Hillcrest Petroleum Ltd (CVE:HRH) has signed a letter agreement with a Canadian oil and gas company, whereby the company will earn up to a 75% working interest and become the operator of record in two petroleum assets located in Western Canada, it said on Tuesday.
The company will provide expertise and financing to restore production in excess of 400 barrels of oil per day. The company expects that production from the fields will be restored during the second quarter of this year. Further production increases are expected through additional field development activity in the third and fourth quarters of 2017.
The primary terms of the Letter Agreement are:
- The Seller owns a 100%Working Interest in the Fields.
- The Company will earn up to 75% of the Seller's Working Interest in the Fields by contributing expertise and funding to restore the Fields' production to previous levels from existing wells. Hillcrest's working Interest will decrease after its initial investment is recovered from production revenue.
- Hillcrest will become Operator of the Fields.
The parties expect to complete binding definitive agreements by early March. This transaction is subject to TSX Venture Exchange approval.
"The project will provide cash flow and has the ability to grow through further development in and around the Fields. The assets being acquired had been producing in excess of 400 barrels of oil per day and were shut in when low commodity prices drove operating profit to unsustainable levels,” said Don Currie, Hillcrest Petroleum CEO.
“Current commodity prices allow Hillcrest to profitably re-activate existing wells with modest initial expenditure. In addition to turning production back on, the Fields have further development potential which we intend to aggressively exploit in the second half of 2017. While we continue to review US-based opportunities, our management team has a long history of creating value in the Western Canada Sedimentary Basin, and we believe this is an opportune time to re-enter this world class jurisdiction."
To further strengthen the Company's balance sheet and be consistent with the decision by the Company to concentrate on onshore oil and gas development and production, on February 3, the Company's wholly owned subsidiary Hillcrest GOM Inc. ("HGOM") was voluntarily placed into a Chapter 7 liquidation in the US Court for the Southern District of Texas.
HGOM is the owner of a small number of non-operated oil and gas leases in the shallow waters of the Gulf of Mexico. After extensive consultation with financial and legal advisors, the Company recognized that business conditions in the Gulf of Mexico, most particularly for relatively small companies with non-operated interests, have become unsustainable.
This voluntary liquidation will allow the Company to more effectively allocate resources to capture and develop attractive, low cost onshore assets and is expected to reduce the Company's consolidated current and non-current liabilities by approximately C$14.3mln.
The Company has granted an aggregate of 4,500,000 incentive stock options to certain directors, officers, employees and consultants for the purchase of common shares exercisable at a price of C$0.07 per share until February 21, 2022. All of the options granted vest immediately.