Primorus Investments has entered into a conditional sale and purchase agreement to dispose of a 5% interest in Horse Hill Developments to Solo Oil, it announced on Wednesday.
The firm said its AIM colleague Solo already held a 10% interest in HHDL, which in turn held a 65% interest in two onshore UK petroleum exploration licences - PEDL 137 and PEDL 246, which contain the Horse Hill oil discovery.
Solo agreed to pay Primorus an aggregate consideration of £1m, made up of £0.65m in cash and the balance in Solo shares, to be priced at the 10-day volume weighted average price prior to the date on which the transaction completes.
The sale and purchase agreement remained conditional on the written consent of each of the members of HHDL to the sale of shares
as set out in HHDL's articles of association.
Once the disposal was complete, Primorus' holding in HHDL would be 5%.
"We are pleased to have undertaken today's conditional disposal," said Primorus executive director Alastair Clayton.
"This transaction was designed to achieve three important outcomes from our perspective."
Clayton said the first outcome would be the crystallisation of some of the company's investment in HHDL in advance of the long-term flow test.
"These operations carry significant expense and outcomes are not always guaranteed, thus the opportunity for us to realise consideration for a total greater than book cost, retain significant exposure to HHDL via shareholdings in Solo and Alba Mineral Resources that are inherently more liquid than a direct operating interest, is an appealing one.
"Furthermore, via this new shareholding we gain exposure to Solo's exploration and production Tanzanian gas assets."
Clayton explained that the conditional disposal was also estimated to save Primorus around £0.18m in HHDL cash calls over the next few months, based on an overall HHDL budget of £4m for the long-term flow tests and associated costs and contingencies.
"Secondly, this disposal allows us to balance up our portfolio in terms of weighting.
"Over the last 18 months the company has built up a portfolio of investments, many of which are moving rapidly towards IPO.
"Primorus is not an operating company and thus being involved in a relatively large way directly at a project level reduces the overall liquidity of the portfolio."
The investment committee thought it an opportune time and price to undertake such a rebalancing, Clayton said.
"Lastly, this transaction will provide the company with further funds to re-invest in its existing portfolio while, as previously flagged, considerably reducing the outgoing HHDL cash calls over the next few months.
"Finally, by retaining a strategic 5% stake in HHDL, we maintain significant upside in the event of a successful long-term flow test."