Path enters conditional farm-in deal with 5P Energy

Path Investments has entered into a conditional farm-in agreement with 5P Energy, it announced on Friday, in relation to the potential acquisition of a 50% participating interest in a producing gas field - the Alfeld-Elze II Licence and Gas Field in Germany.

The company said the Alfeld-Elze II Licence encompasses the Alfeld-Elze / Hildesheimer Wald gas deposit, and covers a total area of 64.6 square kilometres.

It said the proposed transaction met the company's acquisition criteria, namely the acquisition of oil and gas production or near-production assets, which possess a lower risk profile than exploration or appraisal assets.

“The licence on which the Field is situated is a production licence,” Path’s board said in its statement.

“It was previously split in two and was historically owned and operated by Mobil and Preussag respectively.

“The Field is a large fractured carbonate reservoir, with 2D seismic coverage, well control and good access to infrastructure.”

Path added that the field is located onshore, 30 minutes drive south of Hannover.

It said the field previously produced 66 billion cubic feet of gas from nine wells between 1972 and 1995, when it was abandoned.

The field was brought back into production in 2015 by 5P Energy through the workover and re-entry of an old well, and the installation of processing facilities at the well site.

Since 2015, the well produced in excess of 2.5 billion cubic feet of gas.

“5P Energy has identified another old well candidate for workover and re-opening, located less than 1 km away from the existing producing well site,” Path said.

“Drilling operations are underway and, subject to final approvals, commissioning of the second well is anticipated to start early in the second quarter of 2018.”

Path said the principal terms of the farm-in agreement included it acquiring a 50% participating interest in the field, with Path and 5P Energy entering into a joint operating agreement.

The consideration payments would include €5m payable in cash on completion of the proposed transaction as partial reimbursement of the Z2 costs.

They would also include -subject to Z4 achieving commercial production - a cash payment of €2m as partial reimbursement of the Z4 costs accrued prior to 1 January 2018.

Additional payments under the work obligation would include €10m towards 100% of the costs of the drilling, logging, testing and completion of one or more new wells and, if agreed, the acquisition of 3D seismic over the field.

They would also include 50% of the Z4 costs incurred on or after 1 January 2018, with the board saying additional cash payments could become payable if certain milestones were successfully met following completion.

Completion remained conditional upon the obtainment of a legal opinion confirming that approval from the German antitrust office was not required for the proposed transaction or the German cartel authority clearing the transaction.

It also required the production licence continuing in full force and effect, with all approvals, consents and required permissions having been obtained by 5P Energy in respect of the current phase of the re-opening of Z4.

Agreement by the parties to the 2018 work programme and budget prepared by 5P Energy was also required, along with the publication by Path of an admission document or a prospectus relating to the proposed transaction, and the readmission of Path's shares to trading on AIM.

“In order to fund the committed payments due under the proposed transaction the company intends to undertake an equity fundraising,” the board said in its statement.