Cash-strapped CGX Energy Inc. appears poised to make a major come back in Guyana’s petroleum industry, as it announced today that it entered into a major joint venture agreement with Frontera Energy Corporation.
Like CGX, Frontera is a Canadian public company but is considered to be a leading explorer and producer of crude oil and natural gas, with operations focused in Latin America.
Frontera, according to the letter agreement seen by this news agency, will finance CGX’s drilling costs related to two shallow water offshore blocks in Guyana. Those blocks are also 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 speed up 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.
Executive Chairman and Director of CGX, Professor Suresh Narine noted that with the Frontera joint venture, CGX will be positioned to accelerate development of the Corentyne and Demerara Blocks.
Professor Narine, in an invited comment, said, “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.”
He added, “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.”
Pursuant to the letter agreement, Professor Narine shared that Frontera and CGX have also agreed to arrangements to provide additional financial support for CGX. Upon the closing of the JV Agreement, CGX will repay Frontera approximately U.S.$17 million of debt which is currently in default and owing to Frontera. This debt will be extended to March 31, 2019, and is expected to be repaid earlier by way of an offset against the US.$33.3 million signing bonus payable to CGX as referred to above.
The Corentyne block contains 1,125,000 net acres offshore Guyana in shallow water, adjacent to the ExxonMobil Stabroek block which has encountered 10 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.
The Demerara block contains 750,000 net acres offshore Guyana in shallow water and is also adjacent to the ExxonMobil Stabroek block. An exploration well is required to be drilled on the block by February 12, 2021, with a further exploration well by February 12, 2023.