Empyrean Energy agrees sale of Sugarloaf interest for initial $62m

Empyrean will receive an initial $61.5m cash on the close of the Sugarloaf deal, which is expected in the first quarter of 2016 but will first require a shareholder vote that will be scheduled soon, with the amount possibly rising by up to a further $10m depending on how the price of crude oil behaves in the coming two years.

If the average price of WTI crude rise above $55 in the first or second half of 2016, CEP II will pay Empyrean an extra $1m for every whole dollar in excess of $55 per barrel up to a maximum of $5m.

Even if WIT does not recover in 2016, a second contingency applies to 2017 with a WTI price of $60 per barrel.

Following the deal, Empyrean will be a debt-free entity, have a robust level of working capital and a portfolio that will comprise a 58.1% working interest in the Eagle Oil Pool development project in southern California; a 7.5% working interest in two producing wells and lesser interests in another six producing wells located in the Sugarloaf Block A operated by ConocoPhillips and; a 10% working interest in the Riverbend project in Texas.

Chief executive Tom Kelly said: "This transaction crystallises the value of the Sugarloaf AMI Project at a time when there are significant challenges facing the resources sector in general and, specifically, when the additional financing required to support the company's continued participation in the development of the asset in the current low oil price environment would incur either an unacceptable cost or unacceptable dilution when compared with the transaction."

He added that he believed it was the "right time" to sell the asset and de-risk the portfolio.

"I hope shareholders will share in my excitement for the Transaction and the opportunities it may unlock in respect of the company's remaining assets and others that may arise at a time when drilling and associated costs are significantly reduced and a number of operators and market participants are financially distressed."

The board, which will convene a general meeting "as soon as possible", said it had received irrevocable undertakings from certain shareholders representing 23.6% of its shares to vote in favour.

Shares in Empyrean rocketed 53% to 7.63p by 1005 GMT on Monday.