CALGARY, March 4, 2013 /CNW/ - Birch Lake Energy Inc. ("Birch Lake" or "the Company") (TSXV: BLK) is pleased to provide an operational update at its Lochend property and announces that it has entered into a letter agreement (the "Letter Agreement") with Sundance Energy Corporation ("Sundance") (TSXV: SNY) with respect to a joint venture and a proposed business combination.
Further to the stimulation and swab results of the 4-3-25-3 well announced in December 2012, the Company announces that production has recently commenced. The 14 stage fracture stimulation completed on the well was successful; however, it has been established that there was a collapse in the casing in the horizontal portion of the well. As a result, the swab rates reported December 21, 2012 represent production from only an estimated 5 of the 14 fracs completed. An assessment of similar casing failures within the industry indicated that remedial operations would be expensive and were rarely successful. In light of this, it was decided to put the well into production from the limited interval. Although the Company is disappointed the full potential of the well was not realized, it is encouraged by the swab results from the limited portion of the well, and will advise on IP30 rates following the first month of stabilized production. More importantly, the geological success of this well in encountering a porous oil productive Cardium sand at the southern extent of the Company's lands has significantly de-risked future drilling of these lands.
The second Lochend well, 16-19-25-3, was spudded late November 2013. After reaching nearly the forecast drill depth of the well, drilling difficulties were encountered which resulted in the Operator proposing a second drilling operation for the well. The Company has not, at this time, elected to participate in this operation due to the additional costs involved and is currently assessing its options with respect to this well.
Sundance Joint Venture
Pursuant to the Letter Agreement, Birch Lake has granted to Sundance a right to earn up to 50% of Birch Lake's working interest in its Lochend Assets, being the non-operated working interest of 38.90% in certain petroleum and natural gas rights underlying 7,840 gross acres in the Lochend-Bearspaw area of Alberta (the "Lochend Assets").
In order to earn the working interest, Sundance must pay to Birch Lake an aggregate amount of $7,710,000 (the "Total Payment"), with the initial payment of $1,340,000 due by March 29, 2013. The subsequent payments will be paid upon Birch Lake receiving the authorizations for expenditure from the operator of the Lochend Assets, in accordance with the governing CAPL Operating Procedure. Sundance will earn the proportionate interest in the Lochend Assets upon payment of each installment to Birch Lake, such that upon payment of the Total Payment, Sundance will hold 50% of Birch Lake's interest in the Lochend Assets.
In addition, upon payment of the Total Payment by Sundance, Birch Lake and Sundance will pursue the closing of a business combination, such that the shareholders of each of Birch Lake and Sundance would own 50% of the resulting issuer. Completion of the business combination is subject to receipt of all required approvals, including regulatory approval (including approval of the TSX Venture Exchange) and shareholder approval.
In connection with the Letter Agreement, the Company has agreed to pay a finder's fee of $25,000 and issue 200,000 common share purchase warrants (the "Warrants") to an arm's length third party upon payment of the Total Payment by Sundance. The Warrants have an exercise price of $0.10 per share and expire five years from the date of issuance.
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, Sundance's business and the proposed business combination. Such forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Birch Lake's and Sundance's control, including the ability of Birch Lake and Sundance to satisfy the conditions to completion of the proposed business combination, 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 Sundance 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 and Sundance do 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.
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:
Birch Lake Energy Inc.
William H. Petrie
President and Chief Executive Officer