ZaZa Energy Corporation (“the Company” or “ZaZa”) (NASDAQ: ZAZA) today announced that it has simultaneously (i) signed a Heads of Agreement (“HoA”) with Hess Corporation (“Hess”) (collectively, the “Parties”) to effect a transaction that will lead to the termination or modification of the Parties’ 2010 agreements in Texas and France, (ii) amended the existing exploration and development agreement with Hess in Texas for which ZaZa has been paid an immediate cash consideration of $15 million; (iii) agreed to pay down its $100 million senior secured notes due 2017 by $33 million, and (iv) engaged Jefferies & Company, Inc. (“Jefferies”) to lead a joint venture process for ZaZa’s Eagle Ford core and Woodbine/Eaglebine assets.
Upon reaching definitive agreements on terms outlined in the HoA, ZaZa’s exploration and development agreement in the Eagle Ford core, Texas, and its partnership agreement in the Paris Basin, France, will be terminated. Under the terms of the HoA, ZaZa and Hess will convey to one another certain oil, gas and mineral interests, well bores and production owned by the Parties in Texas and France. The Parties expect to sign definitive agreements no later than June 29, 2012, with closing of the transaction expected prior to August 15, 2012. Subject to the definitive agreements and customary regulatory approvals, the assets will be transferred with an effective date of June 1, 2012.
ZaZa will benefit from the terms of the HoA as follows:
- Net acreage holdings in the Eagle Ford core will increase from approximately 11,500 acres to 72,000 acres. The acreage includes approximately 10,810 acres in the Moulton Prospect Area (Gonzalez, Fayette, and Lavaca Counties), 35,650 acres in the Sweet Home Prospect Area (DeWitt and Lavaca Counties), 1,970 acres in the Cotulla Prospect Area in the southern region of Frio County, and 23,120 acres in the Hackberry Prospect Area (Lavaca and Colorado Counties), all in the proved, productive regions of the Eagle Ford Trend. ZaZa will provide to Hess a 2% Overriding Royalty Interest (“ORRI”) in the Moulton Prospect Area and a 1% ORRI in the Hackberry and Sweet Home Prospect Areas;
- An additional $70 million in cash will be paid to ZaZa upon closing of the transaction;
- Subject to a threshold sales amount and a time limitation, a portion of net proceeds will be paid to ZaZa for any sales of Hess’s retained working interests in the Cotulla Prospect Area; and
- ZaZa will transfer its 50% working interest in the Paris Basin exploration licenses and retain a 5% ORRI, in which the total proceeds relating thereto are capped at $130 million.
After closing, ZaZa’s portfolio of assets will comprise approximately 72,000 net acres in the Eagle Ford core, 98,520 nearly contiguous net acres in the Woodbine/Eaglebine play in Grimes, Madison, and Walker Counties, approximately 24,260 wholly-owned acres of conventional producing assets in the Paris Basin, and a 5% ORRI in the Paris Basin exploration licenses. ZaZa is Operator on almost all of the portfolio acreage. Net total production from the conventional French assets is approximately 850 barrels of oil per day (“bopd”), with total 2P reserves of approximately ten (10) million barrels of oil. Net oil sales in the Eagle Ford will decrease from 301 bopd to 281 bopd pro forma the agreement, and net natural gas sales will increase from 619 thousand cubic feet of gas per day (“mcfd”) to 729 mcfd (all figures as at June 6, 2012). The Company’s pro forma total net sales will be 1,131 bopd and 729 mcfd.