Solo Oil plc (LON: SOLO), has today provided the following corporate strategy update that sets out the medium-term growth objectives for the Company.
Under the stewardship of the recently appointed and experienced Board, Solo is seeking to assemble a balanced, full lifecycle portfolio comprised of production, development and exploration assets that provide a sustainable path for growth alongside funded G&A.
Leveraging the requisite technical, corporate and operating expertise of the Board, the Company intends to achieve scale through organic and acquisition led growth and has set a net production target of at least 5,000 boepd within the next three years.
In order to achieve this strategic vision, the Company has identified the following key strategic drivers:
· Transition to an operating company to provide Solo greater control over the outcome of its investment decisions;
· Disciplined investment strategy to be delivered by capital efficient transactions;
· Targeted acquisition strategy based on well-defined screening criteria in place to deliver shareholder value;
· Targeting acquisitions that can attract a wide audience of potential non-equity funding partners through transaction structures that limit or negate the Company’s requirement to raise equity;
· Delivered in parallel with a continued focus on value realisation of existing assets;
· Future focus on cash flow to build a self-sustaining business;
· Strong pipeline of deal flow – Solo has recently evaluated more than 15 target acquisitions across a number of geographies and the Company remains active in a number of ongoing processes; and
· The Board and senior management have the necessary operating expertise, M&A capabilities and industry relationships to deliver on the strategy.
As part of a wider review of the Company and its growth strategy, the Board has identified the following strategic objectives as being core to long-term value creation and will shape the business going forward around these considerations:
· The Board recognises the importance of free cash flow in building a sustainable business;
· The Board continues to assess opportunities for future growth and has identified the dynamics of the European import gas market as being particularly attractive;
· In parallel with its portfolio rationalisation strategy, the Board is actively screening acquisition opportunities and has set a net production target of at least 5,000 boepd within 3 years;
· Initial screening focus is on European gas assets and also North African countries with benign jurisdictions and attractive pricing dynamics
· The Board is seeking to develop a ‘low-cost’ investment model that maximises risk adjusted value returns to shareholders and minimises equity dilution; and
· The inorganic growth model is not dependant on the rationalisation of the Company’s existing assets due to the focus on capital efficient transaction structures.
The Board is actively reviewing acquisition opportunities and is involved in a number of ongoing processes. Further updates will be provided if, and when, appropriate. Any acquisition would be consistent with the strategy, set out above to create a scalable oil and gas business with a focus on capital efficiency and one that can deliver shareholder returns in all oil price environments.
The Board has made good progress against the key objectives outlined at the AGM in August 2018, with the focus on the monetisation of the Company’s position in key assets, and notably the divestment of its interest in the Horse Hill development and of PEDL331 on the Isle of Wight both to UK Oil and Gas plc. This work has been conducted in parallel with the Board’s ongoing efforts to achieve returns from our core projects: the Ruvuma and Kiliwani North assets.
The Board continues to progress with its intention to divest or relinquish the balance of the non-core investments within the portfolio, as well as some historical early-stage seed investments that fall below disclosable thresholds. As part of the portfolio rationalisation, the Company has signed Heads of Terms with Levant Exploration and Production Corp. on 21 March 2019 for the divestment of Solo’s 28.56% in Reef Resources Limited to Levant. The divestment of the Company’s shareholding in Reef is subject to definitive documentation being agreed and further demonstrates the Company’s commitment to rationalise its existing portfolio as it delivers its growth strategy. Further updates will be provided as and when appropriate. The Board is actively reviewing exit strategies with regards to these various investments and will seek to either extract value or relinquish in order to limit any future costs, depending on which options are viable and in the interest of the Company.
Commenting on the strategy update, Solo Oil plc Executive Chairman Alastair Ferguson, said:
“This strategic update sets out the ambitious growth vision for the Company and reflects the significant efforts of the Board through H2 2018 and beyond. We believe that the market dynamics have created compelling and realistic opportunities that will enable the Board to transform the operational and financial profile of the business in the near-medium term. The strategies that we intend to implement mean that this transformative growth can be delivered in parallel with our existing focus and structured in ways that ensure transactions are value accretive for existing shareholders. We believe that pursuit of this growth strategy will enhance our ability to maximise value from our existing portfolio of assets.
“With the price of Brent back around US$65 and security of European energy supply back in the headlines, the relevance of a sustainable business model focused on value returns to investors in a market with supportive economic indicators is an attractive model for investors. The Solo team is working hard to secure value-creating acquisition opportunities and has conducted a major technical, economic and commercial screening exercise to high-grade potential acquisition targets.
“We see improving liquidity in the market for assets but there is often a lack of realism when it comes to value and few transactions are actually closing. Solo is excellently positioned to capitalise on this dynamic by leveraging a strong Board with an excellent track record in the execution of M&A deals and, following recent divestments, the funding to support our efforts. The Company is involved in a number of processes which, if successful, would be expected to derive significant value for our shareholders and be the platform for long-term sustainable growth. We look forward to updating the market on these various processes as and when there are material developments.”