CGX Energy Inc. and Frontera Energy Corporation announced that they have entered into a letter agreement to enable CGX to finance the drilling costs related to two shallow water offshore blocks in Guyana, currently 100% owned and operated by a subsidiary of CGX.
The agreement also provides financial support as a critical step in a series of transactions 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.
Under the terms of the letter agreement, Frontera and a wholly owned subsidiary of CGX, CGX Resources Inc., will enter into a farm-in joint venture agreement (the "JV Agreement") covering CGX's two shallow water offshore Petroleum Prospecting Licenses in Guyana, the Corentyne and Demerara Blocks.
Final approval for the farm-in is required from the Government of Guyana. Upon completion of the agreement and receipt of regulatory approval for the farm-in, Frontera will acquire a 33.33% working interest in the two blocks in exchange for a US$33.3 million signing bonus. Frontera has 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. CGX would be the operator with assistance from Frontera.
Professor Suresh Narine, Executive Chairman and Executive Director (Guyana), CGX, said:
"With the Frontera joint venture, CGX will be positioned to accelerate development of the Corentyne and Demerara Blocks, CGX's two largest offshore concessions. We plan to raise additional capital on a basis that will allow shareholders to participate. Our shareholders, who have supported CGX through its difficult times, will thereby be able to benefit from the exciting opportunities ahead for the company. I'm very optimistic about the future of CGX, our relationship as a commercial partner to Guyana and the value that can be created for our shareholders and stakeholders. CGX is widely held as Guyana's only Indigenous Oil and Gas Exploration company and we remain firmly committed to Guyana and the Guyanese cultural and social fabric. I would like to thank the Government and people of Guyana for their confidence in CGX over the past few years, and I also want to thank the CGX and Frontera teams for all their hard work getting us this far."
Gabriel de Alba, Chairman of the Board of Directors of Frontera, added:
"We are very excited to work with CGX through this new strategic joint venture in Guyana. Together, we will be well positioned to advance the exploration and development of the most exciting offshore basin in the world. Combining CGX's long history and deep roots in the country with Frontera's technical depth and financial strength creates great opportunities for success for the benefit of CGX, Frontera and the people of Guyana. This joint venture forms an important part of Frontera's plans to build growth for the future."
Corentyne Petroleum Agreement
The Corentyne block contains 1,125,000 net acres offshore Guyana in shallow water, adjacent to the ExxonMobil Stabroek block which has encountered nine discoveries since May 2015. The Utakwaaka well is required to be drilled by November 27, 2019 with an additional exploration well to be drilled by November 27, 2022.
Demerara Petroleum Agreement
The Demerara block contains 750,000 net acres offshore Guyana in shallow water, adjacent to the ExxonMobil Stabroek block which has encountered nine discoveries since May 2015. An exploration well is required to be drilled on the block by February 12, 2021 with a further exploration well by February 12, 2023.
The proposed transactions contemplated by the letter agreement remain subject to customary conditions, including the negotiation and execution of definitive agreements between Frontera and CGX and the requisite regulatory approvals. There is no guarantee that definitive agreements will be executed on the terms contemplated, or at all.
The transactions described herein between Frontera and CGX are related party transactions under Multilateral Instrument 61-101, but are exempt from obligations to obtain a formal valuation and approval from a minority of shareholders. The material change report to be filed by CGX in connection with this news release will contain required disclosure regarding such exemptions.
About CGX Energy:
CGX Energy is a Canadian-based oil and gas exploration company focused on the exploration of oil in the Guyana-Suriname Basin.
Frontera Energy Corporation is a Canadian public company and a leading explorer and producer of crude oil and natural gas, with operations focused in Latin America. The Company has a diversified portfolio of assets with interests in more than 30 exploration and production blocks in Colombia and Peru. The Company's strategy is focused on sustainable growth in production and reserves. Frontera is committed to conducting business safely, in a socially and environmentally responsible manner. Frontera's common shares trade on the Toronto Stock Exchange under the ticker symbol "FEC".