- Troubled Nigerian Oil Firm, Seven Energy, to Sell Assets
After several defaults on its debt-servicing obligations, Seven Energy, an indigenous oil and gas exploration, development, production and distribution group, has entered into a transaction for a comprehensive capital restructuring, part of which is to sell most of its assets.
The group, which operates in Nigeria through its wholly-owned subsidiaries, Septa Energy Nigerian and Accugas, is headquartered in Lagos and London.
It said parties to the agreed transaction included certain members of the group; a United Kingdom oil and gas company, Savannah Petroleum Plc; lenders under the $24.1m term loan facility and lenders under the $25m term loan facility provided to, among others, Seven Energy Finance Limited, its wholly-owned subsidiary.
Others are the holder of the 10.50 per cent Senior Secured Notes issued by the company; and an ad hoc group of holders of the 10.25 per cent Senior Secured Notes issued by the company holding approximately 40 per cent of the total principal amount of the SSNs.
Seven Energy, in a statement on Wednesday, said Savannah Petroleum would acquire “substantially all of the valuable assets of the group, including, at its option, the Strategic Alliance Agreement, which are to be transferred to Savannah, its subsidiaries, or an entity to be nominated by Savannah, subject to completion of a financial restructuring of the group in accordance with the term sheets.”
It said new capital would be provided by Savannah with funding available for, among other things, operational working capital and the liquidity needs of the target group; cash consideration to be paid to selected creditors, including the SSN noteholders, and costs associated with the agreed transaction.
As part of the agreement, the SSN noteholders will receive their pro rata share of $52.5m in newly-issued equity in Savannah and an $87.5m cash payment, in consideration for the discharge of all $318.2m SSNs and release of claims against the entities being acquired by Savannah.
It said in addition to the SSN consideration, the SSN noteholders shall also be offered the right to subscribe, on a pro rata basis to their holdings of the SSNs, for $25m worth of newly-issued equity in Savannah for a total cash consideration of $20m.
Savannah said in a statement that the transaction would involve the acquisition of Seven Energy’s 40 per cent participating interest in Uquo oil and gas field; 62.5 per cent interest in Universal Energy Resources Limited, which holds a 51 per cent participating interest in Stubb Creek oil and gas field; and an interest in Accugas Limited midstream business, a 260km gas pipeline network and associated gas processing infrastructure, potentially in conjunction with certain third-party investors.
Seven Energy said it had continued to engage alongside Savannah in discussions with other financial creditors (including the lenders under the $375m term loan facility in favour of Accugas) as regards amendments to their financing arrangements with the group with a view to agreeing with the detailed steps required for implementation of the agreed transaction.
The group said it had continued to engage in commercial discussions with the Nigerian National Petroleum Corporation and the Nigerian Petroleum Development Company with a view to reaching an agreement on the terms under which the notice of intention to terminate the SAA would be withdrawn.
On February 7, 2017, it announced that it had received notice from the NPDC, a subsidiary of the NNPC, of its intention to terminate the SAA between it and Seven Exploration & Production Limited relating to the Oil Mining Leases 4, 38 and 41.
“While discussions are still ongoing, and there can be no certainty that a satisfactory resolution will be reached, Seven Energy anticipates that reinstatement of the SAA, which is held by Seven Exploration & Production Limited, will require a substantial front end cash payment with respect to accrued legacy costs and a working capital injection,” it said on Wednesday.
According to the statement, Savannah and Seven Energy have agreed that the agreed transaction will proceed on the basis that the SAA is not acquired by Savannah.
“However, were a resolution to be reached in relation to the reinstatement of the SAA, Savannah would have the right to acquire the SAA. It should be noted that Savannah will not be acquiring Seven Exploration & Production Limited as part of the agreed transaction.”
Seven Energy said Savannah had agreed to provide it with a “super senior” interim revolving credit facility of up to $20m in order for it to continue to operate its business until the successful completion of the transaction.
It said, “The provision of such funding, which is available to be utilised in three tranches, is subject to certain conditions, including consent of the Accugas lenders to the granting by certain group companies of security interests in connection with the facility.
“If the agreed transaction is not implemented, and in the absence of continued forbearance and liquidity support from the group’s financial creditors, certain key group companies are likely to have to enter into insolvency processes.”
Seven Energy, which has been grappling with severe liquidity challenge, has announced its inability to make the interest payment due October 11, 2017 on two notes issued by Seven Energy Finance Limited.
In April, it announced that it had requested a standstill from its lenders under the $385m Accugas term facility dated June 23, 2015, and had not made payments of interest and principal due on March 31, 2017.
On April 11, the group failed to pay the interest due on the $300m, 10 ¼ per cent SSN due 2021 and the $100m, 10 ½ per cent notes due 2021, and did not satisfy the conditions for the payment-in-kind interest.
“The 30-day grace period for payment of interest under the SSNs and the 10½ per cent notes expired on May 11, 2017, which represents an event of default under the terms of the SSNs and the 10½ per cent notes,” the group said.
It said its liquidity was severely affected by a range of external factors, including loss of material cash flow from its Strategic Alliance Agreement since February 2016 because of recurrent militant activity that resulted in the closure of Forcados export terminal, and a significant backlog of unpaid invoices relating to the supply of gas to federal and state-owned power stations.