OilVoice - San Leon Energy Proposes Combination with Island Oil & Gas

San Leon Energy Proposes Combination with Island Oil & Gas

Friday, October 16, 2009

San Leon announces that it has made a proposal to Island for the combination of the two companies with a view to building a strong Irish-based oil and gas exploration and development business. Island is considering this proposal. San Leon is keen to hold a constructive dialogue with Island with a view to working towards a recommended transaction.

Possible Offer
San Leon has put forward an indicative non-binding offer for Island (the “Possible Offer”) on the following basis:

For every 2.3 Island Shares: 1 new San Leon Share

Based on the closing price per San Leon Share of 23.0p on 14 October 2009, the Possible Offer would value each Island Share at 10.0p and Island’s entire issued share capital at £13.6 million. The Possible Offer would represent a premium of approximately 31 per cent. over Island’s share price of 7.625p at the close of business on 14 October 2009.

Irrevocable undertaking
San Leon has received an irrevocable undertaking from Platinum Petroleum Limited (“Platinum”), the largest shareholder in Island, that, if within three months of 14 October 2009 San Leon was to make an offer for Island on the above basis or upon terms which represent a greater number of San Leon shares per Island share or otherwise on improved terms, Platinum would accept or procure acceptance of such offer in respect of, in aggregate, 25,000,000 Island Shares representing approximately 18.4 per cent. of Island’s issued share capital.

The irrevocable undertaking will cease to be binding if an offer or proposed offer (a “Higher Competing Offer”) is made by someone other than San Leon for the entire issued share capital of Island, the making of which is not or has ceased to be subject to any pre-condition, and which represents an improvement of 30 per cent. or more on the value of the Possible Offer and San Leon has not made or announced a firm intention to make a revised offer on terms substantially equal to or better than those available under the Higher Competing Offer by the date 5 business days prior to the closing date of the Higher Competing Offer.

Strategic benefits of a combination
San Leon believes that there is compelling strategic fit between San Leon and Island (together the “Combined Group”). San Leon already has extensive knowledge of certain of Island’s assets: its two Moroccan onshore assets (the Tarfaya area and Zag basin), its recently acquired Moroccan offshore assets at Sidi Moussa and Foum Draa and the Netherlands offshore Amstel Field in which each of San Leon and Island has a royalty interest. San Leon also has good working knowledge of a majority of Island’s Celtic Sea assets and Atlantic Margin assets and would undertake a strategic review of Island’s Albanian assets following a combination.

San Leon believes that the Possible Offer should provide Island Shareholders with an opportunity to share in what San Leon believes to be significant value upside in the Combined Group’s prospects.

San Leon expects the benefits of a combination to include:

The resources to develop the potential of Island’s Celtic Sea assets from a position of strength
San Leon believes that as offshore gas production from the Kinsale field in the Celtic Sea declines, the opportunities presented by surrounding fields such as Island’s Old Head of Kinsale (Part Block 49/23) and Schull Field (Block 57/2) as they come on stream will become increasingly viable. The Combined Group’s greater financial, technical and operational resources should allow the Combined Group to retain and develop these fields and create potentially valuable opportunities for a future Celtic Sea Gas Storage business;

An opportunity to apply the skills of San Leon’s management team to Island’s assets, combine the technical skills of the two teams and realise efficiencies
San Leon has an experienced management team with extensive exploration and development capabilities which could be applied to Island’s assets. A transaction would also combine the skills bases of the two companies allowing cost savings to be achieved and the combined portfolio to be managed and developed more efficiently;

Extension of San Leon’s seismic programme facility to Island’s prospects
San Leon has entered into an agreement with PGS Ventures AS (“PGS”), a subsidiary of the Petroleum Geo-Services ASA Group, whereby PGS would fund by way of a subscription for equity in San Leon at least 40 per cent. of the costs of its seismic programme. San Leon believes that the extension of its seismic programme facility to Island’s Irish Atlantic Margin interests should realise savings and accelerate the development of those assets;

Combination of two companies’ Moroccan assets should offer enhanced returns
A combination of the two companies would result in the Combined Group holding a 70 per cent. gross interest, before the participation of ONYHM (the Moroccan Government-owned entity), in the onshore Zag and Tarfaya interests in Morocco. Philip Thompson, the Chief Executive of San Leon, is very familiar with both assets in Morocco having devoted a substantial amount of his professional life since 1999 engaged in offshore and onshore hydrocarbon exploration projects in Morocco. San Leon believes that the combined holding by San Leon and Island of the Moroccan Zag and Tarfaya assets should allow it to secure enhanced returns.

Oisin Fanning, Chairman of San Leon, said:
“We believe the combination of our two companies would create a strong Irish based oil and gas exploration and development business with the management skills and financial resources to develop the asset portfolio to its full potential and create value.

We believe the terms we are proposing represent a fair basis for a possible combination and look forward to engaging constructively with the Board of Island with a view to consummating a recommended transaction.”

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