XCD Energy (ASX: XCD) has used a nearby discovery to its Alaskan projects to renegotiate a lower royalty payment to the original owners of its project ground as it awaits a merger with fellow Alaskan player 88 Energy (ASX: 88E).
The company said the discovery by ConocoPhillips during the recent winter drilling season at the nearby Harpoon target has reduced the risk to its own Merlin and Harrier prospects being successful.
ConocoPhillips encountered hydrocarbons in its Harpoon well, located 15km northwest of XCD Energy’s ground.
While the Alaska state royalty of 12.5% still applies to production from oil and gas wells, the original owners of the ground have agreed to see their royalty to go from 1.5% to 1.3% — but they will now get a royalty on an enlarged area as the Harpoon success improves the chances on XCD ground, especially at Harrier.
The “area of mutual interest” (as the deal with the landowners is known) will now include all 17 of XCD Energy’s leases, instead of the previous 15.
It was decided to review the risk profile of XCD after ConocoPhillips encountered hydrocarbons in an area that had not previously provided drilling success.
Target statement out next week
XCD Energy is expecting to send shareholders its target statement next week.
But since the original unsolicited bid was launched, XCD and 88 Energy have agreed to recommend to shareholders that the two companies merge into one, thus placing all their leases on the North Slope of Alaska into one bigger company.
XCD Energy is active in the North Slope region with 100% ownership of 195,373 acres (790sq km).
It has a prospective resource of about 1.6 billion barrels. The company also added four additional leases in the December quarter.
88 Energy controls a net 250,000 acres (1,011sq km).
88 Energy’s improved all-paper offer is for 2.4 new 88 Energy shares for every one XCD share, and 0.7 new 88 Energy shares for each XCD listed option.
The original offer was 1.67 new shares for one XCD Energy share, and 0.5 new shares for one XCD quoted option.
XCD holders will, once the merger is effected, control about 20% of the enlarged company.
A stronger presence in Alaska
A joint statement from the two companies on 7 May said the XCD board had unanimously recommended its shareholders accept the improved offers in the absence of a superior proposal.
If the deal goes through, the new company will own a diversified portfolio of three key project areas.
88 Energy had argued that a merged entity would have greater financial strength and market presence.