Underground Energy Announces Non-brokered Financing of Secured Convertible Debentures

SANTA BARBARA, CA, Sept. 20, 2012 /CNW/ - Underground Energy Corporation ("Underground", "UGE" or the "Company") (TSXV: UGE), (OTCQX: UGGYF) today announced that it intends to raise, on a non-brokered basis, up to US$6,000,000 by way of a private placement offering (the "Offering") of secured convertible debentures ("Debentures") of Underground.

Terms of Financing

Each Debenture will mature on the date that is 18 months from the initial closing date of the Offering (the "Maturity Date"), subject to extension, at the option of Underground, for a term of an additional six months following the Maturity Date.  The security to be granted by Underground on the Debentures will consist of a first floating charge on all of the assets of Underground and its subsidiary.  The Debentures will bear interest at a rate of 15% per annum, payable quarterly in arrears from the date of closing of the Offering and may be paid in cash or shares of Underground, with any shares issued as payment for interest being valued at the closing price of the shares on the TSX Venture Exchange for the day immediately preceding the interest due date, subject in all cases to applicable law and the rules of the TSX Venture Exchange.

Each Debenture is convertible into shares of Underground at the option of the holders at any time prior to the Debenture being repaid at a conversion price of 10 cents per share.

In addition, investors will receive five share purchase warrants for each dollar of Debenture subscribed for with each warrant being exercisable into one share of UGE at an exercise of 10 cents per share.  These warrants will be exercisable until all the Debentures have been been repaid.  At the option of Underground, the Debentures may be prepaid prior to the Maturity Date provided that at least 12 months of interest has been paid to the holders of Debentures.  The Debentures will be subject to a four month hold period.

The Company intends to use the proceeds from the Offering to commission a salt water disposal well at Zaca, and to optimize the Chamberlin 3-2 and Chamberlin 2-2 wells, with the goal of achieving commercial production at Zaca.  In addition, proceeds will be used to strengthen the Company's working capital position and for general corporate purposes.

The initial closing of the Offering is anticipated to occur on or around September 28, 2012, with a final closing scheduled to occur on or around October 12, 2012.

Cautionary Statements

Statements in this press release contain forward-looking information and forward-looking statements within the meaning of applicable securities laws (collectively, "forward-looking information").  Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur.  In particular, forward-looking information in this press release includes, without limitation, statements with respect to: (i) the use of proceeds of the Offering; and (ii) the anticipated closing dates of the Offering.

Although we believe that the expectations and assumptions reflected in the forward-looking information are reasonable, there can be no assurance that such expectations or assumptions will prove to be correct. In particular, assumptions have been made that: (i) Underground will obtain all required regulatory approvals for the Offering; and (ii) that subscribers will participate in the Offering.

Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and is subject to a variety of risks and uncertainties and other factors (many of which are beyond the control of Underground) that could cause actual events or results to differ materially from those anticipated in the forward-looking information.  Some of the risks and other factors could cause results to differ materially from those expressed in the forward-looking information include, but are not limited to: operational risks in exploration, development and production; delays or changes in plans; competition for and/or inability to retain drilling rigs and other services; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, skilled personnel and supplies; risks associated to the uncertainty of reserve and resource estimates; governmental regulation of the oil and gas industry, including environmental regulation; geological, technical, drilling and processing  problems and other difficulties in producing reserves; the uncertainty of estimates and projections of production, costs and expenses; unanticipated operating events or performance which can reduce production or cause production to be shut in or delayed; incorrect assessments of the value of acquisitions; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in market prices for oil and  natural gas; liabilities inherent in oil and natural gas operations; access to capital; and other factors.  Readers are cautioned that this list of risk factors should not be construed as exhaustive. 

The forward-looking information contained in this news release is expressly qualified by this cautionary statement.  Underground does not undertake any obligation to update or revise any forward-looking statements to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation.  Readers are cautioned not to place undue reliance on forward-looking information.

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: Underground Energy Corporation

For further information:

Peter Ballachey      
Chief Financial Officer     
Underground Energy Corporation   
Tel: 805-845-4700 x 17

Simon Clarke     
Vice President, Corporate Development
Underground Energy Corporation
Tel: 604-551-9665

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Underground Energy Corporation

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