Print   



FOR IMMEDIATE RELEASE

10 August 2009

SOVEREIGN OILFIELD GROUP Plc

('Sovereign' or 'the Company' or 'the Group')

Disposals of Prodrill Engineering Limited and Sovereign House

(the Disposals') 

and

Notice of General Meeting

Sovereign Oilfield Group plc is pleased to announce that it has entered into a Share Purchase Agreement subject to Shareholder approval to dispose of the entire issued share capital of Prodrill Engineering Limited ('Prodrill'), a subsidiary that provides oilfield recruitment services, for a total consideration of £2.25 million and a further agreement for the sale of Sovereign House for a total consideration of £1.575 million. 

Background and reasons for the Disposal of Prodrill and Sovereign House

Sovereign floated on AIM in 28 September 2005 and had pursued an aggressive acquisition policy having completed six acquisitions within its two divisions, Fabrication and Drilling, since admission to AIM.

Sovereign's shares were suspended from trading on AIM on 26 September 2008 pending publication of the Company's annual report and accounts for the year ended 31 March 2008 ('the 2008 Annual Accounts') as it was in negotiations with a number of lenders, including its existing lenders, regarding a restructuring of the Group's debt facilities.  

Since the disposal of Vertec Engineering Limited and the Cabin Rental Fleet of Labtech Services Limited announced on 11 May 2009 the Existing Lending Consortium agreed to continue to support the Group's existing banking facilities, removing both short and medium term financing concerns. Sovereign published its 2008 Annual Accounts and its interim statement for the six months ended 30 September 2008 on 18 May 2009 and trading in Sovereign's ordinary shares on AIM was restored on 19 May 2009.  

Sovereign currently has debt facilities of £28.4 million comprising £11.6 million senior debt and £16.8 million of mezzanine debt. The Existing Lending Consortium has confirmed continued support of the Group's existing banking facilities subject to certain conditions, which includes the disposal of the certain non-core subsidiaries. The disposal of Prodrill is not a condition of the new banking facilities but is being sold to reduce the overall level of debt in the Group as it is not considered core to the Group's future activities.  

As a result of the Disposals, debt facilities will reduce to approximately £27.15 million at completion, and £26.15 million on full repayment of the loan notes.

  Principle Terms

Sovereign has entered into the conditional Share Purchase Agreement for the disposal of Prodrill to Claymore Investments Limited ('Claymore'). The proposed disposal of Prodrill is a transaction with a related party for both the purposes of the AIM Rules as the proposed purchaser, Claymore, is a company beneficially owned by certain Directors and Shareholders of Sovereign. Under the terms of this agreement the consideration has been agreed at £2.25 million with £1.25 million being payable in cash at completion and £1.0 million being paid in four half yearly installments of £250,000. The deferred consideration is to be secured by a pledge on all the issued ordinary shares of Prodrill Engineering Limited.

The gross assets of Prodrill were £2.42 million as at 31 March 2008 and the operating profit was £0.5 million, excluding internal management charges. The figures above are extracted from the audited financial statements for the year to 31 March 2008.

The Company has also entered into the conditional agreement for the sale and leaseback of Sovereign House with Tilestamp Limited. Sovereign House, a non trading asset, will remain the Head Office of the Group. Under the terms of this agreement the consideration has been agreed at £1.575 million payable in cash at completion. The terms of the sale and leaseback include a rental of £120,000 per annum for a period of 5 years, increasing to the greater of £132,500 or the open market rental value of the property at that time.

The proposed Disposals are both deemed to be disposals resulting in a fundamental change of the business for the purpose of AIM Rule 15 as the disposal proceeds for each are in excess of the market capitalisation of the Company at close of business on 7 August 2009. By virtue of being deemed to be a fundamental change of business, the disposal of Prodrill and the sale of Sovereign House are both conditional on approval of the Shareholders.

The proceeds of the Disposals will be used to reduce the Groups existing banking facilities and augment the Group's working capital facilities. As a result of the Disposals, debt facilities will reduce to approximately £27.15 million at completion, and £26.15 million on full repayment of the loan notes.

Remaining businesses of the Company

Subject to shareholder approval, the Drilling and Fabrication Division businesses (excluding Prodrill) will be the remaining trading businesses of the Group. As such Directors do not consider that the Company will be classed as an investing company under rule 15 of the AIM Rules. For the year to 31 March 2008 the unaudited turnover attributable to the remaining Drilling and Fabrication Division businesses of the Group was £75.5 million with a gross profit of £20.4 million before the allocation of central running costs. 

General Meeting

A circular will be sent to shareholders shortly giving notice of a General Meeting to be held at Sovereign's offices, 4 Queens Terrace, Aberdeen, AB10 1XL at 10.00 a.m. on 26 August 2009 to consider, and if thought fit, to approve the Resolutions in order to implement the Disposals.

  Commenting on the Disposals, Graham Burgess, Chairman of Sovereign Oilfield Group plc said: 

'Sovereign has been working tirelessly over the last year to reshape the Group and to reduce debt. The disposals of Prodrill and Sovereign House announced today represent a significant step forward for the Group and in the last 12 months the Group has realized £12.79 million which it has used to pay down debt and increase working capital.  This will allow the Group to focus on the core strengths in its remaining Drilling and Fabrication Division businesses.'

Further information:

Sovereign Oilfield Group Plc                                        Tel: 01224 261900

Graham Burgess, Executive Chairman

Julie Cowie, Finance Director

Buchanan Communications                                         Tel: 0207 466 5000

Tim Thompson/Catherine Breen

Charles Stanley Securities - Nominated Advisor            Tel: 0207 149 6000

Mark Taylor/Freddy Crossley

ENDDISKGGMRDGGGLZM