ON Energy Inc is looking for a further US$8.5M in funds to continue its search for oil in Berbice as it prepares for exploratory drilling.
CGX Energy Inc and its subsidiary held an ON Energy Annual General Meeting last Saturday in Georgetown at which the main initiative was ON Energy announcing a rights offering for its shareholders. These include local investors, including Trust Company which has already taken an 11.1% stake in the company since it was established in September 2003.
ON Energy's exploration programme comes at a time when crude oil hovers around $50 a barrel and with demand from China and India expected to continue for years to come, new reserves are at a premium.
A press release from CGX says the terms of the Rights Offering are that each shareholder shall be given two rights for each ON share held, each right entitling the shareholder to purchase one ON common share for US$0.06 per share. 141,800,000 rights will be issued for a total offering of US$8.5 million. Guyana Americas Merchant Bank Inc has agreed to underwrite 63.8 million shares of the Rights Offering for US$3,828,600. CGX Energy will participate in the Rights Offering. If all the rights are exercised, CGX will hold approximately 57% of ON Energy.
On Energy's Annual Report notes that "In Guyana we are pursuing a pure exploration programme that is extremely risky and there is no assurance that hydrocarbon reserves will be discovered and economically produced." It states that "At this preliminary stage we estimate the probability of success to be less than 10%." The report also advises investors in its cautionary statement "that you are cautioned to recognise this has the same consequence as a 90% probability of failure."
The report goes on to say, "Financial risks in the petroleum industry include fluctuations in commodity prices, and interest and currency exchange rates. Operational risks if a discovery were made include reservoir performance uncertainties, reliance on partners, competition and future profitable production or alternatively, on the sufficiency of proceeds from disposition."
The latest press release from CGX states, "The funds raised from this Rights Offering will be used primarily to fund exploration activities within the Berbice Block, including the upcoming drilling programme recently announced by ON Energy and for general working capital purposes.
Management of ON Energy also reported that preparations for the drilling programme are proceeding on the defined drill targets. On shore logistics are on schedule, including warehousing, road building and drill pad preparation. ON Energy has agreements for drilling and other services in place subject to finalising contracts. Drilling supplies, mud and other items including casings have been purchased and are scheduled to leave from Louisiana, USA by barge through the Gulf of Mexico. The shipment of these supplies has not received clearance due to the stream of recent hurricanes in this region and as a result the shipments have been delayed.
Kerry Sully, President of CGX and Chairman of ON Energy stated "We are pleased to have condensed into one year all of our preliminary exploration, successfully scheduling our operations into Guyana's dry season. By fast-tracking our operation, we had hoped to start drilling in the fourth quarter of 2004, but unfortunately hurricanes in the Gulf of Mexico and the Caribbean have delayed drilling until January 2005."
Warren Workman, Vice-President of CGX and President of ON Energy added "Our new seismic has supplemented 8 prospects that had been identified as leads with our geochemical programme. Further, an enhanced geochemical analysis on recently acquired samples suggests a likelihood of lighter oil. We are encouraged that closing this rights issue should allow us to expand our drilling programme to test additional targets."
The company incurred a net loss of G$4.99M for the period September 30 to December 30, 2003 with the majority of costs going to set up the company and the completion of financing.
The company's working capital was G$26.5M and during 2003 it raised $162M through the issuance of common shares which were subject to approval at the annual meeting.
On Energy spent G$73.8M on the onshore projects most of these funds were from advances from CGX Energy as the funds that were raised by the issuance of shares were not available until after the end of the period. On Energy will be dependent on advances from CGX Energy to complete the next stage of exploration until it is able to complete further financings. Cash on hand amounts to $110M of which $41.3M is to be deposited with Demerara Bank.
The report notes that CGX transferred to ON the 415,000 acre onshore portion of its Corentnye block exploration licence and a new adjoining licence, collectively referred to as the Berbice block. On then raised US$545,000 locally using on the first prospectuses filed under the Guyana Securities Act."
An observer notes that ON shares are in fact eligible to be traded on the exchange although there is no indication the company has looked at this as yet.
The rights issue has been sent to the Guyana Securities Commission for approval but it is unlikely shares will be traded on the exchange says one expert. He notes that it is a high risk capital investment aimed at sophisticated and knowledgeable investors.
These funds went towards geochemical surveys of the region in March, says the report and this was followed up by seismic tests which according to the report confirmed potential hydrocarbon traps that are consistent with the trapping mechanism in the nearest oil field, Tambaredjo, 200km to the east in Suriname... a shallow field at approximately 1000ft with 900 m barrels of heavy oil in place."
"In the Berbice block we are seeing deeper targets in the 3000 to 6000ft range from equivalent horizons, Further, new geochemical analysis ...has concluded that based on flourescence potential oil in the Berbice block is likely significantly lighter than in Tambaredjo."
"... We estimate maximum well depth of 7500ft which we hope will yield lighter crude than ...in Suriname. Because of the lack of oil and gas infrastructure in-country this will be a challenging programme...If we are fortunate enough to make a commercial discovery, early production and cash flow could be achieved by piping the oil to storage tanks on the coast from which it could be transported by shuttle tanker to the refinery in Trinidad. Considerable additional financing would be required at that time to build production transportation and storage infrastructure."
The directors of the company are Edris Dookie, Executive Vice President of CGX Resources; John Lewis, former CEO of Guyana Mining Enterprise; Chairman Kerry Sully and Warren Workman. Chandra Gajraj of Trust Co. is company secretary.
CGX Energy is a Canadian-based oil and gas exploration company focused on the exploration for oil in the Guyana. CGX is managed by a team of experienced oil and gas and finance professionals from Canada, U.S.A. and the UK.