Australia-listed ERM Power has agreed to sell its West Australian gas assets to compatriot Empire Oil & Gas for A$16.3 million (US$15.2 million).
ERM revealed it had agreed to sell its stakes in eight exploration permits to Empire, including its 23.61% interest in EP 389 which contains the Red Gully-1 and Gingin West-1 wells which currently produce gas and condensate that is contracted to Alcoa and BP.
ERM will provide Empire an interest free two-year loan to fund the deal, however it will be eligible for a top-up payment based on gains in Empire's share price.
Under the condition, the purchase price will ultimately escalate by 70% of the percentage increase in Empire’s share price until the loan is repaid.
In a separate release, Empire said the deal would give it the largest acreage package in the Perth basin, covering about 12,000 square kilometres, or roughly 50% of the basin.
Empire chief executive Ken Aitken said the deal meant the company would now receive 100% of the cash from selling gas and condensate which is expected to generate A$25 million a year, at current production rates.
“The simpler ownership structure will in turn maximise our ability to attract the highest quality exploration partners and investors to help fund what is expected to be an aggressive exploration drive over the next few years to unlock the value of our highly prospective holding," he said.
“The deal also provides funding solutions via both the vendor finance arrangements and the share placement, which will give us the time and financial stability to commence our work programs and seek longer-term solutions to funding an aggressive exploration drive.”
Along with the 23.61% interest in EP 389, ERM's assets being sold include a 30.87% interest in EP 426 which includes the North Erregulla prospect, a 13.88% interest in EP 432, which includes the Black Arrow prospect, a 5.56% interest in EP 416 which includes the Leschenault prospect, a 12.5% stake in EP 440, a 50% stake in EP 454 which includes the Charger and Garibaldi prospects, a 60% interest in EP 480, a 100% interest in EP 467.
The deal also covers ERM's 21.25% holding in Cattamarra Farms, which owns the land that the Red Gully facility and Gingin West-1 and Red Gully-1 wells are located on.
Following the completion of the deal, Empire will hold a 100% interest in all of the assets, with the exception of EP 426 where Norwest Energy holds a 22.22% interest.
Empire and ERM also revealed on Monday that the latter was set to increase its interest in Empire from 10.2% to 19.99%.
Empire said it would raise up to A$7.5 million from ERM through a combination of a share placement and a rights issue, which will be done at a 12.5% discount to Empire's 10-day volume weighted average price immediately prior to the time of shareholder approval.
Empire said it planned to offer all shareholders the opportunity to take part in the proposed rights issue under the same terms to raise an additional A$10 million.