Completion of Equity Placing and Financial Update

 

 

 

Completion of US$18 million Equity Placing and Appointment of Broker

Financial and Operations Update

 

Calgary and Houston - June 18, 2020 - PetroTal Corp.  ("PetroTal" or the "Company") (TSX‐V: TAL and AIM: PTAL) is pleased to announce that its £14.1 million placing, as announced on June 12, 2020 ("Placing"), has now been completed and trading on AIM in the 141,203,891 new Common Shares, issued pursuant to the Placing ("Placing Shares") will commence this morning.   All monetary amounts in this release are in United States dollars, unless otherwise indicated. 

 

Financial and Operational Update

 

Further to the announcement of June 12, 2020 (the "Announcement") concerning the three year arrangement with PETROPERU S.A. ("Petroperu") the Company provides a further update on the current financial and operational status of the Company.

 

Contingent liability

 

Petroperu and the Company have agreed to structure the contingent liability due to Petroperu under the Bretana field oil sales contract ("Oil Sales Contract") and oil swap contracts with Petroperu (together, the "Contracts") into a liability to Petroperu to be paid by PetroTal over a three year period.

 

At May 31, 2020, approximately 2.1 million barrels ("mmbbls") of oil produced by PetroTal and sold to PetroPeru under the Contracts were either in the pipeline or storage tanks. 

 

The amount of this contingent liability to Petroperu will be definitively determined when the security arrangements for PetroTal's obligations are finalized, expected to be within the next 30 days.  Based on current Brent oil prices, the liability is expected to be approximately $26 million, as determined by the difference between the current Brent oil price and the previously booked sales prices for the 2.1 mmbbls that PetroTal has sold to Petroperu up to May 31, 2020.  PetroTal will be required to make equal monthly payments, for 36 months, to Petroperu based on the amount of the liability so determined.

 

The above-mentioned liability could be adjusted as PetroTal benefits from the higher forecast oil prices in the second half of 2020 and into 2021, when the underlying barrels are physically sold by Petroperu.  The eventual sale by Petroperu of PetroTal's oil at currently forecasted Brent prices would see the liability drop by $7 million to approximately $19 million.  A recent Platt's article showcases this possibility, when it reported that Petroperu has finalized arrangements to sell to BP 420,000 barrels of Bretana oil on July 10, 2020, based on the immediately prevailing 10-day average Brent price, less a quality differential of approximately 3.5%.  The liability adjustment is further showcased by the fact that the remaining oil is not expected to be sold by Petroperu until October 2020 and into early 2021, when we expect higher Brent oil prices. 

 

Sales terms

 

Under the original terms of the Oil Sales Contract, invoices submitted to Petroperu for oil sales were payable 180 days after submission which, at the time, reflected the time estimated for the oil to transit the Northern Oil Pipeline ("ONP") and be sold by Petroperu. The amendment to the invoice terms to 240 days reflects an updated estimate of this transit time.

 

To support the Company's liquidity, all prior invoices submitted by PetroTal under the Oil Sales Contract have been factored, at a nominal cost, through local Peruvian banks utilizing a facility arranged by Petroperu.  As per the terms of a typical factoring facility, at the end of the 240 day period Petroperu will pay the due amount to the local Peruvian banks.  PetroTal will continue to factor future invoices on the same terms.  The extension of the invoice terms from 180 to 240 days is not expected to have any impact on the timing of PetroTal's cash flows from oil sales.

 

Trade Payables

 

To ensure all suppliers were fully aligned with the Company's development strategy, the Company insisted they provide attractive payment terms for their services. This has allowed the Company to execute on time and budget from day one and expects to continue doing so. 

 

The Company has accounts payable and accrued liabilities of approximately $49 million, excluding the contingent liability to Petroperu.  Of this amount, $33.7 million represents accounts payable, with 47% of the amount not due until subsequent quarters, up to Q2 2021.  Accruals for various projects underway total $10.8 million with expected due dates ranging from Q3 2020 to Q2 2021.  The balance of $4.7 million is value-added tax ("VAT") that will be offset against VAT collected on subsequent oil sales.  Most of the amounts owed relate to the Company's drilling program in late 2019 and early 2020, along with construction of the central processing facilities at Bretana. 

 

The current amount owing to our suppliers is approximately $18 million.  In coordination with our suppliers, $6.6 million of this amount is expected to be paid by the end of June to facilitate the re-opening of the Bretana oil field in early July 2020. 

 

Cash

 

As referred to in the Announcement, taking into account the collection of oil sales invoices related to oil sales in March, April and May, 2020 in the next few weeks and the net proceeds of the Placing, PetroTal will have cash of approximately $28 million; leaving the business well funded to continue the development of the Bretana oil field, albeit at a slower pace.  The credit facility mentioned in the Announcement will further position the Company to complete Bretana's development and secure the required hedging strategy.

 

 

Bretana oil field

 

While the Bretana oil field remains shut in, operating costs at the field are minimal at approximately $0.1 million per month.  The Company is confident in its ability to ramp up activity at Bretana, ahead of the planned reopening in July, to ensure the oil field will return to normal operating status.

 

Bretana production and development

 

At the time of the shut in of the Bretana oil field in early May, the Company was producing approximately 11,433 barrels of oil per day ("bopd") from seven wells.  Comparatively, in Q1 2020, PetroTal produced 9,688 bopd, up 25% from 7,767 bopd in Q4 2019.  From April 1, 2020 to May 3, 2020, when the oilfield was shut in due to the Peruvian government Covid-19 health directive, average production was 11,465 bopd.  Due to the field shut down, average first half production will be 6,934 bopd.

 

When the field reopens, the Company expects that the production level attained at the time of field shut down will be achieved, following a short period of production evaluation.

 

Subject to the Brent oil price remaining at or above approximately $40 per barrel, the Company plans to drill another production well in Q4 2020 and anticipates average production of 9,100 bopd for 2020, inclusive of 11,190 during the second half of 2020.

 

Other capital projects, including further expansion of the central processing facilities and drilling an additional water disposal well, are currently deferred.

 

 

Appointment of Broker

 

The Company is pleased to announce the appointment of Auctus Advisors LLP as Joint Broker with immediate effect. Stifel Nicolaus Europe Limited remains as Joint Broker and Strand Hanson as Nominated & Financial Adviser.

 

 

Total voting rights

 

Following admission of the Placing Shares to trading on AIM, the Company will have 814,555,701 Common Shares in issue and there are no shares held in treasury.  For the purposes of the Disclosure Guidance and Transparency Rules, the total number of voting rights in the Company is calculated as the number of outstanding Common Shares, less the Common Shares not able to be voted on due to restrictions applicable to certain holders which results in a total voting rights figure of 812,822,411 Common Shares. This figure may be used by shareholders as the denominator for the calculations by which they determine if they are required to notify their interest in, or a change of their interest in, the Company under the FCA's Disclosure Guidance and Transparency Rules.

 

 

ABOUT PETROTAL

 

PetroTal is a publicly‐traded, dual‐quoted (TSXV: TAL and AIM: PTAL) oil and gas development and production company domiciled in Calgary, Alberta, focused on the development of oil assets in Peru.  PetroTal's flagship asset is its 100% working interest in Bretaña oil field in Peru's Block 95 where oil production was initiated in June 2018, and in early 2020 became the second largest crude oil producer in Peru.  Additionally, the Company has large exploration prospects and is engaged in finding a partner to drill the Osheki prospect in Block 107.  The Company's management team has significant experience in developing and exploring for oil in Northern Peru and is led by a Board of Directors that is focused on safely and cost effectively developing the Bretaña oil field. 

 

 

For further information, please see the Company's website at www.petrotal-corp.com, the Company's filed documents at www.sedar.com, or contact:

 

 

Douglas Urch

Executive Vice President and Chief Financial Officer

[email protected]

T: (713) 609-9101

 

Manolo Zuniga

President and Chief Executive Officer

[email protected]

T: (713) 609-9101

 

Celicourt Communications

Mark Antelme / Jimmy Lea

[email protected]

T : +44 (0) 208 434 2643

 

Strand Hanson Limited (Nominated & Financial Adviser)

James Spinney / Ritchie Balmer

T: +44 (0) 207 409 3494

 

Stifel Nicolaus Europe Limited (Joint Broker)

Callum Stewart / Simon Mensley / Ashton Clanfield

Tel: +44 (0) 20 7710 7600

 

Auctus Advisors LLP (Joint Broker)

Jonathan Wright / Rupert Holdsworth Hunt / Harry Baker

T: +44 (0) 7711 627449

 

 

READER ADVISORIES

FORWARD‐LOOKING STATEMENTS: This press release contains certain statements that may be deemed to be forward‐looking statements.  Such statements relate to possible future events, including, but not limited to: PetroTal's business strategy, objectives, strength and focus; the Company's ability to resume operations in accordance with developing public health efforts to contain COVID-19; additional cost reductions; and liability under the Swap Contract and Sales Contract and the settlement of such liability.  All statements other than statements of historical fact may be forward‐looking statements.  Forward‐ looking statements are often, but not always, identified by the use of words such as "anticipate", "believe", "expect", "plan", "estimate", "potential", "will", "should", "continue", "may", "objective" and similar expressions.  The forward‐looking statements are based on certain key expectations and assumptions made by the Company.  Although the Company believes that the expectations and assumptions on which the forward‐looking statements are based are reasonable, undue reliance should not be placed on the forward‐looking statements because the Company can give no assurance that they will prove to be correct.  Since forward‐looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties.  Actual results could differ materially from those currently anticipated due to a number of factors and risks.  These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses; and health, safety and environmental risks), commodity price volatility, price differentials and the actual prices received for products, exchange rate fluctuations, legal, political and economic instability in Peru, access to transportation routes and markets for the Company's production, changes in legislation affecting the oil and gas industry and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures.  In addition, the Company cautions that current global uncertainty with respect to the spread of the COVID-19 virus and its effect on the broader global economy may have a significant negative effect on the Company.  While the precise impact of the COVID-19 virus on the Company remains unknown, rapid spread of the COVID-19 virus may continue to have a material adverse effect on global economic activity, and may continue to result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Company.  Please refer to the risk factors identified in the Company's annual information form for the year ended December 31, 2018 and management's discussion and analysis for the three and nine months ended September 30, 2019 which are available on SEDAR at www.sedar.com.  The forward‐looking statements contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward‐looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

 

  FOFI DISCLOSURE: This press release contains future‐oriented financial information and financial outlook information (collectively, "FOFI") about PetroTal's temporary shut down of operations, the anticipated resumption of operations, storage capacity, cost reductions, pipeline transportation arrangements, liability under the Swap Contract and Sales Contract and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs.  FOFI contained in this press release was approved by management as of the date of this press release and was included for the purpose of providing further information about PetroTal's anticipated future business operations.  PetroTal disclaims any intention or obligation to update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law.  Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein.

 

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.