Madalena Energy (CVE:MVN) shares shot 15% higher on Wednesday as the company closed transactions with Pan American Energy LLC, Sucursal Argentina (PAE), relating to Madalena's 90% working interest in the Coiron Amargo Sur Este block (CASE) and Madalena has received the balance of the $10mln consideration owed.
As a result of the transactions, PAE holds a 55% working interest in, and operatorship of, CASE.
Madalena retains a 35% non-operated working interest in CASE, with the remaining 10% ownership of CASE held by Gas y Petroleo del Neuquen, the provincial oil and gas company in the province of Neuquen, Argentina.
Concurrently, PAE has agreed, subject to certain conditions, to provide Madalena with a loan of up to $40mln, on a limited-recourse basis, to be drawn down as required to finance certain capital expenditures. This limited recourse loan will bear interest at 7% per annum and is repayable in five years from the net revenue generated from the capital expenditure program.
The 2017 work program at CASE described in the company's Dec. 7, news release, comprising, among other things, two well re-entries, will be undertaken by PAE as the new operator of CASE, with a net benefit to Madalena of up to $5.6mln in carried capital costs. PAE intends to initiate the first of two well re-entries as soon as possible.
Use of proceeds
The proceeds from the transactions will be used to partially address the liquidity challenges currently being experienced by the company. In particular, Madalena expects that the overdue amounts payable to the operator at Coiron Amargo Norte will be satisfied and therefore the risk of forfeiture avoided.
Strategic alternatives update
The previously announced strategic alternatives process continues. The company, along with its financial adviser, Evercore Group LLC, is in continuing discussions with multiple potential counterparties. As indicated previously, there can be no assurance that any additional transactions will be consummated.
Madalena shares were up 15.4% at C$0.15 on Wednesday.