Tower Resources offloads interests in disputed Western Sahara

Africa-focused oil and gas exploration company Tower Resources announced the completion of the sale of its wholly owned subsidiary, Comet Petroleum, to privately held oil and gas exploration company Red Rio Petroleum on Tuesday.

The AIM-traded firm said Red Rio is purchasing Comet for a cash consideration of £1, future contingent payments and an overriding royalty interest of 10% over future production revenue from Comet's assets in the Saharawi Arab Democratic Republic.

Tower said it has also completed an amendment agreement to eliminate the previously-announced contingent payments due to the original vendors of Comet, who will now share part of the above consideration leaving an overriding royalty interest of between 5% and 10% net to Tower depending on the asset.

The SADR is the functional government of the territory known as Western Sahara, but the sovereignty of the territory remains in dispute with Morocco.

As a result, Tower said it believes that disposing of these assets, whilst retaining an interest in their future development through royalties, is in the best interest of shareholders.

The carrying value of the assets within the company's latest audited accounts for the year ended 31 December 2015 was $0.48m, predominantly reflecting accrued annual licence fees.

Tower announced the acquisition of Comet, which holds a 50% non-operated interest the Guelta and Bojador blocks in the SADR, on 13 June 2008 from the company's then Directors, Peter Blakey and Peter Taylor.

The company later acquired an interest in the Imlilli block in 2011, increasing its interests to three blocks in the SADR.

Taylor continues to be a director of Tower, while Blakey resigned as a director at the company's AGM in April 2016.

The consideration for the 2008 acquisition included terms that upon the entering into of a production sharing agreement or the sale or disposal of the assets, the vendors would be entitled to a consideration of up to £3m for the Bojador and Guelta licences.

Tower said it does not consider that the long-term prospect of cash generation from the assets justifies such immediate cash expenditure, and therefore prior to the disposal to Red Rio, it agreed with the vendors to amend the 2008 sale and purchase agreement.

The consideration has been replaced with deferred consideration payments to the Vendors of 50% of any future consideration and royalty income that the company receives from the Bojador and/or Guleta Licences, reducing the overriding royalty interest attributable to Tower from those two licenses to 5% net.

“The successful sale of Comet with its exploration acreage in the SADR represents the completion of the first stage of a portfolio review by Tower,” said chairman and chief executive Jeremy Asher.

“This transaction reduces further our financial commitments and provides flexibility to implement our strategy and to reposition the company for the future.”