Faced with a demand for US$15M from Repsol for its share of oil drilling costs, CGX is entering into a private placement of CDN$35-40M that could result in its fellow Canadian explorer Pacific Rubiales taking majority control of the company.
CGX which had been seeking commercial oil here unsuccessfully since 2000, encountered serious financial woes last year after two wells came up dry – one wholly owned and one shared with Repsol and others. It is its share of expenses for the latter well which has driven it to the brink of insolvency and led to the agreement for a private placement that Pacific Rubiales is likely to take up.
This has led to an agreement between CGX and Pacific Rubiales which will see renegotiation of certain agreements and the fixing of a CDN$4M limit on payments to officers, directors and consultants as a consequence of a change of control.
In a detailed press release, CGX said “In its Management’s Discussion and Analysis for the nine months ended September 30, 2012, the Company disclosed that as of November 26, 2012, the Company had received a default notice in respect of its Participating Share of joint account expenses for the Georgetown PA in the amount of US$11,500,000. On January 24, 2013, the Company was advised by Repsol as operator of the Georgetown PA that the total default amount had increased to US$14,939,626. The Company has negotiated a stay of any enforcement proceedings until March 22, 2013. The Company reports that the current default amount is significantly in excess of its cash on hand and, accordingly, the Company currently has insufficient funds to satisfy this obligation and other near term obligations.”
CGX also said that there would be need for more financing and there was no guarantee that it would be able to continue as a going concern.
“The net proceeds from the private placement will enable the Company to discharge its immediate obligations under the Georgetown PA Joint Operating Agreement and to continue to fund its other near term obligations. The Company expects that further financings will be necessary to ensure that it can meet its ongoing obligations. The ability of the Company to continue as a going concern is dependent on securing the additional required financing, either through issuing additional equity, debt instruments and/or payments associated with a joint venture farm-out. There can be no assurances that the Company will successfully raise additional funds”, the statement said.
CGX had an inauspicious beginning here in 2000 when Surinamese gunboats ejected it from Guyana’s waters as it was about commence drilling off the Corentyne. This led to a protracted dispute between Paramaribo and Georgetown with Guyana eventually moving to the International Law of the Sea Tribunal in Hamburg and winning its case in 2007. CGX started drilling several years later but a series of costly wells turned up dry.
The full press release follows:
TORONTO, Feb. 27, 2013 /CNW/ – CGX Energy Inc. (TSX-V – OYL) (“CGX” or the “Company”) announces that it has entered into an agreement with GMP Securities L.P. (“GMP”) dated February 27, 2013 in connection with a proposed private placement of a minimum of Cdn$35,000,000 (the “Minimum Offering”) and a maximum of Cdn$40,000,000 of units of CGX (the “Units”) at a price of Cdn$0.14 per Unit. Each Unit will consist of one common share and one common share purchase warrant of the Company (a “Warrant”), each Warrant being exercisable to acquire one CGX common share at an exercise price of Cdn$0.20 per share for a period of five years following the date of issuance of the Units. All common shares that comprise the Units and any common shares issued on exercise of the Warrants will be subject to a four month hold period from the date of issuance of the Units. The private placement is subject to approval of the TSX Venture Exchange (“TSXV”) and other customary closing conditions.
The Company also announces that it has entered into a binding term sheet with Pacific Rubiales Energy Corp. (“Pacific Rubiales”), a current shareholder of the Company, dated February 27, 2013 (the “Pacific Rubiales Agreement”) pursuant to which Pacific Rubiales has agreed to purchase all of the Units to be issued in the Minimum Offering that are not subscribed for by other investors. Pursuant to the Pacific Rubiales Agreement, it is a condition of closing of the placement of the Minimum Offering to Pacific Rubiales that the Company renegotiate certain of its agreements with the officers, directors, employees and consultants of the Company such that the aggregate obligations payable by the Company or any of its subsidiaries under such agreements on a change of control of the Company do not exceed Cdn$4,000,000.
The net proceeds from the private placement, after payment of an advisory fee to GMP, the expenses of GMP relating to its engagement by CGX and other transaction expenses, will be used by CGX as follows:
- as to approximately US$15,000,000, to meet the Company’s current default payment obligations owing to Repsol Exploración S.A. (“Repsol”), Tullow Guyana B.V. and YPF S.A. (collectively the “Partners”) pursuant to the Joint Operating Agreement among the Partners to the Georgetown Petroleum Agreement (“Georgetown PA”),
- as to a maximum of Cdn$4,000,000, for change of control payments to officers, directors, employees and consultants of the Company who will no longer be with the Company following closing,
- in satisfaction of a transaction fee payable to the Company’s financial advisor, and
- as to the balance of the net proceeds of the private placement, to fund expenditures related to the Company’s oil and gas exploration activities and for general corporate purposes.
Subject to the approval of the TSXV, the Company has agreed to pay GMP an advisory fee of (i) 4% of the gross proceeds of the private placement in respect of the subscription for Units by Pacific Rubiales, and (ii) 6% of the gross proceeds derived from the sale of Units pursuant to the private placement to any investor(s) other than Pacific Rubiales. The TSXV has advised the Company that it has no objection to the payment of the fee at this time.
Pacific Rubiales currently owns 144,434,285 common shares representing 35.06% of the Company’s issued and outstanding common shares and is an insider of the Company. Assuming Pacific Rubiales subscribes for all of the Units pursuant to the Minimum Offering and that no other Units are sold pursuant to the private placement, Pacific Rubiales will hold 60% of the Company’s issued and outstanding common shares (and approximately 70% assuming the exercise of all of the Warrants issued to Pacific Rubiales). Pacific Rubiales also holds warrants which are exercisable for an additional 42,857,142 common shares of the Company at an exercise price of Cdn$0.60 per common share until January 9, 2014. As a result, the private placement is a related party transaction pursuant to Policy 5.9 of the TSXV and Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) and triggers the requirement for a valuation and minority approval unless exemptions therefrom are available. As CGX is not listed on or quoted on any prescribed exchange listed in MI 61-101, the transaction is exempt from the formal valuation requirement contained in MI 61-101 pursuant to section 5.5(b) of MI 61-101. CGX is relying on the financial hardship exemption from the minority approval requirement of MI 61-101 contained in section 5.7(e) of MI 61-101 as described in more detail below.
In its Management’s Discussion and Analysis for the nine months ended September 30, 2012, the Company disclosed that as of November 26, 2012, the Company had received a default notice in respect of its Participating Share of joint account expenses for the Georgetown PA in the amount of US$11,500,000. On January 24, 2013, the Company was advised by Repsol as operator of the Georgetown PA that the total default amount had increased to US$14,939,626. The Company has negotiated a stay of any enforcement proceedings until March 22, 2013. The Company reports that the current default amount is significantly in excess of its cash on hand and, accordingly, the Company currently has insufficient funds to satisfy this obligation and other near term obligations.
Pursuant to MI 61-101, minority approval is not required for a related party transaction in the event of financial hardship in specified circumstances. A special committee (the “Special Committee”) of four “independent directors” of the Company, as defined in MI 61-101, was constituted to consider the proposed private placement and Pacific Rubiales investment. The Special Committee (other than John Cullen and Dennis Pieters who each refrained from voting on the transaction after being designated as a continuing director by Pacific Rubiales and thereby having a personal interest in the transaction) has determined unanimously that the Company is in serious financial difficulty, the private placement to Pacific Rubiales is designed to improve the financial position of the Company, and the terms of the private placement are reasonable in the circumstances of the Company. Following these determinations and a recommendation to the Board of Directors, the Board of CGX has made the same determination. Accordingly, CGX has satisfied the elements of the financial hardship exemption.
The net proceeds from the private placement will enable the Company to discharge its immediate obligations under the Georgetown PA Joint Operating Agreement and to continue to fund its other near term obligations. The Company expects that further financings will be necessary to ensure that it can meet its ongoing obligations. The ability of the Company to continue as a going concern is dependent on securing the additional required financing, either through issuing additional equity, debt instruments and/or payments associated with a joint venture farm-out. There can be no assurances that the Company will successfully raise additional funds.
Pursuant to the Pacific Rubiales Agreement, upon closing of the private placement, the board of directors of CGX will be reconstituted as follows to ensure that a majority of the directors are nominees of Pacific Rubiales:
- Ronald Pantin
- José Francisco Arata
- Marino Ostos
- Dennis Mills
- Jairo Lugo
- Suresh Narine
- John Cullen
- Dennis Pieters
Ronald Pantin is the Chief Executive Officer and Executive Director of Pacific Rubiales. Mr. Pantin has worked in the Venezuelan oil industry for 24 years prior to founding Pacific Rubiales. Mr. Pantin has held a number of senior positions within Petroleos de Venezuela, S.A. (“PDVSA”), most recently being President of PDVSA Services. Immediately after PDVSA, Mr. Pantin was President of Enron Venezuela. He began his professional career with Maraven, an affiliate of PDVSA, where he held a variety of positions including Exploration and Production Planning Manager, Petroleum Engineering Manager, Treasurer, Operations Manager in the Production Division, and Corporate Planning Manager.
José Francisco Arata has been the President and a director of Pacific Rubiales since 2008. From August 21, 2006 to January 23, 2008, Mr. Arata was the Chief Executive Officer and a director of Pacific Stratus Energy Ltd. From July 1997 to February 2006, Mr. Arata was the Executive Vice President and a director of Bolivar Gold Corp. Mr. Arata has over 29 years of experience in mineral and oil exploration in a number of countries in Latin America. He began his professional career with Maraven, an affiliate of PDVSA, where he held a variety of positions within the Exploration and Production Department. After leaving PDVSA, Mr. Arata started a number of private ventures in the Venezuelan mining industry. Mr. Arata became a director of CGX on June 28, 2012.
Dr. Marino Ostos is Senior Vice President, New Areas for Pacific Rubiales. He has over 30 years of experience in Exploration and Production operations and management and was one of the founders of Pacific Stratus Ventures, later known as Pacific Stratus Energy Ltd. where he served as President and Chief Operating Officer. Dr. Ostos holds a Masters and Ph.D. in Geological Sciences from Rice University, Houston, Texas as well as a Bachelor in Geosciences and a Geological Engineering Degree. Dr. Ostos became a director of CGX on May 30, 2012.
Dennis Mills is a Canadian businessman and former politician. Mr. Mills was Vice Chairman and Chief Executive Officer of MI Developments Inc. from 2004 to 2011, and a Vice-President at Magna International from 1984 to 1987. Mr. Mills served as a Member of Parliament in Canada’s federal parliament from 1988 to 2004. While a Member of Parliament, Mr. Mills was Parliamentary Secretary to the Minister of Industry from 1993 to 1996, the Parliamentary Secretary to the Minister of Consumer and Corporate Affairs from 1993 to 1995 and the Chair of the Committee studying the Industry of Sport in Canada. Mr. Mills was the Senior Policy Advisor to the Cabinet Committee on Communications (1980-1984), Advisor to the Minister of Energy (1980-1981), Senior Advisor to the Minister of Multiculturalism (1980), and Senior Communications Advisor to the Prime Minister of Canada, The Right Honourable Pierre Elliott Trudeau (1980-1984).
Dr. Jairo Lugo is Senior Vice President, Exploration of Pacific Rubiales. From 2004 to January, 2008, he was the Executive Vice President, Exploration of Pacific Stratus Energy. Dr. Lugo was Director of Exploration of Arauca Energy Group from April, 2003 to October, 2004, Exploration coordinator for PDVSA from 2000-2002, G&G Manager for PDVSA-CVP from 1998-2000, and also held various exploration geologist positions at PDVSA from 1990-1998.
Due to the Company’s immediate need for financing in order to carry on its business and achieve its business objectives, the parties contemplate closing the private placement as soon as possible, however not later than March 11, 2013 unless otherwise agreed to by Pacific Rubiales, GMP and CGX. As such, in the Company’s view, it will be necessary for the Company to file the material change report with respect to the proposed transaction less than 21 days before the expected closing date of the private placement.
CGX has been advised by Pacific Rubiales that Pacific Rubiales intends for CGX to remain a public company after completion of the financing.
The Units when issued will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or applicable exemption from the registration requirements.
Dr. Suresh Narine, Executive Director of CGX, stated, “Over the last 15 years, CGX has been the most active explorer for hydrocarbons in Guyana. This financing led by Pacific Rubiales provides a new base to allow a high level of exploration to continue in our newly re-issued Corentyne, Demerara and Berbice Licences, with continued participation by the other CGX shareholders. Guyanese leadership at the Board level and in management will continue, unique amongst companies currently actively exploring in Guyana. Pacific Rubiales will add broad global experience, with a very successful track record in exploration.”
About CGX Energy
CGX is a Canadian-based oil and gas exploration company focused on the exploration of oil in the Guyana-Suriname Basin, an area in which the United States Geological Survey estimated a Pmean oil resource potential of 13.6 billion barrels in their Assessment of Undiscovered Conventional Oil and Gas Resources of South America and the Caribbean, 2012. CGX is managed by a team of experienced oil and gas and finance professionals from Guyana, Canada, the United States and the United Kingdom.
About Pacific Rubiales
Pacific Rubiales is a Canadian company and producer of natural gas and crude oil, owns 100% of MetaPetroleum Corp., which operates the Rubiales, Piriri and Quifa heavy oil fields in the Llanos Basin, and 100% of Pacific Stratus Energy Colombia Corp., which operates the La Creciente natural gas field in the northwestern area of Colombia. Pacific Rubiales has also acquired 100% of PetroMagdalena Energy Corp., which owns light oil assets in Colombia, and 100% of C&C Energia Ltd., which owns light oil assets in the Llanos Basin. In addition, the Company has a diversified portfolio of assets beyond Colombia, which includes producing and exploration assets in Peru, Guatemala, Brazil, Guyana and Papua New Guinea. Pacific Rubiales common shares trade on the Toronto Stock Exchange and La Bolsa de Valores de Colombia and as Brazilian Depositary Receipts on Brazil’s Bolsa de Valores Mercadorias e Futuros under the ticker symbols PRE, PREC, and PREB, respectively.
NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.
Forward-Looking Statements:
This press release contains forward-looking statements. More particularly, this press release contains statements that include, but are not limited to, the timing of the private placement, the anticipated use of proceeds, the proposed changes to the Board of Directors and management of CGX and the receipt of required stock exchange approvals. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, anticipate”, “estimate”, “may”, “will”, “would”, “potential”, “proposed” and other similar words, or statements that certain events or conditions “may” or “will” occur. The forward-looking statements are based on certain key expectations and assumptions made by CGX. Although CGX believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because CGX can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. In addition to other risks that may affect the forward-looking statements in this press release and those set out in CGX’s management discussion and analysis of the financial condition and results of operations for the three and nine month periods ended September 30, 2012, the closing of the private placement could be delayed if CGX is not able to obtain the necessary stock exchange approval on the timelines it has planned and the private placement will not be completed at all if this approval are not obtained or some other condition to the closing is not satisfied. Accordingly, there is a risk that the private placement will not be completed within the anticipated time or at all. The forward-looking statements contained in this press release are made as of the date hereof and CGX undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
SOURCE: CGX Energy Inc.
Kerry Sully, President and CEO (604) 733-9647 or ksully@cgxenergy.com
Charlotte May, Communications Manager (416) 364-3353 or
