REPLACEMENT PROSPECTUS 2012
Armour Energy Limited ACN 141 198 414
REPLACEMENT PROSPECTUS FOR THE OFFER OF 150,000,000 NEW SHARES
AT AN OFFER PRICE OF $0.50 PER SHARE TO RAISE $75 MILLION.
Every four (4) New Shares issued under this replacement Prospectus
will have one (1) attaching New Option with an exercise price of $0.50
and an expiry date of 31 August 2014.
THIS DOCUMENT IS IMPORTANT AND
IT SHOULD BE READ IN ITS ENTIRETY.
If you are in any doubt as to the contents
of this document, you should consult your
broker, solicitor, professional adviser or
accountant without delay. The securities
offered by this Prospectus are considered
to be speculative.
Underwritten to $50 million
by Samuel Holdings Pty Ltd
Lead Manager
Co-Lead Manager
In association with the Co-Manager
IMPORTANT INFORMATION
This replacement Prospectus seeks to raise $75 million by
offering for subscription 150,000,000 New Shares in Armour
Energy Limited (Armour Energy or the Company) at an Offer Price
of $0.50 per Share, payable in full on application. In addition, for
every four (4) New Shares issued, the Company will issue one (1)
free attaching New Option which may be exercised at a price
equal to the Offer Price on or before 31 August 2014.
This replacement Prospectus is dated Tuesday, 20 March 2012
and was lodged with the ASIC on that date. This replacement
Prospectus replaces the Prospectus that was lodged with ASIC on
13 March 2012. Neither the ASIC nor ASX takes any responsibility
for the contents of this Prospectus or the merit of the investment
to which this Prospectus relates. The fact that ASX may admit the
Company to its Official List is not to be taken in any way as an
indication of the merits of the Company. The Company will apply
to ASX for listing and quotation of the Shares and the New
Options on ASX within seven (7) days after the date of the
Prospectus. No Shares or Options will be allotted or issued on
the basis of this Prospectus later than 13 months after the date
of this Prospectus.
This Prospectus does not constitute an offer or invitation in any
place in which, or to any person to whom, it would not be lawful
to make such an offer. No action has been taken to register or
qualify the Shares, Options or the Offer, or to otherwise permit
a public offering of Shares or Options, in any jurisdiction outside
Australia and New Zealand. The distribution of this Prospectus in
jurisdictions outside Australia and New Zealand may be restricted
by law and persons who come into possession of this Prospectus
should seek advice on and observe such restrictions. Any failure
to comply with such restrictions may constitute a violation of
applicable securities laws. Applications can only be made by
completing the Application Form in full, in accordance with
instructions contained on the reverse of the Application Form.
The Full Report on Tenements and the Company’s Corporate
Governance Charter (Reports) are not contained in this document,
but have been lodged with ASIC and are taken by law to be
included in this Prospectus (refer to Sections 7.6 and 10). If you
are unsure whether you require the information contained in these
Reports to decide whether or not to invest in the Company, it is
recommended that you obtain copies of the Reports. Copies of
each Report can be obtained during the application period free of
charge by contacting the Company on (07) 3303 0620 or by email
at info@armourenergy.com.au or by downloading the Reports
from the Company’s website at www.armourenergy.com.au
www.armourenergy.com.au.
Exposure Period
In accordance with Chapter 6D of the Corporations Act, this
Prospectus is subject to an Exposure Period of seven (7) days
from the date of lodgement of the original Prospectus with the
ASIC on Tuesday, 13 March 2012. The Company may seek an
extension of this Exposure Period from ASIC under section 727(3)
of the Corporations Act.
The purpose of providing an Exposure Period is to enable
examination of this Prospectus by market participants prior
to the raising of funds. The Company is prohibited from accepting
Applications during the Exposure Period. Applications received
during the Exposure Period will receive no priority and will not be
processed until after the Exposure Period, when they will be
treated as having been received simultaneously on the Opening
Date. A paper copy of this Prospectus will be made available to
Australian residents upon request during the Exposure Period.
The Prospectus (without the Application Form) may also be
viewed online at www.armourenergy.com.au during the
Exposure Period. This Prospectus will only be made available
to New Zealand residents following the Exposure Period.
After the Exposure Period, the Prospectus with an accompanying
Application Form may be viewed online. The Offer constituted by
this Prospectus in electronic form is only available to Australian
and New Zealand residents accessing an electronic version of this
Prospectus in Australia or New Zealand. It is not available to
persons in other jurisdictions. Persons who access the electronic
version of this Prospectus should ensure that they download and
read the entire Prospectus. Until the Closing Date a paper copy
of this Prospectus (including an Application Form) will be provided
free of charge upon request by contacting the Company on
info@armourenergy.com.au.
+61 7 3303 0620 or by email at info@armourenergy.com.au
Applications for New Shares and New Options under the Offer
may only be made on the Application Form attached to or
accompanying this Prospectus in its paper copy form, or in its
electronic form as downloaded in its entirety from the Company’s
website at www.armourenergy.com.au
www.armourenergy.com.au. Photocopies of an
Application Form will not be accepted. By making an Application,
you declare that you were given access to the Prospectus
together with an Application Form. The Corporations Act
prohibits any person from passing on to another person the
Application Form unless it is attached to or accompanies a hard
copy of this Prospectus or the complete and unaltered electronic
version of this Prospectus.
Note to Applicants
This Prospectus provides information for investors who wish
to invest in Armour Energy. It is not financial product advice and
does not take into account the investment objectives, financial
situation and particular needs of investors. It is important that
investors read this Prospectus in its entirety before deciding
to invest in the Company and in order to make an informed
assessment of the assets and liabilities, financial position and
performance, profits and losses and prospects of Armour Energy
and the rights and liabilities attaching to the New Shares and
New Options. The Company is at an early stage of its development.
Accordingly there are significant risks associated with investing
in the Company. In considering the prospects for the Company,
investors should consider the risk factors that could affect the
performance of the Company, and carefully consider these factors
in the light of their personal circumstances (including financial
and taxation issues) and seek professional guidance from their
Broker, solicitor, professional adviser or accountant before
deciding whether to invest. Some risk factors that investors
should consider are outlined in Section 5. There may be risk
factors in addition to these that should be considered in light
of your personal circumstances.
Neither the Company nor any of its Directors or any other party
associated with the preparation of this Prospectus guarantee
that any specific objective of the Company will be achieved or that
any particular performance of the Company or of its Shares or
Options, including those offered by this Prospectus, will be achieved.
The Shares and Options offered under this Prospectus should
be considered speculative.
Forward-looking statements
This Prospectus contains forward looking statements which
are identified by words such as “may”, “could”, “believes”,
“estimates”, “expects”, “intends” and other similar words.
Investors should note that these statements are inherently
subject to uncertainties in that they may be affected by a
variety of known and unknown risks, variables and other
factors which could cause actual values or results, performance
or achievements to differ materially from anticipated results,
implied values, performance or achievements expressed,
projected or implied in the statements. These risks, variables
and factors include, but are not limited to, the risks described
in Section 5. Armour Energy gives no assurance that the
anticipated results, performance or achievements expressed
or implied in those forward-looking statements will be achieved.
The Company has no intention to update or revise forward
looking statements, or to publish prospective financial
information in the future, regardless of whether new information,
future events or any other factors affect the information
contained in the Prospectus, except where required by law.
Disclaimer
No person is authorised to give any information or to make any
representation in connection with the Offer and issue of the New
Shares described in this Prospectus, which is not contained in this
Prospectus. Any information or representation not so contained
may not be relied upon as having been authorised by the
Company, its Directors, the Lead Manager, the Underwriter,
their advisers or any other person in connection with the Offer.
Privacy
The privacy obligations and policy relating to this Prospectus are
contained in the privacy disclosure statement in section 12.17.
Photographs and diagrams
Photographs used in this Prospectus are for illustration purposes
only and should not be interpreted to mean that any person
shown in the photographs endorses the Prospectus or its
contents unless stated otherwise. Similarly, any assets depicted
in the photographs, such as transportation, vehicles, equipment,
buildings or other property are not necessarily assets that are
owned or used by the Company and have been included for
presentation and illustrative purposes unless stated otherwise.
Diagrams used in this Prospectus are illustrative only and may
not be drawn to scale. Unless otherwise stated, all data
contained in charts, graphs and tables is based on
information available as at the Prospectus Date.
Financial information
Section 8 sets out in detail the financial information referred
to in this Prospectus. The basis of preparation of that information
is set out in Section 8.
Financial amounts expressed in this Prospectus are in Australian
dollars unless otherwise indicated. Any discrepancies between
totals and sums of components in tables contained in this
Prospectus are due to rounding.
Company’s website
Any references to documents included on the Company’s website
are provided for convenience only, and none of the documents
or other information on the website is incorporated in this
Prospectus by reference unless specified in this Prospectus.
Glossary
Certain words and terms used in this Prospectus have defined
meanings which appear in Section 13. A glossary of technical
terms used in this Prospectus also appears in Section 9.
Important Information for New Zealand Investors
This offer to New Zealand investors is a regulated offer made
under Australian and New Zealand law. In Australia, this is
Chapter 8 of the Corporations Act 2001 and the Corporations
Regulations 2001. In New Zealand, this is Part 5 of the Securities
Act 1978 and the Securities (Mutual Recognition of Securities
Offerings—Australia) Regulations 2008.
This offer and the content of the offer document are principally
governed by Australian rather than New Zealand law. In the main,
the Corporations Act 2001 and the Corporations Regulations
2001 (Australia) set out how the offer must be made.
There are differences in how securities are regulated under
Australian law. For example, the disclosure of fees for collective
investment schemes is different under the Australian regime.
The rights, remedies, and compensation arrangements available
to New Zealand investors in Australian securities may differ from
the rights, remedies, and compensation arrangements for New
Zealand securities.
Both the Australian and New Zealand securities regulators
have enforcement responsibilities in relation to this offer. If you
need to make a complaint about this offer, please contact the
Financial Markets Authority, Wellington, New Zealand. The
Australian and New Zealand regulators will work together
to settle your complaint.
The taxation treatment of Australian securities is not the same
as for New Zealand securities.
If you are uncertain about whether this investment is appropriate
for you, you should seek the advice of an appropriately qualified
financial adviser.
The offer may involve a currency exchange risk. The currency
for the securities is not New Zealand dollars. The value of the
securities will go up or down according to changes in the
exchange rate between that currency and New Zealand dollars.
These changes may be significant.
If you expect the securities to pay any amounts in a currency
that is not New Zealand dollars, you may incur significant fees
in having the funds credited to a bank account in New Zealand
in New Zealand dollars.
If the securities are able to be traded on a securities market and
you wish to trade the securities through that market, you will
have to make arrangements for a participant in that market to
sell the securities on your behalf. If the securities market does not
operate in New Zealand, the way in which the market operates,
the regulation of participants in that market, and the information
available to you about the securities and trading may differ from
securities markets that operate in New Zealand.
QUESTIONS
If you have any questions in relation to the Offer, please contact
the Armour Energy Offer Information Line on 1300 551 378
or +61 2 8280 7705 between 8.30am and 5.00pm (AEDT)
Monday to Friday between Wednesday 28 March 2012 and
Friday 27 April 2012.
Armour Energy Limited Replacement Prospectus
Key Offer Information
02
Letter from the Chairman
03
1.
Investment Summary
05
2.
Company and Assets Overview
23
3.
Industry Overview
52
4.
Commercialisation Plans
57
5.
Investment risks
62
6.
Details of the Offer
73
7.
Directors and Management
86
8.
Historical and Pro-forma Financial Information
99
9.
Independent Expert’s Report
109
10.
Independent Solicitor’s Report on Tenements
148
11.
Independent Accountant’s Report
169
12.
Additional Information
173
13.
Glossary of Defined Terms
204
Application Form
209
Corporate Directory
IBC
01
Key Offer Information
KEY DATES
Date of this replacement Prospectus
Tuesday, 20 March 2012
Retail Offer Opening Date (Broker Firm and Priority Offers)
Wednesday, 28 March 2012
Priority Offer Closing Date
Wednesday, 11 April 2012
Broker Firm Offer Closing Date
Monday, 16 April 2012
Allotment of New Shares and New Options
Friday, 20 April 2012
Despatch of holding statements
Friday, 20 April 2012
Anticipated date of trading of Shares and New Options listed
for quotation on ASX
Thursday, 26 April 2012
Note: This timetable is indicative only. All dates are references to AEDT. The Company, in consultation with the Underwriter and the Lead Manager, reserves
the right to vary the dates, which includes closing the Offer early or extending the close of the Offer, without notifying any recipients of the Prospectus
or any Applicants. Investors are encouraged to submit their Applications as soon as possible after the Offer opens.
KEY OFFER STATISTICS
Offer Price per New Share
$0.50
New Shares available under the Offer
150,000,000
New Options available under the Offer
(exercise price equal to the IPO Offer Price, expiring 31 August 2014) 1
37,500,000
Shares on issue prior to the Offer2,4
150,000,000
Options on issue prior to the Offer3
61,200,000
Total issued Shares on completion of the Offer2,4
300,000,000
Total Options on issue on completion of the Offer1,3,5
103,700,000
Capitalisation of Shares at the Offer Price 6
$150,000,000
Estimated Costs of the Offer
$6,465,640
Notes:
1. A New Option will be issued for every four (4) New Shares issued under the Offer. The terms of the New Options are set out in Section 12.4
2. Some of the existing Shares may be classified as restricted securities (see Section 6.22)
3. Details of the Options on issue are set out in Section 1.7 and Section 12.4
4. This number does not include the issue or anticipated issue of 805,000 Performance Shares
5. This number does not include the anticipated grant of 1,000,000 options to the Chief Geologist (see Section 12.1.15)
6. Based on Offer Price and total number of Shares on completion of the Offer
02
Armour Energy Limited Replacement Prospectus
Letter from the Chairman
DEAR INVESTOR,
On behalf of the Board of Directors it is with great pleasure that I invite you to become a shareholder in Armour Energy.
Armour Energy is an emerging petroleum gas and Liquids explorer in a new province in the Northern Territory and northern
Queensland. The mean Prospective Resource estimate for Armour Energy in only two of its granted permits and one permit
pending grant1 is approximately 41.3 trillion cubic feet of gas and 2.2 billion barrels of associated Liquids.
Armour believe that the prospectivity of the balance of the area, which includes 13 other permits pending grant,
could endow Armour Energy with a markedly larger petroleum resource of national strategic significance.
This region has only recently had its petroleum potential identified by Armour Energy. The current global market for gas,
combined with new shale extractive technologies and experienced personnel, provides Armour Energy with an extraordinary
opportunity to define and ultimately develop a new Liquids rich gas province.
The gas and Liquids resources that Armour Energy intends to explore are predominantly within shale formations.
As with the emergence of successful coal seam gas (CSG) extraction technology which was developed originally in the
United States, Shale Gas extraction technologies which Armour Energy intends to utilise have been successfully used
in the United States and Shale Gas now constitutes over 23% of total Dry Gas production in the United States.
Armour Energy’s permit areas are characterised by low population densities, cooperative stakeholders and aspects of the
natural environment suited to the exploration and development of a future gas and Liquids province. Armour Energy places
considerable importance on a close liaison between the Company, traditional owners and all stakeholders and this approach
has led to the expeditious grant of Armour Energy’s key permits in the Northern Territory. Armour Energy is committed
to further developing this close relationship with its stakeholders.
Armour Energy’s permit areas cover approximately 126,000 km2 of the McArthur, South Nicholson and Georgina Basins.
These basins have hosted important gas and oil shows including a significant free flow of gas from a historic mineral hole.
The basins demonstrate several analogous characteristics to US Shale Gas basins and we are confident that these
characteristics will prevail across the permit areas and in turn imply potential for large scale gas and associated Liquids fields.
Armour Energy will commence exploration activities immediately, with the first well in the Northern Territory located in the
Batten Trough within the McArthur Basin to be spudded in May 2012.
To complement Armour Energy’s prospective areas in northern Australia, the Company made in December 2011 a strategic
investment in Lakes Oil, an oil and gas explorer focused on the Otway and Gippsland Basins, Victoria. In conjunction with
the investment, Armour has the right to earn an interest in two project areas and acquire a significant interest in a third
project area. This provides the Company with exposure to a potentially large gas province, immediate drill targets with
a 12 month drilling window and geographical expansion.
Armour Energy’s aims are made possible as a result of the efforts and experience of our key personnel. The Board includes
four of the former directors of Arrow Energy, Mr Bill Stubbs, Mr Stephen Bizzell, Mr Jeremy Barlow and myself, along with
Mr Roland Sleeman, who was previously part of the senior management team at Eastern Star Gas (ASX). The same expansive
approach to exploration and development that drove Arrow Energy’s evolution is planned for Armour Energy.
Our CEO Mr Philip McNamara has been involved in the successful development of large coal projects, including most recently
as Managing Director of Waratah Coal, where he was instrumental in securing $5.5 billion of financing for the proposed
development of the Galilee Basin coal projects.
The Company’s technical team includes David Warner, Ray Johnson, Roger Cressey and Jonathan Martin, who together
provide a high level of competency in the areas of exploration and development, in particular in unconventional oil and gas.
Our team has been selected to build Armour Energy into a significant gas exploration and development company.
The Prospectus contains details of the Offer, the Company and its projects and operational plans. It also contains
a comprehensive section on the main risks associated with an investment in Armour Energy.
The Offer is underwritten to $50 million by Samuel Holdings Pty Ltd, a company associated with myself.
It is important that you read this Prospectus carefully before making a decision to invest in Armour Energy.
I look forward to welcoming you as a Shareholder of Armour Energy in the near future.
Yours Sincerely
Nicholas Mather
Executive Chairman
1 Granted permits EP 171 and EP 176 in the Northern Territory, and ATP 1087 in Queensland over which Armour Energy is the preferred tenderer
03
01.
Investment
Summary
ARMOUR ENERGY IS AN
EARLY ENTRANT INTO
A LARGE PROVINCE IN
NORTHERN AUSTRALIA
WITH SIGNIFICANT
HYDROCARBON POTENTIAL
Armour Energy Limited Replacement Prospectus
1.
Investment Summary
1.1.
SUMMARY OF ARMOUR ENERGY
Armour Energy was established in December 2009 specifically to focus on the discovery and development
of potentially world class gas and associated Liquids resources in an extensive and recently recognised potential
hydrocarbon province in northern Australia. The Company intends to ultimately apply modern Shale Gas
technologies proven in the U.S.A. to these previously lightly explored areas in northern Australia.
Shale Gas exploration in Australia is at its infancy and Armour Energy believes it currently has a unique
opportunity as an early entrant into this hydrocarbon province in northern Australia.
Armour Energy has assembled a significant tenure position that would be difficult to replicate, given the area
of approximately 126,000 km2 now controlled by the Company through its two (2) granted permits, EP 171
and EP 176, its exclusive rights over 13 other EPAs in the Northern Territory and its preferred tenderer status
over ATP 1087 in Queensland. The acreage is largely contiguous over key areas of the southern McArthur
and South Nicholson Basins, as well as the northern and central parts of the Georgina Basin.
Armour Energy engaged MBA Petroleum Consultants to undertake an independent Prospective Resource
assessment of the unconventional and conventional plays in the Company’s two (2) granted permits EP 171
and EP 176, located in the Batten Fault Zone of the McArthur Basin, in north eastern Northern Territory
(covering an area of 11,505 km2). MBA Petroleum Consultants has assessed the area to contain a combined
mean Prospective Resource of:
• 18.8 trillion cubic feet of gas; and
• 2.0 billion barrels of associated Liquids,
within the unconventional and conventional plays across both granted permits EP 171 and EP 176.
MBA Petroleum Consultants has additionally assessed a mean Prospective Resource estimate of 22.5 trillion cubic
feet of gas and 242 million barrels of associated Liquids within the unconventional plays in ATP 1087, located
in Queensland (for further details, see the Independent Expert’s Report prepared by MBA Petroleum Consultants
in Section 9). Armour Energy has been selected as the preferred tenderer for ATP 1087, which is currently
pending grant subject to compliance with all statutory and native title requirements.
In December 2011, the Company secured a 13% interest in ASX listed Lakes Oil. The investment, farm-in and
acquisition option rights it has secured in connection with the investment will provide exposure to the Otway
and Gippsland Basins in Victoria.
Armour Energy is not currently producing any gas or Liquids and is presently focussed on its exploration
and development activities.
1.2.
ARMOUR ENERGY’S PERMITS
Armour Energy currently holds two granted exploration permits, EP 171 and EP 176, located in the Northern
Territory. In addition, Armour Energy has exclusive rights in respect of an additional 13 EPAs in the Northern
Territory and was selected as the preferred tenderer for ATP 1087 in Queensland under a public tender process.
In total, Armour Energy has secured a substantial acreage position covering approximately 126,000 km2 of the
McArthur, South Nicholson and Georgina Basins.
Armour Energy’s 100% ownership interests across its granted permits and applications provide the Company
with flexibility in terms of timing and approach to exploration and any subsequent development of delineated
oil and gas reserves.
05
1.
Investment Summary CONTINUED
FIGURE 1: ARMOUR ENERGY’S PERMITS AND BASIN POSITIONS
135° E
140° E
LEGEND
Armour Permit Holding
Darwin
Basins
Georgina Basin
South Nicholson Basin
McArthur Basin
15° S
15° S
Gulf
of
Carpentaria
Non Armour
Energy
20° S
20° S
N.T.
Mount Isa
N
QLD
0
100
200km
Alice Springs
135° E
06
140° E
Armour Energy Limited Replacement Prospectus
1.3.
KEY INVESTMENT ATTRIBUTES
The Directors believe the key attributes of Armour Energy’s investment case are as follows:
Early entrant advantage
• Armour Energy holds a material competitive advantage as an early entrant into a large emerging potential
hydrocarbon province in northern Australia that is highly prospective for gas and associated Liquids.
Large acreage position and 100% ownership in Queensland and Northern Territory
• Armour Energy has one of the largest shale acreage positions in Australia, comprising:
– exclusive rights over approximately 126,000 km2 (31 million acres) of exploration acreage;
– a large inventory of hydrocarbon play targets and future drilling locations; and
– 100% permit interests providing a high level of control over its exploration and subsequent
field development activities.
Significant petroleum potential
• According to MBA Petroleum Consultants’ Prospective Resource estimate, Armour Energy’s permits
may have significant conventional and unconventional gas and associated Liquids resource potential.
• The large acreage position combined with the regionally extensive nature of shale reservoirs suggest
that significant hydrocarbon potential may exist.
Lakes Oil investment, farm-in and option rights
• The Company recently made a strategic investment in Lakes Oil, an oil and gas explorer focused on the
Otway and Gippsland Basins, Victoria. In conjunction with the investment the Company has the right
to earn a 51% interest in two tenements and an option to purchase a partial interest in another.
• The investment, farm-in and option rights provide the Company with exposure to a potentially large
gas province, immediate drill targets with a 12 month drilling window and geographical expansion.
• Armour Energy is entitled to two nominated representatives on Lakes Oil’s board and Lakes Oil has
appointed Nicholas Mather and William Stubbs as directors.
Ability to leverage advanced shale drilling technology
• Armour Energy will seek to employ advanced drilling and well completion technology proven in the
United States to realise the full productive potential of historically unrecoverable hydrocarbon resources.
Well defined and funded exploration program
• Armour Energy has a clearly defined forward work program, with respect to the granted permits in the Northern
Territory, including the acquisition of 115 km of 2D seismic commencing in Q2 2012 and to be completed
in 2013, with drilling of twelve (12) exploration and appraisal wells commencing in the first half of 2012.
The exploration program incorporates funding in anticipation of the formal grant of permits pending grant.
• In respect of the Lakes Farm-in Tenements, Armour Energy’s forward work program includes the drilling
of five (5) exploration and appraisal wells in 2012 and 2013.
• The Offer proceeds and the Company’s existing financial resources will fully fund Armour Energy for its
two (2) year forward work program including associated feasibility studies and overheads through to 2013.
Defined commercialisation objectives
• Armour Energy’s acreage is located close to and around existing road and gas pipeline infrastructure,
and located approximately 340 km from existing railway infrastructure, that can be potentially used for
the Company’s commercialisation plans.
• Armour Energy’s focus is on supplying gas and Liquids to a range of small to large regional end user markets
in parallel with development of larger scale domestic and Liquefied Natural Gas (LNG) market opportunities
utilising potential deep water port sites.
Proactive stakeholder engagement
• Armour Energy has adopted a proactive land management strategy and strong relationships with local
community, traditional owners and government bodies.
• Armour Energy has adopted a policy of maintaining high standards of health, safety and best practice
with respect to environmental management.
07
1.
Investment Summary CONTINUED
Proven Board and management team
• The members of the Company’s Board, senior management team and technical teams have extensive expertise
in the petroleum and broader resources sector in Australia and overseas as well as strong relevant experience
in building and managing resource companies.
1.4.
PROPOSED EXPLORATION AND DRILLING PROGRAM
Armour Energy intends to fund its initial exploration activities from the proceeds of the Offer and initial seed
raising. Armour Energy’s two (2) year work program includes the geological assessment and drilling of up
to nine (9) vertical wells, three (3) lateral wells and completion of two (2) multi-stage Hydraulic Fracturing
stimulations in EP 171 and EP 176 in the first two (2) years. The planned two (2) year work program outlined
in Section 2.2.4 will ensure Armour Energy satisfies the minimum expenditure requirements applying to EP 171
and EP 176. A drill rig has been secured by Armour Energy, with mobilisation scheduled for April 2012 and
commencement of drilling on 1 May 2012.
The 2012 work program is focused on drilling conventional targets and establishing the prospectivity of the
unconventional resources. A seismic survey will be completed by 2012. Depending on the exploration results,
Armour Energy is targeting an initial reserves booking by the end of 2013. In parallel with the exploration
program, Armour Energy will procure scoping and feasibility studies and pursue agreements aimed at achieving
commercialisation of the Company’s prospective gas and associated Liquids resource base.
1.5.
ENVIRONMENTAL AND COMMUNITY ENGAGEMENT
As a result of its proactive land management strategy and strong relationships with the local community,
traditional owners and government bodies, Armour Energy has developed an excellent reputation in northern
Australia and intends to further develop its stakeholder relationships into the future.
Working closely with the community, Armour Energy’s policy is to maintain high standards of health, safety
and environmental care. The Company is committed to ensuring that it always adopts best practice with respect
to environmental management.
Armour Energy has made contractual commitments with respect to environmental stewardship under the
Native Title Agreement entered into in connection with the Company’s granted permits, which are expected
to be largely consistent with State and Territory laws.
1.6.
LAKES OIL FARM-IN
Armour Energy will fund the drilling of two (2) exploration wells for a total combined expenditure of $4.25 million
by the end of 2012 to earn a total of 25% interest in PEP 166 in the Gippsland Basin and has the option to spend
a further $4.75 million on the drilling and Hydraulic Fracturing of a third well in 2013 to earn a total of 51%
interest in PEP166.
Further, Armour Energy has agreed to fund the commencement of an exploration well up to $2.5 million
by the end of March 2012 to earn a 51% interest in PEP 169 in the Otway Basin with the right to assume
operatorship thereafter.
Armour Energy has budgeted further expenditure of $2.5 million as its 51% contribution to the cost
of two (2) further wells to be drilled in PEP 169 in 2012.
1.7.
COMPANY STRUCTURE
Armour Energy’s current shareholder structure consists of DGR Global, the Seed Capital Investors (comprising the
Och-Ziff funds and the Other Seed Capital Investors) and other Shareholders. Prior to the date of this Prospectus,
Armour Energy had raised $14 million of seed capital in March and April 2011.
In addition to their seed investments, the Och-Ziff funds and the Other Seed Capital Investors have committed,
subject to the terms of subscription agreements, to subscribe for or introduce Seed Subscription Investors to
subscribe for, $17.5 million of New Shares and New Options in the IPO and ASX listing. The Seed Capital Investors
and Seed Subscription Investors will be allotted New Shares and New Options in the IPO on the same terms
as new investors in the IPO.
08
Armour Energy Limited Replacement Prospectus
Upon completion of the Offer and allotment of New Shares and New Options pursuant to this Prospectus,
Armour Energy’s share capital will be as set out in the following table.
SHARES ON ISSUE FOLLOWING IPO
SHARES
PRE-IPO
%
PRE-IPO
NEW
SHARES
ISSUED
SHARES
POST-IPO
%
POST-IPO
75,050,000
50.03%
0
75,050,000
25.02%
Och-Ziff funds
20,000,000
13.33%
15,000,000
35,000,000
11.67%
Seed Subscription
Investors1,2
50,000,000
33.33%
20,000,000
70,000,000
23.33%
4,950,000
3.30%
0
4,950,000
1.65%
n/a
n/a
115,000,000
115,000,000
38.33%
150,000,000
100.0%
150,000,000
300,000,000
100.0%
HOLDER
DGR Global1
1
Other shareholders1
New shareholders
Total
3
4,5
Notes:
1. These securities may be subject to ASX escrow conditions governing their resale (see Section 6.22)
2. Assumes Other Seed Capital Investors and Seed Subscription Investors subscribe in accordance with the Seed Subscription arrangements
described in Section 6.12
3. Participants in the Institutional Offer and Retail Offer
4. This total excludes Options, which are set out in the table below
5. The total excludes the 805,000 Performance Shares which have been issued or which it is anticipated will be issued (see Section 12.5)
OPTIONS ON ISSUE FOLLOWING IPO1
HOLDER
DGR Global5
Och-Ziff funds5
Other Seed Capital Investors/Seed Subscription Investors2
Other shareholders
2,3,5
Lead Manager
New optionholders 4
Total6
NUMBER
OF OPTIONS
%
POST-IPO
18,837,500
18.17%
8,750,000
8.44%
17,500,000
16.88%
24,862,500
23.98%
5,000,000
4.82%
28,750,000
27.72%
103,700,000
100.0%
Notes:
1. The terms of New Options, and the terms of existing management and Director Options are set out in Section 12.4
2. Includes Directors and management of Armour as well as employees of DGR Global
3. Assumes the Other Seed Capital Investors and Seed Subscription Investors subscribe in accordance with the Seed Subscriptions described
in Section 6.12
4. New Options issued under the Retail Offer and Institutional Offer
5. These securities may be subject to ASX escrow conditions governing their resale (see Section 6.22)
6. This number does not include the anticipated grant of 1,000,000 options to the Chief Geologist (see Section 12.1.15)
At the date of this Prospectus, past and present management and Directors own (or are expected to shortly own)
approximately:
• 5.1 million Shares;
• 805,000 Performance Shares;
• 625,000 Performance Rights; and
• 24.9 million Options.
09
1.
Investment Summary CONTINUED
1.8.
OUTLOOK FOR KEY PRODUCT MARKETS
1.8.1.
Gas
The eastern Australian domestic gas market is exposed to a number of fundamental medium term changes, including:
• the recent commencement of LNG project developments at the Port of Gladstone, Queensland;
• Australian Federal Government policy on greenhouse gas emissions targets which, if enacted,
would have implications for domestic demand for gas; and
• a fundamentally altered supply landscape in eastern Australia.
These changes to the market may lead to a relatively permanent restructuring of the market.
Armour Energy’s Directors believe that such restructuring of the gas market in eastern Australia will lead to
a significant gap between demand and currently contracted volumes, enabling new entrants with commercially
viable resources to fulfil this uncontracted demand.
A supply demand imbalance could lead to a new gas price environment where domestic gas prices move towards
a LNG Netback Price, at a premium to current east coast domestic gas prices, similar to the experience of the
western Australian gas market following expansion of LNG export from the North West Shelf LNG project.
For further details, see Section 3.1.1.
1.8.2.
Outlook for Pacific Basin LNG Markets
The Pacific Basin LNG market is expected to remain tight in the medium to longer term due to strong expected
demand from Asia and constraints to the extent and timing of any supply side response. For further details,
see Section 3.1.2.
Associated Liquids
Liquids such as condensates and natural gas liquids (NGLs) are priced at a premium or discount to oil price
benchmarks (generally the Tapis or Brent price in Australia), depending on the composition and properties
of the Liquids. The current favourable domestic and international market for Liquids is expected to persist
over the medium term, in line with the outlook for the oil price.
FIGURE 2: HISTORICAL OIL PRICE PERFORMANCE
WTI
150
TAPIS
130
US$ per barrel
1.8.3.
110
90
70
50
Source: IRESS
30
2005
2006
2007
2008
Source: IRESS
For further details, see Section 3.1.3.
10
2009
2010
2011
2012
Armour Energy Limited Replacement Prospectus
1.9.
COMMERCIALISATION PLANS
Armour Energy’s mean Prospective Resource estimate of 18.8 trillion cubic feet of gas within its granted permits
provides the potential to supply regional energy users in the context of a strengthening Australian domestic
gas market.
The scale of the Prospective Resource estimate combined with a robust Pacific Basin LNG demand outlook
provides the possibility of export sales of gas over the longer term.
Armour Energy is planning to commercialise its large Prospective Resource estimate on the following basis:
• Northern Territory regional opportunities;
• Queensland regional opportunities;
• eastern Australian gas market opportunities; and
• LNG opportunities.
This approach would facilitate effective initial testing of the resource base through a staged commercial
production program, providing short term cash flows and the opportunity to continue parallel development
of the Company’s larger scale gas developments. Information gained through progressive developments could
serve to reduce technical risks associated with the Company’s longer term large scale developments.
Northern Territory opportunities include potential supply either through existing contacts with third parties or
new contacts to the McArthur River zinc mine (located within the EP 176 area) using the existing lateral pipeline
that connects the McArthur River zinc mine to the Amadeus Basin to Darwin Mainline (which traverses both
EP 171 and EP 176). Potential may exist for additional opportunities to be realised through reversing the flow
of this lateral connection and directing gas to the Northern Territory pipeline system for supply to other regional
energy users.
MBA Petroleum Consultants has also assessed a mean Prospective Resource estimate of 22.5 trillion cubic feet
of gas and 242 million barrels of associated Liquids within ATP 1087, located in Queensland, which is currently
pending grant subject to compliance with all statutory and Native Title Agreement requirements. Potential may
exist to the construction of a new pipeline from Armour Energy’s acreage in north-west Queensland to the Mt Isa
area to provide important access to the Mt Isa area market. Further connection with the existing Carpentaria
pipeline and ensuing reversal of the flow of the Carpentaria pipeline could provide an infrastructure configuration
that would serve as a conduit for supply to the broader eastern Australian gas market (including the Gladstone
based LNG projects).
Armour Energy’s strategy includes the simultaneous commercialisation of its estimated mean Prospective Liquids
Resources of 2.0 billion barrels of associated Liquids for its two (2) granted permits. Condensate Liquids are a
valuable by product from gas production. Liquids are capable of being efficiently transported with minimal capital
expenditure and infrastructure development, potentially for export through the existing import / export bulk
fuel terminal located at East Arm Wharf in Darwin.
Lakes Farm-in Tenements (PEP 166 and PEP 169) in Victoria are overlayed by existing gas transport infrastructure
and processing plants.
For further details, see Section 4.
11
1.
Investment Summary CONTINUED
1.10.
SUMMARY OF KEY RISKS
Potential investors should be aware that there are risks associated with investing in Armour Energy. Certain risks are
beyond the control of Armour Energy and its Directors and management and may have a material impact on Armour
Energy’s future operating and financial performance, and/or the financial position of Armour Energy, its prospects
and/or the value of the Shares. Some of the key risks associated with an investment in Armour Energy include:
GEOLOGICAL AND TECHNICAL
Armour Energy is engaged in gas and associated Liquids exploration and development
which is inherently highly speculative and involves a significant degree of risk. There can
be no assurance that Armour Energy’s planned exploration, appraisal and development
activities will be successful, nor that if gas and/or associated Liquids resources are
identified, that it will be economic to extract these resources.
See Section 5.2.1
Whilst MBA Petroleum Consultants has independently assessed a mean Prospective
Resource estimate of 18.8 trillion cubic feet of gas and 2.0 billion barrels of associated
Liquids within Armour Energy’s two (2) granted permits in the Northern Territory, and
22.5 trillion cubic feet of gas and 242 million barrels of associated Liquids within ATP
1087 for which it remains the preferred tenderer, these represent estimates only.
See Section 5.2.2
These Prospective Resources estimate are defined as those quantities of petroleum
which are estimated on a given date to be potentially recoverable from undiscovered
accumulations by the application of future development projects. Prospective Resources
estimates have both an associated chance of discovery and a chance of development.
Under this classification they are as yet undiscovered and as such carry significant
exploration risk.
LAKES OIL INVESTMENT AND FARM-IN AGREEMENT
Pursuant to the terms of the Lakes Oil Agreement (see Section 12.1.5 for full description
of Lakes Oil Agreement) Armour Energy has made an equity investment in Lakes Oil
of $2.25 million for 900 million shares representing 13% of Lakes and committed to
spend, subject to certain conditions, $14.5 million to fund the drilling of a total of four
(4) exploration wells to earn a 51% interest in each of the Lakes Farm-in Tenements.
Armour Energy has also budgeted to drill a fifth exploration well on the Lakes Farm-in
Tenements. There is no certainty that commercially recoverable quantities of oil or gas
will be discovered during the drilling of the exploration wells. Should no commercially
recoverable quantities of oil or gas be discovered the value of Armour Energy’s investment
in Lakes Oil and the Lakes Farm-in Tenements may be less than the total invested and
the Lakes Oil Farm-in Tenements may expire and not be renewed. Armour also has
an option to acquire a 50% interest in Lakes option PRL 2.
See Section 5.2.3
ENVIRONMENTAL
Armour Energy is subject to environmental regulation pursuant to a variety of State,
Territory and Federal laws and regulations as well as environmental obligations under
the Native Title Agreement entered into which resulted in the grant of EP 171 and EP 176
(as well as similar agreements that may be required for the granting of Armour Energy’s
remaining EPAs and ATP 1087). Environmental compliance with these regulations can
require significant expenditure and a breach may result in substantial financial liability
for Armour Energy. It is proposed to minimise these risks by conducting Armour Energy’s
activities in an environmentally responsible manner.
12
See Section 5.2.4
Armour Energy Limited Replacement Prospectus
OPERATIONAL
Gas and associated Liquids exploration and development activities involve a wide range
of operational risks including injury, death, loss of property, damage to private property
and environmental damage.
See Section 5.2.5
The occurrence of any of these risks could result in substantial financial losses
to Armour Energy in a number of different ways.
Whilst the Directors of Armour Energy will endeavour to anticipate, identify and manage
the risks inherent in the activities of the Company, with the aim of eliminating, avoiding
and mitigating the impact of such, no assurance can be given that the Directors of
Armour Energy will be successful in these endeavours.
Armour Energy’s exploration and development activities and operations are currently
focused on the Northern Territory, Victoria and Queensland and are subject to
significant governmental oversight, regulation and control. Armour Energy must
obtain and maintain various certain licenses, authorisations and permits in respect
of its exploration and development activities (collectively, Authorisations) which
either may not be granted or may be withdrawn or made subject to limitations.
See Section 5.2.7
Armour Energy cannot provide assurances that it will be able to obtain all
necessary Authorisations.
Armour Energy’s exploration and development activities are dependent on the
availability of drilling rigs and related equipment in the area of its exploration permits.
See Section 5.2.9
Armour Energy intends to utilise horizontal drilling together with Hydraulic Fracturing
technology in its exploration and development activities. The enactment of any new
laws, regulations or requirements by any relevant government authority in respect
of Hydraulic Fracturing which places restrictions on the use of Hydraulic Fracturing
may have a material impact on Armour Energy’s business.
See Section 5.2.6
Armour Energy is likely to require additional financing in order to carry out its gas and
associated Liquids exploration and development activities and there is a risk that any
such equity or debt financing may not be available to Armour Energy on favourable
terms or at all.
See Section 5.2.14
Armour Energy’s future value will depend in part on the performance of its senior
management and other key personnel. There is a risk that Armour Energy may not
be able to retain or hire all personnel necessary for the development and operation
of its business.
See Section 5.2.15
The revenues, earnings, assets and liabilities of Armour Energy may be exposed
adversely to currency exchange rate fluctuation.
See Section 5.3.4
Armour Energy intends to ensure that insurance is maintained in accordance with
industry practice and having regard to the nature of activities being conducted but
there is a risk that Armour Energy will be unable to obtain such insurance coverage
at reasonable rates or that any coverage it arranges will be inadequate and unavailable
to cover any potential claims.
See Section 5.3.6
13
1.
Investment Summary CONTINUED
COMMERCIALISATION
Armour Energy’s potential future earnings, profitability, and growth are likely to be
dependent upon Armour Energy being able to successfully implement some or all of its
commercialisation plans detailed in Section 4. The ability for Armour Energy to do so is
further dependent upon a number of factors, including matters which may be beyond
the control of Armour Energy such as:
See Section 5.2.12
(a) being successful in securing identified customers or market opportunities;
(b) development of its own pipeline infrastructure or securing access to third party
pipeline infrastructure in order to deliver gas and/or associated Liquids to key
markets or customers; or
(c) successfully enforcing various contractual rights in the event of non-compliance by
a contracting party under some or all contracts to which Armour Energy is a party.
Gas and associated Liquids exploration is highly competitive in Australia and Armour
Energy will need to compete with numerous other gas and associated Liquids companies
in the search for gas and associated Liquids reserves and resources.
See Section 5.2.13
Armour Energy’s possible future revenues will be derived mainly from the sale of gas
and/or associated Liquids. Consequently, Armour Energy’s potential future earnings,
profitability, and growth are likely to be closely related to the price of gas and
associated Liquids.
See Section 5.3.2
TITLE AND LAND ACCESS
Armour Energy has 13 EPAs currently outstanding with the Northern Territory Government
authorities of which six (6) are over Aboriginal land as defined under the Aboriginal Land
Rights (Northern Territory) Act 1976 (Cth) (ALRA Land). Armour Energy is also progressing
the grant of ATP 1087 in Queensland where it is the preferred tenderer.
See Section 5.2.8
In the case of the EPAs over ALRA Land in the Northern Territory, Armour Energy needs
to secure the consent of the relevant Land Council acting on behalf of the traditional
owners by agreement.
Should Armour Energy be unable to reach an agreement for an EPA within the time period
provided, such EPA will not be granted to Armour Energy in respect of the ALRA land.
Armour Energy must also reach Native Title Agreements with native title parties in respect
of the EPAs which are not over ALRA Land and ATP 1087, provided that if an agreement
is not reached, Armour Energy can secure tenure through an arbitration process.
The final grant of all EPAs and ATP 1087 involves the exercise of administrative functions
(including Ministerial discretion), which are beyond the control of Armour Energy.
The inability to secure grant of EPAs or ATP 1087 may have a material adverse effect
on the ability of Armour Energy to explore for gas and associated Liquids in the areas
comprised in those EPAs and ATP 1087.
The Lakes Farm-in Tenements were granted without compliance with the “right to
negotiate” process under the Native Title Act. As a consequence, operations on areas
of the Lakes Farm-in Tenements are restricted to areas on which native title has been
extinguished, such as freehold land until such time as the native title process under
the Native Title Act has been complied with.
Existing and new permits held by Armour Energy and Lakes Farm-in Tenements may also
be affected by native title claims and procedures. The requirement to comply with the
Native Title Act has the potential to significantly delay the grant of gas and associated
Liquids permits (including the EPAs and ATP 1087) in Australian jurisdictions.
The progression, administration and if required determination of native title issues
may have a material adverse impact on the position of Armour Energy and its business.
14
See Section 5.2.11
Armour Energy Limited Replacement Prospectus
TITLE AND LAND ACCESS
Armour Energy also requires land access in order to perform exploration and development
activities, which can be affected by land ownership and require related compensation
arrangements with landowners or occupiers. which may delay or curtail operations.
See Sections
5.2.21 and 5.2.16
Armour Energy’s tenements and project areas may contain sites of cultural significance,
which would need to be avoided when carrying out field programs and project development.
Armour Energy’s granted tenements in Northern Territory and the Lakes Farm-in
Tenements are overlapped by various mineral exploration permits and mining leases
and there is a risk that Armour Energy may be required at some future time to attempt
to negotiate an arrangement with the competing holders.
See Section 5.2.23
In respect of ATP 1087 in Queensland, a substantial portion of the application area
overlaps with mining exploration permits (EPMs) and applications for EPMs. At the
exploration stage, it is not expected that Armour Energy’s activities will adversely affect
the activities of an EPM holder but there are restrictions under Queensland legislation
on the granting of a petroleum production lease over the area of a mining lease or
exploration permits for coal or oil shale mining and should a mining lease or exploration
permit for coal of oil shale mining be granted over an area of ATP 1087, Armour Energy
may be unable to obtain a petroleum production lease over the area of the mining lease
or exploration permit without the agreement of the mining lease holder or a preference
decision of the Government of Queensland.
A number of the EPAs, EP 171 and EP 176 and ATP 1087 overlap with areas which are
subject to restrictions which may prevent Armour Energy from carrying out operations
on such lands. The magnitude of the restricted areas within each of the EPAs, EP 171
and EP 176 and ATP 1087 is relatively insignificant and unlikely to restrict Armour
Energy’s operations in a material manner.
See Section 5.2.25
The terms of Armour Energy’s granted permits and the Lakes Farm-in Tenements include
minimum expenditure requirements. Whilst there is a risk that the terms of the permits
may not be able to be complied with, Armour Energy intends to mitigate this risk
by re-evaluating its exploration program and budget, or considering other options
including, where appropriate, surrendering parts of its permits in order to manage
its minimum expenditure obligations.
See Section 5.2.24
GOVERNMENT POLICY AND LEGISLATION
The implementation of the carbon tax under the Australian Federal Government’s Clean
Energy Act may indirectly affect Armour Energy’s operating costs, as a result of carbon
tax compliance and permit costs being passed through by suppliers. There may also
be an as unquantifiable impact on the wholesale or retail gas price and markets.
See Section 5.2.20
The Australian Federal Government’s proposed legislation for the extension of the
Petroleum Resources Rent Tax (PRRT) to tax profits generated from the exploitation
of onshore oil and gas projects could materially adversely affect Armour Energy to the
extent that the extended PRRT applies to gas and associated Liquids produced and sold
by Armour Energy from onshore production.
See Section 5.2.18
The activities of Armour Energy in ATP 1087 (upon its grant) will be subject to
compliance with the Wild Rivers Act 2005, Mineral Resources Act 1989 (Qld) and the
Wild River Declaration (WRD) made under that legislation over part of the area of ATP
1087. The existence of the WRD may impact on the ability of Armour Energy to obtain
a grant of the ATP 1087 or a production licence, if granted, or conduct production
or exploration activities within certain protected areas and exclusion zones nominated
within any WRD.
See Section 5.2.19
15
1.
Investment Summary CONTINUED
Oil and gas companies (exploration, production, pricing, marketing and transportation)
are subject to extensive controls and regulations imposed by various levels of
government. Changes in government regulations and policies may adversely affect
the financial performance or the current and proposed operations generally
of Armour Energy.
See Section 5.3.3
SHARE MARKET AND LIQUIDITY RISK
New Shares offered under the Prospectus may not trade at or above the Offer Price in
the public market subsequent to the Offer. Further there may not be an active trading
market for the Shares and investors may not be able to resell the Shares purchased
under this Prospectus.
1.11.
See Section 5.3.1
PROPOSED USE OF FUNDS AND KEY TERMS AND CONDITIONS OF THE OFFER
Who is the issuer of
this Prospectus?
• Armour Energy.
What is the Offer?
• The Offer is an initial public offering in Australia and New Zealand by invitation
of Armour Energy of 150 million New Shares and 37.5 million New Options.
What is the purpose
of the Offer?
• The purpose of the Offer is to enable Armour Energy to continue the discovery and
subject to future feasibility studies indicating viability and the securing of additional
finance and sales agreements, the development of world class gas and associated
Liquids resources in an extensive and recently recognised hydrocarbon province
in northern Australia. In particular, Armour Energy will be focusing on its granted
permits and those permits currently pending grant, covering approximately
126,000 km2 of the southern McArthur, South Nicholson and Georgina Basins.
In addition, a listing on the ASX if approved will provide Armour Energy with:
– additional financial flexibility to pursue growth opportunities and improve
access to capital markets; and
– a liquid market for its Shares and an opportunity for others to invest in the
Shares of Armour Energy.
• The Offer proceeds will be used to fund the 2012 – 2013 work program and to fund
ongoing operations. Approximately $29.6 million of the Offer proceeds will be used
to prove up resources through a targeted exploration and appraisal program over
permits EP 171 and EP 176.
• Armour Energy has budgeted to spend $14.5 million on the Lakes Oil Farm-in
Tenements (PEP 166 and PEP 169) in 2012 and 2013.
• Armour has extensive application areas that are yet to be granted and has allocated
planned expenditure of $16.5 million across these application areas through 2012
and 2013.
• The balance of proceeds will be used to fund associated feasibility studies, marketing
initiatives and overheads.
• The proceeds from the Offer will be reduced by the amount of payments for costs
of the Offer and any other obligations of Armour Energy to be paid on completion
of the Offer (net of tax refunds and deductions). This is described further in
Section 6.4.
Will the Shares and
Options be listed?
• Armour Energy will apply for admission to the Official List of the ASX and quotation
of Shares and New Options on the ASX under the code AJQ. Completion of the
Offer is conditional on ASX approving this application. If approval is not given within
three months after such application is made (or any longer period permitted by law),
the Offer will be withdrawn and all Application Monies received will be refunded
without interest as soon as practicable in accordance with the requirements of the
Corporations Act.
16
Armour Energy Limited Replacement Prospectus
How is the Offer
structured?
• The Offer comprises:
– the Retail Offer (which comprises the Broker Firm Offer and Priority Offer);
– the Institutional Offer which consists of an invitation to bid for New Shares
made to Institutional Investors, including private placements to Institutional
Investors in certain foreign countries as contemplated in Section 12.16; and
– the Seed Subscriptions, amounting to $17.5 million.
Is the Offer
underwritten?
• The Offer is underwritten to $50 million by Samuel Holdings Pty Ltd, a company
associated with Nicholas Mather, the Executive Chairman of the Company.
What is the
allocation policy?
• The Company, in consultation with the Underwriter and the Lead Manager, has
discretion regarding the allocation of New Shares between the Priority Offer, the
Broker Firm Offer and the Institutional Offer. The Company, in consultation with
the Lead Manager, also has absolute discretion as regards to allocation amongst
applicants within the Institutional Offer and the Priority Offer. Further, the Company,
in consultation with the Lead Manager, may reject any Application, or allocate a lesser
amount of New Shares than those applied for, in its absolute discretion.
• For Broker Firm Offer participants, it will be a matter for Brokers as to how they
allocate New Shares among their clients.
Is there brokerage,
commission or
stamp duty payable
by applicants?
• No brokerage, commission or stamp duty is payable by Applicants on acquisition
of New Shares under the Offer.
What are the tax
implications of
investing in the
Shares?
• Shareholders may be subject to Australian tax on any future dividends paid.
The tax consequences of any investment in the Shares will depend upon an
investor’s particular circumstances, particularly for non-resident Shareholders.
Applicants should obtain their own tax advice prior to deciding whether to invest.
When will I receive
confirmation that my
Application has been
successful?
• It is expected that initial holding statements will be dispatched by standard post
on or about Friday, 20 April 2012.
How can I apply?
• You may apply for New Shares and New Options under the Retail Offer or the
Retail Seed Subscriptions by completing a valid Application Form.
• Priority Offer Applicants may access the Prospectus and a personalised Priority Offer
Application Form via the Offer website (available at www.armourenergy.com.au
www.armourenergy.com.au).
• To the extent permitted by law, an application by an Applicant under the Offer
is irrevocable.
• Seed Capital Investors and Seed Subscription Investors must apply in accordance
with the Seed Subscription arrangements, reflecting certain contractual
arrangements between the Seed Capital Investors and Armour Energy as
to subscription for New Shares and New Options under the Offer.
• Seed Capital Investors and Seed Subscription Investors must review this Prospectus
sent to them by Armour Energy or download a copy from the Offer website
(available at www.armourenergy.com.au
www.armourenergy.com.au). They must also complete the personalised
Application Form in accordance with the instructions provided by the Company
and Lead Manager.
17
1.
Investment Summary CONTINUED
Where can I find
more information
about this
Prospectus or the
Offer?
Can the Offer be
withdrawn?
• Call the Armour Energy Offer Information Line on 1300 551 378 or
+61 2 8280 7705 between 8.30am and 5.30pm (AEDT) Monday to Friday
between Wednesday 28 March 2012 and Friday 27 April 2012.
• If you are unclear in relation to any matter or are uncertain as to whether Armour
Energy is a suitable investment for you, you should seek professional guidance
from your solicitor, stockbroker, accountant or other independent and qualified
professional adviser before deciding whether to invest.
• Armour Energy reserves the right not to proceed with the Offer at any time before
the issue of New Shares to successful Applicants.
• If the Offer does not proceed, Application Monies will be refunded by the Registry,
your Broker, or the Company.
• No interest will be paid on any Application Monies refunded as a result of the
withdrawal of the Offer.
1.12.
KEY OFFER STATISTICS
Offer Price per New Share
$0.50
New Shares available under the Offer
150,000,000
New Options available under the Offer
(exercise price equal to the IPO Offer Price, expiring 31 August 2014) 1
Shares on issue prior to the Offer2,5
150,000,000
Options on issue prior to Offer3
61,200,000
Total issued Shares on completion of the
Offer2,5
Total Options on issue on completion of the Offer1,3,6
Capitalisation of Shares at the Offer Price4
Pro-forma net cash as at 31 December
103,700,000
$74,080,118
$75,919,882
Estimated Costs of the Offer
1.13.
300,000,000
$150,000,000
20118
Enterprise Capitalisation at listing price7
1.
2.
3.
4.
5.
6.
7.
8.
37,500,000
$6,465,640
A New Option will be issued for every four (4) New Shares issued under the Offer. The terms of the New Options are set out in Section 12.4
Some of the existing Shares may be classified as restricted securities (see Section 6.22)
Details of the Options on issue are set out in Section 1.7 and Section 12.4
Based on the Offer Price and total number of shares on completion of the Offer
This number does not include the issue or anticipated issue of 805,000 Performance Shares
This number does not include the anticipated grant of 1,000,000 options to the Chief Geologist (see Section 12.1.15)
The Directors do not conclude that the Enterprise Capitalisation is the value of the business of the Company
See Section 8
BOARD AND MANAGEMENT EXPERIENCE AND EXPERTISE
Nicholas Mather
(Executive Chairman)
• Nicholas Mather has been involved in the junior resource sector at all levels
for 30 years.
• Mr Mather is Managing Director and co-founder of DGR Global Limited (ASX).
• Mr Mather was co-founder and served as an Executive Director of Arrow
Energy NL until 2004. Arrow Energy was acquired in 2010 by Shell and
PetroChina, for a value of approximately $3.5 billion.
• Mr Mather was also founder and Chairman of Waratah Coal Inc. until
December 2008.
• Mr Mather was a co-founder and Non-Executive Director of Bow Energy
Limited until its recent takeover by Arrow Energy Pty Ltd in January 2012
for approximately $550 million.
18
Armour Energy Limited Replacement Prospectus
Philip McNamara
(Chief Executive Officer
and Managing Director)
• Philip McNamara is a qualified mining engineer and experienced mine manager
who has worked in the Australian resource industry for approximately 30 years.
• He was previous Managing Director of Waratah Coal.
• Mr McNamara joined Armour Energy as CEO and Managing Director in May 2010
to drive the Company’s project and corporate development initiatives.
Jeremy Barlow
(Non-Executive Director)
• Jeremy Barlow has extensive technical and commercial experience spanning
a number of decades in the coal, petroleum and energy industries.
• Mr Barlow was a principal of Barlow Jonker, a consulting group which provided
a wide range of specialist consulting to the coal industry, prior to its acquisition
in 2007 by Wood Mackenzie.
• Mr Barlow was a founding director of CH4 Gas Ltd and after its merger with
Arrow Energy Ltd in August 2006, continued as a Director until its acquisition
by Shell and PetroChina in 2010.
• Mr Barlow is a Fellow of the Australasian Institute of Mining and Metallurgy
and is currently the Non-Executive Chairman of coal explorer and developer
Bandanna Energy Limited (ASX).
Stephen Bizzell
(Non-Executive Director)
• Mr Bizzell is the Chairman of boutique corporate advisory and funds
management group Bizzell Capital Partners Pty Ltd, Executive Director of
Dart Energy Ltd (ASX) and a Non-Executive Director of ASX listed Hot Rock Ltd,
Stanmore Coal Ltd, Diversa Ltd and Titan Energy Services Ltd. He is Chairman
of Renaissance Uranium Ltd and Renison Consolidated Mines NL.
• Mr Bizzell was previously an Executive Director of Arrow Energy Ltd until its recent
acquisition by Shell and PetroChina.
• He qualified as a Chartered Accountant, has considerable experience and
success in the fields of corporate restructuring, debt and equity financing, and
mergers and acquisitions and has over 15 years’ corporate finance and public
company management experience.
• Mr Bizzell was a co-founder and Non-Executive Director of Bow Energy Limited
until its recent takeover by Arrow Energy Ltd in January 2012 for approximately
$550 million.
Roland Sleeman
(Non-Executive Director)
• Roland Sleeman has 34 years experience in oil and gas as well as utilities
and infrastructure.
• Mr Sleeman has served in senior management roles, including with Eastern
Star Gas Limited as Chief Commercial Officer and AGL as General Manager
of the Goldfields Gas Pipeline.
William Stubbs
(Non-Executive Director)
• William (Bill) Stubbs is a lawyer of 35 years experience, having practiced
extensively in the area of commercial law including stock exchange listings
and all areas of mining law.
• He is the Chairman of Directors of DGR Global Limited (ASX) and
a Non-Executive Director of Coalbank Ltd (ASX).
Priyanka Jayasuriya
(Chief Financial Officer)
• Priy Jayasuriya is a Chartered Accountant with over 15 years of experience
in public practice and has broad experience over a number of industries.
Mr Jayasuriya has worked as a Chartered Accountant in Australia, Singapore
and the United States.
• Mr Jayasuriya commenced his career at Ernst & Young and most recently
served as an Executive Director with the firm.
• Mr Jayasuriya is currently Chief Financial Officer of DGR Global Limited (ASX).
19
1.
Investment Summary CONTINUED
Karl Schlobohm
(Company Secretary)
• Karl Schlobohm is a Chartered Accountant with over 20 years experience
across a wide range of industries and businesses.
• Mr Schlobohm is currently contracted to act as the company secretary for
ASX listed DGR Global Limited, AusNiCo Limited, Navaho Gold Limited,
and the LSE (AIM) listed Solomon Gold Plc.
Ray Johnson
(GM Exploration
and Production)
• Ray Johnson has 31 years experience in reservoir and well completion
engineering and well-site supervision. Mr Johnson has a broad range of
petroleum unconventional experience in Australia as well as the United States.
• Mr Johnson has held previous technical and engineering roles at QGC Pty
Limited (Manager Technical), Blue Energy Limited (Chief Operating Officer)
and Santos Limited (Senior Reservoir Engineer).
Roger Cressey
(GM Infrastructure and
Project Development)
• Roger Cressey has over 30 years experience in engineering, construction and
project management, including in excess of 20 years in the oil and gas industry,
having previously held senior project manager roles at OSD Pipelines, Transfield
Services Limited (ASX) and Caltex Refineries.
Jonathan Martin
(Chief Well Engineer)
• Jonathan Martin has over 12 years experience in Petroleum Engineering.
He has a wealth of experience in drilling and completing tight shale/dolomitic
formations in Canada, working for Poco Petroleum, Burlington Resources,
Player Petroleum and Wrangler West Energy Corp.
• Most recently Mr Martin held the role of Senior Drilling Engineer with Santos
Limited in Brisbane, before joining the Armour team.
David Warner
(Principal Exploration
Adviser)
• David Warner has 38 years experience in the oil and gas sector, with a specific
focus on unconventional gas and associated Liquids, including having worked
at Santos over a 20 year period in various roles as Principal Development
Geologist and Unconventional Reservoir Team Leader.
Geoff Hokin
(Exploration Manager)
• Geoff Hokin has over eight (8) years experience as a field geologist in the
gas and coal sectors, having held various senior geologist roles at Metgasco
Limited and Arrow Energy Limited, along with contract geologist roles
at QGC, Blue Energy Limited, Xstrata Coal Australia Pty Ltd and New Hope
Corporation Limited.
• Mr Hokin also has significant previous experience in various other geology
and business manager roles in the agricultural sector.
Carlie Rogers
(Business Development
and Government liaison)
• Carlie Rogers has experience developing strategic partnerships in Canada,
the United States and Latin America, having previously worked as Business
Development Manager for the Queensland Government in the Americas.
• Ms Rogers was appointed Business Development Executive of DGR Global
Limited in September 2010.
The Company has also entered into an agreement to appoint a Chief Geologist (see 12.1.15).
1.14.
DIRECTORS’ INTEREST IN THE COMPANY
At the date of this Prospectus, Directors and their associated entities hold:
• 4.2 million Shares; and
• 10.45 million Options.
Additionally the Lead Manager, a company associated with Stephen Bizzell, a Director of the Company, is entitled
to be granted 5 million Options on completion of the Offer. For more details see Sections 7.4 and 12.1.2.
20
Armour Energy Limited Replacement Prospectus
1.15.
SIGNIFICANT INTERESTS OF KEY PEOPLE AND RELATED PARTY TRANSACTIONS
Information pertaining to Directors’ interests in Armour Energy’s Shares and Options is outlined in Section 7.4.
The Company has entered into a number of material transactions with related parties, including the Underwriting
Agreement and agreement with the Lead Manager.
The Offer is underwritten by Samuel to $50 million (Underwritten Amount). Samuel is a company associated with
Nicholas Mather, the Executive Chairman of the Company. The Company will pay to Samuel an underwriting fee
of 7% of the Underwritten Amount (equal to $3.5 million). Samuel is responsible for the payment of sub-underwriting
fees. In addition, Samuel is entitled to be paid an amount of $160,000 per annum under the Samuel services
agreement (See Section 12.1.7 for details).
Depending upon the level of any shortfall under the Offer, there may be potential control effects on the Company
arising from performance by Samuel under the Underwriting Agreement. If Samuel was required to subscribe for
Shares equal to the full Underwritten Amount, Samuel would hold 33.3% of the Shares in the Company after
completion of the Offer. See Sections 6.6 and 12.1.1 for more details.
The Offer will be managed by the Lead Manager, a company associated with Stephen Bizzell, a Director of
the Company. Upon completion of the Offer, the Lead Manager will be entitled to a fee of 2.0% of the funds
raised under the Offer ($1.5 million) and 5,000,000 Options exercisable at $0.50 expiring on 31 August 2014.
The 5,000,000 Options have been independently valued at $148,554 (See Section 8.3 for details). In addition,
the Lead Manager will receive 5.0% of funds raised by the Lead Manager under the Offer in excess of the
Underwritten Amount ( up to $1.25 million depending on how much is raised by Lead Manager), and an ongoing
corporate advisory fee of $12,500 per month for a minimum of a 12 month period following the New Shares
being admitted to Official Quotation.
Total remuneration potentially payable to the Lead Manager in respect of the Offer is $3.05 million. See Section
12.1.2 for more details of the Agreement with the Lead Manager.
The Company is also party to a number of other related party transactions which investors should consider prior
to investing in the Company. Details of the related party transactions are outlined in Section 12.12.
1.16.
TOTAL REMUNERATION OF DIRECTORS AND KEY MANAGEMENT
A total of $1,166,210 has been paid to past and present Directors as at the date of this Prospectus. For details
see Sections 7.5 and 12.11.
Under existing agreements with all executive and non-executive directors, a total remuneration of $785,000
per annum is payable as at the date of this Prospectus. Each Non-Executive Director is entitled to an annual fee
of $75,000. Nicholas Mather, as Executive Chairman is entitled to an annual fee of $85,000. Philip McNamara,
Chief Executive Officer and Managing Director, is entitled to $400,000 per annum under his executive service
agreement. For details see Sections 7.5, 12.1.6 and 12.1.7.
For details of the remuneration payable to other key management see Sections 12.1.11 – 12.1.15 (inclusive).
1.17.
FINANCIAL POSITION
Armour Energy’s present financial position and its financial position after completion of the Offer is set
out in Section 8. Armour Energy believes that after completion of the Offer, it will have sufficient funds
to carry out its planned exploration and drilling program.
21
02.
Company and
Assets Overview
ARMOUR ENERGY HAS ASSEMBLED
A SIGNIFICANT TENURE POSITION
THAT WOULD BE DIFFICULT
TO REPLICATE
Armour Energy Limited Replacement Prospectus
2.
Company and Assets Overview
2.1.
COMPANY PROFILE
2.1.1.
History and background
Armour Energy was established in December 2009 specifically to focus on the discovery and development of
world class gas and associated Liquids resources in an extensive and recently recognised hydrocarbon province
in northern Australia.
Based on the foundation research undertaken by Armour Energy, the Company immediately commenced a
targeted process of securing control of several prospective permit areas in the Northern Territory and Queensland.
Armour Energy has initially focused on identifying both unconventional and conventional hydrocarbon exploration
plays in regions of the southern McArthur Basin with the objective of applying proven modern Shale Gas
technologies to previously lightly explored areas.
In particular, Armour Energy progressed native title negotiations with both traditional owners and the Northern
Land Council, culminating in a Native Title Agreement and subsequent grant of exploration permits EP 171 and
EP 176 by the Northern Territory Government in June 2011, for a term of five (5) years each.
In addition, Armour Energy has secured exclusive rights over 13 EPAs located in the Northern Territory and is also
the preferred tenderer for ATP 1087 in Queensland. These tenements provide Armour Energy with the prospect
of securing additional adjacent acreage for both unconventional shale and conventional hydrocarbon plays in the
McArthur, South Nicholson and Georgina Basins in northern Australia, and are expected to be granted over the
next 12 to 24 months subject to compliance with all statutory and native title requirements.
The Company has assembled a significant tenure position that would be difficult to replicate, given the
approximately 126,000 km2 now controlled by Armour Energy through the combination of its two (2) granted
permits, EP 171 and EP 176, its exclusive rights over 13 other EPAs in the Northern Territory and its preferred
tenderer status over ATP 1087 in Queensland. Armour Energy is not currently producing any gas or Liquids
as it is presently focussed on its exploration and development activities.
In December 2011, the Company secured a 13% interest in ASX listed Lakes Oil. The investment, farm-in and
option rights it has secured in connection with the investment will provide exposure to the Otway and Gippsland
Basins in Victoria.
Shale Gas exploration in Australia is at its infancy, and Armour Energy believes it currently has a unique
opportunity to explore and develop production from one of the largest acreage positions in Australia with
significant resource potential.
2.1.2.
COMPANY STRUCTURE
An overview of the Armour Energy ownership structure as at the date of this Prospectus is set out in the
diagram below:
FIGURE 3: CURRENT COMPANY STRUCTURE
OCH-ZIFF FUNDS
DGR GLOBAL
OTHER SEED
CAPITAL INVESTORS/
SEED SUBSCRIPTION
INVESTORS
OTHER
SHAREHOLDERS
13.33%
50.03%
33.33%
3.30%
ARMOUR ENERGY LIMITED
Note: This diagram excludes Options, which are set out in Section 6.5
Armour Energy’s current shareholder structure consists of DGR Global, the Och-Ziff funds, the Other Seed Capital
Investors and other Shareholders. Prior to the date of this Prospectus, Armour Energy raised capital in March and
April 2011.
23
2.
Company and Assets Overview CONTINUED
On 14 March 2011, Armour Energy completed a $10 million seed raising (issuing 50 million Shares), to fund the
progression of opportunities identified within the granted permits.
In addition, in April 2011 the Och-Ziff funds subscribed for $4 million in pre-IPO equity (issuing 20 million Shares)
through a placement on terms similar to the previous seed raising.
The Och-Ziff funds and the Other Seed Capital Investors have further committed, subject to the terms of Share
Subscription Agreements, to subscribe for or introduce Seed Subscription Investors to subscribe for $17.5 million
of New Shares and New Options in the Armour Energy IPO and ASX listing.
Upon completion of the Offer and allotment of New Shares and New Options pursuant to this Prospectus,
Armour Energy’s share ownership structure on an undiluted basis is expected to be as follows:
FIGURE 4: POST-IPO COMPANY STRUCTURE
OCH-ZIFF FUNDS
DGR GLOBAL
OTHER SEED
CAPITAL
INVESTORS/SEED
SUBSCRIPTION
INVESTORS
OTHER
SHAREHOLDERS
NEW
SHAREHOLDERS
11.67%
25.02%
23.33%
1.65%
38.33%
ARMOUR ENERGY LIMITED
Note: This diagram excludes Options, which are set out in Section 6.5
2.1.3.
COMPANY’S KEY STRENGTHS
Armour Energy’s strategy is to realise value for Shareholders by exploring and developing unconventional and
conventional hydrocarbon exploration plays in a newly recognised province of northern Australia. The Company
believes the following combination of strengths will enable it to implement its strategy:
• Early entrant advantage. Armour Energy holds a material competitive advantage as an early entrant into
a large emerging hydrocarbon province in northern Australia that is highly prospective for gas and associated
Liquids resources.
• Large acreage position. Armour Energy has one of the largest Shale Gas acreage positions in Australia,
comprising exclusive rights over approximately 126,000 km2 (~31 million acres) of exploration acreage with
a large inventory of hydrocarbon play targets, future drilling locations and flexibility for subsequent development
of delineated gas and associated Liquids fields, facilitating effective control of expanded play areas.
• A 100% interest in all of its exploration acreage provides a high degree of control over capital expenditure,
timing and method of exploration and development.
• Significant petroleum potential. Armour Energy’s permits have significant conventional and unconventional
hydrocarbon resource potential, as highlighted by MBA Petroleum Consultants’ mean Prospective Resources
estimate for the Company’s two granted permits EP 171 and EP 176, as well as ATP 1087 which Armour is
currently preferred tenderer. While the area will be defined through exploration, the large acreage position
combined with the regionally extensive nature of shale reservoirs suggests that significant hydrocarbon
potential may exist. For further details of Armour Energy’s Prospective Resources estimate, see Section 2.2.3.
• Ability to leverage advanced shale drilling technology. Shale Gas technology has come of age,
and Armour Energy will seek to employ advanced drilling and well completion technology proven in the
United States, including horizontal drilling and fracture stimulation, to realise the full productive potential
of historically unrecoverable hydrocarbon resources.
• Well defined and funded exploration program. Armour Energy has a clearly defined forward work
program, including the acquisition of 200 km of 2D seismic and drilling of twelve (12) exploration and appraisal
wells over the granted permits in the Northern Territory. The seismic survey is expected to commence in 2012
24
Armour Energy Limited Replacement Prospectus
and to be completed in 2013, with the first well expected to spud in Q2 2012. Armour Energy has budgeted to
spend $14.5 million on the Lakes Oil Farm-in Tenements (PEP 166 and PEP 169) to drill five (5) exploration and
appraisal wells in 2012 and 2013. The balance of proceeds will be used to fund associated feasibility studies,
marketing initiatives and overheads. The Offer proceeds and the Company’s existing financial resources will
fully fund Armour Energy’s two (2) year forward work program including associated feasibility studies and
overheads through to 2013.
• Defined commercialisation objectives. Armour Energy’s acreage is located close to existing road and gas
pipeline infrastructure, and approximately 340 km from existing railway infrastructure that can potentially
be used for the Company’s commercialisation plans. Armour Energy’s focus is on supplying gas to a range
of small to large regional end user markets in parallel with development of larger scale domestic and LNG
market opportunities. For further details of Armour Energy’s commercialisation plans, see Section 4.
• Proactive stakeholder engagement. Armour Energy has retained a strong focus on developing an excellent
reputation in northern Australia through its proactive land management strategy and strong relationships
with local community, traditional owners and government bodies. Armour Energy’s policy is to maintain high
standards of health, safety and environmental care, and the Company is committed to working closely with
the community to ensure it always adopts best practice with respect to environmental management. For
further details of Armour Energy’s community and environmental engagement strategy, see Section 2.2.5.
• Proven Board and management team. Armour Energy’s senior management team has extensive
expertise in the petroleum and broader resources sectors. The members of the Company’s Board, executive
and technical teams have extensive experience in the resources sector in Australia and overseas as well
as strong relevant experience in building and managing resource companies.
• Nicholas Mather (Executive Chairman) has a proven track record in identifying and fostering the development
of resources companies from early formative stages into several hundred million dollar companies, including
being co-founder of Arrow Energy which was listed on the ASX in August 2000 and eventually acquired
by Shell and PetroChina for approximately $3.5 billion in August 2010.
• Philip McNamara (CEO and Managing Director) has almost 30 years experience in the Australian resource
industry, including significant periods in senior operational management roles. He was formerly Managing
Director of Waratah Coal.
• Armour Energy’s technical team includes Ray Johnson, General Manager of Exploration and Production, who
is a petroleum engineer with specific unconventional oil and gas experience in Australia and the United States.
• Roger Cressey has been appointed General Manager of Infrastructure and Project Development, and has
extensive experience in the Australian oil and gas sector.
• Jonathan Martin has been appointed Chief Well Engineer, and has over 12 years experience in Petroleum
Engineering working in Canada and Australia.
• Armour Energy has engaged the services of David Warner as Principal Exploration Adviser. Mr Warner has
extensive experience in the Australian oil and gas sector with a specific focus on unconventional gas and
associated Liquids, including having worked at Santos over a 20 year period in various roles.
For further details on the Board and management see Section 7.
2.2.
OVERVIEW OF COMPANY’S EXPLORATION PORTFOLIO
Armour Energy currently holds two (2) granted EPs in the Northern Territory. In addition, Armour Energy has
exclusive rights in respect of an additional 13 EPAs in the Northern Territory and was selected as the preferred
tenderer for ATP 1087 in Queensland under a public tender process. In total, Armour Energy has secured a substantial
acreage position covering approximately 126,000 km2 of the McArthur, South Nicholson and Georgina Basins.
Armour Energy’s 100% ownership interests across its granted permits and applications provide the Company
with flexibility in terms of timing and approach to exploration and any subsequent development of delineated
oil and gas reserves.
To complement Armour Energy’s prospective areas in Northern Australia, the Company recently made a strategic
investment in Lakes Oil, an oil and gas explorer focused on the Otway and Gippsland Basins, Victoria and entered
an agreement to earn 51% interest in two (2) tenements (PEP 166 and PEP 169) held by Lakes Oil and an option
to acquire 50% of Lakes Oil’s interest in a third tenement (PRL2).
25
2.
Company and Assets Overview CONTINUED
FIGURE 5: ARMOUR ENERGY’S PERMITS
136° E
134° E
14° S
138°LEGEND
E
Armour Permit (granted)
Darwin
N
Armour Permit (application)
Gas Pipeline
Mine
Major Road
Railway
Town
Alice Springs
0
Nathan River
200km
Gulf
EP 176
EP(A) 193
100
EP(A) 174
16° S
of
16° S
Carpentaria
Daly Waters
EP(A)
173
McArthur River
McArthur River
EP 171
EP(A) 196
EP(A) 190
EP(A)
194
Westmoreland
EP(A) 192
EP(A) 191
Burketown
EP(A) 195
ATP 1087P
18° S
18° S
EP(A) 172
EP(A) 179
Century
Non Armour Energy
EP(A) 178
Alexandria
Mt Gordon
Tennant Creek
EP(A) 177
Lady Loretta
20° S
20° S
Camooweal
MT ISA
Georgina
Barrow Creek
NORTHERN
22° S
TERRITORY
134° E
136° E
26
QUEENSLAND
138° E
22° S
Armour Energy Limited Replacement Prospectus
2.2.1.
Armour Energy’s granted exploration permits
Armour Energy’s foundation research identified an active petroleum system with a range of unconventional
and conventional hydrocarbon plays in the southern McArthur Basin, Northern Territory.
Armour Energy has secured the grant of EP 171 and EP 176, overlying petroleum source rocks of the principal
Barney Creek Formation currently considered by MBA Petroleum Consultants to be the most prospective
unconventional shale play in the southern McArthur Basin.
MBA Petroleum Consultants has determined that considerable volumes of gas and associated Liquids have
been generated in these source rocks and remain contained in the Barney Creek Formation. The Barney Creek
Formation is regionally extensive, generally over 150m thick and is assessed as Wet Gas mature over a substantial
portion of Armour Energy’s permit area.
A summary of Armour Energy’s granted permits is contained in the table below:
GRANTED EXPLORATION PERMITS
ARMOUR
INTEREST
BASIN
SIZE
(KM²)
BLOCKS
TERM
Abner
Range
100%
McArthur
3,473
45
Ryans
Bend
100%
McArthur
8,032
98
PERMIT
NAME
EP 171
EP 176
GRANT
DATE
EXPIRY
DATE
5 years
29 Jun
2011
28 Jun
2016
Granted
5 years
29 Jun
2011
28 Jun
2016
Granted
STATUS
The expiry of the EPs will be addressed through either application for production licenses over selected portions
of the permit area (subject to satisfactory exploration results), application to renew the license for a further five
(5) year period for further exploration (maximum two (2) periods) or relinquishment of the permit.
2.2.1.1.
EP 171 – Abner Range
Armour Energy’s EP 171 overlies the gas and Liquids rich parts of the unconventional Barney Creek Formation.
Understanding of the lithology and structure of the basin area has led to the identification of six (6) highly
prospective leads within the permit area. These leads will be drilled as part of the forward two (2) year work
program which will test the conventional targets as well as the simultaneous coring of unconventional targets
within the adjacent Barney Creek Formation.
EP 171 is intersected by a lateral gas pipeline to the McArthur River zinc mine (located in EP 176), providing
access to potential markets which would in turn facilitate booking of reserves.
For further details, see Section 2.3.1.2.
2.2.1.2.
EP 176 – Ryans Bend
EP 176 overlies both a Dry Gas and Wet Gas play area of the Barney Creek Formation within the Company’s
permit areas. Armour Energy intends to initially focus its exploration activities on two (2) identified conventional
leads, as well as simultaneous coring of the overlying Barney Creek Formation as an unconventional objective.
The Dry Gas window warrants testing as part of any subsequent exploration program.
EP 176 also benefits from being in close proximity to the lateral gas pipeline to the McArthur River zinc mine.
For further details, see Section 2.3.1.3.
2.2.2.
Armour Energy’s permits pending grant
Armour Energy has secured exclusive rights over 13 EPAs in the Northern Territory and is the preferred tenderer
for ATP 1087 in Queensland. Armour Energy is the sole applicant entitled to receive the grants of these relevant
permits provided it duly complies with all statutory and native title requirements. The granting of these
exploration tenements would provide Armour Energy with significant positions over the southern McArthur
and South Nicholson Basins, as well as over the northern and central parts of the Georgina Basin.
27
2.
Company and Assets Overview CONTINUED
2.2.2.1.
Northern Territory and Queensland grant process
Armour Energy has made the applications for 13 exploration permits in the Northern Territory (EPAs) in
accordance with the provisions of the Petroleum Act (NT). In particular, it has submitted necessary capability
criteria, financial capacity, work program and other materials required by the Petroleum Act (NT) to satisfy the
Northern Territory Minister that Armour Energy is a fit and proper legal person to undertake the exploration
activities required under the permits. This has been demonstrated by the grant of EP 171 and EP 176 in June 2011.
The remaining EPAs in the Northern Territory and ATP 1087 in Queensland will require agreements to be reached
with relevant native title parties under the Native Title Act. The granting of these exploration permits will follow
a similar Native Title Agreement process to that used for the granting of EP 171 and EP 176.
Those EPAs in the Northern Territory which encompass Aboriginal freehold land, as identified in the table on the
following page of the Prospectus, will require an agreement under the Aboriginal Land Rights (Northern Territory)
Act 1976 (Cth) (ALRA). The successful grant of these exploration permits will involve the following steps being
completed by Armour Energy:
FIGURE 6: PATHWAY TO GRANT OF AN EXPLORATION PERMIT SUBJECT
TO ALRA REQUIREMENTS
–
Negotiate with NTP and the Land Council and obtain written agreement.
Consent of the Land Council, acting on behalf of the NTPs must be obtained
–
Arbitration is not an option for Aboriginal freehold in respect of a
grant of exploration (but there is a right to arbitration in respect of
production permits)
–
Armour has 22 months from the date of the application for the permits
to reach an agreement (subject to the ability to apply for an extension)
STEP 1
STEP 2
Document the Native Title Agreement with NTP
STEP 3
Provide Native Title Agreement to Northern Territory Government with request for title grant
STEP 4
Consultation by Minister with Land Council to confirm that it is satisfied with the agreement
STEP 5
Exploration permit granted
In the case of Queensland, the process for Armour Energy to be issued ATP 1087 required Armour Energy
to be selected as preferred tenderer by the Queensland Government in a tender process. This occurred on
21 December 2010.
One requirement of the Queensland tender process is that a preferred tenderer must engage with relevant native
title parties through the right to negotiate procedure. Armour Energy has commenced negotiations with the two
(2) native title groups (the Waanyi People and the Gangalidda and Garawa People) who have native title claims
in the permit area.
As the preferred tenderer for ATP 1087 in Queensland, Armour Energy is now progressing the required native
title negotiations with a view to securing agreements with each of the native title groups similar to the form
of agreement Armour Energy was able to successfully achieve in the Northern Territory which led to the grant
of EP 171 and EP 176.
The status of Armour Energy’s EPAs and ATP 1087 is summarised in the table below.
28
Armour Energy Limited Replacement Prospectus
PERMITS PENDING GRANT
(a)
PERMIT
NAME
ARMOUR
INTEREST
SIZE
(KM²)
EPA 172
Nicholson
100%
South
Nicholson
7,068
88 29 Dec 09
ALRA
EPA 173
Robinson
River 1
100%
McArthur
2,918
47 24 Dec 09
ALRA
EPA 174
Robinson
River 2
100%
McArthur
4,340
65 24 Dec 09
Native title
only
EPA 177
Georgina
100%
Georgina/
South
Nicholson
15,939
200 6 Apr 10
Native title
only
EPA 178
Frewena
100%
Georgina
15,689
190 8 Apr 10
Native title
only
EPA 179
Brunette
100%
Georgina/
South
Nicholson
16,108
200 8 Apr 10
Native title
only
EPA 190
Calvert
100%
McArthur
12,820
186 4 Aug 10
Native title
only
EPA 191
Walhallow
100%
McArthur/
Georgina/
South
Nicholson
15,246
186 4 Aug 10
Native title
only
EPA 192
Wollogorang
100%
McArthur/
South
Nicholson
9,487
124 4 Aug 10
Native title
only
EPA 193
Borroloola
100%
McArthur
1,348
25 13 Aug 10
ALRA
EPA 194
Quaker
Creek
100%
McArthur
2,342
34 13 Aug 10
ALRA
EPA 195
Fish River
100%
McArthur/
South
Nicholson
3,317
46 13 Aug 10
ALRA
EPA 196
Kangaroo
Creek
100%
McArthur/
Georgina/
742
16 13 Aug 10
ALRA
ATP
1087
–
100%
South
Nicholson
7,138
2,181(a) 27 Sep 10
BASIN
Refers to ‘sub-blocks’ for ATP 1087 located in Queensland
29
BLOCKS
APPLICATION
DATE
LAND
STATUS
Native title
only
2.
Company and Assets Overview CONTINUED
2.2.3.
Summary of Prospective Resources estimates
Armour Energy engaged MBA Petroleum Consultants to undertake an independent Prospective Resource
assessment of the unconventional and conventional plays in the Company’s two (2) granted permits EP 171
and EP 176, located in the Batten Fault Zone of the McArthur Basin, in north eastern Northern Territory.
EP 171 covers an area of approximately 3,473 km2, while EP 176 covers an area of approximately 8,032 km2.
MBA Petroleum Consultants has assessed a combined mean Prospective Resource estimate of:
• 18.8 trillion cubic feet of gas; and
• 2.0 billion barrels of associated Liquids,
within the unconventional and conventional plays across both permits.
PROSPECTIVE UNCONVENTIONAL RESOURCE ASSESSMENT – EP 171 AND EP 176
GAS MEAN
VOLUME (BCF)
CONDENSATE
MEAN VOLUME
(MMBBL)
Dry Gas
133.5
1.5
Wet Gas
11,126.0
1,256.7
Dry Gas
1,189.0
13.7
Wet Gas
6,102.0
689.6
18,550.5
1,961.5
PLAY AREA
EP 171
EP 176
Combined Total Mean
PROSPECTIVE CONVENTIONAL RESOURCE ASSESSMENT – EP 171 AND EP 176
GAS MEAN
VOLUME (BCF)
CONDENSATE
MEAN VOLUME
(MMBBL)
EP 171
187.0
21.0
EP 176
22.0
2.6
209.0
23.6
PLAY AREA
Combined Total Mean
MBA Petroleum Consultants has additionally assessed a mean Prospective Resource estimate of 22.5 trillion cubic
feet of gas and 242 million barrels of associated Liquids, within the unconventional plays in ATP 1087, located
in Queensland. Armour Energy has been selected as the preferred tenderer for ATP 1087, which is currently
pending grant subject to compliance with all statutory and native title requirements.
PROSPECTIVE UNCONVENTIONAL RESOURCE ASSESSMENT WITHIN ATP 1087
GAS MEAN
VOLUME (BCF)
CONDENSATE
MEAN VOLUME
(MMBBL)
Dry Gas
22,521.9
242.4
Total Mean
22,521.9
242.4
PLAY AREA
ATP 1087
30
Armour Energy Limited Replacement Prospectus
2.2.4.
Forward work program
Armour Energy intends to fund its initial exploration activities from the proceeds of the Offer and existing
financial resources. An indicative timeline of the proposed two (2) year work program for EP 171 and EP 176 is
provided in the table below. For information on the work program related to the Lakes Farm-in Tenements refer
to Section 2.4.
FULLY FUNDED TWO (2) YEAR WORK PROGRAM IN PLACE
2012
Q1
Q2
Q3
2013
Q4
Q1
Q2
Q3
Q4
EP 171 and EP 176
Seismic (200 km of 2D)
Drilling
Vertical wells (9 in total)
Lateral wells (3 in total)
Multi-stage Hydraulic Fracturing
Initial gas marketing agreements
Other permit application areas
Regional studies and geophysical surveys
Native title negotiations
Further permits granted
Seismic and drilling
Armour Energy’s two (2) year work program includes the geological assessment and drilling in EP 171 and EP 176
of up to nine (9) vertical wells, three (3) lateral wells and two (2) multi-stage Hydraulic Fracturing operations in
the first two (2) years. A drill rig has been secured by Armour Energy for 2012, with mobilisation scheduled for
April 2012 and commencement of drilling on 1 May 2012.
The 2012 work program is focused on drilling conventional targets and establishing the prospectivity of the
unconventional resource. A seismic survey will be completed during 2012. Depending on the exploration results,
Armour Energy is targeting an initial reserves booking by end of 2013. In parallel with the exploration program,
Armour Energy will procure scoping and feasibility studies and pursue agreements aimed at achieving
commercialisation of the Company’s prospective gas resource base.
A summary of the estimated cost of the two (2) year work program is contained in the table below. This program
will ensure Armour Energy satisfies the minimum expenditure requirements applying to EP 171 and EP 176, which
are identified in the Independent Solicitor’s Report on Tenements in Section 10.
31
2.
Company and Assets Overview CONTINUED
TWO (2) YEAR WORK PROGRAM BY ACTIVITY
2012 EXPECTED
COST ($M)
2013 EXPECTED
COST ($M)
Seismic
0.8
1.1
Drilling
14.5
9.9
2.0
1.3
9.4
5.1
0.25
0.25
Feasibility studies and marketing
1.6
1.7
Exploration expenditure allocated to EPAs and ATP 1087
3.4
13.1
31.95
32.45
ACTIVITY
EP 171 and EP 176
Operating costs (including accommodation and site transport)
Lakes Farm-in Tenements
Other
Native title
Total
Marketing initiatives are focussed on business development and marketing to potential gas customers.
The proposed budget is subject to ongoing review and amendment dependent on exploration results, market
conditions, the timing of permit grants and other factors (including the risk factors outlined in Section 5).
Armour Energy will assess new projects and joint venture opportunities as they arise, and funding may be
reallocated on this basis.
The Directors consider that following completion of the IPO, Armour Energy will have sufficient working capital
to achieve its objectives set out in this Prospectus for a period of two (2) years, with the intention of maintaining
a minimum cash balance to continue the ongoing operation of the business without premature recourse to
external sources of funding. Development of one (1) or more of the hydrocarbon fields or additional opportunities
for the Company could, however, require further funding from external sources.
Armour Energy plans to minimise exploration risks by drilling selected drill targets through the assessment of
key parameters including source rock, reservoir characteristics, structural development and timing of hydrocarbon
generation. Combinations of 2D and 3D seismic will be used as key tool in the selection of leads for drilling.
The drilling process would be further managed through staging of drilling activity such that lower cost drilling
of vertical wells are used to prove targets and justify the use of higher cost horizontal wells and fracture
stimulation techniques.
The Company’s strategy for exploration drilling will be to use low cost methods where possible to test the plays
targeted. This will allow for more wells to be drilled in the exploration budget thus effectively increasing the
chance of discovery. Also the more wells drilled the better the chance of locating reservoir sweet-spots thereby
increasing the chance of commerciality. For example in exploring for gas plays, wells will be air drilled with smaller
rigs than usually used for conventional hydrocarbon exploration. The advantage of air drilling is that in hard
rocks it is able to progress at a much faster rate than mud drilling and would result in less formation damage
to potential reservoirs than mud based drilling. This mode of drilling minimises the cost, increases the chance
of discovery and maximises the chance of flowing gas from the well. The forward work program cost estimates
are based on quotes and detailed costing analysis completed by the Company.
The forward work program cost estimates are based on contracted drill day rates and detailed costing analysis
completed by the Company.
The timing of implementation of elements of Armour Energy’s commercialisation plans will be partially dependant
on the success and timing of results from the exploration program.
32
Armour Energy Limited Replacement Prospectus
2.2.5.
Environmental and community engagement
Armour Energy’s policy is to maintain high standards of health, safety and environmental care, and the Company
is committed to working closely with the community, traditional owners and government bodies to ensure
it always adopts best practice with respect to environmental management.
Armour Energy is obligated under stringent State and Territory laws to ensure its operations are conducted so
as to avoid environmental damage, or where avoidance is not possible, to minimise any environmental impact.
Northern Territory
• Prior to drilling on the granted permits in the Northern Territory, Armour Energy is required to provide 28 days
notice of such drilling to the Northern Territory Government. The notice shall contain details of the location
of the drilling and describe the measures that Armour Energy will undertake to protect the environment.
• Armour Energy must submit an environmental plan to the Northern Territory Government for approval
prior to commencing exploration operations. Approval typically takes two (2) to three (3) weeks.
• An Environmental Impact Statement (EIS) may be required before a production permit is approved and
granted. Armour Energy has commenced a ‘baseline’ study for its EIS report. A wet season and dry season
baseline study will be required.
• Surface and groundwater will be investigated and monitored to ensure quality and quantities are maintained.
Baseline levels will be determined prior to exploration and regular monitoring will be undertaken throughout
exploration and operation. Australian and New Zealand Guidelines for Fresh and Marine water quality (ANZECC
2000), and other guidelines as directed by Northern Territory Government departments, will be utilised as the
current standard for applicable trigger levels for the protection of aquatic ecosystems. Water quality sampling
and reporting will be undertaken by qualified environmental scientists.
• All waste water will be managed according to techniques and designs approved by Northern Territory
Government agencies and relevant legislation. Waste waters from exploration will be temporarily stored
in storage pits that will be suitably lined to prevent any contamination to soils or waters. All storage areas
will be away from watercourses and sensitive areas and, when required, any contaminated waste waters
to be disposed of will be done so at appropriate licensed waste facilities, or as required in accordance with
relevant legislation.
• Hydraulic Fracturing of a multi-stage horizontal well requires approximately five (5) megalitres of water,
which is equivalent to approximately two (2) Olympic size swimming pools. Armour Energy plans to have
recourse to runoff water from the Northern Territory wet season to fill dams located near wells to be Fracced.
Armour Energy will develop an in depth water management strategy including the collection, storage and
disposal of Hydraulic Fracturing fluids.
Queensland
• As part of the application process in Queensland, Armour Energy must apply for an Environmental Authority
(EA). As part of the EA application, Armour Energy is required to submit a comprehensive environmental
management plan which must include details of Armour Energy’s environmental protection commitments
and rehabilitation program.
• The Queensland Government will issue an EA prior to grant of a tenement. The EA will contain environmental
obligations and conditions that Armour Energy will be required to comply with in respect of the granted
tenement. The Queensland Government, depending on the circumstance, may require an EIS to be undertaken
by Armour Energy prior to the issuance of the EA. However, it is not typical that an EIS will be required for
an ATP. An EIS is typically required only in respect of significant projects determined under the Environmental
Protection Act 1994 (Qld).
• Armour Energy will require a water licence under the Water Act 2000 (Qld) to capture water for use in
Hydraulic Fracturing. However, Armour Energy is permitted to use water produced in the course of its
authorized drilling activities without the requirement of a water licence.
33
2.
Company and Assets Overview CONTINUED
Native Title Agreement
In addition to State and Territory laws in respect of the environment, Armour Energy has made contractual
commitments in respect of environmental stewardship under the Native Title Agreement entered into
in connection with the Company’s granted exploration permits. Among other things, Armour Energy:
• has agreed not to use certain Hydraulic Fracturing fluids, and has agreed to disclose to the NTPs
all Hydraulic Fracturing fluids used by Armour Energy;
• must ensure that its exploration wells are constructed in such a way to minimise, to the extent reasonably
possible, any adverse environmental impacts, including uncontrolled release of hydrocarbons or Hydraulic
Fracturing fluids; and
• must progressively rehabilitate areas within the permits that are explored.
Armour Energy’s permits are located within areas which are not prime cropping land and are primarily used
for livestock grazing. The Company’s granted exploration permits, EPAs and ATP 1087 in northern Australia are
located within a low population density area, meaning drilling and testing activities will have a minimal impact
on regional population centres. However, despite their remote location, Armour Energy’s exploration permits
are accessible to transportation infrastructure, including roads, access tracks, export pipelines and camp sites.
34
Armour Energy Limited Replacement Prospectus
FIGURE 7: OVERVIEW OF LAND USAGE OVER PERMIT AREAS
134° E
LEGEND
136° E
Armour Permit Area
National Park
138° E
ALRA (NT) Land
ALA (Qld) Land
Nature Conservation Reserve
Crown Land
Leasehold Land
Freehold Land
16° S
18° S
18° S
Non Armour Energy
20° S
20° S
N
0
134° E
N.T.
136° E
35
138° E
100km
QLD
2.
Company and Assets Overview CONTINUED
Community engagement
With its proactive land management strategy and strong relationship with local community, traditional owners
and government bodies, Armour Energy is focussed on developing an excellent reputation in northern Australia.
Under the Native Title Agreement reached in respect of EP 171 and EP 176 in the Northern Territory, Armour
Energy has agreed to take reasonable steps to develop the employment, training and business opportunities
for NTPs. In particular, Armour Energy will keep the NTP Representative informed of opportunities and, where
possible, give job training to NTPs. Under the Native Title Agreement, Armour Energy is required to make at least
two (2) apprenticeships available to Aboriginal people that show capacity, interest and desire for employment.
2.3.
DETAILED OVERVIEW OF THE COMPANY’S EXPLORATION PORTFOLIO
2.3.1.
Armour Energy’s Northern Territory permits
2.3.1.1.
McArthur Basin – Geology
Key points:
• Underexplored basin with significant hydrocarbon potential – evidenced by previous oil and gas shows
• Half graben structure provided the depositional environment
• Barney Creek Formation – primary identified shale play
The McArthur Basin is broadly northwest to southeast trending and covers an area of approximately 180,000 km2
from the Queensland–Northern Territory border, along the west coast of the Gulf of Carpentaria, to the north
coast of Arnhem Land in the north east of the Northern Territory.
The southern McArthur Basin contains middle proterozoic, flat lying to gently folded sedimentary rocks.
FIGURE 8: OVERVIEW OF McARTHUR BASIN
132° E
12° S
134° E
136° E
140° E
12° S
138° E
LEGEND
Arafura
Armour Permit
Basin
Batten Fault Zone
McArthur Basin
Pine Creek
Post McArthur Unit
Murphy Inlier
South Nicholson Basin
Basment
Fault
Inlier
14° S
14° S
McARTHUR
BASIN
N
Daly River
0
100km
Gulf
BATTEN
16° S
50
of
Carpentaria
16° S
QLD
ZONE
Basin
Basin
N.T.
T
FAUL
Georgina
Wiso
Carpentaria
Lowlands
132° E
134° E
136° E
36
138° E
140° E
Armour Energy Limited Replacement Prospectus
The Scrutton volcanics represent the basin basement, succeeded by a series of sedimentary rock groups, including
the Tawallah, McArthur, Nathan and Roper Groups. The rocks appear to have been deposited in mostly shallow
water environments in an intracratonic basin which was dominated by a prominent north trending half graben,
the Batten Trough.
The Tawallah Group is a basal shallow marine to fluvial predominantly sandstone and basic volcanic sequence,
overlain by the McArthur and Nathan Groups which are shallow water to intratidal succession of carbonates
and evaporites, dolomitic siltstones and shales.
Above a major regional unconformity are the rocks of the Roper Group, consisting of alternating clean quartz
arenites and siltstones and shales, deposited in an environment ranging from fluvio-deltaic to deep marine.
FIGURE 9: CROSS-SECTIONAL VIEW OF BATTEN TROUGH STRUCTURE
Not to scale.
The Batten Fault Zone in the southern McArthur Basin is flanked by the Bauhinia Shelf to the west and Wearyan
Shelf to the east. The fault zones are characterised by an increase in deformation, faulting and steepness of dips
and increased thickness of preserved sedimentary rocks (10 to 12 km) compared with the adjacent shelves
(4 to 5 km).
The adjacent Glyde Sub-basin is a fault-bounded depocentre, including a very thick sequence of below-wave-base
carbonaceous siltstone of the Barney Creek Formation, which is regarded as the main hydrocarbon source rock.
Considerable volumes of hydrocarbons are interpreted to have been generated in these rocks.
37
2.
Company and Assets Overview CONTINUED
2.3.1.1.1. Principle source rocks in the McArthur Basin
Principal source rocks include the thickened sections (generally exceeding 150 m) of the gas rich Barney Creek
Formation. Previous exploration drilling for zinc and other minerals encountered numerous shows of gas, Liquids
condensate, oil and bitumen, including a gas blowout in 1979 at mineral hole Glyde River 9 which flowed
at at least 140 PSI for several months before being plugged.
The Barney Creek Formation is regionally extensive and contains significant content of total organic carbon.
The organic matter type is oil and Liquids prone and believed to be thermally mature, providing high quality
source rocks, which MBA Petroleum Consultants believes to be comparable to highly productive Haynesville,
Barnett, Marcellus and Bakken shale formations in the United States.
The Glyde River 9 mineral hole provides strongest evidence of the generation and trapping of hydrocarbons, with
the well encountering live oil shows within the Barney Creek Formation and flaring gas from the Coxco Dolomite.
Based on the oil shows at Mineral hole Glyde River 9, Armour Energy’s Directors believe that the southern portion
of the McArthur Basin contains petroleum bearing rocks.
2.3.1.1.2. Potential unconventional reservoirs
MBA Petroleum Consultants consider the Barney Creek Formation to be the most prospective unconventional
Shale Gas play in the southern McArthur Basin. Data from exploration and appraisal by Amoco International
suggests that the Barney Creek Formation is oil mature at the surface and predicted to be Wet Gas mature
from 350 m to 2,400 m and Dry Gas mature where it is over 2,400m deep. The unusually high thermal maturity
at relatively shallow depths is due to previously deeper mature source rocks being unroofed by erosion
of overlying sediments.
The Shale Gas play has a finely interbedded nature with high dolomitic and silt components which are favourable
conditions for large volumes of gas to be held in pore spaces. These rocks are likely to be well suited to massive
fracture stimulation, the primary method used in completing unconventional production wells.
A considerable number of additional seismic lines will be necessary to better understand the full unconventional
hydrocarbon potential of Armour Energy’s broader permit area.
2.3.1.1.3. Potential conventional reservoirs
Numerous potential conventional reservoirs with suitable properties have been identified, including:
• the Reward, Coxco and Teena Dolomites; and
• the Looking Glass, Balbirini and Yalco Formations.
The primary conventional objectives of Armour Energy are the Reward and Coxco Dolomite formations that lie
above and below the Barney Creek Formation. These have been selected on the basis of enhanced potential
for hydrocarbon charging from the Barney Creek source rocks.
A number of stratigraphic traps have been identified within the conventional reservoirs.
38
Armour Energy Limited Replacement Prospectus
2.3.1.2.
EP 171 – Abner Range
• Armour Energy interest: 100%
• Size: 3,473 km2 (0.86 million acres)
• Basin: McArthur
• Term: five (5) years
EP 171 covers an area corresponding to the southern part of the Batten Trough, in the McArthur Basin.
The permit area is traversed by a lateral gas pipeline connecting the Amadeus Basin-to-Darwin gas pipeline
to the McArthur River zinc mine.
2.3.1.2.1. Geology and petroleum potential
The permit overlies the principle assessed Wet Gas windows of the Barney Creek Formation. The permit is
generally under explored with no modern seismic coverage and limited drilling for oil and gas, except for a series
of shallow stratigraphic wells.
Amoco International commenced an exploration program including stratigraphic studies, geophysical survey and
drilling during 1981 and 1982. This program was designed to identify potential source and reservoir rock horizons
and to gain insight into the stratigraphy and structure of the southern McArthur Basin, which coincides with the
majority of the area of EP 171. The 1982 drill program consisted of eight (8) core holes, three (3) of which were
located within the area of EP 171. These wells failed to reach the required depth to intersect the relevant Barney
Creek Formation and Coxco Dolomite.
The gas blowout at mineral hole GR9 in the Glyde River area is located in EP 171. Kerogen data from the Glyde
River area was used in an independent study to extrapolate the overall thermal maturity and kerogen type
through a range of depths in the permit area. The study suggests that the area is mature for hydrocarbon
generation. The data indicates that the area is dominated by Type I and Type II kerogens defined as a Wet
Gas area. Higher levels of thermal maturity are extrapolated to occur at depths greater than 2,400m.
Thermal maturity mapping was applied to detailed depth modelling carried out by Ausmec Geoscience,
as shown in Figure 10. This has been used to define the Wet Gas and Dry Gas areas within EP 171.
39
2.
Company and Assets Overview CONTINUED
FIGURE 10: OVERVIEW OF GRANTED PERMITS – EP 171 AND EP 176
135° 30' E
136° 00' E
136° 30' E
15° 30' S
15° 30' S
LEGEND
Nathan River
Bing Bong
Armour Permit
Mine
Armour Proposed Well
Well
Oil Show
Gas & Oil Show
Seismic
Leads
EP(A) 190
Batten
AMAC11 Proposed Seismic
Gas Pipeline
Major Road
Wet Gas Play
16° 00' S
16° 00' SDry Gas Play
Borroloola
N
0
20km
Cow
Lagoon
West
EP(A) 193
Cow Lagoon East
EP 176
82-5
McArthur River
Zinc Mine
gh
Trou
16° 30' S
16° 30' S
McArthur River Station
82-6
Cape Crawford
Road House
Abner
82-7
Kilgur
Dunganminnie West
Kilgur South
Dunganminnie East
GR3
EP 171
Mallapunyah
Glyde
17° 00' S
GR9
17° 00' S
135° 30' E
136° 00' E
40
136° 30' E
Armour Energy Limited Replacement Prospectus
The Barney Creek Formation is the primary unconventional reservoir target within EP 171.
Six (6) conventional leads have been identified close to the centre of EP 171 (see the table below). The primary
objective of the leads is the Coxco Dolomite and Reward Dolomite reservoirs. This has been defined on the basis
of higher probability of charge from the Barney Creek Formation source rocks.
The leads coincide with the unconventional Wet Gas play area of the Barney Creek Formation, and are four (4)
way dip closed anticlines, with the exception of the Glyde River trend, which is a fault closed trap.
IDENTIFIED LEADS FOR EP 171
LEADS
COMMENTS
Abner
• Four (4) way dip closure on the northwest trending Abner anticline
• Strong probability of hydrocarbon charge from the Barney Creek Formation
• Structure appears to predate charge, indicating reasonable probability of preservation
of hydrocarbons
Glyde River Trend
• The area has been interpreted to be heavily faulted with closures being two (2)
and three (3) way faulted, with one (1) to two (2) way dip closed compartments
• 12 previous minerals wells, with no seismic coverage
• The existing Glyde River wells encountered gas, proving reservoir charge and trap
Kilgour and
Kilgour South
• The Kilgour and Kilgour South leads are northwest elongated four (4) way dip closures
• Two shallow proximate mineral drill holes (82-7 and BMR-4), both bled oil from the
core of the Looking Glass Formation
• Target reservoirs are the Reward and Coxco Dolomites
• Leads are prospective for Wet Gas, based on location
Dunganminnie
(West and East)
• The Dunganminnie leads have been identified on the basis of surface geology
• The leads are north west trending, elongated anticlinal features
• Leads are prospective for Wet Gas, based on location (with similar target reservoir
parameters to the Abner leads)
Amour Energy intends to simultaneously test both unconventional and conventional targets through wells drilled
as part of its forward two (2) year work program.
41
2.
Company and Assets Overview CONTINUED
MBA Petroleum Consultants has assessed a mean Prospective Resource estimate for EP 171 as summarised in the
table below:
MEAN PROSPECTIVE RESOURCE ESTIMATE FOR EP 171
GAS MEAN
VOLUME
(BCF)
CONDENSATE
MEAN VOLUME
(MMBBL)
Dry Gas area
133.5
1.5
Wet Gas area
11,126.0
1,256.7
Total (unconventional)
11,259.5
1,258.2
Abner
51.8
6.0
Glyde River
10.2
0.1
Kilgour
61.9
7.4
Kilgour South
10.7
1.3
Dunganminnie East
25.0
3.0
Dunganminnie West
27.4
3.2
187.0
21.0
11,446.5
1,279.2
AREA
Unconventional
Conventional
Total (conventional)
Combined total
2.3.1.2.2. Permit status
Armour Energy was granted EP 171 by the Northern Territory Government on 29 June 2011, for a term of five (5)
years. Armour Energy has entered into the Native Title Agreement with the Government of Northern Territory,
the Northern Land Council and the NTPs under which the Company has agreed a royalty payment regime for
future production. The Native Title Agreement facilitated the grant of EP 171.
In respect of the environment, the Native Title Agreement imposes certain obligations on Armour Energy to
ensure that its work is conducted so as to avoid environmental impact and, where avoidance is not possible,
to minimise environmental impact (for further details, Section 2.2.5).
Armour Energy is permitted to apply for a production licence and the parties will negotiate the terms of
a production agreement in respect of each such production licence (for further details, see Section 12.1.3 –
Summary of Native Title Agreement). The Native Title Agreement contains detailed provisions providing the
framework for a future production agreement, including agreed production principles, terms and conditions.
2.3.1.2.3. Minimum work program commitments for EP 171
The terms of the EP 171 agreement require the Company to undertake minimum work commitments at an
estimated cost of $1.7 million over the five (5) year term of the permit. Minimum commitment activities required
include geological and geophysical studies, drilling appraisal and prefeasibility studies.
Armour Energy’s forward work program substantially exceeds the minimum commitments.
2.3.1.2.4. Forward work program
Armour Energy intends to prioritise exploration activities over EP 171, in recognition of the significant Wet Gas
and Liquids potential of the permit area. An initial 65 km of 2D seismic is expected to be acquired in early 2012
as a precursor to an extensive drilling program of five (5) wells in the 2012 calendar year and a further four (4)
wells in the 2013 calendar year.
The locations of the initial 65 km of seismic and the proposed wells are shown in Figure 10. The final well
locations will depend on results of the seismic data acquired.
Drilling of each of the nine (9) identified leads will simultaneously test the unconventional and conventional gas
and Liquids potential of the Barney Creek shale and adjacent Reward and Coxco Dolomites.
42
Armour Energy Limited Replacement Prospectus
The drill holes will be used to flow test the three (3) formations and core the Barney Creek Formation as well.
The purpose of coring would be to allow gas desorption measurements to be made on the cores, leading
to an understanding of the gas contents and gas quality of the Shale Gas play. Other important information
on the porosity, permeability and rock strength, thermal maturity and total organic carbon will be obtained.
The exploration program in 2013 will depend on the results of the work to be undertaken in 2012. Budgeted
exploration expenditure is $11.1 million for 2012 and $11.6 million for 2013.
2.3.1.3.
EP 176 – Ryans Bend
• Armour Energy interest: 100%
• Size: 8,032 km2 (1.99 million acres)
• Basin: McArthur
• Term: five (5) years
EP 176 covers an area corresponding to the central and northern parts of the Batten Trough, in the McArthur
Basin and is the closest Armour Energy permit to the Gulf of Carpentaria. The permit area includes the McArthur
River zinc mine.
2.3.1.3.1. Geology and petroleum potential
The geology of EP 176 is broadly similar to EP 171, with the Batten Trough being the principal structure, and
having the same conventional target Coxco and Reward Dolomite reservoirs and an unconventional target
of the Barney Creek Formation reservoirs.
A Wet Gas area and a Dry Gas area have been defined within EP 176.
MBA Petroleum Consultants plotted the limited maturity data against depth and determined that a vitrinite
reflectance thermal maturity index of VRo1.2 lies at about 2,400 m depth at the level of the Barney Creek
Formation. This refers to the maturity of organic matter at which significant volumes of gas is generated.
The Dry Gas window is predicted to lie below this depth and the Wet Gas window to lie above. This suggests
that the presence of a substantial Dry Gas window of the Barney Creek Formation within the granted Armour
permits exists in the central part of EP 176. The Dry Gas window is understood to be surrounded by a shallower
Wet Gas window.
The permit is less explored than EP 171, with only one (1) well drilled by Amoco International (82-6) and a single
seismic line (02GA-BT1) dissecting the centre of the permit.
The depth of the Barney Creek Formation within EP 176 is interpreted to extend beyond 2,400 m.
The Amoco International 82-6 stratigraphic core hole located in the southern area of the permit intersected
the shallower Looking Glass Formation, Stretton Sandstone, Yalco Formation and the Donnegan Member
of the Upper McArthur Group. The target depth of 300m was materially above the deeper Coxco Dolomite
and Reward Dolomite reservoirs which were not intersected.
See Figure 10 for location of unconventional targets and conventional leads.
The Cow Lagoon West and East are the currently identified leads within EP 176. The primary objective of the
leads is the Coxco and Reward Dolomite reservoirs. There is a single seismic line traversing the Cow Lagoon
East lead.
IDENTIFIED LEADS FOR EP 176
LEADS
COMMENTS
Cow Lagoon
(West and East)
• The Cow Lagoon leads have been identified on the basis of surface geology
• Cow Lagoon West is covered by a single seismic line (02GA-BT1)
• The leads are domal features that lie on northwest trending anticlines
• The leads are prospective for Wet Gas, from reservoirs within the target Reward
and Coxco Dolomites
43
2.
Company and Assets Overview CONTINUED
MBA Petroleum Consultants has assessed a mean Prospective Resource estimate for EP 176 as summarised in the
table below:
MEAN PROSPECTIVE RESOURCE ESTIMATE FOR EP 176
GAS MEAN
VOLUME
(BCF)
CONDENSATE
MEAN VOLUME
(MMBBL)
Dry Gas area
1,189.0
13.7
Wet Gas area
6,102.0
689.6
Total (unconventional)
7,291.0
703.3
Cow Lagoon East
6.2
0.7
Cow Lagoon West
15.8
1.9
Total (conventional)
22.0
2.6
7,313.0
705.9
AREA
Unconventional
Conventional
Combined total
2.3.1.3.2. Permit status
Armour Energy was granted EP 176 by the Northern Territory Government on 29 June 2011, for a term
of five (5) years. The permit was granted under the Native Title Agreement described in Section 12.1.3
(which also applies to EP 171).
2.3.1.3.3. Minimum work program commitments for EP 176
The terms of the EP 176 agreement require the Company to undertake minimum work commitments at an
estimated cost of $7.1 million over the five (5) year term of the permit. Minimum commitment activities required
include geological and geophysical studies, drilling appraisal and prefeasibility studies.
Armour Energy’s forward work program substantially exceeds the minimum commitments.
2.3.1.3.4. Forward work program
Armour Energy intends to pursue a targeted exploration program to test the Cow Lagoon East and Cow Lagoon
West prospects, which have been identified based on surface mapping and seismic interpretation of the 2002
seismic line 02GA-BT1.
Three (3) wells are planned in calendar year 2012. Further seismic acquisition is also planned for the permit.
Drilling of each of the three (3) leads will simultaneously test the unconventional and conventional gas and Liquids
potential of the Barney Creek Formation and the adjacent Reward and Coxco Dolomites.
The approach to drilling and its objectives would be on the same basis as for EP 171 (see Section 2.3.1.2).
Budgeted exploration expenditure is $6.2 million for 2012 and $0.7 million for 2013.
44
Armour Energy Limited Replacement Prospectus
FIGURE 11: ARMOUR ENERGY’S PERMITS
136° E
134° E
14° S
138°LEGEND
E
Armour Permit (granted)
Darwin
N
Armour Permit (application)
Gas Pipeline
Mine
Major Road
Railway
Town
Alice Springs
0
Nathan River
200km
Gulf
EP 176
EP(A) 193
100
EP(A) 174
16° S
of
16° S
Carpentaria
Daly Waters
EP(A)
173
McArthur River
McArthur River
EP 171
EP(A) 196
EP(A) 190
EP(A)
194
Westmoreland
EP(A) 192
EP(A) 191
Burketown
EP(A) 195
ATP 1087P
18° S
18° S
EP(A) 172
EP(A) 179
Century
Non Armour Energy
EP(A) 178
Alexandria
Mt Gordon
Tennant Creek
EP(A) 177
Lady Loretta
20° S
20° S
Camooweal
MT ISA
Georgina
Barrow Creek
NORTHERN
22° S
TERRITORY
134° E
136° E
45
QUEENSLAND
138° E
22° S
2.
Company and Assets Overview CONTINUED
2.3.1.4.
EPAs 193, 196, western 190 and northern 191
These permits pending grant surround EP 171 and EP 176 where the Barney Creek Formation is the primary target
for an unconventional shale play. The southern McArthur Basin covers these permits with the Barney Creek
Formation interpreted to extend over the region.
Shell Company of Australia Ltd and MIM Exploration Pty Ltd completed a number of mineral exploration
boreholes in the area now within northern EPA 176 between 1979 and 1993. Several of these boreholes
intersected the Barney Creek Formation sediments and the Lynott Formation sediments. This implies a possible
northern extension to the EP 176 Barney Creek Formation shale play with sediments found at sufficient depths
of burial to be mature. This play is believed to extend into parts of EPA 193.
EPA 191 covers an area that includes a potential new play within the Tawallah Group, however there is little
information on this formation. BHP Minerals Pty Ltd drilled a mineral borehole (GSD 7) which encountered
oil shows within carbonaceous mudstones between 549 to 569 m and 612 to 616 m depth.
BHP Minerals Pty Ltd also explored the Wallhallow area now within EPA 191 in 1995, encountering the Roper
Group sediments. It is possible that the Barney Creek Formation is buried beneath the Roper Group sediments
in this area and represents an extension of the same Barney Creek shale play from EP 171 into EPAs 190,
191 and EPA 193.
2.3.1.5.
EPAs 173, 174, 190, 193, 194 and northern 192
CRA Exploration Pty Ltd drilled a shallow mineral hole (DD91HC1) in 1991 located at the southern-eastern margin
of the area now within EPA 190, intersecting between 278 to 322 m of grey to black carbonaceous dolostone,
dolosiltstone and shale of the Wollogorang Formation. This suggests there is potential for a hydrocarbon play
within the Tawallah Group.
CRA Exploration Pty Ltd drilled a number of shallow percussion holes and two (2) deeper cored holes
(<350 m depth) in the area of EPA 190 in search of ‘Redbank-style’ cupriferous breccia bodies in 1991.
The two (2) cored holes (DD91 RC18 and DD91 CCK1) intersected the upper Tawallah Group sediments
of the Gold Creek Volcanics, the Wollogorang Formation and the Settlement Creek Volcanics:
• the DD91 RC18 hole encountered dark grey to black carbonaceous dolosiltstone, carbonaceous mudstones
with bituminous nodules between 235 to 280 m; and
• the DD91 CCK1 well encountered similar lithologies to the DD91 RC18 hole between about 91 to 100 m.
This encountered carbonaceous, bituminous facies within the Wollogorang Formation implies a possible source
rock deeper and further out on the eastern flank of the Batten Fault Zone, where the McNamara Group was
previously considered to be absent.
Conarco Minerals Pty Ltd and Core Coal (NT) Pty Ltd drilled three wells (including CMR001 and CMR003) in
2005 within the area now within EPA 174 and CMR002 well within EPA 190, which intersected black to grey
carbonaceous rock between 35 and 51 m in depth within a Tertiary/Mesozoic succession. Total organic carbon
ranged from 0.04% to 0.64%.
46
Armour Energy Limited Replacement Prospectus
2.3.1.6.
EPAs 177, 178, 179 and southern 191
The Georgina Basin permits also cover western parts of the older South Nicholson Basin. The area has been
subject to limited seismic coverage and previous drilling including four (4) petroleum wells, several water bores
and mineral boreholes implying limited geological control over the area currently. Two (2) of the petroleum wells
(Frewena 1 and Brunette Downs 1) produced data which formed the basis of the current assessment of a Cambrian
play similar to the Arthur Creek Formation in the southern Georgina Basin.
The Brunette Downs 1 well in EPA 179 was drilled to a depth of 622 m into the northern Georgina Basin
sediments. The rock sequence encountered by the well included:
• 320 m of lower Middle Cambrian carbonates (believed to contain water-filled, cavernous limestone zones); and
• 302 m of Cambrian or upper Proterozoic sandstone, siltstone and shale.
Lower-middle Cambrian or upper Proterozoic shale were encountered from 430 m to total depth (ie 622 m),
the lower section of which comprised thin dark brown to black, micaceous shale interbedded with green shale.
This lower shale sequence is believed to be potentially organic rich.
Frewena 1 confirmed that the vuggy carbonates and sandstones had porosity and permeability, indicated by
water flow. The well data included reports of algal remains in the Anthony Lagoon beds in the Anthony Lagoon
Formation. These indicate deposition in an environment favourable for hydrocarbon generation.
The presence of the bituminous members indicates that these sediments have reached thermal maturity in the
past and that exploration should focus on areas where the depth to target and structuring is favourable for the
preservation of a hydrocarbon accumulation.
2.3.1.7.
EPAs 192, 195, 172 and eastern 179
MBA Petroleum Consultants believes that the Lawn Hill Formation and the Riversleigh Sandstone identified
in the western play area of ATP 1087 are likely to extend into these Northern Territory permits. This assessment
is based on surface geology maps, seismic interpretation and magnetic data. This region is underexplored with
no previous wells.
Please see Section 2.3.2 for further details on ATP 1087 and a more complete discussion of its associated geology.
FIGURE 12: OVERVIEW OF STRATIGRAPHY OF OVERLAPPING BASINS
47
2.
Company and Assets Overview CONTINUED
2.3.2.
Armour Energy’s Queensland permit – ATP 1087
• Armour Energy interest: 100%
• Size: 7,138 km2 (1.77 million acres)
• Basin: South Nicholson
• Application term: four (4) years
ATP 1087 is located in the western onshore region of the Gulf of Carpentaria extending from Burketown to the
Northern Territory border.
2.3.2.1.
Geology and petroleum potential
The area overlies parts of the Carpentaria and South Nicholson Basins and the Northern Lawn Hill Platform, which
is an extension of the Isa Super Basin. The age of the sediments in this area ranges from the Paleoproterozoic to
Mesoproterozoic McNamara Group sediments to the younger overlying Mesoproterozoic Carpentaria Basin cover.
The permit contains different play types in the eastern and western parts of the basin.
The eastern play area comprises the McNamara Group sediments deposited in a synclinal extension of the
Isa Super Basin, which is in turn overlain by sediments of the Carpentaria Basin.
The western play area is made up of southerly dipping gently sloping McNamara Group sediments that
progressively thicken from the Murphy Inlier in the north to the Elizabeth Creek Fault Zone, in the south
of the play area.
FIGURE 13: OVERVIEW OF ATP 1087 PERMIT AREA
Previous exploration in the area includes:
• extensive 2D seismic acquired between 1989 and 1991;
• six (6) petroleum wells within the permit boundary; and
• six (6) petroleum wells within 40 km of the permit boundary.
48
Armour Energy Limited Replacement Prospectus
MBA Petroleum Consultants has assessed a mean Prospective Resource estimate for ATP 1087 as summarised
in the table below:
MEAN PROSPECTIVE RESOURCE ESTIMATE FOR ATP 1087
GAS MEAN
VOLUME (BCF)
MEAN
CONDENSATE
MEAN VOLUME
(MMBBL)
MEAN
Dry Gas
22,521.9
242.4
Total Mean
22,521.9
242.4
PLAY AREA
2.3.2.2.
Principal source rocks and potential unconventional reservoirs
Armour Energy has identified potential Shale Gas plays in the Wide and Lawn Supersequences. The Lawn Hill
Formation in the Lawn Supersequence and the Riversleigh Sandstone within the River Supersequence are both
members of the McNamara Group.
A number of the previous wells, including Argyle Creek-1, Desert Creek-1, Egilabria-1 and Beamesbrook-1, yielded
gas shows from the above formations. Data from these wells suggests that the Lawn and River Supersequences
contain shaly sections with sufficient TOC to have source rock potential. These have reached a level of thermal
maturity sufficient for gas generation and expulsion. The high level of maturity observed in the River
Supersequence within the Desert Creek-1 and Argyle Creek-1 wells indicate a Dry Gas province.
2.3.2.3.
Potential conventional reservoirs
There is potential for conventional reservoirs along the western part of the basin, within sandstone and
conglomerate reservoirs of the Wide Supersequence. Hydrocarbon charge could be from the aforementioned
source-rocks. These formations have been intersected by previous exploration wells, which were poorly designed
to obtain data from the target reservoirs. Conventional plays include structural and stratigraphic traps along the
flank of the basin where sands pinch out onto the Murphy Inlier.
2.3.2.4.
Permit status
Armour Energy was selected as the preferred tenderer for ATP 1087 on 21 December 2010, for an initial four
(4) year term.
The tender process required that Armour Energy engage with relevant native title parties through the right
to negotiate procedure. Armour Energy has commenced negotiations with the two (2) native title groups
(the Waanyi People and the Gangalidda and Garawa People). As preferred tenderer for ATP 1087 in Queensland,
Armour Energy is now progressing the required native title negotiations with a view to securing Native Title
Agreements with each of the native title groups similar to the form of agreement Armour Energy was able
to successfully achieve in the Northern Territory which led to the grant of EP 171 and EP 176.
49
2.
Company and Assets Overview CONTINUED
2.4.
LAKES OIL
In line with this strategy, Armour Energy entered into a letter agreement dated December 2011 with Lakes Oil
(Lakes Oil Letter Agreement). Pursuant to the Lakes Oil Letter Agreement, the parties agreed to a number
of commercial arrangements which include Armour Energy making an equity investment of $2.25 million for
900 million shares being a 13% interest in the issued shares of Lakes Oil and separate farm-in arrangements for
petroleum exploration tenements PEP 166 and PEP 169 and an option to acquire a 50% interest in Lakes Oil’s
equity in PRL 2. Armour Energy has budgeted to fund the costs of drilling up to five (5) explorations wells for an
aggregate cost of $14.5 million through 2012 and 2013. For a full description of the Lakes Oil Letter Agreement
see Section 12.1.5.
Lakes Oil is listed on the ASX (symbol: LKO) and holds exploration tenements in Victoria. More information
on Lakes Oil can be found on Lakes Oil’s website at www.lakesoil.com.au and Lakes Oil’s public disclosure
can be viewed at www.asx.com.au
www.asx.com.au.
2.5.
OTHER OIL AND GAS PROSPECTS
In addition to focusing on the development the permits and permit applications in the Northern Territory,
Queensland and Victoria identified above, Armour Energy intends to utilize its management expertise and
knowledge to assess other oil and gas opportunities that may arise. In the event that Armour Energy determines
that any such other oil and gas opportunities are technically and economically prospective, Armour Energy may
seek to invest in such opportunity.
50
03.
Industry
Overview
ARMOUR ENERGY IS EXPOSED
TO A NUMBER OF ATTRACTIVE
ENERGY MARKETS:
• Gas
• LNG
• Liquids
3.
Industry Overview
3.1.
KEY PRODUCTS MARKETS OUTLOOK
3.1.1.
Gas
3.1.1.1.
Eastern Australian gas market
The eastern Australian domestic gas market is exposed to a number of fundamental medium term changes,
including:
• the recent commencement of LNG project developments at the Port of Gladstone, Queensland;
• Australian Federal Government policy on Greenhouse gas emissions targets which, if enacted, may have
implications for domestic demand for gas; and
• a fundamentally altered supply landscape in eastern Australia.
The above changes to the market may lead to a relatively permanent restructuring of the market.
The Mt Isa area gas market, which is situated in close proximity to Armour Energy’s acreage, is an important part
of the eastern Australian gas market and similarly exposed to potential restructuring of the broader market.
3.1.1.2.
Impact of proposed LNG exports from Port of Gladstone
The currently sanctioned plans to develop three Gladstone based coal seam gas to LNG projects (Queensland
Curtis LNG, Gladstone LNG and Australia Pacific LNG) would lead to an unprecedented increase in consumption
of gas in eastern Australia from 2014. This increase in consumption could be further exacerbated by the possible
sanctioning of other Gladstone based LNG projects (ie Arrow LNG which is jointly owned Shell and PetroChina)
and / or expansion trains at projects currently under development.
3.1.1.3.
Impact of the Federal Government’s greenhouse emissions policy
Federal Government policy in regard to Greenhouse emissions is expected to materially alter gas demand from
the power generation sector in eastern Australia that is currently heavily reliant on coal as its primary feedstock.
Gas-fired generation is considered to be the key transition fuel for achieving reductions in carbon emissions from
the power generation sector.
3.1.1.4.
Supply landscape
The depletion of conventional gas fields and the majority of existing coal seam gas (CSG) reserves being
quarantined for the LNG export markets, combined with potential for an increase in the gas supply requirements
of Gladstone based LNG projects, suggests that marginal domestic supply would be based on conversion
of relatively high cost resources and currently contingent resources.
The Gladstone based LNG projects are based on an integrated upstream model to mitigate any potential gas supply
risks. The upstream portfolios of each of the three (3) sanctioned and one (1) project pending sanction have been
formed through a series of acquisitions of independent CSG companies. An example of such upstream portfolio
formation process has been the BG Group Plc initiated acquisitions of QGC Pty Limited and Pure Energy Limited.
3.1.1.5.
Eastern Australian market – outlook for supply and demand balance
Armour Energy’s Directors believe that such restructuring of the gas market in eastern Australia will lead
to a significant gap between demand and currently contracted volumes, enabling new entrants with commercially
viable resources to fulfil this uncontracted demand.
This supply demand imbalance could lead to a new gas price environment where domestic gas prices move
towards a LNG Netback Price at a premium to current east Australian gas prices, similar to the experience of
the Western Australian gas market following expansion of LNG export from the North West Shelf LNG project.
3.1.2.
LNG
3.1.2.1.
Outlook for Pacific Basin LNG markets
The supply/demand balance in the Pacific Basin LNG market has tightened over the course of 2011.
Pacific Basin LNG demand is expected to remain strong due to the review of nuclear power programs in Japan,
Korea, Taiwan and China following the March 2011 earthquake and tsunami events in Japan.
The Pacific Basin LNG market is expected remain tight in the medium to longer term due to strong expected
demand from Asia and constraints to the extent and timing of any supply side response.
52
Armour Energy Limited Replacement Prospectus
3.1.3.
Associated Liquids
3.1.3.1.
Liquids pricing and outlook for global oil markets
Liquids such as condensates and NGLs are priced at a premium or discount to oil price benchmarks (generally
the Tapis or Brent price in Australia), depending on the composition and properties of the Liquids. The current
favourable domestic and international market for Liquids is expected to persist over the medium term, in line
with the outlook for the oil price.
FIGURE 14: HISTORICAL OIL PRICE PERFORMANCE
WTI
150
TAPIS
US$ per barrel
130
110
90
70
50
Source: IRESS
30
2005
2006
2007
2008
2009
2010
2011
2012
Source: IRESS
Condensates can be used by refineries as substitute feedstock for the lighter long chain hydrocarbon components
of crude oil such as naphtha, gasoline, kerosene and diesel distillate.
Armour Energy’s Directors believe that the underlying fundamentals of oil supply and demand are expected
to remain tight over the medium to longer term, notwithstanding any weakness in global oil demand over
the short term.
3.2.
OVERVIEW OF SHALE GAS
North America has experienced exceptional growth in shale oil and gas production over the last decade, assisted
by notable breakthroughs in drilling and well completion technology that were pioneered in the United States.
Armour Energy is committed to employing these advanced drilling and well completion technologies, including
horizontal drilling and fracture stimulation techniques, to exploit the unconventional and conventional potential
of Armour Energy’s acreage.
3.2.1.
Geology of shale
Shale is a sedimentary rock that is formed through the deposition of fine grained clay particles, combined
with organic matter in the form of algae, plant and animal derived organic debris.
The fine sheet-like clay mineral grains and laminated layers of sediment result in a rock with insufficient
permeability to allow gas to flow on an unassisted basis. These units are often rich in organic carbon which is
capable of being converted to hydrocarbons when subjected to thermal maturity processes. These type of shale
formations are believed to be present in the McArthur, Georgina and South Nicholson basins, wherein Armour
Energy’s permits are located.
In conventional oil and gas plays the source rocks contain hydrocarbons which then migrate out of the source
rock into porous and permeable reservoir rocks. The hydrocarbons are prevented from migrating out of the
reservoir rock by impermeable seal rock or trap structures. In unconventional shale plays, the same rock unit
acts as both the source and reservoir.
Hydrocarbons produced from shale formations have similar composition to production from conventional reservoirs.
53
3.
Industry Overview CONTINUED
3.2.2.
The role of technology
The key technological advances in Shale Gas have been horizontal drilling and Hydraulic Fracturing.
3.2.2.1.
Horizontal drilling
Horizontal drilling technology involves directional drilling to facilitate horizontal deviation of vertical wells at a
defined well depth and the ability to progress the well along a defined horizontal track. The horizontal well is able
to drain Shale Gas resources from a larger geographical area than a single vertical well in the same shale formation.
Horizontal drilling allows a single well to access hydrocarbon source rocks that previously would require multiple
vertical wells, thereby reducing drilling costs to a point where the resource is commercially viable. The enhanced
hydrocarbon drainage potential of a horizontal well would lead to a smaller surface area being disturbed for
a given volume of hydrocarbon production, serving to lower the environmental impact of drilling. Co-location
of several horizontal wells on a single pad would further minimise the disturbed area.
3.2.2.2.
Hydraulic Fracturing
Hydraulic Fracturing is a well completion technique used to create fracture networks in rock units using hydraulic
force, to improve permeability in a reservoir, and thereby allowing gas and associated Liquids to flow more readily to the
well. Hydraulic Fracturing has become a standard feature of the global shale industry. Hydraulic Fracturing treatments
are designed for the specific parameters of the target shale including thickness, local stress conditions, compressibility,
and rigidity, so as to accurately fracture specific reservoir units and maximise the permeability of the source rock.
Due to the regionally extensive nature of shale and the thickness of rock units, the Hydraulic Fracturing is often
implemented at multiple stages of the well, each focused on a consistent portion of the reservoir. The individual
stages of the fracture simulation are often isolated within the borehole so that the full capacity of the Hydraulic
Fracturing equipment can be applied to the single reservoir unit.
FIGURE 15: HORIZONTAL WELL HYDRAULIC FRACTURING
Source: U.S. Department of Energy
54
Armour Energy Limited Replacement Prospectus
The composition of Hydraulic Fracturing fluid will vary from one basin to another, generally comprising over
99% water with less than 0.5% other substances.
Armour Energy intends to adhere to the highest operating standards to ensure minimal environmental impact
from the Hydraulic Fracturing process. For further details of Armour Energy’s policies on environmental care,
see Section 2.2.5.
3.2.3.
The North American experience
Exploration and production companies operating in the United States have been aware of the presence of shale
formations since the early years of oil and gas production in North America, but had decided to overlook these
formations on the basis of low permeability and low unassisted natural flow rates.
During the 1980s and 1990s large scale Shale Gas production evolved through experimentation by Mitchell Energy
and Development Corporation, in the Barnett Shale in North-Central Texas. The success of the experiments led to
other companies entering the play, such that by 2005, the Barnett Shale alone was producing almost half a trillion
cubic feet per year of natural gas (representing approximately 3% of U.S. production). The commercial successes
in the Barnett Shale led to the exploration and development of a number of other shale basins.
The United States Shale Gas industry has grown from its nascent stages in the early 1980s to accounting for
23% of US Dry Gas production in 2010 and a projected 34% of total domestic gas resources as at the end of
2011. Shale Gas is the largest contributor to the projected growth in domestic gas production, and estimated
by the Energy Information Administration to account for 47% of US natural gas production by 2035.
3.2.4.
Shale Gas potential in Australia
Australia has significant Shale Gas potential across a number of basins, with geologic conditions resembling those
of the United States and Canada.
A US Energy Information Administration report dated April 2011 estimates the risked shale “gas-in-place”
of selected large sedimentary basins in Australia to be in the order of 1,381 trillion cubic feet.
The application of modern drilling and well completion technology to Australian shale basins could lead to
similarly strong growth potential for shale production in Australia, as experienced in the United States over
the last decade. A number of domestic and foreign companies have commenced work programs to test
specific shale plays, however, overall exploration and appraisal activity in the Australian shale industry
remains at a very early stage.
55
04.
Commercialisation
Plans
ARMOUR ENERGY IS ABLE
TO PURSUE A NUMBER OF
COMMERCIALISATION
OPPORTUNITIES
Armour Energy Limited Replacement Prospectus
4.
Commercialisation Plans
4.1.
INTRODUCTION
Armour Energy’s portfolio of large prospective hydrocarbon resources, located close to existing road and gas
pipeline infrastructure, and approximately 340 km from existing railway infrastructure, provides the Company
with a range of gas and Liquids commercialisation opportunities.
In particular, Armour Energy’s mean Prospective Resource estimate of 18.8 trillion cubic feet of gas within its two
(2) granted permits provides the potential to supply local energy users in the context of a strengthening Australian
domestic gas market. The scale of the Prospective Resource estimate combined with a robust Pacific Basin LNG
demand outlook and Armour Energy’s proximity to the Gulf of Carpentaria coastline also provides the possibility
of export sales of gas in the longer term.
Armour Energy’s mean Prospective Resource estimate of 2.0 billion barrels of associated Liquids within its two (2)
granted permits provide beneficial exposure to the outlook for the oil price and represents a key component
of overall value given robust oil and condensate markets.
Armour Energy’s intention is to develop its commercialisation path in parallel with its exploration program.
The Company intends to explore its large Prospective Resource estimate with the intention of developing
significant reserves to supply a range of existing and potential markets on a low production cost basis.
Market potential exists across the Gulf of Carpentaria region in both the Northern Territory and Queensland
at varying scales from small regional existing and proposed end user markets through to larger regional and
export markets.
4.2.
GAS
4.2.1.
Gas market opportunities
The location of Armour Energy’s permits is suitable for supplying gas to a number of major end user markets.
Armour Energy is planning to commercialise its large prospective gas resource on the following basis:
• Small scale regional opportunities
• Large scale regional opportunities
• Eastern Australian gas market opportunities
• LNG opportunities
4.2.2.
Northern Territory regional opportunities
Subject to exploration results, the Company intends to implement a commercial production program in the
Abner-Kilgour area. The primary objective is to supply existing and potential new end users in the region primarily
using existing pipeline infrastructure subject to securing pipeline access and contracts to supply the end users.
The Abner-Kilgour project area has been selected for an initial commercial production program due to its location
and on account of six (6) of the eight (8) currently appraised drilling leads residing in this permit, further implying
lower risks associated with eventual reserves booking.
The nearby McArthur River zinc mine is a potential customer subject to the status of its current gas supply
contracts. The mine currently uses 2PJ of gas per year. This is projected to expand to 4PJ per annum with
completion of the currently proposed mine expansion.
The McArthur lateral gas pipeline could potentially be used to supply gas to the mine and also supply gas back
into the Alice Springs to Darwin pipeline. Less than 50 km of new pipeline is required to access the existing lateral
pipeline from leads within the Kilgour exploration area.
Armour Energy has identified a number of proposed greenfield resource projects in the vicinity of the Company’s
permit area which could reinforce regional gas demand growth.
57
4.
Commercialisation Plans CONTINUED
FIGURE 16: OVERVIEW OF REGIONAL CUSTOMER OPPORTUNITIES
Non
Armour Energy
Armour Energy also intends to investigate and identify potential opportunities to utilise micro LNG and
compressed natural gas facilities, a proven technology able to provide a substitute fuel for industrial purposes
and alternative access to relatively remote end user markets including isolated mining operations.
This is perceived as a cleaner and more environmentally friendly energy source compared to existing industrial
and transport fuels such as fuel oil, diesel and petrol.
Armour Energy’s initial analysis suggests that demand for such micro LNG supply could be up to 15PJ per annum
within the Gulf of Carpentaria region.
4.2.3.
Queensland regional opportunities – Mt Isa area gas supply
In north-west Queensland, Armour Energy intends to explore and develop its South Nicholson Basin gas and
associated Liquids resources within the Burketown area.
The target market for the Burketown Project will comprise customers in the Mt Isa area, including several large
resources projects. The Mt Isa area represents the closest major gas market to Armour Energy’s South Nicholson
Basin permits. The area is currently supplied by the Carpentaria Gas Pipeline which is primarily fed by fields
in the Cooper Basin.
Mt Isa is a major industrial hub with significant energy demand emanating from major base metal and other
mines, Australia’s largest fertiliser manufacturing facility and other ancillary support industries.
The Burketown Project – initial concept sizing has been based on a proposed production rate of 32.5PJ per annum.
A high pressure pipeline from the exploration area to Mt Isa is estimated to have the following parameters based
on initial concept sizing calculations:
• Pipeline capacity:
32.5PJ per annum
• Pipeline length:
340 km
• Pipeline diameter:
12 inches
• Pipeline pressure (maximum operating):
15.3 Mpa
Pipeline specifications may vary depending on any future eastern Australian domestic gas market developments.
58
Armour Energy Limited Replacement Prospectus
4.2.4.
Eastern Australian gas market opportunities
The eastern Australian market and in particular the Queensland market represents a significant domestic
opportunity for commercialisation of any medium to large scale gas resources delineated through Armour
Energy’s planned forward work program.
MBA Petroleum Consultants has assessed a mean Prospective Resource estimate of 22.5 trillion cubic feet of gas
and 242 million barrels of associated Liquids within ATP 1087, located in Queensland. Armour Energy has been
selected as the preferred tenderer for ATP 1087, which is currently pending grant subject to compliance with
all statutory and native title requirements.
Subject to Armour Energy being able to satisfy the gas requirements of the Mt Isa area, it may be possible
to reverse the current flow of the Carpentaria Gas Pipeline and direct gas into the broader eastern Australian
gas pipeline system.
This could be realised through the construction of a larger gas pipeline (with c. 88PJ per annum capacity) from
ATP 1087 to Mt Isa, in order to fully utilise the capacity of the existing Carpentaria Gas Pipeline.
Such an infrastructure arrangement could serve as a conduit for supply to the broader eastern Australian gas
market (including to the Gladstone based LNG projects).
Lakes Farm-in Tenements (PEP 166 and PEP 169) in Victoria are overlayed by existing gas transport infrastructure
and processing plants.
FIGURE 17: PERMIT AREAS RELATIVE TO EASTERN AUSTRALIAN GAS MARKET
4.2.5.
LNG opportunities
4.2.5.1.
Darwin LNG
Darwin has a major LNG facility and export terminal that is currently supplied by offshore fields that are in a state
of natural field decline. The major north-south Amadeus Basin-Darwin pipeline, lying to the west of EP 171
and EP 176, could be used to supply the LNG facility. Darwin LNG (combined with the Amadeus Basin-Darwin
pipeline) could represent a viable configuration for commercialisation of any significant gas resources discovered
by Armour Energy.
59
4.
Commercialisation Plans CONTINUED
4.2.5.2.
Gladstone based export opportunities
The significant investment in Gladstone based LNG projects and associated infrastructure represents a material
new export channel for the eastern Australian gas market. The above mentioned construction of an 88PJ per
annum pipeline concept could connect Armour Energy’s acreage to proposed expansion trains at Gladstone
and thereby providing indirect exposure to the export markets.
4.2.5.3.
LNG export from the Gulf of Carpentaria
The scale of Armour Energy’s assessed mean Prospective Resource estimate of 18.8 trillion cubic feet of gas
in its two (2) granted permits indicates a potential for Armour Energy to pursue other large-scale development
opportunities in time, such as its own integrated LNG export facility based at deepwater sites that have been
identified in the Gulf of Carpentaria.
Armour Energy is progressing scoping studies to assess the viability of and approval processes for a future
port development.
4.3.
Associated Liquids
4.3.1.
Commercialisation of Liquids Prospective Resources
Armour Energy’s strategy includes the commercialisation of its assessed mean Prospective Resource estimate
of 2.0 billion barrels of associated Liquids for its two (2) granted permits – in recognition of the significantly
greater value of these products compared to energy equivalent volumes of gas production. Liquid condensates
are valuable by-products from gas production.
Liquids are capable of being efficiently transported with minimal capital expenditure and infrastructure
development. Armour Energy’s permit areas are intersected by existing road infrastructure and are approximately
340 km from an existing railway line, both of which are capable of being used for transportation of the Liquids
production to the existing import / export bulk fuel terminal at East Arm Wharf in Darwin, for shipping.
Delineation of sufficiently large Liquids reserves could warrant the construction of a dedicated condensate pipeline.
FIGURE 18: INFRASTRUCTURE FACILITATING COMMERCIALISATION OF LIQUIDS
4.4.
Funding of commercialisation projects
The ultimate decision to proceed with a commercialisation project will be based on feasibility studies, which
establish operational and economic viability and which can also be used as the basis for securing external
funding for the commercialisation of our projects.
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05.
Investment
Risks
5.
Investment risks
5.1.
INTRODUCTION
An investment in Armour Energy will be exposed to a number of key risks related to its specific business
operations. Key risks are risks that the Directors and senior management of Armour Energy focus on when
managing the business and which would have the potential, upon occurrence, to significantly affect Armour
Energy and the value of investments in Armour Energy. An overview of these key risks is provided in Section 5.2.
An investment in Armour Energy is also subject to general risks which are common to all investments in shares
and are not specific to the business model and operations of Armour Energy. These include, for example, the
volatility of the share prices as a result of economic conditions, macroeconomic and fiscal decisions, currency
movements and acts of terrorism or war. An overview of these general risks is provided in Section 5.3.
The future performance of Armour Energy and the future investment performance of the Shares may be
influenced by these key and general risks. Investors should note that the occurrence or consequences of some
of the risks described in this section of the Prospectus are partially or completely outside of the control of Armour
Energy, its Directors and senior management. Prior to making any decision to accept the Offer, investors should
carefully consider the risk factors applicable to Armour Energy set out in this section, in addition to their own
knowledge and enquiries.
Investors should be aware that this section does not purport to list every risk that Armour Energy may have
exposure to now or in the future and the list should not be seen as exhaustive. The specific risks considered
and others not specifically referred to in this section may in the future materially affect the financial performance
of Armour Energy and the value of the New Shares offered under this Prospectus. Investors should satisfy
themselves that they have sufficient understanding of the risks of investing in Armour Energy, and have regard
to their own investment objectives, financial circumstances and taxation before making an investment decision.
Investors should read this Prospectus in its entirety and consult their professional advisers before deciding
whether to apply for New Shares pursuant to this Prospectus.
5.2.
KEY RISKS SPECIFIC TO AN INVESTMENT IN ARMOUR ENERGY
Investors should be aware of the key risks specific to an investment in Armour Energy as described below.
5.2.1.
Exploration and development
The future value of Armour Energy will depend on its ability to find and develop gas and associated Liquids
resources that are economically recoverable within Armour Energy’s granted exploration permits, the Lakes
Farm-in Tenements and Armour’s other Northern Territory EPAs and ATP 1087 in Queensland should they be
granted. Hydrocarbon exploration and development is inherently highly speculative and involves a significant
degree of risk. There can be no assurance that Armour Energy’s planned exploration, appraisal and development
activities will be successful. Even if gas and/or associated Liquids resources are identified, there is no guarantee
that it will be economic to extract these resources or that there will be commercial opportunities available to
monetise these resources. The proposed exploration and drilling program could experience cost overruns that
reduce the Company’s ability to complete the planned exploration and drilling program in the time expected.
Gas and associated Liquids exploration may involve drilling operations and exploration activities which do not
generate a positive return on investment. This may arise from dry wells, but also from wells that are productive
but do not produce sufficient revenues to return a profit after accounting for drilling, operating and other
associated costs. The production from successful wells may also be impacted by various operating conditions,
including insufficient storage or transportation capacity, or other geological and mechanical conditions.
In addition, managing drilling hazards or environmental damage and pollution caused by exploration and
development operations could greatly increase the associated cost and profitability of individual wells.
5.2.2.
Reserves and resources
Accumulations of hydrocarbons will be classified according to the system designed by the Society of Petroleum
Engineers through the Petroleum Resources Management System (SPE-PRMS) and in accordance with ASX
Guidelines.
The SPE-PRMS system is described in the following diagram, which shows the classifications with respect to a
matrix of uncertainty and chance of commerciality. Whilst there are a multitude of pathways through this matrix
from Prospective Resources to Contingent Resources and then to reserves, the process is defined by the three (3)
stages of exploration, appraisal and development.
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Armour Energy Limited Replacement Prospectus
SPE-PRMS RESOURCES CLASSIFICATION SYSTEM
1P
2P
3P
SB-Commercial
1C
2C
3C
Unrecoverable
Prospective Resources
Low
estimate
Best
estimate
Increasing chance of commerciality
Commercial
Discovered PIIP
Reserves
Contingent Resources
Undiscovered PIIP
Total Petroleum Initially-in-Place (PIIP)
Production
High
estimate
Unrecoverable
Range of uncertainty
Whilst MBA Petroleum Consultants has independently assessed a mean Prospective Resource estimate of
18.8 trillion cubic feet of gas and 2.0 billion barrels of Liquids on Armour Energy’s permits, and 22.5 trillion
cubic feet of gas and 242 million barrels of associated Liquids within ATP 1087 (which is currently pending grant),
these resources represent estimates only and the Company does not have any independently certified gas and/or
associated Liquids reserves in its granted exploration tenements.
Prospective Resources are defined as those quantities of oil and gas which are estimated on a given date to
be potentially recoverable from undiscovered accumulations by application of future development projects.
Prospective Resources have both an associated chance of discovery and a chance of development however,
are undiscovered and as such carry significant exploration risk.
An exploration program will be undertaken by Armour Energy to discover these notional resources and reclassify
them to Contingent Resources, which are defined as those quantities of oil and gas estimated on a given date
to be potentially recoverable from known accumulations but are not currently proven to be economic.
If the exploration programme is successful in discovering sufficient quantities of Contingent Resources, an
appraisal programme will be undertaken to prove them commercially viable and thereby re-classify them as
reserves, which are defined as those quantities of oil and gas anticipated to be economically recoverable from
discovered resources.
There is a different process for the conversion of resources to reserves between conventional (high permeability)
reservoirs and unconventional (low permeability) reservoirs. For conventional reservoirs this is done via relatively
short term flow tests in the appraisal wells. For the unconventional reservoirs which often contain much larger
accumulations covering large areas, a number of longer term production pilots may be required to demonstrate
commerciality and quantification of reserves.
In general, estimates of economically recoverable gas and associated Liquids reserves and resources are based
upon a number of variable factors and assumptions, such as comparisons with production from other producing
areas, the assumed effects of regulation by governmental agencies, assumptions regarding future gas and
associated Liquids prices and future operating costs, all of which may vary considerably from actual results.
Actual production with respect to reserves may vary from such estimates and such variances could be material.
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Investment risks CONTINUED
Reserve and resource estimates are estimates only and no assurance can be given that any particular level
of recovery from hydrocarbon reserves will in fact be realised or that an identified hydrocarbon resource will
ever qualify as commercially viable which can be legally and economically exploited.
5.2.3.
Lakes Oil Investment
Pursuant to the terms of the Lakes Oil Agreement (see Section 12.1.5 for full description of Lakes Oil Agreement)
Armour Energy has made an equity investment in Lakes Oil of $2.25 million and committed to spend, subject to
certain conditions, $14.5 million to fund the drilling of a total of five (5) exploration wells to earn a 51% interest
in each of the Lakes Farm-in Tenements. While Armour Energy has conducted due diligence investigations
and assessed the technical information regarding the potential for oil and gas in the Lakes Farm-in Tenements,
Armour Energy’s equity investment is speculative and there is no certainty that the five (5) exploration wells
will result in the discovery of commercially recoverable quantities of oil or gas. In the event that no commercially
recoverable quantities of oil and gas are discovered in the Lakes Farm-in Tenements, the value of Armour Energy’s
51% interest in the tenements may be less than the cost to drill the five (5) exploration wells and the Lakes
Farm-in Tenements may expire without the tenement holders having the drilling results necessary to apply for
extensions or convert the tenements to production tenements. Further the likelihood or otherwise of Armour
Energy exercising its option to acquire a 50% interest in Lakes Oil’s equity in PRL2 cannot be determined.
5.2.4.
Environmental regulations
Gas and associated Liquids exploration, development and production generates potential environmental risks
and is therefore subject to environmental regulation pursuant to a variety of State, Territory and Federal laws and
regulations as well as its environmental obligations under the Native Title Agreement entered into which resulted
in the grant of EP 171 and EP 176 (as well as similar agreements that may be required for the granting of Armour
Energy’s remaining EPAs and ATP 1087). In particular there are regulations in place with respect to potential spills,
contamination, releases and emission of substances related, or incidental to, the production of oil and natural gas.
These laws and regulations set various standards regulating certain aspects of health and environmental quality
and provide for penalties and other liabilities for the violation of such standards. In certain circumstances, these
laws and regulations also create obligations to remediate current and former facilities and locations where
operations are or were conducted. Compliance with the aforementioned regulations can require significant
expenditure and a breach may result in substantial financial liability on Armour Energy. These risks will be
minimised by Armour Energy conducting its activities in an environmentally responsible manner, in accordance
with applicable laws and regulations and where possible, by carrying appropriate insurance coverage.
5.2.5.
Operational
Gas and associated Liquids exploration and development activities involve numerous operational risks, including
encountering unusual or unexpected geological formations, mechanical breakdowns or failures, human errors
and other unexpected events which occur in the process of drilling and operating gas and associated Liquids wells.
The occurrence of any of these risks could result in substantial financial losses to Armour Energy due to injury
or loss of life, damage to or destruction of property, natural resources or equipment, environmental damage or
pollution, clean-up responsibilities and regulatory investigation, amongst other factors. Damages occurring to
third parties as a result of such risks may give rise to claims against Armour Energy which may not be covered fully
by insurance or at all. Armour Energy has no prior operating history and there can be no assurances that it will be
able to commission or sustain successful operation of its projects.
Directors of Armour Energy will, to the best of their knowledge, experience and ability (in conjunction with senior
management) endeavour to anticipate, identify and manage the risks inherent in the activities of the Armour
Energy, with the aim of eliminating, avoiding and mitigating the impact of risks on the performance of Armour
Energy and its business operations. The ability of the Directors to do so may be affected by matters outside their
control and no assurance can be given that the Directors of Armour Energy will be successful in these endeavours.
5.2.6.
Hydraulic Fracturing
Armour Energy intends to utilise horizontal drilling together with Hydraulic Fracturing technology in its
exploration and development activities. The use of these drilling technologies is necessary for the production
of commercial quantities of gas and associated Liquids from geological formations of the type that Armour Energy
is targeting. The enactment of any new laws, regulations or requirements by any relevant government authority
in respect of Hydraulic Fracturing could result in operational delays, increased operational costs and potential claims
from a third party or governmental authority. Investors should note that Hydraulic Fracturing has been the subject
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Armour Energy Limited Replacement Prospectus
of increased media scrutiny, in particularly in the United States and more recently Australia, due to its potential
environmental impacts on land and underground water supply.
Restrictions on the use of Hydraulic Fracturing may reduce the amount of gas and associated Liquids Armour
Energy can produce and may have a material impact on Armour Energy’s business.
5.2.7.
Operational regulations
Armour Energy’s gas and oil exploration and development activities and operations are focused on the Northern
Territory, Victoria and Queensland and are subject to significant governmental oversight, regulation and control.
In Australia, these operational regulations may vary between different States and Territories and are a result of
different governing bodies. Various levels of government (both State, Territory, and those of the Commonwealth
of Australia) have imposed rules and regulations that Armour Energy must comply with and from which Armour
Energy must obtain and maintain certain licenses, authorisations and permits in respect of its exploration and
development activities (collectively, Authorisations). The Authorisations, which are required by Armour Energy
to carry out exploration and development, may not be granted or may be withdrawn or made subject to limitations.
Authorisations relate to, among other things, the protection of the environment, Aboriginal cultural heritage,
native title rights, the protection of workers and the public. Changes in government, government policies and
legislation could have a material adverse affect on Armour Energy’s business, financial condition, results of
operations and prospects.
Armour Energy is farming into the Lakes Farm-In Tenements in Victoria, which tenements are currently subject to
orders by the Victorian Department of Primary Industry (DPI) extending the time for performance of the tenement
conditions. Formal extension of these tenements is subject to a final decision by DPI. No assurance can be given
that formal extensions of these tenements will be granted.
Although the Authorisations may be renewed following expiry or granting, there can be no assurance that such
Authorisations will be renewed or granted on the same terms. There are also risks that there could be delays in
obtaining such Authorisations. If Armour Energy does not meet its work and/or expenditure obligations under
its Authorisations, this may lead to dilution of its interest in, or the loss of such Authorisations. Armour Energy
cannot provide assurances that it will be able to obtain all necessary licenses, Authorisations and permits.
5.2.8.
Permit applications
Armour Energy has 13 EPAs currently outstanding with the Northern Territory Government authorities of which
six (6) are over ALRA Land. Armour Energy is also progressing the award of ATP 1087 in Queensland where
it is the preferred tenderer.
In the case of the EPAs over ALRA Land in the Northern Territory, Armour Energy has some 12 months left for
EPs 172 and 173 and 24 months for EPAs 193, 194, 195 and 196 in which to secure the consent of the relevant
Land Council acting on behalf of the traditional owners by agreement, provided that this period can be extended
by agreement. Whilst Armour Energy is not aware of any reason why agreement will not be reached with the
relevant Land Councils, no assurance can be given that Armour Energy will be successful in reaching agreement.
Should Armour Energy be unable to reach an agreement for an EPA within the time period provided, such EPA
will not be granted to Armour Energy.
Armour Energy must also reach Native Title Agreements with native title parties in respect of the EPAs which are
not over ALRA Land and ATP 1087, provided that if an agreement is not reached in respect of these tenements,
Armour Energy can refer the matter to arbitration.
The conduct of Armour Energy’s operations and the steps involved in satisfying the applications for the EPA and
ATP 1087 involve compliance with numerous procedures and formalities. It is not always possible to comply with,
or obtain waivers from, all such requirements and it is not always clear whether requirements have been properly
completed, or whether it is possible or practical to obtain evidence of compliance. In some cases, failure to follow
such requirements or obtain relevant evidence may call into question the validity of the actions taken. The final
grant of all EPAs and ATP 1087 involves the exercise of administrative functions (including discretion), which are
beyond the control of Armour Energy.
Any failure of the EPAs or ATP 1087 to be granted may have a material adverse effect on the ability of Armour
Energy to explore for gas and associated Liquids in the areas comprised in those EPAs and ATP 1087.
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5.
Investment risks CONTINUED
5.2.9.
Availability of drilling and Hydraulic Fracturing equipment
Armour Energy’s gas and associated Liquids exploration and development activities are dependent on the
availability of drilling rigs and related equipment in the area of its exploration permits. Recent increases in oil
and gas exploration activities in Australia have resulted in high demand and limited availability for some types
of drilling rigs and equipment in certain areas which may result in delays to Armour Energy’s planned exploration
and development activities. Whilst Armour Energy has secured a drilling contract with AJ Lucas Coal Technologies
Pty Ltd to provide a drilling rig for its planned 2012 exploration program, Armour Energy has not, at this time,
secured the use of a drilling rig for its operations beyond 2012 nor has it yet secured the use of Hydraulic
Fracturing equipment. Additionally, Armour Energy understands that drilling contractors have been secured
for the Lakes Farm-in Tenements.
5.2.10.
Seasonality and weather
Access to and from a number of Armour Energy’s exploration permits are limited due to seasonal weather
conditions. A number of the permits are located in areas which typically experience high levels of precipitation
during the summer months. During this time, Armour Energy is unable to carry out drilling or significant
operations on the relevant lands. Unexpected weather, such as significant amounts of precipitation occurring
outside the mid-November to mid-May wet season, violent tropical storms or flooding may delay or adversely
impact Armour Energy’s drilling and operational activities.
5.2.11.
Native Title
The effect of the Native Title Act is that existing and new permits held by Armour Energy and the Lakes Farm-in
Tenements may be affected by native title claims and procedures. The requirement to comply with Native Title
Act has the potential to significantly delay the grant of exploration permits and other petroleum tenements
(including the EPAs and ATP 1087) in Australian jurisdictions.
In the case of EP 171 and EP 176, Armour Energy has entered into a Native Title Agreement with the NTPs
which has resulted in the grant of the permits.
Whilst Armour Energy has not undertaken the historical, legal or anthropological research and investigations
at the date of this Prospectus that would be required to form an opinion as to whether any existing or future
claim for native title could be upheld over a particular parcel of land covered by the EPAs in the Northern Territory
which are not over ALRA Land or by ATP 1087 in Queensland, investigations to date reveal the existence of
a number of native title claims. Armour Energy’s present intention is to endeavour to secure similar agreement
with the relevant NTPs. There is a potential risk that a satisfactory agreement cannot be reached with relevant
NTPs in which case Armour Energy will need to comply with procedures under the Native Title Act in order
to be granted its permit.
Each of the Lakes Farm-in Tenements were granted without compliance with the “right to negotiate” process
under the Native Title Act. As a consequence, operations on areas of the Lakes Farm-in Tenements are restricted
to areas on which native title has been extinguished, such as freehold land which covers a majority of the area of
the Lakes Farm-in Tenements. The right to negotiate procedure including native title agreements or arrangements
will need to be completed before exploration activities can be conducted on areas of the Lakes Farm-in
Tenements where native title has not been extinguished.
There is also potential risk that a determination could be made that native title exists in relation to land the subject
of a tenement held or to be held by Armour Energy or Lakes Oil which may affect the operation of Armour Energy’s
business and development activities. In the event that it is determined that native title does exist or a native title
claim is registered, Armour Energy may need to comply with procedures under the Native Title Act in order to carry
out its operations or to be granted any additional rights such as a production lease. Such procedures may take
considerable time, involve the negotiation of significant agreements, may involve a requirement to negotiate for
access rights, and require the payment of compensation to those persons holding or claiming native title in the land
which is the subject of a tenement. The administration and determination of native title issues may have a material
adverse impact on the position of Armour Energy and its business.
5.2.12.
Commercialisation, infrastructure access and contractual risks
Armour Energy’s potential future earnings, profitability, and growth are likely to be dependent upon Armour
Energy being able to successfully implement some or all of its commercialisation plans detailed in Section 4.
The ability for Armour Energy to do so is further dependent upon a number of factors, including matters which
may be beyond the control of Armour Energy. Armour Energy may not be successful in securing identified
customers or market opportunities.
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Armour Energy Limited Replacement Prospectus
Armour Energy’s ability to sell and market its natural gas production will be negatively impacted should it be
unable to secure adequate transportation and processing. Access will depend on the proximity and capacity
of pipelines and processing facilities. Further Armour Energy may be required to develop its own pipeline
infrastructure or secure access to third party pipeline infrastructure in order to deliver gas and associated Liquids
to key markets or customers, or to directly deliver gas to key markets or customers. The development of its own
pipeline infrastructure will be subject to Armour Energy obtaining relevant approvals including pipeline licences.
Access to third party infrastructure cannot be guaranteed given that the pipelines may not be developed with
an open access regime.
Armour Energy is a party to various contracts, including those set forth in Section 12.1. Whilst Armour Energy will
have various contractual rights in the event of non-compliance by a contracting party, no assurance can be given
that all contracts to which Armour Energy is a party will be fully performed by all contracting parties. Additionally,
no assurance can be given that if a contracting party does not comply with any contractual provisions, Armour
Energy will be successful in securing compliance. In the case of the Native Title Agreement which resulted in the
grant of EP 171 and EP 176, for Armour Energy to be able to pursue production of gas and/or associated Liquids
from the permits at some future time, requires negotiation by Armour Energy with the NTPs of a production
agreement event, although the framework for that agreement has been agreed in the Native Title Agreement.
There is a risk that Armour Energy may not be able to reach such agreement, in which case Armour Energy may
need to comply with procedures under the Native Title Act in order to carry out its operations.
5.2.13.
Competition
Gas and associated Liquids exploration is highly competitive in Australia. Amour Energy competes with numerous
other gas and associated Liquids companies in the search for gas and associated Liquids reserves and resources.
Competitors include gas and oil companies that have substantially greater financial resources, staff and facilities
than those of Armour Energy. Armour Energy is protected from competition on lands in which it holds exclusive
exploration rights, however Armour Energy may face competition for drilling equipment and skilled labour.
Armour Energy may also face competition from competitors on lands in which it currently holds exploration
rights, in the event that, as a condition of any permit held, it is required to partially relinquish certain parts of the
permit. If Armour Energy elects to re-apply for these exploration rights, there is no guarantee that Armour Energy
will be successful in its application against other competing offers.
5.2.14.
Additional financing
Armour Energy has finite financial resources and no cash flow from producing assets and therefore will likely
require additional financing in order to carry out its gas and associated Liquids exploration and development
activities and farm-in activities. Armour Energy’s ability to effectively implement its business strategy over time
may depend in part on its ability to raise additional funds. There can be no assurance that any such equity or debt
funding will be available to Armour Energy on favourable terms or at all. Failure to obtain appropriate financing
on a timely basis could cause Armour Energy to have an impaired ability to expend the capital necessary to
undertake or complete drilling programs, forfeit its exploration interests in certain properties, and reduce or
terminate its operations entirely. If Armour Energy raises additional funds through the issue of equity securities,
this may result in dilution to the existing shareholders and / or a change of control at Armour Energy.
5.2.15.
Reliance on key personnel
Armour Energy’s future value will depend in part on the performance of its senior management and other key
personnel. Armour Energy’s progress in pursuing its exploration and evaluation programs within the time frames
and within the costs structure as currently envisaged could be adversely influenced by the loss of existing key
personnel. Whilst Armour Energy has taken steps to secure a number of senior management under fixed term
agreements, the competition for qualified personnel in the oil and gas industry is notable and there can be
no assurance that Armour Energy will be able to retain or hire all personnel necessary for the development
and operation of its business. The impact of a loss of key staff would be dependent upon the quality and timing
of the employee’s replacement.
Although Armour Energy’s key personnel have a considerable amount of experience and have previously been
successful in their pursuits of acquiring, exploring and developing gas and associated Liquids projects, there
is no guarantee or assurance that they will be successful in their objectives pursuant to this Prospectus.
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Investment risks CONTINUED
5.2.16.
Cultural Heritage and Aboriginal sites of significance
Legislation in Australia and overseas typically allows for the protection of the cultural heritage of both indigenous
peoples and later settlers. Tenements and project areas may contain sites of significance, which would need
to be avoided when carrying out field programs and project development.
In the Northern Territory, Armour Energy has agreed in the Native Title Agreement for a cultural heritage process
with the indigenous people in respect of the granted tenements which provide an agreed mechanism for
managing cultural heritage. On the applications for other tenements and project areas, the Company proposes
to implement a similar concept to carry out “cultural heritage clearance surveys” prior to conducting any exploration
work that would cause a disturbance to the land surface.
Despite these measures, there remains a risk that sites of cultural significance may exist that may contain
an economic hydrocarbon resource, which would not be able to be accessed by the Company.
5.2.17.
Stakeholder management
Onshore gas and associated Liquids exploration is currently subject to increased public scrutiny in various States in
Australia. Community engagement, or the lack thereof, may have an impact on exploration and development, the
grant of the Northern Territory EPAs and ATP 1087 in Queensland, and commercialisation opportunities for future
discovered resources. As evidenced by the Native Title Agreement entered into which resulted in the grant of
EP 171 and EP 176, Armour Energy is placing significant focus on establishment of strong relations with the
relevant NTPs and Land Councils to mitigate risks in this area.
5.2.18.
Petroleum Resources Rent Tax
The Australian Federal Government has supported draft legislation for the extension of the Petroleum Resources
Rent Tax (PRRT). The PRRT is currently a tax on profits generated from the exploitation of offshore oil and gas
assets. Under the extension of the PRRT, the tax will also apply to onshore gas and associated Liquids projects.
On 2 November 2011 the legislation to extend the PRRT was introduced to Parliament, and on the basis that it is
passed by Parliament, it is likely to become law in early 2012. The proposed extension proposes to apply a 40% tax
on certain profits from gas and Liquids sales, from 1 July 2012.
The implementation of the PRRT could have a materially adverse effect on Armour Energy to the extent that the
extended PRRT applies to gas and associated Liquids produced and sold by Armour Energy from onshore production.
5.2.19.
Wild Rivers Act and Wetlands
The activities of Armour Energy on ATP 1087 (upon its grant) will be subject to compliance with the Wild Rivers
Act 2005, Mineral Resources Act 1989 (Qld) and the Wild River Declaration (WRD) made under that legislation
over part of the area of ATP 1087. Armour Energy will also be subject to the Environmental Protection Act 1994
with respect to areas that have been mapped as referable wetlands. The existence of the WRD and the referable
wetlands may impact on the ability of Armour Energy to obtain a grant of the ATP 1087 or a production licence,
if granted, or conduct production or exploration activities within certain protected areas and exclusion zones
nominated within any WRD.
Any inability of Armour Energy to conduct activities on parts of ATP 1087 as a result of a WRD or referable
wetlands may have a material adverse effect on the commercial feasibility, value or ability to commercialise
that tenement. For further details see the Independent Solicitor’s Report on Tenements in Section 10.
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Armour Energy Limited Replacement Prospectus
5.2.20.
Carbon tax
In 2011, the Australian Parliament enacted the Clean Energy Act (CEA) to introduce a mandatory emissions
trading scheme (or carbon tax) with effect from 1 July 2012.
Under the CEA, emitters of greenhouse gases who emit in excess of set thresholds are liable to purchase and
relinquish carbon units for each equivalent tonne of carbon dioxide released into the atmosphere. Additionally,
retailers of natural gas are liable for the relinquish carbon units for the potential greenhouse gas emissions of the
gas they supply.
Whilst the ultimate operation of the new legislation is to a degree uncertain, given Armour Energy’s operations,
it is not expected that it will be liable under the CEA for its direct emissions. Additionally, until the Company is
in a position to develop commercial quantities of gas with a view to entering into supply arrangements (whether
wholesale or retail), the Company will not be liable as a natural gas retailer.
Although the Company is not likely to be directly impacted by the CEA at this early stage of the Company’s
development, it is however likely that the Company may be indirectly affected by increased operating costs,
as a result of CEA compliance and permit costs being passed through by suppliers. There may also be an as
unquantifiable impact on the wholesale or retail gas price and markets.
5.2.21.
Land access
Armour Energy requires land access in order to perform exploration and development activities. Access to land
for exploration purposes can be affected by land ownership, including ALRA Land in the Northern Territory,
private (freehold) land, pastoral lease and native title land or claims under the Native Title Act. Armour Energy
may need to enter into compensation arrangements with landowners or occupiers for the impact on land by
the proposed exploration activities. Armour Energy’s operations may be adversely impacted or delayed in the
event of a dispute with a land owner.
5.2.22.
Limited operating history
Armour Energy is a relatively new exploration company with limited operating history. Armour Energy was
incorporated in 2009 and has yet to generate a profit from its activities. Accordingly the Company has no
operating history in the gas and associated Liquids industry in Australia and has limited historical financial
information and record of performance. The Company’s business plan requires significant expenditure, particularly
capital expenditure, during its gas and associated Liquids exploration phase. Any future revenue and profitability
from the Company’s business will be dependent upon the successful exploration and development of the
Company’s permits, and there can be no assurance that the Company will achieve profitability in future.
5.2.23.
Overlapping tenure
Armour Energy’s granted tenements in the Northern Territory and Lakes Farm-in Tenements are overlapped
by various mineral exploration permits and mining leases. Where overlapping exploration permits and mining
leases exist in the Northern Territory or Victoria there is no legislation which requires Armour Energy to attempt
to negotiate an arrangement with the competing holders.
In respect of ATP 1087 in Queensland, a substantial portion of the application area overlaps with mining
exploration permits (EPMs) and applications for EPMs. While there is no restriction on the grant of an ATP,
Queensland legislation only permits an ATP holder to carry out operations on the area of an existing EPM if it
has an agreement with the EPM holder or its operations will not adversely affect the activities of the EPM holder.
At the exploration stage, it is not expected that Armour Energy’s activities will adversely affect the activities of
an EPM holder.
There are restrictions under Queensland legislation on the granting of a petroleum production lease over the
area of a mining lease or exploration permits for coal or oil shale mining. While there are not currently any mining
leases, exploration permits for coal or known exploration permits for oil shale mining over the area of ATP 1087,
should one exist or be granted over an area of ATP 1087, Armour Energy may be unable to obtain a petroleum
production lease over the area of the mining lease without the agreement of the mining lease holder or a
preference decision of the Government of Queensland. For more information please see clause 8 of Section 10
– Independent Solicitor’s Report on Tenements.
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5.2.24.
Exploration expenditure commitments
The terms of Armour Energy’s granted tenements and the Lakes Farm-in Tenements include minimum expenditure
requirements. Whilst proceeds of the Offer have been allocated for its exploration program to, in part, meet
these expenditure requirements, the actual expenditure undertaken following the completion of the Offer may
be insufficient to meet those requirements. Whilst there is a risk that the terms of the permits may not be able
to be complied with, Armour Energy intends to mitigate this risk by re-evaluating its exploration program and
budget, or considering other options including, where appropriate, surrendering parts of its permits in order
to manage its minimum expenditure obligations.
5.2.25.
Areas of restriction
A number of the EPAs, EP 171 and EP 176 and ATP 1087 overlap with areas which are subject to restrictions
which may prevent Armour Energy from carrying out operations on such lands. Such restricted areas include
national parks, aboriginal community living areas and restricted areas (Queensland). The magnitude of the
restricted areas within each of the EPAs, EP 171 and ATP 1087 is relatively insignificant and unlikely to restrict
Armour Energy’s operations in a material manner. Approximately 10% of the area of EP 176 is overlapped
by both a proposed national park and an aboriginal community area. However, Armour Energy has no plans
to operate in the restricted areas, as these areas are not considered to be prospective for hydrocarbons.
5.2.26.
Strategic Cropping Land
Under the Strategic Cropping Land Act 2011 (Qld), if land is confirmed as Strategic Cropping Land (SCL) within
a Strategic Cropping Protection Area, a project cannot proceed where the project is likely to have permanent
impacts on the SCL. Where ‘exceptional circumstances’ can be established, the project may proceed but
all efforts must still be made to avoid and minimise any temporary or permanent impacts on the SCL and
to mitigate any permanent impacts.
If land is confirmed as SCL within a Strategic Cropping Management Area, the land must be assessed for a history
of cropping. If the land is considered to have a history of cropping, the project must avoid, or minimise as much
as possible, any temporary or permanent impacts on the SCL. Where this is not possible, permanent impacts must
be mitigated.
Although none of the area of ATP 1087 is within a Strategic Cropping Protection Area, if at some future time
Armour Energy secures other permits in Queensland which are within a Strategic Cropping Protection Area,
there is a risk that Armour Energy’s activities on such permit will be impacted.
5.2.27.
Exploration maps and diagrams
Armour Energy has commissioned and produced numerous diagrams and maps in this Prospectus to help identify
and describe the tenements and the targets sought by Armour Energy on those tenements. Maps and diagrams
should only be considered an indication of the current intention of the Directors in relation to targets and
potential areas for exploration and drilling, which may change.
5.3.
GENERAL RISKS
5.3.1.
Share market price and liquidity risk
There is currently no public market through which the Shares of Armour Energy may be sold. There can be no
guarantee that an active trading market for the New Shares and New Options will develop and investors may not
be able to resell the New Shares purchased under this Prospectus.
The price at which Shares and Options will trade cannot be accurately predicted. The trading price of Shares can
be affected by general market conditions as well as factors specifically affecting the Australian resources sector.
Factors that could impact the trading price that are unrelated to Armour Energy’s performance include domestic
and global commodity prices and economic outlook, fiscal and monetary policies, currency movements, and
market perceptions of the attractiveness of particular industries. The Shares carry no guarantee in respect of
profitability, dividends, return on capital, price or liquidity at which they may trade once listed on the ASX.
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Armour Energy Limited Replacement Prospectus
5.3.2.
Volatility of gas and Liquids prices
Armour Energy’s possible future revenues will be derived mainly from the sale of gas and/or associated Liquids.
Consequently, Armour Energy’s potential future earnings, profitability, and growth are likely to be closely related
to the price of gas and associated Liquids.
Historically, gas and associated Liquids prices have fluctuated in response to changes in the supply of and demand
for gas and associated Liquids, economic uncertainty, and a variety of additional factors beyond the control
of Armour Energy. Such influencing factors include economic conditions in Australia and abroad, government
regulation and sanctions, the actions of the Organization of the Petroleum Exporting Countries (OPEC), political
stability in the Middle East and elsewhere and the availability of alternative fuel sources.
Armour Energy could receive a lower price for the sale of associated Liquids than the prevailing price for oil
at the time of any future production, depending on the agreed pricing terms in relation to any Liquids produced.
Any substantial and extended decline in the market price of gas and associated Liquids could have an adverse
effect on Armour Energy’s future revenues, profitability, cash flow from operations, carrying value of future
reserves, and borrowing capacity amongst other factors. If the market price of gas and associated Liquids sold
by Armour Energy were to fall below the costs of production and remain at such a level for any sustained period,
Armour Energy would experience losses and could have to curtail or suspend some or all of its proposed activities.
In such circumstances, Armour Energy would also have to assess the economic impact of any sustained lower
commodity prices on the recoverability of existing reserves.
5.3.3.
Legislative change
Oil and gas companies (exploration, production, pricing, marketing and transportation) are subject to extensive
controls and regulations imposed by various levels of government that may be amended from time to time.
Changes in government regulations and policies may adversely affect the financial performance or the current
and proposed operations generally of Armour Energy.
Uncertainty that exists under the Victorian Petroleum Act as to ownership of oil and gas in shale bearing material
under petroleum exploration permits and retention licences awaits clarification by a foreshadowed amendment
to the legislation.
Other than as set out in this Prospectus Armour Energy is not aware of any other current or proposed material
changes in relevant regulations or policy.
5.3.4.
Currency Exchange rate
The revenues, earnings, assets and liabilities of Armour Energy may be exposed adversely to exchange rate
fluctuations. If Armour Energy achieves commercial production, the revenue from its products may be
denominated in Australian dollars or a foreign currency. As a result, fluctuations in exchange rates could
result in unanticipated and material fluctuations in the financial results of Armour Energy.
5.3.5.
Labour
Armour Energy will require skilled labour workers and engineers in order to operate its activities. Industrial
disruptions, work stoppages and accidents in the course of Armour Energy’s operations could result in losses
and delays, which may adversely affect profitability.
5.3.6.
Insurance arrangements
Gas and associated Liquids exploration, development and production operations are subject to all the risks and
hazards typically associated with such operations, including hazards such as fires, explosions, blowouts, gas
releases and spills which could result in property or environmental damage and personal injury. Armour Energy
intends to ensure that insurance is maintained in accordance with industry practice and having regard to the
nature of activities being conducted. No assurance however, can be given that Armour Energy will be able to
obtain such insurance coverage at reasonable rates or that any coverage it arranges will be adequate and available
to cover any potential claims.
5.3.7.
Unforeseen expenses
Whilst Armour Energy is not aware of any expenses that may need to be incurred that have not been taken into
account, if such expenses or increases to existing expenditure plans were subsequently incurred, the expenditure
proposals of Armour Energy may be adversely affected.
71
06.
Details of
the Offer
Armour Energy Limited Replacement Prospectus
6.
Details of the Offer
6.1.
THE OFFER
The Offer comprises the issue of New Shares to raise gross cash proceeds of $75 million through the issue
of 150 million New Shares at the Offer Price of $0.50 per Share payable in full on application.
The Offer comprises:
• the Retail Offer, which comprises the Broker Firm Offer and the Priority Offer;
• the Institutional Offer, which consists of an invitation to bid for New Shares made to Institutional Investors
in Australia and other selected jurisdictions; and
• the Seed Subscriptions, amounting to $17.5 million.
The New Shares offered under this Prospectus will be issued as fully paid Shares and, when issued, will rank
equally in all respects with the existing Shares.
The Offer is underwritten to $50 million. In addition, for every four (4) New Shares subscribed for under the
Offer, the Company will issue one (1) free attaching New Option which may be exercised at the Offer Price
on or before 31 August 2014.
The Company, in consultation with the Underwriter and the Lead Manager, will jointly determine the allocation
of New Shares between the Retail Offer and the Institutional Offer.
All New Shares offered for subscription under this Prospectus rank equally with each other.
6.2.
KEY TERMS
Offer Price per New Share
$0.50
New Shares available under the Offer
150,000,000
New Options available under the Offer
(exercise price equal to the IPO Offer Price, expiring 31 August 2014) 1
Shares on issue prior to the Offer2,5
150,000,000
Options on issue prior to the Offer3
Total issued Shares on completion of the
37,500,000
61,200,000
Offer2,4,5
Total Options on issue on completion of the
Offer1,3,6
Capitalisation of Shares at the Offer Price4
300,000,000
103,700,000
$150,000,000
Notes:
1. A New Option will be issued for every four (4) New Shares issued under the Offer. The terms of the New Options are set out in Section 12.4
2. Some of the existing Shares may be classified as restricted securities (see Section 6.22)
3. Details of the Options on issue are set out in Section 1.7 and Section 12.4
4. Based on the Offer Price and total number of Shares on completion of the Offer
5. This number does not include the issue or anticipated issue of 805,000 Performance Shares
6. This number does not include the anticipated grant of 1,000,000 options to the Chief Geologist (see Section 12.1.15)
73
6.
Details of the Offer CONTINUED
6.3.
PURPOSE OF THE OFFER
The purpose of the Offer is to enable Armour Energy to raise funds, to continue the discovery and development
of world class gas resources in an extensive and recently recognised hydrocarbon province in northern Australia.
In particular, Armour Energy will be focussing on its granted permits and those permits currently under
application, covering approximately 126,000 km2 of the McArthur, South Nicholson and Georgina Basins.
In addition, a listing on the ASX will provide Armour Energy shareholders with:
• additional financial flexibility to pursue growth opportunities and improve access to capital markets
as a result of its listing on the ASX; and
• a liquid market for its Shares and an opportunity for others to invest in the Shares of Armour Energy;
The proceeds from the Offer will be reduced by the amount of payments for costs of the Offer and any other
obligations of Armour Energy to be paid on completion of the Offer (net of tax refunds and deductions).
This is described further in Section 6.4.
6.4.
SOURCES AND USES
SOURCES
Existing cash as at 31 December
$6.6 million
Gross Proceeds of the Offer
$75.0 million
Total Available Cash
$81.6 million
USES
EP 171 and EP 176
Seismic
$1.9 million
Drilling
$24.4 million
Operating costs
$3.3 million
Other
Native title
$0.5 million
Feasibility studies and marketing
$3.3 million
Exploration expenditure allocated to EPAs and ATP 1087
Overheads and support services
$16.5 million
$7.8 million
Lakes Letter Agreement commitments
$14.5 million
Remaining working capital
$2.6 million
Transaction costs (IPO)
$6.8 million
Total uses of funds
$81.6 million
Sources of funds
The amount of $75 million in respect of cash proceeds received for all New Shares issued under the Offer
represents the gross proceeds that Armour Energy expects to receive on completion of the Offer.
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Armour Energy Limited Replacement Prospectus
Uses of funds
The gross proceeds from the Offer are intended to be used for the following purposes:
• funding expenses of the Offer;
• initial exploration activities under the Company’s forward two (2) year work program with a significant amount
of the Offer proceeds (approximately $29.6 million) allocated to define a petroleum resource, through
a targeted exploration campaign over permits EP 171 and EP 176;
• associated feasibility studies and marketing initiatives;
• Lakes Oil farm-in commitments;
• other new projects and joint venture opportunities, where such can be funded in whole or in part through
reallocation of available funds; and
• corporate expenses and to provide sufficient working capital for a period of two (2) years.
6.5.
SHAREHOLDER STRUCTURE
Armour Energy’s current shareholder structure consists of DGR Global, the Seed Capital Investors (comprising the
Och-Ziff funds and the Other Seed Capital Investors) and other shareholders. Prior to the date of this Prospectus,
on 14 March 2011 Armour Energy completed a $10 million seed raising (issuing 50 million Shares), to fund the
progression of the opportunities identified within the granted permits.
In addition, in April 2011 the Och-Ziff funds subscribed for $4 million in pre-IPO equity (issuing 20 million Shares)
through a placement on terms similar to the previous seed raising.
In addition to their seed investments, the Seed Capital Investors have committed, subject to the terms of
subscription agreements, to subscribe or introduce Seed Subscription Investors to subscribe for $17.5 million of
New Shares and New Options in the Armour Energy IPO on the ASX (including the Och-Ziff funds commitment
for $7.5 million). These commitments must be met by the Seed Capital Investors or those investors who have
been introduced to the Offer by the Seed Capital Investors. The Seed Capital Investors and Seed Subscription
Investors will be granted New Shares and New Options in the IPO on the same terms as new investors in the IPO.
Upon completion of the Offer and allotment of New Shares and New Options pursuant to this Prospectus,
Armour Energy’s share capital will be as follows:
SHARES ON ISSUE FOLLOWING IPO
SHARES
PRE-IPO
%
PRE-IPO
NEW
SHARES
ISSUED
SHARES
POST-IPO
%
POST-IPO
DGR Global1
75,050,000
50.03%
0
75,050,000
25.02%
Och-Ziff funds1
20,000,000
13.33%
15,000,000
35,000,000
11.67%
Other Seed Capital
Investors/Seed
Subscription Investors1,2
50,000,000
33.33%
20,000,000
70,000,000
23.33%
4,950,000
3.30%
0
4,950,000
1.65%
n/a
n/a
115,000,000
115,000,000
38.33%
150,000,000
100.0%
150,000,000
300,000,000
100.0%
HOLDER
Other Shareholders1
New Shareholders
Total4,5
3
Notes:
1. These securities may be subject to ASX escrow conditions governing their resale (see Section 6.22)
2. Assumes Other Seed Capital Investors / Seed Subscription Investors subscribe in accordance with the Seed Subscription
arrangements described in this Section
3. Participants in the Institutional and the Retail Offer
4. This total excludes Options, which are set out in the table below
5. The total excludes the issue or anticipated issue of 805,000 Performance Shares (see Section 12.5)
75
6.
Details of the Offer CONTINUED
OPTIONS ON ISSUE FOLLOWING IPO1
NUMBER
OF OPTIONS
HOLDER
DGR Global6
Och-Ziff funds6
Other Seed Capital Investors/Seed Subscription
Investors2
Other shareholders2,3
Lead Manager6
New
optionholders 4
Total5
% POST-IPO
18,837,500
18.17%
8,750,000
8.44%
17,500,000
16.88%
24,862,500
23.98%
5,000,000
4.82%
28,750,000
27.72%
103,700,000
100.0%
Notes:
1. The terms of New Options, and the terms of existing management and Director Options are set out in Section 12.4
2. Includes past and present Directors and management of Armour as well as employees of DGR Global
3. Assumes the Other Seed Capital Investors / Seed Subscription Investors subscribe in accordance with the Seed Subscription arrangements
described in this Section
4. New Options issued under the Retail Offer and Institutional Offer
5. This number does not include the anticipated grant of 1,000,000 options to the Chief Geologist (see Section 12.1.15)
6. These Securities may be subject to ASX escrow conditions governing their resale (see Section 6.22)
At the date of this Prospectus, past and present Management and Directors own (or are expected to shortly own)
approximately:
• 5.1 million Shares;
• 805,000 Performance Shares;
• 625,000 Performance Rights; and
• 24.9 million Options.
6.6.
CONTROL IMPLICATIONS OF THE OFFER
Whilst at the date of this Prospectus DGR Global holds in excess of 50% of the issued capital, its shareholding
will be diluted as a consequence of the Offer and DGR Global will hold approximately 25.02% of issued capital
after the successful completion of the Offer. DGR Global has two (2) representatives on the Board out of six (6)
Board positions. Taking into account this level of Board representation, DGR Global’s shareholding after the
successful completion of the Offer is not considered by the Board of Armour Energy to be a control position.
At completion of the Offer, if the Underwriter was required to subscribe for all of the Underwritten Amount,
it is possible that the Underwriter may be issued with up to a maximum of 100,000,000 New Shares, which
would result in it holding 100,000,000 Shares in the Company, or 33.33% of the voting power in the Company.
6.7.
POTENTIAL EFFECT OF THE FUNDRAISING ON THE FUTURE OF ARMOUR ENERGY
The Directors consider that following completion of the IPO, Armour Energy will have sufficient working capital
to achieve its objectives set out in this Prospectus for a period of two (2) years, with the intention of maintaining
a minimum cash balance to continue the ongoing operation of the business without premature recourse to
external sources of funding. Development of one or more of the hydrocarbon fields or additional opportunities
for the Company could, however, require further funding from external sources.
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Armour Energy Limited Replacement Prospectus
6.8.
TERMS AND CONDITIONS OF THE OFFER
TOPIC
SUMMARY
What is the type of
security being offered?
Shares (being fully paid ordinary shares in Armour Energy) and Options
(one (1) New Option will be offered for every four (4) New Shares issued
in Armour Energy).
What are the rights and
liabilities attached to the
security being offered?
A description of the Shares, including the rights and liabilities attaching to them,
is set out in Section 12.3.
What is the consideration
payable for each security
being offered?
The Offer Price is $0.50 per New Share.
What is the Offer period?
The key dates, including details of the Offer period, are set out on page 2.
No securities will be issued on the basis of this Prospectus later than 13 months
after the date of this Prospectus.
What are the cash
proceeds to be raised?
$75 million will be raised under the Offer.
What is the minimum and
maximum Application size
under the Broker Firm and
Priority Offer?
The minimum Application under the Broker Firm Offer is $2,000, and in multiples
of $500 thereafter, as directed by the Applicant’s Broker.
The minimum Application under the Priority Offer is $2,000, and in multiples
of $500 thereafter.
The Lead Manager, in consultation with Armour Energy, reserves the right to
reject any Application or to allocate a lesser number of New Shares than that
applied for.
There is no maximum value of New Shares that maybe applied for under the
Broker Firm Offer or the Priority Offer.
The priority given to Eligible DGR Shareholders will be in respect of New Shares
applied for by each qualifying Applicant, provided that the total New Shares
issued to Eligible DGR Global Shareholders does not exceed 10 % of the Offer.
Allocations under the Priority Offer will be at the sole discretion of the Directors
subject to the ASX Listing requirements relating to the number of Shareholders
in the Company on listing.
Will the securities be
listed?
Armour Energy will apply for admission to the official list of ASX and quotation
of New Shares and New Options on ASX under the code AJQ. Completion of
the Offer is conditional on ASX approving this application. If approval is not
given within three months after such application is made (or any longer period
permitted by law), the Offer will be withdrawn and all Application Monies
received will be refunded without interest as soon as practicable in accordance
with the requirements of the Corporations Act.
When are the securities
expected to commence
trading?
It is expected that trading of the Shares and New Options on the ASX will commence
on or about Thursday, 26 April 2012, on a normal settlement basis.
It is the responsibility of each Applicant to confirm its holding before trading
in Shares and New Options. Applicants who sell Shares and New Options before
they receive an initial statement of holding do so at their own risk.
77
6.
Details of the Offer CONTINUED
TOPIC
SUMMARY
Is the Offer underwritten?
The Offer is underwritten by Samuel Holdings Pty Ltd to $50 million, a company
associated with Nicholas Mather the Executive Chairman of the Company.
Are there any escrow
arrangements?
There are likely to be subject to escrow arrangements for some existing
Shareholders. Details are provided in Section 6.22.
Has any ASIC relief
or ASX waiver been
obtained or been
relied on?
Armour Energy has been granted relief by ASIC to issue 625,000 Performance
Rights to David Warner. Details are provided in Section 12.1.13.
Are there any taxation
considerations?
Shareholders may be subject to Australian tax on any future dividends paid.
The tax consequences of an investment in Shares will depend upon an investor’s
particular circumstances, particularly for non-resident Shareholders. Applicants
should obtain their own tax advice prior to deciding whether to invest.
Are there any brokerage,
commission or stamp duty
considerations?
No brokerage, commission or stamp duty is payable by Applicants on acquisition
of New Shares under the Offer. See Section 12.1.2 for details of various fees
payable by Armour Energy to the Lead Manager and by the Lead Manager
to certain Brokers.
What should you do
with any enquiries?
All enquiries in relation to this Prospectus should be directed to Armour Energy
Offer Information Line on 1300 551 378 or +61 2 8280 7705. The Offer
Information Line will be open between the hours of 8.30am to 5.30pm (AEDT)
from Wednesday 28 March 2012 to Friday 27 April 2012.
If you are unclear in relation to any matter or are uncertain as to whether Armour
Energy is a suitable investment for you, you should seek professional guidance
from your solicitor, stockbroker, accountant or other independent and qualified
professional adviser before deciding whether to invest.
If you are unclear in relation to any matter or are uncertain as to whether Armour Energy is a suitable investment
for you, you should seek professional guidance from your solicitor, stockbroker, accountant or other independent
and qualified professional adviser before deciding whether to invest.
6.9.
ALLOCATION POLICY
The Company, in consultation with the Lead Manager, has absolute discretion regarding the allocation of New
Shares between the Priority Offer, the Broker Firm Offer and the Institutional Offer, subject to any firm allocation
for the Broker Firm Offer and reservation of Shares pursuant to the Priority Offer. The Company, in consultation
with the Lead Manager also has absolute discretion as regards to allocation amongst applicants within each of
the Institutional Offer and the Priority Offer. Further, the Company, in consultation with the Lead Manager may
reject any Application, or allocate a lesser amount of New Shares than those applied for, in its absolute discretion.
The Company expects to announce the final allocation policy under the Retail Offer on Allotment. Priority Offer
Applicants will be able to call the Offer Information Line on 1300 551 378 or +61 2 8280 7705 from 8.30am
(AEDT) on 20 April 2012 to confirm their allocations. Broker Firm Offer Applicants will be able to call their Broker
to confirm their allocations. However, if you are an Applicant in the Retail Offer and sell Shares before receiving
an initial statement of holding, you do so at your own risk.
6.10.
THE RETAIL OFFER
The Retail Offer is comprised of the Broker Firm Offer and Priority Offer. The Retail Offer is open to Retail
Investors who have a registered address in Australia or New Zealand and who are eligible to apply under the
Broker Firm Offer or the Priority Offer. Further details regarding the Broker Firm Offer and the Priority Offer
are set out below.
The number of New Shares to be issued to each successful Retail Offer Applicant under the Retail Offer will equal
the dollar amount of their Application, less any scaling back (as a result of excess demand), divided by the Offer
Price and rounded up to the nearest whole New Share.
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Armour Energy Limited Replacement Prospectus
6.10.1.
Broker Firm Offer
Q: Who can apply for the Broker Firm Offer?
A: The Broker Firm Offer is open to persons who have received a firm allocation from their Broker and who have
a registered address in Australia or New Zealand. If you have been offered a firm allocation by a Broker, you
will be treated as a Broker Firm Offer Applicant in respect of that allocation. You should contact your Broker
to determine whether they may allocate New Shares to you under the Broker Offer.
Q: How to apply for the Broker Firm Offer
A: In order to receive their firm allocation, Applicants under the Broker Firm Offer must lodge their Application
Form and Application Monies with their Broker, in accordance with their Broker’s instructions. Applicants
under the Broker Firm Offer must not send their Application Forms to the Registry.
If you elect to participate in the Broker Firm Offer, your Broker will act as your agent in submitting your
Application Form and Application Monies to the Registry (which receives them on behalf of the Company).
It will be your Broker’s responsibility to ensure that your Application Form and Application Monies are received
by the Registry by 5.00pm (AEDT) on the Broker Firm Offer Closing Date or any earlier closing date as determined
by your Broker. The Company, the Registry and the Lead Manager take no responsibility for any acts or omissions
by your Broker in connection with your Application, Application Form or Application Monies.
The Broker Firm Offer closes at 5.00pm (AEDT) on Monday, 16 April 2012.
An Application in respect of the Offer constitutes an offer by you to subscribe for New Shares and New Options
on the terms and conditions as contained in the Offer.
Application Monies
Applicants under the Broker Firm Offer whose Applications are not accepted, or who are allocated a lesser
dollar amount of New Shares than the amount applied for, will receive a refund of all or part of their
Application Monies either from the Registry or from their Broker as applicable. Interest will not be paid
on any monies refunded.
Applicants whose Applications are accepted in full will receive the whole number of New Shares and
corresponding New Options calculated by dividing the Application Amount by the Offer Price. Where the Offer
Price does not divide evenly into the Application Amount, the number of New Shares and corresponding New
Options to be allocated will be determined by the Applicant’s Broker. Cheque(s) must be in Australian dollars
and drawn on an Australian branch of an Australian bank, must be crossed “Not Negotiable” and must be made
payable in accordance with the directions of the Broker from whom you received a firm allocation.
You should ensure that sufficient funds are held in the relevant account(s) to cover the amount of the cheque(s).
If the amount of your cheque(s) or bank draft(s) for Application Monies (or the amount for which those cheque(s)
or bank draft(s) clear in time for allocation) is less than the amount specified on the Application Form, you may be
taken to have applied for such lower dollar amount of New Shares as for which your cleared Application Monies
will pay (and to have specified that amount on your Application Form) or your Application may be rejected.
Acceptance of Applications
An Application in the Broker Firm Offer is an offer by the Applicant to Armour Energy to subscribe for New Shares
for all or any of the Application amount specified in and accompanying the Application Form at the Offer Price
on the terms and conditions set out in this Prospectus including any supplementary or replacement prospectus
and the Application Form (including the conditions regarding quotation on the ASX in Section 6.16). To the
extent permitted by law, an Application by an Applicant under the Offer is irrevocable.
An Application may be accepted by Armour Energy and the Lead Manager in respect of the full number
of New Shares specified in the Application Form or any of them, without further notice to the Applicant.
Acceptance of an Application will give rise to a binding contract.
79
6.
Details of the Offer CONTINUED
Allocations under the Broker Firm Offer
New Shares which have been allocated to Brokers for allocation to their Australian and New Zealand resident
retail clients will be issued to the Applicants nominated by those Brokers (subject to the right of Armour Energy
and the Lead Manager to reject or scale back Applications which are for more than $250,000). It will be a matter
for the Brokers how they allocate firm stock among their retail clients, and they (and not Armour Energy and the
Lead Manager) will be responsible for ensuring that retail clients who have received a firm allocation from them
receive the relevant New Shares.
6.10.2.
Priority Offer
Of the fully paid shares being offered, up to 10% of the New Shares of the Offer will be offered in priority
to Eligible DGR Global Shareholders and who are registered as holding shares in DGR Global at 5.00pm (AEDT)
on the Record Date.
Based on the Offer this would equate to up to 15 million shares.
Eligible DGR Global Shareholders may apply for as many New Shares as they wish under the Priority Offer (subject
to the requirements referred to in Section 6.9).
The priority given to Eligible DGR Global Shareholders will be in respect of New Shares applied for by each qualifying
Applicant, provided that the total New Shares issued to Eligible DGR Global Shareholders does not exceed 10%
of the Offer of New Shares. Allocations under the Priority Offer will be at the sole discretion of the Directors in
consultation with the Lead Manager subject to the ASX listing requirements relating to the number of shareholders
in the Company on listing.
An Application in respect of the Offer constitutes an offer by you to subscribe for New Shares and New Options
on the terms and conditions as contained in the Offer.
Q: Who can apply for the Priority Offer?
A: The Priority Offer is open to Eligible DGR Global Shareholders. Eligible DGR Global Shareholders and any other
DGR Global Shareholders determined by the Company, in consultation with the Lead Manager, as Eligible DGR
Global Shareholders registered as holding shares on the Record Date.
Q: How to apply for the Priority Offer
A: There are two alternatives available for Eligible DGR Global Shareholders to apply for the Priority Offer.
You may elect to pay your application monies via either BPAY® (1) or a registered bank cheque.
TOPIC
SUMMARY
If you elect
to pay by BPAY
If you elect to submit funds via BPAY, you are able to access the Prospectus
and a personalised Priority Offer Application Form via the Offer website. Eligible
DGR Global Shareholders may apply for New Shares by completing the online
Priority Offer Application Form and paying Application Monies by BPAY in
accordance with the instructions on the Priority Offer Application Form by
5.00pm (AEDT) Wednesday, 11 April 2012.
If you elect
to pay by BPAY
Applicants paying via BPAY should be aware that their own financial institution may
implement earlier cut-off times with regards to electronic payment than the time
at which the Priority Offer closes, and should therefore take this into consideration
when making payment. You should also consider any potential daily BPAY transfer
limits which may apply to your account and which may be less than the amount
you wish to apply for. If this is the case you will need to make multiple transfers
on multiple days, or apply by using an alternative payment method outlined below.
Eligible DGR Global Shareholders are responsible for taking any potential restrictions
from their banking institution into consideration when ensuring their application
monies are submitted by the payment deadline.
(1) Registered to BPAY ® Pty Ltd (ABN 69 079 137 518)
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Armour Energy Limited Replacement Prospectus
TOPIC
SUMMARY
If you elect
to pay by
registered bank
cheque
If you elect to submit funds via a registered bank cheque, you are able to access
the Prospectus and download a personalised Priority Offer Replacement
Application Form via the Offer website using your personalised DGR Priority
Offer Reference Number or DGR HIN/SRN. Eligible DGR Global Shareholders may
apply for New Shares by downloading and printing the replacement Priority Offer
Application Form, completing it in accordance with the instructions detailed
on the Form and paying Application Monies via a registered bank cheque.
The replacement Priority Offer Application Form and accompanying Bank cheque
must be returned in accordance with the instructions on the Priority Offer
Replacement Application Form no later than 5.00pm (AEDT) on Wednesday,
11 April 2012. Applicants paying via registered Bank cheque should post their
Application with sufficient time to ensure the Registry receives the relevant
documents no later than Wednesday, 11 April 2012.
If the amount of your Application Monies is insufficient to pay for the amount of New Shares you have applied
for in your Priority Offer Application Form or your replacement Priority Offer Application Form, you may be taken
to have applied for such lower amount as your cleared Application Monies will pay for (and to have specified that
amount in your personalised Priority Offer Application Form or your replacement Priority Offer Application Form)
or your Application may be rejected.
It is the responsibility of the Applicant to ensure that funds submitted via BPAY or registered bank
cheque are received by the relevant due date.
Q: Where to send your Application Form under the Priority Offer
A: If Eligible DGR Global Shareholders elect to submit funds via BPAY, completed Application Forms for the
Priority Offer should be completed online, and Application Monies should be paid by BPAY so that funds
are received by 5.00pm (AEDT) on Wednesday, 11 April 2012.
If Eligible DGR Global Shareholders elect to submit funds via registered bank cheque, a completed replacement
Applications Forms for the Priority Offer should be printed, completed, and returned in accordance with the
instructions on the Priority Offer Application Form along with an attached registered bank cheque so that funds
are received by 5.00pm (AEDT) on Wednesday, 11 April 2012.
Allocations under the Priority Offer
Allocations under the Priority Offer will be at the absolute discretion of the Company.
6.11.
INSTITUTIONAL OFFER
The Institutional Offer consists of an invitation to certain Institutional Investors in Australia and a number of
other eligible jurisdictions to apply for New Shares, see Section 12.16 – “Additional Information – Foreign selling
restrictions”. The Lead Manager has separately advised Institutional Investors of the Application procedures
for the Institutional Offer.
The allocation of New Shares among Applicants in the Institutional Offer will be determined by the Underwriter
and the Lead Manager in consultation with Armour Energy. The Lead Manager, in consultation with Armour
Energy, will have absolute discretion regarding the basis of allocation of New Shares among Institutional Investors,
and there is no assurance that any Institutional Investor will be allocated any New Shares, or the number of New
Shares for which it has bid.
81
6.
Details of the Offer CONTINUED
The allocation policy is influenced by the following factors:
• the number of New Shares bid for by particular bidders;
• the timeliness of the bid by particular bidders;
• Armour Energy’s desire for an informed and active trading market following listing on the ASX;
• Armour Energy’s desire to establish a wide spread of institutional shareholders;
• overall level of demand under the Broker Firm Offer and Institutional Offer;
• the size and type of funds under management of particular bidders;
• the likelihood that particular bidders will be long-term shareholders; and
• any other factors that Armour Energy and the Underwriter and the Lead Manager consider to be appropriate.
6.12.
SEED CAPITAL INVESTORS AND SEED SUBSCRIPTIONS
Seed Capital Investors and Seed Subscription Investors must apply in accordance with the Seed Subscription
arrangements, reflecting certain contractual arrangements between the Seed Capital Investors and Armour
Energy to subscribe for New Shares and New Options under the Offer.
Seed Capital Investors and Seed Subscription Investors must review this Prospectus sent to them by Armour
Energy or download a copy from the Offer website. They must also complete the personalised Seed Capital
& Seed Subscription Investor Application Form provided in accordance with the instructions provided by the
Company and Lead Manager.
6.13.
OFFER MANAGEMENT ARRANGEMENTS
The Offer will be managed by Bizzell Capital Partners Pty Ltd, a company associated with Stephen Bizzell,
a Director of the Company. The Lead Manager will charge the Company a lead manager fee of 2.0% of the
funds raised under the Offer, and if the Company is successful in completing the Offer, be granted 5,000,000
options exercisable at $0.50 expiring 31 August 2014. In addition the Lead Manager will receive 5.0% of funds
raised by the Lead Manager under the Offer in excess of the amount underwritten by the Underwriter being
$50 million and an ongoing corporate advisory fee of $12,500 per month for a minimum of a 12 month period
following the New Shares being admitted to Official Quotation. See Section 12.1.2 for details.
In addition the Lead Manager and the Company have entered into an agreement with RBS Morgans Corporate
Limited. RBS Morgans Corporate Limited will assist in the management of the Offer as Co-Lead Manager.
See Section 12.1.2 for details.
The Company has entered into a mandate with RFC pursuant to which RFC will work with the Company and
Lead Manager to raise up to $20 million from UK based institutions. RFC will be entitled to a selling fee of up
to 4% from the Company in respect of amounts raised from UK based institutions. RFC and Ambrian Partners
Limited have entered into a letter agreement dated 7 March 2012 pursuant to which Ambrian Partners Limited
will provide assistance to RFC. RFC is solely responsible to pay fees to Ambrian Partners Limited.
6.14.
UNDERWRITING ARRANGEMENTS
The Offer is underwritten to the extent of $50 million by Samuel Holdings Pty Ltd, a company associated with
Nicholas Mather, the Executive Chairman of the Company. Samuel Holdings Pty Ltd currently holds no Shares in
the Company. The Company will pay to Samuel Holdings Pty Ltd an underwriting fee of 7% of the Underwritten
Amount (equal to $3.5 million).
See Section 12.1.1 for further details as to the Underwriting Agreement between Armour Energy and the Underwriter.
Depending upon the level of any shortfall under the Offer, there may be potential control effects on the Company
arising from performance by Samuel Holdings Pty Ltd (an entity associated with Nicholas Mather, Executive
Chairman of Armour Energy) under the Underwriting Agreement. See Section 12.1.1 for details.
82
Armour Energy Limited Replacement Prospectus
6.15.
ALLOTMENT
Allotment of the New Shares and New Options offered by this Prospectus will be at the absolute discretion of the
Board and will take place as soon as practicable after the Closing Date of the Offer. Application Monies will be
held in a subscription account until allotment. This account will be established and kept by Armour Energy in trust
for each Applicant. Any interest earned on the Application Monies will be for the benefit of Armour Energy and
will be retained by Armour Energy irrespective of whether allotment takes place.
Where the number of New Shares allotted is less than the number applied for, the surplus money will be returned
by cheque within 30 days of the Closing Date for Applications. Where no allotment is made, the amount
tendered on Application will be returned in full by cheque within 30 days of the Closing Date for Applications.
Interest will not be paid on money refunded. Initial holding statements for the New Shares and New Options
will be dispatched to holders as soon as possible after issue.
6.16.
ASX LISTING OF SHARES AND NEW OPTIONS
Application will be made within seven days of the date of this Prospectus to ASX for the New Shares and
New Options issued pursuant to this Prospectus, as well as all other existing issued Shares in Armour Energy,
to be granted Official Quotation by ASX.
The fact that ASX may admit Armour Energy to its Official List is not to be taken in any way as an indication
of the merits of Armour Energy or of the New Shares and New Options now offered for subscription. Official
Quotation, if granted, of the New Shares and New Options offered or issued by this Prospectus will commence
as soon as practicable after the issue of holding statements to allottees. ASX takes no responsibility for the
contents of this Prospectus, including the experts’ reports which it contains. In the event that ASX does not grant
permission for the Official Quotation of the Shares and New Options within three months after the date of issue
of this Prospectus, none of the New Shares or New Options offered by this Prospectus will be allotted or issued
unless ASIC grants Armour Energy an exemption permitting the allotment or issue. If no allotment or issue
is made, all money paid on Application for the Shares under the Offer will be refunded without interest within
the time period set out under the Corporations Act.
6.17.
TRADING ON ASX
It is the responsibility of each Applicant or bidder to confirm their holding before trading in Shares and New
Options. Applicants who sell Shares and New Options before they receive an initial statement of holding do so
at their own risk. The Company, the Lead Manager and the Registry disclaim all liability whether in negligence
or otherwise, to persons who sell Shares and New Options before receiving their initial statement of holding
whether on the basis of confirmation of allocation provided by them, by a Broker or otherwise.
Shares and New Options are expected to commence trading on ASX on a normal settlement basis on or about
Thursday 26 April 2012.
6.18.
DIVIDEND POLICY
It is the present intention of the Directors to apply surplus cash flow to fund the exploration of Armour Energy’s
project portfolio and any resultant development or production and generate new opportunities, rather than
distributing this money in the form of dividends.
It is the Directors’ intention to review this policy from time to time and commence the payment of a regular
dividend once Armour Energy is able to generate a substantial and sustainable level of cash flow, after allowing
for capital expenditure and other commitments.
The Directors can give no assurance as to the amount, timing, franking or payment of any future dividends
by Armour Energy. The capacity to pay dividends will depend on a number of factors including future earnings,
capital expenditure requirements and the financial position of Armour Energy.
83
6.
Details of the Offer CONTINUED
6.19.
CHESS AND ISSUER SPONSORED REGISTER
The Company will apply to be admitted to participate in CHESS, in accordance with the Listing Rules and the
ASTC Settlement Rules. On admission to CHESS, Armour Energy will operate an electronic issuer-sponsored
sub-register and an electronic CHESS sub-register. The two sub-registers together will make up Armour Energy’s
principal register of Shares.
The Company will not issue certificates to Shareholders. Shareholders who elect to hold New Shares and New Options
on the issuer sponsored sub-register will be provided with a holding statement (similar to a bank account statement),
which sets out the number of New Shares and New Options allotted to the Shareholder under this Prospectus. For
Shareholders who elect to hold New Shares and New Options on the CHESS sub-register, Armour Energy will issue
an advice that sets out the number of New Shares and New Options allotted to the Shareholder under this Prospectus.
At the end of the month of allotment, CHESS (acting on behalf of Armour Energy) will provide Shareholders with a
holding statement that confirms the number of New Shares and New Options held. A holding statement (whether
issued by CHESS or Armour Energy) will also provide details of a Shareholder’s Holder Identification Number (HIN)
in the case of a holding on the CHESS sub-register or Shareholder Reference Number (SRN) in the case of a holding
on the issuer-sponsored sub-register.
Following distribution of these initial holding statements to all Shareholders, a holding statement will also
be provided to each Shareholder at the end of any subsequent month during which the balance of that
Shareholder’s holding of Shares and Options changes.
6.20.
RESTRICTIONS ON THE DISTRIBUTION OF THIS PROSPECTUS
The distribution of this Prospectus outside of Australia and New Zealand may be restricted by law. No action
has been taken to register or qualify the Shares or the Offer, or otherwise to permit an offering of the Shares
or Options, in any jurisdiction outside Australia.
This Prospectus is not intended to, and does not, constitute an offer of securities in any place which, or to any
person to whom, the making of such offer would not be lawful under the laws of any jurisdiction outside
Australia and New Zealand, Rest of World private placement under Regulation S into Hong Kong, Singapore,
United Kingdom, Germany, Belgium, Luxembourg, Netherlands, Norway, France, Ireland, Switzerland and the
Cayman Islands. Applicants resident in countries outside Australia and New Zealand should consult their
professional advisers as to whether any governmental or other consents are required, or other formalities need
to be observed to enable them to apply for Shares and Options. The failure to comply with any applicable
restrictions may constitute a violation of securities law in those jurisdictions.
6.21.
ELECTRONIC PROSPECTUS
The Offer constituted by this Prospectus in electronic form is available only to persons receiving this Prospectus
within Australia. Persons who receive a copy of this Prospectus in electronic form at www.armourenergy.com.au
are entitled to obtain a paper copy of the Prospectus (including any relevant accompanying Application Form) free
of charge, during the Offer period, by contacting the Armour Energy Offer Information Line on 1300 551 378 or
+61 2 8280 7705 between 8.30am and 5.30pm (AEDT) Monday to Friday between Wednesday 28 March 2012
and Friday 27 April 2012.
6.22.
RESTRICTED SECURITIES
It is expected that ASX will, as a condition of granting Armour Energy’s application for Official Quotation of its
Shares, classify certain Shares and Options of Armour Energy held by the Existing Shareholders as restricted
securities, which has potential to have an impact on the liquidity of trading in securities of the Company. If so, prior
to Official Quotation of Armour Energy’s Shares, the holders of the Shares and Options that are to be classified
as restricted securities will be required to enter into appropriate restriction agreements with Armour Energy.
Armour Energy anticipates that:
• all of the existing shareholdings of DGR Global and the Directors will be subject to escrow for 24 months from listing;
and
• Seed Capital Investors who are related parties of Armour Energy will be subject to escrow for a period
of 24 months from the date of issue of listing on the majority of their shareholdings.
84
07.
Directors and
Management
ARMOUR ENERGY BENEFITS
FROM A HIGHLY QUALIFIED
AND EXPERIENCED MANAGEMENT
TEAM AND BOARD OF DIRECTORS
• The team has a proven track record
of success in the Australian
resources sector
7.
Directors and Management
7.1.
BOARD OF DIRECTORS
The Directors of Armour Energy bring to the Board relevant expertise and skills, including industry and business
knowledge, financial management and corporate governance experience.
Each Director has confirmed with Armour Energy that he anticipates being available to perform his duties as a
Non-Executive Director or Executive Director, as the case may be, of Armour Energy, without undue constraints
from other commitments.
DIRECTOR
POSITION
EXPERIENCE, QUALIFICATIONS AND EXPERTISE
Executive
Chairman
• Nicholas Mather’s special area of experience and expertise is the
generation of and entry into undervalued or unrecognised resource
exploration opportunities. He has been involved in the junior
resource sector at all levels for more than 25 years. In that time
he has been instrumental in the delivery of major resource projects
that have delivered significant financial gains to shareholders.
• Mr Mather was co-founder and served as an Executive Director
of Arrow Energy NL until 2004. The company was acquired in
2010 by Shell and PetroChina for a value of approximately
$3.5 billion. Mr Mather was also Chairman of Waratah Coal Inc.
until December 2008.
Nicholas Mather
B.Sc (Hons. Geology)
• Mr Mather is currently the Managing Director and a co-founder
of DGR Global Limited (ASX) and an Executive Director
(and co-founder) of Solomon Gold Plc (LSE AIM). In addition,
Mr Mather serves as a director of the following ASX listed companies:
– Mt Isa Metals Ltd (Non-Executive Director)
– AusNiCo Ltd (Non-Executive Director)
– Navaho Gold Ltd (Non-Executive Chairman).
• Mr Mather was formerly a Non-Executive Director of Bow Energy
Limited, prior to its recent takeover by Arrow Energy Pty Ltd.
Chief
Executive
Officer and
Managing
Director
Philip McNamara
B.Eng
• Philip McNamara has worked in the Australian resource industry
for almost 30 years, having worked on coal projects and/or mines
for numerous multinational companies including Shell Coal,
Sumitomo Coal, Xstrata and Yankuang, where he was responsible
for mine management, operations control, productivity reform
initiatives, mine construction management and the introduction
of emerging technologies to mine production.
• In early 2008, Mr McNamara joined Waratah Coal as Vice President
Corporate Development, with responsibility for assisting with capital
raising, business development, marketing and investor relations
activities of the company, along with other technical and
management functions of Waratah Coal’s exploration in the Galilee
Basin. He was an integral member of the Waratah Coal “China First
Coal Project” located in the Galilee Basin and was instrumental
in the development of project feasibility studies, booking of coal
reserves and progression of major Chinese partnerships.
• Mr McNamara joined Armour Energy as CEO and Managing
Director in July 2010 to drive the Company’s project and corporate
development initiatives.
86
Armour Energy Limited Replacement Prospectus
DIRECTOR
POSITION
EXPERIENCE, QUALIFICATIONS AND EXPERTISE
NonExecutive
Director
• Jeremy Barlow has had a long and distinguished career in the coal
and petroleum industries and brings a wealth of experience to the
Armour Energy’s Board.
• Mr Barlow is a Fellow of the Australasian Institute of Mining and
Metallurgy and is currently the Non-Executive Chairman of coal
explorer and developer Bandanna Energy Limited (ASX). He was
a founding director of CH4 Gas Limited and after its merger with
Arrow Energy Limited in August 2006, continued as a director
of Arrow until its acquisition by Shell and PetroChina in 2010.
Jeremy Barlow
B.Eng (Mining),
MBA
• Mr Barlow is the founder of well-respected coal consulting firm Barlow
Jonker which was sold to Wood Mackenzie in 2007. In the early years
of his career he held diverse technical and commercial positions with
operating resource companies in Australia and overseas.
NonExecutive
Director
Stephen Bizzell
B.Comm
• Stephen Bizzell is the Chairman of boutique corporate advisory
and funds management group Bizzell Capital Partners Pty Ltd.
• Mr Bizzell was previously an Executive Director of Arrow Energy Ltd
from 1999 until its acquisition by Shell and PetroChina, for
$3.5 billion in 2010. He was instrumental in Arrow Energy’s
corporate and commercial success and its growth from a junior
explorer to a large integrated energy company. He was also
previously a Non-Executive Director of Bow Energy Ltd prior to
its takeover by Arrow Energy Pty Ltd for $0.5 billion in January
2012. He has had further experience in the CSG sector as an
Executive Director of Dart Energy Ltd (ASX) and Non-Executive
Director Apollo Gas Ltd. He is a Non-Executive Director of ASX
listed Hot Rock Ltd, Stanmore Coal Ltd, Diversa Ltd and Titan Energy
Services Ltd. He is Chairman of Renaissance Uranium Ltd and
Renison Consolidated Mines NL.
• Mr Bizzell qualified as a Chartered Accountant and early in his
career was employed in the Corporate Finance division of Ernst & Young
and the Corporate Tax division of Coopers & Lybrand. He has
had considerable experience and success in the fields of corporate
restructuring, debt and equity financing, and mergers and
acquisitions and has over 15 years’ corporate finance and public
company management experience in the resources sector in
Australia and Canada with various public companies.
87
7.
Directors and Management CONTINUED
DIRECTOR
POSITION
EXPERIENCE, QUALIFICATIONS AND EXPERTISE
NonExecutive
Director
• Roland Sleeman has 34 years experience in oil and gas as well
as utilities and infrastructure. Mr Sleeman has served in senior
management roles, including with Eastern Star Gas Limited as
Chief Commercial Officer and AGL as General Manager of the
Goldfields Gas Pipeline.
• Mr Sleeman has extensive engineering and business experience
including negotiation of gas sales agreements that provided
a foundation for development of the North West Shelf Project,
and commercialisation of new gas and power station opportunities
and management of major gas transmission pipeline infrastructure.
Mr Sleeman has provided specialist commercial, regulatory and
project development advice to both the public and private sectors.
Roland Sleeman
B.Eng (Mech), MBA
NonExecutive
Director
William Stubbs
LLB
• William (Bill) Stubbs is a lawyer of 35 years experience, having
practised extensively in the area of commercial law including stock
exchange listings and all areas of mining law.
• Mr Stubbs has been a Director of various public companies over
the past 25 years in the mineral exploration and biotech fields.
He is the former Chairman of Alchemia Limited, and Bemax
Resources Limited which discovered and developed extensive
mineral sands resources in the Murray Basin. He was the founding
Chairman of Arrow Energy NL.
• Mr Stubbs currently acts as the Non-Executive Chairman of
DGR Global Limited, Chairman of the Advisory Board of Tetra Q
– the commercial arm of the centre for integrated pre-clinical drug
development of the University of Queensland. He also serves
as a Non-Executive Director on the Board of Coalbank Limited.
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Armour Energy Limited Replacement Prospectus
7.2.
EXECUTIVE MANAGEMENT TEAM
The Executive Management team of the Company has been assembled to incorporate a wide range of expertise
and skills to foster the Company’s corporate and project development.
EXECUTIVE
POSITION
EXPERIENCE, QUALIFICATIONS AND EXPERTISE
Chief
Financial
Officer
• Priy Jayasuriya is a Chartered Accountant with over 15 years
of experience in public practice and has broad experience over
a number of industries. Mr Jayasuriya has worked as a Chartered
Accountant in Australia, Singapore and the United States and brings
a range of expertise in the areas of due diligence, internal control,
corporate governance, international financial reporting and
statutory compliance.
• Mr Jayasuriya commenced his career with Ernst & Young, advancing
to the position of Executive Director at the firm. Mr Jayasuriya was
appointed Chief Financial Officer of DGR Global Limited on
22 November 2010.
Priyanka
Jayasuriya
B.Comm
Company
Secretary
• Karl Schlobohm is a Chartered Accountant with over 20 years
experience across a wide range of industries and businesses.
He has extensive experience with financial accounting, corporate
governance, company secretarial duties and board reporting.
• Over the past six years, Mr Schlobohm has acted as CFO and/or
Company Secretary for a number of ASX-listed resource companies
including Linc Energy Limited, Discovery Metals Limited and
Meridian Minerals Limited.
Karl Schlobohm
B.Comm, B.Econ,
M.Tax
• Mr Schlobohm is currently contracted to act as the Company
Secretary for DGR Global Limited, AusNiCo Limited, Navaho Gold
Limited, and Solomon Gold Plc.
GM
Exploration
and
Production
• Ray Johnson has 31 years experience in reservoir and completion
engineering and well-site supervision.
GM
Infrastructure
and Project
Development
• Roger Cressey has over 30 years experience in engineering,
construction and project management, including in excess of
20 years in the oil and gas industry, having previously held senior
project manager roles at OSD Pipelines, Transfield Services and
Caltex Refineries.
Ray Johnson
B.A. (Chem),
M.S. Pet Eng
• Mr Johnson has a broad range of unconventional petroleum
experience in Australia and the United States, including in south and
east Texas, the Rocky Mountains, Mid-continent, and Permian Basin
regions of North America. Most projects have required extensive
experience in reservoir engineering, stimulation and production of
unconventional gas and naturally fractured reservoirs. Mr Johnson
has held previous senior management and engineering roles at QGC
(Manager Technical), Blue Energy Limited (Chief Operating Officer)
and Santos Limited (Senior Reservoir Engineer).
Roger Cressey
B.Eng (Mechanical)
89
7.
Directors and Management CONTINUED
EXECUTIVE
POSITION
EXPERIENCE, QUALIFICATIONS AND EXPERTISE
Chief Well
Engineer
• Jonathan Martin has over 12 years experience in Petroleum
Engineering. He has a wealth of experience in drilling and
completing tight shale/dolomitic formations in Canada, working
for Poco Petroleum, Burlington Resources, Player Petroleum
and Wrangler West Energy Corp.
• Most recently Mr Martin held the role of Senior Drilling Engineer
with Santos Limited in Brisbane, before joining the Armour team.
Jonathan Martin
Petroleum Certified
Engineering
Technician
(Canada)
Principal
Exploration
Adviser
• David Warner has 38 years experience in the oil and gas sector,
with a specific focus on unconventional gas and associated Liquids,
including having worked at Santos Limited over a 20 year period
in various roles as Principal Development Geologist and
Unconventional Reservoir Team Leader.
Exploration
Manager
• Geoff Hokin has over 8 years experience as a field geologist in the
gas and coal sectors, having held various senior geologist roles at
Metgasco Limited and Arrow Energy Limited, along with contract
geologist roles at QGC, Blue Energy Limited, Xstrata Coal Australia
Pty Ltd and New Hope Corporation Limited. Mr Hokin also has
significant previous experience in various other geology and
business manager roles in the agricultural sector.
Business
Development
and
Government
Liaison
• Carlie Rogers has experience in developing strategic partnerships
in Canada, the United States and Latin America, having previously
worked as Business Development Manager for the Queensland
Government in the Americas. In this role she promoted investment
opportunities in Queensland’s resource sector and gained insight
and experience in government and community relations. Ms Rogers
was appointed Business Development Executive of DGR Global
Limited in September 2010.
David Warner
BSc (Hons),
MSc DIC
Geoff Hokin
MSc (Hons.)
C.IV Bus. (Mngmt)
Carlie Rogers
LLB, B.Bus
The nature and scale of Armour Energy’s current portfolio can be supported through the sharing of certain
management functions with DGR Global (including the CFO and Company Secretary positions), allowing
for optimisation of costs associated with these functions. The Company intends to review this policy
on a periodic basis.
The Company has also entered into an agreement to appoint a Chief Geologist (see 12.1.15).
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Armour Energy Limited Replacement Prospectus
7.3.
MANAGEMENT STRUCTURE
BOARD OF DIRECTORS
NICHOLAS MATHER
Executive Chairman
WILLIAM STUBBS
Non-Executive Director
STEPHEN BIZZELL
Non-Executive Director
ROLAND SLEEMAN
Non-Executive Director
PHILIP McNAMARA
Managing Director & CEO
JEREMY BARLOW
Non-Executive Director
CHIEF EXECUTIVE OFFICER
PHILIP MCNAMARA
Managing Director & CEO
EXPLORATION
AND PRODUCTION
RAY JOHNSON
GM Exploration & Production
INFRASTRUCTURE AND
DEVELOPMENT
CORPORATE
KARL SCHLOBOHM
Company Secretary
ROGER CRESSEY
GM Infrastructure
& Project Development
DAVID WARNER
Principal Exploration Adviser
PRIYANKA JAYASURIYA
CFO
JONATHON MARTIN
Chief Well Engineer
CARLIE ROGERS
Business Development
& Government Liaison
GEOFF HOKIN
Exploration Manager
Chief Geologist
7.4.
DIRECTORS’ INTERESTS IN ARMOUR ENERGY
The interests of Directors and their associated entities in the securities of the Company at the date of this
Prospectus are as follows:
NUMBER
OF SHARES1
ACTIVITY
Nicholas Mather (Executive Chairman) 3
Nil
NUMBER
OF OPTIONS1,2
1,000,000
Stephen Bizzell (Non-Executive Director) 5
500,000
625,000 6
William Stubbs (Non-Executive Director) 3,4
250,000
562,500
Nil
500,000
3,450,000
7,762,500
Nil
500,000
Roland Sleeman (Non-Executive Director)
Philip McNamara (Managing Director)
Jeremy Barlow (Non-Executive Director)
Notes:
1. These securities may be subject to ASX escrow conditions governing their resale (see Section 6.22)
2. Further details of these Options are set out in Section 12.4
3. Messrs Mather and Stubbs are Directors of DGR Global, which holds 75 million shares and 18.8 million options in the Company
4. An entity associated with William Stubbs has an obligation to procure subscriptions for 100,000 New Shares pursuant to a Share Subscription
Agreement, details of which are set out in Section 12.12
5. An entity associated with Stephen Bizzell has an obligation to procure subscriptions for 200,000 New Shares pursuant to a Share Subscription
Agreement, details of which are set out in Section 12.12
6. This number does not include the 5,000,000 Options to be granted to the Lead Manager, an entity associated with Stephen Bizzell
(see Section 12.1.2)
91
7.
Directors and Management CONTINUED
7.5.
DIRECTORS’ FEES
The Constitution provides that the Non-Executive Directors are entitled to remuneration as determined by
the Company in general meeting to be apportioned among them in such manner as the Directors agree and,
in default of agreement, equally.
The aggregate maximum remuneration for Non-Executive Directors currently determined by the Company
is $500,000 per annum. Additionally, Non-Executive Directors will be entitled to be reimbursed for properly
incurred expenses.
At present, the Board of the Company is constituted by a Managing Director, an Executive Chairman and four (4)
Non-Executive Directors. The Executive Chairman has been engaged by the Company pursuant to an agreement,
the terms of which are summarised in Section 12.1.7. The Board has agreed that the Managing Director shall not
be paid a Director’s fee in addition to the fees payable pursuant to his employment agreement, details of which
are set out in Section 12.1.6. The Executive Chairman shall be paid a Director’s fee of $85,000 per annum and
that other Non-Executive Directors shall be paid a fee of $75,000 per annum each.
If a Non-Executive Director performs extra services, which in the opinion of the Directors are outside the
scope of the ordinary duties of the Director, the Company may remunerate that Director by payment of a fixed
sum determined by the Directors in addition to or instead of the remuneration referred to above. However,
no payment can be made if the effect would be to exceed the maximum aggregate amount payable
to Non-Executive Directors. A Non-Executive Director is entitled to be paid travelling and other expenses
properly incurred by them in attending Director’s or General Meetings of the Company or otherwise
in connection with the business of the Company.
The remuneration of any Executive Director may from time to time be fixed by the Directors. The remuneration
may be by way of salary or commission or participation in profits but may not be by commission on, or
a percentage of, operating revenue. Except as disclosed in Section 12.1.7, no remuneration will be payable
to the Executive Director.
In addition to the fees noted above, the Directors (or their associated entities) have received the following
fees from the Company prior to the date of this Prospectus:
FY 2011
FY 2012
TOTAL
Philip McNamara1
$380,175
$320,701
$700,876
Nicholas Mather2
–
$46,667
$46,667
3
$262,000
$106,667
$368,667
–
$25,000
$25,000
–
$16,667
$16,667
–
$8,333
$8,333
Stephen Bizzell
–
–
–
Jeremy Barlow
–
–
–
$642,175
$524,035
$1,166,210
Nicholas Mather
William Stubbs2
Roland Sleeman
Vincent Mascolo
2,4
Total
1. Executive fees (see Section 12.1.7)
2. Director’s fees
3. Executive and consulting fees (see Section 12.1.6)
4. Resigned as a director of the Company on 12 September 2011
Note: no fees were paid to the above named Directors during FY 2010
92
Armour Energy Limited Replacement Prospectus
7.6.
CORPORATE GOVERNANCE
Incorporation of corporate governance material
For the purposes of this Prospectus, the Company also relies upon the provisions in section 712 of the
Corporations Act which enables the Company to incorporate material by reference into this Prospectus.
Accordingly rather than contain all the information that may be required to be set out in a standard document
of this type in relation to the corporate governance practices of the Company, it incorporates by reference
the Corporate Governance Charter of Armour Energy adopted on 8 November 2011 (Corporate Governance
Charter) lodged with the ASIC on 25 November 2011.
The Corporate Governance Charter can be obtained, at no cost, from the Company’s registered office and
is also available on the Company’s website www.armourenergy.com.au
The information contained below is provided for the purposes of section 712(2) of the Corporations Act.
Synopsis of material incorporated into this Prospectus
The Directors are responsible for protecting the rights and interests of the Shareholders through the
implementation of sound strategies and action plans and the development of an integrated framework
of controls over the Company’s resources, functions and assets. The Board will constantly review and monitor
the performance of the Board and the Company and implement changes as required.
Executive Chairman
The Company has appointed Nicholas Mather as Executive Chairman of the Company.
Committees
The Board presently has an Audit and Risk Management Committee comprising William Stubbs (as Chair),
Stephen Bizzell and Roland Sleeman.
The Company has adopted an Audit and Risk Management Charter setting out the composition, purpose,
powers and scope of the Committee as well as reporting requirements to the Board as a whole. Extracts
of this Charter are available at the Company’s website, www.armourenergy.com.au
The Company does not have any other formally constituted committees of the Board of Directors. The Directors
consider that the Company is not of a size nor are its affairs of such complexity as to justify the formation of any
other special or separate committees at this time. The Board as a whole is able to address the governance aspects
of the Company’s activities and ensure that it adheres to appropriate ethical standards. This statement outlines
the main corporate governance policies which the Directors have adopted.
Composition of the Board
The Board comprises six (6) Directors. The names, qualifications and relevant experience of each Director are set
out in Section 7.1. There is no requirement for any Director’s shareholding qualification.
As the Company’s activities increase in size, nature and scope, the size of the Board will be reviewed periodically
and the optimum number of Directors required to adequately supervise the Company’s activities determined
within the limitations imposed by the Constitution.
Board membership
The Board acts as a nomination committee. Members of the Board have been brought together to provide
a blend of qualifications, skills and national and international experience required for managing a company
operating within the mining industry.
Appointment and retirement of Directors
The Constitution provides that Directors are subject to retirement by rotation, by order of length of appointment.
Retiring Directors are eligible for re-election by Shareholders at the annual general meeting of the Company.
Duties of Directors
Directors are expected to accept all duties and responsibilities associated with the running of a public
company, to act in the best interests of the Company and to carry out their duties and responsibilities
with due care and diligence.
93
7.
Directors and Management CONTINUED
Directors are required to take into consideration conflicts when accepting appointments to other boards.
Accordingly, Directors wishing to accept appointment to other boards must first seek approval from the Board,
approval of which will not be unreasonably withheld.
Independent professional advice
The Board has determined that individual Directors may, in appropriate circumstances, engage outside advisers
at the Company’s expense. The engagement of an outside adviser is subject to the prior approval of the Board,
which will not be unreasonably withheld.
Compensation arrangements
The maximum aggregate amount payable to Non-Executive Directors as Directors’ fees has been set at $500,000
per annum. The Constitution provides that the maximum amount of Directors’ fees can only change pursuant
to a resolution at a general meeting.
The Board is responsible for reviewing and negotiating the compensation arrangements of senior executives
and consultants.
Internal Management controls
The Company’s assets are located in Australia. Control over the operations is exercised by senior management.
The Board also monitors the performance of outside consultants engaged from time to time to complete specific
projects and tasks.
Identifying significant business risks
The Board regularly monitors the operational and financial performance of the Company’s activities. It monitors
and receives advice on areas of operation and financial risk and considers strategies for appropriate risk
management. All operational and financial strategies adopted are aimed at improving the value of the Shares,
however, the Directors recognise that mineral exploration and evaluation is inherently risky.
Corporate Governance Charter
The Company has adopted a Corporate Governance Charter in order to implement and maintain a culture of
good corporate governance both internally and in its external dealings. In adopting the Corporate Governance
Charter the Board is mindful of the Corporate Governance Principles and Recommendations 2nd Edition
(Corporate Governance Principles and Recommendations) released by the ASX Corporate Governance
Council (Council) in August 2007 (as amended in 2010).
The Corporate Governance Charter in full will be posted on the Company’s website, www.armourenergy.com.au
www.armourenergy.com.au.
The following table briefly addresses each recommendation made by the Corporate Governance Principles
and Recommendations.
Where the Company’s corporate governance practices do not correlate with the practices recommended
by the Council, the Company is working towards compliance however it does not consider that all practices
are appropriate for the Company due to the size and scale of the Company’s operations.
The Board is of the view that with the exception of the departures to the Council’s Corporate Governance
Principles and Recommendations set out below, it otherwise complies with all of the Council’s Corporate
Governance Principles and Recommendations.
94
Armour Energy Limited Replacement Prospectus
ASX PRINCIPLES AND RECOMMENDATIONS
SUMMARY OF ARMOUR ENERGY’S POSITION
Principle 1 – Lay solid foundations for management and oversight
Companies should establish and disclose the respective roles and responsibilities of board and management
The Company’s Corporate Governance Charter sets out the functions, powers and responsibilities of the
Board. The Managing Director is responsible for running the affairs of the Company under delegated authority
from the Board.
In the absence of a formally constituted Nominations Committee, the full Board is responsible for the proper
oversight of the Board, the Directors and senior management.
The Board shall upon the Company reaching the requisite corporate and commercial maturity, approve the
constitution of a Nominations Committee to assist the Board in relation to the appointment of Directors and
senior management.
The Company will report and address any departures from any of Recommendations 1.1, 1.2 and 1.3 (if any)
in future annual reports. A statement of functions, powers and responsibilities of the Board are set out in the
Company’s Corporate Governance Charter.
Principle 2 – Structure Board to Add Value
Companies should have a board of an effective composition, size and commitment to adequately discharge
its responsibilities and duties
Presently under the ASX Guidelines it is considered that there are two (2) independent Directors, being Roland
Sleeman and Jeremy Barlow. While the Company does not presently comply with Recommendation 2.1
(a majority of the Board should be independent), the Company may consider appointing further independent
Directors in the future. The Company believes that given the size and scale of its operations, non-compliance
by the Company with Recommendation 2.1 will not be detrimental to the Company.
The current Chairman of the Board, Mr Nicholas Mather is an Executive Director. While the Company does not
presently comply with Recommendation 2.2 (the Chair should be an independent Director), the Company may,
upon appointing additional Directors (as and when required) consider appointing an independent Director
to the Chair. The Company believes that given the size and scale of its operations, non-compliance by the
Company with Recommendation 2.2 will not be detrimental to the Company and will continue to review
its position with respect to compliance.
Mr Nicholas Mather is an Executive Director and will hold the position of Chairman of the Board from the listing
of the Company on the ASX. The Managing Director position is held by Mr Philip McNamara. As noted above,
these positions will be subject to review upon appointment of additional Directors (as and when required).
The Board believes the Company is not currently of the size to justify the formation of a separate Nominations
Committee. The Board currently performs the functions of a Nominations Committee and where necessary will
seek the advice of external advisers in relation to this role. The Board shall, upon the Company reaching the
requisite corporate and commercial maturity, approve the constitution of a Nominations Committee to assist
the Board in relation to the appointment of Directors and senior management.
The Charter sets out a Corporate Code of Conduct.
The Company will, in future annual reports, provide details of:
• the skills, experience, expertise and period in office of each Director;
• the names of the independent Directors including the Company’s materiality threshold;
• the existence of any relationships affecting the independence of a Director;
• the procedure (if any) whereby the Directors can take independent professional advice at the expense
of the board;
• a statement as to the mix of skills and diversity that the Board is looking to achieve;
• the period of office held by each Director at the date of the annual report; and
• how the functions of a Nominations Committee are carried out by the full Board, or where a formal
Nominations Committee has been constituted the names of the members of that committee and
their attendance at its meetings.
95
7.
Directors and Management CONTINUED
ASX PRINCIPLES AND RECOMMENDATIONS
SUMMARY OF ARMOUR ENERGY’S POSITION
Principle 3 – Promote Ethical and Responsible Decision Making
Companies should actively promote ethical and responsible decision-making
The Company has adopted a Corporate Code of Conduct which regulates the Company’s external dealings
and dealings with Shareholders.
The Company has adopted a Diversity Policy. A summary of the Diversity Policy is incorporated into the
Corporate Governance Charter which is available on the Company’s website.
The Company will disclose in future annual reports the measurable objectives for achieving gender diversity
set by the Board in accordance with the Diversity Policy and progress towards achieving them.
The Company has adopted a Trading Policy in respect of trading in Company securities, further details
of which are set out in Section 12.2.
The Company will provide an explanation of any departures from Recommendations 3.1, 3.2 and 3.3
(if any) in future annual reports.
Principle 4 – Safeguard Integrity in Financial Reporting
Companies should have a structure to independently verify and safeguard the integrity of their financial reporting
The Company has adopted a separate Audit and Risk Management Committee. This Committee shall be
constituted by the following current members of the Board: William Stubbs (Chair of Committee), Stephen
Bizzell and Roland Sleeman.
While the Company does not presently comply with Recommendation 4.2 (structure of audit committee),
the Company shall upon reaching the requisite corporate and commercial maturity, reconfigure the Audit
and Risk Management Committee to comply with this Recommendation.
The Company has adopted an Audit & Risk Management Committee Charter which is set out in the
Company’s Corporate Governance Charter.
The Company will provide details of the members of the Audit & Risk Management Committee,
the number of meetings of that committee and the names of the attendees in future annual reports.
The Company will provide an explanation of any departures from Recommendations 4.1, 4.2, 4.3
and 4.4 (if any) in future annual reports.
Principle 5 – Make Timely and Balanced Disclosure
Companies should promote timely and balanced disclosure of all material matters concerning the company
The Company has set out in its Corporate Governance Charter its obligations in respect of continuous
disclosure under the Corporations Act and the Listing Rules.
The Company will provide an explanation of any departures from Recommendations 5.1 and 5.2 (if any)
in future annual reports.
Principal 6 – Respect the Rights of Shareholders
Companies should respect the rights of shareholders and facilitate the effective exercise of those rights
The Company’s Corporate Governance Charter sets out the Company’s Information Disclosure Programme
Procedures. The Company will use its website (www.armourenergy.com.au
www.armourenergy.com.au) and any other means as approved
by the Board to implement the official release of material information to the market and the Shareholders.
The Company will provide an explanation of any departures from Recommendations 6.1 and 6.2 (if any)
in future annual reports.
96
Armour Energy Limited Replacement Prospectus
ASX PRINCIPLES AND RECOMMENDATIONS
SUMMARY OF ARMOUR ENERGY’S POSITION
Principle 7 – Recognise and Manage Risk
Companies should establish a sound system of risk oversight and management and internal control
The Board is responsible for overseeing and approving risk management strategies and policies including
internal control. The Board has adopted an Audit & Risk Management Committee Charter under its Corporate
Governance Charter. The Audit & Risk Management Committee Charter sets out the responsibilities of the
committee in respect of risk management.
The Board is responsible for reviewing and ratifying systems of risk management and internal compliance.
The Company will disclose in its annual reports any reports from management as to the effectiveness of the
Company’s management of its material business risks.
The Board will request that the Managing Director and CFO provide such a statement at the relevant time.
The Company will provide an explanation of any departures from Recommendations 7.1, 7.2, 7.3 and 7.4
(if any) in future annual reports.
Principle 8 – Remunerate Fairly and Responsibly
Companies should ensure that the level and composition of remuneration is sufficient and reasonable
and that its relationship to performance is clear
The Board considers that the Company is not currently of a size or complexity to justify a separate
Remuneration Committee.
The Board currently performs the functions of a Remuneration Committee and where necessary will seek the
advice of external advisers in relation to this role. The Board shall, upon the Company reaching the requisite
corporate and commercial maturity, approve the constitution of a Remuneration Committee to assist the
Board in relation to the remuneration of Directors and senior management.
While the Company does not presently comply with this Recommendation, the Company may consider
appointing further independent Directors in the future, at which time it will reconsider the formation of
a separate Remuneration Committee. The Company does not believe that the current absence of a separate
Remuneration Committee will be detrimental to the Company.
The Corporate Governance Charter sets out the Remuneration Committee Charter. The Board, in the absence
of a formally constituted Remuneration Committee, is responsible for reviewing the remuneration policies and
practices of the Company in respect of an executive remuneration and incentive plan, remuneration packages
for Management and Directors and Non-Executive Director remuneration.
In the absence of a formally constituted Remuneration Committee, the functions of the Remuneration
Committee will be carried out by the full Board. Once a formal Remuneration Committee has been constituted,
the Company will provide details of its members, the number of meetings and the names of the attendees
in future annual reports. In addition, the Company will also provide the terms of any schemes for retirement
benefits, other than superannuation, for Non-Executive Directors in future annual reports.
The Company will provide an explanation of any departures from Recommendations 8.1, 8.2, and 8.3
(if any) in future annual reports.
97
08.
Historical and Pro-forma
Financial Information
Armour Energy Limited Replacement Prospectus
8.
Historical and Pro-forma Financial
Information
8.1
INTRODUCTION
This Section sets out the historical and pro-forma financial information. The basis for preparation and presentation
of this information is also set out below.
The financial information has been prepared by management and adopted by the Board. The Board is responsible
for the inclusion of all financial information in the Prospectus. BDO Audit (QLD) Pty Ltd has prepared an
Investigating Accountant’s Report in respect of the historical and pro-forma financial information. A copy of the
report is contained in Section 11.
The historical and pro-forma financial information has been prepared in accordance with the measurement and
recognition criteria of Australian Accounting Standards and the significant accounting policies set out in Section
8.5 below. The historical and pro-forma financial information comprises financial information of the Company.
The historical and pro-forma financial information is presented in an abbreviated form insofar as it does not
include all the disclosures and notes required in an annual financial report prepared in accordance with Australian
Accounting Standards and the Corporations Act.
8.2
HISTORICAL FINANCIAL INFORMATION
The historical financial information for Armour Energy set out below comprises:
• the reviewed Statement of Financial Position as at 31 December 2011; and
• selected notes to the reviewed Statement of Financial Position.
The historical financial information has been extracted from the reviewed financial statements of Armour Energy
Ltd for the six month period ended 31 December 2011. Historical financial information does not include a
Statement of Comprehensive Income or a Statement of Cash Flows. The Company is an exploration company,
exploring for shale oil and gas in the Northern Territory and Queensland. During the period from incorporation
to 31 December the Company has not earned any revenue from operations and therefore presentation of the
Statement of Comprehensive Income and Statement of Cash Flows is not considered relevant.
8.3
PRO-FORMA FINANCIAL INFORMATION
The pro-forma financial information for Armour Energy Ltd set out below comprises:
• the unaudited Pro-Forma Statement of Financial Position as at 31 December; and
• selected notes to the unaudited Pro-Forma Statement of Financial Position.
The unaudited Pro-Forma Statement of Financial Position has been derived from the reviewed Statement
of Financial Position as at 31 December 2011 adjusted for the following transactions as if they had occurred
at 31 December 2011 (pro-forma transactions):
(i)
The issue of 150,000,000 ordinary shares at an issue price of $0.50 per share to raise $75,000,000 before
expenses of the Offer. All ordinary shares issued pursuant to this Prospectus will be issued as fully paid.
(ii) Total costs expected to be incurred in connection with the preparation of the Prospectus of approximately
$7,515,640, of which, $602,462 has been recognised as a prepayment as at 31 December 2011. Of the
$602,462 that has been recognised as a prepayment (i.e. prepaid IPO costs), $569,092 had been paid at
31 December 2011. In addition the total costs also includes a share based payment expense of $148,554
for the granting of 5,000,000 options to the Lead Manager.
(iii) The issue of the above 5,000,000 unlisted options exercisable at $0.50 and expiring on 31 August 2014
to the Lead Manager.
(iv) The issue of a performance bond of $750,000 in the form of a bank guarantee being issued to AJ Lucas
Coal Technologies Pty Ltd upon executing a drilling contract.
99
8.
Historical and Pro-forma Financial
Information CONTINUED
8.4
ARMOUR ENERGY LTD HISTORICAL AND PRO-FORMA FINANCIAL INFORMATION
The historical and pro-forma information should be read in conjunction with the notes in section 8.5.
STATEMENT OF FINANCIAL POSITION
NOTES
REVIEWED
HISTORICAL
FINANCIAL
INFORMATION
31 DECEMBER
2011
$
REVIEWED
PRO-FORMA
FINANCIAL
INFORMATION
31 DECEMBER
2011
$
8.5.3
6,628,112
74,080,118
154,815
154,815
788,409
185,947
7,571,336
74,420,880
3,743,130
4,493,130
57,680
57,680
Exploration and evaluation assets
2,315,323
2,315,323
Total non-current assets
6,116,133
6,866,133
13,687,469
81,287,013
247,144
213,774
11,450
11,450
Total current liabilities
258,594
225,224
Total Liabilities
258,594
225,224
13,428,875
81,061,789
13,717,043
81,660,458
1,084,974
1,233,528
(1,373,142)
(1,832,197)
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Other current assets
8.5.4
Total current assets
NON-CURRENT ASSETS
Other financial assets
8.5.5
Property, plant and equipment
Total assets
CURRENT LIABILITIES
Trade and other payables
Provisions
Net assets
EQUITY
Issued capital
8.5.6
Reserves
Accumulated losses
8.5.7
Total equity
13,428,875
100
81,061,789
Armour Energy Limited Replacement Prospectus
8.5
NOTES TO AND FORMING PART OF THE FINANCIAL INFORMATION
The following is a summary of the material accounting policies adopted by the Company in the preparation
of the financial information. The accounting policies have been consistently applied unless otherwise stated.
8.5.1.
Basis of Preparation
Going concern
The financial information has been prepared on a going concern basis which contemplates the continuity
of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of
business. The Company has not generated revenues from operations. As such, the Company’s ability to continue
to adopt the going concern assumption will depend upon a number of matters including the successful closure
of its initial public offering, its subsequent successful raising in the future of necessary funding and the successful
exploration and subsequent exploitation of the Company’s tenements.
Reporting basis and conventions
The financial information has been prepared on an accruals basis and is based on historical costs.
8.5.2.
Accounting Policies
(a) Revenue recognition
Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent
it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.
The following specific recognition criteria must also be met before revenue is recognised:
Interest
Interest revenue is recognised as interest accrues using the effective interest rate method. This is a method of
calculating the amortised cost of a financial asset and allocating the interest income over the relevant period
using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through
the expected life of the financial asset to the net carrying amount of the financial asset.
(b) Income tax
The income tax expense for the period is the tax payable on the current period’s taxable income based on
the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts
in the financial statements, and to unused tax losses.
The charge for current income tax expense is calculated using the tax rates that have been enacted or are
substantially enacted by the reporting date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred
income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination,
where there is no effect on accounting or taxable profit or loss.
Deferred tax is calculated at the tax rates expected to apply to the period when the asset is realised or liability
is settled based on tax rates (and laws) that have been enacted or substantially enacted by the reporting date.
101
8.
Historical and Pro-forma Financial
Information CONTINUED
Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available
against which deductible temporary differences and unused tax losses can be utilised.
The amount of benefits brought to account or which may be realised in the future is based on the assumptions
that no adverse changes will occur in income taxation legislation and the anticipation that the Company will
derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions
of deductibility imposed by the law.
(c) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short term highly liquid
investments with original maturities of three months or less, and bank overdrafts.
(d) Plant and equipment
Plant and equipment
Plant and equipment are stated at historical cost less accumulated depreciation and any accumulated
impairment losses.
The carrying amount of plant and equipment is reviewed at each reporting date by directors to ensure it is not in
excess of the recoverable amount from these assets. The recoverable amount is the higher of an assets fair value
less costs to sell and its value in use.
Depreciation
The depreciable amount of plant and equipment is depreciated over the assets’ useful life to the Company
commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over
the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.
The depreciation rates used for each class of assets are:
CLASS
DEPRECIATION
Motor Vehicles
20% Straight line
Office Equipment
20% – 33.3% Straight line
(e) Exploration and evaluation assets
Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest.
Such expenditures comprise net direct costs and an appropriate portion of related overhead expenditure but do
not include overheads or administration expenditure not having a specific nexus with a particular area of interest.
These costs are only carried forward to the extent that they are expected to be recouped through the successful
development of the area or where activities in the area have not yet reached a stage which permits reasonable
assessment of the existence of economically recoverable reserves and active or significant operations in relation
to the area are continuing.
A regular review has been undertaken on each area of interest to determine the appropriateness of continuing
to carry forward costs in relation to that area of interest.
A provision is raised against exploration and evaluation expenditure where the directors are of the opinion that
the carried forward net cost may not be recoverable or the right of tenure in the area lapses. The increase in
the provision is charged against the results for the year. Accumulated costs in relation to an abandoned area
are written off in full against profit in the year in which the decision to abandon the area is made.
When production commences, the accumulated costs for the relevant area of interest are amortised over
the life of the area according to the rate of depletion of the economically recoverable reserves.
(f) Trade and other payables
Trade and other payables are carried at amortised cost and due to their short term nature they are not
discounted. They represent liabilities for goods and services provided to the Company prior to the end of the
financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect
of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30-60 days
of recognition.
102
Armour Energy Limited Replacement Prospectus
(g) Issued capital
Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown
as a deduction from the equity proceeds, net of any income tax benefit.
(h) GST
Revenues, expenses and assets are recognised net of GST except where GST incurred on a purchase of goods
and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the
cost of acquisition of the asset or as part of the expense item.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from,
or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to,
the taxation authority.
(i) Share based payments
The fair value of shares and options granted to Directors, employees and consultants is recognised as an expense
with a corresponding increase in equity. The fair value is measured at grant date and recognised over the relevant
vesting period. For options, fair value is determined using an appropriate option pricing model.
Where the terms of equity instruments granted are modified, the expense continues to be recognised from grant
date to vesting date as if the terms had never been changed. In addition, a further expense is recognised for any
increase in fair value of the transaction as a result of the change.
Where equity instruments granted are cancelled, they are treated as if vesting occurred on cancellation
and any unrecognised expenses are taken immediately to the profit or loss. If new instruments are substituted
for the cancelled instruments and designated as a replacement, the combined impact of the cancellation and
replacement instruments are treated as if they were a modification.
(j) Critical accounting estimates and judgments
The Directors evaluate estimates and judgments incorporated into the financial information based on historical
knowledge and best available current information. Estimates assume a reasonable expectation of future events
and are based on current trends and economic data, obtained both externally and within the Company.
Key estimates – impairment
The Company assesses impairment at each reporting date by evaluating conditions specific to the Company that
may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is
determined. Where applicable, value-in-use calculations performed in assessing recoverable amounts incorporate
a number of key estimates.
Key judgements – exploration & evaluation assets
The Company performs regular reviews on each area of interest to determine the appropriateness of continuing
to carry forward costs in relation to that area of interest. These reviews are based on detailed surveys and analysis
of drilling results performed to reporting date.
8.5.3.
Cash and Cash Equivalents
RECONCILIATION OF MOVEMENTS IN PRO-FORMA CASH
AND CASH EQUIVALENTS
Cash and cash equivalents at 31 December 2011
Proceeds from the issue of shares pursuant to this Prospectus
Payment of estimated costs with respect to this Prospectus
Issue of a performance bond
$
6,628,112
75,000,000
(6,797,994)
(750,000)
Pro-forma cash and cash equivalents
74,080,118
103
8.
Historical and Pro-forma Financial
Information CONTINUED
8.5.4:
Other Current Assets
RECONCILIATION OF MOVEMENTS IN OTHER FINANCIAL ASSETS
Other current assets at 31 December 2011
788,409
Recognition of prepaid IPO costs post Offer
(602,462)
Pro-forma other financial assets
8.5.5.
185,947
Other Financial Assets
RECONCILIATION OF MOVEMENTS IN PRO-FORMA ISSUED CAPITAL
Other financial assets at 31 December 2011
$
3,743,130
Issue of a performance bond to AJ Lucas Coal Technologies Pty Ltd
Pro-forma issued capital
8.5.6.
$
750,000
4,493,130
Issued Capital
RECONCILIATION OF MOVEMENTS IN PRO-FORMA ISSUED CAPITAL
NUMBER
OF SHARES
Shares on issue at 31 December 2011
150,000,000
Issue of shares pursuant to this Prospectus
150,000,000
Pro-forma issued capital¹
300,000,000
1. In addition to the above pro-forma number of shares, an executive was issued with a total of 180,000 shares as a performance incentive
upon commencement of employment (“Performance Shares”). These Performance Shares are subject to a number of conditions. Subject to
these conditions being met, the maximum share based payments expense to be recognised relating to these Performance Shares is $36,000
over a period not exceeding two years. Furthermore, the Company has agreed to issue to an employee 625,000 Performance Shares and
625,000 Performance Rights which vest subject to certain performance criteria being met within three (3) years. Subject to these conditions
being met, the maximum share based payments expense to be recognised relating to these Performance Shares and Performance Rights
is $250,000 over a period not exceeding three (3) years.
RECONCILIATION OF MOVEMENTS IN PRO-FORMA ISSUED CAPITAL
Issued capital at 31 December 2011
13,717,043
Proceeds from the issue of shares pursuant to this Prospectus
Payment of estimated costs with respect to this Prospectus (share issue costs)
Pro-forma issued capital
8.5.7.
$
75,000,000
(7,056,585)
81,660,458
Accumulated Losses
RECONCILIATION OF MOVEMENTS IN PRO-FORMA ACCUMULATED LOSSES
Accumulated losses at 31 December 2011
$
(1,373,142)
Payment of estimated issue costs with respect to this Prospectus
(listing of existing shares)
Pro-forma accumulated losses
(459,055)
(1,832,197)
104
Armour Energy Limited Replacement Prospectus
8.5.8.
Share-based Payments
RECONCILIATION OF PRO-FORMA RESERVES
$
Reserves at 31 December 2011
1,084,974
Recognition of share based expense for options granted to Lead Manager
148,554
Pro-forma reserves
1,233,528
RECONCILIATION OF PRO-FORMA SHARE OPTIONS
NUMBER
OF SHARE
OPTIONS
Share options on issue at 31 December 2011
56,800,000
Share options granted or to be granted to Directors,
employees and consultants1
4,400,000
Share options granted to the Lead Manager pursuant to the Offer2
5,000,000
Grant of share options pursuant to this Prospectus
3
Pro-forma share options
37,500,000
103,700,000
1. The grant of 4,400,000 share options to two Directors, an employee and a consultant. The options are exercisable at $0.50 per share,
have a vesting period of 2 years and a contractual life of 3 years. The maximum share based payments expense relating to these
options to be recognised over the vesting period is $137,557.
2. The grant of 5,000,000 share options to the Lead Manager pursuant to the Offer. The options are fully vested on the date of grant
and may be exercised at a price of $0.50 per share on or before 31 August 2014.
3. The grant of 1 share option for every new 4 shares subscribed pursuant to this Prospectus. The options are fully vested on the date
of grant and may be exercised at a price of $0.50 per share on or before 31 August 2014.
Employee share option plan (ESOP)
The employee share option plan is designed to align participants’ interests with those of shareholders
by increasing the value of the Company’s shares.
When a participant ceases employment prior to the vesting of their share options, the share options are
forfeited after 90 days unless cessation of employment is due to termination for cause or death, whereupon
they are forfeited immediately. The Company prohibits key management personnel from entering into
arrangements to protect the value of unvested ESOP awards.
The contractual life of each option granted is generally three (3) years. There are no cash settlement alternatives.
Each option can be exercised from vesting date to expiry date for one share with the exercise price payable in cash.
Option pricing model
The fair value of the equity settled share options granted (including ESOP) is estimated using a Black-Scholes
option pricing model taking into account the terms and conditions upon which the instruments were granted.
The following table lists the inputs to the model used for valuing the share options granted subsequent
to 31 December 2011:
Weighted average exercise price
$0.50
Weighted average life of the option
3 years
Underlying share price
$0.20
Expected share price volatility
60.85%
– 61.37%
Risk free interest rate
3.14%
– 3.58%
Value (Black-Scholes) per option
$0.022
– $0.037
105
8.
Historical and Pro-forma Financial
Information CONTINUED
8.5.9.
Deferred Tax
At 31 December 2011, the company has recognised deferred tax assets and deferred tax liabilities of $900,491
(which have been netted off), which primarily relate to carry-forward losses and capitalised exploration costs.
The total unrecognised deferred tax asset on tax losses was $691,542. The total of carry-forward tax losses at
31 December 2011 was $3,193,397. Following the pro-forma transactions outlined above, in particular the share
issue costs, the total carry-forward tax losses will be increased to $4,546,322.
Deferred tax assets which have not been recognised as an asset, will only be obtained if:
(i)
the Company derives future assessable income of a nature and of an amount sufficient to enable
the losses to be realised;
(ii) the Company continues to comply with the conditions for deductibility imposed by the law; and
(iii) no changes in tax legislation adversely affect the Company in realising the losses.
8.5.10.
Commitments
Future exploration commitments
The Company has certain obligations to expend minimum amounts on exploration in tenement areas. These
obligations may be varied from time to time and are expected to be fulfilled in the normal course of operations
of the Company. The commitments are as follows:
EXPLORATION COMMITMENTS
$
Less than 12 months
160,000
Between 12 months and 5 years
8,650,000
8,810,000
To keep tenements in good standing, work programs should meet certain minimum expenditure requirements.
If the minimum expenditure requirements are not met, the Company has the option to negotiate new terms
or relinquish the tenements. The Company also has the ability to meet expenditure requirements by joint venture
or farm-in agreements.
Operating lease commitments
The Company has no operating lease commitments.
The Company has a commercial arrangement with DGR Global Ltd (“DGR Global”) for the provision of various
services, whereby DGR Global provides resources and services including the provision of its administration and
exploration staff, its premises (for the purposes of conducting the Company’s business operations), use of
existing office furniture, equipment and certain stationery, together with general telephone, reception and
other office facilities (‘‘Services’’). In consideration for the provision of the Services, the Group pays DGR Global
a monthly fee of $31,500 per month.
Drilling commitments
The Company has entered into a contract with AJ Lucas Coal Technologies Pty Ltd (“AJ Lucas”) for the provision
of one drilling rig and the necessary crew to operate the drilling rig from 1 May 2012 to 31 October 2012.
Pursuant to the terms of the contract the Company is obligated to pay a daily rate of up to $25,132 plus room
and board for the crew and certain incidentals.
In addition, the Company is required to issue a performance bond of $750,000 in the form of a bank guarantee.
The performance bond is to be returned to the Company within the earlier of 30 November 2012 or within
3 days after the termination of the contract.
106
Armour Energy Limited Replacement Prospectus
Lakes Oil NL
On 23 December 2011, Armour Energy executed an agreement with Lakes Oil to subscribe for 900 million shares
in Lakes Oil at 0.25 cents per share and a right to maintain Armour Energy’s interest in Lakes Oil through
participation in any subsequent capital raisings.
In addition to the subscription of shares, Armour Energy committed to:
• spend up to $2.5 million by the end of March 2012 to earn a 51% interest in PEP 169 in the Otway Basin
with the right to assume operatorship thereafter;
• drill a cored commitment well on the Yallourn-Morwell Anticline and an open-hole well for a combined
expenditure of up to $4.25 million to earn an initial 25% interest and in the following 12 months, expend
a further $4.75 million to drill an additional open hole well to earn a 51% interest in EP 166P;
• a 3 year option on payment of annual option fees (totalling $600,000 over the three year period) to acquire
for $30 million, 50% of Lakes Oil’s interest in the Trifon and Gangell Blocks in PRL 2 and a direct 25% interest
in the balance of PRL 2; and
• a pre-emptive right to match any farm in or joint venture offers Lakes Oil may receive in respect of PRL 2
in the event existing farm-in partners withdraw.
8.5.11.
Contingent Assets and Liabilities
Native Title Agreements
Under the Company’s native title agreement over EP 171 and EP 176, the Company is required to pay
the greater of either $10,000 or 3% of exploration costs on each anniversary date.
There are no other contingent assets and liabilities at 31 December 2011 (2010: none).
8.5.12.
Subsequent Events
The Directors are not aware of any significant changes in the state of affairs of the Company or events
that would have a material impact on the historical and pro-forma financial information.
107
09.
Independent Expert’s
Report
• MBA Petroleum Consultants has assessed
a mean Prospective Resource estimate of
18.8 trillion cubic feet of gas and 2.0 billion
barrels of associated liquids, within the
unconventional and conventional plays across
both granted permits EP 171 and EP 176
• MBA Petroleum Consultants has additionally
assessed a mean Prospective Resource
estimate of 22.5 trillion cubic feet of gas and
242 million barrels of associated liquids within
the unconventional plays of ATP 1087, which
is currently pending grant subject to compliance
with all statutory and native title requirements
Armour Energy Limited Replacement Prospectus
9.
Independent Expert’s Report
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109
9.
Independent Expert’s Report CONTINUED
Table of Contents
1. Introduction................................................................................................................................................1
List of Figures .................................................................................................................................................3
2. Permits and Applications for Permits Held by Armour ..............................................................................4
3. Summary ....................................................................................................................................................4
4. McARTHUR BASIN ......................................................................................................................................7
4.1 Regional Geology ..................................................................................................................................7
4.2 Previous Exploration ............................................................................................................................8
4.3 Petroleum System ...............................................................................................................................9
4.3.1 Hydrocarbon Charge .....................................................................................................................9
4.3.2 Conventional Reservoirs............................................................................................................. 10
4.3.3 Seals............................................................................................................................................ 10
4.3.4 Conventional Leads .................................................................................................................... 10
4.4 Armour’s Northern Territory Permits............................................................................................... 11
4.4.1 EP 171 ......................................................................................................................................... 11
4.4.2 EP 176 ......................................................................................................................................... 13
4.5 Prospective Resource Estimation EP 171 and EP 176 ....................................................................... 14
5 Recent NT Applications ............................................................................................................................ 16
5.2 Overview ........................................................................................................................................... 16
5.2 Exploration History ............................................................................................................................ 17
5.2.1 Applications EP (A) 193, 196, western EP (A) 190 and northern EP (A) 191 ............................. 17
5.2.2 Applications EP (A) 173, 174, 190, 193, 194 and northern EP (A) 192 ...................................... 17
5.2.3 Applications EP (A), 177 178, 179 and southern 191 ................................................................. 18
5.2.4 Applications EP (A) 192, 195, 172 and eastern 179 ................................................................... 18
5.3 Permit Summary ................................................................................................................................ 19
6. South Nicholson Fault Zone / Northern Lawn Hill Platform (ATPA 1087P) ............................................ 19
6.1 Regional Geology ............................................................................................................................... 19
6.2 Previous Exploration ......................................................................................................................... 20
6.3 Hydrocarbon System ......................................................................................................................... 20
6.4 ATPA 1087P ....................................................................................................................................... 21
6.5 Prospective Resource Estimation ATPA 1087P ................................................................................ 21
7 Statements ............................................................................................................................................... 22
7.1 Limitations ......................................................................................................................................... 22
7.2 Sources of Information ...................................................................................................................... 22
7.3 Declaration ........................................................................................................................................ 22
110
Armour Energy Limited Replacement Prospectus
7.4 Qualifications of the Authors ............................................................................................................ 23
8 References ............................................................................................................................................ 24
9 Glossary and Definitions........................................................................................................................... 25
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111
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10.
Independent Solicitor’s
Report on Tenements
10. Independent Solicitor’s Report on Tenements
INCORPORATION OF SOLICITOR’S REPORT ON TENEMENTS
This Prospectus is a short form Prospectus issued in accordance with section 712 of the Corporations Act.
Accordingly rather than contain all the information that may be required to be set out in a standard document
of this type in relation to the tenements of the Company, it incorporates by reference the full Solicitor’s Report
on Tenements of HopgoodGanim Lawyers dated 19 March 2012 (Full Tenement Report), lodged with the
ASIC on 20 March 2012.
The Full Tenement Report incorporated by reference in this Prospectus will primarily be of interest to professional
analysts or advisers. However the summary and information contained below is provided to investors generally
to enable them to determine whether, in making an informed assessment of the Offer and the matters required
to be contained in this Prospectus under section 710 of the Corporations Act, they should obtain a copy of the
Full Tenement Report.
The Full Tenement Report can be obtained, at no cost, from the Company’s registered office and is also available
on the Company’s website www.armourenergy.com.au
www.armourenergy.com.au.
The information contained below is provided for purposes of section 712(2) of the Corporations Act.
148
Armour Energy Limited Replacement Prospectus
Independent Solicitor’s Report on
Tenements
Armour Energy Limited
19 March 2012
149
10. Independent Solicitor’s Report on Tenements CONTINUED
1.
Introduction
This Independent Solicitor’s Report has been prepared in response to instructions from
Armour Energy Limited ACN 141 198 414 (Armour Energy) for inclusion in the Armour
Energy Replacement Prospectus to be dated on or about 20 March 2012 for the initial public
offer of shares in Armour Energy.
This report is a summary of the full report prepared for the Directors of Armour Energy by
HopgoodGanim Lawyers proposed to be dated on or about 20 March 2012 (Full Report) and
it incorporates by reference the Full Report which will be able to be obtained, at no cost, from
the Armour Energy’s registered office and is also available on Armour Energy’s website:
www.armourenergy.com.au after 20 March 2012. As a summary, this report should be read
with the Full Report if details are sought about any aspect or issue relating to the Tenements
raised in this report.
Capitalized terms used in this report have the meaning ascribed to such terms in the Glossary
set out at the end of this report.
2.
Review of Tenements
In preparation of this report, we reviewed the each of the Tenements listed in Annexure A. The
Tenements consist of:
(a)
the Granted Tenements, consisting of EP 171 and EP 176, granted to Armour Energy
in the Northern Territory;
(b)
the NT Applications, consisting of 13 applications for EPs made by Armour Energy in
the Northern Territory; and
(c)
the Qld Application, which is an application for ATP 1087 made by Armour Energy in
Queensland.
The details in Annexure A are those recorded in the Northern Territory Register of Titles and
the Petroleum Register in Queensland.
3.
Conclusions
3.1
Northern Territory
(a)
Armour Energy has good title to each of the Granted Tenements and is the registered
holder of a 100% interest in each of the Granted Tenements.
(b)
Annual fees for each of the Granted Tenements have been paid to date.
(c)
Armour Energy has complied with applicable native title laws in respect of the grant of
the Granted Tenements.
(d)
There are no third party encumbrances registered against the Granted Tenements.
(e)
The Granted Tenements are in compliance with all work program requirements.
(f)
Each of the NT Applications have been duly submitted by Armour Energy, and Armour
Energy is the sole applicant currently entitled to receive the grants of the relevant
tenements provided it duly complies with all statutory and native title requirements.
(g)
None of the NT Applications have been granted or rejected as of the date of this report.
150
Armour Energy Limited Replacement Prospectus
3.2
(h)
NT Applications will not be granted over Aboriginal Land unless the relevant Land
Council acting for the benefit of the Aboriginals in respect of such land, consents to the
grant of the relevant NT Application.
(i)
Native Title agreements will need to be entered into in respect of each of the NT
Applications prior to their grant to Armour Energy by the Northern Territory.
Queensland
(a)
The Qld Application has been submitted by Armour Energy and Armour Energy has
been granted preferred tenderer status by the Queensland Government. Armour
Energy is currently the sole applicant entitled to receive the grant of the relevant
tenement provided it duly complies with all statutory and native title requirements.
(b)
The Qld Application has not been granted or rejected as of the date of this report.
(c)
Native Title Agreements will need to be entered into in respect of the Qld Application
prior to the grant of the Qld Application to Armour Energy.
(d)
To the extent that any of the EPMs within the area of the Qld Application are oil shale
(which is shale or other rock from which a fluid is extracted by a chemical or thermal
process) exploration tenements, Armour Energy may be restricted from carrying out
activities. While we are unable to identify which, if any, of the EPMs are oil shale
exploration tenements, we are not aware of any company targeting the oil shale in the
Qld Application area.
4.
Searches
4.1
Scope of Searches
Our investigations in respect of the preparation of this report were limited to the searches
identified in clauses 4.2 and 4.3 all of which conducted between 16 February 2012 – 23
February 2012.
4.2
Northern Territory Searches
We conducted Title and Register, DMETIS and DMESGM searches under DRME (NT), and
DNREAS (NT), AAPA and NNTT searches in respect of each of the Granted Tenements and
NT Applications.
4.3
Queensland Searches
We conducted a Public Enquiry Report and IRTM searches under DEEDI (Qld) and Aboriginal
Cultural Heritage Register and Environmentally Sensitive Area Mapping under DERM (Qld)
and NNTT searches in respect of the Qld Application.
5.
Exclusions
In preparation of this report, we did not consider:
(a)
The real properties or other land tenures underlying the Tenements (other than
Aboriginal Land and DOGIT land), or the impact of any notices issued or of any Crown
land reservations underlying the Tenements;
(b)
Environmental matters such as environmental requirements that do not directly affect
the standing of the Tenements and any information held by the DERM (Qld) or the
DRME (NT) about environmental obligations or compliance issues;
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(c)
Searches of the register of environmental management and contaminated land
maintained by DERM (Qld); and
(d)
Searches of the cultural heritage registers to assess non-indigenous cultural heritage.
6.
Assumptions and Qualifications
6.1
Assumptions
In the preparation of this report we have made the following assumptions:
6.2
(a)
All the information and register extracts provided by governmental departments and
agencies are accurate, complete and current and we note that this report is accurate,
complete and current only to the extent that the information and register extracts
provided to us are accurate, complete and current.
(b)
There have been no material changes in the standing of the Tenements since the
dates of our searches.
(c)
The Ministers administering the relevant Acts and each of their delegates have been
validly appointed and have acted within the scope of their power, authority and
discretion in granting the Tenements and are able and willing to grant any required
consents and approvals under relevant legislation.
Qualifications
This report is subject to the following qualifications:
(a)
The conclusions and opinions expressed in this report are limited to our review and
analysis of the results of the searches identified in clauses 4.2 and 4.3.
(b)
This report relates only to the relevant laws in force as at the date of the report and
does not address or consider any future amendments or changes that may be made to
any relevant laws.
7.
Encumbrances
7.1
Northern Territory
The DRME (NT) maintains registers of tenements under the Petroleum Act (NT). No registered
encumbrances against the Granted Tenements were identified in the results of our search of
the Northern Territory registers.
7.2
Queensland
As the Qld Application has not been granted, there are no registered encumbrances.
8.
Overlapping Tenements
8.1
Northern Territory
Each of the Granted Tenements and NT Applications overlap with mining tenures. The
Northern Territory does not have legislation which addresses the overlapping of petroleum and
mineral tenements. There are no restrictions on the grant of EPs over existing mining tenure
or restrictions on the operations of an EP holder on land which overlap with mining tenure.
8.2
Queensland
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(a)
Existing EPMs and EPM Applications
The Qld Application overlaps with a number of EPMs and applications for EPMs. The
EPMs and EPM applications overlap with between 50-60% of the area of the Qld
Application. There are no restrictions on the grant of the Qld Application over EPMs.
In the event the QLD Application is granted, Armour Energy will be permitted to carry
out operations on lands within EPMs granted prior to the grant of the Qld Application
only if Armour Energy has entered into an agreement with the holder of the relevant
EPM or Armour Energy’s operations do not adversely affect the carrying out of an
authorised activity under an EPM.
(b)
Application for PL (Qld)
In the event that the Qld Application is granted and Armour Energy subsequently
applies for a PL (Qld) within the area of the Qld Application, the following will apply:
(c)
(1)
In the event that the area of the PL (Qld) application overlaps with existing
EPMs (other than EPMs for oil shale mining), the PL (Qld) may be granted and
the PL (Qld) holder’s operations will not be limited by the activities. An EPM
holder may not carry out any operations without the agreement of the PL (Qld)
holder.
(2)
In the event that the area of the PL (Qld) application overlaps with existing EPC
or EPMs for oil shale mining, then the applicant must use reasonable attempts
to consult the EPC or EPM for oil shale mining tenement holder and make
arrangements to carry out testing, but only to the extent that the provisions or
arrangements are commercially or technically feasible for the applicant. The PL
(Qld) will be granted unless the EPC or EPM for oil shale mining holder has a
JORC compliant proved resource or reserve of coal or oil shale, in which case
the Minister give preference to either the PL (Qld) application or deny the
application in favour of the coal or oil shale mining permits. The Minister will
only make a preference decision if he is satisfied that it is unlikely that the
applicant and the mining tenement holder are able to make a coordination
arrangement.
(3)
In the event that the area of the PL (Qld) application overlaps with an existing
ML (Qld) (other than for coal or oil shale), the Minister may grant the PL (Qld).
However, the PL (Qld) will be prohibited from carrying out any activities without
the agreement of the ML (Qld) holder in the area of overlap.
(4)
In the event that the area of the PL (Qld) application overlaps with an
application for an ML (Qld) for coal or oil shale, provided that the ML (Qld)
applicant has JORC compliant reserves or resources, then the Minister will
make a preference decision as to whether the PL (Qld) or ML (Qld) will be
granted.
(5)
A PL (Qld) cannot be granted over the area of an existing coal or shale ML
(Qld) without reaching a coordination arrangement with the relevant ML (Qld)
holder.
Applications for Mining Tenements over Qld Application
The following will apply for applications made for a mining tenement over an ATP or PL
(Qld):
(1)
In the event that a person applies for an EPM (other than an EPM for oil shale)
over the area of an existing ATP, the EPM may be granted and the EPM holder
will be permitted to carry out activities on the overlapping land with the
agreement of the ATP holder or provided that the such activities do not
adversely affect the operations of the ATP holder.
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(2)
In the event that a person applies for an EPM (other than an EPM for oil shale),
MDL or ML (Qld) over the area of a granted PL (Qld), the mining tenement may
be granted provided that the mining tenement holder will not be permitted to
carry out any activities the area of overlap without the agreement of the PL
(Qld) holder in.
(3)
In the event that an EPC or EPM for oil share holder applies for a ML (Qld)
over land subject to an ATP, then the applicant must use reasonable attempts
to consult ATP holder and make arrangements to carry out testing, but only to
the extent that the provisions or arrangements are commercially or technically
feasible for the applicant. The ML (Qld) will be granted unless the ATP holder
has an identified resources or reserve of petroleum, in which case the Minister
will make a preference decision. The Minister will only make a preference
decision if he is satisfied that it is unlikely that the applicant and the ATP holder
are able to make a coordination arrangement.
(4)
In the event that a EPC or EPM for oil shale holder applies for a ML (Qld) over
land subject to land to a PL (Qld) application and provided that the ML (Qld)
applicant has JORC compliant reserves or resources, then the Minister will
make a preference decision as to whether the PL (Qld) or ML (Qld) will be
granted decision.
(5)
A ML (Qld) for coal or oil shale cannot be granted over a granted PL (Qld)
without the reaching a coordination arrangement with the PL (Qld) holder.
9.
Areas of Restriction
9.1
Northern Territory
We have reviewed the following potential restriction areas that may impact the Granted
Tenements and NT Applications:
(a)
(1)
Sensitive Areas;
(2)
National Parks;
(3)
Reservation Blocks; and
(4)
Aboriginal Community Living Areas.
Sensitive Areas
There are no mapped or designated sensitive areas overlapping the NT Tenements.
(b)
National Parks
Exploration and development activities that disturb the surface of the land within
national parks are restricted and may only be carried out with the permission of the
responsible Minister. The Granted Tenements and applications for EP 178 and EP
193 overlap with a national park and proposed national park. The areas of overlap is
relatively minor and less than approximately 1% of the total tenement area in each
case other than EP 176 which has a proposed national park which overlaps between
approximately 5-7% of the area of the tenement.
(c)
Reservation Blocks
Under the Petroleum Act (NT), the Minister may declare that a specific block may not
be the subject of an EP. We have not identified any reservation block within the area of
the Granted Tenements or NT Applications.
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(d)
Aboriginal Community Living Areas
Restrictions apply to the grant of petroleum exploration titles over Aboriginal
Community Living Areas. 5 NT Applications and EP 176 overlap with Aboriginal
Community Areas. In respect of the 5 NT Applications, the are of overlap is less than
approximately 1% of the area of the applications. In respect of EP 176 the area of the
overlap is approximately 5-7%.
9.2
Queensland
We have reviewed the following potential restriction areas that may impact the QLD
Applications:
(a)
(1)
Wild rivers;
(2)
Environmentally sensitive areas;
(3)
Sterile land;
(4)
Restricted areas;
(5)
Moratorium areas;
(6)
Constrained land;
(7)
Designated urban area;
(8)
Subartesian management plan; and
(9)
Strategic cropping land.
Wild Rivers
Pursuant to the Wild Rivers Act, the Minister under the Gregory Wild River Declaration
2007 and Settlement Wild Rivers Declaration 2007 (Qld) sets out various preservation
areas and restrictions on specified activities. The areas and applicable restrictions to
the Qld Application are as follows:
(1)
High Preservation Areas
High preservation areas encompass the major tributaries and special features
within the wild rivers declaration areas. Approximately 15% of the Qld
Application is covered by high preservation areas.
Level 1 petroleum activities must not occur at all within 1 kilometre of a
watercourse or lake that is in the high preservation area. Level 1 activities are
those activities which are considered to have a significant environmental
impact and are provided in Schedule 5 of the EP Regs (Qld).
Level 2 petroleum activities must not occur at all within 200 metres of a
watercourse or lake that is in the high preservation area. Any other activity
other than a level 1 activity, will be classified as a level 2 activity. Level 2
activities are considered to represent a low risk of causing serious
environmental harm
(2)
Preservation Areas
The preservation area covers the balance of the wild rivers declaration area,
being all areas that are not high preservation or floodplain management areas.
Activities in the preservation area will have less effect on natural values.
Approximately 20% of the Qld Application is covered by preservation areas.
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Operations are not restricted in preservation areas except in respect of
nominated waterways which are discussed in section 9.2(a)(3) below.
(3)
Nominated Waterways
The nominated waterways are those streams that provide important flows and
habitats that contribute to the natural values of the area. Nominated waterways
are found within preservation areas. There are approximately 130km of
nominated waterways within the preservation area of the Qld Application.
Petroleum activities must not occur at all within 100 metres of a nominated
waterway.
(4)
Floodplain Management Areas
The floodplain management area covers those areas subject to inundation and
seasonal flooding and includes floodplain channels, swamps, waterholes and
native pastures. Whilst floodplain management areas cover approximately 15%
of the Qld Application, the declaration does not restrict petroleum activity in
these areas.
A map attached in Annexure B shows the details of the high preservation area and
preservation areas with the area of the Qld Application.
(b)
Environmentally sensitive areas
Petroleum activities are restricted in ESAs. The Qld Application contains both Category
A and Category C ESAs.
(1)
Category A
The Qld Application has a small overlap (less than 1% of its area) with a
Category A ESA. The relevant ESA is a National Park. The restrictions on
activities in this area will be outlined in the EA.
(2)
Category C
The Qld Application has a substantial overlap with Category C ESAs. The
relevant Category C ESA’s are ‘referable wetlands’ and ‘of concern regional
ecosystems’. Prior to carrying out activities in a Category C ESA, the holder of
an ATP is required to consult with and DERM (Qld). If it is determined through
the consultation that additional conditions are necessary, the holder must
comply with those conditions. Any additional conditions cannot prohibit
exploration activities
The restrictions on activities in these areas will be outlined in the EA (which has not
yet been provided by Queensland). Any petroleum activity that is likely to have a
significant impact on a Category A or ESA, will require a level 1 EA. For more
information on the environmental approval process, refer to section 10.
Maps detailing the ESAs within or in the vicinity of the Qld Application are provided at
Annexure B.
(c)
Sterile land
Approximately less than 1% of the Qld Application is sterile land (subject to a National
Park).
(d)
Restricted areas
Approximately less than 5% of the Qld Application is subject to a prohibition on
application for or grant of new mining.
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(e)
Moratorium areas
There are no overlapping moratorium areas.
(f)
Constrained Land
Underlying cadastre, Lot 6 on NC12, which is approximately 16% of the Qld
Application, is subject to a Deed of Grant in Trust. The land is granted to Doomadgee
Aboriginal Council.
The AL Act (Qld) grants Aboriginal people secure title to certain lands. Aboriginal
DOGIT land is State land granted in fee simple in trust by the Governor–in-Council
under the Land Act (Qld) or the Land Act 1962 (repealed) for the benefit of Aboriginal
inhabitants or for Aboriginal purposes.
Under the Petroleum and Gas Act (Qld), a trustee for land subject to a DOGIT is
considered an owner and therefore has all the rights of an owner.
(g)
Designated urban area
There are no designated urban areas within the area of the QLD Application.
(h)
Subartesian management plan
There are no overlapping subartesian management plans.
(i)
Strategic cropping land.
There is no overlapping strategic cropping land.
10.
Environment
10.1
Northern Territory
The instrument of grant of an EP imposes environmental conditions on the holder of such EP.
EP holders must also comply with all applicable environmental laws. Prior to commencing
drilling activities, the holder of an EP must submit an environmental plan to the Northern
Territory government.
We are not aware of any environmental compliance issues in respect of the Granted
Tenements.
10.2
Queensland
The EP Act (Qld) requires that the holder of a petroleum authority under the Petroleum and
Gas Act (Qld) obtain an EA for environmentally relevant activities (ERAs).
The environmental approval required under the EP Act depends on whether the ERAs are
level 1 or level 2 activities. The approval process is summarised below.
(a)
Environmental approval process for Level 1 Activities
Level 1 chapter 5A activities are those activities which are considered to have a
significant environmental impact and are provided in Schedule 5 of the EP Regs (Qld).
Examples of a Level 1 Activity is a petroleum activity involving the injection of a waste
fluid into a natural underground reservoir or aquifer, or a petroleum activity that is likely
to have a significant impact on category A or B ESAs.
If an environmental authority is required for a level 1 activity, then the application must
and include an environmental management plan. An environmental management plan
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is to propose the environmental protection commitments to help the administering
authority to decide the conditions of the environmental authority. The environmental
management plan must include environmental protection commitments and a
rehabilitation program.
The administering authority may impose any condition on a level 1 EA it considers
necessary or desirable. The conditions must include any conditions required to be
imposed under a regulatory requirement and any conditions stated in the wild rivers
declaration for the area.
Conditions that may be included in an EA for petroleum activities include:
(1)
No activities within Category A or Category B ESAs.
(2)
All waste fluids and musts resulting from drilling and exploration activities must
be contained in a dam or containment structure for disposal, remediation or
reuse.
(3)
Oil and synthetic drilling muds are not authorised to be used under the
authority.
As at the date of this report the EA has not been provided by the Queensland
government in respect of the Qld Application. We therefore cannot comment on the
specific conditions of the EA for the Qld Application
(b)
EIS Process
Upon receipt of an application for an EA, the administering authority may decide that
an environmental impact statement (EIS) is required. The purpose of an EIS and EIS
process is to assess the potential and beneficial environmental economic and social
impacts of a project and measures proposed to minimise any adverse environmental
impacts of the project. The purpose of an EIS is also to prepare or propose and
environmental management plan When deciding whether an EIS is required the
authority will have regard to the standard criteria. The standard criteria include the
applicable environmental protection policy and the character and resilience and values
of the receiving environment.
(c)
Environmental approval process for Level 2 Activities
Level 2 activities are any other activity other than a level 1 activity. Level 2 activities
are considered to represent a low risk of causing serious environmental harm.
If there is a relevant code of environmental compliance and the applicant elects to
comply with the codes in carrying out the relevant level 2 activities, the authority may
grant a code compliant environmental authority. As there is currently no code of
environmental compliance for level 2 chapter 5A activities, all EA’s will be classified as
non-compliant.
10.3
Commonwealth
The EPBC Act provides a legal framework to protect and manage nationally and internationally
important flora, fauna, ecological communities and heritage places.
There is a requirement for a developmental approval under the EPBC Act where a proposed
development has the potential to have a significant impact on a matter of national
environmental importance (which includes significant impact on world heritage property,
threatened species migratory species or marine environment).
If the Minister determines that the proposed project has a significant effect on any matters of
national significance, the Minister may choose one of the following ways of assessing the
relevant impacts of the action:
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(a)
an accredited assessment process;
(b)
an assessment on preliminary documentation;
(c)
a public environment report;
(d)
an EIS; or
(e)
a public enquiry.
Once a project has been assessed by the Department of Sustainability, Environment, Water,
Population and Communities, the department makes a recommendation to the Minister or
delegate about whether or not the project should be approved to proceed. The Minister may
attach conditions to the approval of the action.
It is unknown whether there are areas of national environmental significant that may be
affected by activities on any of the tenements. Armour Energy will need to consider whether its
operation will have a significant impact on a matter of national environmental importance
before commencing operations.
11.
Native Title
11.1
Aboriginal Land in Northern Territory
A number of the NT Applications encompass Aboriginal Land granted under the ALRNT Act
(Cth). For an EP to be granted, the relevant Land Council and the Minister must provide their
consent. An applicant for an EP has a period of 22 months commencing on 1 January of the
calendar year after the calendar year in which the EP applicant submits an application to the
relevant Land Council to consent to the grant of the EP. The 22 month negotiating period may
be extended for an additional 2 year period if the Land Council and EP applicant agree to such
extension.
11.2
Native title claims over Tenements
Each of the Granted Tenements, NT Applications and Qld Application overlap with native title
claims.
Native title issues in the Northern Territory in respect of the NT Application and in Queensland
in respect of the Qld Application must be addressed before any of the relevant tenements will
be granted to Armour Energy Energy.
In respect of the areas covered by native title claims, Armour Energy will be required to satisfy
the provisions of the Native Title Act prior to the grant of the tenements. For petroleum
activities, this will require that Armour Energy to comply with one of the expedited procedure
under the Native Title Act, Right to Negotiate or an ILUA. It is likely that Armour Energy will
proceed with the Right to Negotiate process in respect of exploration tenements. The outcome
of the Right to Negotiate process is known as a “Section 31 Agreement”. A “Section 31
Agreement” must be registered with the State. An ancillary agreement may also be made
between the parties (to which the State is not a party) which will deal with matters relating to
compensation and usually cultural heritage.
11.3
ILUA
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An ILUA is a voluntary agreement between a native title claimant group and others about the
use and management of land and waters. ILUAs may deal with topics such as access to an
area, how native title rights coexist with the rights of others, native title holders agreeing to a
future development and matters of compensation. Once registered, the ILUA will bind all
parties and all native title holders to the terms of the agreement.
12.
Rental Fees
12.1
Northern Territory
The holders of EPs are required to pay annual fees. We note that the annual fees for the
Granted Tenements have been paid to date. There no annual fees payable in respect of NT
Applications.
12.2
Queensland
The holders of granted petroleum tenements in Queensland are required to pay rent on the
tenements. Rent is not currently payable on the Qld Application.
13.
Royalties
13.1
Northern Territory
Armour Energy does not currently have any royalty obligations in the Northern Territory as the
Granted Tenements do not grant the holder a right to produce petroleum and, as such, no
royalties are payable in respect of such tenements.
Royalties will be payable on petroleum production in the event that Armour Energy is granted
an RL or PL (NT) from the area of any EP. Under the Petroleum Act (NT) the holder of a RL or
PL (NT) shall pay a royalty at the rate of 10% upon the gross value at the wellhead of all
petroleum produced from the relevant tenement. The gross value of the petroleum shall be
the value, from time to time, agreed upon in writing between the Minister and the holder of the
relevant RL or PL (NT), or in default of an agreement, is such amount as determined by the
Minister as being that value.
13.2
Queensland
Armour Energy does not currently have any royalty obligation in Queensland nor will Armour
Energy have any royalty obligations in the event the Qld Applications is granted. The
Queensland royalty regime under the Petroleum and Gas Act (Qld) will only become relevant
in the event that Armour Energy is granted a PL (Qld).
The royalty payable under the Petroleum and Gas Regs (Qld) is 10% of the wellhead value of
the petroleum produced or disposed of in respect of the relevant tenement. Instructions for
calculating the wellhead value of petroleum are contained in the Petroleum and Gas Regs
(Qld).
14.
Work Programs and Expenditures
14.1
Northern Territory
Details of the work program and annual minimum expenditure programs for the Granted
Tenements are as follows:
EP 171
Year
Work Program Details
Expenditure
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1
Geological mapping and interpretation
$80,000
2
Core drilling stratigraphic and core fracturing studies
$200,000
3
Exploration percussion drilling
$300,000
4
Follow up drilling
$600,000
5
Further drilling appraisal and prefeasibility studies
$600,000
Work Program Details
Expenditure
1
Geological mapping and interpretation
$80,000
2
Core drilling stratigraphic and core fracturing studies
$300,000
3
Exploration percussion drilling
$800,000
4
Follow up drilling
$2,600,000
5
Further drilling appraisal and prefeasibility studies
$3,300,000
EP 176
Year
Work programs and minimum annual expenditures obligations will be finalized if and when the
NT Applications are granted.
14.2
Queensland
A work program and minimum annual expenditure obligation will be finalized if and when the
QLD Application.
15.
Registered Dealings
15.1
Northern Territory
At this time there are no registered dealings against the Granted Tenements or NT
Applications.
15.2
Queensland
The Qld Application is not yet subject to any registered dealings.
16.
Aboriginal Cultural Heritage
16.1
Northern Territory
All Aboriginal sacred sites in the Northern Territory are protected under the NTASSA.
Regardless of whether the site is registered with the AAPA, which is kept pursuant to the
NTASSA, all sacred sites are protected.
Under Section 29 and 39 of the HC Act (NT), it is an offence to undertake works on a Declared
Heritage Place without the consent of the relevant Minister. Any approvals must be sought
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prior to the undertaking of any activities that may disturb a Declared Heritage Place and result
in inadvertent breaches of the Act.
All prescribed archaeological places, objects, areas or sacred sites are protected either under
the HC Act (NT) or NTASSA, whether they have been recorded or not. Armour will be
prevented from carry out operations that may impact any archaeological places, objects, areas
or sacred sites without the approval of the relevant native title parties or the relevant Minister,
as may be applicable. Prior to commencing operations, it is prudent to determine the
existence of any sacred site or cultural heritage object by obtaining a clearance survey, which
may involve lengthy research and consultation with local communities.
All of the Granted Tenements and NT Applications contain cultural heritage sites, sacred sites
or archaeological places or objects. However, they represent only a relatively small portion of
the surface area of the Granted Tenements and NT Applications.
16.2
Queensland
The ACHA (Qld) aims to protect Aboriginal areas and objects of cultural significance,
irrespective of the underlying tenure of the land. The existence of Aboriginal cultural heritage
is in no way an indication that native title exists in an area. There are a number of areas and
sites of cultural heritage within the area of ATP 1087. However, they represent only a
relatively small portion of the surface area of ATP 1087.
Prior to commencing operations, it is prudent to determine the existence of any Aboriginal site
or object by obtaining a clearance survey, which may involve lengthy research and
consultation with local communities.
16.3
Commonwealth
The Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Cth) also applies to the
Tenements and is aimed at the preservation and protection from desecration of significant
Aboriginal areas and significant Aboriginal objects. An area or object is found to be
desecrated if it is used or treated in a manner inconsistent with Aboriginal tradition.
Yours faithfully
HopgoodGanim Lawyers
Contact
Brian Moller
Partner
T 07 3024 0336
F 07 3024 0514
E b.moller@hopgoodganim.com.au
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Glossary
AAPA
Aboriginal Areas Protection Authority
ACHA (Qld)
Aboriginal Cultural Heritage Act 2003 (Qld)
Aboriginal Land
Either:
Aboriginal
Community
Living Areas
(e)
and held by an Aboriginal Land Trust established under this
ALRNT Act (Cth) for an estate in fee simple; or
(f)
land the subject of a deed of grant held in escrow by a Land
Council.
Land granted as Aboriginal living areas under the Pastoral Land Act (NT).
ALRNT Act
(Cth)
Aboriginal Land Rights (Northern Territory) Act 1976 (Cth)
ATP
Authority to Prospect granted under the Petroleum and Gas Act (Qld)
Armour Energy
Armour Energy Limited ACN 141 198 414
DEEDI (Qld)
The Queensland Department of Employment, Economic Development and
Innovation
DERM (Qld)
The Queensland Department of Environment and Resources Management
DMESGM
The Northern Territory Department of Resources Minerals and Energy –
Strike Geoscience Mapping
DMETIS
The Northern Territory Department of Mines and Energy Titles Information
System
DNREAS (NT)
The Northern Territory Department of Natural Resources, Environment,
Arts and Sports
DOGIT Land
State land granted in fee simple in trust by the Governor–in-Council under
the Land Act 1994 or the Land Act 1962 (repealed) for the benefit of
Aboriginal inhabitants or for Aboriginal purposes.
DRME (NT)
The Northern Territory Department of Resources Minerals and Energy:
EA
Environmental Authority issues for ERAs in Queensland
EIS
Environmental Impact Statement
EPBC Act
Environmental Protection and Biodiversity Conservation Act 1999 (Cth)
EP
Exploration permit under the Petroleum Act (NT)
EP Act (Qld)
Environmental Protection Act 1994 (Qld)
EPM
Exploration Permit for Minerals granted under the MR Act (Qld)
EP Regs (Qld)
Environmental Protection Regulation 2008 (Qld)
Page 15 of 19
163
10. Independent Solicitor’s Report on Tenements CONTINUED
ERA
Environmentally relevant activities under the EP Act (Qld)
ESA
Environmentally Sensitive Areas
Granted
Tenements
collectively, EP 171 and EP 176
HC Act (NT)
Heritage Conservation Act (NT)
ILUA
Indigenous Land Use Agreement
IRTM
Interactive Resource and Tenure Maps
Land Act (Qld)
Land Act 1962 (Qld)
Minister
Minister responsible for the relevant Act
MR Act (Qld)
Mineral Resources Act 1989
NT Act
Native Title Act 1993 (Cth)
NNTT
National Native Title Tribunal
NT Applications
The 13 applications for EPs in the Northern Territory identified in Annexure
A
NTASSA
Northern Territory Aboriginal Sacred Sites Act 1989 (NT)
NT Tenements
Granted and Application tenements located in the Northern Territory as
identified in Annexure A
Petroleum Act
(NT)
Petroleum Act (NT)
Petroleum and
Gas Act (Qld)
Petroleum and Gas (Production and Safety) Act 2004 (Qld)
Petroleum
Regs (NT)
Petroleum Regulation (NT)
Petroleum and
Gas Regs (Qld)
Petroleum and Gas (Production and Safety) Regulation 2004 (Qld)
PL (NT)
Production licence granted under the Petroleum Act (NT)
PL (Qld)
Petroleum lease granted under the Petroleum and Gas Act (Qld)
Qld Application
The application for ATP 1087
RL
Retention licence granted under the Petroleum Act (NT)
Tenements
The tenements described in Annexure A
Wild Rivers Act
Wild Rivers Act 2005 (Qld)
Page 16 of 19
164
Armour Energy Limited Replacement Prospectus
Annexure A
Tenement Details
Tenement
Registered
Holder
Percentage
Holding
Grant
Date/Application
Date
Rent
Due
Rent/Rent
Estimate
3,473
$0
$1,035
28/06/2016
8,032
$0
$2,254
N/A
7,068
$0
$2,024.
N/A
2,918
$0
$1,081
N/A
4,340
$0
$1,495
N/A
15,939
$0
$4,600
N/A
15,689
$0
$4,370
N/A
16,108
$0
$4,600
N/A
12,821
$0
$4,186
N/A
15,246
$0
$4,278
N/A
9,487
$0
$2,852
N/A
1,348
$0
$575
N/A
2,342
$0
$782
Expiry Date
Approximate
Area (km2)
28/06/2016
Granted Tenements (NT)
EP171
EP176
Grant
Armour Energy
Limited
100%
Armour Energy
Limited
100%
29/06/2011
Grant
29/06/2011
NT Applications
EP172
EP173
EP174
EP177
EP178
EP179
EP190
EP191
EP192
EP193
EP194
Application
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
29/12/2009
Application
24/12/2009
Application
24/12/2009
Application
06/04/2010
Application
08/04/2010
Application
08/04/2010
Application
04/08/2010
Application
04/08/2010
Application
04/08/2010
Application
13/08/2010
Application
13/08/2010
Page 17 of 19
165
10. Independent Solicitor’s Report on Tenements CONTINUED
Tenement
Registered
Holder
Percentage
Holding
EP195
Armour Energy
Limited
100%
Armour Energy
Limited
100%
Armour Energy
Limited
100%
EP196
ATP 1087
Grant
Date/Application
Date
Rent
Due
Rent/Rent
Estimate
3,317
$0
$1,058
N/A
742
$0
$368
N/A
7,138
$0
$5234.40
Expiry Date
Approximate
Area (km2)
N/A
Application
13/08/2010
Application
13/08/2010
Application
27/09/2010
Page 18 of 19
166
Armour Energy Limited Replacement Prospectus
Annexure B
Environmentally Sensitive Areas and Wild Rivers for ATP 1087
Page 19 of 19
167
11.
Independent Accountant’s
Report
Armour Energy Limited Replacement Prospectus
11. Independent Accountant’s Report
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169
11. Independent Accountant’s Report CONTINUED
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170
Armour Energy Limited Replacement Prospectus
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171
12.
Additional
Information
Armour Energy Limited Replacement Prospectus
12. Additional Information
12.1.
SUMMARY OF MATERIAL CONTRACTS
A summary of the material agreements to which the Company is a party are set out below:
12.1.1.
Underwriting Agreement
Armour Energy has entered into the Underwriting Agreement with Samuel Holdings Pty Ltd ACN 063 693 747
(Underwriter), a company associated with Mr Nicholas Mather, Director and Executive Chairman of the
Company, on 28 February 2012. As of the date of this Offer, Nicholas Mather and entities associated
with him, do not hold any Shares but hold 1,000,000 Options to subscribe for Shares.
The Company has appointed the Underwriter to underwrite the Offer to the amount of $50 million. The Underwriter
may appoint sub-underwriters to sub-underwrite the whole of the Offer and has appointed DGR Global
as a sub-underwriter in respect of 20,000,000 Shares.
At completion of the Offer, if the Underwriter was required to subscribe for all of the Underwritten Amount,
it is possible that the Underwriter may be issued with up to a maximum of 100,000,000 New Shares, which
would result in it holding 100,000,000 Shares in the Company, or 33.33% of the voting power in the Company.
Please note that this may trigger a change in control of the Company. Please refer also to Section 6.6 for
further information.
Set out below is a summary of the material terms of the Underwriting Agreement:
a)
The Company has agreed to pay the Underwriter an underwriting fee of seven (7) per cent of the amount
underwritten by the Underwriter, plus the Underwriter’s reasonable expenses.
b)
The Company has agreed to indemnify the Underwriter, in respect of all costs of and incidental to the Issue,
and indemnify the Underwriter and its related corporations, officers, employees, agents and servants
(Indemnified Party) against all liabilities, losses, damages, costs or expenses arising out of the Offer, the
Prospectus and associated documents, except where that indemnity would be illegal, void or unenforceable,
or arose out of negligence or bad faith of the Indemnified Party.
c)
Completion of the Underwriting Agreement is conditional upon:
• the Underwriter receiving sub-underwriting commitments totalling at least $22.5 million;
• the Company receiving in excess of $25.0 million of subscription funds;
• the Underwriter consenting to the appointment of any co-managers;
• the Company lodging the Prospectus with ASIC by close of business on 13 March 2012
(unless the delay is due to an act or omission of the Underwriter);
• written confirmation that ASX will grant approval for the Company’s Official Quotation; and
• there existing no reasonable grounds for the Underwriter to believe that the Company’s Official Quotation
will be not be materially delayed beyond the Official Quotation Date specified in the timetable.
d)
Additionally the Underwriter’s commitment to subscribe for the underwritten shares is conditional upon:
• the provision by the Company of a due diligence report and legal opinion in relation to the due diligence
committee’s investigations; and
• compliance with the applicable provisions of the Corporations Act, Listing Rules and in particular the
conditions for Official Quotation.
e)
The Underwriter may terminate its obligations to underwrite the Offer upon the happening of the following:
• listing approval: approval for listing is refused or not granted, other than subject to standard conditions
customarily imposed, or any other conditions accepted in writing by the Underwriter or if approval is granted,
such approval is subsequently withdrawn qualified or withheld;
• quotation approval: approval for Official Quotation is refused or not granted, other than subject to
standard conditions customarily imposed, or any other conditions accepted in writing by the Underwriter
or if approval is granted, such approval is subsequently withdrawn qualified or withheld before Completion;
• S & P/ASX 200 Index fall: if the S & P/ASX 200 Index is, at any time for a business day after the date
of the Underwriting Agreement, prior to the date of the allotment of New Shares and New Options under
173
12. Additional Information CONTINUED
the Offer more than 10% below the level of that Index at the close of ASX trading on the trading
day before the date of lodgement of the Prospectus;
• Material Adverse Effect: any change, event or serious of events which, in the reasonable opinion
of the Underwriter, is likely to have a material adverse effect;
• withdrawal: the Company withdraws or terminates the Prospectus or the Offer;
• repayment: any circumstance that arises after lodgement of the Prospectus that results in the Company
either repaying the money received from applicants (other than to applicants whose applications were
not accepted in whole or in part) or offering applicants an opportunity to withdraw their applications
for New Shares and be repaid their application money; or
• no certificate: the Company does not provide a closing certificate (confirming certain matters)
as set out in the Underwriting Agreement;
• capital structure: other than as contemplated by the Prospectus, the Company or any related body
corporate of the Company takes any steps to alter its capital structure without the prior written consent
of the Underwriter;
• judgment: a judgment in an amount exceeding $1,000,000 is obtained against the Company
or a related body corporate of the Company and is not set aside or satisfied within 14 days;
• process: any distress, attachment, execution or other process of a governmental agency in an amount
exceeding $1,000,000 is issued against, levied or enforced upon any of the assets of the Company
or a related body corporate of the Company and is not set aside or satisfied within 14 days;
• financial assistance: the Company passes or takes any steps to pass a resolution under section 260B
of the Corporations Act, without the prior written consent of the Underwriter;
• suspends payment: the Company suspends payment of its debts generally;
• insolvency: the Company is or becomes unable to pay its debts when they are due or is or becomes
unable to pay its debts (within the meaning of the Corporations Act) or is presumed to be insolvent
under the Corporations Act;
• arrangements: the Company enters into or resolves to enter into any arrangement, composition or
compromise with, or assignment for the benefit of, its creditors or any class of them;
• ceasing business: other than as contemplated by the Prospectus, the Company ceases or threatens
to cease to carry on business;
• disclosures in Prospectus: a statement contained in the Prospectus is materially misleading or deceptive,
or a matter required by the Corporations Act is omitted from the Prospectus (having regard to
sections 710, 711 and 716 of the Corporations Act);
• international events or events involving financial markets: No happening of any international event
or series of events involving financial markets, commodities markets or investment generally which might
have a material adverse effect on the Company, its assets, business, prospects or which might materially
prejudice the success of the Offer;
• supplementary prospectus: the Company lodges a Supplementary Prospectus without the consent
of the Underwriter or fails to lodge a supplementary prospectus in a form acceptable to the Underwriter
in circumstances where the Underwriter reasonably believes that the Company is prohibited by
section 728(1) Corporations Act from offering Shares under the Prospectus;
• disclosures in Due Diligence Report: any information supplied by or on behalf of the Company
to the Underwriter in relation to the Offer as part of the due diligence process or becomes materially
misleading or deceptive;
174
Armour Energy Limited Replacement Prospectus
• material contracts: any material contract to which the company is a party is terminated or amended
without the prior written consent of the Underwriter and which consent shall not be unreasonably withheld;
• hostilities: there is an outbreak of hostilities (whether or not war has been declared) not presently
existing, or a major escalation in existing hostilities occurs, involving any of the following:
• Australia;
• New Zealand;
• the United Kingdom;
• Japan;
• Singapore;
• Hong Kong; or
• The People’s Republic of China;
• change to Constitution: other than as contemplated by the Prospectus, prior to the allotment date,
the Constitution of the Company or a related body corporate of the Company is amended without the
prior written consent of the Underwriter, which shall not be unreasonably withheld;
• compliance with regulatory requirements: a material contravention by the Company, the Listing Rules,
its constitution or any other applicable law or regulation;
• Prospectus to comply: the Prospectus or any aspect of the Offer does not materially comply with
the Corporations Act, the Listing Rules or any other applicable law or regulation;
• notifications: any of the following notifications are made:
• ASIC gives notice of an intention to hold a hearing under section 739(2) of the Corporations Act
or issues an order under sections 739(1) or (3) of the Corporations Act;
• an application is made by ASIC for an order under Part 9.5 of the Corporations Act in relation to
the Prospectus or ASIC commences any investigation or hearing under Part 3 Australian Securities
and Investments Commission Act 2001 (Cth) in relation to the Prospectus;
• any person gives a notice under section 733(3) of the Corporations Act or any person who has
previously consented to the inclusion of their name in the Prospectus (or any supplementary
prospectus)
or to be named in the Prospectus withdraws their consent after lodgement;
• the Company issues a public statement concerning the Offer which has not been approved
by the Underwriter; or
• material breach: the Company breaches any of its material obligations under the Underwriting Agreement;
• representations and warranties: any representation or warranty contained in the Underwriting Agreement
on the part of the Company is breached or becomes false, misleading or incorrect to a material extent;
• prescribed occurrence: an event specified in section 652C(1) or section 652C(2) of the Corporations Act,
but replacing ‘target’ with ‘Company’; or
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• change in laws: any of the following occurs which does or is likely to prohibit, materially restrict
or regulate the Offer or materially reduce the likely level of valid Applications or materially affects
the financial position of the Company or has a material adverse effect of the success of the Offer:
• the introduction of legislation into the Parliament of the Commonwealth of Australia
or of any State or Territory of Australia; or
• the public announcement of prospective legislation or policy by the Federal Government
or the Government of any State or Territory or the Reserve Bank of Australia; or
• the adoption by ASIC or ASX or their respective delegates of any regulations or policy;
• failure to comply: the Company or any related body corporate of the Company fails to comply
with any of the following:
• a provision of its Constitution;
• any statute;
• the Listing Rules;
• a requirement, order or request made by or on behalf of the ASIC, the ASX or any
governmental agency; or
• any agreement entered into by it; and
• due diligence: there is a material omission from the results of the due diligence investigation performed
in respect of the Company or the verification material or the results of the due diligence investigation
or the verification material is false or misleading.
However, the Underwriter may not terminate the Underwriting Agreement unless it reasonably believes that the
event has or is likely to have a materially adverse effect on the outcome of the Offer or could give rise to liability
for the Underwriter under any law or regulation and has first afforded the Company a reasonable time
(not exceeding 10 business days) to remedy the event (if capable of being remedied).
12.1.2.
Lead Manager Agreement, Co-Lead Manager Agreement, and other mandates
Lead Manager Agreement
The Company has finalised the terms of an agreement with the Lead Manager with respect to the management
of the Offer (Lead Manager Agreement). The Lead Manager does not commit to underwrite the Offer.
The Offer is being underwritten by the Underwriter pursuant to an agreement the terms of which are summarised
above. However, the Lead Manager may, subject to certain conditions, sub-underwrite the Offer. Pursuant to the
terms of the Lead Manager Agreement, the Lead Manager will provide the Company with a number of services
relating to the management of the Offer including the following:
• advising the Company on the appropriate strategy, structure, pricing and timing for the Offer, on terms
acceptable to investors;
• assisting, as required, with the appointment of other professional advisers;
• participating in the due diligence processes on the terms set out in the Lead Manager Agreement;
• assisting with the preparation and review of the Prospectus;
• assisting with the logistics of the Prospectus production and its distribution;
• conducting initial marketing to core investors in advance of the Offer;
• reporting on a daily basis details of its initial marketing, such details to include the characteristics of the core
investors and the indicative level of interest;
• co-ordinating the marketing roadshow for the Offer, including assistance in the preparation of the
roadshow presentation;
• reporting on a daily basis details of the roadshow activities, such details to include the characteristics of the
roadshow attendees and the indicative level of interest;
• assisting the Company in co-ordinating the obtaining of commitments from Seed Capital Investors;
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Armour Energy Limited Replacement Prospectus
• assisting the Company and the Seed Investors in making the Offer available to the other Investors, if requested
to do so by the Company and/or the Seed Investors;
• (in conjunction with the Company’s legal advisers) assistance in the preparation of relevant ASX releases;
• (in conjunction with the Company’s legal advisers) assistance in any dealings with the ASX and ASIC; and
• co-ordinating the bids into the IPO book and advising on allocations.
Commissions, fees and expenses
1)
The following fees will be charged by the Lead Manager and be payable by the Company:
a) A lead manager fee of:
• 2.0% of the funds raised under the Offer, including any investment by cornerstone investors; and
• 5,000,000 Options exercisable at $0.50 expiring 31 August 2014 payable only if the Company
is successful in completing the Offer.
2)
b)
A cornerstone investor fee of 4.0% of funds raised by the Lead Manager from cornerstone investors
under the Offer.
c)
An ongoing corporate advisory fee of $12,500 per month for a minimum of a 12 month period following
the New Shares being admitted to Official Quotation.
d)
A firm offer fee of 5% on any monies raised by the Lead Manager in excess of the Underwritten Amount.
The Lead Manager will charge the Underwriter a firm offer fee of 5% on any monies raised by the Lead
Manager that provide relief to the Underwriter, of the Underwritten Amount, save for amounts that are
in relief of existing firm commitments by sub-underwriters for which the Lead Manager will charge the
Underwriter a fee of 3%.
Co-Lead Manager Agreement
The Company also finalised the terms of an agreement with the Lead Manager and RBS Morgans Corporate
Limited (Co-Lead Manager) with respect to the management of the Offer (Co-Lead Manager Agreement).
The Co-Lead Manager does not commit to underwrite the Offer, but may, subject to certain conditions,
sub-underwrite the Offer. Pursuant to the terms of the Co-Lead Manager Agreement, the Co-Lead Manager
is to provide the Company with a number of services relating to the management of the Offer including
the following:
• advising the Company on the appropriate strategy, structure, pricing and timing for the Offer, on terms
acceptable to investors;
• assisting with the preparation and review of the Prospectus;
• assisting with the logistics of the Prospectus production and its distribution;
• conducting initial marketing to core investors in advance of the Offer;
• reporting on a daily basis details of its initial marketing, such details to include the characteristics of the
core investors and the indicative level of interest;
• co-ordinating the marketing roadshow for the Offer, including assistance in the preparation of the
roadshow presentation;
• reporting on a daily basis details of the roadshow activities, such details to include the characteristics
of the roadshow attendees and the indicative level of interest;
•
(in conjunction with the Company’s legal advisers) assistance in the preparation of relevant ASX releases;
• (in conjunction with the Company’s legal advisers) assistance in any dealings with the ASX and ASIC; and
• co-ordinating the bids into the IPO book and advising on allocations.
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Commissions, fees and expenses
The following fees will be payable to the Co-Lead Manager:
(a) A firm offer fee of 5% on any monies raised by the Co-Lead Manager above the underwritten amount
of $50 million, payable by the Company.
(b) A firm offer fee of 5% on any monies raised that provide relief to the Underwriter in respect of the
Underwritten Amount, payable by the Underwriter, save for amounts that are in relief of existing firm
commitments by sub-underwriters for which the Co-Lead Manager will charge the Underwriter a fee of 3%.
Co-Manager Agreement
In addition the Company entered into a mandate with RFC on 14 February 2012. Pursuant to the terms of that
mandate, RFC is to act as Co-Manager of the IPO. RFC is to work with the Lead Manager and the Company
to raise up to $20 million from UK based institutions (UK Raising).
The mandate does not confer any exclusive rights to allocations on RFC.
The following selling fees will be payable by the Company to the RFC:
• 3% of the gross amount raised by the RFC from the UK Raising; and
• in all other instances 3% of the gross amount raised by RFC under the Institutional and Retail Offer.
Pursuant to a letter agreement the Company has agreed to pay RFC an additional 1% management fee in respect
of amounts raised under the UK Raising. The aggregate 4% fee payable by the Company to RFC shall be offset
against the 5% fee which would be payable to the Lead Manager in respect of such amounts raised.
Ambrian Partners Limited, has entered into a letter agreement dated 7 March 2012 with RFC pursuant to which
Ambrian Partners Limited, will provide assistance to RFC in respect of the UK Raising. RFC is solely responsible to
pay Ambrian Partners Limited’s fees from the 4% fee payable by the Company to RFC in respect of the UK Raising.
12.1.3.
Native Title Agreement
Armour Energy entered into a Co-existence and Exploration Deed on 22 June 2011 (Native Title Agreement) with
the Government of Northern Territory, the Northern Land Council (NLC) and the Native Title Parties (NTPs) who
have or claim native title within the area of the applications for Exploration Permit 171 and Exploration Permit 176.
The Native Title Agreement is not a conjunctive agreement and is therefore not applicable to a later act under
the Native Title Act. Armour Energy will be required to negotiate a new agreement in respect of any production
licence for which Armour Energy may apply for, provided that, as outlined below, the parties have agreed to the
royalty calculation to be included in such an agreement.
Pursuant to the Native Title Agreement the NTPs agree not to object or otherwise seek to challenge the validity
of the grant of the Tenements or any government authorisation entitling Armour Energy to undertake exploration
on area of the Tenements (Tenement Area). In consideration thereof, Armour Energy must carry out its
operations in the Tenement Area in accordance with the provisions of this Native Title Agreement.
Subject to health and safety restrictions, the Native Title Agreement provides that the NTPs shall have the right
to access the Tenement Area. Armour Energy shall minimise interference with NTPs movement. Any personnel
and third parties which are to work within the Tenement Area are to be given cultural heritage training.
The Native Title Agreement provides a framework for sacred site clearances and work programs. Each year,
Armour Energy must provide the representative of the NTPs (NTP Representative) (the NLC has been appointed
as the NTP Representative) details of the work program that it proposes to undertaken on the Tenement Area
in the upcoming year. Armour Energy is not to propose any activities on areas that have been identified as
sacred sites. The NTPs may suggest changes and request that a sacred site clearance be undertaken. The NTP
Representative shall notify Armour Energy on or before 1 May of each year that the work program has been
approved and what, if any, conditions are on such approval. Armour Energy is not to conduct any activities until
the proposed work program has been approved by the NTPs. Armour Energy shall be responsible for costs
associated with the NTPs’ consideration of the work program and any site clearances.
Armour Energy has agreed to take reasonable steps to maximise the employment, training and business
opportunities for NTPs. In particular, Armour Energy shall keep the NTP Representative informed of opportunities
and, where possible, give job training to NTPs. Armour Energy is required to make at least two apprenticeships
available to aboriginal people that show capacity, interest and desire for employment.
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Armour Energy Limited Replacement Prospectus
Armour Energy is obligated to ensure its work is conducted so as to avoid environmental damage and where
avoidance is not possible to minimise environmental impact. Armour Energy is expressly prohibited from using
certain Hydraulic Fracturing chemicals such as benzene, toluene, ethylbenzene and xylenes. Armour must also
ensure that its exploration wells are constructed in such a way to minimise, to the extent reasonably possible,
the environmental impacts, including uncontrolled release of hydrocarbons or Hydraulic Fracturing fluids.
Armour Energy must progressively rehabilitate the Tenement Area.
Before commencing any exploration Armour Energy shall provide the NTP Representative with copies of the
technical works program, environmental impact assessment plan, environmental assessment reports and any
other documents that may be required under applicable laws.
Armour Energy has agreed to provide compensation for any loss that the NTPs suffer on their native title rights
or interest by the grant of the Tenements.
Armour Energy may only assign its interest in the Native Title Agreement or the Tenement with the prior written
consent of the NTP Representative which consent shall not be unreasonably withheld. It shall be unreasonable for
the NTP Representative to withhold its consent if the assignee is financially sound and has demonstrated a record
of technical expertise necessary to comply with Armour Energy’s obligations under this Native Title Agreement.
Armour Energy must pay the NTP Representative $20,000 in the event of an assignment.
Armour Energy indemnifies the NTP Representative, NLC and NTPs from all losses that they may suffer as a result
of any acts or omissions of Armour Energy.
Native title is not extinguished by the grant of the Tenements and Armour Energy has agreed not to dispute any
applications for determinations of native title under the Native Title Act. The NTPs may apply for determinations
of compensation on just terms under the Native Title Act or under the Minerals (Acquisition) Act (NT) for any
loss suffered due to the grant of the Tenements or any production licence, provided that the payments made by
Armour Energy under the Native Title Agreement shall be taken into account and, if compensation or just terms
are determined and Armour Energy statutorily obligated to pay compensation or provide just terms, the local
aboriginal groups shall release Armour Energy of that obligation.
Armour Energy is permitted to apply for a production licence and the parties will negotiate the terms of a production
agreement in respect of each such production licence. The production agreement is to contain various agreed terms
and conditions, including agreement on a royalty payment regime, which requires Armour Energy to pay royalties
to the NTP’s based on a percentages of the well head value of gas hydrocarbons recovered during production.
Armour Energy shall pay the NTPs $100,000 (indexed to inflation) upon the grant of the first production licence,
provided that only one such payment shall be paid irrespective of whether subsequent production licences are
granted. Armour Energy shall be liable to pay $50,000 (indexed to inflation), minus the sum of all payments made
under any royalties.
12.1.4.
Lucas Drilling Contract
On 4 November 2011 the Company entered into a drilling contract with AJ Lucas Coal Technologies Ltd (Lucas)
to secure a drilling rig for its planned 2012 drilling exploration program (Lucas Drilling Contract).
The Lucas Drilling Contract obligates the Company to pay for the drilling rig on a take-or-pay basis from
1 May 2012 until 31 October 2012 at a day rate of between $29,000 and $17,000, provided that Lucas shall use
its best endeavours to hire the rig to a third party, in which case the Company’s liability to Lucas shall be reduced
accordingly. In return, Lucas is required to provide the rig, equipment and crew necessary to provide drilling
services on a 24 hour basis to the Company at the Company’s well sites in Northern Territory from 1 May 2012
until 31 October 2012. The Company is obligated to pay for the mobilisation and demobilisation of the drilling
rig and transportation and accommodation requirements of the drilling crew. Armour Energy must provide
a performance guarantee in the amount of $750,000.
The Company is liable to continue paying the applicable daily rate in the event that Lucas is unable to provide
services due to an act or omission by the Company or any matter beyond Lucas’ control, provided that the matter
was not caused or occurred as a result of an act or omission of Lucas or its personnel.
The Company is not obligated to pay Lucas any compensation for suspensions of drilling which result from a
negligent act or omission of Lucas or the breach by Lucas of any safety or environmental procedure. The Company
is entitled to terminate the Lucas Drilling Contract with notice and without further compensation in the event that
Lucas does not remedy the cause of any such suspension or in the event that the Company, acting reasonably,
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12. Additional Information CONTINUED
is not satisfied with Lucas’ performance. In the event that the Company terminates the Lucas Drilling Contract
for convenience, the Company is liable to compensate Lucas on the take-or-pay principles outlined above.
Each party has agreed to indemnify the other party for any losses or claims suffered by the other party in respect
of any damage to such party’s property or injury to such party’s personnel caused by a negligent act or omission
of such party, provided that such indemnity shall not apply to the extent any such loss or claim is caused by the
breach of contract or negligence of the other party or its personnel.
In addition, the Company further indemnifies Lucas against all losses or claims suffered arising in connection
with any hole or well, any underground reservoir or accumulation of the drilling gas or mineral substance or
in regaining control of any blowout which arises arising from the performance of the drilling services by Lucas,
provided the indemnity will not apply to the extent such loss is caused by the negligence of Lucas. Neither party
shall be liable to the other for consequential losses.
12.1.5.
Lakes Oil Agreement
Armour Energy and Lakes Oil entered into the Lakes Oil Agreement on 5 December 2011. The Lakes Oil
Agreement was subject to Armour energy being satisfied with the results of its due diligence investigations
of Lakes Oil. On 28 December 2011, Armour Energy advised Lakes Oil that it was satisfied with its due diligence
investigations at which time the Lakes Oil Agreement became binding on the parties. Set out below are the
material terms of the Lakes Oil Agreement.
• Armour Energy agreed to subscribe for 900,000,000 shares being 13% of the issued capital of Lakes Oil
at a price of $0.0025 per share. Armour Energy paid for and was issued 900,000,000 shares in Lakes Oil
on 28 December 2011.
• As part of the share subscription in Lakes Oil, Lakes Oil agreed to appoint two Armour Energy representatives
to the board of directors of Lakes Oil. Mr Mather and Mr Stubbs, both members of the board of directors
of Armour Energy, were appointed to the board of directors of Lakes Oil 7 February 2012.
• The parties agreed to a farm-in in respect of PEP 166 pursuant to which Armour Energy will, subject to certain
conditions including completing this Offer by the end of April 2012, fund the drilling of two (2) exploration
wells for a total combined expenditure of $4.25 million within 12 months of the execution of the Lakes Oil
Agreement in consideration of Lakes Oil transferring a 25% interest in PEP 166 to Armour Energy. Armour
Energy has the option in the second year to spend an additional $4.75 million to drill an exploration well
to earn another 26% interest in PEP 166. The parties are currently negotiating a formal farm-in agreement
to document the PEP 166 farm-in arrangements and finalise a joint operating agreement.
• The parties agree that Armour Energy will fund completion of an exploration well to a maximum of
$2.5 million on PEP 169 prior to the end of March 2012 in consideration for Lakes Oil transferring to
Armour Energy a 51% interest in PEP 169. The parties are currently negotiating a formal farm-in agreement
to document the PEP 166 farm-in arrangements and finalise a joint operating agreement.
• Lakes Oil granted Armour Energy an option to acquire 50% of Lakes Oil’s interest in the Trifon and Gangell
Blocks of PRL 2 and a 25% interest in the remainder of PRL 2 in consideration for $30 million at any time
during the three (3) years after the date of the Lakes Oil Agreement. Lakes Oil currently has a 42.5% interest
in the Trifon and Gangell blocks of PRL 2 which may be reduced by operation of an existing farm-in agreement
to a 25% interest. Armour Energy will therefore be entitled to an interest in the Trifon and Gangell Blocks of
between 21.25% and 12.5%. Armour Energy must pay option fees of $100,000 on the execution of an option
agreement, $200,000 on the first anniversary and $300,000 on the second anniversary to maintain its right
to exercise the option. The parties are currently negotiating a formal option agreement to document the option.
• Lakes Oil granted Armour Energy a right to match any farm-in proposal that Lakes Oil receives in respect
of PRL 2 in the event that Beach Energy Limited or Somerton Energy Ltd withdraw from an existing farm-in
agreement which covers PRL 2.
• Lakes Oil also agreed to grant Armour Energy an anti-dilution right to maintain its shareholding interest in
Lakes Oil. On 20 February 2012, the ASX granted a waiver to Lakes Oil from Listing Rule 6.18 to the extent
necessary to enable Lakes Oil to honour Lakes Oil’s grant of anti-dilution rights to Armour Energy.
12.1.6.
Executive services agreement – Philip McNamara
The Company has entered into an Executive Services Agreement with Philip McNamara Under which Mr McNamara
has agreed to be employed as the Chief Executive Officer of the Company (McNamara Agreement).
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Armour Energy Limited Replacement Prospectus
Mr McNamara will receive a remuneration of $400,000 per annum (inclusive of income and fringe benefits
tax and superannuation). In addition, Mr McNamara was issued with 3,450,000 Shares and 7,762,500 Options
to subscribe for Shares exercisable at $0.50 and expiring on 31 August 2014.
In addition, bonuses equal to 230% of the annual salary may be payable over the lifetime of the McNamara
Agreement on meeting the following key performance indicators (which are subject to board approval and
any applicable regulatory requirements):
(a) 10% – existing tenement applications granted or deal on granted 3rd party tenure sufficient for IPO
(this milestone has been achieved and a cash bonus of $40,000 has been paid);
(b) 20% – IPO completed;
(c) 30% – Business deal with North American producer or suitable equivalent with respect to drilling,
production and enhancement;
(d) 20% – Queensland tenements offered for grant;
(e) 30% – First gas production;
(f) 20% – Gas reserves at minimum 3P definition in excess of 5,000 PJs or 5 trillion cubic feet;
(g) 50% – First sales agreements for more than 100 PJs per annum; and
(h) 50% – Financial close on field development for more than 90 PJs per annum.
The Board may vary this bonus program at its discretion. Remuneration under the McNamara Agreement
will be subject to annual review commencing in the financial year after the Company is listed on the ASX.
To date, Mr McNamara has satisfied the key performance indicator set out in paragraph (a) above,
and upon completion of the IPO will satisfy the key performance indicator described in paragraph (b) above.
The McNamara Agreement commenced on 7 July 2011 and has an initial term of three (3) years (which will expire
on 7 July 2014) which can be extended by mutual agreement, unless terminated earlier in accordance with its
terms. The Company or Mr McNamara may terminate the McNamara Agreement upon providing the other
party with not less than three months written notice. Mr McNamara may terminate the McNamara Agreement
immediately if there is a significant diminution of benefits, job content, status, responsibility or authority (which
will be deemed to be termination by the Company with an entitlement to three months pay). The Company may
terminate the McNamara Agreement immediately in a number of circumstances including serious misconduct or
serious or persistent breach of the McNamara Agreement by Mr McNamara or the bankruptcy of Mr McNamara.
The Company may also terminate the McNamara Agreement on one months notice due to Mr McNamara being
sick or incapacitated and unable to fulfil his duties for a continuous period of three (3) months or a cumulative
period of three months in any 12 month period.
In the event that Mr McNamara terminates the McNamara Agreement without cause or where the Company
terminates the McNamara Agreement for serious misconduct, Mr McNamara will be subject to non-competition
and non-solicitation restraints for up to the longer of 12 months after termination or the time remaining to the
end of the term of the McNamara Agreement.
12.1.7.
Samuel services agreement
The Company has entered into a consultancy agreement with Samuel Holdings Pty Ltd (Samuel) and Nicholas
Mather dated 22 August 2011 under which Samuel has agreed to provide certain executive and consultancy
services to the Company and Mr Mather has agreed to be appointed as Director and Executive Chairman
of the Company (Consultancy Agreement).
The services to be provided by Samuel to the Company include procuring an Executive Chairman and providing
executive and consulting services including services related to capital raisings and marketing plans, corporate,
exploration and gas marketing strategy development, liaisons with Brokers, financiers and investors and
development and implementation of acquisition and divestment strategies (Services). Samuel agrees to appoint
Mr Mather to act as a consultant of the Company and provide the Services to the Company.
The initial term of the Consultancy Agreement is a period of two (2) years which commenced on 1 July 2011.
Either party may extend the term for a further two (2) years on notice at least 30 days prior to the end of the
initial term. Samuel is required to provide the Services for at least 10 days each quarter.
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A fee of $160,000 per annum is payable on account of the provision of the Services and a further fee of $85,000
per annum is payable on account of the provision of the appointment of Mr Mather as a Director and Executive
Chairman of the Company.
The Remuneration Committee shall conduct a review of the performance of the Services and the consultancy fee
payable every 12 months (which shall be increased at least by any upwards movement in the Australian Quarterly
CPI). The Company is obliged to reimburse Samuel for all reasonable and necessary expenses incurred in the
performance of the Services.
Samuel may terminate the Consultancy Agreement by giving 12 months written notice. The Company may
terminate the Consultancy Agreement by giving 12 months written notice or paying Samuel the amount
equivalent to the consultancy fee for 12 months. The Company may immediately terminate the Consultancy
Agreement by giving written notice if Samuel breaches any term of the agreement, an insolvency event occurs
in respect of Samuel, any officer of Samuel is charged with a criminal offence which in the reasonable opinion
of the Company brings the Company into disrepute or Mr Mather resigns as a director of the Company (other
than where he is removed as a director or is required to resign as a consequence of a change in control at the
direction of the Board).
The Company indemnifies Samuel, its staff and Mr Mather in respect of claims, actions, demands, suits, costs
and any other ramifications which arise as a consequence of or in the course of the discharge by them of duties
or activities pursuant to the Consultancy Agreement, except to the extent the liability is incurred as a result
of a proven act of dishonesty by Samuel, its staff or Mr Mather (which Samuel indemnifies the Company for).
12.1.8.
Non-Executive Directors letters of appointment
The Company has entered into letters of appointment with William Stubbs and Roland Sleeman in respect to their
appointment as Non-Executive Directors of the Company and is currently arranging for Stephen Bizzell and Jeremy
Barlow to execute letters of appointment. The letters of appointment are each in standard form and detail the
nature of each Director’s appointment, their duties and their remuneration entitlements (as set out in Section 7.5).
12.1.9.
Deeds of access and indemnity
Each of the Directors and the Company Secretary of the Company have entered into a Deed with the Company
whereby the Company has:
(a) provided certain contractual rights of access to books and records of the Company to those Officers;
(b) agreed to provide certain indemnities to each of the Officers to the extent permitted by the Corporations Act
and to the extent that certain liabilities did not arise out of conduct which was not in good faith; and
(c) agreed to procure and maintain directors indemnity insurance for an amount not less than $5 million
during the term of appointment of the Officer and for at least seven (7) years after cessation as an Officer.
12.1.10. DGR Global administrative agreement
The Company and DGR Global have entered into administration services agreement (Administration Services
Agreement) dated 1 February 2011. DGR Global has agreed to provide the following services (Pre-IPO Services)
to the Company prior to Official Quotation:
(a) exploration office and head office rents and associated office costs;
(b) payment of the fees of Directors’ (to 30 June 2011) and the company secretary;
(c) administration services including but not limited to accounting, audit fees and marketing expenses.
In consideration for the provision of the Pre-IPO Services, DGR Global will be paid $31,500 (plus GST) per month.
After Official Quotation, DGR Global has agreed to provide the following services (Post-IPO Services)
to the Company:
(a) exploration office and head office rents and associated office costs;
(b) statutory and financial reporting and other general administrative support services,
as relevant to Armour Energy.
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Armour Energy Limited Replacement Prospectus
In consideration for the provision of the Post-IPO Services, DGR Global will be paid the direct expense incurred
by DGR Global plus 10% of that amount.
DGR Global has granted to the Company a non-exclusive licence for the period from incorporation of the
Company until two years from the date of Official Quotation to occupy a designated area in the offices
of DGR Global for the purposes of the Company conducting its business.
Either party may terminate the Administration Services Agreement by giving the other party three (3) months
notice in writing.
The Company is entitled to carry out a review of the performance of DGR Global under the Administration
Services Agreement and may terminate the Administration Services Agreement if it is not satisfied with the
performance of DGR Global. In addition, the Company may terminate the Administration Services Agreement
under a number of other circumstances including where DGR Global has breached the terms of the agreement
or enters into any scheme of arrangement for the benefit of the DGR Global’s creditors.
12.1.11.
Executive services agreement – Ray Johnson
The Company has entered into an Executive Services Agreement with Ray Johnson dated 21 September 2011
under which Mr Johnson has agreed to be employed as the General Manager – Exploration and Production
(Johnson Agreement).
Mr Johnson will receive a remuneration of $350,000 per annum (inclusive of income and fringe benefits tax
and superannuation). In addition, Mr Johnson has been issued with 4,000,000 Options to subscribe for Shares
exercisable at the Offer Price and expiring on 1 December 2014 and granted 180,000 Performance Shares in
Armour Energy which shall be subject to a forfeiture condition being the completion within two (2) years of
the commencement date of the drilling and Hydraulic Fracturing of Armour Energy’s first multistage lateral well.
In addition, bonuses equal to 30% of the annual salary may be payable on achievement of key milestone
targets to be negotiated and agreed on commencement of employment and then reviewed on an annual basis.
The Johnson Agreement continues unless terminated earlier in accordance with its terms. The Company or
Mr Johnson may terminate the Johnson Agreement upon providing the other party with not less than three (3)
months written notice. The Company may terminate the Johnson Agreement immediately in a number of
circumstances including serious misconduct or serious or persistent breach of the Johnson Agreement by
Mr Johnson or the bankruptcy of Mr Johnson. Armour Energy may also terminate the Johnson Agreement
on one (1) month notice due to Mr Johnson being sick or incapacitated and unable to fulfil his duties for a
continuous period of three (3) months or a cumulative period of three (3) months in any 12 month period.
In the event that Mr Johnson terminates the Johnson Agreement without cause or where the Company
terminates the Johnson Agreement for serious misconduct, Mr Johnson will be subject to non-competition
and non-solicitation restraints for up to 12 months after termination.
12.1.12. Executive services agreement – Roger Cressey
The Company has entered into an Executive Services Agreement with Roger Cressey dated 13 October 2011
pursuant to which Roger has agreed to be employed as General Manager – Infrastructure and Project
Development (Cressey Agreement).
Mr Cressey is entitled to remuneration of $330,000 per annum (inclusive of income and fringe benefits tax and
superannuation). Additionally, Mr Cressey is entitled to 2,000,000 Options to subscribe for Shares exercisable
at the Offer Price. The options expire on 21 November 2014 and Mr Cressey may not exercise the options earlier
than 21 November 2013.
In addition, Mr Cressey is entitled to bonuses equal to up to 30% of annual salary which will be payable based
on achievements of key milestone targets to be negotiated and agreed on commencement of employment and
then reviewed on an annual basis.
The Cressey Agreement continues unless terminated in accordance with its terms. Either the Company or
Mr Cressey may terminate the Cressey Agreement by providing the other party with not less than three (3)
months written notice. The Company may terminate the Cressey Agreement immediately in a number of
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circumstances including serious misconduct or serious persistent breach of the Cressey Agreement by Mr Cressey
or the bankruptcy of Mr Cressey. The Company may also terminate the Cressey Agreement on one (1) month
notice due to Mr Cressey being sick or incapacitated and unable to fulfil his duties for a continuous period of
three (3) months or an accumulative period of three months over a 12 month period. On the termination of the
Cressey Agreement, Mr Cressey will be subject to non-competition and non-solicitation restraints for 12 months
following the termination of his employment.
12.1.13. Services agreement – David Warner
The Company provided a letter of offer to David Warner, which Mr Warner has accepted. Mr Warner has agreed
to advise and guide the exploration activities and efforts of Armour Energy as Principal Exploration Adviser.
The Parties are in the process of finalising formal documentation. Pursuant to the terms of the arrangements:
Mr Warner is required to provide services for at least 84 days per annum at an annual rate of $147,000.
Mr Warner will receive $10,500 sign on bonus as well as:
• the issue by the Company of 625,000 Performance Shares and 625,000 Performance Rights, which vest subject
to performance criteria being met within three (3) years (but not before the second anniversary after issue);
• the issue by the Company of 2 million incentive options, exercisable at the Offer Price and if
Armour Energy has not listed within three (3) months, $0.75, within three (3) years of commencement
but not exercisable for two (2) years ; and
• the transfer of 500,000 options by Samuel, exercisable at $0.50 on or before 31 August 2014.
The performance criteria applying to the 625,000 Performance Shares are the reclassification
of resources/reserves within Armour Energy’s Existing Interests equivalent to or greater than:
(a) 2,000 PJ to 2P and or above;
(b) 3,000 PJ to 3P and or above; or
(c) 20,000 PJ to 2C and or above.
The performance criteria applying to the 625,000 Performance Rights are the delivery of a new project on any
new interests outside of the Existing Interests that subject to the Company’s Board, acting reasonably, accepting
that the project proposal generates the addition of Prospective Resources equivalent to or greater than any one
of the following:
(a) 5TCF unconventional gas;
(b) 850 million barrels of unconventional oil;
(c) 100 BCF conventional gas; or
(d) 15 million barrels of conventional oil (with discovery after one (1) hole even if not necessarily
commercially viable).
Mr Warner may terminate the arrangements by giving six (6) months written notice.
Armour Energy may terminate the arrangements immediately without notice if Mr Warner engages in various
conduct including breaches any term of the agreement, engages in misconduct, dishonesty or is negligent.
12.1.14. Executive services agreement – Jonathan Martin
The Company has entered into an Executive Services Agreement with Jonathan Martin dated 1 December 2011,
pursuant to which Jonathan has agreed to be employed as Chief Well Engineer from 6 February 2012
(Martin Agreement).
Mr Martin is entitled to remuneration of $240,000 per annum, inclusive of incoming fringe benefit tax and
superannuation. Additionally, Mr Martin is entitled to 1,400,000 Options to subscribe for Shares exercisable
at the Offer Price. The Options expire on 6 February 2015 and Mr Martin may not exercise the Options earlier
than 6 February 2014.
In addition, Mr Martin is entitled to bonuses equal up to 30% of annual salary which will be payable based
on achievements of key milestone targets to be negotiated and agreed on commencement of employment
and then reviewed on an annual basis.
184
Armour Energy Limited Replacement Prospectus
The Martin Agreement continues, unless terminated, in accordance with its terms. The Company may terminate
the Martin Agreement immediately in a number of circumstances including serious misconduct or serious
persistent breach of the Martin Agreement by Mr Martin or bankruptcy of Mr Martin. The Company may also
terminate the Martin Agreement on one month notice due to Mr Martin being sick or incapacitated and unable
to fulfil his duties for a continuous period of three (3) months or an accumulative period of three (3) months over
a 12 month period. On the termination of the Martin Agreement, Mr Martin will be subject to non-competition
and non-solicitation restraints for 12 months following the termination of his employment.
12.1.15. Executive services agreement – Chief Geologist
The Company has entered in an Executive Services Agreement with a geologist dated 6 March 2012 pursuant
to which the geologist has agreed to be employed as Chief Geologist. The Chief Geologist is entitled to remuneration
of $240,000 per annum, inclusive of fringe benefit tax and superannuation. Additionally, the Chief Geologist
will be entitled to 1,000,000 options to subscribe for shares at the offer price. The options will expire in three (3)
years after the date the Chief Geologist commences work with the Company and may not be exercised prior
to two (2) years after the date the Chief Geologist commences work with the Company. In addition, the Chief
Geologist is entitled to bonuses equal up to 30% of annual salary which will be payable based on achievements
of key milestone targets.
The Company has agreed not to disclose the entity of the Chief Geologist until certain formalities have been satisfied.
12.1.16. Other executive services arrangements
The Company has entered into arrangements pursuant to which Priy Jayasuriya (Chief Financial Officer),
Karl Schlobohm (Company Secretary) and Carlie Rogers (Business Development and Government Liaison)
provide executive services to the Company on a non-exclusive basis.
12.1.17.
Share Subscription Agreements
Armour Energy has entered into a series of Share Subscription Agreements with the Seed Capital Investors, who
had previously subscribed for Shares, obliging those persons to subscribe for New Shares under this Prospectus.
These Share Subscription Agreements are in a common form.
The Seed Capital Investors are required to subscribe for, or introduce Seed Subscription Investors to subscribe
or, in aggregate 35,000,000 New Shares under this Prospectus (representing Application Monies totalling
$17.5 million).
12.2.
TRADING POLICIES
The Directors, executives and employees of the Company are subject to the trading policy adopted by the
Company (Trading Policy). The Trading Policy imposes a number of restrictions in relation to them dealing in
Shares of the Company. As a general policy, Directors, executives and employees can only deal in Shares in the
Company during certain periods or in certain circumstances and then only after giving notice of the intended
transaction to the Chairman of the Board.
The Trading Policy can be obtained, at no cost, from the Company’s registered office and is also available
on the Company’s website www.armourenergy.com.au
www.armourenergy.com.au.
12.3.
RIGHTS ATTACHING TO SHARES IN THE COMPANY
A summary of the rights which relate to all New Shares which may be issued pursuant to this Prospectus is
set out below. This summary does not purport to be exhaustive or constitute a definitive statement of the
rights and liabilities of the Company’s Shares.
Voting
At a general meeting of the Company on a show of hands, every member present in person or by proxy,
attorney or representative has one vote and upon a poll, every member present in person, or by proxy,
attorney or representative has one vote for every Share held by them.
185
12. Additional Information CONTINUED
Dividends
The New Shares will rank equally with all other issued Shares in the capital of the Company and may participate
in dividends from time to time. Subject to the rights of holders of Shares of any special preferential or qualified
rights attaching thereto, dividends are payable amongst the holders of Shares in proportion to the amounts paid
up on such Shares respectively at the date of declaration of the dividend. The Directors may from time to time
pay to Shareholders such final and interim dividends as in their judgment the position of the Company justifies.
Winding Up
Upon paying the Application money, Shareholders will have no further liability to make payments to the Company
in the event of the Company being wound up pursuant to the provisions of the Corporations Act.
Transfer of Securities
Generally, the Shares and Options in the Company will be freely transferable, subject to satisfying the usual
requirements of security transfers on ASX. The Directors may decline to register any transfer of Shares or Options,
but only where permitted to do so under its Constitution or the Listing Rules.
Sale of Non-Marketable Holdings
The Company may take steps in respect of non-marketable holdings of Shares in the Company to effect an
orderly sale of those Shares in the event that holders do not take steps to retain their holdings.
The Company may only take steps to eliminate non-marketable holdings in accordance with the Constitution and
the Listing Rules. For more particular details of the rights attaching to Shares in the Company, investors should
refer to the Constitution of the Company.
Details on Shares Issued Prior to the Prospectus
As at the date of this Prospectus the Company has 150 million Shares on issue. These Share issues have occurred
progressively since incorporation at the following different issue prices:
19 December 2009
1 share for $1 (to DGR Global)
1 November 2010
79,999,999 Shares for $7,999
– 75,349,999 to DGR Global
– 1,200,000 to Ascry Pty Ltd, associated with Neil Wilkins
(DGR Global Exploration Manager)
– 3,450,000 to Philip McNamara
14 March 2011
50,000,000 Shares for $10,000,000 (to Other Seed Capital Investors)
20 April 2011
20,000,000 Shares for $4,000,000 (to the Och-Ziff funds)
The different issue prices reflect the different stages of development of Armour Energy’s activities and its assets.
In determining the issue price of these Shares the following factors were taken into account by the Directors:
• the price of the 1 November 2010 issue of Shares represents administrative convenience and costs incurred to
incorporate Armour Energy. The Company did not have any material assets or solid prospects at this time; and
• the increase in the Share price paid by the Other Seed Capital Investors on 14 March 2011 and by Och-Ziff
funds was a reflection of the value that had been added to Armour Energy by the Directors and management,
including the identification of prospects as evidenced by the submission of applications for exploration permits
in Northern Territory and Queensland. However, at this stage no Prospective Resources had been identified by
MBA Petroleum consultants and no permits have been granted to the Company.
186
Armour Energy Limited Replacement Prospectus
12.4.
RIGHTS ATTACHING TO OPTIONS IN THE COMPANY
As at the date of this Prospectus the Company has on issue the following Options:
NUMBER OF
OPTIONS
EXERCISE
PRICE
VESTING DATE
EXPIRY DATE
9,450,000
Offer Price
Not applicable
31 August 2014
Other Director Options
(Roland Sleeman)
500,000
Offer Price
11 October 2013
11 October 2014
Other Director Options
(Stephen Bizzell)
500,0002
Offer Price
11 October 2013
11 October 2014
Other Director Options
(Jeremy Barlow)
500,000
Offer Price
11 October 2013
11 October 2014
2,300,000
Offer Price
Not applicable
31 August 2014
Other Consultant Options
(Priyanka Jayasuriya)
500,000
Offer Price
4 November 2013
4 November 2014
Other Consultant Options
(David Warner)
2,000,000
Offer Price
12 February 2014
12 February 2015
Other Consultant Options
(David Warner) 1
500,000
Offer Price
Not applicable
31 August 2014
Other Consultant Options
(Roger Cressey)
2,000,000
Offer Price
4 November 2013
21 November 2014
Other Consultant Options
(Ray Johnson)
4,000,000
Offer Price
4 November 2013
1 December 2014
Other Consultant Options
(Geoff Hokin)
1,400,000
Offer Price
4 November 2013
23 November 2014
Other Consultant Options
(Jonathan Martin)
1,400,000
Offer Price
6 February 2014
6 February 2015
18,837,500
Offer Price
Not applicable
31 August 2014
Och-Ziff funds Options
5,000,000
Offer Price
Not applicable
31 August 2014
Other Seed Capital Investor
Options
12,312,500
Offer Price
Not applicable
31 August 2014
Total
61,200,000
TYPE
Existing Director Options
Existing Consultant Options
DGR Global
1. These options may not be exercised prior to 10 February 2013.
2. This number does not include the 5,000,000 Options to be granted to the Lead Manager, an entity associated with Stephen Bizzell
(see Section 12.1.2)
In addition, the Company will issue one (1) New Option for every four (4) New Shares issued under this
Prospectus and a further 5 million New Options to the Lead Manager upon the successful completion of
the Offer. Each New Option will vest on issue, expire on 31 August 2014 and are exercisable at the Offer Price.
187
12. Additional Information CONTINUED
A summary of the material terms of the Options currently on issue in the Company and the New Options
to be issued under this Prospectus are set out below.
(1) The Options are options to subscribe for Shares.
(2) The Options are transferable in whole or in part.
(3) The Options may be exercised wholly or in part by delivering a duly completed form of notice of exercise
together with a cheque for the exercise price per Option to the Company at any time on or after the vesting
date and on or before the expiry date.
(4) Upon the valid exercise of the Options and payment of the exercise price, the Company will issue Shares
ranking pari passu with the then issued Shares.
(5) Option holders do not have any right to participate in new issues of securities in the Company made to
Shareholders generally. The Company will, where required pursuant to the Listing Rules, provide Option holders
with notice prior to the books record date (to determine entitlements to any new issue of securities made
to shareholders generally) to exercise the Options, in accordance with the requirements of the Listing Rules.
(6) The Option holder does not participate in any dividends unless the Options are exercised and the resultant
Shares are issued prior to the record date to determine entitlements to the dividend.
(7) The Company does not intend to apply for listing of the Options on ASX.
(8) The Company shall apply for listing on ASX of the resultant Shares of the Company issued upon exercise
of any Option.
(9) If there is a pro rata issue (except a bonus issue), the exercise price of an Option may be reduced according
to the following formula:
On = O –
E[P – (S + D)]
N+1
Where:
On = the new exercise price of the Option;
O = the old exercise price of the Option:
E = the number of underlying Shares into which one Option is exercisable;
P = the average market price per Share (weighted by reference to volume) of the underlying Shares during
the five trading days ending on the day before the ex rights date or ex entitlements date;
S = the subscription price for a Share under the pro rata issue;
D = the dividend due but not yet paid on existing underlying Shares (except those to be issued under the
pro rata issue); and
N = the number of Shares with rights or entitlements that must be held to receive a right to one new Share.
(10) If there is a bonus issue to the holders of Shares in the Company, the number of Shares over which the
Option is exercisable may be increased by the number of Shares which the Option holder would have
received if the Option had been exercised before the record date for the bonus issue.
(11) The terms of the Options shall only be changed if holders (whose votes are not to be disregarded) of Shares
in the Company approve of such a change. However, the terms of the Options shall not be changed to
reduce the exercise price, increase the number of Options or change any period for exercise of the Options.
(12) In the event of any reconstruction (including consolidation, subdivision, reduction or return) of the issued
capital of the Company:
(A) the number of Options, the exercise price of the Options, or both will be reconstructed (as appropriate)
in a manner consistent with the Listing Rules as applicable at the time of reconstruction, but with the
intention that such reconstruction will not result in any benefits being conferred on the holders of the
Options which are not conferred on Shareholders; and
(B) subject to the provisions with respect to rounding of entitlements as sanctioned by a meeting of
Shareholders approving a reconstruction of capital, in all other respects the terms for the exercise
of the Options will remain unchanged.
188
Armour Energy Limited Replacement Prospectus
The material terms of each of the following Options are the same as the material terms of the founder Directors’
Options, and options issued to Consultants and Initial Seed Investors currently on issue in the Company and the
New Options to be issued under this Prospectus save for the following differences:
NAME
EXERCISE PRICE
Roland Sleeman
Offer Price
VESTING DATE
EXPIRY DATE
10 October 2013
11 October 2014
1
Ray Johnson
Offer Price
4 November 2013
1 December 2014
Roger Cressey
Offer Price
4 November 20131
21 November 2014
Jonathon Martin
Offer Price
6 February 2014
6 February 2015
1
Priyanka Jayasuriya
Offer Price
4 November 2013
4 November 2014
David Warner
(Incentive Options)
Offer Price
12 February 20131
12 February 2015
David Warner2
(Transferred Options)
Offer Price
Not Applicable
31 August 2014
Geoff Hokin
Offer Price
4 November 20131
23 November 2014
BCP Options3
Offer Price
On Grant
31 August 2014
1. The Board may agree to acceleration in event of a change in control
2. These options may not be exercised prior to 10 February 2013
3. These Options will be issued to the Lead Manager, an entity associated with Stephen Bizzell, a Director of the Company (see Section 12.1.2)
12.5.
RIGHTS ATTACHING TO PERFORMANCE SHARES
Armour Energy has issued or agreed to issue at the date of this Prospectus a total of 805,000 Performance Shares.
A Performance Share shall:
(a) not have any voting rights at any general meeting of the Company;
(b) entitle the holder to receive notices of all general meetings and financial reports and accounts that
are circulated;
(c) entitle the holder to attend all general meetings of the Company;
(d) not have any dividend entitlements;
(e) only be capable of being disposed of by the holder upon achievement of the Performance Criteria applying
to the Performance Shares;
(f) on winding up entitle the holder to a preferential entitlement to participate in surplus profits or assets of the
Company only to the extent of such amount per Performance Share determined by the Board at the issue date;
(g) have no entitlement to participate in new issues of equity securities offered to Shareholders;
(h) in the event of listing of the Company on a stock exchange, not be quoted on the stock exchange;
(i)
a Performance Share shall be automatically converted into a Share upon satisfaction of the Performance
Criteria applying to the Performance Share.
(j)
unless otherwise determined by the Board, a Performance Share shall convert into a Share on the basis
of one Performance Share for every one Share.
(k) an ordinary share issued upon conversion of a Performance Share will rank equally with other Shares
on issue in the Company and will:
–
participate with all other Shares on issue in the capital of the Company for dividends as from
the date of conversion; and
– be entitled to vote at all general meetings of the Company at all times, and
(l)
unless otherwise determined by the Board, in the event that the Performance Criteria applying to any
Performance Share held by a recipient is not satisfied by the end date all of the Performance Shares held
by that recipient or its nominee shall convert into one Share only.
189
12. Additional Information CONTINUED
12.6.
EMPLOYEE SHARE AND OPTION PLAN
The Company has adopted an Employee Share and Option Plan (ESOP).
A summary of the key terms of the ESOP is as follows:
(a) The ESOP is to extend to eligible employees of the Company or an associated body corporate of the
Company as the Board may in its discretion determine.
(b) The total number of Shares to be issued by the Company to eligible employees in respect of which either
Shares or Options have been issued under the ESOP shall not at any time exceed 5% of the Company’s total
issued ordinary Share capital in that class at that time when aggregated with:
(1) the number of Shares in the same class which would be issued if each outstanding offer with respect
to Shares or Options under any share option scheme of the Company were accepted and exercised; and
(2) the number of Shares in the same class issued during the previous five (5) years pursuant to:
(A) the ESOP to an eligible employee; or
(B) any employee share option scheme of the Company,
but excluding for the purposes of the calculation, any offer made, or Option acquired or Share issued
by way of or as a result of:
(A) any offer to a person situated at the time of receipt of the offer made outside of this jurisdiction; or
(C) an offer that did not require disclosure to investors because of Section 708 of the Corporations Act;
or
(D) an offer made under a disclosure document within the meaning of the Corporations Act.
(c) The price at which the Shares and Options are to be issued will be determined by the Board.
(d) The exercise price of an Option is to be determined by the Board at its sole discretion.
(e) The vesting date will be any such date or dates with respect to the Options or tranches of Options
(as the case may be) as may be determined by the Board from time to time.
(f) The Option commencement date will be the date to be determined by the Board prior to the issue
of the relevant Options.
(g) The Option exercise period commences on the Option commencement date and ends on the earlier of:
(1) the expiration of such period nominated by the Board at its sole discretion at the time of the grant
of the Option but being not less than two (2) years; or
(2) the business day after the expiration of three (3) months, or any longer period which the Board may
determine, after the eligible employee ceases to be employed by the Company or an associated body
corporate of the Company; or
(3) the eligible employee ceasing to be employed by the Company or an associated body corporate
of the Company due to fraud or dishonesty.
(h) Eligibility to participate is determined by the Board. Eligibility is restricted to eligible employees of the
Company or an associated body corporate of the Company. The Board is entitled to determine:
(1) subject to the terms of the ESOP, the total number of Options to be offered in any one (1) year
to eligible employees;
(2) the eligible employees to whom offers will be made; and
(3) the terms and conditions of any Options granted, subject to the ESOP.
190
Armour Energy Limited Replacement Prospectus
(i)
Participants do not participate in dividends or in bonus issues unless the Options are exercised.
(j)
Option holders do not have any right to participate in new issues of securities in the Company made to
shareholders generally. The Company will, where required pursuant to the Listing Rules, provide Option holders
with notice prior to the books record date (to determine entitlements to any new issue of securities made
to shareholders generally) to exercise the Options, in accordance with the requirements of the Listing Rules.
(k) In the event of a pro rata issue (except a bonus issue) made by the Company during the term of the Options
the Company may adjust the exercise price for the Options in accordance with a specified formula.
(l)
The Board has the right to vary the entitlements of all participants to take account of the effective capital
reconstructions, bonus issues or rights issues.
(m) The terms of the Options shall only be changed if holders (whose votes are not to be disregarded) of Shares
in the Company approve of such a change. However, the terms of the Options shall not be changed to
reduce the Exercise Price, increase the number of Options or change any period for exercise of the Options.
(n) The Board may impose as a condition of any offer of Shares and Options under the ESOP any restrictions
on the transfer or encumbrance of such Shares and Options as it determines.
(o) The Board may vary the ESOP.
(p) The ESOP is separate to and does not in any way form part of, vary or otherwise affect the rights
and obligations of a participant under the terms of his or her employment or arrangement.
(q) At any time from the date of an offer of Shares or Options until the acceptance date of that offer,
the Board undertakes that it shall provide information as to:
(1) the current market price of the Shares; and
(2) the acquisition price of the Shares or Options offered where this is calculated by reference
to a formula, as at the date of the Offer,
to any participant by mail (or such other form of notification as agreed by the Company and
the participant) within three (3) business days of a written request to the Company from that
participant to do so.
12.7.
PERFORMANCE RIGHTS PLAN
The Company has established a Performance Rights Plan (Plan), being a long term incentive scheme aimed
at creating a stronger link between an eligible recipient’s performance and reward whilst increasing Shareholder
value in the Company.
The Company has obtained from ASIC the necessary relief to issue Performance Rights under the Performance
Rights Plan without the need to hold a Financial Services licence or to issue a disclosure document.
Persons eligible to participate in the Plan include a Director, officer, employee or certain consultants (or their
nominee) of the Company or a controlled entity who the Board determines in its absolute discretion
is to participate in the Performance Rights Plan (Eligible Person).
191
12. Additional Information CONTINUED
Key features of the Plan include:
(a) The Board of the Company may from time to time in its absolute discretion issue or cause to be issued
invitations on behalf of the Company to Eligible Persons to participate in the Performance Rights Plan.
The invitation will include information such as performance hurdles and performance periods. On vesting,
one Performance Right is exercisable into one Share.
(b) A Participant in the Performance Rights Plan will not pay any consideration for the grant of the Performance
Rights. An Eligible Person has no right to be granted any Performance Rights unless and until such
Performance Rights are granted. The Performance Rights will not be listed for quotation on the ASX.
(c) The Performance Rights may not be transferred, assigned or novated except with the approval of the Board.
(d) As soon as reasonably practicable after the date at which performance hurdles are to be measured to
determine whether the Performance Right becomes vested (Test Date), the Board shall determine in respect
of each Participant as at that Test Date:
(i)
whether, and to what extent, the performance hurdles applicable up to the Test Date have been satisfied;
(ii) the number of Performance Rights (if any) that will vest as at the Test Date;
(iii) the number of Performance Rights (if any) that will lapse as a result of the non-satisfaction
of performance hurdles as at the Test Date; and
(iv) the number of Performance Rights (if any) in respect of the performance period that continue unvested,
and shall provide written notification to each Participant as to that determination.
(e) If a Participant’s employment or engagement with the Company ceases because of an uncontrollable event
such as death or serious injury, all of the Participant’s Performance Rights that are capable of becoming
exercisable if performance hurdles are met at the next Test Date, will become vested. In addition, the Board
may in its absolute discretion determine the extent to which any other unvested Performance Rights that
have not lapsed will become vested Performance Rights. Such vested Performance Rights must be exercised
no later than the date three (3) months after cessation of employment.
(f) If a Participant’s employment or engagement with the Company ceases because of a controllable event, the
Board may in its absolute discretion determine the extent to which the unvested Performance Rights that have
not lapsed will become vested Performance Rights. Such vested Performance Rights may be exercised at any
time prior to the first to occur of, the date 84 months after the date of grant, and the date three (3) months
after cessation of employment.
(g) Where there is a publicly announced proposal (whether by takeover bid, scheme of arrangement or otherwise)
in relation to the Company which the Board reasonably believes may lead to a change in control event:
(i)
all of the Participant’s unvested Performance Rights, that have not lapsed, will become vested
Performance Rights; and
(ii) the Board shall promptly notify each Participant in writing that he or she may, within the period specified
in the notice, exercise vested Performance Rights.
(h) If there are certain variations of the share capital of the Company including a capitalisation or rights issue,
subdivision, consolidation or reduction in share capital, a demerger (in whatever form) or other distribution
in specie, the Board may make such adjustments as it considers appropriate under the Performance Rights
Plan, in accordance with the provisions of the Listing Rules.
(i)
Participants who are holding a Performance Right issued pursuant to the Performance Rights Plan have
no rights to dividends and no rights to vote at meetings of the Company until that Performance Right
is exercised and the Participant is the holder of a valid Share in the Company.
(j)
Shares acquired upon exercise of the Performance Rights will upon allotment rank pari passu in all respects
with other Shares. In the event that the Company becomes listed on the ASX, the Company will apply for
quotation of the Shares on the ASX within 10 Business Days after the date of allotment of those Shares.
192
Armour Energy Limited Replacement Prospectus
The Company intends to grant 625,000 Performance Rights under the Plan to David Warner, the Company’s
Principal Exploration Adviser. The terms of this grant are summarised in section 12.1.14.
12.8.
LIMITATION ON FOREIGN OWNERSHIP
The only limitations under Australian law on the rights of non-Australian residents to hold or vote the Shares
of an Australian company are in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the FATA). The FATA
regulates acquisitions giving rise to ownership of substantial amounts of a company’s shares.
The FATA prohibits:
(a) any natural person not ordinarily resident in Australia; or
(b) any corporation in which either a natural person not ordinarily resident in Australia
or a foreign corporation (as defined in the FATA) holds a controlling interest; or
(c) two (2) or more such persons or corporations,
from acquiring or entering into an agreement to acquire an interest in an existing Australian corporation if after
the acquisition such person or corporation would hold a substantial interest in a corporation, or where two (2)
or more persons or corporations would hold an aggregate substantial interest (defined below), without first
applying in the prescribed form for approval by the Australian Treasurer and receiving such approval or receiving
no response in the 40 days after such application was made.
Acquisitions of interests may include the acquisition of shares, options or any other instrument which may
be converted to shares, as well as any other type of arrangement which results in control of the corporation.
A holder will be deemed to hold a substantial interest in a corporation if the holder alone or together with
any associates (as defined in the FATA) is in a position to control not less than 15% of the voting power in the
corporation or holds interests in not less than 15% of the issued shares in that corporation. Two (2) or more
holders hold an aggregate substantial interest in a corporation if they, together with any associates (as so
defined), are in a position to control not less than 40% of the voting power in that corporation or hold not
less than 40% of the issued shares in that corporation. The Constitution of the Company contains no limitations
on a non-resident’s right to hold or vote the Company’s Shares.
12.9.
LITIGATION
The Company is not engaged in any litigation which has or would be likely to have a material adverse effect
on either the Company or its business.
12.10.
LIABILITY OF OTHER PERSONS NAMED IN THIS PROSPECTUS
Notwithstanding that they may be referred to elsewhere in this Prospectus:
HopgoodGanim Lawyers are named in the Corporate Directory as Solicitors to the Offer. They were involved in
the preparation of the Report set out in Section 10 of this Prospectus and they have been involved in the process
of reviewing this Prospectus for consistency with the material contracts. In doing so, they have placed reasonable
reliance upon information provided to them by the Company and other third parties. They do not make any other
statement in this Prospectus. HopgoodGanim will be paid for work performed in accordance with usual time
based charge out rates and estimate their professional costs at $445,000 (excluding disbursements and GST),
at the date of this Prospectus.
MBA Petroleum Consultants are named in the Corporate Directory as Independent Geological Consultants to
the Company. They were involved in the preparation of the Independent Expert’s Report, which is set out in
Section 9. In doing so, they have placed reasonable reliance upon information provided to them by the Company
and other third parties. They do not make any other statement in this Prospectus. They will be paid for work
performed in accordance with usual time based charge out rates and estimate their professional costs at
$100,000 (excluding disbursements and GST) at the date of this Prospectus.
193
12. Additional Information CONTINUED
BDO Audit (Qld) Pty Ltd is named in the Corporate Directory as Independent Accountants and Auditors to the
Company. They were involved in the preparation of the Independent Accountant’s Report set out in Section 11.
In doing so, they have placed reasonable reliance upon information provided to them by the Company and other
third parties. They do not make any other statement in this Prospectus. BDO Audit (QLD) Pty Ltd will be paid for
work performed in accordance with usual time based charge out rates and estimate their professional costs
at $45,000 (excluding disbursements and GST), at the date of this Prospectus.
Link Market Services Limited has given its written consent to be named as the Registry in the form and context
in which it is named and has not withdrawn its consent prior to lodgement of this Prospectus within ASIC.
Link Market Services Limited has had no involvement in the preparation of any part of the Prospectus other than
being named as the Share Registrar to the Company. Link Market Services Limited has not authorised or caused
the issue of, and expressly disclaims and takes no responsibility for, any part of the Prospectus.
Samuel Holdings Pty Ltd is named in the Corporate Directory as Underwriter to the Offer. Samuel Holdings Pty
Ltd has given its written consent to be named as Underwriter to the Offer in the form and context in which it is
named and has not withdrawn its consent prior to lodgement of this Prospectus with ASIC. Samuel Holdings Pty
Ltd has not authorised or caused the issue of this Prospectus and does not make or purport to make any
statement in this Prospectus. In consideration of Samuel Holdings Pty Ltd role as Underwriter to the Offer
it will receive a fee as set out in Section 12.1.
Bizzell Capital Partners Pty Ltd is named in the Corporate Directory as Lead Manager to the Offer. Bizzell Capital
Partners Pty Ltd has given its written consent to be named as Lead Manager to the Offer in the form and context
in which it is named and has not withdrawn its consent prior to lodgement of this Prospectus with ASIC. Bizzell
Capital Partners Pty Ltd has not authorised or caused the issue of this Prospectus and does not make or purport
to make any statement in this Prospectus. In consideration of Bizzell Capital Partners Pty Ltd role as Lead Manager
to the Offer it will receive a fee as set out in Section 12.1.2.
RBS Morgans Corporate Limited is named in the Corporate Directory as Co-Lead Manager to the Offer. RBS
Morgans Corporate Limited has given its written consent to be named as Co-Lead Manager to the Offer in the
form and context in which it is named and has not withdrawn its consent prior to lodgement of this Prospectus
with ASIC. RBS Morgans Corporate Limited has not authorised or caused the issue of this Prospectus and does
not make or purport to make any statement in this Prospectus. In consideration of RBS Morgans Corporate
Limited’s role as Co-Lead Manager to the Offer it will receive a fee as set out in Section 12.1.2.
RFC Corporate Finance Ltd is named in the Corporate Directory as Co-Manager to the Offer. RFC Corporate
Finance Ltd has given its written consent to be named as Co-Manager to the Offer in the form and context
in which it is named and has not withdrawn its consent prior to lodgement of this Prospectus with ASIC. RFC
Corporate Finance Ltd has not authorised or caused the issue of this Prospectus and does not make or purport
to make any statement in this Prospectus. In consideration of RFC Corporate Finance Ltd’s role as Co-Manager
to the Offer it will receive a fee as set out in Section 12.1.2.
Ambrian Partners has given its written consent to be named in this Prospectus in the form and context in which
it is named and has not withdrawn its consent prior to lodgement of this Prospectus with ASIC. Ambrian Partners
has not authorised or caused the issue of this Prospectus and does not make or purport to make any statement
in this Prospectus. In consideration of Ambrian Partners’ role assisting RFC Corporate Finance Ltd it will receive
compensation from RFC Corporate Finance Ltd as set out in Section 12.1.2.
There are a number of persons referred to elsewhere in this Prospectus who are not experts and who have not
made statements included in this Prospectus, nor are there any statements made in this Prospectus on the basis
of any statements made by those persons. These persons did not consent to being named in the Prospectus
and did not authorise or cause the issue of the Prospectus.
12.11.
CONSENT OF EXPERTS
HopgoodGanim Lawyers, MBA Petroleum Consultants and BDO Audit (Qld) Pty Ltd have acted as experts and
have given, and have not before the lodgement of this Prospectus, withdrawn their written consent to the issue
of this Prospectus, with the statement purporting to be made by them or to be made on a statement by them,
included in the form and context in which it is included. To the extent permitted by law, they each disclaim any
responsibility for any misleading statements or omissions in this Prospectus.
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Armour Energy Limited Replacement Prospectus
12.12.
RELATED PARTY TRANSACTIONS
Chapter 2E of the Corporations Act governs related party transactions with respect to public companies. Related
parties include Directors and entities controlled by Directors. Related party transactions require Shareholder
approval unless they fall within one of the exceptions in Chapter 2E of the Corporations Act.
Since incorporation, the Company has entered into a number of transactions with related parties which have taken place
before Armour Energy was a public company, or fallen within one of the exceptions in Chapter 2E of the Corporations
Act or been approved by Shareholders in general meeting. A summary of the transactions is set out below.
Issue of Shares to DGR Global Limited
DGR Global was issued 75,350,000 Shares and 18,837,500 Options to subscribe for Shares in the Company on
26 November 2010 each exercisable at $0.50 per Option on or before 31 August 2014. DGR Global paid the sum
of $7,350 for the Shares issued and no consideration was paid for the grant of the options. At the time of issue,
Armour Energy was a proprietary limited company and as such member approval was not required.
DGR Global Administrative Agreement
The Company has entered into an agreement with DGR Global for the provision of Pre-IPO Services and Post-IPO
Services. The terms of this agreement are set out in Section 12.1.10. The agreement with DGR Global was on
arm’s length terms and as such, member approval of the transaction has not been sought.
Issue of Shares and Options to Philip McNamara
Philip McNamara was issued 3,450,000 Shares and 7,762,500 Options to subscribe for Shares in the Company
on 26 November 2010 each exercisable at $0.50 per Option on or before 31 August 2014. Philip McNamara paid
the sum of $345 for the Shares issued and no consideration was paid for the grant of the options. At the time
of issue, Armour Energy was a proprietary limited company and as such member approval was not required.
Executive Services Agreement with Philip McNamara
The Company has entered into the Executive Services Agreement with Philip McNamara, a Director of the
Company. The terms of this agreement are set out in Section 12.1.6.
The agreement with Philip McNamara was considered to be reasonable remuneration for purposes of
section 211 Corporations Act and as such, member approval of the transactions has not been sought.
Samuel Underwriting Agreement
The Company has entered into an underwriting agreement with Samuel Holdings Pty Ltd, a company associated
with Nicholas Mather (a Director of the Company). The terms of this agreement are set out in Section 12.1.1
The Company is unlisted and despite its best efforts has been unable to secure underwriting from other sources
on more commercially competitive terms, or at all. The agreement with Samuel Holdings Pty Ltd was on arm’s
length terms and as such, member approval of the transactions has not been sought.
Samuel Services Agreement
The Company has entered into a services agreement with Samuel Holdings Pty Ltd, a company associated
with Nicholas Mather (a Director of the Company). The terms of this agreement are set out in Section 12.1.7.
The agreement with Samuel Holdings Pty Ltd was on arm’s length terms and as such, member approval of the
transactions has not been sought.
Payment for Services to Samuel Capital Ltd
Mr Nicholas Mather (Chairman), is the sole director of Samuel Capital Ltd. For the year ended 30 June 2011,
Samuel Capital Ltd was paid $169,022 for the provision of consulting services to Armour Energy. The services
were based on normal commercial terms and conditions, and as such, member approval of the transactions
has not been sought.
Payment for Services to Samuel Holdings Pty Ltd
Mr Nicholas Mather (Chairman) is the sole director of Samuel Holdings Pty Ltd. The Company has paid the sum
of $100,000 to Samuel Holdings Pty Ltd in connection with the provision of a finance guarantee in relation
to securing the award of ATP 1087 under the open tender conducted.
195
12. Additional Information CONTINUED
The arrangements with Samuel Holdings Pty Ltd were on arm’s length terms and as such, member approval
of the transactions has not been sought.
Payment to Lead Manager
The Company has entered into an agreement with Bizzell Capital Partners Pty Ltd, a company associated
with Stephen Bizzell (a Director of the Company). The terms of this agreement are set out in Section 12.
The agreement with Bizzell Capital Partners Pty Ltd was on arm’s length terms and as such, member approval
of the transactions has not been sought.
Issue of Shares pursuant to Armour Energy seed capital raising
In March 2011, the Company conducted a seed capital raising and issued Shares to certain Seed Capital Investors
which included Billted Investments Pty Ltd, a company associated with William Stubbs (a Director of the
Company) being issued 250,000 Shares and 62,500 Options and BCP Alpha Investments Ltd and Bizzell Nominees
Pty Ltd, companies associated with Stephen Bizzell (a Director of the Company), being issued 500,000 Shares and
125,000 Options. The Shares were issued at $0.20 each.
Additionally, as with all other Seed Capital Investors Billted Investments Pty Ltd, BCP Alpha Investments Ltd,
Bizzell Nominees Pty Ltd and companies associated with Stephen Bizzell have an obligation to further subscribe
on a dollar for dollar basis under the Prospectus. As the related party above participated on the same terms as all
other non-related parties in the issue, the seed capital issue proceeded on arm’s length terms. As such, member
approval of the transactions has not been sought.
Issue of Director Options
The Company has issued the following Director Options:
• 1,500,000 Director Options to Samuel, an entity associated with Nicholas Mather (a Director of the Company)
exercisable at $0.50 each on or before 31 August 2014. Of these, 500,000 have been transferred to DSWPET
Pty Ltd;
• 7,762,500 Director Options to Philip McNamara, a Director of the Company exercisable at $0.50 each
on or before 31 August 2014; and
• 500,000 Director Options to William Stubbs or his nominee, a Director of the Company exercisable
at $0.50 each on or before 31 August 2014.
Additionally, pursuant to the terms of the Non-Executive Director letters of appointment (detailed in Section 12)
500,000 Director Options have been issued to Roland Sleeman, Stephen Bizzell and Jeremy Barlow, each
Directors of the Company each exercisable at the Offer Price on the dates set out in the table in Section 12.4.
All of the Director Options were issued for nil consideration and are capable of exercise into Shares in the Company.
In the case of the Director’s Options issued to Messrs Mather, McNamara and Stubbs or their nominees, they
were issued prior to the Company becoming a public company.
In the case of the Director Options issued to Roland Sleeman they are considered to form part of his
remuneration under the terms of his appointment and have been valued at $0.022 per option.
The issue of the Director Options to Mr Sleeman was approved by Shareholders at the Company’s annual
general meeting on 9 November 2011. Details of the terms of the Director Options are set out in Section 12.
In the case of the Director Options issued to Messrs Bizzell and Barlow they are considered to form part of their
remuneration under the terms of their appointment and have been valued at $0.032 per option. The terms are
similar to the Options issued to other Directors and as they form part of the remuneration package for Messrs
Bizzell and Barlow, it is considered their issue constitutes reasonable remuneration for purposes of section 211
of the Corporations Act and as such, member approval of the transactions has not been sought.
Payment of Directors Fees
Fees totalling $1,166,210 have been paid to past and present Directors of the Company.
All of these payments are considered to be reasonable remuneration for purposes of section 211
of the Corporations Act and as such, member approval of the transactions has not been sought.
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Armour Energy Limited Replacement Prospectus
12.13.
INTERESTS OF EXPERTS, ADVISERS AND DIRECTORS
The nature and extent of the interests (if any) that:
• the Directors of the Company and any proposed Directors of the Company;
• a person named in this Prospectus as performing a function in a professional, advisory or other capacity
in connection with the preparation or distribution of this Prospectus;
• a promoter of the Company; or
• a stockbroker or underwriter (but not a sub-underwriter) to the Offer;
holds, or held at any time during the last two (2) years in:
• the formation or promotion of the Company;
• property acquired or proposed to be acquired by the Company in connection with:
• its formation or promotion; or
• the Offer,
is set out in Sections 7.4 and 12 and elsewhere in this Prospectus.
The amount that anyone has paid or agreed to pay, or the nature and value of any benefit anyone has given
or agreed to give for services provided by:
• a person named in this Prospectus as performing a function in a professional, advisory or other capacity
in connection with the preparation or distribution of this Prospectus;
• a promoter of the Company; or
• a stockbroker or underwriter (but not a sub-underwriter) to the Offer;
in connection with:
• the formation or promotion of the Company; or
• the Offer;
is set out in Sections 12.9 and elsewhere in this Prospectus.
The amount (if any) that anyone has paid or agreed to pay, or the nature and the value of any benefit anyone
has given or agreed to give to a Director of the Company, or proposed Director of the Company:
• to induce them to become, or to qualify as, a Director of the Company; or
• for services provided by a Director in connection with:
–
the formation of the Company; or
–
the Offer;
is set out in Sections 7.5 and 12.1 and elsewhere in this Prospectus.
12.14.
INSPECTION OF DOCUMENTS
Copies of the following documents may be inspected free of charge at the registered office of the Company
and at the offices of HopgoodGanim Lawyers, Level 8, 1 Eagle Street, Brisbane during normal business hours:
• Material Contracts in Section 12.1;
• Constitution of the Company;
• Consents referred to in this Prospectus;
• Full Report on Tenements; and
• Corporate Governance Charter.
197
12. Additional Information CONTINUED
12.15.
COSTS OF THE OFFER
If the Offer proceeds, the total estimated costs of the Offer including capital raising fees and commissions,
advisory, ASIC and ASX fees, Prospectus printing and miscellaneous expenses will be approximately $6,465,640.
12.16.
FOREIGN SELLING RESTRICTIONS
Cayman Islands
No offer or invitation to subscribe for New Shares may be made to the public in the Cayman Islands.
European Economic Area – Belgium, Denmark, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of New Shares will be made
pursuant to an exemption under the Directive 2003/71/EC (Prospectus Directive), as implemented in Member
States of the European Economic Area (each, a Relevant Member State), from the requirement to produce
a prospectus for offers of securities.
An offer to the public of New Shares has not been made, and may not be made, in a Relevant Member State
except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that
Relevant Member State:
(a) to legal entities that are authorised or regulated to operate in the financial markets or, if not so authorised
or regulated, whose corporate purpose is solely to invest in securities;
(b) to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year;
(ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or
consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown
on its last annual unconsolidated or consolidated financial statements);
(c) to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)
(e) of the Prospectus Directive) subject to obtaining the prior consent of the Company or any underwriter for
any such offer; or
(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer
of New Shares shall result in a requirement for the publication by the Company of a prospectus pursuant
to Article 3 of the Prospectus Directive.
France
This document is not being distributed in the context of a public offering of financial securities (offre au public
de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code
(Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des
marches financiers (AMF). The New Shares have not been offered or sold and will not be offered or sold,
directly or indirectly, to the public in France.
This document and any other offering material relating to the New Shares have not been, and will not be,
submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed,
directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors
(investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2°
and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any
implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs)
acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1,
D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the New
Shares cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance
with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Hong Kong
This document has not been, and will not be, registered as a prospectus under the Companies Ordinance
(Cap. 32) of Hong Kong (the Companies Ordinance), nor has it been authorised by the Securities and Futures
Commission in Hong Kong pursuant to the Securities and Futures Ordinance (Cap. 571) of the Laws of Hong
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Armour Energy Limited Replacement Prospectus
Kong (the SFO). No action has been taken in Hong Kong to authorise or register this document or to permit the
distribution of this document or any documents issued in connection with it. Accordingly, the New Shares have
not been and will not be offered or sold in Hong Kong by means of any document, other than (i) to “professional
investors” (as defined in the SFO) or (ii) in other circumstances that do not result in this document being a
“prospectus” (as defined in the Companies Ordinance) or that do not constitute an offer to the public within
the meaning of that ordinance.
No advertisement, invitation or document relating to the New Shares has been or will be issued, or has been
or will be in the possession of any person for the purpose of issue, in Hong Kong or elsewhere that is directed
at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted
to do so under the securities laws of Hong Kong) other than with respect to New Shares that are or are intended
to be disposed of only to persons outside Hong Kong or only to professional investors (as defined in the SFO and
any rules made under that ordinance). No person allotted New Shares may sell, or offer to sell, such shares in
circumstances that amount to an offer to the public in Hong Kong within six months following the date of issue
of such shares.
The contents of this document have not been reviewed by any Hong Kong regulatory authority. You are advised
to exercise caution in relation to the offer. If you are in doubt about any contents of this document, you should
obtain independent professional advice.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this
document has not been filed with or approved by any Irish regulatory authority as the information has not been
prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus
(Directive 2003/71/EC) Regulations 2005 (the Prospectus Regulations). The New Shares have not been offered
or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering,
except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than
100 natural or legal persons who are not qualified investors.
Norway
This document has not been approved by, or registered with, any Norwegian securities regulator pursuant to the
Norwegian Securities Trading Act of 29 June 2007. Accordingly, this document shall not be deemed to constitute
an offer to the public in Norway within the meaning of the Norwegian Securities Trading Act of 2007.
The New Shares may not be offered or sold, directly or indirectly, in Norway except:
(a) to “Professional Investors” (as defined in Norwegian Securities Regulation of 29 June 2007 no. 876);
(b)
any natural person who is registered as a professional investor with the Norwegian Financial Supervisory
Authority (No. Finanstilsynet) and who fulfils two or more of the following: (i) any natural person with an
average execution of at least ten transactions in securities of significant volume per quarter for the last four
quarters; (ii) any natural person with a portfolio of securities with a market value of at least €500,000; and
(iii) any natural person who works, or has worked for at least one (1) year, within the financial markets
in a position which presuppose knowledge of investing in securities;
(c)
to fewer than 100 natural or legal persons (other than “Professional Investors”); or
(d) in any other circumstances provided that no such offer of New Shares shall result in a requirement for
the registration, or the publication by the Company or an underwriter, of a prospectus pursuant to the
Norwegian Securities Trading Act of 29 June 2007.
Singapore
This document and any other materials relating to the New Shares have not been, and will not be, lodged or
registered as a prospectus in Singapore with the Monetary Authority of Singapore. Accordingly, this document
and any other document or materials in connection with the Offer or sale, or invitation for subscription or
purchase, of New Shares, may not be issued, circulated or distributed, nor may the New Shares be offered or sold,
or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons
in Singapore except pursuant to and in accordance with exemptions in Subdivision (4) Division 1, Part XIII of the
Securities and Futures Act, Chapter 289 of Singapore (the SFA), or as otherwise pursuant to, and in accordance
with the conditions of any other applicable provisions of the SFA.
199
12. Additional Information CONTINUED
This document has been given to you on the basis that you are (i) an “Institutional Investor” (as defined in the
SFA) or (ii) a “Relevant Person” (as defined under section 275(2) of the SFA). In the event that you are not an
investor falling within any of the categories set out above, please return this document immediately. You may
not forward or circulate this document to any other person in Singapore.
Any offer is not made to you with a view to the New Shares being subsequently offered for sale to any other
party. There are on-sale restrictions in Singapore that may be applicable to investors who acquire New Shares.
As such, investors are advised to acquaint themselves with the SFA provisions relating to resale restrictions in
Singapore and comply accordingly.
Switzerland
The New Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX)
or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared
without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss
Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules
or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document
nor any other offering or marketing material relating to the New Shares may be publicly distributed or otherwise
made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the New Shares have been or will
be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with,
and the offer of New Shares will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for
approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of
section 85 of the Financial Services and Markets Act 2000, as amended (FSMA) has been published or is intended
to be published in respect of the New Shares. This document is issued on a confidential basis to “Qualified
Investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the New Shares may
not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any
other document, except in circumstances which do not require the publication of a prospectus pursuant to
section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part,
nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA)
received in connection with the issue or sale of the New Shares has only been communicated or caused
to be communicated and will only be communicated or caused to be communicated in the United Kingdom
in circumstances in which section 21(1) of FSMA does not apply to the Company.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have
professional experience in matters relating to investments falling within Article 19(5) (investment professionals)
of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (FPO), (ii) who fall within
the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated
associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “Relevant
Persons”). The investments to which this document relates are available only to, and any invitation, offer
or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a Relevant
Person should not act or rely on this document or any of its contents.
United States
This document does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the
United States. Any securities described in this document have not been, and will not be, registered under
the US Securities Act 1933 (US Securities Act) and may not be offered or sold in the United States except
in transactions exempt from, or not subject to, registration under the US Securities Act and applicable
US state securities laws.
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Armour Energy Limited Replacement Prospectus
12.17.
PRIVACY
By submitting an Application Form for New Shares and New Options you are providing to the Company personal
information about you. If you do not provide complete and accurate personal information, your application may
not be able to be processed. The Company maintains the register of members of the Company through Link
Market Services Limited, an external service provider. The Company requires Link Market Services Limited to
comply with the National Privacy Principles while performing these services. The Company’s register is required
by law to contain certain personal information about you, such as your name and address and number of Shares
and Options held. In addition, the Company collects personal information from members including contact
details, bank accounts, membership details and tax file numbers.
This information is used to carry out registry functions such as payment of dividends, sending annual and half yearly
reports, notices of meetings, newsletters and notifications to the Australian Taxation Office. In addition, contact
information will be used from time to time to inform members of new initiatives concerning the Company.
The Company understands how important it is to keep your personal information private. The Company will
only disclose personal information it has about you:
• when you agree to the disclosure;
• when used for the purposes for which it was collected;
• when disclosure is required or authorised by law;
• to other members of the Group;
• to your Broker;
• to external service suppliers who supply services in connection with the administration of the Company’s
register such as mailing houses and printers, Australia Post and financial institutions.
Shareholders have the right to access, update and correct personal information held by the Company and Link
Market Services Limited except in limited circumstances. Shareholders wishing to access, update or correct personal
information held by Link Market Services Limited or by the Company should contact the respective offices.
If you have any questions concerning how the Company handles your personal information please contact
the Company.
12.18.
GOVERNING LAW
This Prospectus and the contracts that arise from the acceptance of the Applications are governed by the law
applicable in Queensland (Australia), and each applicant for New Shares under this Prospectus submits to the
exclusive jurisdiction of the courts of Queensland (Australia).
12.19.
ELECTRONIC PROSPECTUS
An electronic version of this Prospectus is available from www.armourenergy.com.au
The Application Form may only be distributed attached to a complete and unaltered copy of this Prospectus.
The Application Form included with this Prospectus contains a declaration that the investor has personally
received the complete and unaltered Prospectus prior to completing the Application Form.
The Company will not accept a completed Application Form if it has reason to believe that the investor has
not received a complete paper copy or electronic copy of this Prospectus or if it has reason to believe that
the Application Form or electronic copy of this Prospectus has been altered or tampered with in any way.
While the Company believes that it is extremely unlikely that in the Offer Period the electronic version of this
Prospectus will be tampered with or altered in any way, the Company cannot give any absolute assurance that it will
not be the case. Any investor in doubt concerning the validity or integrity of an electronic copy of this Prospectus
should immediately request a paper copy of this Prospectus directly from the Company or a financial adviser.
201
12. Additional Information CONTINUED
12.20.
SUBSEQUENT EVENTS
There has not arisen at the date of this Prospectus any item, transaction or event of a material or unusual
nature not already disclosed in this Prospectus which is likely, in the opinion of the Directors of the Company
to affect substantially:
• the operations of the Company;
• the results of those operations; or
• the state of affairs of the Company.
12.21.
CONSENT TO LODGEMENT
Each of the Directors of the Company has consented to the lodgement of this Prospectus with the ASIC.
Signed on behalf of the Company by:
Nicholas Mather
202
13.
Glossary of
Defined Terms
13. Glossary of Defined Terms
$
Australian dollars (unless otherwise indicated)
AAPG
American Association of Petroleum Geologists
AEDT
Australian Eastern Daylight Time
ALRA
Aboriginal Land Rights (Northern Territory) Act 1976 (Cth)
ALRA Land
Aboriginal land as defined under the Aboriginal Land Rights
(Northern Territory) Act 1976 (Cth)
Applicant
A person applying for New Shares offered by this Prospectus under the Offer
Application
An application for New Shares under the Offer
Application Amount
The total amount shown on the Application Form
Application Form
The Application Form enclosed with and forming part of this Prospectus
for use by investors
Application Monies
The Offer Price multiplied by the number of New Shares applied for
Armour Energy or
the Company
Armour Energy Limited ACN 141 198 414
ASIC
Australian Securities and Investments Commission
ASTC Settlement
Rules
The operating rules of the ASX Settlement and Transfer Corporation Pty Limited
which apply while the Company is an issuer of CHESS-approved securities,
each as amended or replaced from time to time
ASX
ASX Limited ABN 98 008 624 691
ASX listing
Listing of the Shares of the Company for quotation by the ASX
ATP 1087
Application for Authority to Prospect 1087 granted under the Petroleum
and Gas (Production and Safety) Act 2004 (Queensland)
Authorisations
Certain licences, authorisations and permits in respect of exploration
and development activities
BCF
Billion cubic feet (10 9 cubic feet)
Board
The board of Directors of the Company from time to time
Brent
Brent Crude, being the most widely used of the many major classifications
of crude oil
Broker(s)
An ASX participating organisation
Broker Firm Offer
The invitation under this Prospectus to Australian and New Zealand resident retail
clients of Brokers who have received a firm allocation from their Broker to apply for
New Shares, as described in Section 6.10.1
Broker Firm Offer
Applicants
Applicants offered a firm allocation of New Shares by their Broker under the Broker
Firm Offer
Broker Firm Offer
Closing Date
The date which the Broker Firm Offer closes, 16 April 2012 (subject to the right of the
Company to vary this date without notice, in consultation with the Lead Manager)
CHESS
Clearing House Electronic Sub-registry System operated by ASX
Closing Date
16 April 2012 (or such other date as determined by the Board) and the Broker Firm
Offer Closing Date and Priority Offer Closing Date as the context requires
Co-Lead Manager
RBS Morgans Corporate Limited ACN 010 539 607
Constitution
Constitution of the Company
Condensate
A natural gas liquid with a low vapour pressure compared with natural gasoline and
liquefied petroleum gas
Consultant Options
The options referred to in Section 12.4
204
Armour Energy Limited Replacement Prospectus
Contingent
Resources
Those quantities of petroleum estimated, as of a given date, to be potentially
recoverable from known accumulations by application of development projects
but which are not currently considered to be commercially recoverable due to
one or more contingencies
Corporate
Governance Charter
The corporate governance charter adopted by the Company as described
in Section 7.6
Corporations Act
Corporations Act 2001 (Cth)
CSG
Coal Seam Gas
Directors
The Directors of the Company
DGR Global
DGR Global Limited ACN 052 354 837 (formerly D’Aguilar Gold Limited)
DGR Global
Shareholder
A shareholder in DGR Global Limited
Dry Gas
Natural gas that occurs in the absence of condensate or liquid hydrocarbons
EA
Environmental Authority
EIS
Environmental Impact Statement
Eligible DGR Global
Shareholder
A DGR Shareholder resident in Australia and New Zealand or other foreign jurisdiction
in which it is lawful for the Offer to be made
Eligible U.S. Fund
Manager
A dealer or professional fiduciary organised, incorporated or (if an individual) resident
in the United States acting for an account (other than an estate or trust) held for the
benefit or account of persons that are not “U.S. persons” (as defined in Rule 902(k)(1)
under the U.S. Securities Act of 1933) for which it has and is exercising investment
discretion, within the meaning of Rule 902(k)(2)(i) of Regulation S under the U.S.
Securities Act of 1933
EP(s)
Petroleum Exploration Permit issued under the Petroleum Act (NT)
EPA
Petroleum Exploration Permit Application under the Petroleum Act (NT)
EPM(s)
Mining Exploration Permit(s)
ESOP
Employee Share Option Plan
Existing interest
EP 171 and 176, and the permits pending listed in the table under section 2.2.2.1.
Existing Shareholders
All holders of Shares in the Company at the date of this Prospectus
Exposure Period
The seven (7) day period from the date of lodgement of the original Prospectus dated
13 March 2012 or as otherwise extended by ASIC
FATA
Foreign Acquisitions and Takeovers Act 1975
FOB or “Free on
Board”
A sale contract where transfer of ownership occurs when goods are loaded onto
a ship, and the purchaser is responsible for shipping
Full Report on
Tenements
The independent solicitor’s report on tenements prepared by HopgoodGanim Lawyers
as lodged with ASIC
Group
The Company and each of its subsidiaries
Hydraulic Fracturing
The practise of pumping liquids down a well into subsurface rock units under
pressures that are high enough to fracture the rock
Independent
Expert’s Report
The independent expert’s report prepared by MBA Petroleum Consultants in Section 9
Independent
Solicitor’s Report
The independent solicitor’s report on tenements prepared by HopgoodGanim Lawyers
in Section 10 which is a summary of the Full Report on Tenements
Initial Seed Options
The 17,500,000 options issued to the Seed Capital Investors
205
13. Glossary of Defined Terms
CONTINUED
Institutional Investors
An investor to whom offers or invitations in respect of New Shares can be made
without disclosure under the Corporations Act
Institutional Offer
The invitation to Institutional Investors in Australia and other selected jurisdictions
other than the United States (excluding Eligible U.S. Fund Managers), made pursuant
to this Prospectus as described in Section 6.11
IPO
Initial public offering of the Company pursuant to this Prospectus
km
Kilometre(s)
km
2
A square kilometre
Lakes Oil
Lakes Oil N.L.
Lakes Oil Agreement
The letter agreement dated 5 December 2011 entered into by Lakes Oil
and Armour Energy
Lakes Farm-in
Tenements
PEP 166 and PEP 169
Land Council
A land council established under the ALRA
Lead Manager
Bizzell Capital Partners Pty Ltd ACN 118 741 012
Liquids
Liquid compounds such as propanes, butanes, pentanes and heavier products
extracted from the gas flowstream
Listing Rules
The official listing rules of ASX
LNG
Liquefied Natural Gas – natural gas cooled to – 1620 C to its liquid form for effective
transportation
LPG
Liquefied Petroleum Gas – a gaseous mixture of propane and butane that is stored as
a liquid under pressure
LNG Netback Price
Means generally the FOB price of LNG in export markets less the cost of compression,
transport to the plant and liquefaction
m
Metre(s)
Mpa
Megapascals – a unit of pressure
MBA Petroleum
Consultants
MBA Petroleum Consultants Pty Ltd ACN 139 445 319
Mean Prospective
Resource
The arithmetic mean of Prospective Resources that have been assessed
MMBBL
Million barrels of oil
Native Title Act
Native Title Act 1993 (Cth)
Native Title
Agreement
The Co-existence and Exploration Deed dated 22 June 2011 between the Government
of Northern Territory, the NLC and relevant NTPs
New Shares
The 150,000,000 New Shares offered under this Prospectus
New Options
The options to be issued with the New Shares on the basis of 1 New Option for
every four New Shares issued, exercisable at $0.50 on or before 31 August 2014
NGL(s)
Natural Gas Liquids, being liquid hydrocarbons found in association with natural gas
NLC
Northern Land Council
NTP(s)
Native Title Party
NTP Representative
Representative appointed by a NTP
Och-Ziff funds
Investment funds affiliated with Och-Ziff Capital Management Group LLC
Offer
The offer under this Prospectus of New Shares and New Options for issue by
Armour Energy
206
Armour Energy Limited Replacement Prospectus
Offer Price
50 cents ($0.50) per New Share
Official List
The Official List of ASX
Official Quotation
Quotation on the Official List of ASX
Opening Date
28 March 2012
Options
Options to subscribe for Shares in the Company
Other Seed Capital
Investors
All Seed Capital Investors other than the Och-Ziff funds
PEP
Petroleum exploration permit issued under the Petroleum Act (Vic)
Performance Rights
Performance Rights as described in Section 12.5
Performance Shares
Performance Shares in the capital of Armour Energy as described in Section 12.5
Petroleum Act (NT)
Petroleum Act of the Northern Territory
Petroleum Act (Vic)
Petroleum Act 1998 of Victoria
PJs
Petajoules (1015 joules)
Priority Offer
The invitation under this Prospectus to Eligible DGR Global Shareholders to apply for
New Shares, as described in Section 6.10.2
Priority Offer
Applicant
An Applicant under the Priority Offer
Priority Offer
Application Form
An Application Form titled “Priority Offer Application Form” attached to or
accompanying this Prospectus when provided to Eligible DGR Shareholders
Priority Offer
Closing Date
The date on which the Priority Offer closes, 11 April 2012 (subject to the right
of the Company to close the offer earlier or to extend this date without notice,
in consultation with the Lead Manager)
PRL
Petroleum retention lease issued under the Petroleum Act (Vic)
Professional Investors
Has the same meaning as in the Norwegian Securities Regulation of 29 June 2007 no. 876
Prospective Resource
Those quantities of petroleum which are estimated, as of a given date, to be
potentially recoverable from undiscovered accumulations
Prospectus
This replacement Prospectus dated 20 March 2012 which replaces the Prospectus
lodged with ASIC on 13 March 2012 (including the electronic form of this Prospectus
and any supplementary or replacement Prospectus in relation to this document)
Record Date
9 March 2012
Registry
Link Market Services Limited ACN 083 214 537
Retail Investors
An investor who is not an Institutional Investor
Retail Offer
The invitation (or, in the case of the Priority Offer, the offer) to Retail Investors to apply
for New Shares under this Prospectus as described in Section 6.11. The Retail Offer
comprises the Broker Firm Offer and the Priority Offer
Retail Offer Opening
Date
The date on which the Retail Offer opens, 28 March 2012 (subject to the right of the
Company to vary this date, without notice, in consultation with the Lead Manager
Retail Seed Capital
Investor
A Seed Capital Investor who does not qualify as a sophisticated investor under
s 708(8) of the Corporations Act or as a professional investor under s 708(11)
of the Corporations Act
RFC
RFC Corporate Finance Ltd
Section
A section of this Prospectus
207
13. Glossary of Defined Terms
CONTINUED
Seed Capital Investor
An investor who subscribed for Shares in Armour Energy in March and April 2011
at $0.20 per Share
Seed Subscriptions
The commitments provided by the Seed Capital Investors to subscribe for and / or
introduce Seed Subscription Investors to subscribe for $17.5 million of New Shares
in the Offer
Seed Subscription
Investors
Investors in the Seed Subscriptions, being the Seed Capital Investors and other
investors introduced by the seed Capital Investors
Share(s)
Fully paid ordinary share(s) in the capital of Armour Energy
Shareholder(s)
The holder of a Share
Shale Gas
Natural gas that is trapped within shale formations
Share Subscription
Agreements
The agreements under which the Seed Capital Investors subscribed for $14,000,0000
of Shares in Armour Energy in March and April 2011
Tapis
Tapis crude being a Malaysian crude oil used as a pricing benchmark in Singapore and
often used as an oil marker for Asia and Australia
TCF
Trillion cubic feet (1012 cubic feet)
TOC
Total Organic Carbon, being the amount of carbon bound in an organic compound.
It is a measure of the richness of a source rock
Total Mean
Estimation of the mean and total
Underwriter or
Samuel
Samuel Holdings Pty Ltd ACN 063 693 747
Underwriting
Agreement
The agreement between the Company and the Underwriter to Underwrite the Offer
to the amount of $50 million
Underwritten
Amount
$50 million
VR
Vitrinite Reflectance
Wet Gas
Natural gas that contains less methane and more ethane and other more complex
hydrocarbons
Wholesale Seed
Capital Investor
A Seed Capital Investor who is not a Retail Seed Capital Investor
A glossary of technical terms used in this Prospectus appears in Section 9.
208
Armour Energy Limited Replacement Prospectus
Broker Code
Adviser Code
Armour Energy Limited
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Broker Code
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Armour Energy Limited
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Corporate Directory
DIRECTORS
LEAD MANAGER
Nicholas Mather (Executive Chairman)
Philip McNamara (Managing Director)
Jeremy Barlow (Non-Executive Director)
Stephen Bizzell (Non-Executive Director)
Roland Sleeman (Non-Executive Director)
William Stubbs (Non-Executive Director)
Bizzell Capital Partners Pty Ltd
Level 11 Waterfront Place
1 Eagle Street
Brisbane Qld 4000
COMPANY SECRETARY
Karl Schlobohm
REGISTERED OFFICE AND
PRINCIPAL PLACE OF BUSINESS
Level 13
145 Eagle Street
Brisbane Qld 4000
Phone:
Fax:
Website:
Email:
+61 7 3303 0620
+61 7 3303 0681
www.armourenergy.com.au
info@armourenergy.com.au
ASX CODE:
AJQ
ARMOUR ENERGY OFFER
INFORMATION LINE
1300 551 378 or +61 2 8280 7705
Hours of operation: 8.30am to 5.30pm (AEDT)
Monday to Friday between Wednesday 28 March
2012 and Friday 27 April 2012.
CO-LEAD MANAGER
RBS Morgans Corporate Limited
Level 29 Riverside Centre
123 Eagle Street
Brisbane Qld 4000
CO-MANAGER
RFC Corporate Finance Ltd
Level 14
19–31 Pitt Street
Sydney NSW 2000
SOLICITORS TO THE COMPANY
HopgoodGanim Lawyers
Level 8, Waterfront Place
1 Eagle Street
Brisbane QLD 4000
INDEPENDENT ACCOUNTANT
AND AUDITOR
BDO Audit (QLD) Pty Ltd
Level 18
300 Queen Street
Brisbane QLD 4000
INDEPENDENT
GEOLOGICAL CONSULTANT
MBA Petroleum Consultants
27 Douglas Street
Milton Qld 4064
Phone:
Fax:
+61 7 3505 4500
+61 7 3367 3820
SHARE REGISTRY
Link Market Services Limited
Level 15, ANZ Building
324 Queen Street
Brisbane QLD 4000
Phone:
Fax:
COLLIER CREATIVE #16637
1300 554 474
+61 2 8280 7454
www.armourenergy.com.au