Northern Petroleum to Sell Dutch Subsidiary

Northern Petroleum Plc  announces that it has entered into a binding sale and purchase agreement with Vermilion Oil & Gas Netherlands BV (“Vermilion”), a wholly owned subsidiary of Vermilion Energy Inc., for the sale of Northern Petroleum Nederland BV (“NPN”), the Company’s wholly owned Netherlands operating subsidiary.

The consideration for the sale will be satisfied as follows:

• Canadian $27.5 million, payable in cash on completion;
• a net profit interest in the Papekop Production Licence (“Papekop NPI”); and
• a net profit interest over any future production from unconventional reservoirs (“Posidonia NPI”).

The economic effective date for the transaction is the 1st January 2013. Completion is expected to occur before mid October and is conditional upon the official execution of the deed of transfer before a notary in The Netherlands.

Rationale for sale

The Company acquired the majority of its Netherlands portfolio in 2005 from Nederlandse Aardolie Maatschappij BV (“NAM”), the Netherlands based joint venture between Exxon and Shell. The agreements allowed Northern to bring into production undeveloped discoveries and pursue exploration opportunities. Since that time, the assets in The Netherlands have provided valuable cash inflow for the Company from production and partial asset sales. The portfolio currently consists of five producing gas fields onshore, one gas field offshore, for which Northern is receiving deemed production compensation, and two further potentially commercial discoveries awaiting appraisal and development. Average production for the six months to 30th June 2013, including the deemed production from P12, was 851 barrels of oil equivalent per day.

The NPN portfolio as a whole requires significant levels of capital to develop and increase production to more material levels. Operations would further benefit from being part of a larger group of assets with the associated operating and drilling synergies. Without these levels of required investment, which are currently beyond the capacity of the Company, the net economic benefits to Northern are reducing and therefore the time is right to conclude a sale.

Net Profit Interests

The Papekop NPI grants Northern a 20 per cent interest in any net operating profit generated from the Papekop oil and gas discovery, if it is developed and brought into production. This is calculated after the deduction of operating expenditure and the recovery of development expenditure. If the interest in the licence is sold within one year, Northern will receive 80 per cent of the proceeds, after Vermilion has recovered its expenditure to that point. If the interest is sold by Vermilion after one year, but before a field development plan is approved, Northern will receive 20 per cent of the proceeds after cost recovery by Vermilion and keep a 20 per cent net profit interest.

The Posidonia NPI grants Northern a 10 per cent interest in any net operating profit generated from the production of oil or gas from unconventional reservoirs, which is primarily the Posidonia shale sequence. This payment will be calculated net of operating and development capital expenditure.

Financial impact

NPN produced approximately 95 per cent of the Company’s total revenue of €12.4 million for the 12 months ended 31 December 2012 and contributed approximately €2.5 million of profit after tax to the Company’s net loss of €1.6 million for the same period. As at 31 December 2012, the net assets subject of the sale had a reported book value of approximately €21.9 million. Following completion, it is expected that the sale will give rise to a book loss in the Group’s consolidated accounts for the year to 31 December 2013.

The pro forma cash balance of the Group calculated as if completion had taken place on the 27th September 2013 would have been approximately €33 million. It is anticipated that the majority of these cash reserves will be spent on the existing firm and contingent financial commitments of the Company’s remaining operations and to meet the ongoing working capital requirements of the business.

An updated copy of the Group’s corporate presentation reflecting the sale of NPN will shortly be available on the Company’s website.

Keith Bush, Chief Executive Officer of Northern, commented: ”The assets in the Netherlands have served the Group well in providing cash inflow over the last six years, but the time is now right to conclude a sale. The completion of the sale will represent the achievement of the first of three key objectives we set ourselves in August this year. Our attention will now turn to realising some of the significant latent value held within the Company’s Southern Adriatic licences and the testing of our redevelopment play in Canada.”

Press Release, October 01, 2013