Houston, Texas, U.S.A. – 16 May 2016
Frontera Resources Corporation
(“Frontera” or the “Company”)
Operations & Corporate Update and Issue of Equity
Frontera Resources Corporation (AIM: FRR), an independent oil and gas exploration and production company, provides the following corporate and operational update on its portfolio of assets in the country of Georgia.
South Kakheti Gas Complex:
Oil Window Operations Update: Since the Company’s announcement on 7 April 2016, related to its work program associated with the central portion of the South Kakheti Gas Complex’s oil-window, operations have progressed in studying results from the Company’s most recent three-well frac campaign. Results from these operations have demonstrated successful reservoir stimulations to wells that were not able to previously produce and, in the case of a producing well, existing production has been successfully increased by a factor of approximately five times. Over the past month, these results continue to confirm the potential for commercial large-scale exploitation of the significant associated oil-in-place volumes related to this area of the Complex. Production testing is currently ongoing related to the recent three well program.
Preparation for the next series of well stimulations is currently underway and planned to be executed within the next 60 days. This work in the central portion of the Complex’s oil-window is being conducted in conjunction with Frontera’s partner, Varang Exploration, which funded 100% of the multi-well stimulation campaign above and will fund the upcoming planned stimulation program in a similar manner in accordance with the term of their farm-in agreement’s earning provisions with the Company.
Gas Window Operations Update: Subsequent to the Company’s announcement on 25 April 2016, related to operations at the Complex’s gas-window, preparations are underway at the Udabno#2 well to undertake a testing program designed to evaluate an extensive gas-bearing interval. Results will continue to validate the Company’s extensive work related to large-scale exploitation of identified gas resources.
The Company continues to make considerable progress in executing its work program on the South Kakheti Gas Complex and is advancing the asset towards a full-scale development stage. Exploitation drilling plans have now been designed for each area that would result in staged ramp-up in production of both oil and gas from the Complex over time. Efforts are currently underway to secure financing for these previously announced oil-window and gas-window exploitation drilling plans.
Since the beginning of the year, the Company’s exploration works have produced a peak production of 750 barrels of oil equivalent per day (boepd) from its various testing operations. Of note, with respect to its exploration efforts in the western area of the South Kakheti Gas Complex, previously announced expectations to achieve daily gas production in excess of 7 million cubic feet per day from operations during Q1 of 2016 have been consistently delayed due to the Ministry of Energy’s discouragement of investment in the ongoing exploration of natural gas resources. Discussions are ongoing to alleviate the Ministry’s opposition to this work. In the meantime, Frontera has the capacity to deliver this volume of production from its exploration operations as previously announced on 23 December, 2015 and the Company is hopeful that a swift resolution can be achieved in order to continue to progress gas exploration efforts. The Company will endeavor to update its shareholders on any progress in this regard.
In this context, the Ministry of Energy in Georgia has published and offered misinformation in local and international public media which has sought to provide unreliable and misleading information into the market related to Frontera’s identification of extensive natural gas resources in the country. Frontera reiterates that these natural gas resources have been independently verified by Netherland Sewell & Associates Inc., a highly credible international industry consultant, and have been accurately reported in accordance with its obligations as an AIM quoted company. The Company therefore advises that reliance should only be placed on official notifications made by the Company.
In addition to current efforts to secure financing for planned development programs at the South Kakheti Gas complex, the Company is in the process of addressing financing associated with outstanding debt that will this year mature related to convertible note holders and executive management loans to the company. As plans are finalized, updates will be provided in due course.
The Company is also in the process of collecting $8.5 million in pending account receivables, the majority of which is related to tax refunds from the Georgian government. Frontera is confident that this will be received by the end of 2016.
Issue of Equity
As part of its ongoing alignment with certain key service providers, Frontera announces that it has issued 180,000,000 new ordinary shares in the Company (“New Ordinary Shares”) to two strategic service providers who hold no shares, and who will not have a disclosable interest, in the Company for procurement of approximately $780,000 of oil field services related to operations within the South Kakheti Gas Complex as well as its Shallow Fields Production Unit. Services will be provided to the Company in its ongoing operations to the end of June and will include workover, drilling, logging, completion and transportation services for these areas of focus. In addition, service will be provided for rehabilitation and reconstruction of oil and gas transportation access roads to the existing export rail terminal site from various field operations and for the provision of services and equipment including up to four drilling and workover rigs and for fracing and logging services. The Company believes that procurement of services in this manner serves to align and incentivize providers to ensure superior performance quality.
Application will be made for the New Ordinary Shares to be admitted to trading on AIM, which is anticipated to occur on or around Monday, 19 May 2016 (“Admission”). The New Ordinary Shares will rank pari passu with existing shares of common stock of the Company. Following Admission, the Company will have 4,076,363,695 ordinary shares in issue with voting rights. The Company does not hold any ordinary shares in treasury and accordingly there are no voting rights in respect of any treasury shares. The aforementioned figure of 4,076,363,695 ordinary shares may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company, under the disclosure requirements applicable to the Company.
Commenting on today’s announcement, Steve C. Nicandros, Chairman and Chief Executive Officer, said:
“Frontera’s ongoing work continues to move the Company closer to realizing significant value from the development potential in both the oil-window and gas-window areas of our South Kakheti Gas Complex. The Company has invested over $400 million into these assets since assuming operatorship and we are excited about the near-term prospect of reaping the benefit of this historic capital expenditure.
To date, our operations have largely been classified as exploration activities and these have greatly helped us to technically understand the progression towards development. Exploration operations carry an inherent risk association which impact certainty with regards to forecasting possible outcomes such as production forecasts and associated timelines. We have significantly reduced the sub-surface risk of our holdings through our exploration and associated technical work and feel confident that we will be able to deliver on our operational objectives as we move into the next development phase of our work.
For example, in the case of our gas-window operations, our work to date has showed us what is possible from a technical perspective in terms of producing gas from a pilot project, the results of which are both positive and encouraging. At the same time, our work has also revealed political challenges in the domestic gas market monopoly that has provided a perspective on what must be done to overcome such challenges before full-scale development can confidently be undertaken. Similarly, in the case of our oil-window operations, the progression of our well stimulation campaigns has delivered results that put us confidently on a path to meaningful development operations. With each successful stimulation campaign, we are able to refine outcome predictability and obtain the confidence to enter into development operations. This is how analogous plays that we have extensively studied in the United States have ultimately resulted in unlocking a game-changing outcome.
Overall, we remain extremely encouraged by the progress of our work and, in this context, we continue to be strongly aligned with all of our shareholders through our personal significant investment in the Company’s equity and debt. We are fully aware that certain macro challenges remain before we can realize the full potential of our portfolio, however we are as advanced as we have ever been in the Company’s 20 year history and look forward to the future with confidence.”
Frontera Resources Corporation
+1 (713) 585-3216
Ben Romney/Helen Born
+44 (0) 20 7466 5000
Cairn Financial Advisers LLP
61 Cheapside, London EC2V 6AX
Jo Turner/ Liam Murray
+44 (0) 20 7148 7900
Cornhill Capital Limited
+44 (0) 207 710 9610
Notes to Editors:
About Frontera Resources Corporation
Frontera Resources Corporation is an independent Houston, Texas, U.S.A.-based international oil and gas exploration and production company whose strategy is to identify opportunities and operate in emerging markets in Eastern Europe around the Black Sea. Frontera Resources Corporation shares are traded on the London Stock Exchange, AIM Market – Symbol: FRR. For more information, please visit www.fronteraresources.com.
- Information on Resource Estimates: The independent contingent and prospective resources estimates contained in this announcement were determined by the independent consulting firm of Netherland, Sewell & Associates (NSA) in accordance with the definitions and guidelines set forth in the 2007 Petroleum Resources Management System (PRMS) adopted by the Society of Petroleum Engineers (SPE). Internal resources estimates were determined by the Company. Gerard Bono, Frontera’s Vice President and Chief Reservoir Engineer, who is a member of the SPE, is the qualified person who reviewed and approved both independent and internal estimates in this announcement.
- This release may contain certain forward-looking statements, including, without limitation, expectations, beliefs, plans and objectives regarding the transactions, work programs and other matters discussed in this release. Exploration for oil is a speculative business that involves a high degree of risk. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: risks inherent in oil and gas production operations; availability and performance of needed equipment and personnel; the Company’s ability to raise capital to fund its exploration and development programs; seismic data; evaluation of logs, cores and other data from wells drilled; inherent uncertainty in estimation of oil and gas resources; fluctuations in oil and gas prices; weather conditions; general economic conditions; the political situation in Georgia and relations with neighboring countries; and other factors listed in Frontera’s financial reports, which are available at www.fronteraresources.com. There is no assurance that Frontera’s expectations will be realized, and actual results may differ materially from those expressed in the forward-looking statements.
- Glossary of Terms: BCF – means Billion Cubic Feet of gas. TCF – means Trillion Cubic Feet of gas. Mcf – means Thousand Cubic Feet of gas. OOIP – means Original Oil in Place. Bopd – means Barrels of Oil Per Day.