10:33:18 EDT Thu 28 Mar 2024
Enter Symbol
or Name
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New Stratus Energy Inc
Symbol NSE
Shares Issued 123,333,423
Close 2022-09-30 C$ 0.85
Market Cap C$ 104,833,410
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New Stratus to acquire second partner stake in blocks

2022-10-03 10:37 ET - News Release

Mr. Jose Arata reports

NEW STRATUS ENERGY ANNOUNCES FURTHER CONSOLIDATION OF PARTNER INTEREST IN BLOCKS 16 & 67 AND CORPORATE UPDATES

New Stratus Energy Inc. has entered into a share purchase agreement with one of the corporation's working interest partners (the vendor) in blocks 16 and 67 in Ecuador to acquire the vendor's entire working interest in the blocks, held by the vendor's wholly owned subsidiary (the target). Pursuant to the agreement, the corporation will acquire all of the issued and outstanding common shares of the target from the vendor such that the corporation will indirectly acquire an additional undivided 14-per-cent working interest in the service contracts for the blocks. The total consideration for the transaction is approximately $10.7-million (U.S.) cash, subject to adjustment, which total consideration comprises the following amounts:

  • A base purchase price of approximately $1.2-million (U.S.);
  • An estimated working capital adjustment payment of approximately $5.6-million (U.S.);
  • An estimated carryforward recovery adjustment payment of approximately $3.9-million (U.S.).

Completion of the transaction is subject to prior regulatory approvals, including authorization by the Ecuadorian Ministry of Energy and Mines and antitrust authorities. The transaction, upon statutory sanctioning, will consolidate the corporation's working interest in the blocks, increasing from 66 per cent to 80 per cent. The transaction will further increase New Stratus's current production and cash flow while maintaining the corporation's financial flexibility.

Transaction highlights

The acquired interest has the following characteristics:

  • Gross production as of Sept. 1, 2022, was approximately 2,122 barrels of oil per day (bopd);
  • Proved developed producing reserves: 462,000 barrels of oil.

Blocks 16 and 67

Upon completion of the transaction, the corporation will hold a 80-per-cent operated working interest in the service contracts for the blocks, which are located in the Orellana province in the prolific Oriente basin in Ecuador. The blocks have a long history of production, with a total of 262 wells drilled, and excellent seismic coverage. This has contributed to substantial knowledge of the area's characteristics, properties, distribution of reservoirs, production mechanisms and additional exploration opportunities.

The blocks comprise nine fields, with total working interest production as at Sept. 2, 2022, of approximately 15,159 bopd at an average gravity of 15.5-degree API. New Stratus gross production is expected to be approximately 12,127 bopd following completion of the transaction.

Existing infrastructure includes two oil and water processing centres with a capacity of 75,000 bopd and 900,000 barrels of water per day, with all the water production being reinjected into 30 wells. Additional area infrastructure includes electricity generation plants and a topping plant which produces diesel used to power operations.

The oil produced in the fields is moved by a 16-inch pipeline to Lago Agrio, where it is loaded into the Oleoducto de Crudos Pesados Ecuador SA pipeline and transported to a port on the Pacific Ocean.

Tariffs are governed by the service contracts and a portion of such tariffs is indexed to U.S. CPI/PPI (Consumer Price Index/Producer Price Index). While the existing service contracts expire in December, 2022, significant production potential remains in the blocks.

New Stratus continues to negotiate with the government of Ecuador, specifically the Ministry of Energy and Mines, on the extension of the rights to the blocks through a production-sharing contract, where the corporation has committed to a capital expenditure program in excess of $250-million.

The blocks include commitments to minimize the environmental impact of operations, to maintain high standards of safety and to undertake long-term investments for the benefit of local communities.

Transaction terms

Pursuant to the terms of the agreement, the total consideration consists of a cash payment of approximately $10.7-million (U.S.) ($14.9-million) subject to adjustment for working capital and for carryforward payments under the service contracts. The transaction is subject to customary closing conditions and is expected to close on or before Nov. 30, 2022.

Corporate update

  • The corporation has approved the cashless exercise of 5.77 million warrants held by certain arm's-length parties, with a strike price of 30 cents. Taking into account the corporation's strong cash position, this cashless exercise results in the issuance of approximately 1.8 million fewer common shares as the corporation continues to manage overall dilution to shareholders.
  • The corporation has approved the grant of 3.55 million incentive stock options to directors, officers, employees and consultants of the corporation pursuant to the corporation's stock option plan. Each stock option will vest immediately and will be exercisable at a price equal to the closing price per share on the TSX Venture Exchange on Oct. 3, 2022, for a period of five years from the grant date.

We seek Safe Harbor.

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