Kistos, the low carbon intensity hydrocarbon producer pursuing a strategy to acquire assets with a role in energy transition, has reached a conditional agreement to acquire all of the outstanding shares of Mime Petroleum A.S. from Mime Petroleum S.a.r.l.

On completion, the acquisition will add 24 MMboe of 2P reserves (operator estimate) plus 30 MMboe of 2C resources, increasing total Group reserves plus resources to approx. 80 MMboe. The acquisition will also add over 2,000 boe/d of production immediately and help to boost Group output to in excess of 15,000 boe/d in 2025 once the Jotun FPSO is on production. Management estimates enlarged Group production in 2023 will be in the range of 8,500 and 10,500boe/d.

Transaction terms

• Through its wholly owned subsidiary Kistos plc, Kistos has conditionally agreed to acquire 100% of the issued and to be issued share capital of Mime from the Vendor.
• The consideration for the transaction is US$1 plus the issue of up to 6 million warrants exercisable into new Kistos ordinary shares at a price of 385p each, which represents a premium of 31.4% based on the last trading date prior to this announcement of 293 pence on 18 April 2023. 3.6 million of the warrants can be exercised between completion of the transaction and 18 April 2028. The balance will be exercisable from 1 June 2025 until 18 April 2028.
• On 31 March 2023, Mime had cash of US$109MM and it is due to receive a tax refund of US$80 MM in December 2023. At completion, Mime will repay US$75MM of its debt and the enlarged Group will assume the remaining US$225MM. A payment to Mime's bondholders of up to US$45MM in 2025 is contingent on certain operational milestones being achieved.

Completion of the transaction is conditional on receiving customary regulatory approvals.

Overview of Mime

• Mime is headquartered in Oslo, Norway. It has an experienced management team and is focussed on development and production projects on the Norwegian Continental Shelf (NCS).
• Mime holds a 10% interest in the Balder joint venture (comprising the Balder and Ringhorne fields) and a 7.4% stake in the Ringhorne East unit, all operated by Var Energi A.S.A.
• Based on operator estimates, 2P reserves at Balder and Ringhorne were 23.6 MMboe net to Mime at the end of 2022. In addition, Kistos estimates Mime has net 2C resources of 29.8 MMboe, largely comprised of additional upside in Balder and Ringhorne plus the 2021 King oil discovery. Including Mime, total Group resources will be approximately 80 MMboe.
• Mime's share of production from Balder and Ringhorne is expected to be over 2,000 boe/d in 2023. This will increase significantly once the Balder X project is onstream, with production for the enlarged Group expected to be over 15,000 boe/d in 2025 once the Jotun FPSO is onstream.
• Balder X comprises the Balder Future and Ringhorne Phase IV drilling projects and is designed to extend the life of the Balder Hub. It includes upgrading the Jotun FPSO, which is more than 70% complete and is forecast by the operator to sail away in the first half of 2024.
• Kistos expects Mime's capital expenditure in 2023 to be up to US$130MM. Tax relief is available on this expenditure at a rate of 78% and is expected to result in a further significant tax refund in December 2024.
• Scope 1 and Scope 2 CO2 emissions from the Balder Hub are expected to fall by more than 50% to approximately 7.5kg per boe once Balder X is onstream. This is well below both the global and the North Sea average.

Financial position of the enlarged Group

• On 31 March 2023, Mime had cash at bank of US$109MM. Kistos cash at bank on the same date was €262MM and net cash (being cash less face value of debt) was €181MM. In 2022, Mime Petroleum made an unaudited pre-tax loss of US$103MM including an impairment charge of US$71MM.
• In addition to its cash balances, Mime is due to receive a tax refund of US$80MM in December 2023, which relates to capital expenditure incurred in 2022.
• Pursuant to an agreement with the holders of Mime's Nordic Bonds, at completion Mime will repay US$75MM of outstanding bonds and will owe the following amounts:
  • US$120MM of Super Senior bonds, which will attract interest of 9.75% per annum, 4.50% of which is payable in cash and 5.25% of which is payable-in-kind in the form of additional Super Senior bonds. The maturity date of the Super Senior bonds is 17 September 2026.
  • US$105MM of so-called "MIME02" bonds, which will attract an interest rate of 10.25% payable-in-kind. The maturity date of the MIME02 bonds is 10 November 2027.
• The Mime debt being retained by Kistos or retired by Mime, less Mime's cash balances at 31 March 2023 and less the tax refund due in December 2023, equates to approximately US$111MM.
• A contingent payment of US$45MM will be made to the MIME02 bondholders in the event 500,000 bbl (gross) have been offloaded and sold from the Jotun FPSO by 31 December 2024. This will decline to $30MM from 1 January 2025 to 28th February 2025, to US$15MM from 1 March 2025 to 31 May 2025, and to zero thereafter.
• If 500,000 bbl (gross) has not been offloaded and sold from the Jotun FPSO by 31 May 2025, the holders of Mime's Nordic Bonds will be allocated up to 2.4 million warrants exercisable into Kistos ordinary shares at a price of 385p each. The warrants can be exercised between 30 June 2025 and 18 April 2028. Simultaneously, up to 1.9 million of the 5.5 million warrants issued as consideration for the Mime shares will be cancelled.
• Excluding contingent amounts payable, Kistos estimates that on a pro forma basis at 31 March 2023, the enlarged Group would have had net cash of €5MM, comprising cash of €293MM and outstanding Nordic Bonds of €288MM (€0.92 to US$1.00).

Commenting on the proposed acquisition, Andrew Austin, Kistos' Executive Chairman, said:
"After a period during which commodity price volatility and fiscal uncertainty has made it difficult to agree deals in the UK and the Netherlands, I am very pleased to be able to announce Kistos' expansion into Norway. Kistos has evaluated several transactions in the UK and Dutch sectors, but the imposition of punitive windfall taxes and a lack of fiscal certainty have meant that both countries remain difficult places to commit capital and ensure continuity of shareholder returns."

"I expect Mime to be a platform for growth on the NCS and I believe Mime's management team - whose strategy and goals are aligned with ours - can help us achieve that. Critically, as well as providing us with visibility on a rising production profile over the next few years, principally though it's oil, the hydrocarbons produced at Balder will also enable us to maintain our industry-leading Scope 1 and Scope 2 CO2 emissions in the medium-term."

ABG Sundal Collier acted as financial advisor to Kistos in relation to negotiations with the bondholders and the conclusion of the transaction.

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