Simba Energy signs MOU to Farmout in Kenya
Simba Energy to farm out block 2A to Ajax
2013-05-13 10:09 ET - News Release
Mr. Robert Dinning reports
SIMBA ENERGY INC. SIGNS MEMORANDUM OF UNDERSTANDING TO FARMOUT IN KENYA
Simba Energy Inc. has signed a memorandum of understanding (the MOU) with Ajax Exploration Ltd., a privately owned oil and gas company, to farm out a 66-per-cent interest and operatorship of block 2A, onshore Kenya.
The MOU, which is to be superseded by definitive farm-out agreement that Simba expects to be finalized and executed shortly, is intended to set out the principal commercial terms of the farm out only, which are as follows.
Highlights of MOU:
- The transaction provides a significant investment in Simba's Kenya asset, delivering a fully carried predrill exploration program and a commitment to drill and carry Simba for one exploration well;
- Ajax is to commit to a work program including drilling one well for Simba representing a gross investment of up to $36.5-million (U.S.) (assuming a well cost of $25-million (U.S.) in Kenya);
- Ajax will pay Simba up to $3.1-million (U.S.) in back costs. In addition, Ajax will provide a net carry of up to $12.4-million (U.S.) (assuming a well cost of $25-million (U.S.)).
The MOU provides that upon execution of the farm-out agreement, Ajax is to advance to Simba a loan of the sum of $1.3-million (U.S.) to cover some back costs incurred by Simba prior to the effective date of the farm-out 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 farm-out agreement receives Kenyan government approval and Simba transfers the 66-per-cent interest in block 2A to Ajax. Simba anticipates receiving government approval later this year after executing the farm-out agreement and transferring the 66-per-cent interest to Ajax shortly thereafter, said agreement and transfer subject to Kenya government approval; however, if such approval and transfer has not occurred within 365 days after signing of such farm-out agreement, or in the event of default under the loan note, then Ajax may elect to convert the loan into Simba common shares at a conversion price of 7.5 Canadian cents per share during the first year, or 10 Canadian cents per share thereafter. The loan is to bear interest at a rate of 3 per cent and permit Simba to prepay a minimum of $250,000 (U.S.) at any time without penalty. In addition, the loan note will restrict Simba from creating, incurring or permitting the subsistence of any security interest over the Kenya production sharing contract or related assets, or from creating any indebtedness or securities or entering into any other obligation that ranks in priority to the loan note.
Hassan Hassan, managing director of operations, stated: "The MOU with Ajax provides Simba and its stakeholders with the opportunity to accelerate its exploration program in Kenya. Simba's first farm-out 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, 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 farm-out agreement will be subject to governmental approval, and the terms of the farm-out agreement and the loan will also be subject to receipt of acceptance for filing by the TSX Venture Exchange.
We seek Safe Harbor.