DALLAS, TX, Feb. 13, 2012 /CNW Telbec/ - Gale Force Petroleum Inc. (TSXV: GFP) (OTCQX: GFPMF) ("Gale Force" or the "Company") announced today that it has entered into agreements to purchase oil and gas properties and assets in East Texas (the "Texas Reef Properties") on or before March 23, 2012. Gale Force also announced today that it has signed a memorandum of understanding (the "MOU") to acquire certain assets from privately held Great GulfCan Energy Inc. ("GGC"), including approximately $3.2 million cash, an option on a Texas oil and gas lease and other rights (the "GGC Assets").
"The Texas Reef Properties will add to the Company's growing inventory of development prospects, providing a clear pathway for continued growth in production and cash generation", said Michael McLellan, Chairman and CEO. "We believe that the Texas Reef Properties will help increase total oil and gas production by September, 2012 to over 600 BOE per day net to the Company"
The Company existed 2011 producing 275 BOE per day, is currently producing 300 BOE per day (90% oil) and should it achieve production of 600 BOE per day in September, 2012, it will have more than tripled production since September, 2011. The Company expects further increases before year-end 2012, and all increases in production would be largely from increases in production of light crude oil and liquids-rich natural gas.
The Texas Reef Properties
The Texas Reef Properties consist of 7,500 gross acres/2,400 net acres under lease in East Texas, with three wells currently producing 35 barrels of light crude oil and 200 MCFs of high-BTU gas per day. The Texas Reef Properties have complex geology with proved reserves from multiple zones, and numerous potential proved undeveloped locations for low-risk development drilling. The agreements entered into by the Company give it the rights to purchase approximately 75% working interests in each the three existing wells on the properties and an 80% working interest in the remainder of the acreage.
The purchase price for the Texas Reef Properties is US$4.25 million, comprised of US$3.5 million cash and CA$750,000 in units of the Company (the "Units"), payable to several arms-length sellers. Each Unit issued shall be comprised of one common share with an issuance price of 25 cents and one warrant with an exercise price of 28 cents and an expiry 2 years from closing, exercisable on the condition that the common shares issued by such exercise, in conjunction with any common shares owned by the holder, not result in the holder owning greater than 9.99% of the common shares of the Corporation issued and outstanding. The common shares and warrants shall be subject to resale restrictions that expire four months plus one day following their issuance. To hold the property until March 23, 2012, the Company has paid a US$150,000 non-refundable deposit, which will count towards the cash component of the purchase price. There are no finder's fee payable in conjunction with the transaction.
To finance the purchase of the Texas Reef Properties, the Company intends to primarily use funds drawn from its $15 million bank facility, which bears interest of 5%.
The purchase of the Texas Reef Properties is subject to due diligence and financing, and the acquisition and securities issuances are subject to the approval of the TSX Venture Exchange.
The GGC Assets Purchase
The GGC Assets consist of approximately CA$3.2 million in cash, an option on a Texas oil and gas lease in South Texas with one well with no current production, and an exclusive right to purchase GGC's tax losses for a limited period post-transaction. GGC is at arm's length from the Company.
The purchase price for the GGC Assets is CA$4.2 million, to be paid through the issuance of units of the Company (the "GGC Units"). Each GGC Unit will consist of one preferred share with an issuance price of 25 cents per share (the "Preferred Shares") and one-half warrant exercisable at 30 cents per share until April 1, 2014 (the "GGC Warrants"). Therefore, 16.8 million Preferred Shares and 8.4 million GGC Warrants would be issued in consideration for the purchase, distributed to the shareholders of GGC. The Preferred Shares earn no dividend, but are convertible 1:1 into common shares of the Company by the holder at any time or by the Company if the 20-day average trading price of the Company's common shares is over 30 cents provided there is average trading volume over 200,000 shares per day, using the combined trading volumes on the TSX Venture Exchange and the OTCQX market. The Preferred Shares and GGC Warrants are also subject to a conversion restriction such that the common shares received by such conversion, in conjunction with any common shares already owned by the holder, would not result in the holder owning great than 9.99% of the common shares of the Company issued and outstanding. The Preferred Shares (and their underlying common shares) shall also be subject to resale restrictions, such that 50% of them shall not be transferable for a period of 12 months following the date of closing and the remaining 50% shall not be transferable for a period of 18 months following the date of closing. The Company shall apply to list the GGC Warrants for trading on the TSX Venture Exchange. There are no finder's fees payable in conjunction with the transaction.
As part of the transaction, at closing, G. Scott Paterson, GGC's Chairman, would be appointed to Gale Force's Board of Directors as the Company's Co-Chairman. Mr. Paterson is a Director of Lions Gate Entertainment Corp. (NYSE: LGF), Vice-Chairman of Neulion Inc. (TSX: NLN) and Chairman of Apogee Silver Ltd. (TSXV: APE) as well as Chairman of Great GulfCan Energy Inc. Mr. Paterson spent 16 years in the investment industry last serving as Chairman & CEO of Yorkton Securities from October 1998 to December 2001 during which time Yorkton raised over $9 billion as lead and/or co-managing underwriter. Mr. Paterson has served the securities industry as Chairman of the Canadian Venture Exchange, Vice-Chairman of the Toronto Stock Exchange, Governor of the Investment Dealers Association of Canada and as a Director of each of the Canadian Investor Protection Fund, Canadian Securities Institute and the Canadian Securities Advisory Council. Mr. Paterson is also involved in many charitable and community organisations.
Completion of the GGC Assets purchase is subject to certain conditions, including the receipt by Gale Force of all required regulatory and TSX Venture Exchange approvals, and the receipt by GGC of all required approvals, including the approval of the GGC Assets sale by GGC's shareholders pursuant to a "Plan of Arrangement" under the Canada Business Corporation Act. GGC's shareholders are expected to vote on the Plan of Arrangement at a shareholder's meeting scheduled for April 11, 2012. The Plan of Arrangement is also subject to the approval of the Superior Court of Ontario.
As part of the proposed transaction, GGC has paid to Gale Force a $50,000 non-refundable deposit, which affords GGC until March 1, 2012, on or before which time GGC can pay an additional $100,000 non-refundable deposit to extend the date by which GGC must obtain the necessary approvals to close the transaction to May 15, 2011. The amount of such deposits shall be included in calculating the cash portion of the Assets to be acquired by Gale Force of approximately $3.2 million in cash.
"The GGC Asset purchase will provide Gale Force with additional equity and assets that will assist us in accelerating our growth, and we look forward to Mr. Paterson joining the Company's Board", said Mr. McLellan. "Also, GGC's shareholder base is primarily sophisticated, institutional and veteran industry investors, which the Company hopes to count amongst its long-term shareholders that will support the Company's growth."
The Company also announced today that pursuant to requirements of its $15 million bank facility, it has entered into production swap agreements locking in a sales price of $99.43 for 2,000 barrels of crude oil per month for each month in 2013. The counterpart of the swap agreements is Cargill, the multi-national producer and marketer of food, industrial products and financial services. The Company also intends to enter into additional production swap agreements for 60% of its proved developed producing production in the coming weeks (which is less than 30% of its forecast production, due to rapid production growth).
Share, Option and Warrants Issuances
As previously announced on January 31, 2012, the Corporation has issued 3,160,000 common shares to subscribers as part of a private placement and shares-for-debt transactions, issued 2,575,000 warrants with an exercise price of 20 cents and 500,000 warrants with an exercise price of 28 cents, all warrants expiring February 11, 2014, with resale restrictions on all shares and warrants expiring June 11, 2012.
The Company also announced that 1,050,000 stock options were forfeited and 1,750,000 stock options were issued to directors and consultants under the terms of the Rolling Stock Option Plan approved by the shareholders on January 12, 2012, for a net 700,000 increase in the number of stock options issued, with each new option issued having an exercise price of 28 cents, and all new options vesting in six equal quarterly instalments. The options issuance is subject to the approval of the TSX Venture Exchange.
Mr. McLellan said, "Gale Force has bought 8 properties in 1.5 years, has now lined up the next 2 acquisitions, and is working on additional accretive acquisitions that we believe will add further value for our shareholders. We have a lot more work to do".
ABOUT GALE FORCE PETROLEUM INC. − www.GaleForcePetroleum.com
Gale Force Petroleum is a public corporation focused on acquiring and exploiting underdeveloped and undervalued oil and gas reserves in mature basins, bringing operational expertise and capital to lower-risk, development-type projects. The Company currently owns producing oil and gas properties in Texas, Oklahoma, Tennessee and West Virginia.
Cautionary statement concerning use of BOEs:
Please note that the Company has used the term "BOE" herein, which may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
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 "Risks and Uncertainties" in the Company's periodic filings on SEDAR, for example, in its Management Discussion and Analysis for the year ended June 30, 2010. Such information contained herein represents management's best judgment as of the date hereof based on information currently available. The Company does not assume the obligation to update any forward-looking statements, except as required under applicable law.
"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, CFA, Chairman & CEO, +1.514.221.2030