Feb 28, 2013 News Comments Off on Cash-strapped CGX owes Repsol US$15M
CGX Energy, faced with a debt of US$15M to Repsol Exploración S.A. for the drilling of a well offshore Georgetown last year, yesterday announced that it has entered an agreement with GMP Securities L.P. (“GMP”) in connection with a proposed private placement of a minimum of Cdn$35M.
The Canadian-based oil exploration company ran into financial problems last year after two offshore wells it drilled came up dry. CGX owned 100 per cent of the Corentyne block and 25 per cent of the well off Georgetown that was being drilled by Spanish-owned Repsol.
CGX, as part of the plan to recover, also announced yesterday that it has also entered an agreement with Pacific Rubiales Energy Corp. (“Pacific Rubiales”), another Canadian company and a current shareholder, which could effectively give the latter up to 70 per cent control. There will be a shakeup of the directors and other CGX officers of the Company.
However, the deal is subject to approval of the Canadian authorities…TSX Venture Exchange… and other customary closing conditions.
According to CGX, approximately US$15M will be used to meet the company’s current default payment obligations owing to Repsol Exploración S.A. (“Repsol”), Tullow Guyana B.V. and YPF S.A. who were all partners of the Georgetown well.
Up to Cdn$4M will be used to pay off officers, directors, employees and consultants of the company who are likely to be let go once Pacific Rubiales takes over.
The balance will be used to, among other things, fund expenditures related to the company’s “oil and gas exploration activities and for general corporate purposes”, CGX said in its statement.
According to the oil exploration company, on November 26, 2012, it received a default notice in respect of its shares in the joint account expenses for the Georgetown well in the amount of US$11.5M.
On January 24, the company said it was advised by Repsol that the total default amount had increased to US$14.939M.
CGX said it did not have enough cash to meet the debt.
“The company has negotiated a stay of any enforcement proceedings until March 22, 2013. The company reports that the current default amount is significantly in excess of its cash on hand and, accordingly, the company currently has insufficient funds to satisfy this obligation and other near term obligations.”
CGX said that a special committee of four “independent directors” was constituted to consider the proposed private placement and Pacific Rubiales investment. The committee determined unanimously that the company was in “serious financial difficulty, the private placement to Pacific Rubiales is designed to improve the financial position of the Company, and the terms of the private placement are reasonable in the circumstances of the Company.”
CGX said that it expects that further financing will be necessary to ensure that it can meet its ongoing obligations.
However it warned: “The ability of the company to continue as a going concern is dependent on securing the additional required financing, either through issuing additional equity, debt instruments and/or payments associated with a joint venture farm-out. There can be no assurances that the Company will successfully raise additional funds.”
Current Executive Chairman, Dr. Suresh Narine, a Guyanese will become a nominee of Pacific Rubiales on the new CGX Board of Directors.
CGX also said yesterday that Pacific Rubiales intends for CGX to remain a public company after completion of the financing.
CGX has licences to explore in the Guyana-Suriname Basin, an area in which the United States Geological Survey estimated a Pmean oil resource potential of 13.6 billion barrels in their Assessment of Undiscovered Conventional Oil and Gas Resources of South America and the Caribbean, 2012.
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