Zenith set out a deal to buy a major share in AAOG’s Congolese asset, the Tilapia field, at the end of December 2019. A vote on this was held on January 13, with Zenith winning over shareholders. Zenith made an offer to buy an 80% stake in AAOG Congo, the local unit that holds Tilapia.
Following the vote, Zenith said it would provide a loan of £250,000 as of January 25 for AAOG. Zenith still needs approval from the authorities in Congo Brazzaville for the deal. The relationship between the government and AAOG has been testy over the last 12 months.
Zenith backed up its interest in the AAOG Congo asset through the signing of a put and call option on the acquisition of the remaining 20%. This could see it take over complete control of Tilapia on January 16, 2021.
Zenith can work out its call option if the oilfield has not produced more than 2,000 barrels per day on average over 30 days. Should it exercise this option, Zenith would pay £1 million through the issue of shares in itself.
There is also a put option. Under this, AAOG can opt to sell the remaining 20% in AAOG Congo to Zenith for £2.5mn. This option is triggered if Tilapia creates at least 4,000 bpd for 30 days.
Zenith’s CEO Andrea Cattaneo welcomed the deal. “The Tilapia asset has, we believe, potentially transformational production potential.” Should the field be successful, he said, this put and call option ensures that “both Zenith and AAOG shareholders will enjoy the fruits of victory”.
The main task for the company will be to secure a “fully inspected and functional rig to begin drilling operations at the earliest opportunity in TLP-103C to test the productivity of the Mengo and Djeno horizons”, the Zenith official said.
Following the statement of Zenith’s offer at the end of 2019, a dissident campaign was introduced to offer an alternative, involving Jub Capital and Align Research. A statement from Align’s Richard Jennings on January 12 acknowledged that Zenith was likely to carry the day and that the focus now was on improving the terms for shareholders.
The put and call option demonstrates an additional incentive for shareholders, Jennings said. The deal with Zenith will land some cash and shares, in addition to the potential recovery of a debt owed by Société Nationale des Pétroles du Congo (SNPC), “now have the potential to make AAOG a very attractive cash shell”.