CGX /FRONTERA: POTENTIAL JV & EXPECTATIONSAt this time Frontera holds a 82.5% economic interest in the Corentyne and Demarara Licenses (33% direct interest in each license + 74% equity interest in CGX [CGX having 67% interest in each license]).
If Frontera / CGX pursue the first two exploration wells on their own in 2020 (1 exploration well on each license) - Frontera would be shouldering the majority of costs - which could range anywhere between US $120M to $200M. This scenario would include CGX selling further interest in Corentyne and Demarara to Frontera - or, another financing (issuance of shares) with Frontera's backing.
I don't see either being a scenario Frontera (or CGX for that matter) would ideally want to pursue.
In my humble opinion, I believe Frontera would rather look to bring in a partner that would help cover future exploration, appraisal and development costs without significant dilution to its economic interest.
Granted, we are still awaiting key well results from Apache's Maka Central-1 - which is just a few miles from CGX's Northern Corentyne Area. In addition, industry awaits results from Repsol's Carapa well - which would open up the shelf upper cretaceous play offshore Guyana. Both are key catalysts that will help further de-risk CGX's Corentyne and Demarara licenses.
Lastly, the Apache farm-out to Total (quite a splash I would say) has firmly set expectations on what types of deals could be expected on a go forward basis - especially for those surrounding licenses and / or adjacent blocks.
In my humble opinion, I believe Frontera is not looking to further enhance their economic interest in the Demarara and Corentyne licenses. But, rather are looking in the other direction to start harvesting (re-coup) their investment(s) in CGX via some form of future JV negotiation.
More specifically, I would think Frontera would be more willing to negotiate a scenario that would allow it to maintain say 50% economic interest in both licenses while only having to pay 33% of the initial exploration and appraisal well costs; in addition to a smaller proportion of future development costs. In other words, Frontera/CGX sell down part their interest for a significant carry in future exploration, appraisal and development costs.
I may be too optimistic (given the terms announced by Apache earlier this month) - but, believe they CGX/Frontera may already have a few attractive offers on the table to consider...
Try and be patient - we are surrounded by all the big players / big money (Total, Exxon, Hess, Repsol, Qatar Petroleum, Equinor, Cairn, Apache, Kosmos, Chevron, CNOOC, CNPC, Petronas, etc). We are in the heart of the basin - surrounded by billions of barrels of oil - front row seat.
If the shelf / mid-water opens up (upper cretaceous) - Corentyne and Demarara breakeven costs could be significantly lower as compared to Stabroek given the option for a dry-tree development scenario and fixed platform infrastructure.
No doubt about it - the next series of blocks to be auctioned off by either Suriname or Guyana will be of smaller size and contain more stringent fiscal terms (royalty, taxes, etc). CGX/Frontera hold perhaps the last opportunity for an E&P to capture a sizable position in one of the most prolific offshore basins in the world with very attractive fiscal terms.
We will be talking about what happened here to our grandchildren many years from now... These types of opportunities do not come along very often - perhaps once in a lifetime. As Exxon described "its a fairy tail."