18 th June 2013 SOUTH BLOCK A ( SBA ) PEAK S JV PARTNER KRX ENERGY SECURES ADDITIONAL FUNDING SBA joint venture partner KRX Energy Pte Ltd ( KRX ) secures fresh funding through proposed investment by Risco Energy Pte Ltd ( Risco ) in KRX associated company Lion Energy Proposed investment by Risco, a successful investment company in the South East Asian oil and gas sector, reinforces value and industry interest in the SBA block South Block A Exploration Project North Sumatra, Indonesia Peak Oil & Gas Limited ( Peak ) (ASX: PKO) is pleased to announce that its SBA Joint Venture Partner, KRX, has secured further funding for its portfolio of North Sumatra Projects including its interest in the SBA Production Sharing Contract, operated by Renco Elang Energy Pte Ltd ( REE ), a company controlled by Peak. Lion Energy Limited ( Lion ) (ASX: LIO) announced yesterday (as attached) that it has entered into a binding set of agreements with KRX and Risco which will see Risco emerge as a 48% shareholder in Lion and for Lion to own 100% of KRX. Incorporated in Singapore, Risco is a private energy investment company pursuing oil and gas development and exploration projects in South- East Asia. Peak Managing Director, Jeff Steketee, said "The proposed investment in SBA by Risco, an important player in the E&P space in SE Asia, marks a recognition of the potential value of this asset. Peak s partners in SBA are: REE (Operator) 51% Peak controls REE, the Operator and 51% interest holder in SBA (net to Peak 38.25% earning through farm- in) KRX Energy 35% Earning through farm- in to PT Prosys. KRX Energy has been funded by Lion Energy, an ASX listed company. PT Prosys Oil & Gas 14% Carried through the first 3 years work program For further information please contact: www.peakoil- gas.com Jeff Steketee, Managing Director info@peakoil- gas.com +61 8 6143 1800
15 Rheola Street Telephone +618 9213 4300 West Perth WA 6005 Facsimile +618 9213 4311 PO Box 512, West Perth Web: www.lionenergy.com.au ABN 51 000 753 640 Western Australia 6872 ASX Code: LIO ASX RELEASE For immediate release 17 June 2013 LION COMMITS TO PROPOSED ACQUISITIONS AND FINANCING TRANSACTIONS HIGHLIGHTS Introduction of a strategic funding partner and investor. Renewed focus on the South East Asian region and progression towards becoming a key participant in the emerging West Indonesia gas boom. Planned acquisitions that will deliver to Lion significant working interest positions and a largely operated, diverse Sumatran unconventional oil and gas portfolio with synergies of attractive conventional infrastructure and markets. Lion Energy Limited (ASX: LIO, the Company ) is pleased to announce that it has entered into a binding transaction coordination agreement and convertible loan agreement ( Transaction Agreements ) with KRX Energy Pte Ltd (together with its affiliates, as appropriate, KRX ) and Risco Energy Investments Pte Ltd (together with its affiliates, as appropriate, Risco ), pursuant to which the Company: a) has secured a $1.5 million convertible loan facility in favour of the Company from Risco (or its nominees) ( Convertible Loan ); b) will raise $2,500,000 by the placement of 100,000,000 fully paid ordinary shares ( Shares ) in the capital of the Company to Risco (or its nominees) ( Proposed Risco Placement ); c) will seek shareholder approval to issue up to 80,000,000 new shares to professional and sophisticated investors ( Proposed Investor Placement ); and d) will acquire all of Risco s rights to a 35% interest in an area of mutual interest agreement ( AMI Agreement ) which includes various unconventional oil and gas joint study applications onshore Indonesia ( Risco AMI Interest ) in consideration for the issue of 39,900,108 Shares ( Proposed Asset Acquisition ), (the Proposed Transactions ). The funds provided under the Convertible Loan will be used to provide funding to KRX (by way of a loan) enabling KRX to meet cash call obligations in respect of the South Block A operation. In addition, the Transaction Agreements contemplate a proposed acquisition by the Company, subject to certain conditions including the Company obtaining all necessary shareholder approvals and entry into a binding acquisition agreement, of all the issued capital in KRX ( KRX Shares ) other than those shares already owned by the Company, in consideration for the issue of 93,000,360 1
Shares to the shareholders of KRX (other than the Company) ( KRX Shareholders ) in proportion to their respective interests in KRX ( Proposed KRX Acquisition ). The Company is currently a 30.77% shareholder of KRX as a result of its previous $1 million investment in KRX. As announced on 22 January 2013, the Company and the KRX Shareholders had previously entered into a non-binding terms sheet in respect of the acquisition of all of the remaining issued capital in KRX. However, that proposal was conditional, among other things, upon the parties entering into a formal share purchase agreement by 14 February 2013. This condition was never satisfied and the terms sheet was terminated. The Proposed Transactions are viewed by the directors of the Company as the first steps in a major strategic initiative which will see the Company renew its focus on the South East Asian region through substantial exposure to the booming west Indonesian gas markets. Key investment highlights from the proposed transactions are: Secure funding through the introduction of strong strategic investors. Possess a strong footprint of acreage in Sumatra, a world class hydrocarbon province that is yet to have unconventional tight gas and shale gas and shale oil techniques applied. The joint aim of the transaction participants is to make the Company a world class unconventional resource play. Own high initial working interest positions. Hold operatorship in most of its JSA areas/blocks Deploy a strategy for skilling up Lion for the very best conventional and unconventional execution strategy possible in the context of Indonesia. Position the company in carefully selected areas of interest, and therefore have critical access to supply fast growing Asian energy markets with associated attractive pricing via established infrastructure. Exploit the synergies of conventional and unconventional rights over certain areas. Furthermore, the collaboration of Risco and KRX personnel will deliver a team with an outstanding mix of technical, financial and in-country expertise. The Proposed Transactions, other than drawdowns under the Convertible Loan, are subject to a number of conditions precedent including the Company obtaining all necessary shareholder approvals. The first drawdown under the Convertible Loan is unconditional and has already occurred. Further drawdowns under the Convertible Loan are subject to conditions precedent, and the conversion of the loan to Shares is subject to shareholder approval. Risco does not currently hold an interest in any Shares in the Company. If all of the Proposed Transactions complete, Risco (or its nominees) will hold an interest in up to 199,900,108 Shares, representing an interest of approximately 48% (on an undiluted basis). The KRX shareholders currently hold an aggregate interest in 23,270,985 Shares, representing an 18.18% interest (on an undiluted basis) in the Company. If all of the Proposed Transactions complete, the aggregate interest of the KRX Shareholders in the Company will increase to 27.59% (on an undiluted basis). 2
The key terms of the Proposed Transactions are as set out in Annexure A. ABOUT RISCO AND ITS ASSETS Risco is a private energy investment company registered in Singapore. Its management team is in the process of building its second South East Asian oil and gas conventional and unconventional portfolio. Risco s business is to pursue oil and gas production, development and exploration in South East Asia, with its current main asset being its rights to the Risco AMI Interest which includes 35% interests in unconventional joint study applications pursuant to the AMI Agreement. By way of this transaction, Risco is backing the Company to grow its unconventional interests in South East Asia. Risco has a very experienced and competent management team that has an enviable record of success in delivering value to shareholders in South East Asia, particularly Indonesia. In addition to its track record, Risco s management team has strong ties to Asia Pacific capital markets to support its activities in the region. The AMI Agreement was executed on 23 May 2012 among KRX, another Indonesian focused, well positioned and connected party, and a third party from which Risco has the right to be transferred the Risco AMI Interest. The AMI group was formed to jointly evaluate a large part of the onshore areas of Java, Kalimantan and Sumatra for the purposes of forming a consortium to ultimately acquire prospective unconventional hydrocarbon exploration acreage. The Risco AMI Interest represents a 35% participating interest in the AMI Agreement, which will apply to any application made by the AMI group except that it may be adjusted by mutual agreement between the parties. KRX also holds a 35% participating interest in the AMI Agreement. The Risco AMI Interest holder, in conjunction with the other non-krx AMI partner, has responsibility to provide operational and government liaison services on an as required basis, on behalf of the AMI group. Four applications for joint study areas have already been submitted to MIGAS by the AMI Agreement joint venture, which is confident of progressing these to the Joint Study phase and subsequent unconventional Production Sharing Contract award. ABOUT KRX AND ITS ASSETS KRX is a private company registered in Singapore with a focus on oil and gas exploration in South East Asia. KRX s current assets comprise a 35% interest in the South Block A PSC, North Sumatra, and a 35% interest in the AMI Agreement. KRX has demonstrated a successful growth strategy by: acquiring interests in under-explored contract areas in onshore west Indonesia within the main gas producing areas, and participating as a first mover in the initial applications for unconventional exploration areas in onshore Indonesia with a view to becoming a major acreage holder. 3
KRX has a highly experienced, well respected management team with excellent technical and managerial skills and big company expertise. A detailed description of KRX s interests is set out below. South Block A PSC 35% Interest The 2,105 sq km South Block A PSC is located in the heart of the prolific North Sumatra basin. It has an impressive inventory of prospects and leads in close proximity to existing production and infrastructure. Recent drilling success in adjacent PSC s highlights the prospectivity of the block. The Joint Venture is currently mobilizing to acquire a 170 km 2D seismic survey that will delineate six key prospects and leads, which together have Mean Prospective Resources (100% basis) of 746 BCF of gas and 64 MMBBLS of oil and condensate. Of particular interest is the Simpang Deep Prospect, one of the largest undrilled features in the North Sumatra Basin. With an area of over 25 sq km it is assessed to contain a Mean Prospective Resource of 324 BCF and 18 MMBBL of condensate. A well is scheduled for Q1/Q2 2014 to test the high-graded prospect emerging from the seismic survey. KRX s South Block A PSC interest will provide Lion with exposure to a relatively low cost exploration program targeting a portfolio of high impact, multi TCF gas and low risk oil prospects. Other onshore Indonesian operations KRX has a 35% participating interest in the AMI Agreement through which significant progress has been made in developing an impressive West Indonesian unconventional acreage position with world class resource potential. 4
Under the AMI Agreement, KRX has responsibility to operate the technical component of the initial evaluations and to provide ongoing technical support work during any joint study process, with all parties contributing to the cost in accordance with their participating interests. BOARD CHANGES With effect from completion of the Proposed Transactions, Risco will be entitled to appoint such number of board members to the board of directors of the Company such that they represent the majority of all directors upon their appointment. PROPOSED PLACEMENTS As part of the Proposed Transactions the Company will be raising up to $4.5 million (before costs) by way of share placements. Under the Transaction Agreements, Risco has committed to it and/or its nominees subscribing for 100 million Shares at an issue price of $0.025 per Share to raise $2.5 million (before costs). In addition, the Company will be seeking shareholder approval to issue up to a further 80 million Shares at an issue price of no less than $0.025 per Share to sophisticated or professional investors under section 708 of the Corporations Act. Shareholder approval for the issue of up to 180 million Shares under the Proposed Placements will be sought at the Company s general meeting to be held in September 2013. The funds raised will be used primarily for investments in oil and gas interests, secondarily on conventional and unconventional exploration activities and some funds may be used for administration costs and general working capital. PROPOSED SHARE CAPITAL STRUCTURE The share capital structure of the Company following completion of the Proposed Transactions (on an undiluted basis and assuming the maximum number of Shares are issued under the Proposed Investor Placement) will be as follows: Securities Number Percentage interest Shares currently on issue 128,004,729 25.55% Shares to be issued to Risco (or its nominees) under the Convertible Loan (assuming full drawdown by the Company) Shares to be issued to Risco (or its nominees) under the Proposed Risco Placement Shares the Company will have shareholder approval to issue to investors under the Proposed Investor Placement (assumes issue of all 80,000,000 shares) 60,000,000 11.98% 100,000,000 19.96% 80,000,000 15.97% Shares to be issued to the KRX Shareholders 93,000,360 18.57% Shares to be issued to Risco (or its nominee) under the Proposed Asset Acquisition Total Shares upon completion of the Placement and the Proposed Transaction 39,900,108 7.97% 500,905,197 100.00% 5
The above table assumes that any unlisted options to be issued under the Convertible Loan are not exercised and does not take into account the issue of any Shares under the Proposed Listed Option Cancellation nor the conversion of any existing loans under the Proposed Shareholder Loan Conversion (as referred to in Annexure A). INDICATIVE TIMETABLE The Company intends to convene a general meeting of its shareholders to seek all necessary approvals for the Proposed Transactions. A Notice of General Meeting and Explanatory Memorandum containing further details will be circulated in due course. Set out below is an indicative timetable for the Proposed Transactions: Event Date Despatch Notice of Meeting to the Company shareholders 1 August 2013 Suspension of the Company s securities from trading on ASX at the opening of trading General Meeting of shareholders to approve Proposed Transactions Completion of Proposed Transactions and issue of the Company securities 2 September 2013 2 September 2013 9 September 2013 The above dates are indicative only and may change without notice. If the date of the General Meeting is adjourned, the date for completion of the Proposed Transactions will change. Enquiries: Contact Jack Toby (Company Secretary) Telephone: (08) 9213 4300 Email: info@lionenergy.com.au Competent Person s Statement: Information in this report that relates to Hydrocarbon Reserves and or Resources is based on information compiled by Mr Russell Brimage, Director of Lion Energy Limited who has consented to the inclusion of that information in the form and context in which it appears. Mr Brimage has over 30 years experience in the application of engineering to the petroleum industry in oil and gas exploration and production, both in Australia and internationally, as either an employee or consultant to oil companies operating in the upstream petroleum industry. Mr Brimage reviews the Company s operations with the help of various professional consultants, appropriately qualified and experienced in their respective fields within the upstream petroleum industry. He is also an Associate Member of the Society of Petroleum Engineers. 6
ANNEXURE A - KEY TERMS OF THE PROPOSED TRANSACTION The key terms of the Proposed Transactions are as follows: 1. (Conditions Precedent): completion of each of the Proposed Transactions are subject to and conditional upon a number of conditions precedent, including: a) the Company obtaining all necessary shareholder approvals required under the ASX Listing Rules and the Corporations Act 2001 (Cth) ( Corporations Act ) in respect of the Proposed Transactions, including ASX Listing Rules 6.23.2, 7.1, 10.1 and 11.1.2 (if required) and item 7 of section 611 of the Corporations Act. The Company intends to provide a Notice of Meeting and accompanying Independent Expert s Report to Shareholders in August 2013; b) Risco obtaining consent from the relevant parties to the AMI Agreements to permit the proposed acquisition by the Company of the Risco AMI Interest under the Proposed Asset Acquisition. This includes the need for Risco to complete the transfer to it of the Risco AMI Interest from a third party under existing contractual rights; and c) KRX obtaining all regulatory approvals and change of control consents in respect of its interest in the South Block A operations to permit the acquisition by the Company of all the remaining shares in KRX under the Proposed KRX Acquisition. 2. (Convertible Loan): a) Drawdown date: The loan of up to $1.5 million ( Loan ) will be available for drawdown in multiple tranches, at the written request of the Company, subject to satisfaction of certain conditions. The first drawdown amount of US$623,756 has already been provided. b) Purpose: The purpose of the Loan is to provide sufficient funding to enable KRX to meet cash call obligations under the production sharing contract and joint operating agreement in respect of the South Block A operations and to fund general and administrative expenses. It is intended that such funds will be provided by the Company to KRX by way of a shareholder loan ( Shareholder Loan ). c) Security: The Loan will be secured by: i. the grant of a first ranking security interest over all of the shares in KRX Energy (SBA) Pte Ltd, a wholly owned subsidiary of KRX, which subsidiary holds a 35% interest in the South Block A Project; ii. the assignment of the Shareholder Loan between the Company and KRX; and iii. subject to the ASX Listing Rules, either: 7
A. the grant of a first ranking security interest over all of the shares in Lion International Investments Limited, a wholly owned subsidiary of the Company, which subsidiary holds a 2.5% interest in the Seram Project; or B. the grant of a first ranking security interest over all of the KRX Shares held by the Company. d) Conversion: Subject to the Company obtaining all necessary Shareholder approvals, the Loan will be converted into Shares at a conversion price of 2.5 cents per Share plus one free attaching unlisted option to subscribe for a Share ( Unlisted Option ), exercisable at 3.25 cents per Unlisted Option on or before the date that is 18 months from the date of issue, for every 2.4 Shares issued on conversion on the date that is 7 days after shareholder approval is obtained. e) Repayment: in certain circumstances (including in the event that shareholder approval is not obtained as contemplated above) the Loan must be repaid in cash, together with payment of a repayment premium of $150,000 (being 10% of the Loan) plus costs. 3. (Proposed Risco Placement): Risco (or its nominees) will subscribe for 100,000,000 Shares at an issue price of $0.025 per Share to raise $2.5 million (before costs). 4. (Proposed Investor Placement): the Company will seek shareholder approval for the issue of up to 80,000,000 Shares at an issue price of no less than $0.025 per Share to certain professional and sophisticated investors to raise approximately $2 million (before costs) in addition to the Proposed Risco Placement. 5. (Proposed KRX Acquisition): the consideration payable by the Company for the Proposed KRX Acquisition is the issue of 93,000,360 Shares to the KRX Shareholders, to be distributed in proportion to their respective interest in the shares in KRX. 6. (Proposed Asset Acquisition): Risco will assign or procure its affiliates to assign all of the direct and indirect interests held by Risco (or its affiliates) in the interests arising from Risco s participating interests in the AMI Agreements (including any unconventional joint study application rights) to the Company in consideration for the issue of 39,900,108 Shares to Risco. 7. (Proposed Listed Option Cancellation): the Company will offer to buyback and, if accepted, cancel all listed options to subscribe for Shares ( Listing Options ) on issue in consideration for the issue and allotment of Shares on a basis of 1 Share for every 6 Listed Options. 8. (Proposed Shareholder Loan Conversion): the Company will convert outstanding shareholder loans and consultancy fees amounting to $260,000 into 10,400,000 Shares and 4,333,333 Unlisted Options. 8
9. (Board composition): subject to completion of the Proposed Transactions, Risco will be entitled to appoint such number of board members to the Company board of directors such that they represent the majority of all directors upon their appointment. 10. (Transferability): Risco may assign or transfer its rights and/or obligations under the Transaction Agreements. 11. (Formal Documents): the parties agree to negotiate in good faith to agree upon and execute, as soon as practicable, formal documents to give effect to the Proposed Transactions (other than the Convertible Loan which is governed by the convertible loan deed). The Transaction Agreements otherwise contains clauses typical for agreements of this nature. 9