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Frontera Energy, CGX unit ink farm-in deal for offshore Guyana projects

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Frontera Energy, CGX unit ink farm-in deal for offshore Guyana projects

Canada-based Frontera Energy Corp. announced Dec. 4 that it will enter into a farm-in agreement with fellow Canada-based company CGX Energy Inc. to develop two offshore petroleum prospecting projects in the Corentyne and Demerara blocks in Guyana.

Final approval is required from the Guyana government for the farm-in agreement. After approval, Frontera will have a 33.33% stake in the two blocks, which are 100% owned and operated by CGX, in exchange for a $33.3 million signing bonus.

Frontera will pay one-third of the applicable costs and an additional 8.33% of CGX's direct drilling costs for the initial exploratory wells in the blocks.

A letter of agreement was signed for financing the drilling costs of the two blocks.

The Corentyne block covers 1.13 million net acres, with the Utakwaaka well targeted to be drilled by November 2019 and another exploration well expected to be drilled by November 2022.

The Demerara block covers 750,000 net acres, with an exploration well targeted to be drilled by February 2021 and another exploration well by February 2023.

CGX will also repay Frontera approximately $17 million of debt, which is in default and could be extended to March 31, 2019. It is expected to be settled via an offset against the $33.3 million signing bonus.

Frontera further said it will extend its $8.86 million bridge loan from April 25, 2018, to September 30, 2019.

The company will also seek regulatory approval to amend the terms to provide it the ability to have the outstanding principal amount of the loan paid in CGX common shares at a U.S. dollar equivalent to C$0.29 per share.

It will also provide CGX with equity financing of up to $20 million to enable the latter to settle its $7.90 million of liabilities to Japan Drilling Co. Ltd. The transaction will satisfy approximately $34.5 million of CGX's existing debt and provide it with approximately $27.5 million of net cash.

With the transactions, Frontera will increase its ownership in the company from approximately 45.6%, or 50,351,929 shares, to almost 77.5% given no other shareholder participates in the equity financing and Frontera exercises the conversion right to the bridge loan.