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.”

The split of the Toronto Stock Exchange-traded company will be facilitated by Frontera transfer agent Computershare Investor Services Inc., which will send all shareholders as of June 26 an additional common share for each one they already hold.

“The Toronto Stock Exchange has determined to implement due bill trading in connection with the share split,” said Frontera Energy in a statement. “Anyone purchasing common shares during the period commencing June 20, 2018, and ending on June 26, 2018, inclusively shall receive a due bill.”

READ MORE: Frontera Energy Sees Year-Over-Year Production Drop in First Quarter

The Toronto-based company’s shares will “commence trading on an ex-distribution basis” on June 27, it stated, with a due bill redemption date of June 28.

This figure, however, is slightly up, by about 3%, compared to its depressed output of 59,131 barrels per day in the final quarter of 2017.

Higher oil prices also didn’t help lead to better financial results. Frontera, formerly known as Pacific Rubiales before a rebrand in recent years, realized just $249.5 million USD in sales and a net loss of $3.1 million USD in the first quarter.

These figures are down from the $316.6 million USD and $8.5 million USD net gain in the first quarter of 2017. It is also well below the $335.3 million USD in sales that the Toronto-based company made during the fourth quarter of 2017, when Frontera had a net loss of $32.5 million USD.

The uptick in oil production this quarter compared to the final quarter of 2017 was driven by an uptick in its output in Peru. Oil production in Colombia actually decreased from 56,593 in to 52,195 over the same time frame.

The drop is even more prominent — by nearly 10,000 barrels per day — compared to the 62,180 barrels per day average Frontera reported in Colombia in the first quarter of 2017.

In a statement, the company noted that the declines in Colombia were “a result of social unrest at the Cubiro block that has now been resolved” in addition to “increased volumes of 1,257 boe/d paid-in kind to Ecopetrol S.A. from production at the Quifa block pursuant to the high price participation clause in the governing exploration and exploitation contract.”

The firm’s natural gas output also has continued to fall over the past year. Frontera produced just 4,875 boe/d in Colombia in the first quarter of this year, down significantly from 5,314 boe/d in the fourth quarter last year and the 6,489 it managed in the first quarter of 2017.

Frontera attributed this to “natural production declines on the company’s natural gas assets at La Creciente.”

The growth news comes from Peru, where Frontera Energy brought its oil production from just 2,538 barrels per day in the fourth quarter of 2017 to 9,157 barrels per day this quarter.

Still, with the output drops in Colombia across the board, the company’s 66,227 boe/d in total oil and gas production was down from its 72,524 figure reported in the first quarter of 2017.

Frontera Energy is drilling, however, as it continues on a strategy it has coined “positioning for growth” in 2018.

“In April, we started drilling at our Acorazado-1 location in the Llanos foothills of Colombia, targeting a large structure on trend with the giant Cusiana and Cupiagua fields,” stated the company.

It also reported that two oil exploration wells in the Guatiquia block — Coralillo-1 and Alligator-2 — are completed and have been tested at an average of 1,000 barrels per day. Another well, the Jaspe-6D exploration well in the Quifa area, has is testing at an average rate of 187 barrels per day and the company has set the third quarter of this year to drill its offshore Delfin Sur-1 exploration well in Peru.

This nearly-31,000 drop, a decrease of 3.4%, was expected, however, and the actual output did exceed the ministry’s previously released “medium-term” estimate of 840,000 barrels of oil per day.

Some good news was seen in December. The average monthly production of 870,328 barrels per day was up 2.3% compared to November and 3.9% above the average seen in December 2016.

Pipeline disruptions, particularly due to attacks on the Caño Limón-Coveñas pipeline in eastern Colombia in the first half of the year, caused pumping to be halted for extended periods at certain oilfields.

READ MORE: Ecopetrol to Ramp Up Exploration and Production in 2018 with $4B USD Investment

Though a bilateral ceasefire negotiated with ELN, the country’s last remaining armed leftist guerrilla group, helped to ease these issues in the third and fourth quarter of the year, that ceasefire has now ended, and the group has been blamed for carrying out several pipeline attacks over the past week.

Ecopetrol, the Colombian state-controlled oil company and primary producer in the nation, plans to ramp up its production and investment in 2018 with an investment of up to $4 billion USD. It has set a goal for the Bogotá-based company to produce up to 725,000 barrels of petroleum-equivalent per day in 2018 and expects to drill at least 620 development wells and 12 exploration wells during the year.

Occidental Petroleum Corporation of the United States and two Canada-based firms, Frontera Energy Corp. and Canacol Energy Ltd., are among the other high-profile oil companies operating in the country.

(Photo credit: lalabell68 / Pixabay)