The Directors of Armour Energy Limited (ASX: AJQ, Armour, the Company) have resolved to accept a settlement agreement with AEGP Australia Pty Ltd (AEGP) following the ruling by the Queensland Supreme Court ordering specific performance by AEGP of its obligations under the Farm‐out Agreement between Armour and AEGP in respect of the Northern Territory petroleum exploration permits.
Under the Farm‐out Agreement, Armour was to receive an upfront cash payment of US$13m and a subscription by AEGP to a further A$3.5m in Armour shares at 20 cents per share. Following the death of AEGP Director and US affiliate American Energy Partners (AEP) founder, Chairman and CEO Aubrey McClendon on March 2nd 2016, AEGP has found itself in a position which has rendered it incapable of performance of its obligations pursuant to the Supreme Court judgment handed down on 14 July 2016.
A wholly owned subsidiary of AEGP, AEGPAS Pty Ltd (AEGPAS) will hold 40,063,785 shares in Armour (Shares). Given the uncertainty of the outcome of further pursuit of performance by AEGP, in these circumstances, Armour has agreed to acquire AEGPAS from AEGP at no cost in settlement of AEGP’s obligations to Armour. This will afford Armour the opportunity, over a 12 month period, to effect either an orderly disposal of the Shares or cancel them. AEGP will also forgo its right to earn up to a 75% interest in Armour’s Northern Territory tenements, allowing Armour to retain a 100% interest in these assets.
Accordingly, Armour and AEGP have agreed to the termination of the Farm‐out Agreement, and will provide full mutual releases. The Shares have a current market value of approximately $3.5 million and represent 12.99% of Armour’s current issued capital. AEGP acquired the Shares as a result of subscription to 16.9 million Armour shares at 20c per share and also as a result of the proportional take‐over bid at 25c per share for a further 23.1 million shares. This equated to a total expenditure of approximately $9 million by AEGP in relation to the Shares. It is expected that Armour will in due course sell the Shares to realise their value, and any such disposal may involve a pro‐rata offer to existing Armour shareholders to purchase them.
Commenting on the settlement, executive Chairman Nick Mather said “while not what we had hoped for from the relationship with AEP, nor what AEGP had agreed to, the untimely death of Mr McClendon, the difficulties associated with implementing the Supreme Court judgment, and in all the circumstances, the orderly disposal of the Shares in Armour is an acceptable outcome. This settlement also puts Armour back in control of its 100% owned Northern Territory assets.”
Armour’s Northern Territory assets cover a best estimate prospective resources of 4.9 trillion cubic feet (TCF) of conventional gas and 30.0 TCF of unconventional gas as announced on 21 September 2015.