TIDMCOPL
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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UPDQKKBPOBKDQDD
(END) Dow Jones Newswires
January 10, 2024 12:56 ET (17:56 GMT)
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