Reconnaissance Energy Africa has sold off its Mexican unit in exchange for debt cancellation.
Chame Energy is buying the Mexico assets and will take ownership of RenCan, a wholly owned subsidiary of ReconAfrica.
The deal has an effective date of October 25. Closing is subject to approval from the TSX Venture Exchange.
Under the agreement, a RenCan loan of $7.5 million to ReconAfrica is terminated. Chame is taking on all RenCan’s debts and liabilities.
However, ReconAfrica is due to pay a finder’s fee of $200,000 to Willem Veltman and Kevin Smith on closing.
As at the end of June, ReconAfrica reported a working capital deficit of C$52.7mn ($38.2mn). Stripping out the Mexican assets, it had a working capital surplus of C$3.12mn ($2.3mn).
The company had racked up $101.5mn ($73.48mn) in royalties and penalties on its Chiapas block, in Mexico.
Chame is owned and controlled by Edgar De la Torre. ReconAfrica said De la Torre had been providing oilfield services in Mexico for more than 40 years.
ReconAfrica president and CEO Brian Reinsborough welcomed the deal. The sale “provides the company with access to working capital while allowing us to exit Mexico and remove the legacy liabilities from our balance sheet in excess of US$100 million”.
ReconAfrica can focus on securing a joint venture for its Namibian assets, he said, and planning a return to drilling. The company plans to begin a “multi-well, high impact exploration programme” in the first quarter of 2024.
ReconAfrica teamed up with Lukoil in 2017 on the Amatitlan block. It also has the three Chiapas blocks and the Ponton block. It is producing from one well in the Mundo Nuevo and one in the Malva blocks. In the most recent quarter, these provided $4.2mn of revenue.
The company had made a commitment to spend $31mn on the Chiapas blocks by February 2024.
Updated at 4:07 pm to remove confusion over Chame as an arms length party.