LONDON UPSTREAM OIL AND GAS FUNDRAISINGS: 12 months to 30 September 2014

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1 LONDON UPSTREAM OIL AND GAS FUNDRAISINGS: 12 months to 3 September 214 November 214 Mid-market Oil & Gas raises $1bn in London The Equity Capital Markets have continued to be difficult for natural resource companies. BLP has conducted research into secondary fundraisings by Oil & Gas companies listed on the Main Market or on AIM* to coincide with Africa Oil Week. The year saw 4 fundraisings in the London-listed Oil & Gas sector, raising a total of nearly $1bn. The average size of fundraising for the London-listed Oil & Gas sector was approx. $24m, which is broadly in line with the London market generally. Half of the fundraisings by number totalled just $76.2m but the largest seven totalled nearly 2/3 of the amount raised: $624.5m. Most of the fundraisings were to fund drilling, particularly with the $5m+ raises. For the sub $5m fundraisings, acquisition of licences, well development and working capital were common uses of proceeds. Few fundraisings were rescues. Most oil and gas funding was undertaken to take companies to the next milestone. This report looks at how much has been raised, the size and discount applied by geography and structures used. 2 DEALS 13 DEALS 7 DEALS $76.2m Deals worth $1.6-1m each $284.5m Deals worth $1-5m each $624.5m Deals worth $5m+ each $985.5m * >$1.6m (> 1m) ex FTSE 1

2 2 Risk appetite and discounts by geography Support for African Projects Whilst representing a quarter of deals by number, over 45% of money raised in London for Oil & Gas was for African Projects, highlighting the potential on the African continent and the support it receives from the London investment community. NORTH AMERICA Geographical Risk is priced in Geographical risk appears to be significant when pricing fundraisings with all of the South American projects raising money at a greater than 1% discount to the pre-offer price. For African projects this is split more equally with approx. half being carried out at a less than 1% discount. By comparison, two thirds of European projects raised funds at a less than 1% discount and over a fifth were done at a premium. $46.9m 7 deals Size affects the discount The average discount decreases as the total amount raised increases, meaning that smaller raises have had to be keenly priced to attract investors. Also, the greater the dilution, the higher the discount. This suggests that the larger, transformational raises have also had to be more keenly priced. SOUTH AMERICA Portion of Market Cap raised (%) $84.4m 4 deals Discount Number of Deals < Premium <5% % % >25% Oil and gas fundraisings

3 3 EUROPE ASIA $358.1m 13 deals $36.2m 3 deals AUSTRALIA $453.4m 11 deals AFRICA $6.8m 2 deals Oil and gas fundraisings

4 4 Confidence Indicators/Structures 7 $8.2m Average deal size Accelerated Book Build Nearly a fifth of raises were conducted by way of an accelerated book build. These tend to have been the larger raises with an average size of $8m. This reflects what BLP is seeing on secondary fundraisings generally. As you might suspect with these larger raises, they often involved a US element. What is an ABB? An accelerated book build is a form of institutional placing which, as its name suggests can be quicker. The placing is announced, following which the book of orders is built with subscribers entering into verbal contracts to subscribe. The results of the placing are then announced. This structure removes the need for written contracts, such as placing letters and is favoured on large transactions. There is usually some form of marketing roadshow although for an accelerated book build this is usually conducted in the 48 hours before announcement. 7 $17.1m Average deal size Open offer Nearly a fifth of all raises included a pre-emptive open offer in addition to the placing to raise up to 5m. The majority of these were oversubscribed suggesting that shareholders often appreciate the opportunity to subscribe on the same terms as the institutional placing. What is an open offer? An open offer is a pre-emptive offer to existing shareholders. This would usually constitute an offer to the public and so requires the publication of a Prospectus which adds time and cost to any fundraising. An exemption from the requirement to publish a prospectus applies for offers of less than 5m. Where a prospectus is not otherwise needed, open offers for less than 5m can be made immediately after an institutional placing to benefit from this exemption. An open offer gives all shareholders the ability to benefit from the discount and to minimise the dilutive impact of the placing. 4 $2.6m Average deal size Structured equity Our experience is that structured equity is commonly used in the Oil & Gas sector, often for survival money. Four of the raises involved some form of structured equity although the average size of these raises was less than $3m. What is structured equity? Structured equity is a financing method using a number of small subscriptions over a period. It takes several forms including equity lines (a series of issues of equity against a facility); equity swaps (an issue of equity with an issue of an instrument with payments made to or by the issuer by reference to future share performance); self-liquidating loans (loans with an ability to repay through equity issues) amongst others. Whilst having the advantage of minimising equity dilution on signing, they can be expensive to set up and as their price is floating these arrangements can be expensive if the share price falls. Oil and gas fundraisings

5 5 2 $16.3m Average deal size Cash box Two deals used cash box structures one of which involved an issue of 48.6% of equity and the other 29.6%. The average deal size was $16.3m. What is a cash box? A cash box is a placing structured as an acquisition of shares in a new company, the cash box. This can avoid the need to disapply preemption rights for cash issues. As a result investor bodies like the ABI do not favour this structure as it disenfranchises shareholders. However, companies sometimes use this structure, typically to shorten the timetable by removing the need for shareholder approval. Number of banks involved For the larger, $5m+ fundraisings, on average more than two banks were used which is probably reflective of market conditions. Companies appoint multiple banks to broaden the range of potential investors being approached. The number of banks involved has come under scrutiny and the ABI guidelines on ECM transactions suggests there should be no more than two banks on IPOs where less than 25m is being raised $1.6-1m $1-5m $5m+ Final thoughts Last year has seen $1bn of support for the Oil & Gas sector and, in particular, African projects with $453.4m being raised for African Projects. We expect companies with compelling plans for strong assets to continue to be able to tap the London Market in the coming year, particularly where support from existing shareholders is strong. However, those with particular geographical risks or looking to do transformational raises will need to offer discounts to attract support. With demand for Oil and Gas rising more slowly than anticipated, downward pressure on oil prices has reduced the appetite for equity. We do not expect this situation to persist in the medium term. Oil and gas fundraisings

6 6 Get in touch ALEXANDER KEEPIN Partner Corporate Finance T: +44 () ADAM DANN Partner Finance T: +44 () SEGUN OSUNTOKUN Partner Litigation and Dispute Resolution T: +44 () MURDOCH CURRIE Partner Corporate Finance T: +44 () Dataset: Analysis of fundraising (ex FTSE 1) >$1.6m (> 1m) announced to LSE between 1 October 213 and 31 September 214. Conversion rate used: GBP1:USD1.61 Oil and gas fundraisings

7 About BLP Berwin Leighton Paisner is an award-winning, international law firm. Our clients include over 5 Global Fortune 5 or FTSE 1 companies. Our global footprint of 11 offices has delivered more than 65 major cross-border projects in recent years, involving up to 48 separate jurisdictions in a single case. The Firm has won seven Law Firm of the Year titles, is independently ranked by Chambers and the Legal 5 in over 65 legal disciplines and the FT currently ranks us in the top 5 law firm innovators in Europe. Expertise Commercial Construction Corporate Finance Dispute Resolution Employment, Pensions and Incentives Energy and Natural Resources EU & Competition Finance Funds and Financial Services Insurance Intellectual Property Private Client Projects Real Estate Regulatory and Compliance Restructuring and Insolvency Tax

8 Getting in touch When you need a practical legal solution for your next business opportunity or challenge, please get in touch. London Adelaide House, London Bridge London EC4R 9HA England Alexander Keepin Tel: +44 () alexander.keepin@blplaw.com Adam Dann Tel: +44 () adam.dann@blplaw.com Clients and work in 128 countries, delivered via offices in: Abu Dhabi, Beijing, Berlin, Brussels, Dubai, Frankfurt, Hong Kong, London, Manchester, Moscow, Paris and Singapore