Gale Force Petroleum to be reinstated to trading, closes debt restructuring,
$1.5 million refinancing and three acquisitions in trust
SHARE CONSOLIDATION & REINSTATEMENT TO TRADING
The shares of the Corporation were consolidated on a basis of one (1) new share for each fifty (50) old shares. There are now an aggregate 1,243,187 common shares of the Corporation issued and outstanding. The Corporation has been advised that trading in the post-consolidated shares of the Corporation are scheduled to be reinstated effective the opening
SERIES OF TRANSACTIONS
The Corporation today announced that it has closed several transactions in trust (the "Transactions") which, in the aggregate, should permit the Corporation to stave off insolvency and provide a viable future for the Corporation.
The Transactions are summarized in point form as follows (greater details are provided below):
- Three purchase agreements have been closed in trust to purchase oil and
gas properties in Texas, Oklahoma and Tennessee with estimated future
cash flows from proved reserves estimated at $12.4 million;
- To finance the property acquisitions and to complete its restructuring,
the Corporation has closed in trust a first tranche of CA$1,507,500 out
of a maximum CA$3,500,000 in a private placement of shares issued at a
price of twenty-five cents (CA$0.25) per share and one half-warrant per
share with an exercise price of thirty-seven and one half cents
(CA $0.375) and a term of one year.
- A new agreement was closed in trust with the holders of the
Corporation's CA$1,830,000 secured loan to:
- Write-down CA$980,000;
- Convert CA$400,000 into 1,600,000 common shares of the Corporation
at a price of twenty-five cents (CA$0.25) per share; and
- Convert the balance of CA$450,000 into Series I Preferred Shares,
convertible into up to 1,800,000 common shares of the Corporation;
The Corporation has received the conditional approval from the TSX Venture Exchange for the closing of the Transactions, which requires the Corporation to meet various conditions, including the filing on SEDAR of a full disclosure document providing all pertinent details about the purchase of the target assets (the "Filing Statement"). The Corporation anticipates filing such Filing Statement on or about the end of February, 2010, at which time the Transactions will be released from escrow. The Transactions will therefore be held in trust until these requirements are met.
TRANSACTION DETAILS
Revised New Conditional Agreement for the Discharge of the Corporation's
Secured Loan
The Corporation's new agreement with the holders of its CA$1,830,000 secured loan (the "Lenders") is to write-down CA$980,000 of the loan, convert CA$400,000 of the loan into 1,600,000 common shares of the Corporation issued at a price of twenty-five cents (CA$0.25) per share and convert the balance of CA$450,000 into Series I Preferred Shares, such preferred shares being convertible into up to 1,800,000 common shares of the Corporation provided that the number of common shares acquired by the principal Lender, Primatlantis Capital, L.P. ("Primatlantis"), upon any such conversion, when combined with the number of Common Shares owned or controlled, directly or indirectly, by Primatlantis prior to the conversion, does not exceed ten percent (10%) of the shares issued and outstanding of the Corporation (collectively, the "Revised New Conditional Agreement").
The Revised New Conditional Agreement is conditional upon the Corporation closing the other Transactions. Of the total 3,400,000 common shares of the Corporation that may be issued to the Lenders, under separate agreements, directors and officers of the Corporation will have the right to purchase 560,000 common shares from the Lenders until
Until the release from escrow of the Transactions, one of the secured Lenders, Primatlantis shall provide interim financing to the Corporation of approximately
Private Placement
To finance the acquisitions (described in greater detail below), and to complete its restructuring, the Corporation has closed in trust a tranche of
Of the
Between 6,030,000 Units and 14,000,000 Units in total will be issued as part of the private placement. Each whole Warrant shall entitle its holder to purchase one (1) common share of the Corporation for twelve (12) months from the closing date at a purchase price of thirty-seven and one half cents (CA$0.375) per common share (the "Warrant Shares").
In connection to the closing of the
The Corporation may also pay further finder's fees equal to up to 10% of any additional gross proceeds of the financing, a portion of which may be paid through the issuance of Units.
Property Purchases
The Corporation has entered into agreements to purchase three property assets.
Please note that the definitions of "proved reserves", "proved developed reserves", "proved developed non-producing reserves", "proved undeveloped", "probable reserves" and "possible reserves" used herein are consistent with the Canadian Oil and Gas Evaluator's Handbook in compliance with Canadian National Instrument 51-101. Please also note that the estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation, and the estimated values disclosed herein do not represent fair market value.
The three property asset acquisitions the Corporation purchased are as follows:
(1) Acquisition #1. The Corporation has closed in trust the
purchase of a 100% working interest with an 80% net revenue interest
in an oil property in East Texas with 6 non-producing wells on 1,200
gross acres (1,200 net acres) (the "Wells Ranch Property").
In a report titled "Evaluation of Reserves Attributable to Gale Force
Petroleum in J.C. Wells Field, Wood County, Texas" prepared as at
December 1, 2009, the reserves of the Wells Ranch Property were
estimated by an independent qualified reserves evaluator, Waterson
Calhoun, P. Eng., at Crest Engineering Services(xxx), as described in
the following table:
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Oil Reserves for the Wells Ranch Property
-------------------------------------------------------------------------
Light & Medium Oil Heavy Oil Net Present Value
--------------------------------------- of Future Net
Reserve Category Revenues Before
Gross Net Gross Net Income Taxes
(bbls) (bbls) (bbls) (bbls) (10% Discount
Rate)(xx)
-------------------------------------------------------------------------
Undeveloped 68,900 51,700 0 0 $2,491,000
-------------------------------------------------------------------------
Total Proved 68,900 51,700 0 0 $2,491,000
-------------------------------------------------------------------------
Probable 20,900 15,700 5,800 4,400 $330,000
-------------------------------------------------------------------------
Total Proved
Plus Probable 89,800 67,400 5,800 4,400 $2,821,000
-------------------------------------------------------------------------
Possible 23,000 17,300 6,700 5,000 $375,000
-------------------------------------------------------------------------
Total Proved
Plus Probable
Plus Possible 112,800 84,700 12,500 9,400 $3,196,000
-------------------------------------------------------------------------
*The reserves were estimated using NYMEX (WTI) prices of $76,72 for
2009, $81,08 for 2010 and $85,71 for 2011, held constant thereafter, with
a price differential of -$15 per barrel for Sub Clarksville production
and -$3.50 for Paluxy production, such differentials being held constant
for the life of the reserves.
(xx)All reserves quantities are undiscounted estimates; only the Net
Present Value of Future Net Revenues in the last column of the table are
discounted estimates.
(xxx)Waterson Calhoun, P.Eng, is a consultant to the Corporation who
works regular with the Corporation to evaluate reserves and operations on
its properties.
The consideration for the Wells Ranch Property purchase is US$100,000
in cash and CA$100,000 via the issuance of 400,000 common shares of
the Corporation issued at a price of twenty-five cents (CA$0.25) per
share.
The Vendor of the Wells Ranch Property is at arms-length to the
Corporation.
(2) Acquisition #2. The Corporation has closed in trust the
purchase of a 75.5% working interest with an 80% net revenue interest
in a second oil property in East Texas with 27 non-producing well
bores on 900 gross acres (680 net acres) (the "Pine Mills Property").
In a report titled "Evaluation of Reserves Attributable to Gale Force
Petroleum in Pine Mills Field, Wood County, Texas" prepared as at
December 1, 2009, the reserves of the Pine Mills Property were
estimated by an independent qualified reserves evaluator, Waterson
Calhoun, P.Eng at Crest Engineering Services(xxx), as described in
the following table:
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Oil Reserves for the Pine Mills Property
-------------------------------------------------------------------------
Heavy Oil
Net Present Value of Future Net
Reserve Category --------------------- Revenues Before Income Taxes
Gross Net (10% Discount Rate)(xx)
(bbls) (bbls)
-------------------------------------------------------------------------
Developed
Non-Producing 26,400 16,700 $379,000
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Total Proved 26,400 16,700 $379,000
-------------------------------------------------------------------------
Probable 57,100 35,800 $688,000
-------------------------------------------------------------------------
Total Proved Plus
Probable 83,500 52,500 $1,067,000
-------------------------------------------------------------------------
Possible 440,700 275,300 $5,044,000
-------------------------------------------------------------------------
Total Proved Plus
Probable Plus
Possible 524,200 327,800 $6,111,000
-------------------------------------------------------------------------
*The reserves were estimated using a discount rate of 10%, using NYMEX
prices of $76,72 for 2009, $81,08 for 2010 and $85,71 for 2011, held
constant thereafter, with a price differential of -$18.39 per barrel,
such differentials being held constant for the life of the reserves.
(xx)All reserves quantities are undiscounted estimates; only the Net
Present Value of Future Net Revenues in the last column of the table are
discounted estimates.
(xxx)Waterson Calhoun, P.Eng, is a consultant to the Corporation who
works regular with the Corporation to evaluate reserves and operations on
its properties.
The consideration for the Pine Mills Property is the assumption of
approximately US$500,000 in short-term, unsecured trade payables.
The Vendor of the Pine Mills Property is at arms-length to the
Corporation.
(3) Acquisition #3. The Corporation has closed in trust the
purchase of 100% of the shares of Buccaneer Energy Corporation, LLC,
a private oil and gas company based in Dallas, Texas ("Buccaneer"),
which has oil and gas properties located in Texas, Oklahoma and
Tennessee.
Buccaneer's oil and gas assets are mainly 100% working interest
holdings, and one 20% working interest in a non-operated property,
with 10 producing wells and 15 non-producing wells on a total of
5,970 gross acres (2,620 net acres), and such assets also include
operating equipment, including one workover rig, as well as two
operating subsidiaries that hold no assets but are the registered
entities that operate Buccaneer's properties in Texas and Oklahoma.
In a report titled "Appraisal of Certain Oil and Gas Properties Owned
by Buccaneer Energy Corporation Located in Oklahoma, Tennessee, and
Texas" as at October 1, 2009, Buccaneer's oil and gas reserves were
estimated by an independent qualified reserves evaluator, Michele K.
Mudrone, P.Eng, at MKM Engineering, using a discount rate of 10%, and
using NYMEX prices until 2019 held constant thereafter* as
described in the following table:
-------------------------------------------------------------------------
Oil and Gas Reserves of Buccaneer Energy Corporation
-------------------------------------------------------------------------
Light & Medium Oil Natural Gas Net Present Value
--------------------------------------- of Future Net
Reserve Category Revenues Before
Gross Net Gross Net Income Taxes
(bbls) (bbls) (bbls) (bbls) (10% Discount
Rate)(xx)
-------------------------------------------------------------------------
Developed
Producing 45,000 36,000 302,000 237,000 1,751,000
-------------------------------------------------------------------------
Developed
Non-producing 145,000 113,000 617,000 481,000 5,436,000
-------------------------------------------------------------------------
Undeveloped 74,000 58,000 417,000 328,000 2,292,000
-------------------------------------------------------------------------
Total Proved 264,000 207,000 1,336,000 1,046,000 9,479,000
-------------------------------------------------------------------------
*The reserves were estimated using NYMEX (WTI) prices of $70. 27 for
2009, $70.94 for 2010 and $75.76 for 2011, etc., with a price adjustment
to the NYMEX prices that is indexed to the monthly average of the daily
closing prices received on the properties at the Cushing, Oklahoma
delivery point.
(xx)All reserves quantities are undiscounted estimates; only the Net
Present Value of Future Net Revenues in the last column are discounted
estimates.
The consideration for the purchase of Buccaneer is:
(i) The issuance 6,543,421 common shares of the Corporation issued at
twenty-five cents (CA$0.25) per share with a total issuance value
of CA$1,635,855, out of which 1,164,680 common shares are applied
to discharge CA$291,170 (US$276,612) in liabilities of Buccaneer
simultaneous with the closing;
(ii) The issuance of CA$256,073 in preferred shares of the Corporation,
such preferred shares being convertible into up to 1,024,291
common shares of the Corporation, out of which CA$234,474
(US$222,750) of the preferred shall issued be paid to discharge
liabilities of Buccaneer simultaneous with the closing;
(iii) The issuance of 672,340 warrants to purchase common shares of the
Corporation for a term of one year and an exercise price of
thirty-seven and one half cents (CA$0.375) per common share; and
(iv) The assumption of approximately US$1,294,844 in gross liabilities,
which is calculated as US$1,794,206 total liabilities as at
December 31, 2009 less the US$499,362 that shall be repaid and
discharged by the issuance of common shares and preferred shares
at closing (see sub-paragraphs (i) and (ii) above). The net
working liabilities assumed is US$833,034, which can be calculated
as US$301,560 current assets less US$161,328 in current
liabilities, less US$808,796 in long-term bank debt, less
US$164,520 in shareholder advances; this can otherwise be
calculated as US$1,275,061 in gross liabilities, less US$160,200
in deferred income taxes, less US$301,560 in current assets.
The total "deemed consideration" for Buccaneer and all its assets, including its current assets, is therefore CA$3,254,922 (CA$1,635,855 in common shares, CA$256,073 in preferred shares and CA$1,362,993 in total liabilities using an exchange rate of CAD/USA=0.95) .
The largest shareholder of Buccaneer,
The following table shows historical summary financial information for Buccaneer:
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Balance Sheets As at June 30, 2009 As at December 31, 2009
(audited) (unaudited)
-------------------------------------------------------------------------
Current Assets $624,206 $301,560
-------------------------------------------------------------------------
Capitalized Exploration
and Development $3,599,630 $4,158,690
-------------------------------------------------------------------------
Oil and Gas Services Equipment $250,000 $195,833
-------------------------------------------------------------------------
TOTAL Assets $4,473,836 $4,656,083
-------------------------------------------------------------------------
Current Liabilities 106,922 161,328
-------------------------------------------------------------------------
Liabilities to be Paid
in Shares at Closing* 499,362 499,362
-------------------------------------------------------------------------
Shareholder Advances(xx) 87,840 164,520
-------------------------------------------------------------------------
Bank Note at 6% (variable interest) 752,000 808,796
-------------------------------------------------------------------------
Deferred Income Taxes 160,200 160,200
-------------------------------------------------------------------------
TOTAL Liabilities $1,606,324 $1,794,206
-------------------------------------------------------------------------
TOTAL Shareholder's Equity $2,867,512 $2,861,877
-------------------------------------------------------------------------
For the Year Ended For the Six Months Ended
Income Statements for the June 30, 2009 December 31, 2009
Year ended (unaudited) (unaudited)
-------------------------------------------------------------------------
Oil and Gas Revenues $514,123 $164,253
-------------------------------------------------------------------------
Other Revenues 4,754 27,200
-------------------------------------------------------------------------
TOTAL Revenues 518,877 $191,453
-------------------------------------------------------------------------
Severance Taxes 36,463 9,978
-------------------------------------------------------------------------
Lease Operating Expenses 315,439 19,417
-------------------------------------------------------------------------
General & Administrative 195,808 91,014
-------------------------------------------------------------------------
Depreciation, Depletion and
Amortization 304,013 50,450
-------------------------------------------------------------------------
Interest Expense 55,419 16,170
-------------------------------------------------------------------------
NET Income ($388,265) $4,425
-------------------------------------------------------------------------
*These liabilities are composed of US$339,145 in shareholder advances
of Buccaneer and a US$180,000 payable, which shall be repaid at closing
via the issuance of 1,164,680 common shares of the Corporation to
discharge CA$291,170 (US$276,612) of liabilities and CA$255,298
(US$242,533) in preferred shares convertible into up to 1,021,192 shares
of the Corporation out of the total consideration paid by the Corporation
for Buccaneer.
(xx)Of the Shareholder Advances debt assumed, US$107,145 shall be repaid
in the short-term after closing; the balance of US$57,375 is a long-term
unsecured note bearing 6% interest.
More thorough financial disclosure about Buccaneer shall be provided prior to closing the Transactions when the Corporation publishes the Filing Statement on or about the end of February, 2010, at which time the Transactions will be released from escrow.
Upon the release from escrow of the Transactions, three new persons will join the Corporation:
(1) Mr. Chip Langston, will become the President and CEO and a director
of the Corporation. Mr. Langston has over 30 years experience in
executive and operational management in the public and private oil
and gas companies. In 1979, Mr. Langston was a key principal of
TransWestern, a TSX listed oil and gas company, which was sold in
1983 at a profit. In 1989, Mr. Langston was a also key principal of
Search Exploration, a NASDAQ listed company, which was sold at a
profit in 1993 to a junior major. Mr. Langston's has since built
private oil companies, including Buccaneer.
(2) Mr. Steve Hood, will become a director of the Corporation. Mr. Hood
is a professional director, having throughout his career helped grow
small private and public companies in to large companies, mainly in
the insurance, healthcare and investments industries.
(3) Mr. Eddie Loudon, P. Geol, will become a director of the Corporation.
Mr. Loudon has 30 years of experience managing oil and gas companies
and performing geological research, with a focus in Texas.
Upon the addition of Messrs. Langston, Hood and Loudon, the Board of Directors and Officers of the Corporation will be as follows:
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Board of Directors Officers
-------------------------------------------------------------------------
Michael McLellan - Executive Chip Langston - President and CEO
Chairman
-------------------------------------------------------------------------
Roman Boyko - Chairman of Michael McLellan - Executive Chairman
Audit Committee
-------------------------------------------------------------------------
Guillaume Dumas Antoinette Lizzi - Vice-President and CFO
-------------------------------------------------------------------------
Mazen Haddad Michael McLellan - Corporate Secretary
-------------------------------------------------------------------------
Steve Hood
------------------------------
Chip Langston
------------------------------
Antoinette Lizzi
------------------------------
Eddie Loudon
------------------------------
STOCK OPTION PLAN
The Corporation has amended its stock option plan and issued stock options under the new plan. The Amended Stock Option Plan permits the Corporation to issue up to 125,000 options (post-share-consolidation), which is less than 10% of shares of the Corporation issued and outstanding. The Corporation issued options to purchase an aggregate 125,000 shares of the Corporation at a price of
TRANSACTIONS SUMMARY
The table below displays an example of the capital structure of the Corporation following the closing of the Transactions:
-------------------------------------------------------------------------
Issue /
Quantity Exercise /
(Issued or Conversion
Shareholder Group Securities Underlying) Price
-------------------------------------------------------------------------
Existing Shareholders Common Shares 1,243,187 -
-------------------------------------------------------------------------
Secured Lender Common Shares 1,600,000 $0.25
-------------------------------------------------------------------------
Acquisitions Common Shares 6,943,421 $0.25
-------------------------------------------------------------------------
Private Placement
($1,507,500) Common Shares 6,030,000 $0.25
-------------------------------------------------------------------------
TOTAL Common Shares I&O 15,816,608
-------------------------------------------------------------------------
Warrants Warrants 3,687,340 $0.375
-------------------------------------------------------------------------
Employee Options Options 1,186,246 TBD
-------------------------------------------------------------------------
Secured Lenders Series I Preferred Shares 1,800,000 $0.25
-------------------------------------------------------------------------
Mr. Chip Langston Series I Preferred Shares 1,024,291 $0.25
-------------------------------------------------------------------------
TOTAL Fully Diluted 23,514,485
-------------------------------------------------------------------------
Following the closing of the Transactions, management of the Corporation considers that the restructuring of the Corporation completed. The restructuring has resulted in the elimination of the Corporation's secured loan, a substantial increase in the size and potential of the Corporation's oil and gas reserves, and sufficient working capital and cash flow from operations to continue as a going concern.
ABOUT GALE FORCE PETROLEUM INC.(TM) - www.GaleForcePetroleum.com
Forward looking statements:
Statements included herein, including those that express management's expectations or estimates of our future performance, constitute "forward-looking statements" within the meaning of applicable securities laws. Forward-looking statements - especially but not limited to any geological or reservoir information not supported by a NI 51-101 report - are based on assumptions and estimates that are subject to various risks and uncertainties including but not limited to geological risk, engineering risks, market risk and the risks disclosed under the heading "Business Risks" in the Corporation's periodic filings with Canadian securities regulators, including most recently in its Management Discussion and Analysis for the annual exercise ended
"Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release."
For further information: Michael McLellan, Chairman and CEO, (514) 333-9292
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