Cue Energy Entered into Two-Year Unsecured Loan Agreement with NZOG

Source: 6/23/2022, Location: Asia

Cue Energy Resources Limited (Cue) and New Zealand Oil & Gas Limited have agreed to a $7 million, two-year unsecured loan (NZOG). This arrangement was signed in order to support Cue's ongoing exploration and development projects and guarantee that the company will have access to enough operating capital during anticipated spikes in spending in the near future.

Cue has exploration and development plans at its Amadeus Basin, Mahato PSC and Sampang PSC production assets underway, and over the next 12 to 24 months, to increase oil and gas production. While revenue is expected to remain strong at all assets throughout this period, significant forecast expenditure, risks of cost overruns and the expected timing of expenditure has led Cue to seek short term financing.

The key exploration and development projects which Cue is expecting to be funding in the near term are:

Amadeus Basin
The PV-12 exploration well is currently being drilled. As previously announced on 11 May 2022, Central Petroleum (CTP), the operator of Cue’s Amadeus Basin assets, forecast $3.1 million in additional costs for the PV-12 and Dingo-5 wells to 30 April 2022. Since then, drilling of PV-12 has been slower than expected which could result in further cost increases. As part of the sale and purchase agreement with CTP, Cue is obligated to pay CTP’s share of certain exploration and development costs up to a $12 million cap.

Cue’s commitment, including the CTP carry, for the remaining expected cost for this drilling program is currently estimated as $12.2 million.

In the Mereenie field, the joint venture is considering 6 well workovers and 2 infill wells during FY2023.

Mahato PSC
Fourteen more wells are planned to be drilled in the PB oilfield over the next 12-14 months, with extra processing facilities also being constructed. Twelve of these are oil production wells which are expected to deliver revenue, however the timing of costs and revenue is a consideration of this financing. Cue’s estimated expenditure commitment for this phase of development is approximately $13 million.

Sampang PSC
The Paus Biru Final Investment Decision (FID) is expected to be made by the Joint Venture in the coming months, with development expenditure, if and when approved, expected to be incurred over the following 24 months before first gas production. Cue’s estimated share of Paus Biru development funding is approximately $15 million.

Business development
Surety of available funding will also provide flexibility to Cue for any business development activities opportunities which may arise throughout the term of the loan and beyond.

Key financing considerations
When assessing funding alternatives for the anticipated increase in exploration and development initiatives, Cue sought expressions of interest for potential funding from Australian commercial banks. The conclusion reached from these discussions was that these traditional sources of funding were not available to Cue in the current circumstances due primarily to the relatively small size of the funding required and the short-term nature of Cue’s needs.

Loan terms
The purpose of the loan is to provide funds for the continued development of Cue’s assets and working capital. The loan is unsecured, with an interest rate of 10% p.a. fixed for the term

of the loan and an establishment fee of 1.5% of the loan amount. The term of the loan is two years and early repayments are allowed with no penalty.

The key terms of the Loan Agreement are summarised in the annexure to this announcement. NZOG is a related party of Cue, holding 50.04% of shares. As such, an independent board committee comprising of Cue Independent Directors reviewed and approved the terms of the loan.

Cue CEO Matthew Boyall commented on the loan and upcoming activities:
“Cue has a number of exciting exploration and development projects within our portfolio, which are all aimed at increasing our oil and gas production.

While continued strong revenue is expected from our existing production assets, we are currently drilling in the Amadeus basin, have started a 14 well program in the Mahato PSC and expect a Final Investment Decision on the Paus Biru gas development in the Sampang PSC, which all have significant near-term expenditure requirements.

The current inflationary environment has the potential to impact planned costs. This loan will ensure Cue retains the financial strength to participate in not only our committed projects but any other proposals which arise to increase production at our assets. The terms of the loan are structured to provide flexibility for the loan amount to be reduced as outcomes of individual projects becomes clearer.”

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