Gale Force Petroleum announces final terms of transactions, publishes filing
statement
MONTREAL, May 6 /CNW Telbec/ - Gale Force Petroleum Inc. (TSX Venture: GFP, the "Corporation") today announced the final terms of transactions to conclude the restructuring of its debts, re-finance the Corporation and acquire significant new assets (the "Transactions").
Full details of the Transactions are described in a detailed disclosure document, published yesterday on SEDAR (the "Filing Statement"). The Transactions will be completed after the Corporation receives the final TSX Venture Exchange bulletin announcing the acceptance of the Transactions.
TRANSACTIONS SUMMARY
The Transactions are summarized as follows:
- The acquisition of the Buccaneer Assets, the Wells Ranch working
interest and the Pine Mills working interests, which are oil and gas
properties and assets located in Texas, Oklahoma and Tennessee (greater
details of these asset purchases are provided below).
- A private placement financing, with gross proceeds of CA$1,741,500
through the issuance of 6,966,000 Units at $0.25 per Unit. Each Unit is
comprised of one common share and one half of a Warrant with an
exercise price of $0.375 expiring on April 29, 2011. In connection with
the private placement, the Corporation issued 114,500 Units and paid
$112,500 in finder's fees to finders who are at arm's-length to the
Corporation.
- A Debt Forgiveness and Conversion transaction with respect to the
Corporation's CA$1,830,281 secured loan t forgive CA$980,281 of the
loan, 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 1,800,000 Series I Preferred
Shares, convertible into up to 1,800,000 common shares of the
Corporation;
ASSET PURCHASE DETAILS
Certain details concerning the terms of the oil and gas property and asset purchases have been modified since they were previously disclosed.
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 would purchase are as follows:
(1) Wells Ranch. GFP would take ownership of a 100% working interest with
an 80% net revenue interest in the Wells Ranch Property, an oil
property located in East Texas with 6 non-producing wells on 1,200
gross acres (1,200 net acres).
In a report entitled "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(3), P. Eng., of Crest Engineering Services, as set forth in
the following table:
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Oil Reserves for the Wells Ranch Property
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Light & Medium Oil Heavy Oil Net Present
------------------------------------- Value of Future
Reserve Net Revenues
Category(1) Before Income
Gross Net Gross Net Taxes (10%
(bbls) (bbls) (bbls) (bbls) Discount Rate)
(2)
-------------------------------------------------------------------------
Undeveloped 68,900 51,700 0 0 US$2,491,000
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Total Proved 68,900 51,700 0 0 US$2,491,000
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Probable 20,900 15,700 5,800 4,400 US$330,000
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Total Proved
Plus Probable 89,800 67,400 5,800 4,400 US$2,821,000
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Possible 23,000 17,300 6,700 5,000 US$375,000
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Total Proved Plus
Probable Plus
Possible 112,800 84,700 12,500 9,400 US$3,196,000
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-----------------------------------
(1) The reserves were estimated using NYMEX (WTI) prices of US$76.72 for
2009, US$81.08 for 2010 and US$85.71 for 2011, held constant
thereafter, with a price differential of -US$15.00 per barrel for Sub
Clarksville production and -US$3.50 for Paluxy production, such
differentials being held constant for the life of the reserves.
(2) All reserves quantities are undiscounted estimates; only the net
present values of future net revenues in the last column of the table
are discounted estimates.
(3) Waterson Calhoun, P.Eng, is a consultant to GFP who works regularly
with GFP to evaluate reserves and operations on its properties.
The purchase price for the Wells Ranch Property is US$100,000 in cash and
CA$100,000 to be paid through the issuance of 400,000 Common Shares at a
price of CA$0.25 per share.
GFP shall also assume abandonment and retirement obligations on the
property, estimated to have a present value of US$97,531 (CA$102,664),
which is the estimated future cost of abandonment and rehabilitation
costs on the property assuming annual cost inflation of 3%, and using a
discount rate of 10% per annum to discount back to present value.
The vendor of the Wells Ranch Property working interests acts at arm's-
length to GFP.
(2) Pine Mills Assets. GFP would take ownership of a 75.5% working
interest with a 60.40% net revenue interest in the Pine Mills
Property, an oil property in East Texas with 27 non-producing well
bores on 900 gross acres (680 net acres would be attributable to
GFP). Up to 25.5% of the 75.5% working interest may be re-purchased
by the prior owner (as described below).
In a report entitled "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.,
of Crest Engineering Services, as set forth in the following table:
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Oil Reserves for the Pine Mills Property
-------------------------------------------------------------------------
Heavy Oil Net Present Value of
---------------------------- Future Net Revenues
Reserve Category(1) Gross Net Before Income Taxes
(bbls) (bbls) (10% Discount Rate)(2)
-------------------------------------------------------------------------
Developed Non-
Producing 26,400 16,700 US$379,000
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Total Proved 26,400 16,700 US $379,000
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Probable 57,100 35,800 US $688,000
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Total Proved
Plus Probable 83,500 52,500 US $1,067,000
-------------------------------------------------------------------------
Possible 440,700 275,300 US $5,044,000
-------------------------------------------------------------------------
Total Proved
Plus Probable
Plus Possible 524,200 327,800 US $6,111,000
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-------------------------------------------
(1) The reserves were estimated using a discount rate of 10%, using NYMEX
prices of US$76,72 for 2009, US$81,08 for 2010 and US$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.
(2) All reserves quantities are undiscounted estimates; only the net
present values of future net revenues in the last column of the table
are discounted estimates.
The purchase price to be paid for the Pine Mills Property is the
assumption of up to an estimated US$531,959.01 in short-term trade
payables, of which US$331,959.01 are secured trade payables and the
balance are unsecured trade payables.
GFP would also assume abandonment and retirement obligations on the
property, estimated to have a present value of US$108,609 (CA$114,323),
which is the estimated future cost of abandonment and rehabilitation
costs on the property assuming annual cost inflation of 3%, and using a
discount rate of 10% to discount back to present value.
GFP would take possession of the 75.5% working interest that was acquired
by Buccaneer from Hammerhead Investment Partners ("Hammerhead") pursuant
to a joint venture and assignment agreement signed between Hammerhead and
Buccaneer with the consent of GFP as of November 5, 2009. As per this
agreement Buccaneer acquired a 75.5% working interest in the Pine Mills
Property, of which Hammerhead had the option to re-purchase from
Buccaneer up to 25.5% of the working interest by paying certain cash and
other consideration to Buccaneer by January 15, 2010.
Hammerhead has attempted to exercise its option to re-purchase a working
interest of the Pine Mills; however, Buccaneer and GFP have taken the
position that it failed to provide adequate consideration to re-purchase
a 25.5% working interest. As of the date hereof, the matter remains
unresolved, and Buccaneer and GFP believe that there is a significant
likelihood that the dispute will result in the matter being referred to
arbitration by a single arbiter in the State of Texas, which was the
agreed upon method for resolving disputes under the November 5, 2009
agreement.
The vendor of the Pine Mills Property working interests, Hammerhead, acts
at arm's-length to GFP.
(3) Buccaneer Assets. GFP would take ownership of the "Buccaneer Assets",
comprised most significantly of a 95.0% Net Profit Interest in
certain Central Oklahoma Properties which include 4 producing wells
and 13 on-producing wells, and a 20% working interest in a non-
operated property in Tennessee, which includes 4 producing wells, for
a total purchase of the benefits to the oil and natural gas minerals
rights from 5,970 gross acres (2,620 net acres), on which there are 8
producing wells and 13 non-producing wells.
The Buccaneer Assets also include operating equipment, including one
workover rig, current assets of US$190,242 (CA$200,255) as at December
31, 2009, and a Buccaneer Operating, LLC, a wholly-owned subsidiary of
Buccaneer, which holds no assets but is the registered entity that
operates Buccaneer's properties in Texas.
An evaluation of the Buccaneer Asset properties by an independent
qualified reserves evaluator, Michele K. Mudrone, P.Eng, of MKM
Engineering, in a report entitled "Appraisal of Certain Oil and Gas
Properties Owned by Buccaneer Energy Corporation Located in Oklahoma,
Tennessee, and Texas" prepared as at October 1, 2009, using a discount
rate of 10%, and using NYMEX prices until 2019, with prices held constant
thereafter, found that Buccaneer's properties have proved reserves of US
$8,901,210.
A summary of the Buccaneer Assets reserves are set forth in the following
table:
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Oil and Gas Reserves of Buccaneer
-------------------------------------------------------------------------
Light & Medium Oil Natural Gas Net Present
---------------------------------------- Value of Future
Net Revenues
Reserve Gross Net Gross Net Before Income
Category(1) (bbls) (bbls) (Mcf) (Mcf) Taxes (10%
Discount Rate)(2)
-------------------------------------------------------------------------
Developed
Producing 44,000 34,000 287,000 225,000 1,682,000
-------------------------------------------------------------------------
Developed
Non-producing 138,000 107,000 586,000 457,000 5,108,000
-------------------------------------------------------------------------
Undeveloped 70,000 55,000 396,000 311,000 2,110,000
-------------------------------------------------------------------------
Total Proved 252,000 196,000 1,269,000 993,000 8,900,000
-------------------------------------------------------------------------
---------------------------------
(1) The reserves were estimated using NYMEX (WTI) prices of US$70.27 for
2009, US$70.94 for 2010 and US$75.76 for 2011, etc., to 2019, 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.
(2) All reserves quantities are undiscounted estimates; only the net
present values of future net revenues in the last column are
discounted estimates.
Although GFP would hold a 95% Net Profit Interest in the Central Oklahoma
Properties upon closing of the Transactions, GFP shall be responsible for
100% of capital expenses on the Central Oklahoma Properties, and shall
have the sole and exclusive right to approve capital expenditures,
including any completion, drilling deepening, recompletion, rework or
sidetracking on the properties. GFP shall also have the right to approve
any sub-contractors or suppliers used in the operating of the properties.
Additionally, upon closing of the Transactions GFP would also be granted
the option by Buccaneer to purchase the 100% working interest in the
Central Oklahoma Properties for US$100.00, for a period of ten years.
Summary of Historical Financial Statements of Buccaneer
The following table sets forth summary historical financial information
regarding Buccaneer:
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As at As at
June 30, December 31,
Balance Sheets (US$) 2009 2009
(audited) (unaudited)
-------------------------------------------------------------------------
Current Assets 338,038 190,242
-------------------------------------------------------------------------
Property and Equipment 2,393,678 2,556,372
-------------------------------------------------------------------------
TOTAL Assets 2,731,716 2,746,614
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Trade Payables and Accruals 106,923 159,517
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Liabilities to be Paid in Securities
of GFP at closing(1) 380,618 380,618
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Related-party Advances(2) 81,583 78,926
-------------------------------------------------------------------------
Bank Note at 6% (variable interest) 752,000 783,796
-------------------------------------------------------------------------
Asset Retirement Obligations 44,308 45,788
-------------------------------------------------------------------------
TOTAL Liabilities 1,365,432 1,448,645
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TOTAL Shareholder's Equity 1,366,284 1,297,969
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For For the
the Year Three Months
Income Statements (US$) Ended Ended
June 30, 2009 December 31, 2009
(audited) (unaudited)
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Oil and Gas Revenues 587,591 78,307
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Other Revenues 4,755 19,465
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TOTAL Revenues 592,346 97,772
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Severance Taxes 44,950 4,606
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Lease Operating Expenses 445,225 7,820
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General & Administrative 129,548 45,147
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Depreciation, Depletion and Amortization 217,674 35,247
-------------------------------------------------------------------------
Other expenses 107,572 -
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Impairment of long-lived assets(3) 1,550,793 280,666
-------------------------------------------------------------------------
Interest Expense 60,267 6,542
-------------------------------------------------------------------------
Income Tax Expense (Benefit) (228,443) -
-------------------------------------------------------------------------
NET Income (loss) (1,735,240) (282,256)
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-------------------------------
(1) These liabilities are composed of an US$180,000 (CA$189,474) account
payable and US$200,618 (CA$211,176) in related party advances to
Buccaneer from Joseph F. Langston Jr. These liabilities shall be
repaid at closing through the issuance of 757,895 Common Shares to
discharge US$180,000 (CA$189,474) of liabilities and 844,706
Preferred Shares convertible into up to 844,706 Common Shares to
discharge US$200,618 (CA$211,176) in liabilities.
(2) Of these related party advances, which are advances without interest
or term to repayment, it is intended that US$78,926 shall be repaid
in cash shortly after closing.
(3) The impairment charges for both period presented in the table were
recognized to adjust the value of Buccaneer's Assets to equal the
purchase price for the Acquisition of the Buccaneer Assets as
described herein.
Acquisition Price & Assumed Liabilities
The total Purchase Price for the Buccaneer Assets is CA$2,891,173, to be
paid by GFP as follows:
a) Up to 5,465,136 Common Shares shall be issued to Buccaneer at a price
of CA$0.25 per share for a total issuance value of CA$1,366,281, of
which a balance of sale of 1,200,000 Common Shares with a value of CA
$300,000 shall not be issued until certain conditions are met post-
closing; and
b) GFP shall assume CA$1,524,889 (US$1,448,645) in Assumed Liabilities of
Buccaneer, of which CA$400,651 (US$380,618) shall be paid down through
the issuance of GFP securities at the closing, as described below
under "Debt Reduction".
Debt Reduction
In addition to the securities issued in payment of the Purchase Price,
simultaneously with the closing, GFP shall issue CA$400,651 of its
securities to liability-holders of Buccaneer to pay down CA$400,651 (US
$380,618) of liabilities as follows:
(a) 757,895 Common Shares at a price of CA$0.25 for a total issuance
value of CA$189,474, to pay down a US$180,000 account payable of
Buccaneer;
(b) 844,706 Series I Preferred Shares for a total issuance value of
CA$211,177, such Series I Preferred Shares being convertible into up
to 844,706 Common Shares, to pay down US$200,6118 in shareholder
advances of Buccaneer; and
(c) 422,353 Warrants, with no value assigned, as they are being issued
along with the other securities.
This debt reimbursement will reduce the total debt levels of GFP assumed
from Buccaneer at the closing to approximately US$1,068,027 (CA
$1,124,239), which is calculated as US$1,448,645 (CA$1,524,889) total
liabilities of Buccaneer as at December 31, 2009, less the US$380,618 (CA
$400,651) that shall be repaid and discharged by the issuance of Common
Shares, Series I Preferred Shares and Warrants at closing.
STOCK OPTION PLAN
The Corporation shall amend its stock option plan and issue stock options under the new plan. The amended stock option plan would permit the Corporation to issue up to 1,500,000 options (post-share-consolidation), which would be less than 10% of shares of the Corporation issued and outstanding following the closing of the Transactions. The Corporation would issue options to purchase an aggregate 1,376,000 shares of the Corporation at a price of $0.33, which expire on or about at latest on May 12, 2015. The Amended Stock Option Plan and the issuance of options including the exercise price are subject to the approval or revision of the TSX Venture Exchange.
TRANSACTIONS SUMMARY
The table below sets forth the capital structure of the Corporation following closing of the Transactions:
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Issue /
Quantity Exercise /
Shareholder Group Securities (Issued or Conversion
Underlying) Price
-------------------------------------------------------------------------
Existing Shareholders Common Shares 1,243,187 -
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Secured Lender Common Shares 1,600,000 $0.25
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Acquisitions Common Shares 5,423,031 $0.25
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Private Placement
($1,741,500) Common Shares 6,966,000 $0.25
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Finder's Fees Common Shares 114,000
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TOTAL Common Shares I&O 15,346,218
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Balance of Sale,
Acquisition Balance of Sale 1,200,000 $0.25
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Warrants Warrants 3,785,639 $0.375
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Employee Options Options 124,000 $0.25
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Employee Options Options 1,376,000 $0.33
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Series I Preferred Series I
Shares Preferred Shares 2,644,706 $0.25
-------------------------------------------------------------------------
TOTAL Fully Diluted 24,476,563
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Once the Transactions have been completed, management of the Corporation would consider the restructuring of the Corporation completed. The restructuring would result 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. - www.GaleForcePetroleum.com
Gale Force Petroleum is a public corporation with a focus on the development and exploitation of oil and gas resources in mature basins, building shareholder value by making accretive acquisitions and developing its properties. It will own oil and natural gas properties in Texas, Oklahoma, Tennessee and Kentucky.
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 are based on assumptions and estimates that are subject to various risks and uncertainties including the risks disclosed under the heading "Business Risks" in the Corporation's periodic filings on SEDAR, for example, in its Management Discussion and Analysis for the annual exercise ended June 30, 2009. Such information contained herein represents management's best judgment as of the date hereof based on information currently available. The Corporation does not assume the obligation to update any forward-looking statements.
"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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