EMPIRE Oil & Gas has entered into an agreement to purchase ERM Power’s interests in its Western Australian gas assets for $16.4 million, which will leave Empire with control of the largest acreage package in the Perth basin.
In addition to the term sheet signed for the transaction, ERM Power, which is Empire’s largest shareholder and also a joint venture partner, has also agreed to participate in a subscription and rights issue to recapitalise Empire, with both the sale and recapitalisation subject to Empire shareholder approval.
The assets which form part of the sale are ERM Power’s interests in eight exploration permits in the Perth basin, including exploration permit 389 it shares with Empire which contains the wells Red Gully-1 and Gingin West-1.
ERM holds 23.6 per cent of Red Gully and interests in seven other Perth basin permits.
The deal will be funded by vendor finance from ERM Power which Empire is to repay – either on the disposal of the Red Gully processing plant or 24 months from the date of the agreement, whichever comes first.
As security for the vendor finance, Empire will grant ERM Power a security interest over its assets, including over the Red Gully processing plant.
The recapitalisation of Empire will be by a subscription and proposed rights issue up to the value of $7.5 million.
ERM Power will subscribe for equity in the subscription and proposed rights issue to take its shareholding in Empire from about 10 per cent to 19.99%.
ERM Power has also agreed to commit to underwrite a portion of the rights issue under certain conditions.
ERM Power chief executive Philip St Baker said successful completion of the transaction will result in the restructure of its gas assets into a more capital efficient ownership model so it can focus on its electricity retailing and generation business.
“We believe these assets have strong commercial potential, enhanced by their proximity to Perth, and that Empire has the management experience and expertise to develop them,” he said.
“After the work we did last year to improve the governance and operation of Empire, the company is well placed to take full ownership of these gas tenement interests and to grow its business.”
As for Empire, the company said the deal would provide a simpler ownership structure which would maximise its ability to attract high quality exploration partners and investors.
Additionally, Empire’s acreage holding will grow to 12,000 square kilometres, equating to more than 50% of the Perth basin.
Empire’s partnership with ERM Power has been a rocky one at times, with ERM rolling Empire’s board late last year after the company got fed up with the apparent lack of progress of the shared assets.
Empire will seek approval of the deal at its general meeting, to be held no later than 17 November.