-signing bonus of US$33.3m had been agreed
June 6 2019
Canadian oil explorer Frontera Energy Corporation now has a 33.33 per cent working interest in fellow Canadian oil explorer CGX Energy Inc’s two offshore blocks after a joint venture agreement was completed last week.
“On May 28, 2019, the transfers of the 33.333% interest in both the Corentyne and Demerara Prospecting Licences were completed. The transfers are effective May 20, 2019,” CGX said in a recent statement announcing the release of its unaudited Consolidated Financial Statements for the first quarter of 2019.
CGX, under a renegotiated work plan with the Guyana Government, is required to drill its Utakwaaka well on the Corentyne block by November 27, 2019 with an additional exploration well to be drilled by November 27, 2022. The Corentyne block amounts to 1,125,000 net acres offshore Guyana in shallow water, adjacent to ExxonMobil’s Stabroek block.
On the 750,000 net acres offshore Demerara block, an exploration well is required to be drilled by February 12, 2021 with a further exploration well by February 12, 2023.
CGX had previously faced financial issues and the joint venture agreement with Frontera sought to enable CGX to finance the drilling costs related to the two offshore blocks and also provide financial support as a critical step in a series of transactions that CGX sought to undertake in order to restructure its liabilities and provide for sufficient working capital to enable it to advance its offshore exploration projects in Guyana.
In its statement, CGX said that for the three-month period ended March 31, 2019, it improved its working capital deficiency by US$22.3 million and as of the same date, had cash on hand amounting to US$15.06 million as result of a shares offering that closed on March 12, 2019. The statement also revealed that CGX incurred exploration and evaluation expenditures of US$7.57 million during the three-month period ended March 31, 2019 primarily due to activities being undertaken to satisfy work commitments under their Corentyne block Petroleum Agreement.
Under the joint venture agreement, Frontera was also required to pay a signing bonus of US$33.33 million for the interest in the two blocks and the statement said that this is now due but in the amount of US$8.5 million. This is because CGX has outstanding debts due to Frontera of US$24.8 million.
The Government of Guyana had on May 3, 2019, approved the joint venture agreement under which Frontera has also agreed to pay 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, subject to certain thresholds.
Meantime, CGX also said that it has settled all liabilities claimed by Japan Drilling Co Ltd arising from a cancelled drilling contract in 2015 while also repaid was its share of the money advanced by Frontera for paying a required drilling rig minimum obligation fee.
The statement also said that on January 30, 2019, CGX amended its Bridge Loan III with Frontera to a non-revolving term facility in an amount of up to US$12.9 million, provided that the facility will be automatically reduced by a payment from CGX to a maximum principal amount of US$8.8 million by May 28, 2019.
On May 28, 2019, CGX settled principal of US$4.1 million, plus accrued interest, of this outstanding debt to Frontera. The revised term facility carries an interest rate of up to 7 per cent per annum and matures on September 30, 2019. The US$8.8 million principal amount is convertible at the option of Frontera any time prior to maturity or repayment at a price of $0.22 per share. As of May 28, 2019, CGX has fully drawn the available amounts from the facility, the statement said.
