US oil explorer and producer Canadian Overseas Petroleum (LSE: COPL) has signed a purchase agreement for the issue of two convertible bonds worth $25.2 million maturing, over the next two and three years.
The raised funds will pave the way to complete the acquisition of Cuda Energy, an oil and gas producer currently in receivership, while the “tap feature” to increase the bond will allow COPL to draw further funds should it need it to increase production or for future drilling plans.
The first bond series of $12.6 million will mature in 2024 and the second $12.6 million in 2025. The convertible bond is anchored by a long term, UK-based institutional shareholder and other institutional investors and will replace the previous bridge loan, announced in April. The bonds are structured to accommodate the implementation of a planned reserve-based loan facility and allow the oil firm to structure new senior debt.
The Toronto and London-listed oil company already owns three units in the Wyoming Powder River Basin: Barron Flats, Cole Creek and the Barron Flats Federal deep unit, and is in the process of completing the acquisition of Cuda Energy. The proceeds of $19.7 million from the convertible bond will be used to finance the cash component of the Cuda acquisition which is due to be completed on 25 July this year.
COPL’s oil reserves to be substantially increased
COPLs units are already producing around 2,000 barrels of oil a day and its reserves add up to a total of approximately 26mmbbls. Once Cuda is added to the mix it will increase the firm’s 2P reserves by 47% to 38.2m barrels. It will also add unhedged oil production, providing exposure to the current high oil price and doubling the company’s corporate cash flow.
With a bankrupt partner removed from the Wyoming assets and with those working interests owned by COPL America, the US affiliate of Canadian Overseas Petroleum, the company believes it is now optimally positioned for management to achieve its near-term objective of finalising a RBL agreement to refinance its debt structure during 2022.
“COPL plans an active work program for the remainder of 2022 including optimization and facility work at the Barron Flats Shannon Unit, recompletions at the Cole Creek Unit and drilling two horizontal wells at the Barron Flats Deep Unit to target the significant oil discovery COPL has made in the Frontier Formation, 1 and 2 sands. COPL America has well design in hand and is procuring long lead items to commence drilling at the Deep Unit in Q4 this year,” said Arthur Millholland, COPL President and Chief Executive.
The quest for Cuda’s assets
The process of acquiring Cuda has stretched over the last two years. After raising $85 million in debt and equity for this acquisition in 2021, the company managed to secure approvals from a Canadian court and later of the United States Bankruptcy Court to buy Cuda’s Wyoming assets in the last two months.
Cuda has not only been an opportunity for the company go get hold of a good value asset but COPL’s now increased oil reserves will contribute to the company’s asset-based borrowing base.
The company said the convertible bond offers superior terms for COPL to pursue its corporate objectives for 2022, by providing a longer average maturity of 30 months, with options for COPL to repay in cash or in common shares. It also offers the flexibility through optional redemption if certain conditions are met.
The oil explorer’s plans are not restricted to US, which is arguably one of the most favourable jurisdictions in the world for oil and gas acquisitions, but it also operates in sub-Saharan Africa through its ShoreCan joint venture in Nigeria.
