Olusola Bello
LEKOIL (AIM: LEK), the oil and gas exploration and production company with a focus on Nigeria and West Africa has announced that Savannah Energy Investments Limited (“Savannah Investments” or the “Investor”), has entered into a convertible facility agreement (the “CFA”) and option agreement (the “Option Agreement”) with the Company in order to support the Company’s restructuring.
Savannah Investments is a wholly owned investment vehicle of Savannah Energy PLC (“Savannah”) (AIM: SAVE), the British independent energy company focused on the delivery of Projects that Matter in Africa.
Some of the highlights of the transaction are below:
· The Company has entered into the CFA with Savannah Investments whereby Savannah Investments will support LEKOIL’s proposed restructuring (as described below) by providing a GBP 0.9 million loan to LEKOIL.
· The CFA is repayable on Wednesday 2 March 2022 and bears interest at 5% per annum. In the event of non-payment by LEKOIL, Savannah Investments may elect to convert the outstanding amount into 177.1 million new ordinary shares of Lekoil Limited (“Ordinary Shares”) at a price of 0.5 pence per share. The terms of the CFA are set out more fully at the end of this announcement.
· Savannah Investments has also entered into arrangements with LEKOIL and certain of its service providers who have agreed to their unpaid fees being settled by way of the issue of 22.9 million new Ordinary Shares at 0.5 pence per share (the “Tripartite Agreements”). Savannah Investments has the right to acquire these shares pursuant to the Tripartite Agreements and a further announcement will be made once these shares have been issued.
· In the event that Savannah Investments exercises its rights to purchase the abovementioned 22.9 million Ordinary Shares and converts the CFA into 177.1 million new Ordinary Shares, Savannah Investments’ holding is expected to represent approximately 25.2% of the fully diluted share capital of LEKOIL.
· The Company has also signed an Option Agreement with Savannah Investments granting it, subject to approval of the Company’s shareholders at an extraordinary general meeting (the “EGM”) to be called in March 2022, an option to be assigned the intercompany debt owed to the Company by Mayfair Assets & Trusts Limited (the “Mayfair Loan”), its associated security related to OPL 310 and all rights and benefits of the Company with respect to the same. A US$1 million payment is payable by Savannah Investments to LEKOIL upon such assignment. A summary of the Option Agreement, the expected date for the EGM and full details of the OPL 310 asset are provided below.
· Pursuant to the Option Agreement, it is intended that the Company would be paid deferred consideration in the event that Savannah Investments obtains a working interest in OPL 310 and the same is developed. Such deferred consideration is structured as a royalty (capped at US$50 million) of 0.5% on crude oil sales attributable to Savannah Investment’s actual participating interest in OPL 310 (the royalty capped at a 17.14% participating interest).
· Savannah Investment’s CFA and strategic involvement in the restructuring has received the support of the Company’s major institutional shareholders in LEKOIL, representing approximately 42% of the Company’s current issued share capital. This support when combined with Savannah Investment’s potential shareholding of 25.2%, would represent approximately 59% of the Company’s fully diluted share capital.
· Following the drawdown under the CFA, the Company expects to be well funded for its currently anticipated working capital needs in 2022.
· LEKOIL owns a 40% legal interest and 90% economic interest in Lekoil Nigeria Limited (“Lekoil Nigeria”), the Nigerian holding company for the LEKOIL Group assets. Via its subsidiaries, Lekoil Nigeria has, among other interests, a 40% participating interest in the Otakikpo producing oil field and a 17.14% participating interest in OPL 310 which contains the potentially world-class Ogo oil, gas and condensate discovery with estimated gross contingent resources of 774 MMboe.
· Since 2013, and in line with the original Group corporate structure, LEKOIL has raised equity capital in excess of US$260 million from international investors which has then been provided, by way of intercompany loans, to fund Lekoil Nigeria’s operations.
· The investment made by Savannah Investments is integral to LEKOIL’s planned restructuring. Through this investment, the LEKOIL Board (the “Board”) and management team expect to prevent Lekoil Nigeria and its CEO, Mr. Olalekan Akinyanmi, from taking control of its parent company by purchasing LEKOIL Ordinary Shares effectively with its own cash, thereby seeking to deprive long-standing LEKOIL investors of their investment.
· Following the restructuring, LEKOIL now plans to engage with Lekoil Nigeria, its board and Mr. Olalekan Akinyanmi as an individual to pursue all of its rights to loan repayments, its right to appoint directors to the board of Lekoil Nigeria and remedy of all other matters of dispute. It is the Board’s firm intention to pursue and hold accountable all three parties for their actions.
· The Board strongly believes that the proposed investment by Savannah Investments and associated planned restructuring of the LEKOIL Group will provide the necessary capital to unlock the material inherit value of the LEKOIL portfolio, far in excess of the 1.9p per share available to shareholders through the Lekoil Nigeria offer.
· Details of the proposed extraordinary general meeting will be published shortly.
Reacting to this development, Tony Hawkins, Interim Executive Chairman of LEKOIL, said:“We are extremely pleased to announce that, following an extensive consultation with LEKOIL’s existing major institutional shareholders, we have entered into the CFA and the Option Agreement with Savannah Investments. The CFA will provide LEKOIL with much needed working capital and value realisation assistance from a successful, well-respected and well-financed African-focused investor with substantial Nigerian corporate restructuring and turnaround experience. I would encourage shareholders to vote in favour of the Option Agreement at the upcoming Extraordinary General Meeting.
The investment by Savannah Investments is expected to provide the Company with the working capital to commence a significant restructuring of the LEKOIL Group with the intention of unlocking the underlying value in the Group’s asset base. While the Board and our major institutional shareholders are cognisant of the potential dilution associated with the CFA, both groups believe this cost is a more than fair price to enable this substantial value to be potentially unlocked. The initial steps in the planned restructuring are expected to see LEKOIL enforce our legal rights in relation to our 40% legal and 90% economic equity ownership, the recovery of the intercompany debt investments in Lekoil Nigeria group and the US$1.6 million loan owed by Mr Akinyanmi to LEKOIL, and engage directly with these parties in relation to this.
I think it is important to recognise that LEKOIL has been unable to unlock the Group’s underlying value over the course of the past nine months due to the actions of Lekoil Nigeria and its board whereby they decided to stop funding the Company and effectively blocked the appointment of the three nominated Directors of LEKOIL to the Lekoil Nigeria board. Further, Mr. Akinyanmi has failed to repay the CEO loan on its scheduled payment dates (as early back as March 2021) which could have provided the Group with the working capital it requires to fund itself. It is our view that these actions constituted a clear attempt to starve our Company of working capital to force a sale of the Company to Lekoil Nigeria at a valuation unreflective of the underlying value of the Group’s future prospects had these actions not been taken. Their actions have clearly caused significant harm to the Group which we will now seek to remedy.
Lastly, I would like to thank our major institutional shareholders and Savannah Investments for their support for the planned restructuring.”
Rory Kutisker-Jacobson, Portfolio Manager at Allan Gray Investment Management, one of LEKOIL’s institutional shareholders, said: “Shareholders have to date invested some US$260 million in LEKOIL in good faith. The events that have transpired over the past year are entirely unsatisfactory. We view Lekoil Nigeria’s attempts to acquire its parent, LEKOIL, using the cashflows of Lekoil Nigeria, in a dim light. This is a particularly unsatisfactory move as LEKOIL’s shareholders are arguably already entitled to this cashflow. We welcome the supportive investment of Savannah Investments and would urge the management of Lekoil Nigeria to obey their fiduciary duties and contractual commitments to all shareholders.”
