Joint Press Release - Birch Lake Energy Inc. and Veraz Petroleum Ltd. Reach Agreement in Principle in Connection with Proposed Business Combination
BIRCH LAKE ANNOUNCES FINANCING OF UP TO $2.0 MILLION AND PROVIDES CORPORATE UPDATE
CALGARY, Nov. 6, 2012 /CNW/ - Birch Lake Energy Inc. ("Birch Lake" or the "Corporation") (TSXV: BLK) and Veraz Petroleum Ltd. ("Veraz") (NEX: VRZ) announced today that they have reached an agreement in principle whereby, subject to the execution of definitive documentation and other customary conditions, the Corporation has agreed to acquire all of the currently issued and outstanding common shares of Veraz (the "Proposed Acquisition"). In connection with the Proposed Acquisition, Birch Lake will issue approximately 6.0 million common shares to the holders of Veraz common shares, on the basis of 0.112100125 of a Birch Lake common share for every one (1) Veraz common share.
Upon completion of the Proposed Acquisition, the board and management team of the Corporation will consist of the current directors and officers of the Corporation with the addition of one existing Veraz director, Gerardjan (Oppe) Cosjin. It is anticipated that a second existing Veraz director, Trevor Mitzel, will join the Corporation as an advisor upon completion of the Proposed Transaction, and will be appointed to the Board of Directors of Birch Lake at the Corporation's next Annual General Meeting (subject to shareholder approval).
Mr. Cosijn is a geologist with over 20 years of experience in the oil and gas industry and has held management positions in both public and private companies. Currently, Mr. Cosijn is the Vice-President, Geoscience and Business Development of Cygam Energy Inc. Prior thereto, from June 2007 to July 2012, Mr. Cosijn was the President and Chief Executive Officer of Veraz. Prior to joining Veraz, Mr. Cosijn was the President of a private consulting firm. From April 2005 to April 2006, Mr. Cosijn was the Vice President Exploration for Angle Energy Inc., a private oil and gas corporation. Mr. Cosijn was the Senior Geologist of True Energy Inc. from October 2003 to April 2005. Prior thereto, he was the Exploration Manager of Argonauts Group Ltd., a position he held from September 2001 until Argonauts Group Ltd. was sold in 2002. From 1992 to 2001, Mr. Cosijn worked as a geologist for several junior oil and gas corporations in Calgary and was with PetroCanada Resources Ltd. from 1987 to 1992. Mr. Cosijn holds a Bachelor of Science degree in Geology with a minor in Geophysics from the University of Calgary.
Mr. Mitzel has acted as the Chief Financial Officer of Big Country Energy Services LP, a private oilfield construction company, since January 2005. Prior to joining Big Country, Mr. Mitzel was the Chief Financial Officer of Arsenal Energy Inc. from September of 2004 to January of 2005. Additionally, Mr. Mitzel was the Chief Financial Officer of Environmental Management Solutions Inc. from April of 2002 to March of 2004. From April 2000 to April 2002, Mr. Mitzel was a Corporate Analyst in the Corporate Finance department of the TSX Venture Exchange, where he reviewed new listings and major transactions of listed companies. Mr. Mitzel received his Chartered Accountant designation in 1999 and articled with KPMG LLP in Calgary, Alberta, as a member of their Exploration and Production specialty group. Mr. Mitzel received his Chartered Financial Analyst designation in 2000 and received his Bachelor of Commerce Degree from the University of Calgary in 1996.
The Proposed Acquisition
Subject to receipt of all requisite approvals, including approval of the TSX Venture Exchange, approval of the shareholders of Veraz, approval of the Court of Queen's Bench of Alberta, approval of the board of directors of each of Veraz and Birch Lake and any other approvals that may be required, the completion of satisfactory due diligence by Birch Lake and Veraz, the entering into of definitive documentation and the satisfaction of other customary conditions, it is intended that Birch Lake will acquire Veraz by way of a Court approved plan of arrangement pursuant to the provisions of the Business Corporations Act (Alberta). A meeting of shareholders of Veraz is currently scheduled to be held on December 20, 2012 for the purpose of approving the Proposed Acquisition. Provided that shareholder approval is obtained and all other conditions to close are satisfied or waived, it is expected that the Proposed Acquisition will close on or about December 21 2012. It is anticipated that an information circular providing further details about the Proposed Acquisition and Birch Lake's business and prospects will be mailed to Veraz's shareholders in connection with the shareholder meeting in late November.
The common shares of Veraz are listed and posted for trading on the NEX Board of the TSX Venture Exchange. Veraz does not currently carry on any active business.
There are currently 53,523,580 Veraz common shares issued and outstanding and no in-the-money options or warrants. There are currently 51,941,217 Birch Lake shares issued and outstanding. After giving effect to the Proposed Acquisition but before the proposed financing discussed below, Birch Lake will have 57,941,217 shares issued and outstanding (of which former shareholders of Veraz will hold approximately 10.4%) and $2.3 million in cash (in addition to any funds received through the proposed financing).
Proposed Private Placement Financing
In connection with the Proposed Acquisition, the Corporation announces its intention to complete a non-brokered private placement offering of up to 8,333,350 common shares at $0.12 per common share and up to 7,142,900 flow-through common shares at $0.14 per flow through common share for aggregate gross proceeds of up to $2,000,008.00. A finder's fee of up to 7% of the gross proceeds of the offering may be paid, on all or any portion of the funds raised pursuant to this offering.
The closing of the offering is expected to occur on or about November 30, 2012, and is subject to regulatory approval, including approval of the TSX Venture Exchange. For further details on the offering, please contact the Corporation. All securities issued in connection with the offering will be subject to a hold period of four months from the date of closing. The net proceeds from the offering will be used to finance the Corporation's continuing capital program and for general working capital purposes.
Further to the Corporation's press release dated August 27, 2012, the Operator has been granted drilling licenses for two wells at Lochend. These are planned to be drilled and cased consecutively, beginning in early November, with completion and equipping to follow immediately. The Corporation will have sufficient cash resources upon the closing of the Proposed Acquisition to meet its drilling obligations.
Public information obtained from geoSCOUT that is independent from the Corporation in respect of lands located at 4-12-26-4, within 2.5 kilometers of the Corporation's lands and on-trend with both of its drilling locations, indicates an initial production ("IP") of 368 boepd (286 bopd and 500 mcfd) and an IP 90 of 286 boepd (193 bopd and 559 mcfd). To July 31, 2012, the last date that public production information is available, this well had produced 17,500 barrels of oil and 100 mmcf of gas. (Refer to Analogous Information below).
At the September 19, 2012 Alberta Crown land sale, 14.25 sections (9,120 acres) of P&NG Licence were acquired, immediately offsetting the Corporation's lands, for $17.3 million, or $1.21 million per section ($1,900 per acre) This large land bonus, together with continued successful drilling by industry nearby and immediately on trend with the Corporation's lands, attests to the technical merits of the Cardium play in this area.
Birch Lake holds an interest in 12.5 gross sections (4.7 net) on the Lochend Cardium trend, which have a potential 50 gross drilling locations (19 net) on 160 acre spacing, and is excited to initiate its drilling program on these lands.
Forward Looking Statements
This press release contains certain statements which constitute forward-looking statements or information ("forward-looking statements"), including statements regarding Birch Lake's business, the Proposed Acquisition, the timing of the meeting of Veraz shareholders and the closing of the Proposed Acquisition, the proposed financing and the anticipated timing thereof, and Birch Lake's drilling plans. Such forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Birch Lake's and Veraz's control, including the ability of Birch Lake and Veraz to satisfy the conditions to completion of the Proposed Acquisition and financing, the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, operational risks in exploration and development, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and the ability to access sufficient capital from internal and external sources. Although Birch Lake and Veraz believe that the expectations in their respective forward-looking statements are reasonable, they are based on factors and assumptions concerning future events which may prove to be inaccurate. Those factors and assumptions are based upon currently available information. Such statements are subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated or implied in the forward looking information. As such, readers are cautioned not to place undue reliance on the forward looking information, as no assurance can be provided as to future results, levels of activity or achievements. The forward-looking statements contained in this document are made as of the date of this document and, except as required by applicable law, Birch Lake does not undertake any obligation to publicly update or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.
BOE's are derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil (6 Mcf : 1 bbl). BOE's may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf : 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.
Certain information contained herein is considered "analogous information" as defined in National Instrument 51-101 ("NI 51-101") including the disclosure of IP rates and production results of wells offsetting the Corporation's lands at Lochend to July 31, 2012. Such analogous information has not been prepared in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook and Birch Lake is unable to confirm whether such IP rates and production results have been prepared by a qualified reserves evaluator. The information has been provided to provide evidence of oil production in the proximity of the Corporation's lands at Lochend.
About Birch Lake Energy Inc.
Birch Lake is a junior oil and gas company engaged in the exploration for and the acquisition, development and production of oil and natural gas reserves. The Corporation's common shares are listed to trade on the TSX Venture Exchange under the symbol "BLK".
Neither the 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.
SOURCE: Birch Lake Energy Inc.For further information:
William H. Petrie
President and Chief Executive Officer