Carmen Energy Inc. announces Letter of Intent to acquire Shorthorn Exploration Ltd.

CALGARY, Sept. 19, 2011 /CNW/ - Carmen Energy Inc. (TSXV: CEI) ("Carmen" or the "Corporation") is pleased to announce that the Corporation entered into a Letter of Intent on September 16, 2011 to acquire all the issued and outstanding shares of Shorthorn Exploration Ltd. ("Shorthorn"), a Calgary based private company engaged in the exploitation and development of gas and oil reserves in Alberta and Saskatchewan (the "Acquisition"). The Acquisition of Shorthorn is an arms-length transaction and does not result in a change of control of Carmen.

Shorthorn`s current production is approximately 23 barrels of oil per day and approximately 1,960 MCF of gas per day for a total of approximately 350 barrels of oil equivalent per day. In addition, Shorthorn has total acreage of 9,042 gross (8,710 net) of which 4,852 gross (4,850 net) acres is developed and 4,190 gross (3,860 net) is undeveloped; excluding (80) eighty section farmin acreage with a major Canadian oil and gas Company.

Carmen's President and Chief Executive Officer, Brian Doherty stated that, "The Shorthorn acquisition is a great addition to Carmen's current holdings and provides a balanced approach to value creation for Carmen's shareholders.

Shorthorn's portfolio has a great mix of natural gas projects and moderate cost conventional oil potential with natural gas potential concentrated in an (80) eighty section farmin with a major Canadian oil and gas Company near Camrose, Alberta and the oil potential centred in the Viking Kinsella area.  The Shorthorn acquisition brings baseline cash flow and a prospect inventory to enhance Shareholder value with a relatively modest per well capital program.

Value creation exists for Carmen's shareholders in the conventional oil potential of the Viking Kinsella assets. Shorthorn has secured a multi-section position based on current vertical well control which given success would support a multi-horizontal well development program."

Completion of the Acquisition is subject to several conditions, including, but not limited to, the negotiation and entering into of a mutually acceptable farmin agreement (as described below) and definitive acquisition agreement, Carmen raising the funds to close the Acquisition (the "Financing") on or before November 15, 2011, the completion by Carmen of satisfactory due diligence and receipt of all regulatory and TSX Venture Exchange approvals. The closing of the Acquisition ("Closing") is anticipated to occur on or before December 1, 2011.

Summary of Acquisition

Concurrently with Carmen depositing $600,000 to be held in trust, Carmen and Shorthorn shall enter into a mutually acceptable farmin agreement ("Farmin Agreement") which shall provide for the drilling and the abandonment or completion of one (1) horizontal well on the Shorthorn lands in the Viking Kinsella Glauconite formation (the "Test Well") on or before November 30, 2011. The Farmin Agreement will terminate in conjunction with the Closing. Subject to Carmen satisfying the condition for Financing, Carmen and Shorthorn will enter into a mutually acceptable acquisition agreement (the "Definitive Agreement") whereby Carmen shall offer to acquire all of the issued and outstanding Shorthorn Shares for the base consideration of $10 million (the "Base Consideration"), subject to adjustment. The Base Consideration will be comprised of approximately $6 million cash and approximately $4 million worth of common shares of Carmen ("Carmen Shares") which will be issued at a price equivalent to the price per Carmen Share issued in connection with the Financing. The Base Consideration shall be payable at Closing.

In addition to the Base Consideration, Carmen will deposit additional consideration ("Additional Consideration") of $2 million cash with an escrow agent, to be held in escrow until determination of the average production rate of the Test Well is established. Payment of the Additional Consideration is contingent on the average production rate of the Test Well achieving greater than (15) fifteen barrels of oil per day for sixty continuous days of production. Upon reaching this production rate, Carmen will commit to drill two additional horizontal wells in the Viking Kinsella Glauconite Formation and issue one bonus warrant (the "Bonus Warrants") to the former shareholders of Shorthorn for each Shorthorn Share previously held. If the Test Well average production rate is (15) fifteen barrels of oil per day or less for (60) sixty continuous days of production, then the Additional Consideration shall be returned to Carmen.

Bonus Warrants, if issuable, shall not be transferable and shall represent the right to receive a pro rata portion of the bonus payment ("Bonus Payment") payable by Carmen, in cash or, at the election of the former shareholder of Shorthorn, in Carmen Shares.

Bonus Warrants shall vest and become exercisable by the holders thereof at any time after the completion of an independent reserve report providing the value for the proved reserves of the Test Well and next two additional test wells to be drilled and three proved undeveloped wells. At such time, holders of Bonus Warrants may elect to exercise their Bonus Warrants for that number of Carmen Shares equal to the cash value of the Bonus Warrants to be exercised for Carmen Shares divided by the greater of the one day average or the closing market price of the Carmen Shares on the date of exercise discounted by 10%. The right to elect to exercise for Carmen Shares shall terminate on June 1, 2012 (the "Exercise Deadline").  After the Exercise Deadline, all remaining Bonus Warrants not exercised will be deemed exercised for cash on the redemption date.

The Redemption Date shall be July 1, 2012. On the Redemption Date all of the Bonus Warrants not yet exercised by the holders thereof shall be deemed exercised and shall only represent the right to receive that amount of cash per Bonus Warrant to which such holder was entitled. Payment shall occur within five (5) Business Days of the Redemption Date.

The Bonus Payment shall be computed on or before July 1, 2012 and will equal the result obtained when the bonus percentage (the "Bonus Percentage") is multiplied by the sum of the net present value as determined by an independent reserve report, using forecast prices and costs, of the first three wells drilled and assigned proved producing reserves and three wells assigned proved undeveloped reserves, both before income tax and discounted at 10%. The Bonus Percentage will be determined by the rate of production of the test well in accordance with the following table:

60 day Production Rate of Test Well (barrels/d)   Bonus Percentage (%)
Greater than 15 and less than 22    
Greater than or equal to 22 and less than 29   
Greater than or equal to 29 and less than 36   
Greater than or equal to 36 and less than 43   
Greater than or equal to 43 and less than 50   
Greater than or equal to 50                 
35
36
37
38
39
45

About Carmen Energy Inc.: Carmen is based in Calgary, Alberta and a publicly traded oil and gas exploration and production company. The focus is on exploration and development of Western Canadian Sedimentary Basin based oil and gas properties. The current projects are the Jumpbush properties in south eastern Alberta, the Ferrybank properties in central Alberta, the Sylvan Lake area properties in Southern Alberta and the Hamburg properties in northern western Alberta.

Barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation. The BOE conversion ratio used in this news release is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All BOE conversions in this report are derived by converting gas to oil in the ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf = 1 BOE).

FORWARD LOOKING INFORMATION

Certain information in this news release is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions. This forward-looking information includes, among other things, the expected timing of the completion of the Acquisition, the execution of the Farmin Agreement, the execution of the Definitive Agreement, the completion of the requisite Financing, the date of completion of the Test Well, timely preparation of independent reserve report, availability of funds to provide payment on the Bonus Payment, results of horizontal drilling, applications to be utilized and information with respect to the Corporation's beliefs, plans, expectations, anticipations, estimates and intentions and the activities of the Corporation after the Transaction.  The words "may", "could", "should", "would", "suspect", "outlook", "believe", "anticipate", "estimate", "expect", "intend", "plan", "target" and similar words and expressions are used to identify forward-looking information. The forward-looking information in this news release describes the Corporation's expectations as of the date of this news release.

The results or events anticipated or predicted in such forward-looking information may differ materially from actual results or events.  Material factors which could cause actual results or events to differ materially from such forward-looking information include, among others, the risks associated with the oil and gas industry in general, risks arising from general economic conditions and adverse industry events, risks arising from operations generally, reliance on contractual rights such as licences and leases in the conduct of its business, the uncertainty of reserve and resource estimates; the uncertainty of estimates and projections relating to reserves, resources, production, costs and expenses; reliance on third parties, reliance on key personnel, possible failure of the business model or business plan or the inability to implement the business model or business plan as planned, competition, environmental matters, and insurance or lack thereof; failure to realize the anticipated benefits of acquisitions including the Acquisition; ability to access sufficient capital from internal and external sources; changes in legislation, including but not limited to tax laws, royalties and environmental regulations, actual production from the Shorthorn assets may be greater or less than estimates; failure to obtain the necessary regulatory approval, stock exchange and other regulatory approvals and on the timelines planned; and risks that conditions to closing of the Acquisition are not satisfied.

The Corporation cautions that the foregoing list of material factors is not exhaustive.  When relying on the Corporation's forward-looking information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.  The Corporation has assumed a certain progression, which may not be realized.  It has also assumed that the material factors referred to in the previous paragraph will not cause such forward-looking information to differ materially from actual results or events.  However, the list of these factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF THE CORPORATION AS OF THE DATE OF THIS NEWS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE.  READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE.  WHILE THE CORPORATION MAY ELECT TO, IT DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME.

Completion of the Acquisition is subject to a number of conditions, including but not limited to, TSXV acceptance. There can be no assurance that the Acquisition will be completed as proposed or at all.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

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 press release.

 

SOURCE Carmen Energy Inc

For further information:

Brian Doherty
President and Chief Executive Officer
(403) 537-5590

Profil de l'entreprise

Carmen Energy Inc

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