ShaMaran postpones meeting for $150 million 11½% bonds on FSAN news

By Wendy Van Sickle

Columbus, Ohio, March 31 – ShaMaran Petroleum Corp. canceled its April 1 bondholder meeting after the Financial Supervisory Authority of Norway (FSAN) gave notice on Thursday that it intends to issue an order requiring the company and its subsidiary General Exploration Partners, Inc. to restate certain financial disclosures for the years ended Dec. 31, 2014 and 2015.

The company called the bondholders meeting on March 14 to be held in Oslo for its $150 million of 11½% five-year bonds. In order to allow bondholders more time to review the FSAN announcement, it will reschedule the meeting for later, according to a press release.

The new date is expected to be announced next week.

FSAN will issue the correction order under the Norwegian Securities Trading Act and Regulations.

The notes were issued Nov. 13, 2013 by General Exploration.

The issuer and its auditor Pricewaterhouse Coopers AG have been in ongoing discussions with FSAN concerning accounting issues and are preparing a comprehensive response to FSAN to clarify General Exploration’s position, according to the Thursday press release.

The issuer and its auditor are of the view that its financial statements “give a true and fair view” of General Exploration’s and ShaMaran’s affairs in accordance with International Financial Reporting Standards.

SharMaran said it maintains its recommendation to proceed with the financing arrangement proposed in the March 14 bondholders meeting summons that would provide the company with additional liquidity of about $33 million in 2016.

Under the financing terms, General Exploration would issue new $17 million super senior bonds, based on the same agreement as the existing bonds with the same maturity date of Nov. 13, 2018 and a coupon of 11½%, payable in cash or in kind.

The company entered into an agreement to underwrite the super senior bonds with major shareholders, Lorito Holdings Sarl and Zebra Holdings and Investments Sarl, companies owned by the Lundin Family Trust.

The company said it will offer bondholders the option to convert up to $18 million of bonds at par into ShaMaran common shares at a market price following approval of the arrangement. The conversion offer will begin following approval of the arrangement, with pro rata allocation among bondholders if the offer is oversubscribed.

The bond agreement is to be amended so that the 2016 coupon interest of $17.25 million before considering any conversion is settled by issuing new PIK bonds; General Exploration has the option to pay in cash or in kind the post 2016 coupon interest; and some waivers and amendments are made to the terms of the existing bonds including the subordination of bonds’ security to the super senior bonds’ security.

The Atrush project is progressing according to plan with first oil targeted mid-2016, the company said.

ShaMaran is considering offering a subsequent private placement of shares for cash for the remainder if $18 million is not converted.

More on FSAN notice

In its advance notice of decision the FSAN said it intends to order General Exploration to make the following corrections to its financial statements:

• The Atrush Block oil and gas asset can no longer be deemed to be within the scope of International Financial Reporting Standards by Dec. 31, 2014. The asset should have been reclassified prior to that date and an impairment test performed at that time. General Exploration should cease to classify the Atrush Block asset as an exploration and evaluation asset and reclassify it to property, plant and equipment by at the latest by Dec. 31, 2014;

• Its assessment of the carrying value of its Atrush Block oil and gas assets, which FSAN said exceeded the recoverable value at Dec. 31, 2014. General Exploration did not use reasonable and supportable assumptions to estimate the recoverable value, according to FSAN.

The assumptions in question include estimates regarding future oil price and which discount to reference oil price to apply to the Atrush Block; recoverability and commerciality of contingent resource volumes; timing of cash flows as well as risk related to payments; and which discount rate reflects assumed risk levels.

FSAN said General Exploration should re-perform the impairment test of the Atrush Block oil and gas assets at December 2014 using reasonable and supportable assumptions available at the time as well as an appropriate discount rate;

• The cash held in GEP’s escrow bank accounts and pledged in favor of the bond trustee as at Dec. 31, 2014 should have been presented in a separate balance sheet line item as “restricted funds” and also split between short term and long term; and

• Improve the disclosures of assumptions used in the impairment test and of the risks and uncertainties relating to the going concern assumption.

The Kurdistan-focused oil development and exploration company is based in Vancouver, B.C.

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