AIM-listed Scirocco Energy announced on June 13 that it had arranged to sell its 25% stake in the Ruvuma block in southern Tanzania to UK-based Wentworth Resources.

In a statement, Scirocco explained that it had signed a conditional binding agreement on the divestment of the stake with Wentworth following the completion of a formal sales process. This agreement calls for the latter company to pay up to $16mn for the stake, a sum that “represents over 200% premium to Scirocco’s current market capitalisation,” it said.

Under this agreement, the statement noted, Wentworth will pay for the stake in several instalments.

These instalments will include: 1) initial consideration of $3mn, payable upon completion of the transaction; 2) additional consideration of $3mn, payable upon the taking of a final investment decision (FID) by the parties to the Ruvuma production-sharing agreement (PSA) or joint operating agreement (JOA), as relevant; 3) deferred consideration worth up to $8mn in the form of a 25% net share of revenues from the time at which gas from Ruvuma starts being delivered to one or more buyers; and 4) contingent consideration of $2mn, payable at the time when gross production reaches or tops the level of 50bn cubic feet (1.416bn cubic metres).

Additionally, the statement said, Wentworth has agreed to compensate Scirocco by providing the latter company with a loan of $6.25mn, enough to cover all cash calls under the Ruvuma JOA between January 1, 2022, and the finalisation of the divestment transaction.

Scirocco will be able to draw the first $3mn of the credit without paying any interest, the statement said, but any further draws beyond this level will carry an interest rate of 7% per year, until Tanzania’s Ministry of Energy approves the security offered for the loan. Scirocco expects to present the deal to its shareholders for approval at a general meeting on June 29, the statement said.

Tom Reynolds, Scirocco’s CEO, told NewsBase that he expected the deal to benefit the company in several important ways, describing it as a transformative deal that followed lengthy engagement with Wentworth and a two-year sales review process.

“The deal with Wentworth represents the culmination lengthy engagement and a two-year sales review process. The deal enables Scirocco to crystallise firm value from its natural gas asset which can be deployed into compelling opportunities in line with the company’s strategy to focus on opportunities within sustainable energy and the circular economy,” he said. “Critically, it provides the company with the funding to meet the imminent cash calls associated with the work programme on the Ruvuma asset until the deal completes, meaning we avoid the material dilution that would have been required in the event we retained our interest in the project.”

Reynolds continued: “Wentworth are the ideal counterparty that can add value to the JV going forward, and their existing profile in Tanzania ensures lower deal execution risk and the best chance of a swift completion. The deal enables the board to focus on the execution of its stated strategy in the sustainable and circular economy space, with a significantly stronger balance sheet and cash that can be deployed right away to capitalise on the compelling opportunities that we have within the EAG JV’s deal pipeline.”

Ruvuma, an onshore licence area in southern Tanzania, is operated by ARA Petroleum Tanzania (APT), a subsidiary of ARA Petroleum of Oman. APT’s contractor is currently working to collect about 338 square km of 3D seismic data and hopes to wrap up this process in the second half of 2022.

The partners will then drill the Chikumbi-1 exploration well in late 2022 or 2023 with the aim of determining the size of Ruvuma’s gas reserves. Ntorya, the largest field within the block, has been estimated to contain 1.9 trillion cubic feet (53.81 bcm) of gas in place (GIP).

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