BY RICHARD GILBERT - BlackPearl Resources Inc. is moving forward with the construction of the Onion Lake thermal heavy oil project in Saskatchewan, after signing a deal with underwriters to raise funds for the capital expenditure.
FirstEnergy Capital Corp is leading a syndicate of underwriters, which have agreed to buy 26.5 million shares of BlackPearl at $2.65 per share for $70.2 million.
The shares are being purchased for resale to the public.
Onion Lake is a conventional heavy oil property that also has the potential for thermal development on a portion of the land, which is located on the Onion Lake First Nation reserve, along the border between Saskatchewan and Alberta, near Lloydminster.
Final regulatory approval for the construction of a 12,000 barrel per day thermal enhanced oil recovery (EOR) project at Onion Lake was received by BlackPearl Resources in the third quarter of 2013.
The company has decided to develop the project in phases, with the first phase designed for 6,000 barrels of oil per day, instead of proceeding directly with a 12,000 barrel per day project.
This approach allows the company to reduce the size of the initial phase of the project, while lowering capital requirements and technical risks.
BlackPearl has started detailed engineering work for a 6,000 barrel per day project and deferred procurement and construction until the financing was in place.
The capital costs for the first phase is expected to be about $175 million and the 12,000 bbls/d phase will cost between $300 million and $350 million.
Timing of development of these thermal projects is dependent on additional financing.
The underwriters have been granted an over-allotment option to buy up to 3.975 million additional common shares at a price of $2.65 per, which may be exercised in whole or in part up to 30 days after closing of the offering. If the over-allotment is fully exercised, total proceeds from the offering will be about $80.7 million.
In June 2013, BlackPearl decided not to proceed with a proposed US$350 million loan facility, due to volatility in the debt capital markets.
As a result, construction of the Onion Lake project was deferred until alternative financing was established, but engineering and certain long lead planning continued.
BlackPearl originally acquired its interest in Onion Lake when it acquired Pan-Global Energy Ltd. in 2006.
BlackPearl holds working interests, ranging from 50 per cent to 100 per cent, in about 19 sections of land, which total 12,231 net acres.