Canada’s CGX Energy and Frontera Energy have entered into a letter of 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.
According to Frontera’s announcement on Tuesday, 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 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 $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.”
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.”
Richard Herbert, Chief Executive Officer of Frontera, commented: “Offshore Guyana has emerged during the last few years as one of the most exciting exploration areas in the world. CGX’s offshore exploration blocks have been significantly derisked by exploration activity in the basin to date and contain multiple play types which offer significant opportunity. Once executed, our farm-in agreement with CGX will give the company a direct interest in the significant exploration potential of both the Corentyne and Demarara Blocks.”
The Corentyne block contains 1,125,000 net acres offshore Guyana in shallow water, adjacent to the ExxonMobil-operated prolific Stabroek block which has encountered ten 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, 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.