Oronova Energy Acquires Producing Gas and Condensate Project in Guatemala and Strengthens Management Team
Apr 10, 2017, 14:29 ET
- Guatemala Exploitation Project provides Oronova's introduction as a Latin America focused oil & gas company with significant upside and attractive fiscal terms
- Oronova will acquire a 100% working interest and operatorship of the PSC for Block 1-2006 in Guatemala for CDN $65.6mm in Oronova shares, plus US $5mm cash at closing, and CDN $5mm Cash at the first anniversary of the closing date
- Oronova to complete up to CDN $50mm through equity and debt financing
- Three phase development program to be initiated
- Experienced oil and gas executive Travis Doupe appointed Vice President, Finance and Chief Financial Officer
CALGARY, April 10, 2017 /CNW/ - Oronova Energy Inc. ("Oronova" or the "Company") (TSX.V: ONV), a company focused on oil and gas exploration and production in Central and South America, is pleased to announce the signing of a definitive Purchase & Sales Agreement dated March 31, 2017 (the "Purchase & Sale Agreement" or "PSA"), with City Peten S. DE RL.("City"), an arms-length oil and gas exploration and production company existing under the laws of the Republic of Panama with a branch registered under the laws of Guatemala.
"This is a significant first acquisition for Oronova, providing immediate cash flow, operatorship, attractive acquisition and fiscal terms, as well as immediate and long-term upside," commented Duncan Nightingale, President and Chief Executive Officer.
Oronova will acquire a 100% working interest and operatorship of the Production Sharing Contract for Block 1-2006 (the "Production Sharing Contract" or "PSC"), located in the North Peten Basin of Guatemala.
Block 1-2006 contains approximately 23,762 hectares and the Ocultun gas and condensate field and has benefited from US$88.96mm in investment to date. Block 1-2006 PSC was issued on June 28th, 2006 for a term of 25 years. The Company has the option to request an extension of the PSC term for 15 years.
The transaction is subject to normal closing conditions including approvals from the Ministry of Energy and Mines of Guatemala, closing of the debt and equity financings and TSXV approval. The Company intends to request a waiver of sponsorship from the TSXV.
Ocultun Field Reserves & Upside Potential
The Ocultun field is currently producing from 3 wells, resulting in the production and sale of approximately 850 barrels of condensate per day (bcpd), and the flaring of approximately 7 million standard cubic feet of gas per day (mmscfgpd). Currently the unprocessed condensate is marketed locally and the sour gas is flared. From the proceeds of the initial capital raise, Oronova plans to sweeten the gas and condensate. The gas will be marketed for power generation. More details are provided below.
Oronova's reserve auditor, McDaniel and Associates Consultants Ltd. ("McDaniel"), has conducted an evaluation of the Ocultun gas field and has assigned Company Gross Total Proved reserves of 9,405 million cubic feet of gas (mmscf) of gas and 1,789 thousand barrels (mbbl) of condensate and Total Proved plus Probable reserves of 48,278 mmscf of natural gas and 4,177 mbbl of condensate, effective February 28, 2017.
The pre-tax net present value of the Ocultun field, discounted at 10%, has been estimated at $34.1 MMUS for Proven reserves and US$133.9mm for Proven plus Probable reserves. The Ocultun Field contains approximately 34% liquids. Production rates in the field have ramped up from approximately 2 mmscfgpd to more than 7 mmscfgpd from 2012 to 2017. The stable producing behavior of the Ocultun reservoir may demonstrate that the gas-initially in-place associated with these reserve assignments is conservative. Oronova intends to conduct an updated reservoir simulation study to provide support for an increase in all reserve categories on the basis of this performance.
Oronova is now engaged in negotiations with a third party for a buy-out of their 50% net profit interest on one of the producing wells. This is expected to ultimately enhance the value of the Ocultun field to Oronova.
The Ocultun Field establishes the presence of a prolific new gas and condensate play in the North Peten Basin with significant additional upside potential in multiple horizons. McDaniel's evaluation of the Ocultun Field has assigned possible reserves to include an extension of the field to the north, south and east. The western flank of the Ocultun Field is untested and given the distance from well control was assigned prospective resources at this stage. A deeper formation known as the Todos Santos could provide additional gas and condensate volumes. An analogous formation to the Todos Santos Formation in neighboring Mexico has been proven to be a prolific hydrocarbon producer. McDaniel has recently completed an independent prospective resources assessment of the Hillbank and Todos Santos reservoirs on Block 1-2006, and effective February 28, 2017, estimates the unrisked prospective resources from a low estimate (P90) of 15.4 mmboe to a high estimate (P10) of 76.6 mmboe, with a mean unrisked prospective resource estimate of 41.1 mmboe. The fully-risked mean prospective resource estimate for the Hillbank and Todos Santos reservoirs within the Block 1-2006 is 11.9 mmboe.
Pursuant to the PSA, upon closing City will also grant to Oronova a Right of First Negotiation to acquire up to 100% of its working interest in Block 1-2011 which is currently operated and owned 100% (one hundred percent) by City. This exploration Block is located adjacent to the east side of Block 1-2006 containing the Ocultun Field and is interpreted to have the same structural setting and prolific reservoirs as proven in Block 1-2006.
The fiscal terms for the Block are extremely attractive and are based on international standard Production Sharing Contract structure. Both gas and condensate have a flat royalty of 5%. Additionally, the 1-2006 PSC has specific fiscal terms that are very attractive. Cost recovery is permitted at 100% and profit oil split for the operator after cost recovery is 70%.
The effective purchase price for Block 1-2006 will be paid in a combination of cash and Oronova shares. Oronova will issue to City common shares having a value equivalent to CDN$65.6mm based on the price per share received by Oronova in the common share financing, which is a condition precedent to the closing of the asset purchase from City. These shares will be subject to the standard TSXV escrow agreement and also a contractual minimum one year hold period. Oronova will also pay a cash consideration of US$5mm at closing and an additional cash consideration of CD$5mm at the first anniversary of the closing date. Oronova will also assume certain forward contractual commitments for services incurred prior to closing as purchase price adjustments. City will have the right to appoint two directors to Oronova's Board at closing. The controlling shareholders of City is Ford Resources wholly owned by the Ford Family. In addition, a total of 7,000,000 common shares will be issued as a finder's fee. The Company and City are currently negotiating for the buy-out of a third-party net profit interest ("NPI").
Oronova will be completing equity and debt financings to raise up to CDN$50mm. The price and terms of the financings remain to be negotiated.
At present, there are no processing facilities at the Ocultun Field and all the gas is currently flared and the condensate is sold unprocessed. Processing of the gas and condensate is expected to secure a price which is estimated to be 22% premium to WTI for the condensate and Henry Hub pricing for the gas. In addition, gas sales will commence to an electricity generator and distributor in Q4 2017. Gas processing facilities are expected to be installed by end Q3, 2017, followed closely by condensate processing facilities. Future development plans include the installation of a topping plant as well as a natural gas liquids recovery plant to provide a further increase to revenues from the sale of Diesel, Naptha and LPG in addition to the dry gas.
Under Oronova's development plan and based on the 2P development scenario, it is expected that the Ocultun discovery will be producing more than 850 bcpd and more than 8 mmscfgpd or more than 2,100 boepd by late 2017 and growing to more than 1,700 bcpd and more than 18 mmscfgpd or more than 4,700 boepd by 2019.
Following closing, Oronova intends to approve the following 3 stage work program:
Installation of gas and condensate processing facilities and amine plant. Sale of processed condensate to third parties and sale of processed dry gas to third party power generator.
Drilling of one development well in late Q4 2017 or Q1 2018. Installation of a topping plant to produce diesel, gasoline and naptha, and the drilling of two additional development wells in late 2018. Sale of condensate and refined products to various third parties.
Commencement of the full field development plan activities and the drilling of one dual objective well (development section and penetration of the deeper highly prospective Todos Santos horizon in 2019 onwards.
Guatemala presently imports almost 100% of its processed refined product hydrocarbon needs which is estimated to be approximately 100,000 barrels per day. It is also Guatemala's goal to generate at least 25% of their electricity needs from natural gas by 2025.
Oronova's initial financing together with cash flow from existing operations is expected to fully cover all costs associated with Phase 1 including estimated expenditures of CDN$45mm.
Travis Doupe Appointed Chief Financial Officer
Oronova is pleased to announce the appointment of Travis Doupe as the company's Vice President, Finance and Chief Financial Officer. Effective March 28, 2017, Mr. Doupe will be a member of the company's executive leadership team and have overall responsibility for the financial management of Oronova.
Mr. Doupe is an accomplished executive with significant leadership and business experience, including proven ability as a successful CFO. He brings extensive executive leadership experience to Oronova in finance and operations in the oil and gas industry. His experience includes serving as Chief Financial Officer of various private and public oil and gas companies throughout Canada and Latin America. Mr. Doupe started his accounting career at PwC LLP in 1997 and is a Chartered Accountant with the Chartered Professional Accountants of Alberta and holds a Bachelor of Management degree from the University of Calgary.
The Company is relying on the exemption from the requirement for shareholder approval pursuant to Exchange Policy 5.2 whereby the Company confirms it is an arms-length transaction and the Company is currently inactive and is not subject to any cease trade orders.
Completion of the transaction is subject to a number of conditions, including but not limited to Exchange acceptance and if applicable, disinterested shareholder approval. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Oronova should be considered highly speculative.
The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this news release.
On behalf of the Board of Oronova Energy Inc.
President & CEO
About Oronova Energy Inc.
Oronova Energy Inc. is an international oil and gas exploration and production company currently focused on the development of the Ocultun Field in Guatemala which is expected to provide a strong platform for low-risk growth and value creation for shareholders. Oronova's strategy is to build a portfolio of early producing assets, that under a low cost operating approach, with associated exploration upside, will allow Oronova to create significant near-term and medium-term growth, whilst becoming a Central and South America low cost oil and gas producer, that operates to international EH&S and CSR standards and highest standards of corporate governance and ethical standards.
Forward Looking Statements and Legal Advisories
Neither the TSX Venture Exchange nor its Regulation Services Provider (as such term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This news release contains certain forward-looking information, forward-looking statements and forward-looking financial outlook (collectively, "forward-looking statements") under the meaning of applicable securities laws, including Canadian Securities Administrators' National Instrument 51-102 - Continuous Disclosure Obligations. The use of the words "expects", "planned", "believes", "anticipates", "estimated", "will", "potential", "may", "continue", derivations of these words and similar expressions are intended to identify forward-looking statements. In particular, but without limiting the foregoing, forward-looking statements include statements regarding: expected cost savings and expense optimization resulting from Oronova's cost saving initiatives and future initiatives; exploration and production, drilling and testing expectations, including without limitation, the timing of operations, and expectations with respect to the results of drilling, testing and exploration activities; Oronova's planned capital program and the allocation of capital, including expected funding of the capital program from proceeds expected to be derived from fund raising activities, current production and gas/condensate price levels; Oronova's production expectations, projections and average production rates including the anticipated product mix of such production; Oronova's planned operations and the anticipated results of such operations, together with all other statements regarding expected or planned development, testing, drilling, production, expenditures or exploration, or that otherwise reflect expected future results or events.
The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Oronova including, without limitation, the anticipated accuracy of testing and production results and seismic data, pricing and cost estimates, production decline rates, commodity price levels, the effects of drilling down-dip, the effects of any potential waterflood and multi-stage fracture stimulation operations, the general continuance of current or, where applicable, assumed operational, regulatory and industry conditions and the ability of Oronova to execute its current business and operational plans in the manner currently planned. Oronova believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
The forward-looking statements contained in this news release are subject to risks, uncertainties and other factors that could cause actual results or outcomes to differ materially from those contemplated by the forward-looking statements, including, among others: Oronova's operations are currently located in Central America where unexpected problems can arise due to labor disruptions, technical difficulties and operational difficulties which may impact its testing and drilling operations, and the production, transportation or sale of its products, including the costs thereof; geographic, political, regulatory and weather conditions can impact testing and drilling operations and the production, transportation or sale of its products; permits and approvals from regulatory and governmental authorities may not be received in the manner or on the time lines expected or at all; and the risk that current global economic and credit market conditions may impact oil prices and oil consumption more than Oronova currently predicts, which could cause Oronova to modify its appraisal/development, production and future exploration activities and including, drilling and/or construction activities. Although the current capital spending program of Oronova is based upon the current expectations of the management of Oronova, there may be circumstances in which, for unforeseen reasons, a reallocation of funds may be necessary as may be determined at the discretion of the Oronova senior management and Board of Directors. Should any one of a number of issues arise, Oronova may find it necessary to modify its current business strategy and/or capital spending program.
Accordingly, readers should not place undue reliance on the forward-looking statements contained herein. Further information on potential factors that could affect Oronova will be included in risks detailed from time to time in Oronova's filings. These filings will be available on a website: SEDAR at www.sedar.com. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and Oronova disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities legislation.
BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of oil as compared with natural gas is significantly different from the energy equivalent of six to one, utilizing a BOE conversion ratio of 6 mcf: 1 bbl would be misleading as an indication of value.
Disclosure of Reserve Information
Unless otherwise stated all independently generated estimates of proved, probable and possible reserves and prospective resources disclosed in this news release have been prepared by Oronova's reserve auditors McDaniel & Associates Consultants Ltd. in accordance with national instrument NI 51-101.
SOURCE Oronova Energy Inc.
For further information: For investor and media inquiries please contact: Duncan Nightingale - President and CEO, Oronova Energy Incorporated., Tel: +1 (403) 604 9517, Email: [email protected]; Gordon Keep - CEO, Fiore Management & Advisory Corp., Tel: +1 604 609 6110, Email: [email protected]
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