What the daily bashers don't seem to comprehend:
Ajax Exploration Ltd., an oil and gas exploration company, signed a memorandum of understanding (MoU) to acquire a 66% interest and operatorship of Block 2A, onshore Kenya, from Simba Energy Inc., an onshore oil and gas exploration company with assets in Kenya, Guinea and Chad.
Block 2A covers an area of 7,801.72 sq km (1,927,844 acres), with excellent potential for significant oil and gas discoveries, in northeast Kenya. The block overlies the southern tip of the Mandera Basin while the southwest corner of the block extends into the Anza Basin.
As per the MoU, Ajax Exploration will commit a work program including drilling one well for Simba Energy representing a gross investment of up to US$36.5 million (MM) (assuming a well cost of US$25 MM in Kenya); and will pay up to US$3.1 MM in back costs to Simba Energy; and will provide a net carry of up to US$12.4 MM (assuming a well cost of US$25 MM).
The MoU provides that upon execution of the definitive agreement, Ajax Exploration will have to advance to Simba Energy a loan of the sum of US$1.3 MM to cover some back costs incurred by Simba Energy prior to the effective date of the agreement and to concurrently issue a two year convertible loan note to evidence the loan. The loan is to be extinguished and the loan note cancelled if and when the definitive agreement receives Kenyan government approval and transfer of 66% interest in Block 2A to Ajax Exploration.
The transaction is subject to execution of definitive agreement and approval of the Government of Kenya and the loan subject to receipt of acceptance for filing by the TSX Venture Exchange.
The company expects to receive the approval of the Government of Kenya later in 2013. However, if such approval and transfer has not occurred within 365 days after signing of such agreement, or in the event of default under the loan note, then Ajax Exploration may elect to convert the loan into Simba Energy common shares at a conversion price of C$0.075 (US$0.074) per share during the first year, or C$0.1 (US$0.09) per share thereafter. The loan will bear an interest rate of 3%. Simba Energy will be allowed to prepay a minimum of US$0.25 MM at any time without penalty.
The transaction will enable Ajax Exploration to expand its oil and gas exploration asset base in Kenya, while the divestment will provide Simba Energy an opportunity to accelerate its exploration program in Kenya with a fully carried pre-drill exploration program and a commitment to drill and carry for one exploration well by Ajax Exploration.
Hassan Hassan, managing director of operations, Simba Energy, said, "The MOU with Ajax provides Simba and its stakeholders with the opportunity to accelerate its exploration program in Kenya. Simba’s first farmout agreement provides an attractive valuation marker for part of its asset portfolio and delivers the required funding for our upcoming exploration campaign."
Andrew Shrager, chairman of Ajax Exploration, said, "This MOU represents a second step in our relationship with Simba for its Kenya exploration block. In 2012, our associate, GeoDynamics Worldwide srl conducted a broad based grid Passive Seismic survey which identified potential areas for further exploration efforts. We now intend to apply our suite of technologies with the aim of speeding up the exploration phase, and drill our first well in late 2014."
The transaction implies value of US$40.87 per acre of land.