MEC Resources Ltd (MEC) (ASX: MMR) has released a statement to ASX on 20 12 2017 relating to BPH Energy Ltd (BPH). The statement is addressed in the following information.
BPH is aware of two funding offers and has been involved in two further funding offers to MEC and Advent. Each of these offers would have avoided the need to make any offer to farm out the seismic program in PEP11 and dilute shareholder interests as has just been announced by MEC. The offers in total comprise over $5m in funding and made with the objective of drilling in PEP11 and not 3D.
In summary there is over $5m of immediate funding availability subject to board changes in MEC with the installation of a neutral board, resolution of legal disputes and security of permits with drilling as an immediate objective in PEP11 at the Baleen drill target.(Please refer details below)
Bonaparte and PEP11 funding offer
A funding offer was introduced by BPH from a USA entity. The party introduced is a well-funded and highly experienced US hydrocarbon group with diverse skill sets, wide operational experience and new technology applications. Proof of funds was provided by this group to MEC and Advent Directors, including Greg Channon. Negotiations on the proposals were directed to Advent Director Mr Greg Channon.
The USA entity’s offer incorporated the joint venture funding of the work program for EP386 and RL1 in the onshore Bonaparte Basin including but not limited to meeting the EP386 permit requirements of a well and seismic and taking on the plug and abandonment liabilities (estimated at $2.5 m) for the two existing wells in EP386, namely, Vienta and Waggon Creek.
The 2017 MEC annual report confirmed that “MEC subsidiary Advent Energy had (spending) commitments”…“for its exploration permits of $20,522,500 over the next 12 months” including $2.5m of required permit compliance expenditures to retain EP386.
If MEC is unable to source further funding each of PEP11, RL1 and EP 386 each of these permits are immediately at risk. The work program “commitments to drill an exploration well and perform a seismic survey by the end of March 2018 for EP386” are not practically possible to achieve, there have been no announcements on the approvals for these activities and it is not reasonably possible to undertake these activities before the end of the current northern Australia wet season. The plug and abandonment liabilities for Advent for EP386 remain unfunded and are a significant residual risk for the MEC group and shareholders. There is a risk that if the EP386 permit is revoked that this may impact on the ability to retain the PEP11 permit. The 2D program at Baleen in PEP11 is planned and must be completed by the end of March 2018 to keep the PEP11 permit in compliance. Each of the funding proposals put forward were for the benefit of MEC shareholders and structured to address these issues.
An initial proposal for funding of $700,000 was put forward by BPH Energy to fund the PEP11 seismic 2D program. This was done in conjunction with a funding from the specialist US based group. A further funding proposal was subsequently made under Confidentiality Agreement. This offer was based on Advent initiating an immediate strategy to drill PEP11 after the current planned 2D program at Baleen offshore NSW. The manner in which the MEC and Advent directors dealt with these funding approaches, given the circumstances of funding requirements and permit commitments, is at least questionable.
Neither MEC or Advent directors are continuing to deal with the offer from this USA group despite this group affirming their willingness to continue discussions.
As part of this negotiation and as announced by MEC, BPH and Grandbridge Ltd agreed to suspend all legal proceedings at that time to enable the negotiations to proceed. MEC unilaterally walked away from those arrangements. Both BPH and Grandbridge have continued to affirm their willingness to re-engage for the purpose of achieving a global settlement and funding.
Shareholder funding offer
A funding approach was made by a current MEC shareholder for an amount of $500,000 to take up shares in MEC. This offer was not dealt with in any manner that reflected the urgent need for funding of MEC.This offer would have enabled MEC to fund the 2D program without a Farmin .
Further independent offer of $500,000
BPH was provided with an offer made to MEC from a well-funded independent Australian based investor group. A prerequisite of that offer (which was for $500,000 of shares to be issued at the same price as shares issued in the last MEC shareholder share plan) was that all litigation from each of BPH and MEC cease and for changes in the MEC board to enable MEC to proceed to an IPO of Advent.
This offer document was provided to BPH as it contained a condition that BPH suspend or resolve all outstanding legal matters. As mentioned above, BPH has been and still is prepared to enter into an arrangement which involves the resolution of all legal matters in conjunction with funding and change of board and proceeding to drill PEP11. MEC has not advised the market of this offer or any subsequent offers from this funder.
BPH is prepared to work with a new and independent board to assist in the funding both drilling and seismic in PEP11.
BPH has a current prospectus for a rights issue to raise up to $1,177,404. A copy of that prospectus has been provided to MEC, as a shareholder in BPH. The prospectus sets out that an amount of up to $740,000 may be available to invest into oil and gas, which would include through Advent and MEC. The prospectus confirms that BPH “will continue to offer joint venture and transaction funding proposals to Advent and funding proposals to MEC” despite ongoing legal actions by MEC.
BPH has just announced an extension to that prospectus after it received confirmation of the notice of intention to move resolutions for removal of and replacement of the MEC Board.
A global resolution of the dispute and removal of the MEC board may put BPH in a position that its prospectus raising can achieve these objectives.