THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA, THE REPUBLIC OF IRELAND OR JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A BREACH OF THE RELEVANT SECURITIES LAWS OF SUCH JURISDICTION.
This announcement does not constitute a prospectus or offering memorandum or an offer in respect of any securities and is not intended to provide the basis for any decision in respect of Tower Resources PLC or other evaluation of any securities of Tower Resources PLC or any other entity and should not be considered as a recommendation that any investor should subscribe for or purchase any such securities.
Tower Resources plc (the “Company” or “Tower” (TRP.L, TRP LN)), the AIM listed Africa focussed oil and gas exploration company announces today its intention to raise gross proceeds of approximately £180,000, through a non-brokered subscription for approximately 18 million new Ordinary Shares (the “Placing Shares”) at a placing price of 1.0 pence per Ordinary share (the “Placing Price”) (the “Placing”).
Further to the Company’s announcement of 12 May 2017, Tower’s shares are currently suspended from trading on the AIM Market due to significant uncertainty in relation to its financial position. Whilst the Placing will provide the Company with some financial headroom within which to continue to pursue a transaction in relation to its Thali asset, it is currently anticipated that the Company’s shares will remain suspended from trading until such time as there is greater certainty regards to Tower’s future prospects.
The Directors continue to believe that there is significant value in the Company’s assets including its Thali asset and remain confident that a transaction in relation to that asset that would release funding for the Company’s short term requirements can be achieved in due course. As a result, certain directors have indicated an intention to participate in the Placing at a level that would constitute a related party transaction under AIM Rule 13. Notwithstanding the continued suspension of the Company’s shares, Tower believes that existing shareholders should be provided with the opportunity to subscribe for Ordinary Shares at the Placing Price and therefore the Company also intends to make an Open Offer to all qualifying UK shareholders shortly following Admission to raise up to £180,000 (the “Open Offer”) at the Placing Price. The Placing is not conditional upon the Open Offer. A circular concerning the Open Offer and Notice of AGM will shortly be sent to Shareholders and will also be made available on the Company’s website www.towerresources.co.uk.
It is expected that Admission of the Placing Shares will become effective and that dealings will commence in the Placing Shares by 8.00 a.m. on 5 July 2017.
The Company also announces its Preliminary results for the period to 31 December 2016.
The 2016 Annual Report is available on the Company’s website and is being printed and is expected to be posted to shareholders shortly.
2016 was a tough year for Tower Resources plc (“Tower” or the “Company”), in which we had to contend with both a difficult market for the E&P sector and also a difficult market for the services sector. Earlier in the year, we had believed that the weakness of demand for key services, notably seismic acquisition, would at least make it easier and cheaper to execute and finance our work programs, but as things grew worse we found that there were no longer vessels available in our geography between assignments, and contractors could no longer help finance activity, because there were so few assignments and several service companies were themselves facing great financial pressure.
Even so, we have managed our way to this point, reduced our costs, and are now working through a number of options for funding our remaining license commitments, notably in Cameroon where we remain extremely keen on the Thali project.
Following the publication of our 2015 Annual Report, we had planned to execute 3D seismic acquisition on Thali during the second half of 2016, under a proposed agreement with one of the seismic services firms which would have granted them a 20% share of the license. By now, we had hoped to be farming out an interest to drill the commitment well based on a more detailed evaluation of the reservoirs already identified by the earlier wells and seismic. But this proved impossible for our intended seismic partner to deliver, despite their best intentions. Since that time we have been working closely with alternative partners for the license, and with the Société Nationale des Hydrocarbures (“SNH”) in Cameroon who have been supportive and flexible throughout. It was in this context that we made a placing and open offer of shares to raise £1.6 million in September and October, and at the time we said that we would work on alternative options for financing our Cameroon work program, and we would also cut our costs as far as we could while continuing to manage this process and our other licenses.
At the end of October, we announced a reduction in the size of the board to three people including myself, Peter Taylor and Graeme Thomson, and that I would take over the role of CEO as well as Chairman, while Graeme would become a non-executive director. Nigel Quinton also relinquished his role as Exploration Director, to make himself available to us as a consultant on an as-needed basis. Since the year-end we have also terminated our other non-director employment agreements in the UK, retaining the services of some but not all of our staff on a part-time basis. This has allowed us to reduce our costs by some £1 million per year, to a level that is more appropriate to our reduced level of activity and easier to fund.
Although our activity level is lower than it was in 2013-15, we have nevertheless still been busy, notably in Cameroon where we have been considering a variety of options for the work program itself with SNH, and for financing it with various potential partners. As previously announced we also negotiated the conversion of our SADR working interests into over-riding royalty interests, a deal which was completed shortly after the year-end, in order to ensure that we would not need to inject further capital into those interests going forward. We also applied for a further license in Cameroon (an application which is pending), although we consciously did not push to move this forward given the difficult financing environment.
During the last quarter of 2016 and the first quarter of 2017 we spoke with many parties about Thali, and in Q2 2017 we settled on a proposed transaction which would have funded the remaining work program and provided us with a significant recovery of back costs while retaining an on-going interest. Unfortunately our counter-party was then unable to continue with that transaction or to make the payment on account that the proposed transaction had envisaged, which led to our announcement in May 2017. The Board felt that this was a sufficiently major event and created sufficient uncertainty that trading in the Company’s shares should be suspended until the Company’s position was clearer, which remains the position today.
We have a number of options going forward, some of which include:
- Moving forward with a similar back-cost/royalty transaction to the one we were planning to do in May
- Agreeing a more conventional farm-out transaction
- Adjusting the work program in consultation with SNH, and financing the adjusted work program ourselves
A satisfactory transaction involving a significant recovery of back costs could fully address our short term funding needs, since our work commitments on our other licenses are low and we have reduced costs so much. For this reason we have been reluctant to ask shareholders for more cash when the stock price is already low compared to the potential value of our assets. But we have reached the point where we need to make at least a modest replenishment of working capital, having already outlasted the “runway” which we envisaged at the time of our 2016 placing. We are still seeking only a modest amount of funds at this stage, £180,000 through the initial placing, to minimise unnecessary dilution to shareholders who may be unwilling or unable to participate, as a transaction relating to Cameroon will likely eliminate the need for further short term funding.
This is why, at the time of writing, we are conducting the unusual process of preparing a Placing, while trading in our shares remains suspended. The uncertainty regarding the Company’s future position is great, despite the several parallel commercial discussions we are pursuing with third parties. We are not disclosing the details of those parties or discussions publicly because the discussions themselves are confidential, and also it is not in shareholders’ interests for us to do so; but in any event, until we make a binding agreement with one of these parties it is impossible to know whether a final conclusion will be reached, which could result in a significant change in investor perceptions whether positive or negative. Therefore, we anticipate that our shares will remain suspended until this uncertainty is substantially reduced. We have agreed to make the Placing at a very low price reflecting this large uncertainty, and to make an Open Offer equal in size to the Placing, to allow all shareholders who wish to do so to participate on the same terms as those directors and shareholders who have already participated in the Placing recognising the inherent risks that an investment in the Company at this time would entail.
The proceeds of the Placing and the Open Offer are expected to see us through the coming months given our much lower expenses: how far will depend on the Open Offer uptake and the discussions with SNH, but as our accounts explain, we are aware that we will also need either to complete a financing transaction regarding one of our assets or to raise additional finance at the corporate level within the next few months to see us past the current calendar year end. However, the Directors remain confident that this can be done. We place great value on the Company’s Cameroon assets, and a number of third parties appear to share our view of them. Peter Taylor and I have both agreed to support the Placing, with Graeme Thomson electing not to participate in the Placing so he is able to help provide an independent opinion on the related party element of this transaction as required by the AIM Rules.
I hope that next year’s Annual Report will focus more on future plans and developments, and less on the industry woes and our own costs and financing, and I do believe that the E&P sector will recover in due course. We want our shareholders to be able to benefit from that recovery when it comes.
Chairman and Chief Executive
30 June 2017
STRATEGIC REPORT: SUMMARY AND OPERATIONAL REVIEW
Last year, in our 2015 report, we explained our strategic shift of focus towards lower risk exploration and development within proven basins, best characterised by our 2015 signature of the Thali PSC in the Rio Del Rey basin, offshore Cameroon. We had not and have not abandoned high risk/reward exploration altogether: we still have our licenses in Zambia and South Africa, for example, and we still have new licenses under discussion in Namibia. The Thali PSC also has a high reward upside in the deeper zones, which have not yet been tested by past drilling, as Exxon’s Zafira discovery to the South-West of our block has demonstrated. We continue to believe that all of our assets are attractive and valuable. But our strategy is to shift the balance of our investment, and to make the focus of our new investment the lower risk opportunities like Thali, or other appraisal and development opportunities, which still offer good rewards during this phase of the market cycle.
In practice, this strategy requires finding external finance at the asset level for our existing exploration commitments wherever possible, which is why we took the decision to convert our working interest in the SADR to a royalty interest. Although Thali is not a pure exploration project like Zambia, we have been seeking to farm out Thali to minimise our funding requirements and free up cash. We have been open to different types of structures for investment in Thali going forward, including both working interest and royalty structures. Our financial strategy continues, for the time being, to focus on funding existing commitments at the asset level given the weak level of AIM investor interest in exploration, but this is of course subject to change as the market itself changes.
As an operator, as we are in Cameroon and Zambia, we believe that the scale of local operations is also important to create savings and synergies across blocks in the same basin. To some extent this can be achieved and reinforced through good relations with other local operators, but controlling multiple blocks oneself is the most obvious way to achieve such synergies (where they can be found) to the benefit of one’s host nation, one’s partners, and one’s investors alike. To this end, we are continuing to discuss a further PSC in Cameroon even while we are looking to finance our existing one – but only, of course, if we can also secure appropriate external financing for such a PSC.
Once we have secured financing for our existing commitments, we intend to turn our attention to new commitments, and to focus on new opportunities that have clearly defined investment requirements and a low-risk path to cash flow, for which we believe there is still investor appetite on AIM. But we believe that we need to address our existing work commitments first or together with any such new opportunities.
Keeping overhead costs appropriately low, and managing operating costs well, are always important, but especially so in this phase of the market, when it may take longer than usual to develop assets, with less investment capital available. We have always sought to keep fixed costs down, and total costs flexible, through outsourcing a number of important functions such as our G&G relationship with PDF, and over the past eight months we have reduced our central costs substantially, as promised at the time of the 2016 placing.
On an operational level, activity has been low in both Zambia and South Africa since our last update, following the conclusion of the last phases of our work programs, but in Cameroon we have been working hard with SNH on different options for completing the current phase of our existing work program, including a well on Thali.
The Directors present the Report and Financial Statements on the affairs of Tower and its subsidiaries, together with the financial statements and Auditors’ Report for the year-ended 31 December 2016.
Principal activity and business review
The principal activity of the Group and Company throughout the year remained the exploration for oil and gas in Africa. The significant developments during 2016, and more recently, the other activities of the Group, as well as the future strategy and prospects for the Group, are reviewed in detail in the Chairman and Chief Executive’s Statement and the Strategic Report section of this report.
The Group operates through overseas branches and subsidiary undertakings as appropriate to the fiscal environment. Subsidiary undertakings of the Group are set out in note 13 to the financial statements.
Results and dividends
The Group loss for the financial year was $23.3 million (2015: $9.8 million). This leaves an accumulated Group retained loss of $134.1 million (2015: $111.1 million) to be carried forward. Full analysis of the movements in the Group’s reserves are provided in the Consolidated Statement of Changes in Equity. The Directors do not recommend the payment of a dividend (2015: $nil).
The Directors applied for suspension of trading in the Company’s shares on AIM on 12 May 2017 pending clarification of its financial circumstances and have undertaken a number of cost reductions across the Group. As at 28 June 2017 the Group had £55k of cash reserves and expected to execute a private placing raising £180k on 30 June 2017 prior to issuing an open offer to the shareholders to raise additional finance. The Group will need to raise further funds in addition to these two share issues prior to 30 September 2017, or to agree a farm out or other transaction involving one or more of the Group’s licences, in order to meet its liabilities as they fall due. The Directors believe that they will need to raise funds of approximately £2.0m in total over the coming twelve months (mainly to fund obligations in respect of the Thali license) and consider that there are a number of options available to them either through capital markets, farm-outs or asset disposals and are confident that these will be concluded satisfactorily within the necessary timeframes. The Directors do not therefore intend to cease trading nor do they believe that there is no realistic alternative to doing so. The financial statements have therefore been prepared on a going concern basis.
However, there can be no guarantee that the required funds may be raised or transactions completed within the necessary timeframes. Consequently a material uncertainty exists that may cast significant doubt on the Group’s ability to continue to operate and to meet its commitments and discharge its liabilities in the normal course of business for a period of not less than twelve months from the date of this report. The financial statements do not include the adjustments that would result if the Group were unable to continue in operation such as the impairment of the exploration assets.
Details of the issued share capital, together with details of the movements in the Company’s issued share capital during the year, are shown in note 17 to the financial statements. The Company has one class of ordinary share, which carries no right to fixed income. Each share carries the right to one vote at general meetings of the Company.
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. Details of the employee share schemes are set out in note 21. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
Tower Resources plc
Jeremy Asher (Chairman and CEO)
Andrew Matharu (VP – Corporate Affairs)
+44 20 7253 6639
Peel Hunt LLP (Nominated Adviser and Broker)
Richard Crichton/Ross Allister
+44 20 7418 8900
The Market Abuse Regulation EU 596/2014 (“MAR”) became effective from 3 July 2016. Market soundings, as defined in MAR, were undertaken by the Company in respect of the Placing with the result that certain persons became aware of inside information, as permitted by MAR. That inside information is set out in this announcement and has been disclosed as soon as possible in accordance with paragraph 7 of article 17 of MAR. Therefore, those persons that received inside information in a market sounding are no longer in possession of inside information relating to the Company and its securities.
Note regarding forward-looking statements:
This announcement contains certain forward looking statements relating to the Company’s future prospects, developments and business strategies. Forward looking statements are identified by their use of terms and phrases such as “targets” “estimates”, “envisages”, “believes”, “expects”, “aims”, “intends”, “plans”, “will”, “may”, “anticipates”, “would”, “could” or similar expressions or the negative of those, variations or comparable expressions, including references to assumptions.
The forward looking statements in this announcement are based on current expectations and are subject to risks and uncertainties which could cause actual results to differ materially from those expressed or implied by those statements. These forward looking statements relate only to the position as at the date of this announcement. Neither the Directors nor the Company undertake any obligation to update forward looking statements, other than as required by the AIM Rules for Companies or by the rules of any other applicable securities regulatory authority, whether as a result of the information, future events or otherwise. You are advised to read this announcement and the information incorporated by reference herein, in its entirety. The events described in the forward-looking statements made in this announcement may not occur.
Neither the content of the Company’s website (or any other website) nor any website accessible by hyperlinks on the Company’s website (or any other website) is incorporated in, or forms part of, this announcement.
Any person receiving this announcement is advised to exercise caution in relation to the Placing. If in any doubt about any of the contents of this announcement, independent professional advice should be obtained.
This summary should be read in conjunction with the full text of the announcement which follows.
This announcement does not constitute or form part of any offer or invitation to purchase, or otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any solicitation of any offer to sell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security in the capital of the Company in any jurisdiction.
The information contained in this announcement is not to be released, published, distributed or transmitted by any means or media, directly or indirectly, in whole or in part, in or into the United States or to any US Person. This announcement does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States or to any US Person. Securities may not be offered or sold in the United States absent: (i) registration under the Securities Act; or (ii) an available exemption from registration under the Securities Act. The securities mentioned herein have not been, and will not be, registered under the Securities Act and will not be offered to the public in the United States.
This announcement does not constitute an offer to buy or to subscribe for, or the solicitation of an offer to buy or subscribe for, Ordinary Shares in the capital of the Company or any other security in any jurisdiction in which such offer or solicitation is unlawful. The securities mentioned herein have not been, and the Ordinary Shares will not be, qualified for sale under the laws of any of Canada, Australia, the Republic of South Africa or Japan and may not be offered or sold in Canada, Australia, the Republic of South Africa or Japan or to any national, resident or citizen of Canada, Australia, the Republic of South Africa or Japan. Neither this announcement nor any copy of it may be sent to or taken into the United States, Canada, Australia, the Republic of South Africa or Japan. In addition, the securities to which this announcement relates must not be marketed into any jurisdiction where to do so would be unlawful.
This announcement has been issued by and is the sole responsibility of the Company.
DETAILS OF THE PROPOSED PLACING AND INTENDED OPEN OFFER
The Company proposes to place 18,000,000 new Ordinary Shares (the “Placing Shares”) with certain investors including some of our shareholders and Directors at the Placing Price to raise gross proceeds of approximately £180,000. The Placing Price represents a discount of approximately 58 per cent. to the closing mid-market price of 2.38 pence per Ordinary Share on 11 May 2017 being the day prior to the date the Company applied to have its Ordinary shares suspended from trading on AIM pending clarification of its financial circumstances.
The Placing Shares will total approximately 18,000,000 million new Ordinary Shares and represent 14.7% of the enlarged share capital of the Company.
The Placing Shares, when issued, will rank pari passu in all respects with the Existing Issued Ordinary Share Capital.
The Board is grateful for the continued support received from Shareholders and has therefore decided to offer all Shareholders the opportunity to participate in a further issue of new equity in the Company by making an Open Offer to all UK Shareholders at the Placing Price. The Board proposes to raise up to £180,000 through the Open Offer.
Further details of the Open Offer including the Excess Application Facility will be set out in a circular and a notice of AGM which will be sent to shareholders in due course.
BACKGROUND TO AND REASONS FOR THE PLACING AND OPEN OFFER
For the reasons explained in the Chairman’s statement, the Company is conducting the unusual process of preparing a Placing while trading in its shares remains suspended. The uncertainty regarding the Company’s future position is great, despite the several parallel commercial discussions it is pursuing with third parties. The Company is not disclosing the details of those parties or discussions publicly because the discussions themselves are confidential, and also it is not in shareholders’ interests for us to do so; but in any event, until the Company makes a binding agreement with one of these parties it is impossible to know whether a final conclusion will be reached, which could result in a significant change in investor perceptions whether positive or negative.
Therefore, the Company anticipates that its shares will remain suspended until this uncertainty is substantially reduced. The Company has agreed to make the Placing at a very low price reflecting this large uncertainty, and to make an Open Offer equal in size to the Placing, to allow all shareholders who wish to do so to participate on the same terms as those directors and shareholders who have already participated in the Placing recognising the inherent risks that an investment in the Company at this time would entail.
The proceeds of the Placing and the Open Offer are expected to see the Company through the coming months given its much lower expenses: how far will depend on the Open Offer uptake and the discussions with SNH, but as the Company’s accounts explain, the Directors are aware that they will also need either to complete a financing transaction regarding one of the Company’s assets or to raise additional finance at the corporate level within the next few months to see the Company past the current calendar year end. However, the Directors remain confident that this can be done.
The Directors nevertheless wish to draw attention to the going concern qualification in the Directors’ report and in the accounts and to reiterate the inherent risks that investment in the Company at this time entails, as noted above.
PRELIMINARY RESULTS FOR THE TWELVE MONTHS TO 31 DECEMBER 2016
- Focus on farm-out of Thali PSC, located in the prolific Rio Del Rey basin, Cameroon
- Reduction in cost base and Board size for reduced near-term commitments
- Placing and Open Offer in September 2016 to raise gross £1.03 million and £0.56 million, respectively
- Exit from ultra deep-water SW Orange Basin TCP, offshore South Africa
- Share Capital Reorganisation resulting in a 250-for-1 share consolidation
- Cash balance at year-end of US$0.8 million (2015: US$3.5 million)
- Placing of £180,000 to be followed by an Open Offer for working capital purposes