REG - Canadian O'Seas Petr - Convertible Bond Financing

Canadian Overseas PetroleumAnnouncement

20/03/2023 08:00

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RNS Number : 4970T  Canadian Overseas Petroleum Ltd  20 March 2023

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, THE REPUBLIC OF
SOUTH AFRICA, NEW ZEALAND OR JAPAN OR ANY OTHER JURISDICTION IN WHICH SUCH
RELEASE, PUBLICATION OR DISTRIBUTION WOULD BREACH ANY APPLICABLE LAW OR
REGULATION.

 

 COPL Announces Convertible Bond Financing of US$13.6 million committed and
potentially increasing to US$14.8 million

London, United Kingdom; Calgary, Canada: March 20, 2023 - Canadian Overseas
Petroleum Limited ("COPL" or the "Company") (XOP: CSE) & (COPL: LSE), an
international oil and gas exploration, production and development company with
production and development operations focused in Converse and Natrona
Counties, Wyoming, USA, is pleased to announce (the "Announcement") US$13.6
million committed (potentially increasing to US$14.8 million at closing)
convertible bond financing and certain amendments to the outstanding Bonds and
Warrants of the Company, as described herein (collectively, the "Convertible
Financing").

 

·    The Company has signed purchase agreements with their current
institutional stakeholders, and a new institutional investor, for an increase
in quantum of the 2024 Bonds and 2025 Bonds with an aggregate principal amount
of US$13.6 million committed. The Convertible Financing has been led by the
main bondholder (the "Main Bondholder").

·   The intention of this Convertible Financing is to sufficiently fund COPL
for production growth, while allowing management to optimally conclude their
RBL and JV negotiations.

·    At the election of the Main Bondholder, for so long as it owns or
holds rights to acquire at least 15% of the Company's common shares, one new
non-executive director shall be nominated to the Company's board of directors.
The Main Bondholder intends to exercise this immediately post-closing of this
Convertible Financing.

·    A further undrawn element has been made available by the Main
Bondholder, should it become necessary, to ensure COPL will be appropriately
funded into 2024.

·    Total financing quantum is equal to US$13.6 million base principal
amount drawn today, a US$1.2 million upsize option and a further US$7 million
in principal, available to be tapped if required and consented to by the Main
Bondholder at current terms.

·    Terms of the Bonds have been amended: (1) pricing terms vs. July 2022
issue (higher issue price: 80% vs 78% on July Convertibles); (2) an initial
conversion price of 6.75p or US$0.0817 (the "Initial Conversion Price") which
represents a c. 15% premium to the closing price of March 17 2023 of 5.875p;
and (3) the maturity date of the 2024 Bonds has been extended to 26 January
2027 and the maturity date of the 2025 Bonds has been extended to 26 January
2028. The aforementioned changes improve COPL's capital structure profile
benefiting current RBL negotiations.

·    65,850,662 (potentially increasing to 70,257,026 at closing) new
warrants have been issued and amendments made to the Warrants issued
previously. The exercise price of the new warrants and the Warrants will now
be equal to the Initial Conversion Price and the subscription period will
expire at midnight on 26 August 2027.

·    The proceeds of this Convertible Financing will be used for: (1)
facility improvements to increase production; (2) paying off outstanding
payables; and (3) operating capital.

·    Furthermore, COPL has the full support of its existing Senior Credit
Facility lender who provided: (1) a waiver of 22 March 2023 liquidity
covenant; and (2) a 6 months asset and leverage ratio covenant waiver on the
back of this Convertible Financing while it continues its debt refinancing and
joint venture discussions for the development of its Wyoming assets. Senior
Lender further supports this Convertible Financing via an option to roll
future interest and/or fees into Bonds, which could provide COPL America a
positive cash flow impact of approximately US$500,000 per month.

·    In conjunction with the G&A commitments outlined below, these
measures increase COPL's working capital and afford COPL a solid footing
ensuring the best possible outcomes be negotiated for refinancing and joint
venture.

·    If at any time the Main Bondholder owns at least 20 per cent. of the
total Company common shares in issue, the Main Bondholder has agreed to enter
into a relationship agreement with the Company on customary terms in the
London market (consistent with and no more extensive than the terms required
in respect of a Premium listing) on terms reasonably acceptable to the Main
Bondholder.

 

G&A Cost Reduction Commitments

On the back of this Convertible Financing, COPL management have committed to
using all commercially reasonable efforts to achieve annualised G&A
reductions of US$2.5 million, of which at least US$1.0 million shall be
actioned by the end of Q2 (June 2023), with the balance of the target to
follow, pending continual board level review as well as to issue common shares
in lieu of cash to existing unsecured creditors owed approximately US$2.5
million. These reductions facilitate a more efficient cost base, without
sacrificing the strategic and operational aspirations of the business,
enabling management to conclude JV/RBL negotiations to the best possible
outcome.

 

MI 61-101

The Company has also determined that the Convertible Financing is a "related
party transaction" pursuant to Multilateral Instrument 61-101 - Protection of
Minority Security Holders in Special Transactions ("MI 61-101") and is exempt
from the formal valuation and minority approval requirements applicable to
related party transactions defined under MI 61-101 pursuant to the financial
hardship exemption under sections 5.5(g) and 5.7(1)(e) of MI 61-101.

 

The Company relies on the above exemptions on the basis that (i) as described
in the Company's announcement of 1 February 2023, the Company is in serious
financial difficulty because, without the Convertible Financing, it does not
have sufficient working capital for its present requirements, (ii) the
Convertible Financing is designed to improve the financial position of the
Company, (iii) the transaction is not subject to court approval or court
order, (iv) the Board of Directors of the Company and all independent
directors, each of the foregoing acting in good faith, have determined that
(i) and (ii) above apply and that the terms of the Convertible Financing are
reasonable in the circumstances to the Company, and (v) as at the date hereof,
there is no other requirement to hold a meeting to obtain the approval of the
shareholders of the Company for the Convertible Financing.

 

Definitions

Reference is made to the Bond Instrument dated 26 July 2022 in respect of the
issue of US$12,600,000 Senior Convertible Bonds due 2024 (the "2024 Bonds")
(the "2024 Bond Instrument"), the Bond Instrument dated 26 July 2022 as
amended on 30 December 2022 in respect of the issue of US$16,600,000 Senior
Convertible Bonds due 2025 (the "2025 Bonds" and together with the 2024 Bonds,
the "Bonds") (the "2025 Bond Instrument" and, together with the 2024 Bond
Instrument, the "Bond Instruments"), the Warrant Instrument dated 26 July 2022
as amended on 30 December 2022 in respect of the 54,792,590 warrants and the
Warrant Instrument dated 30 December 2022 in respect of the 12,760,572
warrants (together, the "Warrants") (together, the "Warrant Instruments") in
each case issued by the Company.

 

The Company encourages readers to review its Financial Statements and
Management Discussion and Analysis for the Third Quarter of 2022 for a full
summary of the Convertible terms which are summarised.

 

Arthur Millholland, President & CEO, commented:

"This is an important raise for COPL.  After some bumpy months operationally,
and in our refinancing negotiations, this raise supports the company to an
intended RBL and for the capital investment required to achieve a material
production uplift. We appreciate the support of our leading investors and are
excited about the deployment of this capital."

 

About the Company:

 

COPL is an international oil and gas exploration, development and production
company actively pursuing opportunities in the United States with operations
in Converse County Wyoming, and in sub-Saharan Africa through its ShoreCan
joint venture company in Nigeria, and independently in other countries.

 

The Company's Wyoming operations are one of the most environmentally
responsible with minimal gas flaring and methane emissions combined with
electricity sourced from a neighbouring wind farm to power production
facilities.

 

For further information, please contact:

 

Mr. Arthur Millholland, President & CEO

Mr. Ryan Gaffney, CFO

Canadian Overseas Petroleum Limited

Tel: + 1 (403) 262 5441

 

Cathy Hume

CHF Investor Relations

Tel: +1 (416) 868 1079 ext. 251

Email: cathy@chfir.com

 

Charles Goodwin

Yellow Jersey PR Limited

Tel: +44 (0) 77 4778 8221

Email: copl@yellowjerseypr.com

 

Peter Krens

Joint Broker

Equity Capital Markets, Tennyson Securities

Tel: +44 (0) 20 7186 9033

 

Alex Wood & Keith Dowsing

Joint Broker

Alternative Resource Capital

AW: +44 (0) 7559 910872

KD: +44 (0) 7559 910873

 

Andrew Chubb / Neil Passmore

Advisor/Joint Broker

Hannam & Partners

+44 (0) 20 7907 8500

 

The Common Shares are listed under the symbol "XOP" on the CSE and under the
symbol "COPL" on the London Stock Exchange.

 

Market Abuse Regulation disclosure

The information contained within this announcement is deemed by the Company to
constitute inside information pursuant to Article 7 of EU Regulation 596/2014
as it forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 as amended ("MAR") encompassing information relating to
the Placing described above, and is disclosed in accordance with the Company's
obligations under Article 17 of MAR. In addition, market soundings (as defined
in MAR) were taken in respect of the Placing with the result that certain
persons became aware of inside information (as defined in MAR), as permitted
by MAR. This inside information is set out in this Announcement. Therefore,
upon publication of this announcement, those persons that received such inside
information in a market sounding are no longer in possession of such inside
information relating to the Company and its securities.

 

Caution regarding forward looking statements

This news release contains forward-looking statements. The use of any of the
words "initial, "scheduled", "can", "will", "prior to", "estimate",
"anticipate", "believe", "should", "forecast", "future", "continue", "may",
"expect", and similar expressions are intended to identify forward-looking
statements. The forward-looking statements contained herein are based on
certain key expectations and assumptions made by the Company, including, but
not limited to, the ability to raise the necessary funding for operations,
delays or changes in plans with respect to exploration or development projects
or capital expenditures. Although the Company believes that the expectations
and assumptions on which the forward-looking statements are based are
reasonable, undue reliance should not be placed on the forward-looking
statements since the Company can give no assurance that they will prove to be
correct since forward-looking statements address future events and conditions,
by their very nature they involve inherent risks and uncertainties most of
which are beyond the control of Canadian Overseas Petroleum Ltd. For example,
the uncertainty of reserve estimates, the uncertainty that the Bridge Loan
Funding will complete the uncertainty of estimates and projections relating to
production, cost overruns, health and safety issues, political and
environmental risks, commodity price and exchange rate fluctuations, changes
in legislation affecting the oil and gas industry could cause actual results
to vary materially from those expressed or implied by the forward-looking
information.  Forward-looking statements contained in this news release are
made as of the date hereof and Canadian Overseas Petroleum undertakes no
obligation to update publicly or revise any forward-looking statements or
information, whether as a result of new information, future events or
otherwise, unless so required by applicable securities laws.

 

Hannam & Partners, which is a member of the London Stock Exchange, is
authorised and regulated in the United Kingdom by the FCA and is acting as
joint broker and sole financial adviser in connection with the Placing.
Alternative Resource Capital, a trading name of Shard Capital Partners LLP,
and  Tennyson Securities, is authorised and regulated in the United Kingdom
by the FCA and is acting as joint broker in connection with the Placing. Each
of Hannam & Partners, Alternative Resource Capital and Tennyson Securities
are acting exclusively for the Company in connection with the matters referred
to in this announcement and for no-one else and will not be responsible to
anyone other than the Company for providing the protections afforded to their
respective clients, nor for providing any advice in relation to the contents
of this announcement or any transaction, arrangement or matter referred to
herein.

 

This announcement has been issued by and is the sole responsibility of the
Company. No representation or warranty, express or implied, is or will be made
as to, or in relation to, and no responsibility or liability is or will be
accepted by either Hannam & Partners (apart from the responsibilities or
liabilities that may be imposed by the Financial Services and Markets Act
2000, or the regulatory regime established thereunder) or the Company or by
any of their respective affiliates or agents as to, or in relation to, the
accuracy or completeness of this announcement or any other written or oral
information made available to or publicly available to any interested party or
its advisers, and any liability therefore is expressly disclaimed.

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