REG - TomCo Energy PLC - Proposed Redemption of 10% Interest in TSHII

TomCo EnergyAnnouncement

14/08/2024 07:00

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RNS Number : 3368A  TomCo Energy PLC  14 August 2024

14 August 2024

TOMCO ENERGY PLC

("TomCo" or the "Company")

 

Proposed Redemption of Greenfield's 10% Membership Interest in TSHII

 

TomCo Energy plc (AIM: TOM), the US operating oil development group focused on
using innovative technology to unlock unconventional hydrocarbon resources,
announces that the Company's wholly owned subsidiary, Greenfield Energy, LLC
("Greenfield"), entered into an agreement on 12 August 2024 (the "Side
Agreement") with Tar Sands Holdings II, LLC ("TSHII") and Endeavor Capital
Group LLC ("Endeavor"), which holds 90% of TSHII's membership interests, with
respect to the proposed redemption of Greenfield's 10% membership interest in
TSHII for an aggregate purchase price of US$1,575,000 (approximately
£1,234,000) (the "Proposed Redemption") under a proposed redemption agreement
("Redemption Agreement").  TSHII, Greenfield and Endeavor concurrently
entered into a Second Amended and Restated Operating Agreement (the "Revised
Operating Agreement") to facilitate a buyout of TSHII's interests by a third
party buyer, IRRX (as described further below).

 

Pursuant to the terms of the Side Agreement, both TSHII and IRRX (defined
below) have agreed not to terminate an existing lease between AC Oil LLC ("AC
Oil"), a wholly-owned subsidiary of Greenfield, and TSHII (the "Lease"), and
to negotiate in good faith with Greenfield with respect to entering into an
additional  lease for mining rights on land owned by TSHII  (the "Additional
Lease").  Accordingly, Greenfield should be able to continue to pursue its
existing tar sands development project and potential in-situ well programme,
subject to securing the requisite additional funding and permitting going
forwards, post completion of the proposed transaction.

 

The Proposed Redemption stems from a recent approach to Endeavor by Integrated
Rail and Resources Acquisition Corp. (OTC: IRRX) ("IRRX") expressing interest
in potentially acquiring 100% of TSHII by way of a merger.  IRRX is a blank
check company formed for the purpose of effecting a merger, share exchange,
asset acquisition, stock purchase, reorganisation, or similar business
combination with one or more businesses with a particular focus on natural
resources, railroads and/or railroad logistics companies or any combinations
thereof.

 

The Proposed Redemption is conditional on the prior approval of TomCo's
shareholders pursuant to the provisions of Rule 15 of the AIM Rules for
Companies and the net proceeds will be utilised to settle the group's
outstanding trade creditors and provide additional working capital.

 

Background Information on TSHII and Existing Lease Arrangement

 

TSHII is a private US company formed by Utah-based Endeavor in which
Greenfield acquired a 10% membership interest in November 2021 for a total
consideration of US$2m.  Until 31 December 2023, Greenfield also held an
option to potentially purchase Endeavor's remaining 90% membership interest in
TSHII for certain additional cash consideration.  Such option had been
extended and varied several times.  TSHII owns approximately 760 acres of
land and associated rights and certain non-producing historic infrastructure,
plant and equipment in Uintah County, Utah, USA (the "Site").

 

In addition to the 10% membership interest held by Greenfield, AC Oil entered
into a lease ("Lease") with TSHII in respect of approximately 320 acres of the
Site (the "Lease Area") for an annual rental of US$320, together with a 12% of
net sales royalty per barrel of conventional oil, gas or sulphur produced and
removed from the Lease Area.

 

The Lease grants AC Oil the exclusive right to explore, drill and mine for,
and extract, store, and remove oil, gas, hydrocarbons, and other associated
substances on and from the Lease Area, together, inter alia, with the right to
erect, construct and use such plant and equipment and infrastructure as
required. The Lease is for an initial term of 10 years and will continue
thereafter for so long as any oil, gas or other hydrocarbons are being
produced from the Lease Area or drilling operations are being prosecuted or as
the parties may agree.

 

For the twelve month period to 31 December 2023, TSHII incurred an unaudited
loss after tax of approximately US$25,000.  In the Company's audited annual
report and final statements for its financial year ended 30 September 2023,
the group's carrying value for its 10% membership interest in TSHII was
approximately £1.64m.

 

Principal Terms of the Proposed Redemption

 

Redemption Agreement and Side Agreement

 

The Proposed Redemption is anticipated to be consummated by a Redemption
Agreement to be entered into between Greenfield, Endeavor and TSHII for the
proposed redemption by TSHII of Greenfield's entire 10% membership interest in
TSHII immediately following receipt of the approval of TomCo's shareholders at
a duly convened general meeting.  Following such redemption, TSHII plans to
complete a merger transaction with IRRX and its affiliates pursuant to a
business combination agreement and related documents, entered into on 12
August 2024, subject to NASDAQ exchange regulatory approvals, the approval of
the transaction by the shareholders of IRRX and the satisfaction or waiver of
other customary closing conditions.

 

By way of the Side Agreement entered into between Greenfield, Endeavor and
TSHII on 12 August 2024, subject to TomCo's shareholders' consent, Greenfield
(a) has agreed to waive any of its rights to prevent Endeavor selling its 90%
membership interest in TSHII to IRRX and (b) has granted to TSHII the
irrevocable, unrestricted and unconditional right to redeem Greenfield's 10%
membership interest for an aggregate cash consideration of US$1,575,000 and
the promise to negotiate terms for the Additional Lease.  The consideration
shall be satisfied as to US$100,000 on execution of the Side Agreement, which
is non-refundable, with the balancing US$1,475,000 (the "Second Tranche
Funds") to be held in escrow pending receipt of TomCo's shareholders'
approval, all pursuant to the terms of the Redemption Agreement.

 

In addition, TSHII and IRRX have committed (a) not to terminate the Lease and
(b) to use best efforts to negotiate in good faith to enter into the
Additional Lease to provide mining rights for Greenfield on land owned by
TSHII, save for that part occupied by an historic refinery which is currently
intended to be optimised and reactivated by IRRX (or such other entity
established for such purpose), on customary terms but specifically involving:
a  lease withrights and access to mine tar sands, and a right to set up a
processing plant for tar sands.

 

The board of TomCo ("TomCo Board") firmly believes that IRRX's intentions for
the Site will not conflict with Greenfield's existing plans, with potential
scope for close co-operation for mutual benefit.

 

The agreement contains certain representations, warranties and indemnities
between the parties of a type commonly found in agreements of this nature.
 In the event that TomCo's shareholders' do not approve the Proposed
Redemption, TomCo would need to secure alternative funding to satisfy its
group's working capital requirements.  There can be no guarantee that
alternative funding can be secured on a timely basis or as to the terms of any
such alternative financing.

 

Revised Operating Agreement

 

The Revised Operating Agreement has been entered into by Greenfield, Endeavor,
and TSHII in respect of TSHII in order to provide exclusive management rights
to Endeavor for a limited period and for the limited purpose of facilitating
consummation of the proposed merger transaction between TSHII and IRRX.  Such
rights shall become null and void in the event (i) the merger agreement is
terminated; or (ii) TomCo fails to secure the requisite shareholder
approval.  In such event, the operating agreement existing immediately before
the Revised Operating Agreement shall be reinstated.  The agreement contains
certain representations and warranties from Greenfield to TSHII and Endeavor
customary for an agreement of this nature.

 

General Meeting

 

In light of its size, the Proposed Redemption, which is unanimously
recommended by the TomCo Board, constitutes a fundamental change of business
pursuant to the provisions of Rule 15 of the AIM Rules for Companies, and is
therefore subject to the approval of TomCo's shareholders at a duly convened
general meeting.  Accordingly, the Company will shortly make a further
announcement with respect to the publication of a circular incorporating a
formal notice of general meeting and customary salient information with
regards to seeking such shareholder approval which, once published, will be
made available on the Company's website at www.tomcoenergy.com.

 

In the event that TomCo's shareholders' approval is not forthcoming, the
proposed transaction will terminate and the TomCo Board would need to secure
alternative funding to satisfy the group's working capital requirements.
There can be no guarantee that alternative funding could be secured on a
timely basis or as to the terms of any such alternative financing and the
TomCo Board strongly believes that it is in best interests of the Company and
its shareholders as a whole to exit from its minority interest in TSHII for
wholly cash consideration whilst retaining access to the Site and mining
rights via the existing Lease and proposed Additional Lease, which will enable
the Company to continue to pursue its tar sands development project subject to
funding and permitting

Suspension of Trading on AIM

 

Further to the Company's announcement of 28 June 2024, trading in the
Company's ordinary shares on AIM will remain suspended pending successful
completion of the Proposed Redemption, and receipt of the Second Tranche
Funds, which will then enable finalisation of the Company's unaudited interim
results for the six-month period ended 31 March 2024 (the "2024 Interim
Results").  Accordingly, it is currently expected that suspension from
trading will be lifted upon publication of the 2024 Interim Results shortly
following receipt of shareholder approval and completion of the Proposed
Redemption.

 

 

Commenting today, Malcom Groat, Chairman of TomCo, said:

"Whilst it is clearly disappointing that we have been unable to secure funding
to procure 100% of TSHII, despite a number of extensions to our previously
agreed option arrangement with Endeavor, the Proposed Redemption, if
successfully concluded, will enable us to exit our minority investment and
provide funds to settle outstanding trade creditors and sufficient working
capital to finalise and release the group's 2024 Interim Results.

Furthermore, the planned negotiation and entry into of the Additional Lease
will enable us to continue to pursue our tar sands development project and
potential in-situ well programme subject to securing the requisite additional
funding and permitting in due course."

 

Enquiries:

 

TomCo Energy plc

Malcolm Groat (Chairman)
                                    +44
(0)20 3934 6630

 

Strand Hanson Limited (Nominated Adviser)

James Harris / Matthew Chandler
              +44 (0)20 7409 3494

 

Novum Securities Limited (Broker)

Jon Belliss / Colin Rowbury
                     +44 (0)20 7399 9402

 

 

For further information, please visit www.tomcoenergy.com
(http://www.tomcoenergy.com/) .

 

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of
the European Union (Withdrawal) Act 2018, as amended by virtue of the Market
Abuse (Amendment) (EU Exit) Regulations 2019.

 

 

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