Private Placement of Additional Convertible Notes and Announcement of 2006 Final Results
Frontera Resources Corporation (London Stock Exchange, AIM Market – Symbol: FRR), an independent oil and gas exploration and production company, today announces the private placement of a second tranche of Convertible Notes (Notes) and final resultsfor the year ended 31 December 2006.for the year ended 31 December 2006.
This announcement follows the Private Placement of Convertible Notes and Operational Update announced on 9 May 2007.
$20.5 Million Raised In Additional Private Placement
- $20.5 million raised through a private placement of convertible unsecured notes due May 2012. This placement is in addition to $46.5 million raised through an initial private placement described in the announcement of 9 May 2007 which said that the company might issue additional notes within 30 days of the initial issue. The additional Notes have been issued on the same terms and in accordance with the provisions of the initial placement.
- Net proceeds to support Frontera’s exploration and development projects in Block 12, Georgia.
- Results for the year ended 31 December 2006 reflect a net loss of $9.7 million reflecting the early stage nature of the portfolio and expenditures to evaluate the company’s primary business units of undeveloped fields and exploration opportunities.
- Strong year end 2006 cash position, enhanced by recent $67 million placement to aggressively pursue planned exploration and development work programs.
- Taribani Field Unit – Planned 20-well development program for Zone 9 remains on schedule to begin with re-entry and re-completion of Dino #2 well in June, followed by two new development wells this year. Eight additional Zone 9 wells planned in 2008.
- Basin Edge Play Unit – Drilling at Basin Edge ‘C’ Prospect, Lloyd #1 well, on schedule to commence in July to evaluate multiple objectives, with a primary Cretaceous target.
- Mirzaani Field Area Production Unit – Q1 2007 oil sales totalled U.S. $1.1 million, with two new wells and up to five new re-entries in undeveloped portions of the field scheduled during second half of 2007.
Steve C. Nicandros, President and Chief Executive Officer, commented:
“We are very pleased to have completed the placement of an additional $20.5 million of convertible notes in order to provide us with the ability to aggressively pursue our planned exploration and development programs in a manner that is commensurate with the significant potential that our historical investments have identified. Results from 2006 reflect investments related to extensive geophysical and drilling appraisal programs ahead of commencing new exploration and development drilling this year. As a result, the remainder of 2007 finds our company technically well positioned and strategically well funded in order to undertake its largest drilling campaign ever to realize value from our outstanding portfolio.”
Frontera Resources Corporation
Vice President, Investor Relations and Corporate Communications
Houston Office: (713) 585-3216
Brunswick Group LLP
Patrick Handley / Mark Antelme
London: +44 207 4045959
Notes to Editors:
1. 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 around the world. Frontera has operated in Georgia since 1997 where it holds a 100 per cent working interest in a production sharing agreement with the government of Georgia. This gives Frontera the exclusive right to explore for, develop and produce oil and gas from a 5,060 square kilometer area in eastern Georgia known as Block 12.
2. The reserve information herein was determined by the independent consulting firm of Netherland, Sewell & Associates in accordance with the petroleum resource definitions adopted by the Society of Petroleum Engineers (SPE), World Petroleum Council (WPC) and the American Association of Petroleum Geologists (AAPG) in 2000.
3. This release contains certain forward-looking statements, including, without limitation, expectations, beliefs, plans and objectives regarding the potential transactions, potential drilling schedule and ventures discussed in this release, as well as reserves, future drilling, development and production. Among the important factors that could cause actual results to differ materially from those indicated by such forwardlooking statements are future exploration and development results, availability and performance of needed equipment and personnel, seismic data, fluctuations in oil and gas prices, weather conditions, general economic conditions and the political situation in Georgia and neighboring countries. 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.
For more information, please see www.fronteraresources.com.
PRESIDENT AND CHIEF EXECUTIVE OFFICER’S STATEMENT
I am pleased to report that Frontera Resources continues to make good progress toward realizing the significant value that our historical investments have identified in the country of Georgia. As a result of encouraging results from our extensive geologic, geophysical and operational work programs in 2006, we are set to commence new drilling campaigns during the second half of 2007 across three of our four primary business units within Block 12. Accordingly, 2007 will find our company undertaking its largest drilling campaign ever with eleven wells planned.
Throughout 2006 and during the first quarter of 2007, Frontera made important strides toward realizing value from its assets through a continued dedication to the utilization of advanced technical and analytical applications to our ongoing projects. We have successfully complemented this with strategic efforts to ensure that we have the financial strength to undertake the work programs that we believe are necessary to achieve our overall business objectives.
In 2006, we made concerted efforts to process, interpret and map recently acquired 2D geophysical programs, and we acquired an important new 3D geophysical survey over one of our largest prospects. The results of this work have encouraged us to undertake new drilling in the Basin Edge Play Unit and the Taribani Field Unit in 2007, while also providing the basis for new drilling through a farmout at the Mirzaani Field Area Exploration Unit. Moreover, the progress of our drilling campaign at the Taribani Field Unit makes us optimistic that we are closer to our objective of achieving sustained commerciality from this large undeveloped field. Although we did not achieve this objective in 2006 due to certain technical challenges that were encountered, the results we obtained have nonetheless permitted us to identify specific solutions and now embark with confidence on the commencement of an extensive development plan associated with one of the twelve known reservoirs within the field. In addition, new field study work at the Mirzaani Field Area Production Unit showed us that we have the potential to increase our existing production and cash flow from this underdeveloped asset and this is the basis for a new drilling campaign in 2007. Finally, continued evolution of our large inventory of remaining undeveloped fields, prospects and leads continued such that we see extensive prospectivity for many years to come from Block 12 as a major core area for our company.
2006 Financial Highlights
Our 2006 financial results reflected the ongoing investment profile necessary to evaluate and evolve our portfolio of undeveloped fields and exploration opportunities with the goal of generating significant production and revenue in the near future. For the year ending December 31, 2006, we incurred a net loss of $9.7 million, or $0.15 per share on a fully diluted basis. This loss compared to a net loss of $4.4 million, or $0.10 per share for fiscal year 2005. The increase in the net loss was due primarily to lower revenues at our Mirzaani Field Area Production Unit related to timing of crude oil sales, as crude oil produced in the second half of 2006 was not sold until early 2007 and higher general and administrative costs related to preparation for the extensive 2007 drilling campaign.
Operating expenses were $14.3 million in 2006, an increase of $3.9 million from $10.4 million in 2005. Both years included charges that caused general and administrative expenses to be higher than normal. In 2006, we incurred a $3.1 million non-cash charge related to the expensing of stock options in accordance with provisions of SFAS 123R. In 2005, expenses included non-recurring costs related to Frontera’s IPO and arbitration proceedings with SOCAR. Excluding these charges in both years, general and administrative expenses in 2006 increased by $3.6 million compared to 2005 owing to additional costs associated with being a public company and the ramp-up of our drilling and seismic operations work programs in Georgia.
We realized other income of $3.8 million in 2006, which was a decrease of $0.4 million from $4.2 million in 2005. Both years included income from forgiveness of debt. In 2005, we realized forgiveness of debt income of $4.2 million from retiring a portion of the long-term debt at a discount. In 2006, forgiveness of debt income was realized by writing-off $2.3 million of long-term liabilities. In addition, interest expense in 2006 was $1.1 million lower than in 2005 as a result of a significant portion of the long-term debt being repaid in 2005.
Due to the exploration and undeveloped nature of our portfolio of assets, it is crucial to have sufficient capital to pursue necessary work programs designed to bring these holdings into production. In 2006, we continued our commitment to maintaining a strong balance sheet and to having sufficient cash to fund advanced technical work programs. At year end 2006, we had a strong balance sheet with almost $25 million in cash and marketable securities and only $3.5 million in debt. Combined with the net proceeds from the recent $67 million private placement, Frontera has sufficient funds to advance current work plans for each of its existing Business Units.
2006 Operational Highlights
- Taribani Field Unit – Drilling results, reservoir analysis and new mapping from recently acquired 2D seismic data provided the basis for focusing on the development of Zone 9 in 2007. Results revealed a better understanding of target reservoirs and permitted the design of specific technical solutions for completing new wells in order to manage sediment production as we produce oil. Based on this, a 36-month, 20-well development program for Zone 9 has been designed to commence with three wells in 2007, followed by eight wells in 2008. Zone 9 contains approximately 17% of the 118 million barrels of P3 reserves that have been identified within the field.
- Basin Edge Play Unit – Building on our philosophy of utilizing advanced geologic and geophysical data to guide drilling programs, we conducted extensive processing, interpretation and mapping of recently acquired 2D seismic data related to the large “B” and “C” prospects. Encouraged by this work, we acquired a new 80-square kilometer 3D seismic survey over the “C” prospect. Further processing, interpretation and mapping of this survey revealed a prospect of about 55 square kilometers in size, approximately 20% larger than originally contemplated. This work provided the basis to commence new drilling at this prospect in 2007. Total resources within our two prospects are estimated to be in excess of one billion barrels of recoverable oil.
- Mirzaani Field Area Production Unit – For 2006, oil sales revenue from this business unit totaled $0.5m and provided the basis for continued profitable operations, with an additional $1.1 million realized early in the first quarter of 2007 from a planned oil sale that slipped just beyond the end of the 2006 calendar year. A 2006 study of the Mirzaani Field revealed an opportunity to enhance existing production and book additional reserves through re-entries of existing wells and new drilling within the field from undeveloped locations. As a result, two new wells and up to five re-entries are scheduled for 2007.
- Mirzaani Field Area Exploration Unit – Processing, interpretation and mapping was completed on recently acquired geophysical data focused on the Mirzaani Deep Prospect situated directly below the currently producing Mirzaani Field. Our work revealed a larger than originally mapped structure. In order to accelerate testing of this important prospect in parallel with ongoing operations in our other business units, an effort is currently underway to seek a farm-out partner with which to undertake new drilling operations as soon as possible.
In 2006, Frontera delivered another year of strong performance in the areas of health, safety, and environmental stewardship. I am happy to report that across all areas of our business, we conducted our operations with respect and care for our employees, contractors, communities, and the environments in which we operate. We continually strive for zero harm to people and the environment.
In 2007, we are fortunate to find ourselves undertaking an aggressive new drilling campaign in the midst of a strong oil price environment. Market conditions strongly support our business plan. However, this favorable environment also challenges us with long lead times for sourcing equipment and materials. These lead times caused our plans to commence drilling operations at the Basin Edge Play Unit in the second quarter of 2007 to be slightly delayed until July. Maintaining our financial strength is proving essential to ensure that our operational plans can continue to be thorough and remain on schedule.
The year 2007 should prove to be a year of revealing important results for our company. While our recipe for conducting the exploration and production business is a methodical one, my colleagues and I believe that it is one that will most appropriately mitigate the risk of our investments and ensure the best possible chance to achieve the results we are seeking. To this end, we are operating with a strong sense of urgency to deliver profitable results from our measured work programs. This is our foremost objective.
On behalf of Frontera’s Board of Directors and employees, I am very grateful to the government and people of Georgia for working in partnership with our Company. Our relationship will undoubtedly yield important benefits for everyone, including all of Frontera’s shareholders around the world. Georgia’s continued commitment to creating a democratically stable political system and a strong economic climate continues to provide attractive encouragement for direct foreign investment. This is significant in that the overall environment for investment in Georgia has never been as strong as it is today.
Thank you for your continued interest and investment in Frontera Resources. Please know that the dedicated men and women of our company are all working very hard each and every day to reward this confidence by realizing value as soon as possible from the significant potential that our historical investments have identified.
Steve C. Nicandros
President and Chief Executive Officer