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Canadian Overseas Petroleum expands oil assets with Cuda Energy acquisition

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Oil and gas exploration and development company Canadian Overseas Petroleum (LSE:COPL / CSE:XOP) has signed a purchase and sale agreement to acquire the assets of Cuda Energy LLC, a private oil and gas company that is currently under receivership. Cuda has a non-operating interest in a number of units which are considered complimentary to those of COPL America.

Canadian Overseas Petroleum said it has signed a US$20m bridge loan term sheet from a UK/US-based institution, as yet unnamed, to finance the cash consideration of the acquisition. COPL also said it would conduct an accelerated bookbuild to raise net proceeds of approximately US$10m by way of a placing of – and subscription for – new common shares of nil par value.

COPL America said it would be financing the cash component of the acquisition solely with the cash provided by the company’s new loan agreement. The total consideration implies a highly attractive valuation of around 90% of the working interest adjusted Atomic Oil and Gas acquisition in a currently high oil price environment.

The acquisition adds unhedged production and exposure to the current high oil price and doubles the company’s corporate cash flow. It also increases its 2P reserves by 47% from 25.8m barrels to 38.2m barrels.

Why Canadian Overseas Petroleum is attracting interest

COPL grabbed investors’ attention in February with a significant conventional light oil discovery at its Wyoming asset, which COPL acquired in January 2021. The asset comprises two oil production units, the Barron Flats Shannon Unit and the Cole Creek Unit, which are at the beginning of their 40+ year life.

The recent Barron Flats Federal Deep discovery was the result of an accelerated exploration programme initiated after the acquisition last year underlying the Shannon Unit that is already producing 2,000 barrels per day from the existing wells. The current production rate and the new discovery show that the Wyoming asset’s long-term potential for production is, as COPL says, “on a scale many multiples greater than our original expectation”.

“Significant growth milestone”

“The Cuda acquisition is a significant growth milestone for COPL and a deal we have been in hot pursuit of for some months,” explained Arthur Milholland, CEO and President of Canadian Overseas Petroleum. “We have secured it on attractive and highly accretive terms. The convertible nature of the bridge loan allows the company to refinance our current credit facility and thus reduce our cost of capital. Over the coming months it is our intention to now pursue attractively priced Reserve Based Lending (‘RBL’) debt with which to refinance all debt currently supporting and carried by our Wyoming assets (and including the bridge loan if necessary).”

COPL proposed a placing of new ordinary shares in the company to raise net proceeds of approximately US$10,000,000. The total number of placing shares is expected to represent approximately 20% of the company’s existing issued share capital. The placing is being conducted through an accelerated book building process.

The placing includes 50% warrants relative to the placing size at a 20% premium to the placing price with six months expiry.

COPL reported today that the bookbuild was oversubscribed and raised gross proceeds of US$13m at a price of 20p per placing unit. The net proceeds of the placing, in conjunction with COPL’s other financial resources, are intended to be used for facility upgrades and drilling activities, and for general working capital.

Closing of the acquisition of Cuda is expected by mid June of this year, the company said today.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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