Frontera Energy Corp. has signed a farm in agreement with CGX Energy Inc. subsidiary CGX Resources Inc. for two shallow-water blocks offshore Guyana.
Subject to governmental approval, Frontera will acquire a 33.33% interest in the Corentyne (1.125 million net acres) and Demerara (750,000 net acres) blocks in exchange for a $33.3-million signing bonus. Both blocks are adjacent to ExxonMobil Corp.’s Stabroek block. Frontera will pay one third of the applicable costs plus an additional 8.333% of CGX’s direct drilling costs for the initial exploratory commitment wells and CGX will serve as operator.
On the Corentyne block, the Utakwaaka well is required to be drilled by Nov. 27, 2019, with an additional exploration well to be drilled by Nov. 27, 2022. An exploration well is required to be drilled on the Demerara block by Feb. 12, 2021, with a further exploration well by Feb. 12, 2023.
Financial support
On closing of the agreement, CGX will repay Frontera $17 million of debt currently in default. The debt will be extended to Mar. 31, 2019, and is expected to be repaid earlier by way of an offset against the $33.3-million signing bonus payable to CGX.
Frontera will extend its Apr. 25 bridge loan through Sept. 30, 2019, and will seek regulatory approval to amend the terms to provide Frontera the ability to have the outstanding principal repaid in CGX common shares at a conversion price of the US dollar equivalent of 29¢ (Can.)/share.
Frontera also will agree to guarantee an equity financing of CGX of up to $20 million, the terms of which CGX expects to announce within the next 2 weeks. No proceeds from the financing will be payable to Frontera. The financing will enable CGX to settle its $7.9 million of liabilities with Japan Drilling Co. Ltd.
Because of the transactions, Frontera could increase its ownership CGX shares to as much as 77.5% from 45.6% if no other shareholder participates in the equity financing and Frontera elects to exercise the conversion right attached to the bridge loan.
