JOHANNESBURG (miningweekly.com) – Perth-based Po Valley on Tuesday signed a binding share sale and purchase agreement with Aim-listed Saffron Energy, under which the latter would acquire onshore and offshore oil and gas production, development and exploration assets in northern Italy held by Po Valley Operations (PVO).

Subject to shareholder approval, the transaction forms part of a broader three-way commercial deal to create a large European oil and gas business and from which Saffron intends to expand its interests to include South East Asian oil and gas assets.

PVE currently holds 100-million shares, or 53.8%, of Saffron. The asset change would deliver PVE shareholders participation in a strongly capitalised and London-listed European natural gas company, which plans to broaden operations in both Europe and South East Asia.

Under this formal agreement, Saffron would acquire PVO from Po Valley for 200-million Saffron shares and also acquire fellow Italy-based Sound Energy Holdings Italy (Sehil) for 185.9-million Saffron shares through a reverse takeover.

This would increase Po Valley's holding in Saffron to 300-million shares.

As part of this larger transaction, agreements have been reached with large international institutional investors for Saffron to raise £14-million, at an issue price of 4.38p a Saffron ordinary share.

Po Valley plans under the broader transaction, to eventually distribute its 300-million shares in Saffron to existing PVE shareholders on a pro-rata basis. Po Valley shareholders would emerge from the transaction with a direct shareholding in a more strongly capitalised Saffron, which would then hold and operate five natural gas production fields, develop the large Selva and Teodorico gasfields in northern Italy and advance a number of large-scale gas and oil exploration assets.

Po Valley would retain a 5% royalty interest in the successful recently drilled Selva gasfield and be reimbursed for its development funding of this field. It would also retain the cash proceeds of A$1.7-million from the sale of the Grattassasso and Cadelbosco exploration licences in Italy.

The completion of this transaction is awaiting formal Italian Ministry approval. The broader Saffron transactions are subject to Po Valley, Saffron and Sound Energy shareholder approval and the readmission of Saffron Energy to the Aim as part of the reverse takeover of Saffron Energy.

Po Valley CEO Michael Masterman said benefits to shareholders of the transactions include direct shareholding in a much better capitalised Saffron; listing on the higher liquidity Aim market, which has a strong following of Europe's natural gas markets; substantially stronger capitalisation through the £14-million and an expanded and consolidated European and Italian asset base through the combination of the Saffron, Sound Energy, and PVO assets, with South East Asia a target for future project expansion.

Saffron believes South East Asia possesses some of the world's fastest developing economies where demand for gas currently significantly outstrips supply.

This, combined with increasing growth across the region and the increasing shortage of gas in major markets, provides a compelling investment proposition for investors at this specific point in the energy cycle.

The company plans to acquire a series of assets across the South East Asian region, with an initial focus on Indonesia, leveraging existing infrastructure, relationships and processing capability which should enable new discoveries to be brought to market quickly. Saffron is planning to selectively bring in pre-identified strategic partners to the business to fund and technically derisk such assets.