Canoel International Energy Seeks Resources To Funwww.oilbarrel.com
March 18, 2010
Canoel International Energy Seeks Resources To Fund E&PAmbitions In Tunisia And Argentina
Canoel Interntional
There is never an easy time to launch a new E&P business butIPO-ing just before the meltdown in global financial markets ensured arocky ride for industry newcomer CanoelInternational Energy. The company joined the TSX-Venture Exchangein April 2008 and quickly put together a portfolio of internationalexploration opportunities: three blocks in Tunisia, one frontierexploration project in Mongolia and lined up the US$2.4 million purchaseof two oil producing properties in Argentina.
But a funding shortfall has stymied progress onthese projects over the past year and post-IPO plans to quickly acquireproducing properties in Italy and Canada and additional explorationinterests in the Middle East and West Africa are effectively on hold.As president and chief executive Andrea Cattaneo, a banker with 30 yearsof experience, explained at an oilbarrel.com event last summer, thecompany was keen to use its international contacts to scout blocks andfarm-out quickly. “There is a danger because of depletion of costs for acompany like us so we want to move fast to get to production,” he said.
The theory is good but it has proved harder to putinto practice because of financial constraints. Acquisitions cost moneyand Canoel, which at the end of 2009 had a net working capital balanceof just over C$614,000 augmented by the C$602,000 proceeds of a February2010 private placement, has yet to secure the money to buy theArgentinean properties, for which it signed an MoU in September 2009with a contractual closing date of April 30, 2010.
The properties lie in the San Jorge Basin ofPatagonia in southern Argentina and produce 55,000 barrels of oil a year(about 150 bpd). The 18.5-degree API oil is sweet and is said to floweasily through the existing infrastructure. It isn’t a huge amount ofoil (particularly as under the terms of the proposed deal Canoelwill be paying out a royalty to the vendor) but it would provide auseful income and operational track record. Stitch together a number ofdeals of this scale and Canoelwould have the beginnings of a sizeable and self-sustaining E&Pbusiness. As always, however, this will come down to funding.
Elsewhere, the company has to raise funds to meetits exploration commitments in Tunisia, where it has agreed to farm intothree blocks operated by TSX-V firm Cygam Energy. It will earn aninitial 11 per cent interest in the Bazma, Jorf and Sud Touzer blocks bypaying between 15.4 and 18.7 per cent of the first exploration well oneach block (it has also paid C$190,000 for an option to increase itsinterest in Bazma and Sud Touzer to 45 per cent).
In the case of Bazma, the first well is slated formid-2010, somewhat later than the targeted Q4 2009 spud date, and stilldependent on rig availability. The well, which would target the Fridaprospect, a look-alike of the nearby Perenco-operated producing Tarfagas and condensate field, could offer a route to near-term production inthe event of success. The first wells on the Jorf and Sud Touzer blocksare expected in Q4 2010 and 2011 respectively.
Under the terms of the farm-in agreements, Canoel’sdrilling commitments amount to C$594,000 for Bazma (on top of theC$490,000 already advanced to the operator), C$638,000 for Jorf andC$1.8 million for Sud Touzer. The company hopes to find farm-inpartners to help fund some of these costs – it says it has receivedexpressions of interest from third parties – or will need to concludeadditional equity financing to meet its commitments.
The news from Mongolia is mixed. The company hadstruck a US$1.1 million deal with a local firm to acquire the 13,575 sqkm Block XXIII, a vast tract of acreage right next door to China, wherethere are many prolific producing oilfields in the neighbouring ErlianBasin. But as yet the Mongolian vendor has been unable to supply thepaperwork Canoelrequested as part of its closing due diligence and the Canadianfirm has therefore delivered a notice of default. If the paperworktranspires and the deal goes ahead, then Canoelcould be sitting on an attractive wildcat property right next doorto energy-hungry China; if the deal expires, then at least the TSX-Vcompany is released from exploration commitments expected to total US$46million over the next five years.
The problems faced by Canoelare common to those in the exploration business. The big issue iswhether it can now find the funds to ride through these lean times so itcan get that Bazma well drilled, which could deliver barrels intoexisting infrastructure within three months, or close the Argentineanproduction deal in order to get some much needed revenues onto thebooks.