Frontera Announces $20M Rights Offering Bridge Loan Agreement with CGX Energy

Source: www.gulfoilandgas.com 9/24/2021, Location: South America

Frontera Energy Corporation, the majority shareholder of CGX Energy Inc. and joint venture partner in the Petroleum Prospecting Licenses for the Corentyne and Demerara blocks offshore Guyana (the "Joint Venture") and CGX provided an operational update on the Kawa-1 well, in the Corentyne Block, offshore Guyana.

On August 22, the Kawa-1 well was spud. Downhole drilling operations have been without any significant issues and are on target. Since spud, the Joint venture has successfully run the 36-inch conductor and 22 and 18-inch casing strings. As of September 23, 2021, the well has achieved the planned casing point at a total depth of 9,900 feet (3,017.5 meters). The crews have successfully run and cemented the 18-inch casing which is the third of five planned casing strings and the well is now currently drilling the next hole section below the current last casing point.

The well results thus far are consistent with our pre-drill geological and geophysical expectations and formations are coming in on depth. The Joint Venture is looking forward to drilling and evaluating the upcoming well sections and maintaining safe and efficient operations. The Joint Venture expects the Kawa-1 well to reach total depth in the first half of December 2021.

Rights Offering Bridge Loan
Frontera and CGX also announced today that they have entered into a term sheet for a $20 million rights offering bridge loan (the "Rights Offering Bridge Loan") that will enable CGX to continue to fund its share of costs related to the Corentyne, Demerara and Berbice blocks, the Berbice Deepwater Port, and other budgeted costs as agreed to by Frontera. The Rights Offering Bridge Loan is an advance on Frontera's participation in a rights offering (the "Rights Offering") announced by CGX today.

The $20 million Rights Offering Bridge Loan from Frontera will be available to CGX for drawdown in tranches on a non-revolving basis until October 31, 2021. The Rights Offering Bridge Loan, together with all interest accrued, shall be due and payable on October 31, 2021 (the "Maturity Date") or such later date as determined by Frontera, at its sole discretion; however, CGX and Frontera have agreed that the acquisition cost of any securities acquired by Frontera pursuant to the exercise of Rights (as defined below) under the Rights Offering (as defined below) will be satisfied by the reduction of the amounts payable to Frontera under the Rights Offering Bridge Loan. Interest payable on the principal amount outstanding shall accrue at a rate of 9.7% per annum paid monthly in cash, with interest on overdue interest. If the Maturity Date is extended by Frontera, at its sole discretion, the new interest rate will be 15% per annum.

The Rights Offering Bridge Loan contemplated by the term sheet remains subject to customary conditions, including the negotiation and execution of definitive agreements between Frontera and CGX and obtaining regulatory approvals. There is no guarantee that definitive agreements will be executed on the terms contemplated, or at all.

Standby Commitment
On September 24, 2021, CGX announced that, subject to approval of the TSX Venture Exchange (the "TSXV"), CGX will offer rights (each, a "Right") to holders of its common shares ("CGX Shares") at the close of business on the record date of October 1, 2021, on the basis of 0.157 of one Right for each CGX Share held (the "Rights Offering"). Each whole Right will entitle the holder to subscribe for one (1) CGX Share upon payment of the subscription price of C$1.63.

Frontera has agreed to provide a standby commitment in connection with the Rights Offering. Pursuant to the terms of the standby purchase agreement, Frontera will agree to exercise Rights to maintain its current percentage of issued and outstanding CGX Shares and will also provide a standby commitment pursuant to which it will agree to acquire any CGX Shares available as a result of any unexercised Rights under the Rights Offering. As a result, CGX will be guaranteed to issue approximately 45,151,419 CGX Shares in connection with the Rights Offering, for aggregate gross proceeds of approximately C$73,600,000 (equivalent of approximately US$58,160,000) if one includes the principal amount of the Rights Offering Bridge Loan which will be used to fund a portion of Frontera's purchase of CGX Shares under the Rights Offering.

In consideration for the standby commitment, Frontera will receive 5-year warrants to purchase the number of CGX Shares equal to 10% of the CGX Shares Frontera acquires under its standby commitment, at an exercise price equal to US$1.51 per Common Share (being the U.S. dollar equivalent of the C$1.91 closing price of the CGX Shares on the TSX Venture Exchange (the "TSXV") prior to the announcement of the Rights Offering).

Frontera currently owns 212,392,155 CGX Shares, which represents approximately 73.85% of the issued and outstanding CGX Shares. Frontera also has a right to convert certain debt owed by CGX, which if converted would result in the issuance of additional CGX Shares. As a result of the Rights Offering, Frontera could increase its ownership of outstanding CGX Shares from its current ownership of approximately 73.85% to up to approximately 79.11% if no other shareholder participates in the Rights Offering and Frontera elects to exercise its conversion rights under certain debt owed by CGX.


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