Deals



Columbus acquires Steeldrum Oil Company Inc


Posted: 13th July 2018 09:05

Columbus, the oil and gas producer and explorer focused on onshore Trinidad with the ambition to grow in South America, is pleased to announce it has signed a Sale and Purchase Agreement ("SPA") to acquire Steeldrum Oil Company Inc ("Steeldrum") adding current oil production of approximately 200-250 bopd and reserves of 5.6 mmbbl  and the Cory Moruga development Project adding recoverable reserves of approximately 1.1 mmbbl to the Columbus portfolio. Steeldrum's assets are all located in southern Trinidad and close to Columbus's existing assets, allowing the Company to utilise existing technical expertise and relationships.

Highlights:

  1. 100% operated interest in Innis-Trinity field with production of between 120-150 barrels of oil per day ("bopd") and reserves of 4.0 million barrels of oil ("mmbbl")
  2. 100% operated interest in South Erin field with production of between 80-100 bopd and reserves of 1.6 mmbbl
  3. 83% operated interest in Cory Moruga development project expected to have recoverable reserves of approx. 1.1 mmbbl.

(Note: Reserve figures quoted above supplied by Streeldrum)

  1. Lind Facility allows Lind to convert any outstanding loans into equity at a share price of 8.1 pence per share. 

The Company is also pleased to provide a business update on its activities in Q2 2018 and will be presenting more information on these activities, the Steeldrum acquisition and the rationale for establishing the Lind Facility at today's Annual General Meeting ("AGM"). 

Leo Koot, Executive Chairman of Columbus, commented:

"The acquisition of Steeldrum is further delivery of Columbus' growth strategy and, on completion, the Company will have a large, well balanced portfolio of assets strung across the south and south-west of Trinidad.  The portfolio will include low-risk but highly prospective exploration opportunities in the South West Peninsula, a development project in Cory Moruga and 5 producing oilfields (Goudron, Innis Trinity, South Erin, Bonasse and Icacos).  This provides the Company with an excellent opportunity to exploit our existing and new assets through operational excellence and also grow organically through exploration and the Cory Moruga development project.  We will also be specifically looking at growing production and revenues in Innis Trinity and South Erin in the near future through the adoption of a similar operational strategy to our existing fields. 

"In line with our ongoing focus on capital discipline, we will purchase Steeldrum with shares rather than cash.  This also has the benefit of introducing new shareholders to the Company who are experienced investors in oil & gas and who will be aligned with the Company in seeing that the integration of the assets into our portfolio happens in the most efficient way.  A final benefit of the transaction is access to a drilling rig suitable for our planned exploration activities in the SWP, a production rig and the integration of a well-respected oil and gas team into the larger Columbus group, a group who are experienced in drilling wells in Trinidad.  I am delighted that we have agreed this deal with Steeldrum and we are on track to building a core exploration, appraisal, development and production hub in the south and south-west of Trinidad.

"The Company believes it will be able to assimilate Steeldrum into Columbus using our existing cash resources and the revenues we are generating from our ongoing operations.  Nevertheless, the Board considered it prudent to ensure we have access to additional funds to cover any short-term issues that may come our way when integrating the two organisations and when we are seeking to optimise our new assets over the next few months.   We are very grateful that Lind has provided a short-term loan facility of up to $3.25 million to support the Steeldrum transaction. This drawdown facility, where Lind can convert any outstanding loans into ordinary shares at 8.1 pence per share, provides us with financial flexibility to optimise the new organisation and deal with any un-expected financial issues and once again demonstrates their confidence in the future potential of our Company.  As a result, and due to the financial terms we have agreed, we believe the Lind Facility is accretive for our shareholders as it minimises any equity dilution whilst providing real financial flexibility at minimal cost.     

"On the operational front, we have seen steady production performance in Trinidad in Q2 2018 with production averaging 553 bopd, peaking at 648 bopd during the quarter.  We have continued to face certain challenges in growing production at Goudron, notably sand production issues which we are actively seeking to address through new artificial lift applications.  Our water injection pilot campaign can now be ramped-up through the availability of increased water volumes   As well as Goudron production, we have now commenced the reactivation of the Bonasse field with a rig arriving on site within the past few days.  We hope to see increasing production in Bonasse throughout 2H 2018 and with the recent signature of the SPA on the Icacos field, we plan to commence a reactivation programme on some shut-in wells in that field in the near future.  These are exciting times for Columbus as we expand our production activities on our assets in Trinidad and the Steeldrum acquisition will allow us to expand our programmes even further.   We would hope to see gross production across all of our fields grow continually throughout 2H 2018 and continue to grow well beyond that.  This will give us much greater financial firepower to progress our exploration portfolio in the SWP in 2019 and beyond.    

"We continue to consider a number of other M&A opportunities in Trinidad and elsewhere in South America; these include some small opportunities and others more material in size.  We continue to have ambitious growth plans and are hugely excited by our increasing potential as our footprint expands.   I believe we have come a long way in the past year on many fronts.  

"I look forward to providing our shareholders with further information on the benefits of the Steeldrum acquisition, the Lind Facility and our recent business performance at our AGM which takes place later today." 

The Steeldrum Acquisition:

Steeldrum is the parent company for the West Indian Energy Group Ltd and is the owner of the Innis-Trinity field (100% and operator), South Erin field (100% and operator) and the Cory Moruga development project (83.8% and operator), all located in southern Trinidad and close to Columbus's existing assets.

The Innis-Trinity field and South Erin field are currently producing between 120-150 bopd and 80-100 bopd respectively, with remaining 2P reserves of approximately 4 mmbbl and 1.6 mmbbl respectively. The Cory Moruga development is expected to have recoverable reserves of approximately 1.1 mmbbl.

The consideration for the purchase of Steeldrum is the issuance to the Sellers of 92,743,775 shares in Columbus (the "Base Consideration Shares").

Columbus may also pay deferred consideration to the Sellers, as follows:

1.     16,422,434 shares in Columbus following the re-issuance of the Cory Moruga E&P Licence and 16,422,434 Shares following either a positive final investment decision being made to develop the Cory Moruga field or a sale to a third party (the "Cory Moruga Shares"); and

2.     16,920,083 shares in Columbus in the event the Innis-Trinity field is sold to a third party for no less than US$4,200,000 (the "Innis Trinity Shares") - see option held by Predator Oil & Gas Limited, as referred to below.

In the event all of the Base Consideration Shares, Cory Moruga Shares and Innis Trinity Shares vest in the Sellers, the Sellers will hold 18% of the enlarged share capital of the Company.  The Sellers are West Indian Energy Holding AS, Rex Caribbean Holding Ltd, Geoffrey Leid, Svein Kjellesvik and Gelco Energy Inc.  The Sellers will be subject to certain lock-in arrangements that will prohibit them divesting of their shares for a period of at least 6 months post completion, save for 10% of the Base Consideration Shares.

The Lind Facility:

It was recently stated in the Company's Annual Report, and in various other statements in 2018, that Columbus is fully funded for its 2018 work programmes, is cashflow positive from its operations and management forecast increasing revenues from its operations in Trinidad.  This continues to be the case.  Whilst the Board of Columbus believes it has the financial capacity to meet the ongoing obligations of the new integrated organisation from existing and forecast cashflows, it still considered it to be prudent to ensure additional funds are available to cover any short-term production growth projects and cash flow issues which may arise.  The establishment of such a facility would, in effect, provide an appropriate "financial insurance policy" for the Company for the next six months whilst the new integrated organisation beds-in. 

On 12 July 2018, the Company therefore entered into a new short-term Convertible Security facility (the "Lind Facility") with Lind Asset Management VII, LLC ("Lind") which provides the Company with the right, but not the obligation, to drawdown up to US$3.25 million.  The Lind Facility has been established to provide Columbus with access to additional funds, should they be required over the next six months, to support the Steeldrum transaction, including costs associated with integrating the two companies or accelerating certain operational activities.  The consolidated group, post the Steeldrum transaction, is expected to be operationally cash flow positive. The Lind Facility allows Lind to convert any outstanding loans into equity at a share price of 8.1 pence per share. 

In summary, the Lind Facility provides the Company with the following:

The right to drawdown funds as follows:

Should the Company not exercise its drawdown rights within the 180-day period, the agreement will lapse and no funds will be available; 

Key Highlights in Q2 2018:

  1. Trinidad peak production in Q2 2018 of 648 bopd with a steady 530-575 bopd delivered month on month.
  2. Average Trinidad production per month as follows: April 574 bopd; May 532 bopd, June 553 bopd.
  3. Bonasse field reactivation of production in the form of twice monthly sales in May and June.

Outstanding loan balances reduced to US$0.59m.

Outlook

DETAILED INFORMATION

Steeldrum Acqusition - Sale and Purchase Agreement

The SPA will be entered into by the Company and Columbus Energy (St Lucia) Limited (a wholly owned subsidiary of the Company).  Columbus Energy (St Lucia) Limited will the purchaser under the SPA, the Company issuing the Base Consideration Shares and, if applicable, the Cory Moruga Shares and the Innis Trinity Shares on behalf of the purchaser. The SPA is subject to certain regulatory, joint venture partner and third-party approvals. Completion of the transaction is expected in Q4 2018.

Steeldrum is also the parent company of Talon Well Services Ltd ("Talon"), which owns a drilling rig, suitable for the Company's planned exploration activities in the South West Peninsula, and a production rig located in Trinidad.  The purchase of Talon is not part of the transaction and the parties will separate Talon from the combined entity prior to completion.  However, the SPA grants Columbus a first priority use of the two rigs at market rates.

Steeldrum currently engages Gelco Energy Consultants to provide Managing Director services for the Steeldrum group.  Post completion of the transaction, the Company will continue with these arrangements on terms commensurate with the current Columbus management team.

The Company is aware Predator Oil & Gas Limited ("Predator") is party to a farm-in into the Innis Trinity field, owned by FRAM Exploration (Trinidad) Ltd ("FRAM") and ultimately owned by Steeldrum.  That farm-in is unaffected by today's announcement.

About Steeldrum

Steeldrum has ownership in a number of petroleum assets in onshore Trinidad through subsidiary Companies including the Trinity Inniss Field, the South Erin Field and the Cory Moruga License containing the Snowcap field discovery.  The Innis Trinity field is a mature field producing from Herrera turbidite reservoirs, governed by an Incremental Production Service Contract ("IPSC") with Petrotrin. The initial term of the IPSC is due to expire in January 2020.  The Company would expect the IPSC to be extended at that time.  The field has produced circa 23mmbbl to date with approximately 4.0 mmbbl of remaining recoverable reserves.  There are opportunities to optimise the existing well infrastructure to increase daily production.  The IPSC is subject to an existing farmout agreement with Predator, who are expected to fulfil at least 2 of the Minimum Work Obligation ("MWO") wells and progress a planned EOR Project.  The total MWO is 7 wells.  As part of the Predator transaction, Predator has the right until mid-2019 to purchase FRAM Exploration Trinidad Ltd ("FRAM"), the Steeldrum group company that is party to the Innis Trinity IPSC.  The purchase price for FRAM would be US$4.2m.

The South Erin field targets the Lower Forest and Cruse deltaic sands. These are known to be the most prolific oil producing sands throughout the Southern Basin. The field currently produces from the Lower Forest sands, and Steeldrum have successfully tested the Cruse sands in the ER 98 exploration well.  There has been a recent production boost with the ER 105 well encountering a new compartment with fully charged Lower Forest sands. Only 10% of the block has been explored to date and the Company would expect to evaluate the remainder of the block. Based on the successes achieved in the existing field, and the regional trends of the targeted reservoirs, there is great potential for additional discoveries.  The South Erin field is governed by a Farmout Agreement with Petrotrin that expires in December 2021 and the Company would expect the Farmout Agreement to be extended at that time.  The Agreement has an outstanding MWO of 5 wells.

Cory Moruga is governed by a licence issued by the Ministry of Energy and Energy Industries.  The licence is currently with the Ministry for renewal along with a Field Development Plan for approval.  The Development Plan is based on the Snowcap Field discovery which was first drilled and tested with the Snowcap-1 exploration well in 2010. Upon Field Development approval, the existing Snowcap-1 will be re-instated as the first development well and further development drilling will follow.  During an extended well test in 2015, Snowcap-1 averaged 120 bopd.

For the financial year ended 31 December 2017, the Steeldrum group had US$13.7 million in assets, US$8.36 million in equity, US$5.36 million in liabilities (including a US$1.25 million loan repayable in 2020) and made a gross profit of US$0.83 million and net loss of US$1.96 million (after depreciation charges of US$1.56 million).  


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