production and reserves.
Current gross production in the Project A field totals approximately 280 bopd of heavy oil. The fields are formed by large thrust anticlines involving highly-fractured and karstified carbonate reservoirs of Late Cretaceous to Eocene age. The producing assets in this region typically deliver medium to heavy oil and natural gas.
SUB is in the process of obtaining a report prepared in compliance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities on the reserve and resource estimates in respect of the Project A oilfield. The report is currently being undertaken by RPS Group PLC., an independent qualified resource evaluator.
Financial Information of SUB
The following table summarizes selected financial information for SUB as at December 31, 2021 (audited) and December 31, 2020 (audited):
Transaction Terms and Private Placement
The Vendor currently holds approximately 51% of the shares of SUB. By closing, the Vendor expects to complete a share exchange with the remaining shareholders of SUB whereby it will hold a minimum 90 % plus one Share up to 100% of the shares of SUB. The purchase price for SUB shares will be satisfied by the issuance of approximately 240,000,000 common shares of Horizon to the Vendor at a deemed price of $0.08 per Common Shares, which is based on the most recent closing price of Horizon on the NEX prior to its halt for the Transaction. As a condition of the Transaction, Horizon will also issue the Vendor an additional 30,000,000 preferred shares of the Company which will convert into listed shares for no additional consideration upon the final signing of the Project B (15,000,000 common shares), and Project C (15,000,000 common shares) PSAs by the GovAgency.
Horizon currently has 109,857,176 common shares outstanding. Further, Horizon has 43,333 stock options outstanding with an exercise price of $0.90 per share, expiring on August 4, 2023 and 50,000,000 warrants with an exercise price of $0.05 per warrant share, with 24,000,000 expiring September 30, 2023 and the remainder expiring on October 6, 2023. Horizon also has 2,220,000 compensation warrants outstanding with an exercise price of $0.02 per warrant unit, expiring September 20, 2023. Each warrant unit comprises a common share and a warrant exerciseable at a price of $0.05 per share until September 20, 2023.
Interim Lending to SUB
In connection with the Transaction, Horizon will lend to SUB US$180,000 (or slightly less than CAD$250,000) pursuant to a convertible secured note expected to be finalized during the week of January 16, 2023. The terms of the Note are such that SUB will have 365 days to repay the Note, and will be charged a rate of interest of 7% per Annum, due on maturity (individually, the “Note“, collectively “Notes”).
Furthermore, an arm’s length company (“Finco“) will lend SUB, a total of US$2,820,000 pursuant to two Notes provided over two tranches:
- Tranche A, expected to be finalized during the week of January 16, 2023, Finco will lend SUB US$320,000. The terms of the Note are such that SUB will have 365 days to repay the Note, and will be charged a rate of interest of 7% per Annum, due on maturity.
- Tranche B will occur upon execution of the necessary definitive documentation to effect the Transaction. Finco will lend SUB US$2,500,000 on the same terms as the first tranche. Half of Finco’s legal costs for set up of the loan will be deducted from the first tranche.
The Vendor will act as guarantor for the Notes. Additionally, after the Notes are issued, Finco and Horizon may exercise its option per the Notes to convert into 10.5% of SUB common shares for the US$3,000,000. Conversion of the Notes to 10.5% of SUB common shares will also automatically occur immediately before completion of the Transaction.
In order to finance the transaction costs and interim expenses, Horizon intends to complete a non-brokered private placement (the “Offering“) of up to 11,250,000 units (“Units“) in the capital of Horizon at a price of $0.08 per Unit for gross proceeds of up to $900,000, subject to approval from the TSX-V. Each Unit will consist of one common share and one common share purchase warrant (“Warrant“) in the capital of the Company. Each Warrant will entitle the holder to purchase one Common Share at a price of $0.16 for a period of twelve (12) months from the date of issuance.
In connection with the Offering, certain insiders are expected to purchase Units in the Offering. Each of the insiders is a related party of Horizon, and as a result, the Offering will be a related party transaction for purposes of Multilateral Instrument 61-101 – Protection of Minority Shareholders in Special Transactions (“MI 61-101“).
The Company intends to rely on exemptions from the formal valuation and minority approval requirements of sections 5.5(a) and 5.7(1)(a) of MI 61-101 in respect of such insider participation, based on a determination that fair market value of the participation in the Offering by insiders will not exceed 25% of the market capitalization of Horizon, as determined in accordance with MI 61-101.
In connection with the Offering, Horizon may pay finder’s fees of up to 7% cash and up to 7% convertible securities, or a combination of both, as permitted by the policies of the TSX-V.
The proposed use of proceeds of the Offering loan to SUB of $250,000 will be for transaction costs and for working capital purposes.
Horizon and the Vendor have agreed that Horizon will use its best efforts to complete a financing of up to CAD$35,000,000 (the “Transaction Placement“), subject to TSX-V approval, pursuant to the issuance of subscription receipts on such terms as may acceptable to Horizon in the context of the market, acting reasonably each subscription receipt being exercisable concurrent to the completion of the Transaction for one (1) Horizon Share. The use of proceeds will be to fund the performance bonds due to the GovAgency on ratification of the New Fields PSAs; fund the forward work programs on the four fields; complete the Transformation Process for Horizon’s PSAs in Poland and for general corporate purposes.
The Transaction Placement is expected to be a brokered private placement but no investment dealer has been retained to date and pricing of the Transaction Placement is not determinable at this time. Horizon expects to pay industry standard fees and commissions in connection with the Transaction Placement.
Pro forma Reserves and Resources
The pro forma company will have an oil and gas reserve base with significant upside potential in the development of contingent resources and exploration of prospective resources. These will provide an extensive drilling inventory to increase reserves, company value, add production and increase cashflow from the assets:
The reserve and resources of the Lachowice natural gas development project were described in Horizon’s press release dated December 5, 2022.
With respect to SUB’s reserves and resources, a NI 51-101 reserve and resources report for the Project A oilfield will be prepared and we will update shareholders by press release when it is completed.
Pro forma Capitalization upon Completion of the Transaction
Horizon will issue the Vendor approximately, 240,000,000 common shares and 30,000,000 preferred shares
Not including the Transaction Placement, following completion of the Transaction, Horizon expects to have a total of approximately 361,107,176 common shares issued, 30,000,000 preferred shares issued, 65,690,000 common shares reserved for issuance under warrants, and up to 10% common shares reserved for issuance under share based compensation arrangements. Of the issued shares, approximately 60% will be held by the existing Vendor shareholders, and approximately 40% will be held by Horizon shareholders.
Those shares of the Company to be issued to the Vendor shareholders who become principals of the Company will be subject to TSX-V escrow requirements.
Sponsorship of the transaction is required by the TSX-V unless exempt in accordance with TSX-V policies. The Company is currently reviewing the requirements for sponsorship and may apply for an exemption from such requirements. There is no assurance that Horizon will ultimately obtain an exemption from sponsorship.
Board of Directors and Executive Officers on Completion of the Transaction
Subject to any necessary shareholder and regulatory approvals, the board of directors and officers of the Company upon the completion of the Transaction will be as follows:
Dr. David Winter, Director, Chief Executive Officer
Dr. Charle Gamba, Director
Tan Shern Liang, Director
Roger McMechan, Director, President and COO
Ian Habke, Vice President, Finance and Chief Financial Officer
Trevor Wong-Chor, Corporate Secretary
The executives and employees of SUB will hold positions with the proforma company. They add a great deal of experience and expertise to Horizon’s current Board and executive team. In addition, a nominee of the Vendor, to be determined, will be added to the board of directors.
Summary Biographies of the Board of Directors and Executive Officers
The background of each of the aforementioned persons is as follows:
Dr. David Winter, of Calgary, Canada, was confirmed by the Board as the Chief Executive Officer of Horizon. He is a co-founder and a Director of Canacol Energy Ltd. Previously, Dr. Winter was the Founder, Chief Executive Officer and Director of Excelsior Energy Limited, an oil sands focused exploration company. Dr. Winter brings 37 years of international experience in a variety of technical, management and leadership roles living and working in Latin America, Middle East, Southeast Asia and the UK North Sea. His experience was gained working at British Petroleum, Sun Oil, Canadian Occidental (now CNOOC), Alberta Energy Company (now Ovintiv) where he was a member of the leadership team that grew its international business to over 60,000 barrels of oil equivalent per day, Calvalley Petroleum and Excelsior Energy Limited. Dr. Winter holds a BSc (Hons) in Geology from the University of London, a MSc degree in Structural Geology from Imperial College, University of London and a PhD degree in Structural Geology from Edinburgh University.
Dr. Charle Gamba, of Bogota, Columbia, is currently a Co-Founder, Director, President and Chief Executive Officer of Canacol Energy Ltd. Dr. Gamba has over 30 years of international oil and gas experience, and has previously worked for Imperial Oil, Canadian Occidental Oil and Gas, Occidental Petroleum, and Alberta Energy Company in Southeast Asia, the Middle East, West Africa, Canada, and Latin America. He has served on the board of directors of several publicly listed and private oil and gas companies where he held positions on the ESG, audit, reserves, HSE and compensation committees. Dr. Gamba currently sits on the board of the Asociacion Colombiana de Petroleo and Naturgas, two industry groups that form upstream, midstream and downstream policy for the oil and gas industry in Colombia. Dr. Gamba holds a B.Sc., M.Sc. and PhD in Geology.
Tan Shern Liang, of Singapore, has more than 30 years of experience in both the banking and investment industries. Mr. Tan is the founder and Chief Executive Officer of One Tree Partners, a licensed asset management firm in Singapore. One Tree Partners is one of the longest established fund management firms in Singapore. Over the years, One Tree Partners has invested in more than US$1bn worth of mining and commercial real estate deals across the region. Prior to founding One Tree Partners, Mr. Tan held increasingly senior management and executive roles at Citibank, UBS and Goldman Sachs in Singapore. Mr. Tan graduated with a Bachelor of Business Administration (BBA) degree from the University of Michigan.
Roger McMechan, of Calgary, Canada, has over 40 years of diverse experience in managing domestic and international oil and gas operations. He has held senior management positions for Petro Canada and Burlington Resources in North Africa and Canada; was the Executive Vice President and Director of Winstar Resources with operations in Canada, Tunisia, Hungary and Romania; the Chief Executive Officer and Director of Iskandar Energy, a private company that operated in Bulgaria, Georgia, Poland and Ukraine; and more recently was the Technical Director of Block Energy Plc with operations in the country of Georgia. Mr. McMechan received a BSc in Mechanical Engineering from University of Waterloo.
Ian Habke, of Calgary, Canada, was confirmed as the Chief Financial Officer of the Company. Mr. Habke is a Chartered Accountant with over 30 years of experience in the oil and gas industry. He has worked in finance management roles in multiple countries including Canada, the Middle East, the UK and Latin America. Ian has acquired significant knowledge in the areas of oil and gas operations, strategic planning and budgeting, cost control, financial reporting, M&A activities, tax planning, investors relations and supply management. His experience was gained in both junior and large companies including increasingly senior financial management roles with Nexen in the UK, Canada and Yemen. Mr. Habke completed his Bachelor of Commerce degree from the University of Alberta.
Trevor Wong-Chor, of Calgary, Canada, is a partner in the Calgary office of DLA Piper (Canada) LLP and Global Co-Chair of the Energy, and Natural Resources Sector and a former member of the Canadian firm’s Executive Committee and practices primarily in the areas of securities, mergers & acquisitions and corporate law. Trevor acts for a diverse range of issuers and investors, including in the areas of oil and gas, mining and the life sciences. His practice involves providing advice on a range of issues, however, particular emphasis is placed upon advising corporations and investment dealers with respect to securities and business law matters, including advising on private and public offerings of securities, mergers and acquisitions, private equity and securities regulatory requirements. He is a corporate secretary or director of a number of public and private corporations.
All information provided in this news release related to the Vendor and SUB has been provided by management of the Vendor and SUB and has not been independently verified by management of Horizon.