Spectrum to Be Acquired By TGS in an All Share Transaction

  • UPDATE: 20 May 2019 – Spectrum and TGS executes merger agreement and merger plan
  • UPDATE: 21 Jun 2019 – Shareholders Approve TGS-Spectrum Merger

  • Spectrum ASA (“SPU” or the “Company”, OSE: SPU) hereby announces an agreement to principle terms with TGS-NOPEC Geophysical Company ASA (“TGS” or the “Company”, OSE: TGS) of an acquisition of Spectrum by TGS, creating a leading provider of 2D and 3D seismic data.

    The transaction is expected to be completed as a statutory merger pursuant to Norwegian corporate law between TGS and Spectrum, with merger consideration to Spectrum shareholders in the form of 0.28x ordinary shares of TGS for each Spectrum share (the “Exchange Ratio”), in addition to a cash consideration of USD 0.27 multiplied by the Exchange Ratio subject to the transaction closing after the ex-date for the TGS dividend payable in Q3 2019 (expected to be early August 2019). The Exchange Ratio and the cash consideration imply a transaction share price of Spectrum of NOK 61.9 per share (based on closing of the TGS share on 2 May 2019), corresponding to a market capitalization of NOK 3,671 million (USD 422 million) on a fully diluted basis. The transaction is supported by the board of directors of each of the companies, as well as Spectrum shareholders representing more than 34% who have given their support to the transaction and agreed to undertake to vote their shares in favour thereof. Definitive merger documents are expected to be entered into during May, with closing of the transaction expected during the third quarter of 2019 following shareholder approvals in EGM and regulatory clearance.

    The transaction will create a leading multi-client geophysical data provider with a 2D and 3D seismic data library covering all major mature and frontier basins world-wide.  Spectrum has successfully built a substantial presence in the South Atlantic and other important frontier regions. With TGS’ extensive library and financial robustness, the combined entity will be well positioned to accelerate 3D seismic investment plans in an improving market. Furthermore, the combined libraries will have a scale that will help accelerating TGS’ data analytics strategy

    In addition to providing a platform for further profitable growth, the combination will benefit from significant cost synergies with a preliminary estimate of approximately USD 20 million annually.

    “Over the past years, Spectrum has been through a growth phase with particular focus on establishing profitable positions in non-mature exploration basins, especially along the Atlantic margin. TGS´ interest in Spectrum is a manifestation of the solid position built by the Spectrum organization over a long time. Being ready for the next phase of the strategic growth plan, TGS is an excellent match, with its asset-light multi-client strategy and strong balance sheet. Altor Fund IV are proud to be part of creating a leading multi-client company, with a strong presence in all the major basins and superior cash generation capabilities”, stated Pål Stampe, Chairman of the board of Spectrum and partner at Altor Equity Partners, the investment advisor to Altor Fund IV.”

    “The strategic combination of TGS and Spectrum will form a stronger and better company with a world class data library, people and opportunities. We look forward to joining forces with TGS. There are strong strategic benefits from combining the companies, and we believe we can enhance our growth as part of a larger combined company,” stated Rune Eng, President & Chief Executive Officer of Spectrum.

    “Spectrum has successfully built a strong position in key offshore basins, particularly in the South Atlantic. The transaction thus fits well with one of TGS’s key strategic goals of growing exposure to this region. Moreover, Spectrum’s library, and in particular the vast 2D coverage, further adds to TGS’s strategy within data analytics, where access to large amounts of data is a key success factor. TGS remains committed to maintain the existing dividend policy and emphasizes that the strong cash position, the combination of two free cash flow positive entities, and significant cost synergies, will enable continued industry leading shareholder returns”, stated Kristian Johansen, Chief Executive Officer of TGS.

    Support from board of directors, management and Spectrum shareholders

    The transaction is supported by the board of directors of Spectrum, who has unanimously concluded that the transaction both from a financial and industrial perspective represents an attractive alternative for all its stakeholders. In addition, Spectrum shareholders representing more than 34% have given their support to the transaction, on certain conditions, and undertaken to vote their shares in favor thereof. These shareholders include management of Spectrum, funds managed by Altor Fund IV and Gross Management AS (investment company of Spectrum director Glen Ole Rødland. Altor Fund IV (via Pål Stampe as Chairman of the Board and Maria Tallaksen as Board member) and Gross Management AS (Glen Ole Rødland as Board member) are represented on the Board of Directors of Spectrum. The above support and undertakings remain subject to consummation of definitive merger documentation.

    Key terms of the transaction:

    Based on a TGS share price as of close 2 May 2019 of NOK 218.8, the exchange ratio plus the cash consideration implies a fully diluted equity value of Spectrum of NOK 3,671 million, corresponding to a price per share of NOK 61.9. This represents a premium, including the cash consideration, of 10.2% to Spectrum based on closing price on 2 May 2019 and a premium of 32.8% and 17.5% to Spectrum based on 6 month and 12 month VWAP as of 2 May 2019, respectively.

    The shareholders of Spectrum will (on a fully diluted basis) receive:

    1. 0.28 shares of TGS per one (1) share in Spectrum, corresponding to 7 TGS shares per 25 Spectrum shares, meaning that the shareholders of Spectrum upon completion of the transaction will receive a total of 16.6 million shares in TGS, representing 13.9% of all issued shares in TGS immediately following completion of the transaction. Fractional consideration shares will be settled in cash.

    2. An additional cash consideration to Spectrum shareholders of the NOK equivalent of USD 0.27 multiplied with the Exchange Ratio, if the Transaction is consummated after the ex-date for the TGS quarterly dividend payment in Q3 2019 (expected to be early August 2019).

    Further details regarding the valuations and the exchange ratio will be included in the merger plan which is expected to be published during May 2019. The transaction remains subject to such merger plan and other definitive documentation being finalised and executed, as well as other customary closing conditions such as relevant regulatory approvals and consents, expiry of the statutory waiting periods, no material adverse change occurring and approval by extraordinary general meetings in TGS and Spectrum with at least two-thirds majority of the votes cast and of the share capital represented. Closing of the transaction would occur as soon as possible thereafter following necessary regulatory approvals and statutory waiting periods.

    The completion of the transaction and the issuance of the consideration shares are expected to take place in the third quarter of 2019, subject to the conditions being fulfilled.

    Reciprocal confirmatory due diligence has been completed by both TGS and Spectrum and completion of the transaction is not subject to any further due diligence review.

    Further information regarding the transaction will be provided in a conference call at 14:00 (CEST) on Friday 3 May and in relation to Q1 2019 reporting, which will be held on 10 May 2019.

    Clarksons Platou Securities acts as financial advisor and Wiersholm acts as legal advisor to Spectrum. Carnegie acts as financial advisor and Schjødt acts as legal advisor to TGS.

    Click to download full statement here:

    Official Statement [PDF]

    Guinea Bissau: Chasing Source Rock From Giant Success Into A New Frontier Basin

    Exploring a frontier basin, the primary concern is source rock presence and effectiveness. This was thought to be true of Guinea Bissau, despite the discovery of oil in the shelfal located Dome Flore salt diapir crest, Dome Gea and Sinapa salt diapir flank wells. Until recently however, the deeper water settings, west of the Jurassic and Cretaceous shelf were unproven hydrocarbon systems. However, this margin has become one of the most exciting on earth after the prolific gas and oil discoveries in the deepwater basins of Mauritania and North Senegal proved Early Cretaceous , and Late Jurassic source rocks were indeed effective off the shelf. The SNE area discoveries of South Senegal are also charged from the deep basin source rocks of Turonian and Aptian age. In this context then, how do we extend the understanding of the presence of source rocks to the south into Guinea Bissau?

    Following this link, Karyna Rodriguez demonstrates how deconstructive seismic analysis will identify source rocks and develop new play systems off the Guinea Bissauan shelf. In an area with open acreage and abundant farm-in opportunities, she calibrates the hydrocarbon system to known success using a simple set of criteria and modern deghosted dataset. Click here to see the presentation.

    Guinea Bissau not only has new giant-prospect opportunities but this method unlocks a new way of looking at seismic where Direct Hydrocarbon Indications (DHI’s) can be supplemented with direct source Imaging.

    The Run-Up to a Paradigm Shift Offshore Lebanon

    Spectrum’s Neil Hogdson discusses new information which is casting a new light on Offshore Lebanon.

    As we approach bid submission in Lebanon’s 2nd offshore License round, significant new information is coming to light concerning the petroleum system that’s suggests a change to the East-Med Gas paradigm is coming and Lebanon will be revealed as a new, major oil province. These new data are building expectations for a change in thinking regarding Lebanon that will surpass even the giant gas successes of recent years in the Eastern Mediterranean, bringing prosperity and stability to the Levant. A short presentation on these new updates to the petroleum system can be viewed by following this link.

    Block 5 offshore Lebanon has many large, simple 3-way dip and 1 way fault closed structures of Leviathan proportion yet these structures are sitting above an oil generating Early Tertiary source rock. This provides a credible simple oil play suggesting this undrilled acreage will actually make Lebanon the East Mediterranean’s next oil capital.

    Winners Announced in Offshore Argentina Round

    The provisional results of one of they years most highly-anticipated bid round was announced at the end of April when Argentina declared the winners of their first offshore licensing round in over 20 years. The round attracted bids from 13 companies and of the 38 blocks that were offered, 18 were licensed by various companies including Equinor, Wintershall, and ExxonMobil with winning bids totaling over $718 mm. Included in the public tender were deep water, ultra-deepwater, and shallow water exploration blocks in the Austral, Malvinas, and Argentina Basins.

    Spectrum’s Multi-Client library includes over 50,000 km of new seismic data over the Austral Malvinas and Argentina Basins. This modern, premium, long-offset seismic has been designed and acquired with the bid round in mind, providing explorers with the idea tool to unlock these exciting new areas. Surveys were acquired with 12,000 m offsets and continuous recording to enable extended recording lengths and high fold data to support full interpretation.

    Additionally, Spectrum has recently launched a new 20,000 km 2D survey in the Colorado and Salado basin offshore Argentina. This crucial new data will assist in future license block selection, and will support full interpretation from the Moho to water bottom. It will be processed with broadband PSTM and PSDM products, with first deliveries in Q2 2019.

    Should they take up their acreage, Equinor will add seven exploration blocks to its portfolio. They will operate blocks MLO 121, CAN 108, CAN 102, AUS 105, and AUS 106 as well as participate in Block MLO123 in a partnership with Total as operator (37.5%) and YPF (37.5%). Additionally, Equinor will serve as operator with 50-50 split interest with YRP in block CAN114.

    ExxonMobil’s local entity was awarded three exploration blocks in the Malvinas Basin. They will operate Blocks MLO-113, MLO-117, and MLO-118 with 70% working interest. The remaining 30% interest will be held by Qatar Petroleum. The new blocks will add to the over 2.6 million net acres of existing holdings for ExxonMobil in Argentina.

    Wintershall will also participate in offshore exploration projects in Argentina after being awarded won the bidding process for two blocks in the Malvinas Basin off the coast of Tierra del Fuego. Wintershall will hold 27% interest in Blocks MLO-114 and MLO-119, partnered with Pluspetrol with Tullow serving as operator. According to Wintershall, the blocks will be covered with a 3% seismic survey in the initial exploration period.

    In addition to the aforementioned companies, Total and BP won Blocks CAN- 111 and CAN- 113, Shell and Qatar Petroleum walked away with Blocks Can-109 and CAN-107. Tullow was also awarded Block MLO-122 and ENI, Mitsuim abd Tecoetrol won Block MLO-124.

    Argentina’s Secretariat of Energy will confirm the public tender results in a subsequent resolution. These results are subject to regulatory Approvals by the Argentinian authorities and customary confirmation.

    Winning Bids:
    1. Block MLO-113 – ExxonMobil, Qatar Petroleum
    2. Block MLO-114 – Pluspetrol, Wintershall, Tullow Oil
    3. Block MLO-117 – ExxonMobil, Qatar Petroleum
    4. Block MLO-118 – ExxonMobil, Qatar Petroleum
    5. Block MLO-119 – Pluspetrol, Wintershall, Tullow Oil
    6. Block MLO-121 – Equinor
    7. Block MLO-122 – Tullow Oil
    8. Block MLO-123 – Total, Equinor, YPF
    9. Block MLO-124 – Eni, Mitsui, Tecpetrol
    10. Block CAN-102 – Equinor
    11. Block CAN-107 – Shell, Qatar Petroleum
    12. Block CAN-108 – Equinor
    13. Block CAN-109 – Shell, Qatar Petroleum
    14. Block CAN-111 – Total, BP
    15. Block CAN-113 – Total, BP
    16. Block CAN-114 – Equinor, YPF
    17. Block AUS-105 – Equinor
    18. Block AUS-106 – Equinor

    Discovery Announced Near Lebanon License Blocks

    Following the recent announcement that the Lebanese government has approved the opening of the country’s much-anticipated 2nd offshore licensing round, Energean Oil and Gas plc announced on 15 April that the Karish North exploration well has made a significant gas discovery. Preliminary analysis by Energean indicates initial gas in-place estimates of between 1 Tcf and 1.5 Tcf in high quality reservoirs in the B and C sands, which adds to the already significant discovered gas and thermogenic light oil volumes in Karish. Crucially, this latest discovery is less than 30km from Spectrum’s 3D survey in southern Lebanon, overlapping blocks 8 and 5 in the current licensing round, where we the source rock is sitting directly below a very thick reservoir section with large associated structural closures and is modelled to be in the oil window.

    The Lebanese Petroleum Administration (LPA) detailed a total of five offshore blocks to be offered in the 2nd round – Blocks 1,2, 5, 8 and 10. They indicated that tenders will not be preceded by a separate pre-qualification process, as was the case in the 1st round, in order to streamline the process and allow oil companies additional time for evaluation. Interested companies are asked to submit their bids by 31st January 2020 and provisional block winners are expected to be announced during April 2020.

    The legal framework for the second round has largely remained unchanged from the first but pre-qualification criteria have been slightly loosened to encourage greater participation.

    Following the prominent Zohr discovery, which opened up a different play type to those of the Leviathan and Aphrodite discoveries, much of the eastern Mediterranean has seen a renewed focus of exploration activity. With this increased level of interest, Lebanon’s 2nd offshore licensing round provides a timely opportunity to gain access to favourable acreage in this emerging region.



     

    ExxonMobil, along with partners Qatar Petroleum, recently announced a multi-TCF discovery of gas in the Glaucus-1 well offshore Cyprus. The well encountered a gas-bearing reservoir of ~133 metres with in-place resources estimated to be 3-5 TCF. This discovery brings the total announced gas reserves in the region up to 70 TCF.

    Spectrum has acquired and interpreted over 5,000 km2 of modern Multi-Client 3D data offshore Lebanon, covering 3 of the 4 blocks announced for inclusion in the 2nd licensing round. Through this data, Spectrum has shown that the Early Miocene reservoir indicates a string of three-way dip closed and one-way fault closed structures that range in size from 20 to 50 km2, capped by thick Late Miocene mudstones. These are similar in size to the Tamar structure (9 TCF) to the south but less highly faulted.

    For more information on the 2nd licensing round and the hydrocarbon prospectivity offshore Lebanon, check out our exclusive interactive map HERE


     

     

    Argentine Colorado Basin Gains New Multi-Client 2D Seismic Survey

    Spectrum is commencing a new 20,000 km 2D survey in Colorado and Salado basin offshore Argentina.  This new program ties with Spectrum’s existing 38,000 km survey that was acquired in 2017 for the ongoing first offshore licensing round.

    The survey is done in cooperation with BGP utilizing the vessel BGP Pioneer.

    Data is being acquired with a 12 km streamer with continuous recording to image deep reflection and high fold data. This will support full interpretation from Moho to water bottom. The data will be processed with PSTM, PSDM and Broadband products with first deliveries in Q2 2019.

    The Colorado 2D survey is adding to Spectrum’s portfolio of projects in Argentina. It is in line with our growth strategy to develop an extensive 2D database for regional evaluation of these high potential offshore basins. The new seismic will be utilized to assist the Ministry in placement and design of sectors for future license rounds offshore Argentina. It is anticipated that the shelf area of these basins will be included in the second offshore license round, expected to open in 2019.

    Spectrum will continue to work with oil companies and the Argentina government to provide high quality data ahead of future license rounds,” said Rune Eng, CEO of Spectrum.