Through Frontera, IFR holds 50% of the outstanding Tonalli shares, with IDESA holding the remaining 50%. Tonalli holds the license contract for onshore oil and gas development Block 24, the Tecolutla Block, located in the state of Veracruz, Mexico.
Highlights of the agreement include:
- The Option Agreement aligns IFR’s and IDESA’s long-term strategy of building an energy leader in Mexico.
- Upon exercise of the Option, IDESA will have the right to nominate two directors to IFR’s Board of Directors with an ongoing right while a major shareholder of IFR to nominate 25% of the board seats.
- IDESA will subscribe for a minimum CDN$1 million of IFR Shares pursuant to the Future Private Placement (as described below).
“The signing of this Option Agreement is a major milestone and solidifies IFR’s relationship with IDESA,” stated IFR President and CEO Steve Hanson. “This next step in our established partnership firmly aligns IFR’s and IDESA’s interests in the Mexican upstream business and significantly broadens IFR’s access to investors and capital markets in Mexico.”
“IDESA is very proud to strengthen its relationship with IFR, we remain focused on delivering shareholder value from a more diverse business portfolio, as well as a broader access to capital markets to continue pursing our growth strategy in Mexico,” stated Patricio Gutierrez, Grupo IDESA Chairman of the Board. “The option agreement confirms IDESA’s historical commitment to our country’s energy sector and will certainly leverage our expertise in the upstream business.”
Terms of the Option Agreement
Under the terms of the Option Agreement, IFR’s wholly owned subsidiary has the right to acquire the outstanding shares of Tonalli held by IDESA prior to the expiry date of 25 September, 2020 upon payment of the exercise price in the amount of 70 million common shares in the capital of IFR (‘IFR Shares’), less the number of IFR Shares issued to IDESA (up to US$1 million) pursuant to the Future Private Placement.
The exercise of the Option is subject to certain customary closing conditions, as well as the approval of the TSX Venture Exchange (the ‘TSXV’) and the National Hydrocarbons Commission of Mexico (‘CNH’). There can be no assurance that the Option will be exercised as proposed or at all. The TSXV has neither approved nor disapproved the contents of this news release.
Other terms of the Option Agreement include: a capital contribution equalisation provision in the event that the Option is not exercised and IFR has made greater capital contributions to Tonalli than IDESA during the term of the Option; a covenant that for 18 months following the exercise and closing of the Option (‘Closing’), IDESA will not make a dividend or distribution of IFR Shares to IDESA shareholders, or, in the event of a change in control of IDESA during such 18 month period, transfer or sell any IFR Shares for a period of 18 months from the date of such IDESA change of control; a covenant that if the Option is exercised, on any issuance of IFR Shares other than pursuant to outstanding convertible securities, options or warrants, IDESA will be granted pre-emptive rights for 2 years following Closing to subscribe for IFR Shares based on IDESA’s pro rata ownership of IFR Shares at the date of such issuance; and a covenant that during the term of the Option and only prior to its exercise, IFR shall not participate in, or own securities of, any Mexican oil and gas opportunities or businesses other than through Tonalli.
The Future Private Placement
As set out in the Option Agreement, IDESA has agreed to subscribe for IFR Shares in the aggregate amount of a minimum of CDN$1 million pursuant to a future private placement of IFR Shares to be completed by IFR before 25 March, 2019 (the ‘Future Private Placement’). Further information regarding the Future Private Placement, including the offering size and issuance price, will be disclosed by IFR in due course.
Read the article online at: https://www.oilfieldtechnology.com/special-reports/27092018/ifr-enters-option-agreement-for-100-of-tonalli-energia/