Frontera Energy Signs Agreement with CGX Energy for Interest in Exploration Blocks off the Coast of Guyana
In a move it is calling important to its growth plan, Canadian oil company Frontera Energy Corp. (TSX: FEC) has entered into an agreement with CGX Energy Inc. (TSXV: OYL) that will give the Toronto-based firm a one-third working interest in two shallow-water blocks off the coast of Guyana.
Interest in the two blocks, the Corentyne block an Demerara block, is currently fully held by a CGX subsidiary, CGX Resources Inc., but Frontera Energy said in a statement that it is preparing to pay a $33.3 million USD “signing bonus” as well as “one-third of the applicable costs plus an additional 8.333% of CGX’s direct drilling costs for the initial exploratory commitment wells in the two blocks” in exchange for the 33.3% interest.
The arrangement also calls for CGX, which is also headquartered in Toronto, to make a repayment of $17 million USD in debt to Frontera Energy that is currently in default. Frontera will also grant a deadline extension for other debt obligations into next year.
“This debt will be extended to March 31, 2019 and is expected to be repaid earlier by way of an offset against the $33.3 million USD signing bonus payable to CGX,” stated Frontera. It added that it will extend the bridge loan previously arranged on April 25 through September 30, 2019, and “will seek regulatory approval to amend the terms to provide Frontera the ability to have the outstanding principal amount of the loan repaid in CGX common shares, at a conversion price of the U.S. dollar equivalent of $0.29 CDN per share, at any point on or before maturity of the loan.”
Frontera Energy will also guarantee an equity financing to CGX of up to $20 million USD, “the terms of which CGX expects to announce within the next two weeks.” This will “enable CGX to settle its $7,904,037 USD of liabilities with Japan Drilling Co., Ltd,” noted Frontera.
“The cumulative effect of the transactions, if successfully completed, would satisfy approximately $34.5 million USD of CGX’s existing indebtedness and provide CGX with approximately $27.5 million USD of net cash,” stated Frontera Energy. “As a result of these transactions, Frontera could increase its ownership of outstanding common shares of CGX from its current ownership of approximately 45.6% (or 50,351,929 shares) to up to approximately 77.5% if no other shareholder participates in the equity financing and Frontera elects to exercise the conversion right attached to the bridge loan.”
The agreement remains subject to regulatory approval.
The original interest agreement in the blocks calls for drilling of the first well in the Corentyne block by November 27 of next year (and an additional exploration well by November 27, 2022). An exploration well must be drilled in the Demerara block by February 12, 2021 (and another exploration well by February 12, 2023).
“This joint venture forms an important part of Frontera’s plans to build growth for the future,” said Gabriel de Alba, chairman of the board of directors of Frontera Energy.
He added that it will lead to both Frontera and CGX being “well positioned to advance the exploration and development of the most exciting offshore basin in the world” by “combining CGX’s long history and deep roots in the country with Frontera’s technical depth and financial strength.”