EnCore: Flotation of New Exploration Company

Exploration Assets flotation and proposed fundraising

EnCore (LSE: EO.) announces that the Company is planning for a subsidiary company, which will be assigned the Exploration Assets, to be floated on AIM. The new company will be known as XEO Exploration plc (“XEO”).  Subject to regulatory approvals and a successful institutional placing, XEO is expected to be admitted to AIM around the end of May 2011.

EnCore is in the process of transferring the Exploration Assets listed below into XEO, subject to receiving the necessary partner and regulatory approvals.  The exact percentage shareholding of EnCore in XEO will depend upon the final amount of funds raised by XEO.

In addition to their indirect interest in XEO through EnCore’s remaining holding, the Company plans to offer qualifying EnCore shareholders the opportunity to subscribe for shares in XEO directly at the institutional placing price. The offer to EnCore shareholders will be made around the time of XEO’s admission to AIM and close shortly following admission.

EnCore assets to be transferred to XEO
Licence	Block	Prospect	XEO Equity*	Operator	Partners
P.1769	14/29e, 20/4c, 20/5f	Hoylake	50%	XEO*	Endeavour
P.1463	14/30a	Tudor Rose, Buffalo	40%	XEO*	Nautical, Endeavour, EnQuest
P.1655	15/21g	Spaniards	40%	XEO*	Nautical, Serica
P.1475	113/29c & 113/30	Merrow	50%	Nautical	XEO*

*subject to partner and regulatory approval

XEO will also have the option to acquire the following interests currently held by EnCore and Echo Exploration Ltd.

XEO will have the option to acquire the following licence from EnCore
Licence	Block	XEO Equity*	Proposed Operator	Partners
P.1812	28/5, 28/10a & 29/1d	100%	XEO*
XEO will have the option to acquire the following licence interests from Echo Exploration Ltd
Licence	Block	XEO Equity*	Proposed Administrator	Partners
P.1866	13/28b	50%	Echo	XEO*
P.1870	15/21d	50%	Echo	XEO*
P.1876	22/5c	50%	Echo	XEO*

*subject to partner and regulatory approval

In addition to the licences above, XEO has the potential option to acquire a number of UK26^th Round licences, yet to be awarded by DECC, that are under further environmental review.

Rationale behind the flotation

The EnCore Board has considered a number of scenarios for progressing the exploration portfolio and has concluded that placing those assets into a separately quoted company is the most beneficial route forward for the following reasons:

• EnCore’s future focus is now to be directed towards its two main assets, Catcher and Cladhan, which are in the latter stages of appraisal and will soon be moving into the development stage of their lifecycles.
• A very significant proportion of the value of the Company is in Catcher and Cladhan. Therefore, the Board did not wish to dilute shareholders’ exposure to these assets by an EnCore fundraising for a high-impact exploration programme covering the Exploration Assets with the attendant risks.
• Moving forward, EnCore’s existing and any future capital/debt can be targeted directly at the development assets.
• Existing EnCore shareholders will remain exposed to any success from the Exploration Assets through EnCore’s shareholding in XEO.  However shareholders who wish to have increased exposure to a risked exploration programme will also be offered the opportunity to participate in the offer at the institutional placing price.

Proposed XEO Board and EnCore Board of Director Changes

On completion of the institutional placing and admission of XEO to AIM, Eugene Whyms, currently Chief Financial Officer (CFO) and Company Secretary will become a Non-Executive Director of EnCore and take up the role of Chief Executive Officer (CEO) of XEO. Alan Booth, CEO of EnCore, will assume the additional role of a Non-Executive Director of XEO.  Chris Johnson, currently Group Financial Controller will become CFO of EnCore, whilst James Clark, currently Commercial Director of EnCore will assume the additional role of Company Secretary.  All these appointments are scheduled to occur concurrently with the successful admission to AIM of XEO.

Additional appointments to the XEO Board will include the appointment of EnCore’s Business Development Manager, Peter Schwarz as Chief Operating Officer (COO), and the appointment of experienced banking and oil industry executive, John Mapplebeck as Non Executive Chairman of XEO.

EnCore expects the XEO prospectus to be mailed to shareholders during the week commencing 30 May 2011.

Matrix Corporate Capital LLP is acting as nominated adviser and joint broker and Westhouse Securities Limited as joint broker in connection with XEO’s admission to AIM.

Commenting on the formation of the new company, EnCore Chief Executive Alan Booth said:

“EnCore has considered a broad range of options available to it at this important time in the Company's development.  Clearly the significant discoveries at Catcher and Cladhan must take priority in terms of access to our capital.  At the same time, we also firmly believe that our expanding exploration portfolio deserves appropriate funding to unearth any value that it may contain.  However, we recognise that the risk profile of these assets is higher than the ongoing evaluation of the Catcher area and Cladhan.  Whilst farming out the exploration portfolio was one possible route, it was recognised that the remaining equity levels would likely be in the order of one third of current levels.  The farm out process would also likely place timing and control in the hands of third parties, who might perceive EnCore to have limited options with regard to exploration funding.  We believe that the chosen route should allow us greater control over our own destiny, whilst enabling us to expose our current and new shareholders to higher impact and more material equity levels in those prospects in which we will seek to invest.

“Both companies will continue to benefit from the people and skills that have been so successfully deployed in building the asset base to date at EnCore, and both companies will be co-located at the current Baker Street offices.  Whilst there can be no guarantee that we will be as successful again, we would like to ensure that our shareholders at least have a choice as to whether they wish to have ongoing exposure to high-impact exploration in the UK offshore in addition to their indirect interest through EnCore’s shareholding in XEO."
Source: EnCore