New US$20m Convertible Note Agreement to Fund Brunei Development
AED Oil Limited (ASX Code: AED) is pleased to announce that it has entered into a Funding Agreement for the issue of up to US$20million of 4.75% convertible notes to US-based La Jolla Cove Investors, Inc (La Jolla Cove).
As previously announced, AED (as operator) and its joint venture partners have committed to proceeding to phase 2 on the Block L development in Brunei. The funds raised from the issue of the convertible notes to La Jolla Cove will be used primarily to finance Brunei costs including further exploration, well testing and phase 2 development activities in Brunei Block L. Specifically, the funding will provide the cashflow necessary to fund testing of the Lempuyang-1 and Lukut-1 wells in January 2011 and further exploration and development opportunities on Block L.
Phase 2 consists of a two year exploration period which commenced on 28 August, 2010.
At a minimum the Block L consortium will:
1. acquire and process at least 500 kilometres of onshore 2D seismic data and 500 kilometres of offshore 2D seismic data;
2. acquire and process at least 150 square kilometres of offshore 3D seismic data or the dollar equivalent amount of 2D seismic data; and
3. drill two onshore exploration wells, each to a minimum depth of 2,000 metres.
This funding ensures that AED's share of the current proposed work commitments and the current testing program will be fully-funded.
AED Chairman David Dix said this outcome demonstrates International capital market interest in Brunei. The financing incorporates prudent capital management strategies, as funds will be drawn down in tranches to support AED's work program as it moves toward achieving milestones at its flagship project in Brunei.
"Following a rigorous due diligence program, this funding agreement demonstrates La Jolla Cove's strong support for AED's corporate strategy of investment in Brunei", Mr Dix said.
"La Jolla Cove has demonstrated a commitment to taking a significant equity stake in AED at an important time as we move into the testing and development phase in Brunei Block L," he said.
La Jolla Cove is a US-based private investment company. It considers itself a leader in financing small-to-mid cap publicly listed companies and seeks to partner with businesses looking for capital and strategic advice to expand their current operations.
La Jolla Cove's expertise lies in creating flexible financial structures which enable a company to grow. La Jolla Cove undertaken a number of investment in Australian companies. This transaction marks La Jolla Cove's most significant Australian transaction to date. "We are pleased to partner with AED Oil at this exciting time", stated Michael Sanberg, Assistant Portfolio Manager at La Jolla Cove. "AED's assets in South East Asia show great potential and we are thrilled to be their financial partner as they move towards development."
Highlights of the Funding Agreement are as follows:
- a cash-flow profile well-matched to AED's expected cash outlays during well testing and development of Phase 2 work program at Brunei Block L;
- a low cost of funds comparative to conventional debt or hybrid securities offerings;
- the convertible notes are unsecured with no restrictions on the raising of further prior ranking secured debt or further equally ranking unsecured debt; and
- in the three months prior to the maturity date of each note, AED has the right to force conversion of any unconverted principal into equity prior to redemption of the note, if doing so is seen as being in AED's best interests at the time.
The issue of the notes is subject to the satisfaction of certain regulatory and other closing conditions.
The key terms of the Convertible Notes are as follows:
1. Four convertible notes, each with a face value of US$5,000,000, which will be issued progressively (ie, the second note will only be issued when the first note is fully drawn and so on).
2. US$1,500,000 will be drawn down on the issue of each notee. Subsequently, each note will be drawn down progressively at either US$250,000 or US$500,000 per month (at AED's option). Subject to share price performance hurdles, AED may also call for additional one-off payments of US$750,000.
3. The notes bear interest at the rate of 4.75%, payable on drawn commitments.
4. Each note will mature 3 years after the date of its issue. AED may force conversion in the period leading up to maturity.
5. The Convertible Notes can be converted by La Jolla Cove in whole or in part. The conversion price will be calculated as a 20% discount to the prevailing volume weighted average price of AED shares, converted into US Dollars at a pre-determined market-based exchange rate. AED may, provided certain conditions are satisfied, elect not to accept any purported conversion where the volume weighted average price of AED shares is less than the floor price (AU$0.40).
6. There are no restrictions on conversion of the first Convertible Note. The remaining notes cannot convert until such time as shareholder approval is obtained for the conversion. AED will seek this approval in the new year.
The issue of the Convertible Notes will also result in minor adjustments to the conversion prices of AED's US$21,217,500 9% convertible notes listed on SGX-ST and for AED's US$20,000,000 6% convertible notes held by the Asia Resources Fund. AED will advise the market of these adjustments in due course.
AED expects that the first note will be issued in early January.
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