Nasdaq-listed special purpose acquisition company (SPAC) Liberty Resources Acquisition Corp has announced that it has agreed to a binding amendment to a previously executed non-binding acquisition letter to acquire Kazakhstan-based Caspi for US$427.7 million (RM1.9 billion).
The price is based solely on the oil reserves value of Caspi’s Rakushechnoye oil field in Kazakhstan, excluding possible royalties from the field’s gas and condensate output.
In its disclosure to Nasdaq, Liberty Resources said the transaction would result in minimum net proceeds of US$55 million (RM234 million) to Caspi.
According to the deal, the blank cheque company will also assume Caspi’s liabilities of US$50 million (RM213 million). Caspi is a subsidiary of Halim’s Markmore Energy (Labuan) Ltd.
Together, it expects to secure an additional US$120 million (RM511 million) that will be committed at the signing of the definitive business combination agreement.
Upon closing, the SPAC expects to declare a dividend of at least 50 US cents per share of outstanding common stock.
Following the business combination with the blank check company, Caspi will trade on Nasdaq.
Currently, the deal has secured approval from both boards and its conclusion is subject to Liberty Resources’ shareholders approval and receipt of certain regulatory approval.
To progress into the business combination stage, the two parties need to satisfy a number of conditions, including completion of due diligence by all parties, the negotiation of the definitive business combination agreement and the receipt of a fairness opinion from an independent investment bank to Liberty’s board.
As outlined in the acquisition letter, the parties aim to execute a business combination agreement before the exclusivity period ends on Sept 15. However, this period may be extended by mutual agreement of both parties for all the conditions to be met.
The combination is expected to be completed between the fourth quarter of 2022 (Q4 2022) and Q1 2023.
Following the business combination, Caspi’s current owner will receive approximately 32.7 million shares of the combined company’s common stock.
Upon completion and commencement of a central processing complex for the oilfield’s gas and condensate, Caspi’s current shareholders will receive 50% net revenue from the sale of gas and 40% of the net revenue from the sale of condensate when the plant is commercially producing or US$15 million per annum if there is no commercial production.
In its initial filing with the US Securities and Exchange Commission (SEC), Liberty Resources said the acquisition of a high-growth company or assets in the oil and gas sector would provide a platform to fund consolidation and fuel growth for the company.
“Our aim is to become a mid-size independent operator targeting producing onshore assets with attractive fiscal regimes that also offers a high dividend policy,” it stated.
Although it does not have any geographical restriction, Liberty Resources has placed priority in Central Asia as domestic investors have lower access to cheap capital, given that the interest rate in the region varies from 7% to 14%.
Despite recession fears and the challenging global outlook, the performance of oil giants paints a compelling case for the Kazakhstan deal, as geopolitical factors attributed to the Russian invasion of Ukraine have pushed oil prices up to over US$100 per barrel.
Similarly, the ensuing sanctions also have led to a spike in gas price and a shortage in Europe.
The rosy outlook is backed by the surprise performance by oil giants in the second quarter of this year, with Exxonmobil and Chevron posting profits of US$17.9 billion (RM76.3 billion) and US$11.6 billion (RM49.4 billion), respectively.
Goldman Sachs’ chief commodity strategist dubbed the oil giants’ performance as the “revenge of the old economy”. The Russia-Ukraine conflict aside, he attributed the rally to investor’s preference for tech stocks over commodities in the past decade which led to paltry investments in energy assets.
An analyst believes that at current prices and the remote likelihood of a decline in the near future, conditions are good for the oil sector.
“Given the current low oil inventories, I believe the Brent Crude price will not drop below US$90 per barrel in the medium term,” he said.
Despite current headwinds in the market, the analyst pointed out that traditional counters such as oil and gas would perform well due to their solid fundamentals.
On the Caspi deal, he said the Kazakhstan oilfield presents an attractive opportunity as the government allows for private ownership of oilfields based on a fixed fee royalty payment.
Furthermore, the oilfield in the Central Asian country is located onshore which has an attractive cost structure, as it is significantly lower than offshore oilfields.