African Petroleum Corporation Limited has entered into an agreement to combine with PetroNor E&P Ltd (“PetroNor”) for an all-share consideration of c. 816 million shares in African Petroleum. PetroNor is a privately owned, Africa focused E&P independent, that holds a 10.5% indirect interest in the PNGF Sud fields and right to negotiate entry into a 14.7% indirect interest in an exploration license covering the PNGF Bis fields (collectively the “Congo Assets”). Subject to shareholder approval, and certain other customary conditions, African Petroleum will at completion of the Transaction change its name to PetroNor E&P Limited (the “Combined Company”).

The Transaction is recommended unanimously by the Board of Directors of African Petroleum and all members of African Petroleum’s Board of Directors and executive management holding shares in the Company have provided their pre-commitment to vote for the Transaction in a general meeting expected to be held in April 2019 (the “EGM”).

Transaction highlights

• The Company will combine with PetroNor for an all-share consideration of c. 816 million shares in African Petroleum
• The existing African Petroleum shareholders will receive one for one (c. 155 million) warrants to preserve potential upside from the Company’s existing exploration portfolio in The Gambia and Senegal
• The Transaction transforms the Company from an exploration-focused player into a cash-flow generating producer with a significant growth profile
• The Transaction provides the Company with diversified, low risk, long life and high-quality producing assets, with current net (working interest) production of c. 2,300 bbl/d and medium-term exploration upside in a well-established operating jurisdiction
• During 2018, PetroNor generated a post-tax asset cash flow (pre SG&A) of USD 17m based on an average net (working interest) production of 2,127 bbl/d
• Strengthened ability to preserve and develop the Company’s portfolio in The Gambia and Senegal through access to PetroNor’s existing cash,future cash flow and assets with additional debt capacity
• Subject to shareholder approval and satisfaction of all conditions precedent, the Transaction is expected to close by end of April 2019
• This is the first step in a renewed strategic focus for the Company that will aim to steadily build and increase its reserve base while using free cash flow to pursue defined exploration targets in selected and highly prospective basins. The PetroNor team has extensive experience doing business in Africa, which, together with African Petroleum’s public platform, will be used to grow the Company into a leading African focused E&P independent

Jens Pace, CEO of African Petroleum and proposed CEO of the Combined Company, commented:
“This is a truly transformative transaction that diversifies our portfolio considerably whilst simultaneously strengthening our position with regards to ongoing arbitration and farm-down processes. We have been proactively seeking opportunities to diversify our footprint away from pure-exploration, and this proposed combination with PetroNor delivers all the criteria we sought. The combined company will benefit from a proven reserve base generating strong and predictable cash flow and material upside potential from the Congo assets, as well as considerable exploration upside from our existing portfolio. We believe that this proposed transaction is undoubtedly in the best interest of our shareholders as it will help protect value from our existing portfolio and provide a much stronger platform from which we can deliver long-term value.”

Transformational acquisition of producing assets

Through the Transaction, African Petroleum will acquire diversified, low risk, long life and high quality producing assets with competitive unit costs. PNGF Sud is operated by Perenco, a well-regarded, efficient operator, who is also expected to become the operator of PNGF Bis. The Transaction will transform the Company from a pure-play exploration company into a full cycle E&P company with material reserves, cash flow and significant upside potential.

The Congo Assets, which are located in shallow waters offshore Congo (Brazzaville), have estimated net 2P reserves of 8.5 mmbbl and net production of approximately 2,300 bbl/d from four fields currently in production, in addition to net 2C contingent resources of 7.6 mmbbl as at 1 January 2019. In addition to the Congo Assets, PetroNor is in negotiations regarding the acquisition of a producing asset offshore Nigeria with significant upside potential from contingent resources to be developed. Should the Nigeria acquisition materialize, further information will be provided in due course.