Criterium Energy Ltd. press release
Criterium Energy Announces Transformative Acquisition of Mont D'Or Petroleum Ltd. and C$22 Million Public Offering
TSXV - TSX Venture Exchange · Canada
Calgary, Alberta--(Newsfile Corp. - June 15, 2023) - Criterium Energy Ltd.(TSXV: CEQ)("Criterium" or the "Company"), an independent upstream energy development and production company focused in Southeast Asia, is pleased to announce that it has executed a sale and purchase agreement ("SPA")on June 14, 2023to acquire all the issued and outstanding shares of Mont D'Or Petroleum Limited ("MOPL") (the "Acquisition"). MOPL holds 100% operating working interests in two Production Sharing Contracts ("PSC") in Indonesia, the Tungkal PSC located onshore South Sumatra which produces 1,030 bbl/d and contains 2P Reserves of 4.6 MMbbl and the West Salawati PSC located in Southwest Papua that produces 20 bbl/d and contains 2P Reserves of 0.1 MMbbl1. Collectively, Tungkal and West Salawati have been independently valued at US$58 million NPV101after tax.
This transformative acquisition will establish Criterium as an operator in Southeast Asia while providing immediate production and operating cash flow. The Acquisition is aligned with Criterium's strategy of building a balanced portfolio of low-risk producing assets with tangible reinvestment opportunities in the form of production optimization, infill drilling, and step-out developments.
The Company is also pleased to announce that it has filed and been receipted for a preliminary short-form prospectus in connection with a marketed agency equity public offering (the "Offering") of subscription receipts of the Company (the "Subscription Receipts") at a price per Subscription Receipt to be determined in the context of the market, for aggregate gross proceeds of up to $22 million (US$16 million equivalent). The Offering is being led by Research Capital Corporation, as lead agent and sole bookrunner (the "Lead Agent"), on behalf of a syndicate of agents, including Canaccord Genuity Corp. and Stifel FirstEnergy (collectively, the "Agents").
Acquisition Highlights
Immediate Cash Flow and Production: Collective production of approximately 1,050 bbl/d1.
Significant Upside Identified: Production optimization via workovers and infill drilling to achieve expected production of 1,400 - 1,600 bbl/d by Q4 2023/Q1 2024 and fiscal year-ended 2024 expected production of 2,200 - 2,600 bbl/d, funded from cash flow1, with the expectation to generate US$25 million EBITDA in 20242.
Mature Development and Exploration Inventory: 2C resource of 6.5 MMboe1, including 20 bcf of natural gas and a mature prospect inventory near infrastructure. Total Prospective Resources of 29 MMboe1.
Established Operating Business: MOPL has a strong 15-year track record of safe operations in Indonesia and provides Criterium with a reputable and talented operating and technical team from which to expand operations.
Assumption of Favourable Debt: Acquiring MOPL in consideration of assuming US$32.5 million of outstanding debt which Criterium will reduce to US$19.7 million post-closing through cash payments (US$7.9 million) and conversion to equity (US$2.5 million Common Shares at closing and US$2.4 million converted in 20253). Favourable weighted average interest rate of 7.9%.
Strong Cash Position: Upon closing of the Acquisition, MOPL will hold a cash balance of approximately US$17 million (approximately US$8 million cash from the Offering and US$9 million of MOPL cash). Creating a resilient balance sheet which will utilize cash to execute drilling and workover campaigns while ensuring the debt amortization is met.
Strategic Shareholder: Uponclosing of the Acquisition,Criterium will issue US$1 million common shares of the Company3("Common Shares") to Tourmalet Holdings Ltd. ("Tourmalet"), a company owned by the founding partners of Provident Capital Partners, a leading Southeast Asia focused investment firm which has successfully built multiple billion-dollar businesses in Indonesia. Current MOPL shareholders, which includes Tourmalet, will receive contingency payments upon certain price and production thresholds4.
Robin Auld, Chief Executive Officer of Criterium Energy "Mont D'Or is a foundational acquisition for Criterium and establishes our Company as a reputable operator in Indonesia and Southeast Asia. By acquiring MOPL we integrate a seasoned team which safely operates over 1,000 bbl/d that generates a stable and scalable cash flow base which we intend to grow rapidly. With the recently announced 2042 Tungkal PSC extension, we intend to execute annual drilling programs to fully realize MOPL's potential to deliver long-term sustainable production growth within cashflow.
As we bring the Mont D'Or team into Criterium, this is an energizing period for our expanding team and our shareholders. The financing arrangements we announce today strengthen our balance sheet and provide flexibility to execute our ambitious growth objectives with MOPL and future acquisitions in the region. We have the experienced team to capture these opportunities and deliver significant value for our shareholders.
We are excited to be working with Research Capital, Canaccord, and Stifel to broaden our global shareholder base and to further enhance global exposure and liquidity. To support this expanded shareholder base we may consider a dual-listing on the London Stock Exchange's AIM market, alongside the current listing on the TSXV in Canada."
Gavin Caudle, Founding Partner of Provident Capital Partners "This transaction is aligned with our core principle of partnering with strong management teams in good businesses. We are confident that the Criterium team will build upon MOPL's strong reputation established from over 15 years of operations to realize significant value creation. We invest for the long term and as a shareholder of Criterium we will support the team and push them to build an industry-leading business to align with the other companies within our portfolio. I look forward to working with the Criterium team to optimize MOPL as they springboard to other accretive transactions."
Acquisition Criterium Energy Ltd. will purchase all outstanding and issued shares of MOPL under the terms of the SPA. As set forth in the SPA, Criterium has committed to the following payments and issuance of securities upon closing:
(1) a nominal fee of US$1 payable to the current MOPL Shareholders (the "Sellers"), (2) the issuance of Common Shares equivalent to US$1 million to Tourmalet3, (3) a cash payment of US$7.9 million to MOPL to be distributed to current MOPL lenders, (4) the issuance of Common Shares and/or convertible notes equivalent to US$5.75 million to select MOPL lenders3, and (5) a working capital injection into MOPL of approximately US$8 million.
Equity Financing The Company has filed and been receipted for a preliminary short form prospectus in connection with a marketed agency equity public offering of Subscription Receipts at a price per Subscription Receipt to be determined in the context of the market, for aggregate gross proceeds of up to C$22 million. The Offering is led by Research Capital Corporation, as lead agent and sole bookrunner, on behalf of a syndicate of Agents, including Canaccord Genuity Corp. and Stifel FirstEnergy.
Certain directors, officers and employees of the Company have provided indication of interests to participate in the Offering alongside other investors.
Each Subscription Receipt will entitle the holder thereof to receive, without payment of any additional consideration and with no further action on the part of the holder thereof, one Common Share upon satisfaction of certain escrow release conditions prior to the Escrow Release Deadline (as defined below).
The Company intends to use the net proceeds of the Offering for: (i) drilling activities in 2023; (ii) front end engineering and design (FEED) studies for gas processing, transportation, and carbon sequestration at Bulu; and (iii) a portion for repaying certain debt with MOPL's existing lenders to reduce the total debt balance outstanding following completion of the Acquisition.
In connection with the Offering, the Company has granted the Agents an option, exercisable in whole or in part, at the sole discretion of the Agents, at any time, from time to time, for a period of 30 days from and including the closing of the Offering, to purchase from the Company up to an additional 15% of the Subscription Receipts sold under the Offering, on the same terms and conditions of the Offering to cover over-allotments, if any, and for market stabilization purposes (the "Over-Allotment Option").
Upon closing of the Offering, the net proceeds will be placed in escrow (the "Escrowed Proceeds") with an escrow agent ("Escrow Agent") and will be released to the Company (together with the interest thereon) upon satisfaction of certain escrow release conditions and the Agents receiving a certificate from the Company prior to the Termination Time (as defined below) to the effect that:
1.
the completion, satisfaction or waiver of all conditions precedent to the Acquisition in accordance with the SPA (save and except for those conditions precedent which are contingent upon and/or will be completed, satisfied or waived concurrent with or as part of the closing of the Acquisition (the "Concurrent Conditions Precedent"), provided that the Chief Executive Officer of the Company (or such other officers as may be acceptable to the Lead Agent, acting reasonably) has certified to the Agents that, to the best of his information, knowledge or belief, no event, circumstance or condition exists which could reasonably be expected to result in any of the Concurrent Conditions Precedent not being completed, satisfied or waived concurrent with or as part of the closing of the Acquisition; it being understood and agreed that certain of the Concurrent Conditions Precedent may be completed or satisfied pursuant to the giving and acceptance of solicitors' undertakings, as applicable, to the satisfaction of the Agents, acting reasonably;
2.
the receipt of all required shareholder and regulatory approvals, including, without limitation, the conditional approval of the TSX Venture Exchange ("TSXV") for the Acquisition;
3.
the representations and warranties of the Company contained in the agency agreement to be entered into in connection with the Offering being true and accurate in all material respects, as if made on and as of the escrow release date; and
4.
the Company and the Lead Agent having delivered a joint notice and direction to the Escrow Agent, confirming that the conditions set forth in (a) to (c) above have been met or waived.
If (i) the Escrow Release Conditions are not satisfied or waived on or prior to 5:00 p.m. (Toronto time) on the date that is 90 days following the closing of the Offering (or such later date as the Lead Agent may consent in writing); (ii) the Acquisition is terminated in accordance with its terms; or (iii) the Company has advised the Agents or the public that it does not intend to proceed with the Acquisition (in each case, the earliest of such times being the "Termination Time"), the Company will be responsible to refund the gross proceeds of the Offering (including the amount of the Agents' commission and the Agents' expenses) without penalty or deduction to the subscribers of the Offering, such that it would be the Company's responsibility to return the full amount of the gross proceeds of the Offering to the holders of Subscription Receipts, together with such holders' pro rata portion of the interest earned thereon, if any (the "Required Refund").
The Offering is expected to close on or about the week of July 19, 2023, or such other date as the Company and the Lead Agent may agree. Closing of the Offering is subject to customary closing conditions, including, but not limited to, the receipt of all necessary regulatory approvals, including the approval of the securities regulatory authorities and the TSXV.
The Subscription Receipts may be offered in the United States on a private placement basis pursuant to an appropriate exemption from the registration requirements under applicable U.S. law, and outside of Canada and the United States on a private placement or equivalent basis. The preliminary short form prospectus is available on SEDAR at www.sedar.com.
This news release does not constitute an offer to sell or a solicitation of an offer to buy any of securities in the United States. The securities have not been and will not be registered under the U.S. Securities Act or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
Debt Financing Criterium and the Sellers have negotiated interest adjustments with select MOPL lenders to reduce the total debt outstanding upon closing of the Acquisition to US$32.5 million. Immediately following the closing of the Acquisition, Criterium will pay US$7.9 million in cash and US$4.9 million in Common Shares and convertible notes to select MOPL lenders3to reduce total debt upon closing of the Acquisition to US$19.7 million. Criterium has amended the lender agreements to reflect an amortization schedule that results in all debt being fully paid by 2026 with funds from operations. The debt has a favorable weighted average interest rate of 7.9%.
Overview of the Tungkal PSC MOPL holds a 100% working interest in the Tungkal PSC which covers an area of 2,285 km2and contains the Mengoepeh and Pematang Lantih oil fields that collectively produce 1,030 bbl/d and contain 4.6 MMbbl 2P Reserves as of December 31, 20221. MOPL secured an extension to the PSC to August 2042 and the extension is in the form of the Gross Split PSC which has a favourable contractor take and income tax rate of 40% on net profits. Under the new PSC term MOPL has committed to execute firm work commitments over the next 5 years which include G&G studies, seismic acquisition and two exploration wells.
_Mengoepeh Field _The Mengoepeh field was discovered in January 1997 and commenced production in 2004 reaching a peak rate of 2,500 bbl/d. In 2022, two infill wells were drilled bringing the total development well count to 40, with 12 wells currently producing 430 bbl/d1and 4 non-producing natural gas wells. The main reservoir is the Talang Aker Formation and as of December 31, 2022, the Mengoepeh field has produced 4.7 MMbbl, an estimated 6% recovery factor5. Criterium recognizes additional potential above 2P estimates which only equate to an 11% ultimate recovery and intends to focus its efforts on workovers of bypassed pay, infill drilling, and secondary recovery techniques. Acting immediately, Criterium intends to drill 3-4 wells in Q4 2023/Q1 2024 and commence an annual drilling program thereafter.
_Pematang Lantih Field _The Pematang Lantih field was discovered in 1939 with first production in 2015 and reached its peak rate of 2,000 bbl/d in June 2018. In 2022, two wells were drilled bringing the total development well count to 6 with current production of 600 bbl/d1. As of December 31, 2022 the field had produced 1.8 MMbbl, representing an estimated 10% recovery factor6. As with Mengoepeh, Criterium recognizes significant potential above current 2P estimates which result in an additional ultimate recovery of 19%5. Criterium has identified potential upside in converting former producing wells into water injectors to increase ultimate recovery from the relatively simple faulted anticline structure.
Oil produced from the Tungkal PSC is trucked to either the Gemah terminal (95 km away) or the Tempino terminal (120 km). Average operating costs, including transportation, in 2022 were US$25/bbl, a large portion of which are fixed. As production increases unit operating costs are expected to decrease.
Gas Aggregation
The Tungkal PSC contains 20 Bcf of 2C contingent gas resource1within the Mengoepeh SE and Macan Gedang structures. Additional prospects are identified on 2D seismic which contain prospective resource (best case) of 34 Bcf1. Criterium intends to conduct technical and commercial feasibility studies to determine the potential for producing gas for internal use and sales to third parties.
West Salawati PSC MOPL holds a 100% operated working interest in the West Salawati PSC located onshore Salawati Island covering an area of 970 km2and containing the Balladewa-A ("BLL-A") oil field which currently produces approximately 20 bbl/d1from one well. The West Salawati PSC is a cost recovery PSC that expires in 2033. MOPL has outstanding work commitments which include two exploration wells to be drilled prior to 2026. Fortunately, the prospectivity within the block is mature and contains the BLL-B, BLL-C, and BLL-F structures which can utilize existing infrastructure from the BLL-A field. In addition, the PSC contains large prospects located in the shallow water portion of the PSC, most notably Prospect-3X.
_BLL-A Field _The BLL-A1 well was drilled in 2015 and encountered 67m of net oil pay in the Kais reef. It was brought onto production in 2018 at an initial rate of 350 bbl/d of oil and water cut of 70-80%. The source of water is unknown but may have been caused by a failure of the cement plug. The well currently produces approximately 20 bbl/d1. Criterium is planning a workover in Q4 2023 to add new perforations and limit water production.
_Prospect Inventory _West Salawati contains mature prospects in both the onshore and offshore areas of the PSC. The BLL Cluster located onshore has well-pads prepared for drilling and, if successful, production can be handled at the BLL production facility which is located 1 km away and has capacity in excess of 5,000 bfpd. The offshore area of the PSC contains 15 prospects/leads and Criterium intends to conduct a detailed prospect and lead review and ranking in Q4 2023/Q1 2024.
Reserves and Resources
Summary of MOPL Reserves as of December 31, 20221
| Category | Light/Medium Oil Property Gross (MMbbl) | After Tax Net Present Value discounted at 10% (US$ million/C$ million) | | Total Proved (1P) | 2.29 | $11 / C$15 | | Total Proved + Probable (2P) | 4.67 | $58 / C$75 | | Total Proved + Probable + Possible (3P) | 7.71 | $112 / C$145 |
Summary of MOPL Contingent Oil Resources (unrisked) as of December 31, 20221,6
| Field | Resource Sub-Class | Chance of Development | Resource Category | Light/Medium Oil Property Gross (MMbbl) | | Pematang Lantih (Tungkal PSC) | Development Unclarified | 50% | 1C | 0.78 | | 2C | 2.73 | | | | | 3C | 7.16 | | | | | Mengoepeh Field (Tungkal PSC) | Development Pending | 90% | 1C | 0.14 | | 2C | 0.24 | | | | | 3C | 0.83 | | | |
Summary of MOPL Contingent Gas Resources (unrisked) as of December 31, 20221,6
| Field | Resource Sub-Class | Chance of Development | Resource Category | Gas (Bcf) Gross | | Mengoepeh SE (Tungkal PSC) | Development Unclarified | 30% | 1C | 3.4 | | 2C | 7.1 | | | | | 3C | 14.8 | | | | | Macan Gedang (Tungkal PSC) | Development Unclarified | 30% | 1C | 8.0 | | 2C | 12.6 | | | | | 3C | 20.0 | | | |
Note: There is uncertainty that it will be commercially viable to produce any portion of the resources.
The contingent resources within the Mengoepeh field, consisting of development pending locations, will utilize infill well drilling with a total capital cost estimate of US$5 million and it is estimated that first production will occur in 20251. The development pending locations will utilize conventional technology and the project is based on a pre-development study.
Note: Resources categorized as Contingent Resources means there is uncertainty that it will be commercially viable to produce any portion of the resources. Resources categorized as Prospective means that there is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.
Sustainability and Human Capital How we achieve results is important, and our strategy is underpinned by our commitment to support growing economies and communities by responsibly producing and developing reliable energy. Through the Acquisition, Criterium will gain over 50 new team members and contractors that are aligned with our values and have demonstrated a commitment to creating a positive impact within the communities they work and live. A key element of the transition will be the integration of environmental, social, and governance initiatives, including discussing how best to track and record Scope 1 and 2 emissions from our operations, continuing the strong commitment MOPL has to community engagement, and preparing annual ESTMA reports.