Longboat Energy has reached agreement with Japan Petroleum Exploration Company ("JAPEX") to make a significant investment into its Norwegian subsidiary, Longboat Energy Norge, to form a joint venture. 

The joint venture will be renamed Longboat JAPEX Norge AS ("Longboat JAPEX" or the "Joint Venture"), with a goal of building a leading Norwegian-focussed independent.

Transaction highlights

Cash investment of up to US$50 million for 49.9% of Longboat JAPEX comprised of:

• cash investment on completion of US$16 million;
• a contingent consideration of US$4 million, payable on successful completion of a production acquisition currently under review; and
• a further tranche of up to US$30 million, payable on a sliding scale following a successful discovery on the Velocette exploration well due to spud in Q3 2023.

JAPEX to provide the Joint Venture with a US$100 million Acquisition Financing Facility:

• five-year facility to finance acquisitions and associated development costs in pursuit of the Joint Venture's strategy; and
• interest rate based on a sliding scale with an all-in cost over the term of <10%.

Helge Hammer, Chief Executive of Longboat, commented: 
"Longboat is delighted to have found a strong and complementary strategic partner in JAPEX. JAPEX has been looking for the best way to enter Norway and identified Longboat as an excellent match to reach its strategic objective.

"The Longboat team has significant experience and expertise in the Norwegian E&P sector and has strong local industry relationships. JAPEX is a long-established E&P company with a strong balance sheet and significant worldwide technical competence including in the North Sea. By joining forces, we will have greater opportunities and strong financial backing to pursue them. We believe that this agreement has laid the foundations for exciting growth in the coming years.

"We are also pleased to be in a strong position to continue to pursue our interests in the Kveikje area as this development project is being matured and additional value created.      

"The team looks forward to delivering production and reserves growth to create value for shareholders both in Norway with JAPEX, but also in Malaysia following our recent entry into the region." 

Masahiro Fujita, President and CEO of JAPEX, commented: 
"JAPEX is very pleased that we have formed the partnership with Longboat for a Norwegian E&P business. We see a very strong alignment in the business expansion strategy in Norway and believe the combination of the Longboat team's significant experience and expertise in Norway and JAPEX's technical and financial competence will be very beneficial in pursuing such a strategy.

"I look forward to working closely with the Longboat team in pursuit of our common growth strategy in Norway."

Transaction Detail

Longboat has agreed to a significant investment from JAPEX into its Norwegian subsidiary, Longboat Energy Norge AS, to create an incorporated joint venture to be renamed Longboat JAPEX Norge AS . The Joint Venture will pursue a growth-led strategy to create value through the acquisition of development projects, 2P reserves growth and establishing a significant production level within three to five years. The Joint Venture will continue to target the drilling of one to three exploration and appraisal wells per year.

In return for a 49.9% interest in Longboat JAPEX, JAPEX will make an investment totalling up to US$50 million. The investment will be made in up to three tranches with the initial cash investment of US$16 million payable in full on completion of the transaction along with a completion adjustment based on a Locked Box approach from the Investment effective date of 1 January 2023 (which is anticipated to generate a small positive cash payment to Longboat JAPEX).

The second tranche of US$4 million is contingent and becomes payable on the successful negotiation and completion of small production acquisition, under current contemplation, in-line with the Joint Venture strategy (the "Contemplated Acquisition"). The Contemplated Acquisition remains subject to final negotiation and a number of key conditions, and there is no certainty the Contemplated Acquisition will reach completion, in which event the associated investment will fall away.

The third tranche (the "Velocette Tranche") of up to US$30 million is contingent on a successful discovery on the Velocette prospect, located in licence PL1016, and anticipated to drill in Q3 2023, targeting Gross Mean Resources of 177 mmboe with a 30% Chance of Success. The amount payable under the Velocette Tranche is based on a sliding scale of US$/boe values (zero to US$30 million) applied to the gross resources approved for development by the Norwegian Ministry of Petroleum and Energy. The scale has a minimum of 85 mmboe and maximum of 200 mmboe.

As part of the Investment, JAPEX will provide the Joint Venture with a five-year, US$100 million Acquisition Financing Facility (the "Facility") to finance acquisitions and associated development costs. The Facility will be available for drawing for the first three years subject to certain conditions, including mutually agreed acquisitions by the Joint Venture. The Facility will attract a market-rate of interest on an increasing scale over its tenor with an initial rate of 6% in the first year and an all-in cost over the term of less than 10%.

The Norwegian oil and gas industry continues to be very active with record high production levels at circa 4 million boepd, a continued high level of exploration and appraisal drilling activity at 30-40 wells year, and a high level of field development activity, where many new projects have been sanctioned recently and several new projects are now being matured towards final investment decisions. This very high level of activities implies a substantial M&A opportunity set, which represents the main targets for our new Joint Venture to deliver value creation and growth.

Furthermore, Norway continues to offer an attractive regulatory framework including a recent change in the Petroleum Tax System, which has resulted in significantly improved economics of new development projects. The main elements of the new system are the introduction of immediate expensing of investments, 71.8% repayment of all losses in the following year (compared to previously 72% of exploration losses only) and a corporate tax at 6.2% carried forward against future profits. The marginal tax rate remains unchanged at 78% but return on investments in development projects is significantly improved and the total capital requirements substantially reduced.

The Investment remains subject to customary regulatory, lender and partner approvals. Completion of the Investment is anticipated during the third quarter of 2023.

KeyFacts Energy: Longboat Norway country profile