7Dec 2016

LGO ENERGY PLC – Drilling Operations to Recommence at the Goudron Field – LGO

 

lgo

BNP Paribas Bank Loan Repayment and Signing New Funding Agreement

Drilling Operations to Recommence at the Goudron Field

LGO is pleased to announce that agreements have been signed which will pay off the Company’s entire remaining debt to BNP Paribas (“BNPP”), and put in place a new US$8.6 million Convertible Security Funding Agreement (“Funding Agreement”) with an entity managed by the Lind Partners, LLC (“Lind”). There are no material conditions to closing, and funds from Lind are anticipated to be received in the next three days. 

This new Funding Agreement will allow the Company to immediately deploy LGO’s current cash reserves, previously locked-up in Trinidad, and the net cash generated from existing oil operations at the LGO 100% owned Goudron Field (“Goudron” or “Field”) towards recommencing its development drilling program.

The Company currently has an independent assessment by Deloitte LLP (“Deloitte”) of estimated oil in place within the Field up to 975 million barrels of oil (“mmbbls”), with gross proved, probable and possible reserves (3P) of 25.6 mmbbls.  The Company holds existing regulatory approval for the drilling of 45 new wells and has detailed drilling plans in place for the first 10 well locations.  Preparations for the first well are already well advanced and drilling is expected to recommence as soon as practical.

The first drawdown of US$1.825 million on the Funding Agreement will be used in full settlement of all amounts due to BNPP required for the full release of security and to take the Company out of the covenant default position.  This default, which occurred in October 2015 and resulted in LGO being unable to deploy significant capital to oil field operations in Trinidad throughout 2016, is now resolved which will allow the Company to operate freely.   

LGO anticipates that the first drawdown will be repaid to Lind monthly in cash over 24 months from free cash flow from the Goudron operations. However, Lind has the right to convert the balance of the Funding Agreement into equity at 0.15p, an approximate 45 percent premium to the 20-day average closing price prior to the signing of the Funding Agreement.  Monthly repayments can also be made in equity at the Company’s election calculated at the prevailing price at the time of payment.

Neil Ritson, LGO’s Chief Executive, commented:

“We are delighted that LGO will now be able to advance the drilling and production campaign in Goudron. This has been a challenging period for the Company with the falling oil price and the loss of downhole equipment in the GY-678 well resulting in the breach of the covenants on the Company’s loan facility with BNPP.  This is therefore a major turning point for LGO.  We are pleased with the support of Lind who are providing a manageable convertible finance facility, at a significant premium to our recent trading price, validating the value in the business.  The combination of an affordable loan, robust and profitable production operations and an active drilling program, will allow LGO to quickly return to underlying growth. The patience of our various stakeholders over the last year is greatly appreciated.”

Phillip Valliere, Lind Partners Managing Director, commented:

“Lind has experience investing in Trinidad oil and gas and recognises the potential of LGO’s asset portfolio.  We are keen to provide new capital to refinance the BNPP debt and to support LGO as it returns to its strategic growth plan to increase production at the Goudron Field.  The LGO management team has done well to survive an extremely difficult period in the oil sector while repaying US$11 million to BNPP and significantly reducing amounts owed to unsecured creditors. With stable to slightly increased oil prices, LGO will be in a strong position to unlock the significant   value that exists at Goudron, and in Trinidad more generally, and Lind looks forward to working with the LGO team to deliver renewed growth and shareholder value.”

Terms of the Re-Financing Funding Agreement

The terms of the new Convertible Security Funding Agreement are set out in further detail below. 

The first tranche funding of US$1.825 million (“First Tranche”) is for a 24 month period during which LGO can, at its election, repay at a monthly rate of US$94,500 in cash or by issuing shares at the prevailing market price on each monthly payment date.

Lind has the right to convert the outstanding balance on the Funding Agreement to equity at a conversion price of 0.15p per share, an approximate 45 percent premium to the 20-day average closing price prior to the signing of the Funding Agreement.  Conversion has a restriction in the first 6 months of the Funding Agreement, with a maximum of 25 per cent of the outstanding loan convertible in the first 90 days and a further 25 per cent in the second 90 days.  Lind also has a right, at their election, to increase the Funding Agreement by US$750,000 during the term of the First Tranche.

Any subsequent drawdown, to a maximum aggregate total of US8.6 million over the life of the Funding Agreement is by mutual agreement of the parties.  In turn, LGO has the right to buy-back the Funding Agreement at any stage during the term of the loan at a 5 percent premium on the outstanding balance.

Under the terms of the new Funding Agreement LGO has granted Lind 478 million options in LGO shares, exercisable at 0.15p per share.  These will be issued in two tranches, with an initial award of 394 million on closing.  The remainder of the agreed options will be issued following a future General Meeting of the Company at which the Board will seek the necessary shareholder approval to increase the share capital of the Company.

The monthly repayment under the new Funding Agreement of US$94,500 in cash has been designed to be comfortably affordable by GEPL at current production rates and at significantly lower oil prices than those presently being realised.  Stable production rates have been maintained for the last 9 months with minimal capital expenditure, and it is now LGO’s intention to initiate a program of further development drilling at Goudron designed to increase production and revenue.  Permission already exists for the drilling of 45 new wells at Goudron and it is expected that these wells will be drilled progressively over the next few years along with the commissioning of the waterflood enhanced oil recovery (“EOR”) pilot due to start in 2017.  The drilling program will initially deploy funds already available in local currency in the LGO Trinidad business and, once underway, it will generate additional cash flow and the drilling program can be expanded as capital becomes available.

Terms of the Settlement with BNPP

Under the settlement agreement with BNPP, the Company will pay BNPP US$1.75 million in a full settlement of all amounts due to BNPP in order to take the Company out of the covenant default position and release all security.  In addition, LGO has agreed to pay BNPP a contingent payment of US$250,000 not later than the third anniversary of this agreement.  The sum due under pre-paid swap agreement entered into in early 2015 is recorded in the Group’s books as a liability of approximately US$2.5 million. 

The Company will announce completion of the Funding Agreement in due course.

Goudron Field History and Operations

LGO acquired the rights to the Goudron Field, by way of an Incremental Production Service Contract (“IPSC”), through its wholly owned subsidiary GEPL, in October 2012. Under the terms of the IPSC the Company acts as a service contractor to the Petroleum Company of Trinidad & Tobago (“Petrotrin”) who reimburse LGO on the basis of the oil sales and prevailing oil price.

 

The Goudron Field contains two separate reservoir packages; the shallow Mayaro (formally referred to as Goudron) Sandstones and the deeper Gros Morne and Cruse equivalent, together termed the C-sands.  During drilling in 2014 and 2015 a deeper, pre-Cruse, interval of turbidite sands was penetrated and evaluated and this has added an additional, previously unexplored, deep resource for future exploitation.

 

The Company’s plans for the development of the Goudron Field includes four distinct phases: (1) the reactivation of existing wells and the repair and replacement of infrastructure, (2) the drilling of the deep C-sand reservoir to further raise production and establish the basis for a waterflood enhanced oil recovery (“EOR”) project, (3) infill drilling of the Mayaro Sandstone shallow reservoir and a pilot waterflood project in the C-sands, and (4) a full-field EOR project depending on results of the pilot scheme.  Phases 1 and 2 have been completed and work on Phase 3 will commence shortly. 

 

The infill program of Mayaro Sandstone wells has already been developed and detailed plans are in place for the first 10 locations.  The Company already holds existing regulatory approval for these wells. The average Mayaro Sandstone well will be drilled to a depth between 1,000 and 1,750 feet at an estimated cost of less than US$500,000 per well.  Average Mayaro Sandstone wells are expected to have initial pumped flow rates of approximately 50 bopd with slow decline rates as observed over the life of the field to date since 1927. 

Goudron Reserves and Resources

The latest annual independent resource review of the LGO operated Goudron Field conducted in 2016 on the Company’s behalf by Deloitte indicated that volumes in all reserves categories (proven, probable and possible) had increased, as well as the estimated oil in place (“STOIIP”) which has risen by over 20%.

Estimated oil in place within the Field has increased and is now reported to be up to 975 mmbbls. Gross proven and probable (2P) reserves of 11.79 million barrels of oil (“mmbbls”) have been estimated, an increase of 4 percent on the previous estimate.  Proved (1P) gross oil reserves in the Mayaro Sandstone and C-sand reservoirs has increased by 3% to 1.58 mmbbls.  Proved, probable and possible reserves (3P) have increased by 9% to 25.6 mmbbls, as set out in Table 1 below.

The majority of the 21% increase in STOIIP relates to a thickening of the C-sand and pre-Cruse reservoir unit which is observed in logs of wells drilled during the 2015 campaign.  The increased STOIIP is especially important in the context of a waterflood EOR project at Goudron which is currently at the planning stage.

Table 1: Reserves Data

(all figures in mmbbls)

Asset

Gross

Net Attributable *

Proved

Proved + Probable

Proved + Probable + Possible

Proved

Proved + Probable

Proved + Probable + Possible

Oil & Liquids reserves

Goudron

1.58

11.79

25.60

1.34

10.27

22.35

Total Oil & Liquids

Total

1.58

11.79

25.60

1.34

10.27

22.35

Note: “Gross” are 100% of reserves and/or resources attributable to the license whilst “Net attributable” are those attributable to the

Company after deduction of royalties and the State share of production.

Source: Deloitte, July 2016

 

Table 2: Contingent Resources Data

(all figures in mmbbls)

Gross

Net Attributable *

Low Estimate

Best Estimate

High Estimate

Low Estimate

Best Estimate

High Estimate

Oil & Liquids contingent resources (development unclarified)

3.15

22.20

63.40

2.76

19.43

55.45

Total Oil & Liquids

3.15

22.20

63.40

2.76

19.43

55.45

Note: “Gross” are 100% of reserves and/or resources attributable to the license whilst “Net attributable” are those attributable to the

Company after deduction of royalties and the State share of production.

Source: Deloitte, July 2016

MAR Disclosure

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 (“MAR”). Upon the publication of this announcement via Regulatory News Service (“RNS”), this inside information is now considered to be in the public domain.

Qualified Person’s Statement:  

The information contained in this announcement has been reviewed and approved by Neil Ritson, Chief Executive Officer and Director for LGO Energy plc, who has over 38 years of relevant experience in the oil industry.  Mr. Ritson is a member of the Society of Petroleum Engineers (SPE), an Active Member of the American Association of Petroleum Geologists (AAPG) and is a Fellow of the Geological Society of London (BGS).

 

Enquiries:

LGO Energy plc

+44 (0) 203 794 9230

Neil Ritson

James Thadchanamoorthy

Beaumont Cornish Limited

+44 (0) 20 7628 3396

Nomad

Roland Cornish

Rosalind Hill Abrahams

FirstEnergy Capital LLP

+44 (0) 20 7448 0200

Joint Broker

Jonathan Wright

David van Erp

Bell Pottinger

+44 (0) 20 3772 2500

Financial PR

Henry Lerwill

 

About Lind Partners

The Lind Partners is a New York-based alternative asset management firm that manages a family of institutional investment funds focused on small and mid-cap publicly traded companies with an emphasis on Australia, Canada and the United Kingdom. Since 2009, the core team at Lind has worked on over 75 direct investments with a total transaction value in excess of US$550 million.  Further information can be found athttp://www.thelindpartners.com/

About LGO Energy plc

LGO Energy plc is an international oil and gas exploration, development and production company headquartered in London, trading on the FTSE AIM All-Share. The Company has production assets in Spain and Trinidad.  The Company also holds substantial prospective under-explored acreage in Trinidad.  LGO’s strategy is to deliver growth through the acquisition of proven reserves and the enhancement of producing assets in low risk countries. http://www.lgo-energy.com/

Glossary:

1P

proved reserves

2P

proved plus probable reserves

3P

proved plus probable plus possible reserves

best estimate or P50

the most likely estimate of a parameter based on all available data, also often termed the P50 (or the value of a probability distribution of outcomes at the 50% confidence level)

contingent resources

those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. Contingent Resources may include, for example, projects for which there

are currently no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality

C-sand

sandstone reservoirs below the pre-Mayaro unconformity and above the pre-Lower Cruse unconformity encompassing sandstones of equivalent age to both the Gros Morne and the Lower Cruse formations

EOR

enhanced oil recovery

Mayaro Sandstone

sandstone reservoirs above the pre-Mayaro unconformity, previously also referred to as the Goudron Sandstone

mmbbls

million barrels of oil

pre-Cruse

early to mid-Miocene sandstone reservoir below the pre-Cruse unconformity

proved reserves

those quantities of petroleum, which, by analysis of geoscience and

engineering data, can be estimated with reasonable certainty to be commercially recoverable (1P), from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations

probable reserves

those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves (2P)

possible reserves

those additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than Probable Reserves. The total quantities ultimately recovered from the project have a low probability to exceed the sum of Proved plus Probable plus Possible (3P) Reserves, which is equivalent to the high estimate scenario

PRMS

Petroleum Resources Management System

reserves

those quantities of petroleum anticipated to be commercially recovered by application of development projects to known accumulations from a given date forward under defined conditions

STOIIP or oil in place

stock tank oil initially in place, those quantities of oil that are estimated to be in known reservoirs prior to production commencing

 

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