Midwestern Struggles to Complete Mart Resources Takeover Before Deadline

As the second deadline for the Midwestern Oil and Gas takeover of its Canadian partner, Mart Resources approaches, it is looking increasingly unlikely that it will be able to meet the conditions to close the deal in time. Midwestern has still not closed the finance it needs to complete the ambitious takeover of its partner, Mart, by the August 19 deadline.

Failure will come at a high price as Midwestern is contractually bound to pay Mart a reverse break fee of CAD$5.8 million (about US$4.58) if Midwestern fails to complete the transaction.

Midwestern is now trying to schedule a meeting with Mart at which it is hoping to convince its partners, who have so far been accommodating, to extend once again. If they fail then the deal will come to a costly end for Midwestern.

The two partners in Umusadege Marginal Field initially signed a definitive agreement on March 15, 2015 giving Midwestern until July 16 to come up with the finance to pay the agreed $0.80 per share to acquire all the issued and outstanding common shares of the Canadian company, which is listed on the Toronto Stock Exchange (TSX). In June, Mart announced that it had granted Midwestern an extension after Midwestern provided Mart with an updated framework agreement it had with “a significant Middle Eastern group.” Mart’s Board of Directors said they were satisfied that sufficient progress had been made and it was therefore appropriate to grant the requested extension to 26 July.

As the revised deadline of 26 of July approached, Midwestern requested another extension from Mart and a new deadline of 19 August was set for the completion of the financing of the transaction. NOGintelligence gathers that as the latest deadline approaches, Midwestern has still not completed terms for the financing. A make or break meeting between the parties in the next few days will determine whether Mart will grant Midwestern yet more time for the acquisition or whether it will draw a line under the transaction and insist that Midwestern honors the terms of the agreement and pay the penalty.

Midwestern, which is partially owned by the Delta State government operates the Umusadege Marginal Field – located onshore on Oil Mining Lease (OML) 56 – which it owns with its strategic partners Suntrust Oil and Mart Energy. Mart’s share of production from the field was 5,785 barrels of oil per day (bopd) in Q2 of 2015. Last year, all three partners formed a consortium, Eroton, which acquired OML 18 in the last round of Shell divestments.

OML 18 contains nine fields and associated infrastructure that includes seven oil flow stations, three associated gas gathering processing plants and one non-associated gas processing plant, and associated gathering facilities. Gross crude oil production before pipeline losses, increased from approximately 14,000 BOPD in March 2015 to approximately 24,000 BOPD in June 2015.

Even with so much production, the acquisition will be an expensive one for Midwestern, given that it will have to assume liability for Mart’s outstanding indebtedness of over $200 million. Mart funded its share of the purchase price of OML 18 by increasing its existing secured term loan credit facility with Guaranty Trust Bank from $175 million to $232.5 million. The increased secured loan credit facility has a term of five years and bears interest at 90 days LIBOR plus 4% (floor of 8.25%).

If it can complete the acquisition Midwestern will become one of the largest Nigerian independents. Unfortunately for the company, these are tough times for raising finance with current oil prices steadfastly