Elkwater Resources Ltd. Announces Recapitalization Financing and New Management Team

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CALGARY, June 25, 2014 /CNW/ - Elkwater Resources Ltd. ("Elkwater" or the "Corporation") (TSX Venture: ELW)  is pleased to announce that it has entered into a definitive reorganization and investment agreement (the "Agreement") with Doug Bailey, Frank Muller, Darrin Drall, Glenn Cartier and Ryan Heath (the "Initial Investor Group") which provides for: (i) a non-brokered private placement of up to an aggregate of approximately $25 million (the "Private Placement"); (ii) the appointment of a new management team and board of directors (collectively, the "New Management Team"); and (iii) a rights offering (the "Rights Offering") to current holders of common shares ("Common Shares") of Elkwater (collectively, the "Transaction").  Completion of the Transaction is subject to customary closing conditions, including the approval of the TSX Venture Exchange (the "TSXV").  Upon completion of the Transaction, it is anticipated that the shareholders of Elkwater will be asked to approve, at a special meeting called for such purposes: (i) a change of the Corporation's name to "Striker Exploration Corp."; and (ii) a consolidation of the Common Shares.

The New Management Team will be led by Doug Bailey as President & Chief Executive Officer, Frank Muller as Vice President, Exploration, Darrin Drall as Vice President, Engineering, Glenn Cartier as Vice President, Production and Operations and Ryan Heath as Vice President, Land and Business Development.

Upon closing of the Transaction, the new board of directors will be comprised of Neil Roszell, Kevin Olson, John Ferguson, Patrick R. Ward and Doug Bailey.  Sony Gill, a partner in the CFMA Group in the Calgary office of the national law firm McCarthy Tétrault LLP, will act as Corporate Secretary.

New Management Team

The New Management Team has a solid track record of creating value in high-growth, junior oil and gas companies through an integrated strategy of acquiring, exploiting and exploring.  The members of the New Management Team have been involved in senior leadership roles with oil and gas producers, including companies focused in the Viking oil resource plays in Alberta and Saskatchewan.  

The New Management Team will apply its past experience to grow the recapitalized Elkwater through a combination of organic growth and acquisitions.

 

Doug Bailey,
President and Chief Executive Officer

 

Doug Bailey is a certified general accountant with over 21 years of financial management, reporting and accounting experience primarily in the oil and gas industry.  Most recently, Mr. Bailey was the Chief Financial Officer of Hyperion Exploration Corp. from July 2010 to December 2013. Prior thereto, Mr. Bailey was the Chief Financial Officer of Canadian Phoenix Resources Corp. from June 2008 to May 2009. Mr. Bailey was also involved in the restructuring of numerous E&P companies including Action Energy, Magnus Energy and Arapahoe Energy.

 

Frank Muller,  
Vice President, Exploration

Frank Muller is a professional geologist with over 30 years of geosciences, management and corporate experience specializing in the Viking, Mannville, Montney and Devonian production horizons throughout the Western Canadian Sedimentary Basin.  From December 2007 to October 2012, Mr. Muller was a co-founder and Senior Vice President of WestFire Energy Ltd. until its amalgamation with Guide Exploration Ltd. to form Long Run Exploration Ltd.  Prior thereto, Mr. Muller was the Senior Vice President, Exploration of Real Resources Inc. from 2001 to 2007. Mr. Muller graduated from St. Francis Xavier University in 1984 with a Bachelor of Science in Geology with Honors.

 

Darrin Drall,    
Vice President, Engineering

Darrin Drall is a professional engineer with over 32 years of engineering, management and corporate experience in the oil and gas industry.  Mr. Drall's experience includes Vice President, Engineering of Pinecrest Energy Inc. since February 2013, Vice President, Engineering of WestFire Energy Ltd. from 2008 to 2012, Vice President Engineering and Operations of Burmis Energy Inc. from 2003 to 2008 and Vice President Corporate Development at Elk Point Resources Inc. prior thereto. Mr. Drall graduated from the University of Manitoba in 1982 with a Bachelor of Science degree in Mechanical Engineering.

 

Glenn Cartier,
Vice President, Production and Operations

Glenn Cartier is a professional engineer with 32 years of engineering, management and corporate experience in the oil and gas industry.  From October 1, 2012 to December 2013, Mr. Cartier was the President and Chief Executive Officer of Petrox Resources Corp., a TSXV listed exploration and production company with operations in Western Canada.  Prior thereto, Mr. Cartier was Vice President, Business Development and Director of Ki Exploration Inc. from August 2011 to May 2012. Prior thereto, Mr. Cartier was a co-founder, President, Chief Executive Officer and Director of Siphon Energy Corp. from June 2008 to August 2011.  Mr. Cartier graduated from the University of Calgary in 1983 with a Bachelor of Science degree in Mechanical Engineering.

 

Ryan Heath,   
Vice President, Land and Business Development

Ryan Heath is a professional landman with 15 years of negotiation, management and corporate experience in the oil and gas industry.  From November 2010 to June 2014, Mr. Heath was the Vice President, Land and Business Development of Hyperion Exploration Corp.  Prior thereto, Mr. Heath was a co-founder and Vice President, Land and Business Development of Severo Energy Corp. until its sale to Paramount Energy Trust.  Mr. Heath graduated from the University of Calgary in 2000 with a Bachelor of Commerce degree in Petroleum Land Management.

 

The New Management Team, in consultation with the proposed new members of the board of directors, are actively engaged in interviewing a number of strong candidates to act as the Chief Financial Officer of Elkwater to be effective upon completion of the Transaction.  The New Management Team and proposed board of directors are focused on ensuring that the successful candidate has strong qualifications, extensive public company experience and a track record of success.  The New Management Team recognizes the value and importance of strong financial reporting and disciplined internal controls in ensuring the future success of the Corporation.

New Board of Directors

The directors have strong track records and distinguished careers in both the oil and gas industry and capital markets and have held prominent lead positions within a range of successful companies. Their combined experience and expertise will provide the New Management Team with invaluable advice, guidance and mentorship.

Neil Roszell

Neil Roszell, P. Eng., has been the President and Chief Executive Officer of Raging River Exploration Inc. ("Raging River") since March 2012. Prior thereto, Mr. Roszell served as the Chief Executive Officer and President of Wild Stream Exploration Inc. from October 2009 to March 2012. Prior thereto, Mr. Roszell served as the Chief Executive Officer and President of Wild River Resources Ltd. from February 2007 to July 2009 and as the President and Chief Operating Officer of Prairie Schooner Petroleum Ltd from August 2004 to September 2006. Mr. Roszell served as the Vice President of Engineering of Great Northern Exploration Ltd. from September 2001 to June 2004.

 

Kevin Olson

Mr. Olson is the President of Kyklopes Capital Management Ltd. and a director of Raging River.  Prior thereto Mr. Olson was a Portfolio Manager with EnergyX Equity Inc from 2001 to 2011. Mr. Olson was the Vice President, Corporate Development of Northrock Resources Ltd. from 2000 to 2001. From 1993 to 1999, Mr. Olson worked with FirstEnergy Capital Corp. as Vice President, Corporate Finance. 

 

John Ferguson

John Ferguson is the President and Chief Executive Officer of RMP Energy Inc. Prior thereto, Mr. Ferguson was Vice President, Chief Financial Officer and Corporate Secretary of RMP Energy Ltd. (a private oil and gas company). Mr. Ferguson held the position of Vice President of Finance and Chief Financial Officer with Rider Resources Ltd. from 2003 to 2008, Meota Resources Corp. from 2000 to 2002 and Poco Petroleums Ltd. from 1992 to 1999.

 

Patrick R. Ward

Patrick Ward, P. Geol., has been the President and Chief Executive Officer of Painted Pony Petroleum Ltd. since May 6, 2007.  Prior thereto, Mr. Ward served as the Vice President, Exploration of Innova Exploration Ltd., a public oil and gas company, from May 2004 to May 2006. Mr. Ward co-founded Chowade Energy Ltd., a private oil and gas company, in 2003 which merged into Innova Exploration Ltd. in 2004. From 1999 to 2003, Mr. Ward was Manager, Geology & Geophysics with the NCE Resources Group and Petrofund Energy Trust, a public oil and gas energy trust. Mr. Ward was Vice President and Chief Operating Officer at Rockport Energy Corp., a public oil and gas company, from 1998 to 1999. Mr. Ward held various positions, lastly as Exploration Manager from 1981 to 1997 for Total Petroleum Canada (subsequently Rigel Oil & Gas, both public oil and gas companies).

Corporate Strategy

The New Management Team, together with the proposed new members of the board of directors, have extensive experience in creating shareholder value through a focused full-cycle business plan and believes the current market environment provides an excellent opportunity to reposition Elkwater as a high growth junior oil and gas company.  The New Management Team believes that Elkwater will be well positioned to take advantage of acquisition opportunities in the current market.

Following the completion of the Transaction, Elkwater expects to focus on predominantly light oil opportunities in Western Canada, growing through a targeted acquisition and consolidation strategy complemented by development and exploitation drilling.  The current Elkwater production base (current production of approximately 170 boepd) and the recapitalized corporate structure will allow for the exploitation of the current drilling inventory and the expansion of the Corporation's opportunity suite through internally generated prospects and strategic acquisitions.

Upon completion of the Transaction, the recapitalized Elkwater is expected to have a net cash position of approximately $20.0 million, assuming the Private Placement is fully subscribed.  The New Management Team believes that this starting point will provide them with a platform for aggressive growth through strategic acquisition and internally generated prospects.

Upon completion of the Transaction and subject to all regulatory and shareholder approvals, it is anticipated that: (i) the New Management Team will change the name of the Corporation from "Elkwater Resources Ltd." to "Striker Exploration Corp."; and (ii) the Corporation will complete a consolidation of its Common Shares, at a ratio to be determined by the New Management Team.

Private Placement

Pursuant to the Private Placement, the Initial Investor Group, together with additional subscribers identified by the Initial Investor Group, will subscribe for up to a maximum of 60.0 million units (the "Units") of Elkwater at a price of $0.10 per Unit and up to a maximum of 190.0 million Common Shares at a price of $0.10 per Common Share for maximum total proceeds of $25 million.  Each Unit shall be comprised of one Common Share and one Common Share purchase warrant (a "Warrant").  Each Warrant will entitle the holder to purchase one Common Share at a price of $0.12 for a period of five years.  The Warrants will vest and become exercisable as to one-third upon the 20-day weighted average trading price of the Common Shares (the "Market Price") equaling or exceeding $0.20, an additional one-third upon the Market Price equaling or exceeding $0.265 and a final one-third upon the Market Price equaling or exceeding $0.335.

The completion of the Private Placement is expected to occur on or about July 9, 2014, and may be completed in one or more tranches (the "Closing"). The resignation of the current board of directors and management team of Elkwater and the appointment of the New Management Team will occur contemporaneous with the Closing. The closing of subscriptions for any remaining Units and of the Common Shares will occur on such dates as determined by the Initial Investor Group.

Proceeds from the Private Placement will be used for general corporate purposes.

Rights Offering

Upon completion of the Private Placement, and subject to Elkwater receiving the Written Consent (as defined below) on or before July 2, 2014, Elkwater shareholders will be entitled to participate in the Rights Offering, which is expected to be conducted by way of a Rights Offering Circular. Pursuant to the Rights Offering, each shareholder as of the record date for such offering (the "Record Date") will be issued one right ("Right") for each Common Share held on the Record Date, entitling that holder to purchase one Common Share for every four Rights held at a price of $0.10 per Common Share at or before the expiry time of the Rights Offering, following which all outstanding Rights shall terminate and expire.  Subscribers of Common Shares under the Private Placement will not be entitled to participate in the Rights Offering with respect to any securities acquired pursuant to the Private Placement. The Rights Offering is subject to applicable regulatory approval, including the TSXV.

Shareholder and Stock Exchange Approvals

Completion of the Transaction is subject to a number of conditions and approvals including, but not limited to, the approval of the TSXV and shareholder approval.  Under the policies of the TSXV, the completion of the Private Placement is subject to the approval of the shareholders of Elkwater as the completion of the Private Placement will result in the creation of a new "control person" (as defined under the policies of the TSXV).  In addition thereto, the appointment of the New Management Team is subject to shareholder approval under the policies of the TSXV.  The required disinterested shareholder approval may be obtained by Elkwater either by receipt of written consents by holders of more than 50% of the issued and outstanding voting shares of Elkwater (the "Written Consent") effective as of the close of business on June 25, 2014 or by approval of a resolution at a special meeting of shareholders (the "Elkwater Meeting").  Pursuant to the Agreement, Elkwater has agreed to obtain the Written Consent on or before July 2, 2014, failing which the Initial Investor Group has the right to terminate the Agreement.  In the event that the Written Consent is not obtained on or before July 2, 2014 and the Initial Investor Group waives its termination right, Elkwater has agreed to convene and hold the Elkwater Meeting on or before August 15, 2014.

The Corporation

Elkwater consists of approximately 170 boepd of production (approximately 50% oil and NGLs) in eastern Alberta and western Saskatchewan and has approximately 19.1 million Common Shares outstanding on a fully diluted basis and current combined working capital deficiency and long term debt of approximately $4.0 million, excluding the costs of the Transaction. Upon completion of the Private Placement and assuming the exercise of all Rights issued in connection with the Rights Offering, Elkwater will have approximately 269.1 million Common Shares, and assuming the exercise of all Warrants issued in connection with the Private Placement, there will be approximately 329.1 million Common Shares outstanding on a fully diluted basis.

Board of Directors' Recommendation

The board of directors of Elkwater has determined that the transactions contemplated by the Agreement are in the best interests of its shareholders, has unanimously approved such transactions and recommends that Elkwater's shareholders approve the Agreement and the Transaction and execute the Written Consent.  Any shareholder of Elkwater wishing to obtain and execute the Written Consent should contact Elkwater as set forth below.

Directors and officers of Elkwater who, in aggregate, own, directly or indirectly or exercise control or direction over approximately 43% of the Common Shares, have entered into support agreements or agreed to enter into support agreements pursuant to which they have agreed or will agree, among other things, to execute a Written Consent.

The Agreement

The Agreement contains a number of customary representations, warranties and conditions and provides for a non-completion fee of $50,000 payable by Elkwater to the Initial Investor Group, and a non-completion fee of $50,000 payable by the Initial Investor Group to Elkwater, in certain circumstances.  The Agreement also provides that the Initial Investor Group shall receive an expense reimbursement fee of up to $50,000 in the event the Written Consent is not obtained and Elkwater shareholders do not approve the Transaction at the Elkwater Meeting.  The complete Agreement will be accessible on Elkwater's SEDAR profile at www.sedar.com.

Advisors

Desjardins Capital Markets is acting as financial advisor to the Initial Investor Group. Clarus Securities Inc. and FirstEnergy Capital Corp. are acting as strategic advisors to the Initial Investor Group.

About Elkwater

Elkwater Resources Ltd. is a Calgary, Alberta based company engaged in the oil and gas exploration and development industry.  The Corporation's Common Shares are listed on the TSXV under the trading symbol "ELW".

Forward-Looking and Cautionary Statements

This news release may include forward-looking statements including opinions, assumptions, estimates, the New Management Team's assessment of future plans and operations, and, more particularly, statements concerning the completion of the Transaction contemplated by the Agreement, the number of securities issued by way of the Private Placement, the business plan of the New Management Team, the change of name of the Corporation, use of proceeds, debt levels and production following completion of the Transaction.

When used in this document, the words "will," "anticipate," "believe," "estimate," "expect," "intent," "may," "project," "should," and similar expressions are intended to be among the statements that identify forward-looking statements.

The forward-looking statements are founded on the basis of expectations and assumptions made by Elkwater which include, but are not limited to, the timing of the receipt of the required shareholder, regulatory and third party approvals, the future operations of, and transactions completed by Elkwater as well as the satisfaction of other conditions pertaining to the completion of the Transaction.

Forward-looking statements are subject to a wide range of risks and uncertainties, and although Elkwater believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will be realized.

Any number of important factors could cause actual results to differ materially from those in the forward -looking statements including, but not limited to, shareholder, regulatory and third party approvals not being obtained in the manner or timing set forth in the Agreement, the ability to implement corporate strategies, the state of domestic capital markets, the ability to obtain financing, changes in general market conditions and other factors more fully described from time to time in the reports and filings made by Elkwater with securities regulatory authorities.

Except as required by applicable laws, neither Elkwater nor the Initial Investor Group undertake any obligation to publicly update or revise any forward-looking statements.

The term "boe" may be misleading, particularly if used in isolation. A boe conversion of 6 Mcf: 1 bbl is based upon an energy equivalency conversion method primarily applicable at the burner tip and it does not represent a value equivalency at the well head.

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 news release.

This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws and may not be offered or sold within the United States or to United States Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

SOURCE Elkwater Resources Ltd.

For further information: Don Brown, President and Chief Executive Officer, Elkwater Resources Ltd., 2000, 840 - 7th Avenue S.W., Calgary, Alberta, T2P 3G2, Phone: (403) 262-0242, Fax: (403) 262-0339; Doug Bailey c/o Elkwater Resources Ltd., 2000, 840 - 7th Avenue S.W., Calgary, Alberta, T2P 3G2, Phone: (403) 262-0242, Fax: (403) 262-0339