Subject to approval by the Toronto Stock Exchange (TSX) Canadian oil and gas Exploration Company CGX Energy Inc. has settled its debt to majority shareholder Frontera Energy Corporation through the sale of a percentage of its common shares. Frontera therefore could in the near future own 61.5% of CGX.
CGX announced on Monday that the two companies have entered into a debt settlement agreement with respect to US$1,200,000 owed to Frontera by CGX. The debt is to be settled through the issuance of 5,714,285 common shares of CGX at a rate of US$0.21 per Common Share.
CGX, which does not have sufficient cash to repay its debt has offered the shares at a 25% discount to the closing price of the Common Shares on the TSX Venture Exchange (the “TSXV”) on December 14, 2018.
The statement notes that Frontera currently owns 50,351,929 Common Shares, which represents approximately 45.6% of the issued and outstanding Common Shares but upon completion of the Debt Settlement, Frontera will own 56,066,214 Common Shares, which represents approximately 48.3% of the issued and outstanding Common Shares on a partially diluted basis.
Further Frontera is seeking regulatory approval to amend the terms of its April 25, 2018 bridge loan to provide that the maximum amount of the US$8,861,339 principal that may be repaid in Common Shares at a conversion price of US$0.22 shall be US$8,800,000.
As a result of these transactions, Frontera could increase its ownership of the outstanding Common Shares to approximately 61.5% if the Debt Settlement is completed and Frontera elects to exercise the conversion right attached to the bridge loan.
On December 4, CGX announced that subject to approval from the Government of Guyana it has entered into a farm-in joint venture (JV) agreement with Frontera.
Signing bonus
According to that agreement Frontera will acquire a 33.33% working interest in the two blocks owned by CGX in exchange for a US$33.3 million signing bonus. Additionally Frontera 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 while CGX would remain the operator with assistance from Frontera.
CGX has explained that the Debt Settlement like the JV agreement is a step that CGX is seeking 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.
The company has also secured the services of an oil rig for the drilling of its Utakwaaka-1 well in the Corentyne block.
According to a press release from the company following an agreement signed on December 14 with British company ROWAN RIGS S.À R.L they have procured the use of an offshore jack-up drilling rig named the Ralph Coffman.
The rig which has been engaged on a day rate payment plan is expected to arrive in Guyana in the second quarter of 2019. According to Rowan the rig has been procured for an estimated duration of 60 days
CGX’s release quotes Executive Chairman of CGX, Professor Suresh Narine as stating that the Ralph Coffman is ideally suited to the well-design explaining that the company is delighted to secure this rig at a time when exploration activity on the shelf in the Guyana basin is significantly increasing.
The Ralph Coffman is currently under contract with GulfSlope Energy in the U.S. Gulf of Mexico through its current well, which is estimated to conclude mid-January 2019.
Narine further noted that “with the announcement of a Joint Venture with Frontera Energy Corporation and the securing of Rowan’s Ralph Coffman offshore Jack Up Drilling Rig, CGX is on schedule to drill Utakwaaka-1 on or before November 2019.”
Stabroek News had previously reported that CGX, under a renegotiated work plan with the Guyana Government, has undertaken to drill the Utakwaaka-1 well by November 27th, 2019, acquire additional seismic or conduct seismic reprocessing by November 27th, 2020 and drill another exploration well by November 27th, 2022.
