Eden Energy : Sale of UK Gas Assets

Microsoft Word - ASX Announcement 210116 with Highlights Added

ACN 109 200 900

AUSTRALIAN SECURITIES EXCHANGE ANNOUNCEMENT

21 January 2016

HIGHLIGHTS SALE OF UK GAS ASSETS

• Eden to sell its 100% owned UK subsidiary that holds all its UK gas assets, to the parent of its UK Joint Venture partners.
• Consideration is a Royalty (commencing at 1% of gross sale proceeds from all hydrocarbon sales, and reducing to 0.5%), capped at a maximum value of £35,000,000.
• Eden will have no further financial commitments on this project, but can still share in the potential upside from hydrocarbon sales, and focus its efforts on its EdenCreteTM and OptiBlendTM projects.

On 20 January 2016, Eden Energy Ltd's ("Eden") wholly owned Australian subsidiary, Adamo Energy Ltd ("Adamo Energy"), entered into an agreement ("the Agreement") with UK Onshore Gas Limited (a company incorporated under the laws of England and Wales) ("UKOG") to sell to UKOG all of the issued share capital in Adamo Energy (UK) Ltd (a company incorporated under the laws of England and Wales) ("Adamo UK"). UKOG is the parent company of Coastal Oil and Gas Limited and UK Methane Limited, Adamo UK's joint venture partners.

Adamo UK's only asset is its 50% interest in the UK petroleum and exploration development licences listed in the following table (the "PEDLS").

PEDL Number Other Holder*

100 Coastal Oil and Gas Limited ("Coastal")

1. UK Methane Limited ("UKM")

2. UKM

1. UKM

2. UKM

3. Coastal

4. Coastal

1. Coastal

2. Coastal

*Each PEDL is owned 50% by Adamo UK and 50% by the other holder noted above.

Level 15, 197 St Georges Terrace, Perth, Western Australia 6000 Telephone: [phone] Facsimile: [phone]

Email: [e-mail]

Completion of the Agreement is to take place 14 days after the date that each of Eden, Adamo Energy and UKOG have obtained any required approvals of its shareholders to the transactions contemplated by the Agreement (or, if none of Eden, Adamo Aust or UKOG need to obtain the approval of its shareholders for the transactions contemplated by the Agreement, on a date which is not later than 14 days after the date of the Agreement). If any required shareholder approvals are not obtained (for any reason) within 60 days of the date of the Agreement, then the Agreement will automatically come to an end without the need for notice to be given to either party, whereupon all of the parties rights and obligations under the Agreement shall be at an end.

Eden does not require the approval of its shareholders to enter into, or complete, the transactions contemplated by the Agreement and, accordingly, no such approvals will be sought by it.

The consideration which is payable under the Agreement by UKOG to Adamo Energy at completion is:

1. the payment by UKOG of £1 in cash;

2. UKOG and Adamo Energy entering into an overriding royalty agreement ("the ORR Agreement"); and

3. if Adamo UK (either prior to the date of execution of the Agreement or after the date of execution of the Agreement but before completion of it) has paid the annual rent due on PEDL 100 for the period from 8 September 2015 to 7 September 2016 in the sum of

£161,490 (or, should such annual rental amount be reduced by the Department of Energy and Climate Control (UK), the reduced sum), the payment by UKOG to Adamo Energy of

£161,490 (or the reduced sum actually paid by Adamo UK) (as the case requires).

UKOG is acquiring Adamo UK with and subject to all debts and liabilities of Adamo UK which are:

1. owing or may be claimed or alleged to be owing to UKOG, Coastal and/or UKM and/or any subsidiary or associated company of any of them, whether under the joint operating agreements made between Adamo UK and/or Adamo Energy and UKOG and/or UKM and/or Coastal and/or any subsidiaries of any of them or otherwise; and

2. owing by way of outstanding rent in respect of the PEDLs as at the date of execution of the Agreement (and any further rent which may become owing on the PEDLs after the date of execution of the Agreement and prior to completion),

(but for the avoidance of doubt, specifically excluding any debts owed by Adamo UK to Adamo Energy or Eden) ("the Indebtedness").

Eden has guaranteed the obligations of Adamo Energy under the Agreement.

Under the ORR Agreement (which, as noted above, is to be entered into by the parties upon completion of the Agreement), UKOG will grant to Adamo Energy an overriding royalty (the "Royalty") in connection with all hydrocarbons mined, derived, extracted or produced from the geographic area of the PEDLs:

1. consisting of natural gasoline, condensate, distillate, butanes, propanes, and other hydrocarbons condensed, absorbed, or separated out of or from the gas after it leaves the ground, be they derived from coal bed methane, conventional gas reserves or shale gas in all stratagraphic targets; and

2. regardless of gravity, capable of being produced in liquid form at the well by ordinary production methods including without limitation condensate, distillate and other liquid hydrocarbons recovered from oil or gas run through a separator or other equipment,

   and related hydrocarbons that require a PEDL (or an approval, licence or permit issued under or pursuant to a PEDL) to be extracted and are mined, derived or extracted, or produced from hydrocarbons mined, derived or extracted, from the geographic area of the PEDLs ("the Petroleum Substances").

   The Royalty will be calculated on the following basis:

   • 1.0% of the gross sale proceeds from the sales of all Petroleum Substances (whether immediate or for future delivery) and from the sale of any electrical power generated which is derived from all such Petroleum Substances until £15m of Royalty is received by Adamo Energy;

   • 0.75% of the gross sale proceeds from the sales of all Petroleum Substances (whether immediate or for future delivery) and from the sale of any electrical power generated which is derived from all such Petroleum Substances until a further £10m of Royalty is received by Adamo Energy (£15,000,001 -- £25,000,000); and

   • 0.5% of the gross sale proceeds from the sales of all Petroleum Substances (whether immediate or for future delivery) and from the sale of any electrical power generated which is derived from all such Petroleum Substances until a further £10m of Royalty is received by Adamo Energy (£25,000,001 -- £35,000,000).

The maximum total Royalty which will be payable to Adamo Energy under the ORR Agreement is

£35,000,000.

The Royalty is to be calculated monthly from the month in which any sale proceeds from the sale of Petroleum Substances are first received by UKOG.

UKOG has the right to buy Adamo Energy out of the ORR Agreement for the sum of £17,500,000 less 50% of any Royalty already paid by UKOG to Adamo Energy at the time the payment is made, provided that such buy-out option must have been exercised (and the buy-out amount paid in full) within 5 years of the date of the Agreement.

There is no guarantee that any payment will be made by UKOG to Adamo Energy under the ORR, as such a payment is dependant upon Petroleum Substances being mined, derived or extracted from the PEDLs and there is no guarantee that this will occur.

Whilst coal bed methane is known from earlier exploration to occur on PEDL 100, the size of this resource is not yet proven. Further, whilst there is a reasonable chance that other hydrocarbon deposits may exist in one or other form of conventional or unconventional hydrocarbons on the PEDLs, this is also not proven.

In any event, the production of commercial quantities of recoverable hydrocarbons, should they exist on the PEDLs will depend upon many matters, including but not limited to any necessary regulatory and/ or environmental approvals that may be required, the economics of both exploration for and production of hydrocarbons, and the ability to secure access to the sites for drilling (much of the licence areas being privately owned).

Gregory H. Solomon

Executive Chairman