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Oslo, Norway, Oct 23, 2007 - (Hugin via Asia Business News) - Extended stock exchange announcement 23 October 2007
BACKGROUND
Petrolia Drilling ASA, Petrolia Rigs AS ("Petrolia Rigs"), a fully owned subsidiary of Petrolia Drilling ASA and PetroMENA ASA ("PetroMENA") (together the "Parties") have agreed to a transaction whereby a new wholly owned subsidiary of PetroMENA, Petro Rig IV, will acquire the semisubmersible drilling rig SS Petrolia (the "Transaction"). PetroRig IV will be established in Cyprus or other jurisdiction.
Petro Rig IV will pay a total consideration of MUSD 225 for SS Petrolia. Pursuant to the sales and purchase agreement, it is agreed that Petrolia Rigs shall receive the amount in cash at closing.
The Transaction is subject to approval by the general meetings of both Petrolia Drilling ASA and PetroMENA and signing of a final sale & purchase agreement by the Parties.
SS Petrolia
SS Petrolia (the "Rig") is an upgraded second generation semisubmersible drilling rig, Pentagone design, built in 1976 and subsequently upgraded on several occasions latest in 2005/2006. The Rig is suitable for operations in water depths up to 1,200 feet.
SS Petrolia is classified by Det Norske Veritas and registered in Liberia. The Rig has been drilling offshore Ireland UK North Basin, but is now in transit to the Gulf of Mexico. SS Petrolia is expected to arrive in the Gulf of Mexico December 2007, to embark on a 2.5 year (913 days) contract with Pemex with an estimated gross value of MUSD 269.
Larsen Oil & Gas Ltd ("LOG") has been manager for SS Petrolia through a management agreement with Petrolia Rigs. Petro Rig IV will continue the management agreement with LOG with respect to SS Petrolia. Under the agreement, LOG is responsible for the operation of the Rig for engagement of crew.
TIMING
The general meetings will take place by mid-November 2007. The Parties expect final closing of the Transaction by mid-December 2007. Title and ownership to the Rig will be transferred to PetroRig IV against cash settlement of the agreed consideration (MUSD 225).
An information memorandum is under preparation and will be submitted to Oslo Børs for approval. Subject to normal approval procedures by Oslo Børs, Petrolia Drilling expects public distribution of the information memorandum shortly before the planned extraordinary general meeting in mid-November 2007.
IMPLICATIONS OF THE SALE FOR PETROLIA DRILLING
Strategic effects The Transaction will enable Petrolia Drilling to realize a significant gain, resulting in a significant net cash position.
Petrolia Drilling has historically been dependent on a few wholly or partly owned rig assets. After completion of the Transaction, Petrolia Drilling's rig exposure will be somewhat more diversified. Petrolia Drilling is currently the majority owner of PetroMENA ASA (43.8%) and Petrojack ASA (39.95%). Petrolia Drilling also owns 50% of Venture Drilling AS. In addition, Petrolia Drilling owns 100% of Petrolia Services AS dealing with oilservice within the offshore industry.
The Transaction will also significantly improve Petrolia Drilling's financial strength, however, the Board of Petrolia Drilling has not yet decided how to use or allocate the net proceeds from the Transaction.
Financial effects
The sale of SS Petrolia Petrolia Drilling will realize a significant gain on its investment in SS Petrolia. Proceeds from sale of SS Petrolia will partly be used to redeem 50 % of the 10.75 per cent senior secured bond 2006/2011 at a redemption price of 110%. Long term debt will after partial redemption of the bonds decrease to approximately MNOK 245. Net interest bearing debt will decrease to a total net cash position of approx. MNOK 300 after the Transaction. Total equity following sale of SS Petrolia will increase with 56.2 % of the gain on sale of SS Petrolia due to elimination of 43.8 % of the gain as PetroMENA is an associated company in the Petrolia Drilling Group. Equity ratio following sale of SS Petrolia and redemption of 50% of the bonds will increase from 61% to 71%.
Tax effects
Through the sale of SS Petrolia, Petrolia Drilling Group will realize a MNOK 1.081 gain on its investment in SS Petrolia (based on the book value of SS Petrolia in group figures as per 30 June 2007 and on a USD / NOK exchange rate of 5.4). As the transaction will be carried out as sale of the asset SS Petrolia, the gain will be included in taxable income in Petrolia Drilling, thus enabling Petrolia Drilling to utilize its net temporary differences and tax losses carried forward. Preliminary calculations of the tax positions show that, net temporary differences and tax losses carried forward, exceeds the taxable gain on the sale of SS Petrolia, hence there will be no taxes payable on the gain on the sale of SS Petrolia.
KEY FIGURES FROM BALANCE SHEET AND INCOME STATEMENT
Key figures for SS Petrolia
SS Petrolia has been owned by Petrolia Rigs AS, a wholly owned subsidiary of Petrolia Drilling. Some of the drilling equipment onboard SS Petrolia, which will be acquired by PetroRig IV has been owned by other companies in the Petrolia Drilling Group. As no separate audited financial statement have been prepared for SS Petrolia, the following key financial figures for SS Petrolia have been extracted from the historical financial statement for the Petrolia Drilling Group. The key financial figures below are un-audited and are presented for illustration purposes only.
Key figures for Petrolia Drilling
Key balance sheet figures for Petrolia Drilling Group, pro forma
The following pro forma financial balance sheet figures have been prepared to illustrate the main effects of the sale of SS Petrolia and partial (50%) bonds redemption for Petrolia Drilling, by adjusting the actual balance sheet figures in Petrolia Drilling's 2nd quarter 2007 report. Please note that the pro forma balance sheet figures are unaudited, preliminary and prepared only for illustration purposes. Pro forma figures have been prepared based on an USD / NOK exchange rate of 5.4.
For further information, please contact: Lars Moldestad, CEO, + 47 90 69 91 97, lars.moldestad@log-ior.no
