TIDMPTAL
RNS Number : 7907P
PetroTal Corp.
12 June 2020
PetroTal Announces Three-Year Arrangement with Petroperu
Oil Sales Contract terms enhanced and extended to three
years
Calgary and Houston - June 12, 2020 - PetroTal Corp. ("PetroTal"
or the "Company") (TSX--V: TAL and AIM: PTAL) is pleased to
announce that it has entered into an arrangement with PETROPERU
S.A. ("Petroperu").
The arrangement will result in the Company's liability to
Petroperu in relation to the recent oil price movements being
payable over a three year period, rather than at the point of sale
of the oil. The arrangement has been structured to minimize the
impact of the recent oil price decline on the Company's cash flows
and forward plans, whilst allowing the Company to benefit from any
future increase in oil prices when physical oil sales occur. As
announced on May 7, 2020, the liability relates to the oil price
differential between the date that oil enters the Northern Oil
Pipeline ("ONP") and the current oil price (and, ultimately, the
physical oil sales price).
Additionally, PetroTal announces an extension of the oil sales
contract with Petroperu dated December 23, 2019 ("Oil Sales
Contract") from one year to three years on enhanced terms. All
monetary amounts in this release are in United States dollars.
Highlights
-- The contingent liability announced on May 7, 2020 has been
structured into a three-year payment arrangement ("Arrangement")
with Petroperu at an interest rate of 6.5%[1];
-- The contingent liability at the end of May is estimated to be approximately $43 million;
-- The Arrangement allows PetroTal to settle the obligations to
Petroperu now while still allowing the Company to benefit from
higher oil prices forecasted by the Brent forward strip pricing
curve when the physical oil sales occur;
-- PetroTal and Petroperu (the "Parties") have agreed to extend
the one-year Oil Sales Contract to three years upon expiry of the
current term on December 23, 2020;
-- The Parties will establish a framework to ensure that future
oil sales under the Oil Sales Contract have adequate hedge
protection to avoid future downside losses;
-- The Parties have agreed to further amendments to the Oil
Sales Contract for lower pipeline tariffs and fees during the
period of low oil prices; and,
-- PetroTal is coordinating with Petroperu to reopen the Bretana oil field in early July.
Arrangement
Pursuant to the terms of the Oil Sales Contract and the oil swap
contract referenced in PetroTal's May 7, 2020 announcement, a
contingent liability arose due to the significant reduction in oil
prices in early 2020. The purchaser of the oil, Petroperu, has
agreed to resolve this entire contingent liability on a one-time
basis that would see the obligation paid evenly over a three year
period, at an annual interest rate of 6.5%. At May 31, 2020, 2.1
million barrels of oil are either in the pipeline or storage tanks,
and based on the average oil price for May 2020, the contingent
liability is approximately $43 million. At March 31, 2020, there
were 1.8 million barrels of oil in the pipeline or storage tanks.
The actual liability will be determined based on the future Brent
oil price when the oil is sold. For reference, based on the average
Brent oil price of approximately $40/bbl for June to date, the
contingent liability is approximately $26 million. The Arrangement
will allow PetroTal to continue to benefit from the higher oil
prices forecasted by the Brent forward strip pricing curve when the
physical oil sales occur while allowing PetroTal to invest in the
Bretana oil field development.
As security for the Arrangement, the production facilities of
PetroTal at Bretana will be pledged under a trust agreement
pursuant to which such facilities will be held as security for the
benefit of Petroperu. Along with the contractual monthly
repayments, PetroTal may make additional pre-payments to facilitate
an earlier payout. Once Petroperu has been repaid in full, the
trust agreement will terminate and any security in respect of the
facilities shall be released.
PetroTal will continue to benefit from higher projected oil
prices when the oil volumes that have been sold to Petroperu under
the Oil Sales Contract and the oil swap contract are sold by
Petroperu in Q3 and Q4 2020.
Amendments to the Oil Sales Contract
In order to solidify the long-term operating relationship
between PetroTal and Petroperu, the parties have agreed to amend
certain terms of the Oil Sales Contract in recognition of the
current weak oil price conditions. The key changes are:
-- Extension of the term to three years from the current one-year term;
-- Given the extended time for Petroperu to realize the export
sales, future invoices submitted by PetroTal will be due 240 days
from when PetroTal delivers the oil at Saramuro;
-- PetroTal will continue to have the ability to immediately
factor future invoices, at a nominal rate, and therefore cash flow
is expected to remain largely unaffected by this longer invoice
period;
-- Reductions in the pipeline tariff and commercialization fee
graduated to correspond to varying levels of Brent oil prices;
-- At current Brent oil price levels with minimum production of
9,000 barrels of oil per day monthly average, the combined fees are
expected to drop from $11.00 per barrel to $8.67 per barrel;
-- The initial differential at the time Bretana oil is sold to
Petroperu has been adjusted to $6 per barrel (previously $4 per
barrel). If the actual differential is less than the initial $6 per
barrel at the time the oil is physically exported 8 to 12 months
later, then PetroTal will recapture the difference as revenue,
however if the actual differential is higher than $6 per barrel
then PetroTal will pay the difference. By increasing the initial
differential, PetroTal is reducing its future exposure to realized
price differential risk;
-- Future value fluctuation settlements will occur at the date
the physical oil is sold by Petroperu;
-- To minimize the future price differential, Petroperu will use
their best efforts to sell the Bretana oil at the best market
conditions; and,
-- Both parties have mutually agreed to hedge future sales of
the Bretana oil sold into the ONP to limit price exposure, at the
Company's expense.
Pipeline and Bretana Oil Field Shut Down
While the Bretana oil field remains shut down awaiting opening
of the ONP by Petroperu, PetroTal is coordinating with Petroperu to
reopen the Bretana oil field in early July, with the expectation
that the ONP restarts pumping oil very shortly thereafter. Both
PetroTal and Petroperu will fully abide by the health directives
issued by the Peruvian government in order to safely restart
operations during the ongoing COVID-19 pandemic.
Financial Update
PetroTal currently has no bank debt and continues its efforts to
establish a credit facility that will further enhance liquidity and
flexibility for the Company. Upon collection of oil sales invoices
in the next few weeks, PetroTal will have cash of approximately $11
million. The Company has obligations to its suppliers of
approximately $49 million, excluding the contingent liability to
Petroperu. Deferred payment plans are either in place or being
discussed with a number of suppliers that will result in the
payments being deferred to fit within PetroTal's cash resources and
future cash flow generated.
Carlos Barrientos Gonzales, General Manager of Petroperu,
commented:
"Petroperu appreciates the dedication and investment that
PetroTal has made in the development of the Bretana oil field.
Petroperu expects to complete the significant upgrade of the Talara
refinery in mid-2021 and the ability to utilize domestic oil
production will be an important element. PetroTal is an important
player in Peru's oil industry and is now an important oil producer
in the Country. The Oil Sales Contract between Petroperu and
PetroTal is an important link between our two companies, and I'm
pleased that we've reached agreement to extend it to three years
along with the additional contract enhancements. In recognition of
the significant investment PetroTal has made in the Bretana oil
field and production facilities, Petroperu is very comfortable with
allowing the contingent liability to be settled over the next three
years. The Bretana oil production coming through the Northern
Pipeline also represents an important benefit for the Loreto Region
and for the Country"
Manolo Zuniga, President and Chief Executive Officer,
commented:
"PetroTal is pleased to embrace the strong working relationship
it has with Petroperu. Oil production from the Bretana oil field is
an important component of Petroperu's pipeline and refinery
network. Solidifying a three-year arrangement for both settlement
of the contingent liability and ensuring future oil sales,
significantly enhances PetroTal's operations. It also sets the
stage for PetroTal to continue the development of the Bretana oil
field, as and when oil prices recover.
Our focus on balance sheet strength and enhancing liquidity will
ensure PetroTal has the financial strength for working capital
management and the ongoing development of Bretana. PetroTal
appreciates the support of its suppliers and the continued
dedication of our employees and contractors. Together, PetroTal
will emerge from the pandemic stronger, in order to rebuild value
for shareholders."
Eight Capital acted as strategic advisor to PetroTal on the
Arrangement with Petroperu.
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 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
Durch@PetroTal-Corp.com
T: (713) 609-9101
Manolo Zuniga
President and Chief Executive Officer
Mzuniga@PetroTal-Corp.com
T: (713) 609-9101
Celicourt Communications
Mark Antelme / Jimmy Lea
petrotal@celicourt.uk
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
Numis Securities Limited (Joint Broker)
John Prior / Emily Morris
T: +44 (0) 207 260 1000
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.
[1] TAMEX (Active Interest Rate Market Average Foreign Currency)
published by SBS
(https://www.sbs.gob.pe/app/stats/TasaDiaria_1.asp)
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END
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