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CALGARY,
July 30, 2014 /CNW/ - Maha
Energy Inc. ("Maha") and Palliser Oil & Gas Corporation
("Palliser") (TSXV:PXL) are pleased to announce that they
have entered into an amalgamation agreement (the "Amalgamation
Agreement") pursuant to which Maha and Palliser will amalgamate
(the "Amalgamation") to form a new corporation to be called
"Maha Energy Inc." ("New Maha"). Palliser has also closed a
minor asset disposition with Maha and entered into two farmout
arrangements with Maha.
AMALGAMATION
Pursuant to the Amalgamation, shareholders of Palliser will
receive 0.1393 of a common share of New Maha (a "New Maha
Share") for each common share of Palliser (a "Palliser
Share") and shareholders of Maha will receive one New Maha
Share for each common share of Maha (a "Maha Share").
Based on the price of US$1.25 per
Maha Share, being the price at which Maha recently raised
US$10 million of gross proceeds in a
private placement of Maha Shares, and the July 30, 2014 Bank of Canada noon US$/C$ exchange rate of 1.0909,
the value of the New Maha Shares to be received for Palliser Shares
pursuant to the Amalgamation represents a 52% premium to the
closing price of the Palliser Shares on the TSX Venture Exchange
("TSXV") on July 30, 2014 of
$0.125. The combined asset base
following completion of the Amalgamation will consist of heavy oil
properties in the greater Lloydminster region of Alberta and Saskatchewan and a 99% interest in the LAK
Ranch Field, a heavy oil property located in Wyoming. At closing of the Amalgamation, total
production is expected to be approximately 1,650 boe/d (99%
oil).
Completion of the Amalgamation is conditional on customary
closing conditions and is subject to conditions precedent with
respect to net indebtedness and transaction costs of Palliser at
closing. In addition, it is a condition to the completion of
the Amalgamation that Maha must complete bond and/or equity
financings for combined aggregate gross proceeds of not less than
US$70 million, (the
"Financings") prior to October 31,
2014 (the "Outside Date"). The bond financing is
expected to be completed in the Nordic market. The proceeds from
the Financings will be used to refinance Palliser's current credit
facilities and assist in the funding of New Maha's go-forward
capital program. Upon completion of the Amalgamation, New Maha
anticipates it will enhance shareholder liquidity by applying for a
secondary listing in Sweden on the
NASDAQ OMX First North Stock Exchange for New Maha Shares.
All outstanding options of Palliser and Maha at the effective
time of the Amalgamation will be exchanged for options of New Maha
in accordance with the Palliser and Maha option plans.
Approvals
The Amalgamation is subject to receipt of customary regulatory
approvals, including the approval of the TSXV and the approval of
66 2/3% of each of the Palliser shareholders and the
Maha shareholders.
Further information regarding the Amalgamation will be contained
in a joint information circular to be prepared by Maha and
Palliser, which the parties will prepare, file and mail in due
course to their respective shareholders in connection with the
requisite shareholder approvals of the Amalgamation and associated
transactions. It is expected that the Maha and Palliser shareholder
meetings will take place in mid-October, with closing of the
Amalgamation expected to occur shortly thereafter, but in any event
on or before the Outside Date. Further details regarding the
respective shareholders' meetings will be provided in the joint
information circular. All shareholders are urged to read the joint
information circular once it becomes available as it will contain
additional information concerning the Amalgamation.
Each of the directors and officers of Palliser, representing in
aggregate approximately 7% of the issued and outstanding Palliser
Shares (on a non-diluted basis), have committed to vote their
Palliser Shares in favour of the Amalgamation at the Palliser
shareholder meeting.
Each of the directors and officers, and certain significant
shareholders, of Maha, representing in aggregate approximately 37%
of the issued and outstanding Maha Shares (on a non-diluted basis),
have committed to vote their Maha Shares in favour of the
resolutions to be considered by shareholders of Maha at the Maha
shareholder meeting.
Complete details of the Amalgamation are set out in the
Amalgamation Agreement, which will be filed by Palliser with SEDAR
and will be available for viewing under Palliser's profile at
www.sedar.com.
Benefits of the Amalgamation
The board of directors of each of Maha and Palliser believe that
the combined entity, with its stronger balance sheet, will have the
means to execute a 2014 and 2015 capital expenditure program which
will include advancing the development of the cyclic steam project
at the LAK Ranch Field as well as pursuing optimization and
development opportunities in the greater Lloydminster area.
The capital expenditure program for the remainder of 2014 will
be to continue the development of the LAK Ranch cyclic steam
project through the drilling and completion of at least 10 more
horizontal cyclic steam producing wells along with the continued
re-activation of existing wellbores in Alberta and Saskatchewan. Canadian-based
work will include High Volume Lift (HVL) projects at Lloydminster, Alberta and Edam and Manitou, Saskatchewan. Cold Heavy Oil
Production with Sand (CHOPS) work will be undertaken at
Lloydminster, Alberta as well as
at Manitou Saskatchewan.
Jonas Lindvall, CEO of Maha,
stated, "We are very pleased to have completed an agreement with
Palliser. The merger of our two companies and the refinancing
of Palliser's debt will allow the combined management team to apply
sufficient capital to New Maha's Canadian asset base to grow
production and reduce per bbl operating costs thereby increasing
operating netbacks. The forecast production profiles of
Palliser and Maha are very complementary providing a combined asset
base that upon development is anticipated to result in sustainable
production with a low corporate decline rate. We expect that a
joint listing on NASDAQ OMX First North Stock Exchange will provide
for continued strong support from Scandinavian investors."
Management of Maha has determined, based on its business model that
the development of the combined assets is sustainable and has
highlighted a few of the key forecasted attributes below.
Pro Forma Operational and Financial
Data(1)
- Production at closing of approximately 1,650 boe/d (99% oil)
Canadian Assets:
- Total proved producing reserves of approximately 1.8 million
boe, future net revenue of $38.8
million (discounted at 10%)(2)
- Total proved reserves of approximately 5.5 million boe, future
net revenue of $86.9 million
(discounted at 10%)(2)
- Total proved plus probable reserves of approximately 9.4
million boe, future net revenue of $153.3
million (discounted at 10%)(2)
- 169 prospective well locations of which 86 locations are not
included in the current reserves report(2)
- Undeveloped land (net) of 44,400 acres
- U.S. Assets:
- 99% working interest ownership and operatorship of a cyclic
steam project at LAK Ranch Field in Wyoming
Notes:
(1)
|
All reserves and
production figures before the deduction of royalties
|
(2)
|
Palliser reserves
information from the independent reserves report prepared by
Sproule Unconventional Limited effective December 31,
2013.
|
As described above, New Maha intends to apply for a secondary
listing in Sweden on the NASDAQ
OMX First North Stock Exchange for the New Maha Shares. The
anticipated benefits of this secondary listing will be to enhance
shareholder liquidity and provide additional access to capital.
New Maha expects to continue looking for opportunities to expand
its investor base and pursue strategic acquisitions targeting
undervalued asset bases that complement New Maha's business.
Maha's management and board of directors believe the proposed
transaction will result in a combined entity that has improved
access to capital, which will be utilized to develop and explore
oil and natural gas properties in Canada, the United
States and outside of North
America.
Management and Directors
New Maha will be led by the existing Maha management team under
the leadership of Jonas Lindvall
(President and Chief Executive Officer). Certain staff and officers
of Palliser are expected to remain in their current positions as
part of New Maha.
Jonas Lindvall, CEO of Maha,
received a B.Sc. (Petroleum Engineering) from the University of Tulsa in 1991 and is currently
completing a Masters of Energy Business from the University of
Tulsa. Mr. Lindvall has 25 years of experience in the oil
& gas sector including 10 years with Lundin Petroleum AB, four
years with Talisman Energy Inc. and two with Petroleum Development
Oman (owned 36% by Royal Dutch
Shell). In 2005, Mr. Lindvall merged a private company
controlled by him with Tethys Oil AB (a Swedish public company) and
was a director of Tethys Oil AB and Managing Director of Tethys Oil
Oman Ltd. from 2005 to 2010.
As part of the approval of the Amalgamation, the shareholders
will also appoint the board of directors of New Maha for the
ensuing year, which are proposed to be Jonas Lindvall, Ron
Panchuk, Anders Ehrenblad, Wayne
Thompson and one Palliser director, Jeffrey Saponja.
Board of Directors' Recommendation
The board of directors of Palliser has unanimously approved the
Amalgamation and, based in part on the verbal fairness opinion from
National Bank Financial Inc. (as discussed below), unanimously
determined that the Amalgamation is in the best interests of
Palliser.
The board of directors of Maha has unanimously approved the
Amalgamation and unanimously determined that the Amalgamation is in
the best interests of Maha.
Under the terms of the Amalgamation Agreement, each of Maha and
Palliser shall not solicit or initiate any inquiries or discussions
regarding any other business combination or sale of assets, subject
to the fiduciary duty of the Maha or Palliser board of directors,
respectively, in the event that an unsolicited superior proposal is
received by either Maha or Palliser. In certain circumstances as
set forth in the Amalgamation Agreement Palliser has agreed to pay
Maha a termination fee of $2.0
million. Similarly, in certain circumstances as set
forth in the Amalgamation Agreement, Maha has agreed to pay
Palliser a termination fee of $800,000.
National Bank Financial Inc. acted as financial advisor to the
board of directors of Palliser with respect to the Amalgamation and
has provided the board of directors of Palliser with the verbal
opinion that, as of the date of approval of the Amalgamation
Agreement and subject to its review of the final form of the
documentation effecting the Amalgamation, the consideration to be
received by Palliser shareholders pursuant to the Amalgamation is
fair, from a financial point of view, to the Palliser shareholders.
National Bank Financial Inc. is expected to provide a written
fairness opinion relating to the Amalgamation to the board of
directors of Palliser in addition to the verbal fairness opinion
which has already been provided to the board of directors of
Palliser.
In addition, Ivy Capital Partners Ltd. ("Ivy Capital"), a
corporation controlled by Stephen
Hayden, a director of Palliser, has provided and has agreed
to continue to provide certain services to Palliser in connection
with the Amalgamation and associated transactions, including
structuring advice and advice with respect to negotiating and
implementing the Amalgamation and associated transactions. In
consideration of providing such services to Palliser, Ivy Capital
will receive a work fee upon the consummation of the Amalgamation
equal to $100,000, for such
services.
Due to the Mr. Hayden's interest in the fee payable to Ivy
Capital, such agreement is a related party transaction pursuant to
Multilateral Instrument 61-101 - Protection of Minority Security
Holders in Special Transactions ("MI 61-101"). Palliser is
relying on an exemption from the valuation and minority approval
requirements of MI 61-101. Specifically, pursuant to subsection
5.5(a) and 5.7(a) of MI 61-101, a formal valuation and minority
approval are not required if at the time the transaction is agreed
to, neither the fair market value of the subject matter of, nor the
fair market value of the consideration for, the transaction,
insofar as it involves interested parties, exceeds 25 per cent of
the issuer's market capitalization. Palliser's three disinterested
directors have determined that the terms of the agreement meet
these exemptions and are reasonable in the circumstances. The
payment of the fee is subject to certain conditions, including
completion of the Amalgamation.
CONCURRENT ASSET TRANSACTIONS
Concurrent with entering into the Amalgamation Agreement,
Palliser has closed the sale of a 50% working interest in its
Manitou, Saskatchewan assets to Maha for $2,150,000 (approximately $1,950,000, after interim adjustments)
("Manitou Sale"). The production associated with the Manitou
Sale is approximately 125 bbl/d of oil. Net proceeds from the
Manitou Sale will be used to address Palliser payables.
Palliser will remain the operator of the wells subject to the
Manitou Sale.
Palliser has also entered into 2 farmout arrangements with Maha
with a view to generating production in the near term from several
priority prospects of Palliser.
In the first instance , Palliser on behalf of Maha, will
recomplete and equip 4 wells targeting the GP formation on its
Marwayne, Alberta prospect
in the Lloydminster core area (the
"Marwayne Farmout") for Maha to earn an undivided 30%
working interest in associated spacing units and wellbores. Maha
will pay 100% of the recompletion costs and Palliser will provide
certain requisite surface equipment.
Under a second farmout arrangement in its Manitou, Saskatchewan core area (the "Manitou
Farmout"), Palliser on behalf of Maha, will drill, case and
complete or abandon a Sparky test well. Maha will be responsible
for 100% of the costs under the Manitou Farmout to earn a 70%
interest before payout, reducing to a 50% interest after
payout.
Subject to rig availability, the recompletion well program under
the Marwayne Farmout is expected to begin in early August 2014, and the test well under the Manitou
Farmout is expected to commence in mid-August 2014.
The Manitou Sale, Marwayne Farmout and Manitou Farmout will
provide Palliser with working capital to carry out additional
development and to assist in maintaining production.
PALLISER UPDATE
Operations
In the second quarter of 2014, Palliser reactivated one (1.0)
net well at Lloydminster.
Average production for the quarter was 1,715 boe/d, based on
field estimates for June 2014,
representing an 8% decrease over the previous quarter.
Financial and Outlook
Palliser achieved average production of 1,826 boe/d in the first
quarter of the year but saw production decline in Q2 to 1,715 boe/d
due to the limited capital program that was executed in the first
half of 2014. These declines combined with the Manitou Sale
will result in forecast net production in Q3 of 1,360 boe/d.
However production growth from a seven well capital program in Q3
is expected to boost Palliser's net production to between 1,550 and
1,650 boe/d in Q4.
The capital program will be undertaken at no cost to Palliser,
with the exception that surface equipment for all of the
wells will be supplied from Palliser's inventory of surplus
equipment. At Manitou Lake, one (0.3 net BPO & 0.5 net
APO) well will be drilled in mid-August; at Marwayne, four (2.8 net) wells will be
reactivated in August and September and at Neilburg, two (1.15 net) wells will be drilled
by the end of September, with all wells expected to be on
production late in Q3 or early in Q4.
Palliser has a significant undeveloped land holding in the
Lloydminster area (34,042 net
acres), and has identified a heavy oil prospect inventory of 169
locations. Approximately half of these future locations (83 of 169)
are reflected in the year end reserves report as proved developed
non-producing, proved undeveloped and probable reserves, while the
balance are not reflected in the report. Palliser's undeveloped
land base and extensive prospect inventory provides significant
upside potential for future growth, once funding is available to
mount a meaningful capital expenditure program.
ABOUT MAHA
Maha is a private Canadian-based, international upstream oil and
gas company. Maha's main business activities include exploration,
development and production of crude oil, natural gas liquids and
natural gas.
Maha was incorporated in February
2013 and is the 99% working interest owner and operator of
the LAK Ranch heavy oil field, located on the eastern edge of the
multi-billion barrel Powder River
Basin in Wyoming, USA.
Maha's core expertise is primary, secondary and enhanced oil and
gas recovery technologies and its business strategy is to target
and develop underperforming hydrocarbon assets. While Maha is
currently focussing primarily on the enhanced recovery of heavy
oil, other asset type opportunities are being and will be
considered as they arise. By focusing on assets with
proven hydrocarbon presence and applying state-of-the-art tailored
solutions to recover the hydrocarbons in place, Maha's primary risk
is not uncertainty in reservoir content but fluid
extraction.
As Maha grows in size and value, it is the objective to create a
well balanced portfolio of assets with low to medium risk.
Ideally 40% of Maha's assets will be in extraction and development
projects, 40% will be in delineation and development projects with
the remaining 20% in near-field or low-risk exploration.
The LAK Ranch Field requires the application of heat, in the
form of steam, to reduce (thin) the viscous oil and allow it to
flow to the producing wellbores. A pilot project initiated in
2005, where 3 vertical wells supplied continuous steam into the
Upper Newcastle Sandstone reservoir, has mobilized over 55,000
barrels from a 3 acre area to a horizontal producing well bore
yielding an estimated recovery factor of 37% to date.
Since Maha acquired the LAK Ranch heavy oil field in 2013, Maha
has converted 6 existing wells to cyclic steam wells, drilled 5
near-horizontal cyclic steam wells and 1 vertical delineation well
on Section 19 that established the presence of additional oil in
the Lower Newcastle Sandstone. New Maha plans to drill an
additional 10 cyclic steam and producing wells in the fall of 2014,
thereby increasing the production area to approximately 75 acres.
Maha owns two steam generators at the field capable of producing
sufficient steam to generate 2,000 bbl/d of oil production.
Additional steam generating capability is planned to be added as
part of New Maha's business plan.
Maha currently has 35,799,304 common shares outstanding
(38,640,185 common shares on a fully diluted basis).
ABOUT PALLISER
Palliser is a Calgary-based
junior oil and gas company focused on high netback heavy oil
production in the greater Lloydminster area of Alberta and Saskatchewan.
Palliser currently has 63,915,979 common shares outstanding
(68,139,091 common shares on a fully diluted basis).
Disclaimers
Forward Looking Statements
Certain information included in this press release constitutes
forward-looking information under applicable securities
legislation. Forward-looking information typically contains
statements with words such as "anticipate", "believe", "expect",
"plan", "intend", "estimate", "propose", "project" or similar words
suggesting future outcomes or statements regarding an outlook.
Forward-looking information in this press release may include, but
is not limited to, timing for completion of the Amalgamation and
matters related or incidental thereto, timing for recompleting or
drilling wells, and the characteristics and plans of New Maha.
Forward-looking information is based on a number of factors and
assumptions which have been used to develop such information but
which may prove to be incorrect. Although Maha and Palliser believe
that the expectations reflected in its forward-looking information
are reasonable, undue reliance should not be placed on
forward-looking information because Maha and Palliser can give no
assurance that such expectations will prove to be correct. In
addition to other factors and assumptions which may be identified
in this press release, assumptions have been made regarding and are
implicit in, among other things, the timely receipt of any required
regulatory approvals (including shareholder approvals). Readers are
cautioned that the foregoing list is not exhaustive of all factors
and assumptions which have been used.
Forward-looking information is based on current expectations,
estimates and projections that involve a number of risks and
uncertainties which could cause actual results to differ materially
from those anticipated by Maha and Palliser and described in the
forward-looking information. The forward-looking information
contained in this press release is made as of the date hereof and
Maha and Palliser undertake no obligation to update publicly or
revise any forward-looking information, whether as a result of new
information, future events or otherwise, unless required by
applicable securities laws. The forward-looking information
contained in this press release is expressly qualified by this
cautionary statement.
United States Matters
This press release shall not constitute an offer to sell or the
solicitation of an offer to buy securities in the United States, nor shall there be any sale
of the securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful. The New Maha Shares to be
offered have not been, and will not be, registered under the U.S.
Securities Act of 1933, as amended and may not be offered or sold
in the United States or to a U.S.
person absent registration or an applicable exemption from the
registration requirements.
FOFI
Any financial outlook or future oriented financial information
in this presentation, as defined by applicable securities
legislation, has been approved by management of Maha and Palliser.
Such financial outlook or future oriented financial information is
provided for the purpose of providing information about
management's current expectations and plans relating to the future.
Readers are cautioned that reliance on such information may not be
appropriate for other purposes.
BOEs
All calculations converting natural gas to barrels of oil
equivalent ("boe") have been made using a conversion ratio of six
thousand cubic feet (six "Mcf") of natural gas to one barrel of
oil, unless otherwise stated. The use of boe may be misleading,
particularly if used in isolation, as the conversion ratio of six
Mcf of natural gas to one barrel of oil is based on an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead.
Given that the value ratio based on the current price of crude oil
as compared to natural gas is significantly different from the
energy equivalency of 6:1, utilizing a conversion on a 6:1 basis
may be misleading as an indication of value.
Analogous Information
Certain information in this news release may constitute
"analogous information" as defined in NI 51-101, including, but not
limited to, information relating to areas, assets, wells and/or
operations that are in geographical proximity to or believed to be
on-trend with lands held by Maha. Such information has been
obtained from public sources, government sources, regulatory
agencies or other industry participants. Management of Maha
believes the information may be relevant to help define the
reservoir characteristics within lands on which Maha holds an
interest and such information has been presented to help
demonstrate the basis for Maha's business plans and strategies.
However, management cannot confirm whether such analogous
information has been prepared in accordance with NI 51-101 and the
Canadian Oil and Gas Evaluation Handbook and Maha is unable to
confirm that the analogous information was prepared by a qualified
reserves evaluator or auditor. Maha has no way of verifying the
accuracy of such information. There is no certainty that the
results of the analogous information or inferred thereby will be
achieved by Maha and such information should not be construed as an
estimate of future production levels or the actual characteristics
and quality Maha's assets. Such information is also not an estimate
of the reserves or resources attributable to lands held or to be
held by Maha and there is no certainty that such information will
prove to be analogous in the future. The reader is cautioned that
the data relied upon by Maha may be in error and/or may not be
analogous to such lands to be held by Maha.
THE TECHNICAL INFORMATION CONTAINED IN THIS RELEASE HAS NOT
BEEN FULLY REVIEWED BY THE TSX VENTURE EXCHANGE AND, AS SUCH,
REMAINS SUBJECT TO CONTINUING REVIEW AND ACCEPTANCE BY THE
EXCHANGE.
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 Palliser Oil & Gas Corporation