CGX Energy (TSXV: OYL) appears to be getting bailed out by its largest shareholder. The firm late last night announced that Frontera Energy (TSX: FEC), whom owns a 77% stake in the company, would be providing it with a loan for its ongoing operations.
The loan from Frontera, whom is also a joint venture partner in the firms flagship Corentyne block off the shore of Guyana, will see up to US$35 million lent to CGX. Funds from the project are to be used for its share of costs on exploration of the Corentyne block, as well as in relation to the Berbice Deepwater Port and other budgeted costs.
While the funds are to be used partially for costs related to Corentyne, it appears that relates to the recently completed exploration via the Kawa-1 well, which cost the joint venture upwards of $140 million, yet left shareholders unhappy last week after the company plugged and abandoned the well without conducting any flow tests. The company intends to resume exploration via the Wei-1 exploration well in the second half of this year.
The timeline for that second well however doesn’t exactly jive with the terms of the loan agreement. The debt obtained last night is available for drawdown in tranches until July 31, 2022, which is also the due date of the loan – unless it is postponed by Frontera, whom has sole discretion over the matter. Interest on the loan accrues at 9.7% per annum and is payable monthly, however if the loan is extended past the due date the rate jumps to 15% per annum.
What’s more, is Frontera will be making bank off the arrangement even if full funds are not drawn, as a standby fee of 2% per annum on any funds not drawn in excess of US$19 million will also apply.
Frontera has the option to convert the principal of the loan into CFX shares at a price of C$3.10 per share on or after the due date. CGX Energy meanwhile can repay the loan with 15 days notice at any time until the due date, and must repay the debt if they issue any shares in the company without Frontera’s consent.
In guidance released last month, Frontera indicated that it intends exploration at the Corentyne block to amount to between $110 and $130 million, most of which is related to the drilling of the Wei-1 well. The Berbice Deepwater Port meanwhile is expected to cost CGX between $5 and $10 million – meaning the company still has to find significantly more capital for the exploration program planned for this year.
CGX reportedly had a cash position of $15.2 million as of December 31, while trade and other payables amounted to $41.9 million.
CGX Energy last traded at $1.84 on the TSX Venture.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.