Swala Energy Limited ACN 161 989 546 Replacement Prospectus

245 Pages·2013·16.46 MB·English

by  Helen Taylor

Swala Energy Limited
ACN 161 989 546

Replacement Prospectus

For the offer of 55,000,000 Shares at a price of $0.20 per Share to raise $11,000,000 (before costs and
expenses).
The Offer is conditional upon satisfaction or waiver of all of the conditions precedent to the
Share Sale Agreement entered into between the Company and the shareholders of Swala BVI.

Please refer to Section 4.2 for further details.

Joint Lead Managers:

Foster Stockbroking Pty Ltd
AFS Licence No. 223687
Argonaut Securities Pty Ltd
AFS Licence No. 274099

IMPORTANT NOTICE
This document is important and should be read in its entirety. If after reading this Prospectus you have
any questions about the securities being offered under this Prospectus or any other matter, then you
should consult your stockbroker, accountant or other professional adviser.
The Shares offered by this Prospectus should be considered as speculative.
Contents Page

Important Notices 1
1 Corporate Directory 5
2 Chairman’s Letter 6
3 Investment Overview 7
4 Details of the Offer 29
5 Company Overview 36
6 Risk Factors 49
7 Material Contracts 54
8 Board and Corporate Governance 75
9 Investigating Accountant’s Report 82
10 Independent Technical Specialist’s Report 97
11 Tanzanian Solicitor’s Report 198
12 Kenyan Advocate’s Report 212
13 Additional Information 228
14 Directors’ Consent 239
15 Definitions 240
Swala Energy Limited – Prospectus
Important Notices
This Replacement Prospectus is dated 12 March 2013 and a copy of this Replacement Prospectus
was lodged with the ASIC on that date. This Replacement Prospectus replaces a prospectus dated
and lodged with ASIC on 1 March 2013. For the purposes of this document, this replacement
prospectus will be referred to as “this Prospectus”.
The ASIC and ASX and their respective officers take no responsibility for the content of this
Prospectus.
This Replacement Prospectus has been issued to:
 provide additional disclosure in relation to petroleum operations in Kenya and Tanzania and
provide an overview of the production sharing agreement between the Kenyan Government,
Swala Kenya and Tullow Kenya (12B PSC) and the production sharing agreements between
the Tanzanian Government and SOGTL (Tanzanian PSCs). See Section 3.4;
 clarify the risks associated with the 12B PSC and Tanzanian PSCs. See Section 3.9;
 update the status of the recent Kenyan presidential election. See Section 3.9;
 update the indicative timetable and clarify the proposed timing of the issue of the Consideration
Securities under the Share Sale Agreement. See Sections 3.2, 3.11 and 4.2;
 amend disclosure in relation to the refund of application monies to clarify that all monies will be
refunded in respect of Applications that are not accepted or where a lesser dollar amount of
Shares than the amount applied for is allocated. See Section 4.7;
 include cautionary wording for investors in relation to statements regarding the chance of play
within the East African Projects and any analogies made with reference to the recent success
within the East African Rift System. See Sections 5.4 and 5.6; and
 update the status of the Share Sale Conditions and confirm that, as at the date of this
Prospectus, the Company does not intend to waive any of the Share Sale Conditions. See
Sections 3.5 and 7.1.
The expiry date of the Prospectus is 13 months after the date this Prospectus was lodged with the
ASIC (Expiry Date). No Shares will be allotted or issued on the basis of this Prospectus after the
Expiry Date.
Application will be made for the listing of the Shares offered by this Prospectus on the ASX.
The fact that ASX may list the Shares of the Company is not to be taken in any way as an
indication of the merits of the Company or the listed Shares. ASX takes no responsibility for
the contents of this Prospectus, makes no representations as to its accuracy or completeness
and expressly disclaims any liability whatsoever for any loss howsoever arising from or in
reliance upon any part of the contents of this Prospectus.
Applications for Shares offered pursuant to this Prospectus can only be submitted on an original
Application Form, which accompanies this Prospectus.
The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and
therefore persons into whose possession this document comes should seek advice on and observe
any such restrictions. Any failure to comply with these restrictions may violate securities laws.
Applicants who are resident in countries other than Australia should consult their professional
advisers as to whether any governmental or other consents are required or whether any other
formalities need to be considered and followed.
This Prospectus does not constitute an offer of Shares in any jurisdiction where, or to any person to
whom, it would be unlawful to issue this Prospectus.
Swala Energy Limited – Prospectus page | 1
No person is authorised to give information or to make any representation in connection with this
Prospectus, which is not contained in the Prospectus. Any information or representation not so
contained may not be relied on as having been authorised by the Company in connection with this
Prospectus.
Conditional Offer
The Offer is conditional on satisfaction or waiver of all of the conditions precedent to the Share Sale
Agreement entered into between the Company, Swala BVI and the Swala BVI Shareholders on or
before 30 April 2013 or such other date as may be agreed by the Company and Dr David Mestres
Ridge (as the representative for the Swala BVI Shareholders) in writing (End Date). Please refer to
Section 7.1 for a summary of the terms and conditions of the Share Sale Agreement.
In the event that all conditions precedent to the Share Sale Agreement are not satisfied or waived in
accordance with the terms of the Share Sale Agreement, the Offer will not proceed and investors will
be refunded their application monies. No interest will be paid on this money.
Exposure Period
The Corporations Act prohibits the Company from processing Applications in the 7 day period after
the date of lodgement of the Prospectus, which may be extended by ASIC by up to a further 7 days
pursuant to section 727(3) of the Corporations Act (Exposure Period).
This Prospectus will be circulated during the Exposure Period. The purpose of the Exposure Period is
to enable this Prospectus to be examined by market participants prior to the raising of funds.
Potential investors should be aware that this examination may result in the identification of
deficiencies in the Prospectus and, in those circumstances, any application that has been received
may need to be dealt with in accordance with section 724 of the Corporations Act.
Applications for Shares under this Prospectus will not be processed by the Company until after the
expiry of the Exposure Period. No preference will be conferred on persons who lodge applications
prior to the expiry of the Exposure Period.
Electronic Prospectus
A copy of this Prospectus can be downloaded from the website of the Company at www.swala-
energy.com. Any person accessing the electronic version of this Prospectus for the purpose of
making an investment in the Company must be an Australian resident and must only access this
Prospectus from within Australia.
The Corporations Act prohibits any person passing onto another person an Application Form unless it
is attached to a hard copy of this Prospectus or it accompanies the complete and unaltered version of
this Prospectus. Any person may obtain a hard copy of this Prospectus free of charge by contacting
the Company.
The Company reserves the right not to accept an Application Form from a person if it has reason to
believe that when that person was given access to the Application Form it was not provided together
with the electronic Prospectus and any relevant supplementary or replacement Prospectus or any of
those documents were incomplete or altered.
Foreign Jurisdictions
This Prospectus does not constitute an offer in any place in which, or to any person to whom, it would
not be lawful to make such an offer. No action has been taken to register or qualify the Shares or the
Offer, or to otherwise permit a public offering of the Shares in any jurisdiction outside Australia.
The distribution of this Prospectus outside Australia may be restricted by law and persons who come
into possession of this Prospectus outside Australia should observe any such restrictions. Any failure
to comply with such restrictions may constitute a violation of applicable securities laws. Applicants
who are resident in countries other than Australia should consult their professional advisers as to
Swala Energy Limited – Prospectus page | 2
whether any governmental or other consents are required or whether any other formalities need to be
considered and followed.

United States

In particular, the Shares have not been, and will not be, registered under the United States Securities
Act of 1933, as amended (US Securities Act) and may only be offered or sold:

 in the United States to “qualified institutional buyers”, as defined under Rule 144A of the US
Securities Act, in transactions exempt from, or not subject to, the registration requirements of
the US Securities Act; and
 outside the United States in “offshore transactions” in compliance with Regulation S under the
US Securities Act and applicable local law.
United Kingdom

This Prospectus does not constitute a prospectus for the purposes of the Prospectus Rules published
by the United Kingdom Financial Services Authority (FSA) and has not been approved by, or filed
with, the FSA or the United Kingdom Listing Authority. Furthermore, this Prospectus contains no offer
to the public within the meaning of section 102B of the UK Financial Services and Markets Act 2000
(FSMA), the Companies Act 2006 (UK Companies Act) or otherwise.

This Prospectus is being supplied in the United Kingdom only to persons who are (i) a “qualified
investor” within the meaning of section 86(7) of the FSMA and (ii) a “professional client” or an “eligible
counterparty” within the meaning of COBS 3.5.1 and COBS 3.6.1, respectively of the FSA Conduct of
Business Sourcebook and (iii) have professional experience in matters relating to investments and
who are investment professionals as specified in Article 19(5) of the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005 (the Order) or who are high net worth companies,
unincorporated associations and others as specified in Article 49(2) of the Order. Any investment or
investment activity to which this Prospectus relates is available only to such persons and will be
engaged in only with such persons. Persons who do not have professional experience in matters
relating to investments should not rely on this Prospectus.

This Prospectus is exempt from the general restriction on the communication of invitations or
inducements to enter into investment activity and has therefore not been approved by an authorised
person as would otherwise be required by section 21 of the FSMA. It is a condition of any application
for Shares pursuant to the Offer by any person in the United Kingdom that such person falls within,
and warrants and undertakes to the Company that it falls within, one of the categories of persons
described above.

Hong Kong

WARNING: This document has not been, and will not be, registered as a prospectus under the
Companies Ordinance (Cap. 32) of Hong Kong (Companies Ordinance), nor has it been authorised
by the Securities and Futures Commission in Hong Kong pursuant to the Securities and Futures
Ordinance (Cap. 571) of the Laws of Hong Kong (SFO). No action has been taken in Hong Kong to
authorise or register this document or to permit the distribution of this document or any documents
issued in connection with it. Accordingly, the Shares have not been and will not be offered or sold in
Hong Kong by means of any document, other than (i) to "professional investors" (as defined in the
SFO) or (ii) in other circumstances that do not result in this document being a "prospectus" (as
defined in the Companies Ordinance) or that do not constitute an offer to the public within the
meaning of that ordinance. No advertisement, invitation or document relating to the Shares has been
or will be issued, or has been or will be in the possession of any person for the purpose of issue, in
Hong Kong or elsewhere that is directed at, or the contents of which are likely to be accessed or read
by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong)
other than with respect to Shares that are or are intended to be disposed of only to persons outside
Hong Kong or only to professional investors (as defined in the SFO and any rules made under that
ordinance). No person allotted Shares may sell, or offer to sell, such Shares in circumstances that
amount to an offer to the public in Hong Kong within six months following the date of issue of such
Shares.
Swala Energy Limited – Prospectus page | 3
Website
No document or information included on the Company’s website is incorporated by reference into this
Prospectus.
Forward-looking statements

This Prospectus contains forward-looking statements which are identified by words such as ‘may’,
‘could’, ‘believes’, ‘estimates’, ‘targets’, ‘expects’ or ‘intends’ and other similar words that involve risks
and uncertainties.

These statements are based on an assessment of present economic and operating conditions, and
on a number of assumptions regarding future events and actions that, as at the date of this
Prospectus, are expected to take place.

Such forward-looking statements are not guarantees of future performance and involve known and
unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the
control of the Company, the Directors and the management.

The Company cannot and does not give any assurance that the results, performance or
achievements expressed or implied by the forward-looking statements contained in this Prospectus
will actually occur and investors are cautioned not to place undue reliance on these forward-looking
statements.

The Company has no intention to update or revise forward-looking statements, or to publish
prospective financial information in the future, regardless of whether new information, future events or
any other factors affect the information contained in this Prospectus, except where required by law.

These forward-looking statements are subject to various risk factors that could cause the Company’s
actual results to differ materially from the results expressed or anticipated in these statements. These
risk factors are set out in Sections 3.9 and 6.

Photographs and Diagrams
Photographs used in this Prospectus which do not have descriptions are for illustration only and
should not be interpreted to mean that any person endorses the Prospectus or its contents or that the
assets shown in them are owned by the Company. Diagrams used in this Prospectus are illustrative
only and may not be drawn to scale.

Defined terms and interpretation

Certain terms or abbreviations used in this Prospectus have defined meanings which are explained in
Section 15. A reference to a Section is a reference to a section in this Prospectus.

Competent Person’s Statement

The information in this Prospectus that relates to the East African Projects is based on information
that has been compiled by Neil C. Taylor, who is a full time employee of the Company with over 30
years’ experience in oil and gas exploration and a member of the Petroleum Exploration Society of
Australia. Mr Taylor consents to the inclusion in this Prospectus of the matters based on his
information in the form and context in which they appear.

Swala Energy Limited – Prospectus page | 4
1 Corporate Directory
Directors Joint Lead Managers
Ken Russell (Non-Executive Chairman) Foster Stockbroking Pty Ltd
Dr David Mestres Ridge (Chief Executive Level 21
Officer/Managing Director) 25 Bligh Street
Neil Taylor (Executive Director - Exploration) SYDNEY NSW 2000
Ernest Massawe (Non-Executive Director)
Argonaut Securities Pty Ltd
Company Secretary Level 30, Allendale Square
77 St Georges Terrace
Adrian Di Carlo PERTH WA 6000
Australian Solicitors to the Company
Registered Office
70C Kishorn Road Gilbert + Tobin
MOUNT PLEASANT WA 6153 1202 Hay Street
WEST PERTH WA 6005
Telephone: [phone]
Facsimile: [phone] Kenyan Advocates to the Company
Independent Technical Specialist Coulson Harney Advocates
Unit A, Nairobi Business Park
RISC Operations Pty Ltd Ngong Road
Resources Investment Strategy Consultants Nairobi
Level 3, 1138 Hay Street KENYA
WEST PERTH WA 6005
Tanzanian Solicitors to the Company
Investigating Accountant
Velma Law
BDO Corporate Finance (WA) Pty Ltd 2nd Floor, Kilwa House
Level 8, 256 St Georges Terrace 369 Toure Drive
PERTH WA 6000 Oyster Bay
Dar es Salaam
Corporate Adviser TANZANIA
Pursuit Capital Pty Ltd Share Registry
Level 2, 28 Kings Park Road
WEST PERTH WA 6005 Link Market Services Limited
Ground Floor
178 St Georges Terrace
PERTH WA 6000

Swala Energy Limited – Prospectus page | 5
2 Chairman’s Letter
Dear Investor,
On behalf of the Directors, it is my pleasure to invite you to invest in Swala Energy Limited (Company
or Swala). Following its acquisition of Swala BVI, the Company intends to focus on the exploration of
hydrocarbons in sub-Saharan Africa and position itself to take advantage of the recent success in
exploration within the East African Rift System and the exploration work recently undertaken by Swala
BVI.
The Company, by way of this Prospectus, is offering for subscription 55,000,000 Shares at
$0.20 each to raise $11,000,000 (before costs and expenses).
As detailed in this Prospectus, the Company is proposing to acquire all of the issued shares of Swala
Energy Limited (a company incorporated with limited liability under the laws of the British Virgin
Islands with company number 1604418) (Swala BVI) pursuant to the Share Sale Agreement. Swala
BVI’s subsidiaries have interests in three oil and gas exploration blocks covering a net area of
approximately 22,000 square kilometres in the East African Rift System in onshore Kenya and
Tanzania (the East African Projects).
The Offer, made pursuant to this Prospectus, is conditional on satisfaction or waiver of all of the
conditions precedent to the Share Sale Agreement on or before the End Date. This Prospectus
provides detailed information regarding the Offer, Swala BVI’s assets, the Company’s proposed
activities following completion of the Acquisition and the risk factors associated with investing in the
Company.
Both Kenya and Tanzania have seen considerable increase in demand for access by international oil
exploration companies in recent times. The Directors believe that following completion of the Offer,
Swala will be well positioned to take advantage of this heightened interest.
The funds raised pursuant to the Offer, together with the Company’s existing cash reserves, will be
applied towards satisfying the minimum work program to be undertaken on the East African Projects,
including carrying out 2D seismic surveys over the East African Projects and, subject to the outcome
and success of the exploration program in respect of Block 12B, the drilling of one exploratory well in
Block 12B. Further details relating to the proposed use of funds raised from the Offer are set out in
Section 3.13.
Swala has an experienced management and technical team, strong in-country connections and is
working diligently to expand on its asset base. Assuming the successful completion of the Acquisition,
the Directors believe that these factors maximise the Company’s strategic position to take advantage
of any exploration success resulting from its proposed exploration activities within the East African
Projects.
Investors should be aware however that the Company’s activities and an investment in the Company
are speculative due to the nature of oil exploration and there is no guarantee that exploration of the
East African Projects will be successful. The key risks associated with an investment in Swala are set
out in Sections 3.9 and 6.
I recommend that you read this Prospectus in its entirety prior to making a decision to invest in the
Company. It will provide a clear review of the assets in question and the proposed direction of the
Company.
On behalf of the Board, I look forward to welcoming you as a Shareholder of Swala Energy Limited.
Yours sincerely

Ken Russell
Non-Executive Chairman
Swala Energy Limited
Swala Energy Limited – Prospectus page | 6
3 Investment Overview
3.1 Important Notice
This Section is a summary only and not intended to provide full information for investors
intending to apply for Shares offered pursuant to this Prospectus. This Prospectus should be
read and considered in its entirety. The Shares offered under this Prospectus carry no
guarantee in respect of return of capital, return on investment, payment of dividends or the
future value of the Shares.
3.2 The Company
Swala Energy Limited (Company) is a public company limited by shares and incorporated on
17 January 2013. It is based in Perth, Western Australia.
The Company has entered into a share sale agreement (Share Sale Agreement) with certain
shareholders of Swala BVI (Swala BVI Shareholders) to acquire up to 100% of the issued
shares of Swala BVI from the Swala BVI Shareholders (Acquisition) in consideration for the
issue of:
(a) 60,000,000 Shares; and
(b) 15,000,000 Performance Shares,
(together, the Consideration Securities) to the Swala BVI Shareholders, to be distributed in
proportion to their respective interests in the shares of Swala BVI. Further details of the terms
and conditions of the Performance Shares are set out in Sections 13.2 and 13.3.
Completion of the Acquisition is to occur concurrently with the issue of Shares under the Offer,
details of which are set out in Section 3.10. As at the date of this Prospectus, the intention of
the Company is that both the Consideration Securities and the Shares to be issued pursuant to
the Offer will be issued on or about 5 April 2013.
Swala BVI
Swala Energy Limited (a limited liability company incorporated under the laws of the British
Virgin Islands with company number 1604418) (Swala BVI) is an unlisted private company that
was incorporated in the British Virgin Islands on 10 September 2010.
Swala BVI explores for oil and gas in sub-Saharan Africa, with a particular focus on eastern
and central Africa. Swala BVI’s African subsidiaries, Swala Oil and Gas (Tanzania) Limited
(SOGTL) (a company in which Swala BVI holds a 65.13% interest) and Swala Energy (Kenya)
Limited (Swala Kenya) own participating interests in Block 12B (Kenya), the Pangani Licence
(Tanzania) and the Kilosa-Kilombero Licence (Tanzania) (together, the East African Projects).
A summary of each of the licences comprising the East African Projects is set out in Section
3.3.
Following completion of the Acquisition and assuming all Swala BVI Shareholders execute the
Share Sale Agreement, the Swala BVI Shareholders will become shareholders of the Company
and Swala BVI will become a wholly-owned subsidiary of the Company. Accordingly, the
Swala Group’s corporate structure will be as set out below. For further information regarding
the implications that may arise if not all Swala BVI Shareholders execute the Share Sale
Agreement, please refer to the heading ‘Execution of the Share Sale Agreement’ in Section 3.9.
Swala Energy Limited – Prospectus page | 7
100%
65.13% 100% 84.11% 100%
50% 50% 50%

Following completion of the Acquisition, the Company will focus on the exploration of
hydrocarbons in sub-Saharan Africa and position itself to take advantage of the recent success
in exploration within the East African Rift System and the exploration work recently undertaken
by Swala BVI. Specifically, the Company intends to undertake a series of 2D seismic surveys
on the East African Projects and, subject to the outcome and success of the exploration
program in respect of Block 12B, drill one exploratory well in Block 12B.
In addition to a focus on the East African Projects in Kenya and Tanzania, the Company
intends to pursue additional hydrocarbon licences in sub-Saharan Africa, with a particular focus
on the Democratic Republic of Congo, Kenya, Malawi, Mozambique, Tanzania, Uganda and
Zambia.
3.3 Summary of the licences comprising the East African Projects
Block 12B (Kenya)
Swala Kenya holds a 50% participating interest in Block 12B. The remaining 50% participating
interest is held by Tullow Kenya, the operator of the licence.
Block 12B is located on the eastern edge of Lake Victoria in Kenya and has a gross area of
8,000km2. It covers part of the eastern branch of the East African Rift System.
During 2012, Tullow Kenya acquired 3,500km of airborne gravity-magnetic data and a further
2,500km of low level, detailed magnetic data. This data was analysed in conjunction with a
geochemical analysis of a soil sample from a water well reportedly contaminated by oil, plus an
on-going review of over 250 water well reports to confirm whether such potential contamination
has been reported elsewhere in Block 12B. In December 2012, Tullow Kenya applied for, and
was granted, a 6 month extension to the Contract Year 1 activities under the 12B PSC to allow
further investigation of the basin, which will include accelerated weight drop (AWD) seismic
works.

Swala Energy Limited – Prospectus page | 8