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: ------------------------------------------------------------------------- Oil Reserves for the Wells Ranch Property ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- Total Proved 68,900 51,700 0 0 US$2,491,000 ------------------------------------------------------------------------- Probable 20,900 15,700 5,800 4,400 US$330,000 ------------------------------------------------------------------------- Total Proved Plus Probable 89,800 67,400 5,800 4,400 US$2,821,000 ------------------------------------------------------------------------- Possible 23,000 17,300 6,700 5,000 US$375,000 ------------------------------------------------------------------------- Total Proved Plus Probable Plus Possible 112,800 84,700 12,500 9,400 US$3,196,000 ------------------------------------------------------------------------- ----------------------------------- (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: ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- Total Proved 26,400 16,700 US $379,000 ------------------------------------------------------------------------- Probable 57,100 35,800 US $688,000 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- ------------------------------------------- (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: ------------------------------------------------------------------------- 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$100.00, for a period of ten years. Summary of Historical Financial Statements of Buccaneer The following table sets forth summary historical financial information regarding Buccaneer: ------------------------------------------------------------------------- As at As at June 30, December 31, Balance Sheets (US$) 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 ------------------------------------------------------------------------- Trade Payables and Accruals 106,923 159,517 ------------------------------------------------------------------------- Liabilities to be Paid in Securities of GFP at closing(1) 380,618 380,618 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- TOTAL Shareholder's Equity 1,366,284 1,297,969 ------------------------------------------------------------------------- For For the the Year Three Months Income Statements (US$) Ended Ended June 30, 2009 December 31, 2009 (audited) (unaudited) ------------------------------------------------------------------------- Oil and Gas Revenues 587,591 78,307 ------------------------------------------------------------------------- Other Revenues 4,755 19,465 ------------------------------------------------------------------------- TOTAL Revenues 592,346 97,772 ------------------------------------------------------------------------- Severance Taxes 44,950 4,606 ------------------------------------------------------------------------- Lease Operating Expenses 445,225 7,820 ------------------------------------------------------------------------- General & Administrative 129,548 45,147 ------------------------------------------------------------------------- Depreciation, Depletion and Amortization 217,674 35,247 ------------------------------------------------------------------------- Other expenses 107,572 - ------------------------------------------------------------------------- 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) ------------------------------------------------------------------------- ------------------------------- (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:
------------------------------------------------------------------------- Issue / Quantity Exercise / Shareholder Group Securities (Issued or Conversion Underlying) Price ------------------------------------------------------------------------- Existing Shareholders Common Shares 1,243,187 - ------------------------------------------------------------------------- Secured Lender Common Shares 1,600,000 $0.25 ------------------------------------------------------------------------- Acquisitions Common Shares 5,423,031 $0.25 ------------------------------------------------------------------------- Private Placement ($1,741,500) Common Shares 6,966,000 $0.25 ------------------------------------------------------------------------- Finder's Fees Common Shares 114,000 ------------------------------------------------------------------------- TOTAL Common Shares I&O 15,346,218 ------------------------------------------------------------------------- Balance of Sale, Acquisition Balance of Sale 1,200,000 $0.25 ------------------------------------------------------------------------- Warrants Warrants 3,785,639 $0.375 ------------------------------------------------------------------------- Employee Options Options 124,000 $0.25 ------------------------------------------------------------------------- Employee Options Options 1,376,000 $0.33 ------------------------------------------------------------------------- Series I Preferred Series I Shares Preferred Shares 2,644,706 $0.25 ------------------------------------------------------------------------- TOTAL Fully Diluted 24,476,563 -------------------------------------------------------------------------
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
Share this article