REG - Canadian O'Seas Petr - Costless Hedge Restructuring and Corporate Update

Canadian Overseas PetroleumAnnouncement

21/12/2022 07:00

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RNS Number : 3960K  Canadian Overseas Petroleum Ltd  21 December 2022

 

 

COPL Announces Costless Hedge Restructuring and Corporate Update

London, United Kingdom; Calgary, Canada: December 21, 2022 - Canadian Overseas
Petroleum Limited and its affiliates ("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 a costless
restructuring of its West Texas Intermediate ("WTI") and Butane ("Normal NC4")
hedges effective 1 January 2023, as the Company prepares for senior debt
refinancing in the first quarter of 2023.

 

Highlights of Costless Hedge Restructuring:

 

·    The Company's current WTI swaps from January 2023 to June 2023 at a
price of $52.87/bbl for approximately 1,000 bbls/d have been cancelled.

·    The Company's Butane swaps from January 2023 to June 2023 have been
reduced to a volume of 350,000 gallons/month at $0.67/gal to align the volume
subject to swaps to the Company's planned injection forecast at the Barron
Flats Shannon Miscible Flood.

·    The net liability to unwind the above positions has been exchanged
for new WTI swaps at an improved price of $52.88/bbl from March 2024 to
December 2024 on 1,000 bbls/d and for WTI puts to provide downside protection
for the first half of 2023 on 750 bbls/d at $60.00/bbl.

 

Arthur Millholland, President and Chief Executive Officer, commented: "Recent
WTI weakness has provided the opportunity for COPL to execute this hedge
restructuring without a cash cost to unwind the positions and in a manner that
will minimize near term hedge losses that have constrained our pace of
development. We are pleased with the result as it is expected to provide COPL
with increased exposure to WTI upside and stabilised operating cash flow in
early 2023.  It also provides for a level of revenue protection and maintains
cost protection for butane injections at our Shannon Miscible Flood."

A complete summary of the Company's outstanding crude oil and natural gas
derivative positions effective 1 January 2023, is included in the table
below:

 Time Period      Instrument            Total Notional Volume  Price
  Jan23 - Jun23   Normal NC4 Futures    2,100,000 gal          $0.67/gal.
  Jan23 - Jun23   WTI Puts              135,750 bbls           $60/bbl.
 Jun23 - Feb24    WTI Futures           231,218 bbls           $52.87/bbl.
 Jun23 - Feb 24   Normal NC4 Futures    5,451,678 gal          $0.67/gal.
 Mar - Dec '24    WTI Futures           306,000 bbls           $52.88/bbl.

 

Debt Financing Update

 

The Company has approached five US lending institutions who are actively
lending to the upstream oil and gas industry. Evaluation of COPL's proposed
facility is in process and is in various stages across these institutions.
Given the nature of the discussions and the accompanying high level of due
diligence and financial evaluation, the Company expects term sheets from at
least two of the institutions in the near term. This process is normal, and
has been accelerated post filing of the COPL's third quarter results which
include the July 26, 2022 acquisition of the Cuda assets.

 

As previously disclosed, the Company is seeking to re-finance COPL America's
US$42 million Senior Credit Facility and close the remaining outstanding
hedges. In addition, the Company is seeking funding through a new loan
facility to fund the installation of a high-pressure gas gathering system at
its Barren Flats Shannon Unit to augment is current low pressure gas gathering
system. Engineering design has been completed with procurement and
construction to begin post refinancing. Once completed the field will be
debottlenecked, thus resulting in increased oil production in line with
modeled reservoir performance.

 

Joint Venture Update

 

As previously disclosed, COPL was approached late in the third quarter by a
large oil company ("JV Party") inquiring if the Company was interested in a
Joint Venture partner to appraise and develop its Barron Flats Deep oil
discovery announced in September 2021. The Company is bound by a
non-disclosure agreement ("NDA") with the JV Party and as such is limited in
its ability to disclose their identity and the nature of the discussions to
date until after an agreement is entered.

 

The JV Party conducted technical due diligence on the Company's interpretation
and technical information of its deep oil discovery which was presented as a
significant extension to the Frontier and Dakota oil accumulation at its 100%
working interest operated Cole Creek oil field. As common in industry the JV
Party would also conduct their own internal evaluation, which we believe has
been completed.

 

In early November, the Company presented its outline of a joint venture to the
JV Party for discussion. COPL understands the concept is moving through their
internal processes as the Company has been asked for additional time for the
JV Party to present a potential way forward. COPL has agreed to this request
and has been recently advised that a potential way forward will be presented
by the JV Party in early January 2023.

 

Operations Update

 

Barron Flats Shannon Unit

 

On October 11, the Company received a temporary permit from the Wyoming Oil
and Gas Conservation Commission to temporarily flare up to 3.5 MMCF/d of
produced gas to relieve the pressure constraints at certain high pressure
flowing oil wells at its Barron Flats Shannon Unit. Due to the volatile nature
of the produced oil in these wells, initiation of flaring for safety reasons
was dependent on full installation of vapor recovery units on each well site.
Commissioning of these facilities was delayed in November due to supply chain
constraints on critical components. All facilities were in place and
commissioned in early December. High pressure gathering lines were also laid
from two wells directly to the gas plant thus mitigating flaring at these
locations. All restricted wells in the field are currently back on line with
field production not yet stable, but increasing as rates are slowly increased
through the optimization process.

 

Cole Creek Unit

 

Operations to recomplete the first of 6 to 7 Frontier 2 oil wells for Frontier
1 oil production are to commence this week. Though oil was identified in the
Frontier 1 over 50 years ago at Cole Creek, the reservoir has remained
unexploited due to industry convention of completing for production the
deepest hydrocarbon producing horizon first. The first well in the campaign is
11-27-35N-77W. Three oil bearing sands are developed in the Frontier 1 at this
location totaling 108 feet of reservoir. Sixty-five feet of the third, or
lowest sand, will be perforated followed by evaluation for further stimulation
if deemed necessary.

 

Oil resources in the Frontier 1 are a large component of the Company's deep
discovery which has extended the current Cole Creek reserves/resources
significantly to the east. Successful recompletion of the 11-27 well for oil
production before year-end should allow the Company to book significant oil
reserve additions to Cole Creek as the base of the perforations is
approximately 785 feet below the crestal area of the Cole Creek anticline
located 1 mile to the northwest. Two of the recompletion candidates are
further down the flank of the structure, with one of these wells exhibiting
oil flow during drilling from the uppermost Frontier 1 sand.

 

Cole Creek is an asymmetrical anticline approximately 9 miles in axial length
with approximately 2,500 feet of structural/stratigraphic closure. Five known
conventional oil reservoirs are present at Cole Creek: Lakota, Dakota,
Frontier 2, Frontier 1 and the Shannon. COPL holds 100% WI in the lease-hold
on all rights below the Shannon. Development of the Dakota and Shannon
commenced in 1939 extending to the mid 1950's. Frontier 2 development through
7 wells commenced 10 to 15 years ago.

 

Production

 

Oil production is currently fluctuating between 1,400 and 1,500 bbls/d due to
cold to extremely cold weather. The Company is continuing with its production
optimization  plan  at the Barron Flats Shannon Unit. Production volumes are
expected to increase through the optimization process in addition to continued
increases in low-rate pumping wells responding to the miscible flood process.

 

The ability to temporarily flare excess gas has reduced operating pressures at
certain wells, but field production will continue to be restricted until the
installation of a high-pressure gas gathering system in 2023 to augment the
current low pressure gas gathering system. Flared gas volumes are
approximately 1 MMCF/d across the field and primarily consist of miscible
injectant.

 

 

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 and Natrona Counties Wyoming, and in sub-Saharan Africa through
its ShoreCan joint venture company in Nigeria, and independently in other
countries.

 

 

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.

 

 

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 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.

 

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