Interra revises downward acquisition price of BBP

By Romel S. Gurky

SGX-listed Interra Resources Limited said that its subsidiary Goldwater Indonesia Inc (GII) has reached an agreement with existing shareholders of Indonesia?s PT Benakat Barat Petroleum (BBP) to reduce the purchase price for the planned acquisition of the latter company, and to extend four the fourth time the long-stop date for the acquisition to December 2, 2014 to provide more time to complete the necessary conditions.

BBP owns the Benakat Barat oil field in South Sumatra. Interra announced in September of last year that GII had signed a sales and purchase agreement for the acquisition of BBP for US$78.5 million.

Interra said in a statement Saturday that GII has on 22 August 2014 entered into a supplemental agreement with BP, IDX-listed PT Benakat Integra TBK (formerly known as PT Benakat Petroleum Energy TBK), WY, AM, BO, II, BSN and BBP to amend the terms of the SPA.

Pursuant to the Supplemental Agreement, the key amendments to the SPA include the following:

1. New Purchase Price
The parties have mutually agreed to revise the consideration for the Proposed Acquisition from US$78.5 million to US$60 million and to include post Completion incentive payments as set out under paragraph 1.3 of this announcement. The revision to the Purchase Price was arrived at after considering the results of the Qualified Person?s Report (the ?Updated Reserve Report?) and the economic evaluation report on the West Benakat KSO (the ?Economic Evaluation Report?) prepared by Gaffney Cline & Associates (?GCA?) dated 21 August 2014. Please refer to paragraph 4 of this announcement for discussion on the Updated Reserve Report and the Economic Evaluation Report.

The New Purchase Price shall be satisfied in the following manner:
(a) On the Completion Date, US$54 million shall be paid in cash, out of which US$10 million shall be withheld and placed into an escrow account pending determination of the adjustments to be made to the New Purchase Price after the Completion Date (the ?Withheld Sum?);
(b) On the third business day after the date on which the Completion NTA is agreed or determined, US$6 million shall be satisfied by the issuance and allotment of the Consideration Shares; and:
(i) the sum equal to the balance (if any) of the New Purchase Price after adjustment and after deducting US$50 million shall be paid to the Sellers from the Withheld Sum, and if such sum payable to the Sellers exceeds the Withheld Sum, GII shall pay the amount of the shortfall to the Sellers; or
(ii) if the New Purchase Price after adjustment is less than US$50 million, the Sellers shall repay GII a sum equal to the excess plus interest on the amount equal to the excess at the rate on which interest has been earned on the escrow account.

Based on the issue price of the Consideration Shares at S$0.4591 per Share as provided in the SPA, 16,687,868 Shares will be issued to the Sellers. The Consideration Shares represent approximately 3.61% of the enlarged number of Shares following Completion.

The Company will be submitting an application to the SGX-ST for the listing and quotation of the Consideration Shares on the Official List of the SGX-ST. The Company will make the necessary announcements once the approval-in-principle for the listing and quotation of the Consideration Shares has been obtained from the SGX-ST.

2. Adjustments to New Purchase Price
The Supplemental Agreement stipulates that the following sums shall be deducted from the Completion NTA:
(a) Value-added tax (?VAT?) which is due and payable to the revenue department, and the parties have agreed to increase the Completion NTA by such amounts reimbursable by Pertamina with respect to the VAT, and shall be treated as an asset under the Completion NTA and Completion Accounts;
(b) Certain receivables relating to a loan to an ex-employee and the claims for VAT reimbursement and cost recovery under the joint operating agreement between II and Pertamina;
(c) The estimated amount of post-employment benefits payable by the Group pursuant to Indonesian labour law; and
(d) Half of all costs incurred by the Group in relation to the extension of the time for BBP to complete the Work Program as defined in the West Benakat KSO.

3. Post Completion Incentive Payment
The Supplemental Agreement provides that GII will make further payments (?Earnout Payments?) to the Sellers if 2P oil reserves and 2P gas reserves are discovered at the Baung prospect structure (?Baung?) located within the area covered by and defined in the West Benakat KSO after the completion of a work program to be carried out for the exploration, operation and/or investment activities in respect of Baung which shall at minimum include the drilling at Baung of one exploration well and a maximum of two appraisal wells in the event of the discovery of petroleum, natural gas and related hydrocarbons and all other substances produced in association therewith or any of them (the ?Work Plan?). The Work Plan relating to the 2P oil reserves and the 2P gas reserves shall be carried out within 1 year and 3 years from the Completion Date respectively.

The amount of Earnout Payments payable by GII shall be equivalent to the following:
(a) In respect of 2P oil reserves discovered at Baung,
(i) US$5.00 per barrel of oil equivalent (?BOE?) for the first 4 million barrels of oil equivalent (?MMBOE?); and
(ii) US$3.00 per BOE for 2P oil reserves exceeding 4 MMBOE; and
(b) In respect of 2P gas reserves discovered at Baung,
(i) an amount equal to 5 multiplied by the equivalent economic value per BOE of 2P gas to the economic value per BOE of 2P oil to be determined and set out by GCA (?Equivalent Gas to Oil Economic Value?), multiplied by the total BOE of 2P gas reserves, up to US$20 million; and
(ii) for any further amounts in excess of US$20 million under paragraph 3(b)(i), an amount equal to 3 multiplied by the Equivalent Gas to Oil Economic Value, multiplied by the remaining total BOE of 2P gas reserves not included in paragraph 3(b)(i) above.

The Earnout Payments shall be settled within 60 days after the 2P oil reserves and the 2P gas reserves has been determined, by cash, by allotment of such number of new Shares which has an aggregate value equivalent to the Earnout Payments when multiplied by the weighted average price of the Share for trades done on the SGX-ST over a period of 10 business days prior to the determination of the 2P oil reserves and the 2P gas reserves of Baung, or by a combination of cash and allotment of new Shares.

4. Other Amendments
The Supplemental Agreement additionally provides for the following:
(a) In addition to the conditions under the SPA, the Sellers have to ensure that Pertamina grants an extension of time to 15 July 2015 for BBP to complete the Work Program as defined in the West Benakat KSO;
(b) PT Benakat Integra Tbk will provide an indemnity to GII which is unlimited by time, specifically covering any corporate and dividend tax, and all interests, costs, penalties, fines or other charges on any corporate and dividend tax and VAT due and payable by BBP before the Completion Date;
(c) PT Benakat Integra Tbk will provide an indemnity to GII for claims for VAT reimbursements submitted by BBP prior to the Completion Date which are not received by BBP within 12 months from the Completion Date and for certain VAT reimbursements which will the Company will submit no later than 6 months from the Completion Date which are not received by BBP within 18 months from the date such claims were submitted to Pertamina; and
(d) The Longstop Date shall be extended to 2 December 2014.

Editing by Reiner Simanjuntak