Indebted CGX seals US$30M financing deal

May 29, 2012 News

– Eagle-1 well way higher than believed

CGX Energy has managed to seal a US$30M deal that will allow it to pay off over US$20M in debt it racked up during recent drilling activities offshore Corentyne.

CGX seals a US$30M deal

Pacific Rubiales Energy (TSE:PRE) will buy 85.71 million units priced at 35 cents per share, which would give the natural gas producer a 35 percent stake in CGX.
Proceeds will go toward funding expenditures to CGX’s oil and gas exploration activities in Guyana and for general corporate purposes.
Pacific Rubiales produces natural gas and heavy crude oil, and owns a majority stake in Meta Petroleum Corp., a Colombian oil operator that runs oil fields in the Llanos basin.
The offering is subject to shareholder and TSX Venture Exchange approval. CGX’s stakeholders will vote on June 28, at their annual meeting.
CGX, a Canadian oil and gas explorer, holds four licenses in the Guyana/Suriname basin, a frontier basin in South America.
The U.S. geological survey ranks the Guyana/Suriname basin as having the second highest resource potential among unexplored oil basins in the world. The mean resource is estimated at 15.2 billion barrels.
On May 7, CGX announced cost increases on its Eagle-1 well and the need to raise about $20 million in the near term.
Initial costs for the well were pegged at $55 million, but increased to $71 million on May 7. But now the final costs are estimated to be 10 percent higher than first believed.
If the units are not issued by July 31, interest on the principle will have a rate of 13.5 percent and will be compounded quarterly until paid in full.
In addition, both companies also announced jointly that they have entered into a services agreement, whereby Pacific Rubiales will offer technical assistance to CGX’s operations.
Pacific Rubiales will have the option to take part in wells being drilled on the Corentyne and Annex off-shore petroleum production licenses, in Guyana. If Pacific funds 50 percent of the exploration well cost and some seismic expenses, it will get a 33 percent stake in the licenses.
“This is a great opportunity to expand investment in the highly prospective offshore Guyana oil play,” Pacific’s chief executive Ronald Pantin said in a statement.
“Through our ownership in CGX, the technical services agreement and a direct earning option, the company will participate in an exploration campaign in an offshore basin with analogous geology to West Africa and Brazil.”
CGX, after failing in its first drilling, had announced plans to drill more wells but would have to raise more capital to do so.
It had rented the Ocean Saratoga drilling rig at an estimated cost of US$500,000.
Drilling on the Eagle-1 well started in early February.
Spanish-owned Repsol, which is partially-owned by CGX, is currently drilling offshore Georgetown and results are expected to be announced in coming months.
Guyana is desperate to find oil which would drastically reduce its huge import bill. Hopes, for now, remained pinned on the Repsol drilling.