REG - Canadian O'Seas Petr - Update in Response to Shareholder Queries

Canadian Overseas PetroleumAnnouncement

10/01/2024 18:01

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RNS Number : 3104Z  Canadian Overseas Petroleum Ltd  10 January 2024

 

 COPL Provides Update in Response to Shareholder Queries

London, United Kingdom; Calgary, Canada: January 10, 2024 - 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, provides the following update in response to queries
from shareholders.

 

Were the recent financings from Anavio necessary and were the terms reasonable
in the circumstances?

Some context is important.

On July 22, 2022, the Company announced its first financing with Anavio with
the issue of convertible bonds raising proceeds for the Company of $19.7
million to finance the acquisition from Cuda Energy LLC of additional
interests in the Company's Wyoming assets.

On January 3 and March 27, 2023, the Company announced further issuances of
convertible bonds to Anavio and other investors for additional proceeds to the
Company of almost $15 million. The Company noted in its announcement of the
March financing that the Company was in serious financial difficulty and
without such financing, did not have sufficient working capital for its
present requirements. The Company was able to secure limited waivers from its
senior lenders for financial covenants until September 2023, conditional on
closing the March financing.

On September 6, 2023, the Company issued a press release announcing, among
other things, a financing of $3.5 million (the "Fourth Anavio Financing"). The
same press release noted that the pricing of warrants to purchase COPL common
shares and the conversion price of outstanding bonds held by Anavio was 4p
($0.0502) per common share. The exercise price of existing warrants expiring
on August 26, 2027 were being amended to 4p.

The terms of the Fourth Anavio Financing, including its pricing, were subject
to arm's length negotiations between the Board and Anavio that reflected the
Company's circumstances (declining working capital and the fact that previous
contractual commitments to Anavio in connection with prior financings gave
Anavio certain rights including rights of first refusal on subsequent
financings) and market realities, including the price of COPL common shares in
the secondary market during the relevant period. The Board considered whether
shareholder approval was required for the Fourth Anavio Financing because it
was a related party transaction and determined, with the benefit of legal
advice, that exemptions under Multilateral Instrument 61-101 - Protection of
Minority Security Holders in Special Transactions were applicable and
necessary in the circumstances. The September 6 press release provided COPL's
and the Board's rationale for this determination including the fact that the
Company was still in serious financial difficulty and without the latest
financing, did not have sufficient working capital for its present
requirements.

In the weeks after the Fourth Anavio Financing was first announced, the price
of COPL common shares in the secondary market went down. In addition, NYMEX
WTI increased through September resulting in an increase of $0.9 million due
for cash settlement for swaps at the end of September and an increase to cost
of COPL America's hedges to $13.1 million at the end of September 2023.  An
agreement with COPL America's senior lenders to terminate the swaps was
reached in early October 2023 to protect COPL America's liquidity from monthly
cash settlements of swaps that could result in default of the senior debt; the
result was an increase to COPL America's senior secured debt of $11.96 million
and additional future interest costs on that senior debt. Anavio was unwilling
to close the Fourth Anavio Financing at 4p per COPL common share. Given the
liquidity needs of COPL and COPL's limited bargaining power, among other
things, the Board determined that it was in the best interests of COPL to
reprice the financing at 2.6p per COPL common share. It was successful in
negotiating an upsizing of the financing from $3.5 million to $4 million.

On October 6, COPL announced the closing of the Fourth Anavio Financing. The
repricing at 2.6p per COPL common share represented a +30% premium to the
closing share price of COPL in the secondary market on October 5. The Board
once again considered whether shareholder approval was required for the
financing because it was a related party transaction and provided its
rationale for determining otherwise with the benefit of legal advice.

On November 15, COPL announced its operational and financial results and,
among other things, highlighted the fact that production was below the
previously announced 1,200 bbl/d target and made no commitments about how long
its working capital would last. In fact, as it had done before, the Company
warned that even with the proceeds of the Fourth Anavio Financing, "funds are
not sufficient to cover forecasted expenses and there is no assurance that the
Company will be able to obtain adequate financing in the future or that such
financing will be obtained on terms acceptable to the Company… With no
assurance that additional finance will be obtained there is material
uncertainty that casts significant doubt that the Company will be able to
continue as a going concern."

On December 18, COPL announced that the potential joint venture it was hoping
to progress was terminated by the counterparty. This was a very significant
setback for COPL, as reflected in the reaction of COPL's share price after the
news was announced. This news wiped out more than 40% of equity value in the
two days after it was announced and triggered a series of events for which the
Board had little time to react.

On December 20, COPL announced that its affiliate had received a notice of
default that indicated, among other things, the senior lender was unwilling to
further amend or waive certain terms of its Senior Credit Facility. COPL
disclosed that without an amendment or waiver from the lender, the Company's
indirect affiliate would be in breach of the terms of the Senior Credit
Facility on or before January 1, 2024. COPL noted that it required additional
financing in January 2024 and if such financing was not raised, it would have
to seek some form of creditor protection.

On December 29, COPL announced that it had agreed to equity financing of $2.5
million from Anavio (the "Fifth Anavio Financing"), which it expected to close
by January 15, 2024. The funds raised would be used for working capital
purposes and to allow for short term operations and improvements.  COPL also
disclosed it had negotiated a forbearance agreement with its senior lender and
in relation to that forbearance agreement appointed a Chief Restructuring
Officer.

At each of the financings described above (which were all unanimously approved
by every Board member at the time) the Board had the benefit of outside legal
advice, was cognisant of its duties to the Company and also explored with its
brokers whether any alternative financing options were available in the
circumstances.

The Chief Restructuring Officer has been appointed by the Company and, like
the members of the Board, has no business or other relationship with
Anavio.

As with the Fourth Anavio Financing, the Board considered whether shareholder
approval was required for the Fifth Anavio Financing because it was a related
party transaction and provided its rationale for determining otherwise with
the benefit of legal advice.

With this context, COPL makes the following observations:

1.  The Board considered various options when negotiating and agreeing to
reprice the Fourth Anavio Financing, and negotiating the Fifth Anavio
Financing. Among other things, it considered whether or not it should wind
down operations and determined that doing so was not in the best interest of
COPL.

2.   The Board was open to liquidity sources other than Anavio but in
addition to being constrained by certain contractual commitments previously
made to Anavio, it was informed by two brokers in London that there was no
institutional interest in funding on the same terms or better than those
proposed by Anavio. There was also very limited time to do so with respect to
the Fifth Anavio Financing, which was negotiated in the ten days following the
collapse of the JV negotiations during the holiday season and against
deadlines of covenant default. Moreover, in calls with certain shareholders
to see if there were alternatives to alleviate the Company's serious liquidity
issues, shareholders were clear that they had no alternative financing
proposals for the Company to consider. As such, Anavio was the only credible
source of financing available to the Company when the Fifth Anavio Financing
was negotiated.

3.  The terms of the Fourth Anavio Financing and the Fifth Anavio Financing
were the product of arm's length negotiations. During these negotiations, the
Board acted in the best interests of COPL, while considering the interests of
its shareholders and other stakeholders. As noted above, due to the
depreciation of the secondary market price of COPL common shares and risks
associated with the COPL America hedge profile, the Fourth Anavio Financing
had to be repriced. The Fifth Anavio Financing was negotiated after several
negative developments impacted the Company's value, as noted above. Moreover,
the common shares to be issued to Anavio will rank rank pari passu in all
respects with the existing COPL common shares.

4. The Board denies any suggestion that it preferred the interests of Anavio
over COPL's shareholders. Having taken legal advice in relation to its duties,
the Board specifically considered the interests of various stakeholders,
including COPL's shareholders. Had the Board taken steps to wind down COPL, as
some shareholders suggest, it was the Board's business judgment that COPL
shareholders would have almost certainly been entirely wiped out. In
considering various options, the Board concluded that the value of COPL's
assets were insufficient to cover the claims of secured and unsecured
creditors which today stand in excess of $135 million as compared with
approximately $1 million of cash on hand on a group wide basis (the majority
of such liquidity being at COPL's US subsidiary which is subject directly to
the security interests of the senior lender). In addition to the $135 million
of secured obligations which take priority over equity an orderly formal
restructuring proceeding would require a super priority loan of approximately
$10 million, putting equity investors of COPL even further "out of the money".
As such, the steps taken by the Board (including the recent hiring of an
independent engineering consulting firm) were designed to give COPL an
opportunity to become more viable over time and to provide shareholders with a
potential opportunity to realize some value (over no value in the wind down
scenario).

5.  The Board members have gained no benefit from the Fourth Anavio Financing
and the Fifth Anavio Financing. COPL has not issued bonds to any of the
directors who have not been compensated at all for their work in 2023. In
fact, the Board has disclaimed any right to bonds. The Board's intention in
September of last year (when the issue of bonds to directors was proposed) was
to preserve liquidity at the Company which was a reasonable exercise of their
business judgement and demonstrably beneficial to COPL.

6.  The Company's press releases of September 6 and October 6 were based on
the information reasonably known to COPL at the relevant time. The repricing
of the Fourth Anavio Financing was not reasonably foreseeable by COPL on
September 6. Similarly, when the Fourth Anavio Financing was announced and
closed, the Board did not reasonably expect further financing to be required
by January 2023 (let alone the default notice and termination of the proposed
joint venture).

7.  COPL denies any speculation that there were any efforts by the Board to
depress the value of COPL's assets and undermine production efforts for the
benefit of Anavio or anyone else. The Board members had no reason or incentive
to act in such a way and in fact, and have recently retained a third party
expert to evaluate field performance and development options going forward as
well as financial advisors and a restructuring specialist all with a view to
maximizing value for all stakeholders including COPL's shareholders and all
with the approval of the senior lender. In the absence of the Fifth Anavio
Financing, it was the Board's considered opinion that the only alternative was
a distressed insolvency sale process which likely would not have yielded any
value for COPL's shareholders.

 

 

Next Steps

 

The Forbearance Agreement committed the Company to the following:

1.  Subject to certain conditions precedent and the continued compliance with
the terms of the Forbearance Agreement, the senior lender agreed not to
exercise certain rights and remedies, including foreclosure, that it might
otherwise have as a result of the default(s) under the Senior Credit Facility
until February 29, 2024;

2.  The Company is required to complete the Fifth Anavio Financing by January
15, 2024.

3.  The Company was required to appoint both a Chief Restructuring Officer
and a financial advisor whose identities and scope of work were both subject
to the approval of the senior lender;

4.  Within 45 days, an agreement with the senior lender on a process and
milestones for either a comprehensive sale of the Company's US assets, a
foreclosure of the Company's equity interests in its US assets or a "take out
offer" in an amount satisfactory to the senior lender.

5.  Within 30 days, a business plan must be delivered to the senior lender
that includes proposed steps and terms for the sale of the Company's US
assets.

The Chief Restructuring Officer has been appointed by the Company in
compliance with the Forbearance Agreement and the approval of the senior
lender and, like the members of the Board, has no business or other
relationship with Anavio.

The Board is also exploring ways to allow shareholders and other investors the
chance to participate in an equity placing.

 

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.

 

For further information, please contact:

 

Mr. Tom Richardson, Chairman

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

Email: copl@yellowjerseypr.com

 

Peter Krens

Joint Broker

Equity Capital Markets, Tennyson Securities

Tel: +44 (0) 20 7186 9033

 

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 Financing 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.

 

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 the Company (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 by any of its 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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