The non-binding term sheet with a private energy lender is expected to be at asset level and would be non-recourse to Cabot.
It is proposed that Cabot would borrow with an 11.5% interest rate with maturity set at 30 September. The arrangement comes with C$75,000 of commitment fees and also provides a 2% participatory interest in gross revenue gross over the term of the loan.
The proceeds would fund a winter work programme which will comprise four new horizontal development wells to produce existing proven reserves.
“Signing a term sheet for a significant amount of credit with a specialist lender in Calgary is an important building block in our plans to execute our growth strategy,” said chief executive Scott Aitken.
Additionally, Cabot informed investors that it has separately a share subscription agreement has been signed with High Power Petroleum LLC (H2P), an existing significant shareholder in the company, which will see some US$300,000 of new capital raised to support a summer work programme.
Further funds could be raised via an open offer to qualifying existing shareholders, including H2P which can purchase up to US$700,000 of additional new shares.
"We are pleased to have entered into a term sheet to debt-fund the winter work programme and secure equity funding from our supportive majority shareholder, h2p, to fund the summer work programme,” said James Dewar, Cabot’s interim chairman.
Aitken, meanwhile, highlighted: “With the H2P funding we can commence a summer work programme of nine well workovers and stimulations which will, subject to the satisfaction of the loan facility conditions precedent, enable access to the debt facility, then undertake a winter work programme of drilling four new horizontal development wells totalling a minimum US$7.0 million investment.
“Following this investment, management believe the winter work programme will have a positive impact on operations and overall production levels."