NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION. THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF SECURITIES IN ANY JURISDICTION.
THIS IS AN ANNOUNCEMENT AND NOT A CIRCULAR OR PROSPECTUS OR EQUIVALENT DOCUMENT AND INVESTORS AND PROSPECTIVE INVESTORS SHOULD NOT MAKE ANY INVESTMENT DECISION ON THE BASIS OF ITS CONTENTS. A CIRCULAR AND PROSPECTUS IN RELATION TO THE ACQUISITION DESCRIBED IN THIS ANNOUNCEMENT WILL EACH BE PUBLISHED IN DUE COURSE.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
Harbour Energy plc
("Harbour")
Transformational acquisition of Wintershall Dea asset portfolio
21 December 2023
- Transforms scale and geographic diversification
- Materially enhances production, reserve life and margins
- Increases exposure to natural gas and lowers emissions intensity
- Delivers significant financial synergies
- Immediately accretive to free cash flow
- Enhanced and sustainable shareholder returns
Harbour is pleased to announce that it has reached an agreement with BASF and LetterOne, the shareholders of Wintershall Dea AG ("Wintershall Dea"), for the acquisition of substantially all of Wintershall Dea’s upstream assets (the "Target Portfolio") for $11.2 billion (the "Acquisition").
The Target Portfolio includes all of Wintershall Dea’s upstream assets in Norway, Germany, Denmark1, Argentina, Mexico, Egypt, Libya2 and Algeria as well as Wintershall Dea’s CO2 Capture and Storage ("CCS") licences in Europe. Wintershall Dea's Russian assets are excluded. The Acquisition will add 1.1 bnboe of 2P reserves at c.$10/boe and more than 300 kboepd of production at c.$35,000/boepd3.
The Acquisition is expected to transform Harbour into one of the world’s largest and most geographically diverse independent oil and gas companies, adding material gas-weighted portfolios in Norway and Argentina and complementary growth projects in Mexico. Harbour will also benefit from an increased reserve life and improved margins with lower operating costs and greenhouse gas ("GHG") intensity.
Harbour is expected to receive investment grade credit ratings and to benefit from a significantly lower cost of financing resulting from the porting of existing euro denominated Wintershall Dea bonds with a nominal value of c.$4.9 billion4 (the "Wintershall Dea Bonds") and a weighted average coupon of c.1.8 per cent. The Acquisition is also accretive to Harbour’s free cash flow, supporting enhanced and sustainable shareholder returns.
Acquisition benefits
The Board of Directors of Harbour believe the Acquisition is a strong strategic fit, in line with its stated M&A objectives, and offers a transformational value-creating opportunity for Harbour's shareholders.
The Acquisition:
Transforms Harbour’s scale and geographic diversification
- Combined production of over 500 kboepd5 and 2P reserves of 1.5 bnboe6
- Significant production of c.170 kboepd7 in Norway with additional material positions in Argentina, Egypt and Germany
- Combined revenue of $5.1 billion and EBITDAX of $3.7 billion for six months to end June 2023
Adds high quality assets which are accretive to Harbour’s reserve life and margins
- Increases Harbour’s 2P reserve life8 to c.8 years with organic reserve replacement opportunities from c.1.5 bnboe9 of combined 2C resources
- Enhances Harbour’s natural gas-weighting with combined natural gas production of over 300 kboepd10 (c.60 per cent of total production)
- Materially accretive to margins with lower combined opex11 of c.$11/boe and exposure to advantaged markets (Brent for oil and TTF for European gas)
Supports Harbour’s energy transition goals
- Step change in Harbour’s GHG emissions intensity, with lower combined GHG emissions intensity of c.15 kgCO2e/boe12
- Strong pipeline of European CCS projects with potential to store more than 10 mtpa of CO2 (net equity share)
- Harbour’s 2035 Net Zero commitment reaffirmed13
Significantly enhances Harbour’s financial strength
- Material financial synergies with porting of existing Wintershall Dea Bonds with a nominal value of c.$4.9 billion, a weighted average coupon of c.1.8 per cent and weighted average maturity of c.4.5 years
- Post completion, Harbour expects to receive investment grade credit ratings, increasing its access to low cost, diverse sources of capital
- Significantly increases Harbour’s per share free cash flow14
Enables enhanced and sustainable shareholder returns framework
- Supports an increase in Harbour’s annual dividend from $200 million to c.$455 million, of which c.$380 million will be paid to holders of ordinary shares in Harbour ("Ordinary Shares"). This reflects a 5 per cent increase in dividend per Ordinary Share to 26.25 cents15
- High quality portfolio, free cash flow accretion and significantly enhanced financial strength underpin a sustainable increase in the dividend
- Potential for additional returns in line with Harbour’s existing policy
Consideration structure
Under the terms of the business combination agreement entered into between Harbour, BASF and LetterOne (the "BCA"), Harbour will acquire the Target Portfolio for $11.2 billion comprising:
- The porting of existing Wintershall Dea Bonds with a nominal value of c.$4.9 billion and a weighted average coupon of c.1.8 per cent to Harbour
- Approximately 921.2 million new Harbour shares issued to Wintershall Dea’s shareholders (the "Consideration Shares") at an agreed value of $4.15 billion or 360 pence per Harbour share, representing a premium of c.60 per cent to Harbour’s 30-day volume weighted average share price of c.227 pence16, such that on completion:
- BASF, a 72.7 per cent shareholder in Wintershall Dea, will own 46.5 per cent of Harbour’s listed Ordinary Shares with Harbour’s current shareholders owning 53.5 per cent17
- LetterOne, a 27.3 per cent shareholder in Wintershall Dea, will own 251.5 million non‐voting, non‐listed convertible ordinary shares with preferential rights (the "Non-Voting Shares"). If the Non-Voting Shares were to be converted into Ordinary Shares, Harbour’s current shareholders would own 45.5 per cent of Harbour; BASF and LetterOne would own 39.6 per cent and 14.9 per cent, respectively
- $2.15 billion of cash consideration to be funded through cash flow generated from the Target Portfolio between the effective date of 30 June 2023 and completion, and an underwritten bridge facility
Other key details of the Acquisition
- Post completion, Harbour will continue to be Chaired by R. Blair Thomas, with Linda Z. Cook and Alexander Krane remaining as Chief Executive Officer and Chief Financial Officer, respectively
- All Target Portfolio employees will be transferred to Harbour on completion. In addition, Harbour intends to take on some employees from Wintershall Dea’s corporate headquarters
- BASF will be entitled to nominate two Non-Executive Directors to the Board of Harbour provided BASF holds at least 25 per cent of the Ordinary Shares, and one Non-Executive Director in the event BASF holds between 10 and 25 per cent
- BASF’s Ordinary Shares will be subject to a six month lock-up following completion (subject to customary exceptions). The lock-up arrangements will also apply to any Ordinary Shares held by LetterOne in the event LetterOne converts its Non-Voting Shares into Ordinary Shares within the period of six months from completion
- LetterOne’s Non-Voting Shares are convertible (on a one-for-one basis) into Ordinary Shares on the satisfaction of certain conditions, including receipt of relevant regulatory approvals (if applicable). In the event of conversion, LetterOne will be entitled to equivalent rights as BASF regarding the nomination of Non-Executive Directors
- The dividend payable on each Non-Voting Share will be at a 13 per cent premium to any dividend payable in respect of each Ordinary Share, reflecting its unlisted nature and limited voting rights
- LetterOne will not be permitted to acquire any Ordinary Shares for a period of six months following completion and, until such date as the conversion conditions in respect of the Non-Voting Shares have been satisfied, LetterOne will not be able to own more than 19.99 per cent of Harbour’s issued share capital
- While LetterOne itself is not a sanctioned entity, certain of LetterOne’s minority owners are subject to sanctions in the UK, EU and US. As such, LetterOne’s Non-Voting Shares have no governance rights and, for so long as those sanctions remain in place, LetterOne will have no representation on the Harbour Board
- All of Wintershall Dea’s assets located in Russia or held in joint ventures with Russian companies are excluded from the Acquisition as is Wintershall Dea’s stake in WIGA Transport Beteiligungs-GmbH & Co. KG
Board recommendation and Undertakings
The directors of Harbour have determined that the Acquisition is in the best interests of Harbour based on a number of factors and intend unanimously to recommend that shareholders vote in favour of the relevant resolutions at the shareholder meeting to be held to approve the Acquisition.
The directors of Harbour and certain of their connected persons have irrevocably undertaken that they will vote in favour of the relevant resolutions required to implement the Acquisition at the shareholder meeting in respect of their own beneficial holdings of Harbour shares, representing approximately 1.7 per cent of the existing share capital of Harbour as at 20 December 2023, being the last practicable date prior to publication of this announcement.
EIG Asset Management LLC, EIG Separate Investments (Cayman) LP and Potomac View Investments, LP have each irrevocably undertaken to vote in favour of the relevant resolutions required to implement the Acquisition at the Harbour shareholder meeting in respect of their holdings of Harbour shares, representing 16.8 per cent of the existing share capital of Harbour as at 20 December 2023, being the last practicable date prior to publication of this announcement.
Conditions to closing
The Acquisition constitutes a reverse takeover for the purposes of the Listing Rules for Harbour, with the intention that Harbour applies to retain its premium London listing on completion. Harbour will seek shareholder approval and re-admission of its Ordinary Shares and admission of the new Ordinary Shares upon completion to the premium listing segment of the Official List of the Financial Conduct Authority (the "FCA") (or a listing on the single category for equity shares in commercial companies if such new listing category, as contemplated in FCA Consultation Paper CP23/31, has been implemented by the FCA and taken effect at the relevant time) and to trading on the main market for listed securities of the London Stock Exchange. Harbour will, in due course, issue a circular to its shareholders to convene a general meeting to seek approval of the Acquisition and publish a prospectus.
The Acquisition is subject to, amongst other things, regulatory, antitrust and foreign direct investment approvals, as well as Harbour shareholder approval. Completion of the Acquisition is expected to occur in Q4 2024.
Linda Z Cook, CEO of Harbour, commented:
"Today’s announcement marks Harbour’s fourth major acquisition and the most transformational step yet in our journey to build a uniquely positioned, large-scale, geographically diverse independent oil and gas company.
"The addition of Wintershall Dea’s assets will increase our production to over 500 kboepd, extend our reserves life, and enhance our margins and cash flow, all supporting enhanced shareholder returns over the longer run. Importantly, the acquisition also advances our energy transition objectives by shifting our portfolio towards natural gas, lowering our GHG emissions intensity and expanding our CCS interests into new European markets.
"I am proud of what we have achieved so far – a testament to the skill, hard work and commitment of our people – including our track record of safe and responsible operations and disciplined capital allocation, which have made this acquisition possible.
"We look forward to completion of the acquisition and welcoming Wintershall Dea employees to Harbour, and to our further growth as we continue to build a global independent oil and gas company of the future. "
Alexander Krane, CFO of Harbour, commented:
"The acquisition of Wintershall Dea’s large scale, high quality portfolio will transform our asset base as well as our capital structure. The funding structure we have put together – including the porting of $4.9 billion of low-cost investment grade bonds with a coupon of 1.8 per cent and the issuance of $4.15 billion of equity at a significant premium – will significantly improve our credit rating and deliver a transaction which is accretive on a per share basis across all key metrics. This will materially improve our cost of capital and enable access to broader and lower cost sources of funding, supporting further growth and additional shareholder returns. The increase to our ordinary dividend per share is a first step in this direction."
Harbour enquiries:
Harbour plc
Elizabeth Brooks, Head of Investor Relations
+44 (0) 203 833 2421
Brunswick (PR Advisers)
+44 (0) 207 404 5959
Patrick Handley
Will Medvei
Financial Advisors on the transaction:
Barclays (Joint Financial Adviser and Sole Sponsor)
+44 (0) 207 623 2323
Michael Powell
Ben Plant
J.P. Morgan Cazenove (Joint Financial Adviser)
+44 (0) 203 493 8000
James Janoskey
Daniele Apa
Harbour Energy corporate brokers:
Barclays
+44 (0) 207 623 2323
Robert Mayhew
Tom Macdonald
Jefferies
+44 (0) 207 029 8000
Sam Barnett
Will Soutar