Golden Crescent Investments Ltd. (Golden Crescent), a Citadel Capital Opportunity-Specific Fund, signed a share purchase agreement to sell 100% of its interest in National Petroleum Company Egypt Limited (NPC Egypt), a wholly owned portfolio company, to Sea Dragon Energy Inc. (Sea Dragon) (TSX-V: SDX), a Calgary-based exploration and development company.
Sea Dragon has agreed to pay cash and share consideration equal to $147.5 million, consisting of $60 million in cash and 350 million common shares of Sea Dragon to be issued to Golden Crescent at the closing of the transaction at a deemed price of US$0.25 per share, subject to any adjustments made in accordance with the terms of the share purchase agreement.
Concurrent with the execution of the share purchase agreement, Sea Dragon delivered $ 2.5 million into escrow as an initial deposit against the payment of the cash consideration.
At the closing of the transaction, Golden Crescent will be granted a 20% after-payout net profits interest from production attributable to a field comprising part of an existing NPC Egypt development asset that Sea Dragon expects to bring onstream during the first quarter of 2013. Golden Crescent will also be granted a 17.5% after-payout net profits interest from production attributable to the balance of the same development asset.
“This is the first of several transactions to which we have alluded in recent months that will see Citadel Capital rationalize its portfolio through the divestiture of some non-core investments,” Citadel Capital Chairman and Founder Dr. Ahmed Heikal, said.
Cash proceeds from the sale will allow Citadel Capital to recoup additional funding it has extended to Golden Crescent over and above the firm’s equity investment, with the balance remaining distributed pro-rata among the remaining Golden Crescent lenders. Citadel Capital owns 15.05% of Golden Crescent with management control; the balance of Golden Crescent’s equity is held by limited partners.
The transaction’s upside potential for Golden Crescent shareholders includes the potential appreciation of the Sea Dragon common shares received as share consideration, as well as the after-payout net profits interest.
“In agreeing to sell to Sea Dragon, in which Golden Crescent will take a direct equity stake and receive an after-payout net profits interest, we are maximizing upside potential for Citadel Capital and our LPs. Sea Dragon is headed by a world-class management team that has proven experience in the region’s upstream segment,” Heikal, added.
Sea Dragon is led by Said Arrata, a 40-year veteran of the oil and gas industry who previously built Centurion Energy International Inc., which was acquired by regional heavyweight Dana Gas in 2007 in a $950 million deal. Sea Dragon is presently engaged in the exploration and development of two concessions in Egypt, including the NW Gemsa concession (10% working interest) and the Kom Ombo concession (50% working interest).
Under the share purchase agreement, Golden Crescent is entitled to designate one nominee for election to Sea Dragon’s Board of Directors for so long as it holds not less than 10% of Sea Dragon’s issued and outstanding common shares. The share purchase agreement also provides Golden Crescent with pre-emptive rights, subject to certain exceptions, to purchase or subscribe for additional common shares of Sea Dragon to maintain it’s pro rata equity percentage in Sea Dragon, as well as certain prospectus and piggy-back rights.
Subject to the satisfaction or waiver of all conditions set out in the share purchase agreement, Golden Crescent and Sea Dragon currently anticipate closing the transaction in late February or early March 2012.
The issue price and number of Sea Dragon common shares comprising the share consideration Golden Crescent is to receive is subject to adjustment pursuant to the share purchase agreement to ensure that Golden Crescent will not hold less than 20% of the issued and outstanding common shares of Sea Dragon at the closing date of the transaction. Accordingly, when the transaction is completed, Golden Crescent will hold at least 20% of the issued and outstanding common shares of Sea Dragon.
In accordance with the policies of the TSX Venture Exchange, a special meeting of the holders of common shares of Sea Dragon will be held on or before 29 February 2012 to approve the issuance of the share consideration, together with Golden Crescent becoming a control person of Sea Dragon. In addition, the shareholders of Sea Dragon will also be asked to pass a special resolution to approve a consolidation of the common shares of Sea Dragon on a ratio not greater than a 10 for one basis, which share consolidation is anticipated to be effected after the closing of the transaction.