NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES.
Algonquin Oil & Gas Limited ("Algonquin") (TSX VENTURE:AQX) is pleased to
announce that it has entered into an arrangement agreement dated November 12,
2011 (the "Arrangement Agreement") with Mondak Petroleum Inc. ("Mondak"), a
private oil and gas company, in connection with the proposed arm's length
business combination of Algonquin and Mondak.
About Algonquin
Algonquin is a junior oil and gas company primarily focused on petroleum and
natural gas production, lease acquisition and exploration, and development of
crude oil and natural gas properties in Ontario, Canada. Algonquin's primary
holdings of oil and gas rights, both producing and undeveloped, are certain
onshore and offshore leases located in Lake Erie at Colchester, Ontario.
About Mondak
Mondak was recently incorporated under the Business Corporations Act (Alberta)
and is engaged in the acquisition of oil and natural gas resources. The only
voting securities that are issued and outstanding in the capital of Mondak are
10,000,000 Class A common voting shares, all of which are held by DelMar
Resources LLC, a private company controlled by John Fair's family members.
Through its wholly-owned United States subsidiary, Mondak Petroleum (US), Inc.
("Mondak Sub"), Mondak has entered into an option agreement (the "Option") with
Alameda Energy Inc. ("Alameda"), an affiliate of Slawson Exploration Company,
Inc. ("Slawson"), pursuant to which Mondak Sub has: (i) the option to acquire a
30% non-operated working interest in certain leases held by Alameda on
approximately 34,000 acres located in Richland County, Montana and McKenzie
County, North Dakota (the "Mondak Interest"); and (ii) if it exercises the
option on the Mondak Interest, the option to acquire a 10% non-operated working
interest in certain leases held by Alameda on approximately 75,000 acres located
in the Dawson, Wibaux and Richland Counties of Montana (the "False Bakken
Interest"). Alameda will retain the remaining working interests in the leases
comprising the Mondak Interest and the False Bakken Interest and Slawson will be
the operator of these interests. The Option provides that the purchase price to
be paid by Mondak for the Mondak Interest shall be US$5,000 per net mineral acre
(or an aggregate of approximately US$51,000,000) and the purchase price for the
False Bakken Interest shall be US$2,000 per net mineral acre (or an aggregate of
approximately US$15,000,000). In consideration for the granting of the Option,
Mondak has also issued 100,000,000 Class B common non-voting shares in the
capital of Mondak to Alameda.
In addition to the Option, the parties have also entered into an ancillary
agreement providing for the terms and conditions upon which the Option may be
rescinded in the event that certain financing conditions are not satisfied.
The leases comprising the Mondak Interest and the False Bakken Interest are
located within the Williston Basin, among the most active and growing resource
plays in the U.S. and proven to contain large accumulations of oil. The U.S.
Geological Survey estimates mean recoverable resource volumes in the Williston
Basin to be approximately 3.8 billion barrels of oil. Based on well tests
performed in surrounding areas, Algonquin management believes that the Mondak
Interest and the False Bakken Interest possess technically attractive
attributes, such as low water cuts, high pressure yields and the ability to
implement stage fracing, that will lead to high ultimate recoveries at low cost.
Slawson is a privately held oil and gas exploration company which has drilled
over 3500 wells in various locations throughout the United States, including the
Williston Basin, the Anadarko Basin, the Gulf Coast, the Kansas Basin and the
Sacramento Basin. It is currently the 7th largest private oil producer in the
United States and is the leading private oil producer in the Williston Bakken.
Slawson has over 35 years of experience in the Williston Basin and has grown oil
production, primarily through the drill bit, from less than 1,000 barrels per
day to current operated production of approximately 22,000 barrels per day. For
further information relating to Slawson, refer to its website at
www.slawsoncompanies.com.
The Arrangement Agreement
The arm's length business combination of Algonquin and Mondak is proposed to be
effected by way of a plan of arrangement (the "Arrangement"), the details of
which are set forth in the Arrangement Agreement. The Arrangement Agreement
contemplates the following:
-- a wholly-owned subsidiary of Algonquin ("Algonquin Sub") will amalgamate
(the "Amalgamation") with Mondak to form a new amalgamated entity
("Amalco") and in connection therewith, the holders of the issued and
outstanding Class A common voting shares of Mondak will receive common
voting shares of Algonquin and the holders of the issued and outstanding
Class B common non-voting shares of Mondak will receive convertible,
common non-voting shares of Algonquin, all on a one-for-one basis;
-- Algonquin shall receive shares of Amalco on the basis of one common
share in the capital of Amalco for every common share of Algonquin Sub
held immediately prior to the Amalgamation, resulting in Amalco becoming
a wholly-owned subsidiary of Algonquin;
-- a new management team of Algonquin will be appointed (the "New
Management");
-- a new board of directors of Algonquin will be elected (the "New
Directors");
-- a proposed amendment to the share capital structure of providing for
certain amendments to the rights, privileges and restrictions attaching
to the Algonquin common voting shares and the creation of the Algonquin
convertible, common non-voting shares (the "Share Capital Amendment");
-- a consolidation of the issued and outstanding shares of Algonquin on a
"1 new for 10 old" basis will be effected immediately after completion
of the Arrangement (the "Share Consolidation"); and
-- in connection with the Arrangement, Algonquin proposes to change its
name to "PetroShale Inc." (the "Name Change").
Completion of the Arrangement is subject to the approval of the Mondak
shareholders, as well as customary court, regulatory and TSX Venture Exchange
("TSXV") approvals. At an annual and special meeting of the holders (the
"Algonquin Shareholders") of all of the issued and outstanding Algonquin shares,
the Algonquin Shareholders will be asked to elect the New Directors, to consider
and approve the Name Change, the Share Capital Amendment, the Share
Consolidation and other matters related to the Arrangement. The information
circular to be mailed to Algonquin Shareholders will contain detailed
information in respect of the Arrangement, Mondak and other related matters.
There can be no assurance that the Arrangement will be completed as proposed or
at all.
It is a condition to the Arrangement that all of the current directors and
officers of Algonquin and Mondak enter into lock-up agreements to vote their
respective shares in favour of the Arrangement and other matters related to the
Arrangement.
The Arrangement Agreement also provides for a reciprocal termination fee of
$500,000 payable by either Algonquin or Mondak in certain circumstances.
Closing of the Arrangement is expected to occur on or about January 11, 2012.
Management Team and Proposed Board of Directors
Upon completion of the Arrangement, it is contemplated that the New Directors
will be elected to the board of directors of Algonquin and that the New
Management will be appointed as officers of Algonquin. The proposed New
Directors and New Management team will be comprised of nominees which will be
agreed upon by each of Algonquin and Mondak. The proposed New Directors include,
James Fair, John Hagg, Brett Herman, Daniel Jarvie and Jacob Roorda.
James Fair
Mr. Fair has over 34 years of oil and gas experience in both Canada and the
United States. He is currently the President and Chief Executive Officer of
Algonquin and was the Chairman and Chief Executive Officer of Algonquin from
1996 to 2008. Previously, Mr. Fair acted as the Vice Chairman of Tristone Energy
Services Inc., was a founding partner and former director of Big Rock Brewery,
and acted in a variety of roles such as trustee, director or partner in numerous
other private entities.
John Hagg
Mr. Hagg has over 35 years of experience in the petroleum exploration and
production, service, and financial sectors in Canada and the United States. Mr.
Hagg co-founded Canadian Northstar Corporation in 1977 and served as Chairman of
Northstar Energy Corporation from 1982 to 2001 and acted as its President and
Chief Executive Officer from 1985 to 1999. Mr. Hagg currently serves as a
director of the TMX Group Inc. and of The Fraser Institute and is the Chairman
of Clark Builders and Strad Energy Services Ltd. Mr. Hagg has previously acted
as a director for Berry Petroleum Co., Tristone Capital Inc. and Devon Energy
Corp.
Brett Herman
Brett Herman has extensive oil and gas experience in leadership roles at public
oil and gas companies and currently serves as the President and Chief Executive
Officer of Torc Oil and Gas Ltd. Prior thereto, Mr. Herman served as the Chief
Executive Officer and President of Result Energy Inc. and as the Chief Executive
Officer and President of Tristar Oil and Gas Ltd. Mr. Herman holds the Chartered
Accountant designation.
Daniel Jarvie
Mr. Jarvie is currently the President of Worldwide Geochemistry, LLC, acting as
a consultant to the petroleum industry and is focused on unconventional shale
resource plays and prospects. Mr. Jarvie is an analytical and interpretive
organic geochemist with extensive experience in the evaluation of conventional
petroleum systems around the world and in unconventional shale-gas exploration,
particularly the Barnett Shale. Mr. Jarvie was founder and President of Humble
Instruments and Humble Geochemical Services from 1987 to 2007.
Jacob Roorda
Mr. Roorda currently acts as a director for Angle Energy Inc., Argosy Energy
Inc. and is Vice Chairman for Canoe Financial Corp. Mr. Roorda has over thirty
years of experience in the oil and gas industry holding various leadership
positions including, President and Vice President, Corporate for Harvest
Operations Corp. and Vice President, Corporate and director for PrimeWest Energy
Inc. Mr. Roorda has also previously held senior corporate finance positions
including Senior Vice President and director for Research Capital Corporation
Immediately after completion of the Arrangement, it is expected that Algonquin
will grant options to purchase Algonquin common voting shares at a price of
$0.30 per share to the new directors and officers of Algonquin in a number that
is up to 8% of the issued and outstanding Algonquin common voting shares
immediately after completion of the Arrangement.
Financings and Debt Settlements
In connection with the Arrangement, Algonquin proposes to complete a
non-brokered private placement (the "Algonquin Private Placement") whereby it
shall issue up to 12,000,000 common shares ("Algonquin Shares") at a price of
$0.10 per share for gross proceeds of up to $1,200,000. The net proceeds from
the Algonquin Private Placement will be used to pay for all of the costs
relating to the Arrangement and for working capital purposes. Closing of the
Algonquin Private Placement is expected to occur on or about November 25, 2011
and is subject to receipt of all necessary regulatory approvals, including the
approval of the TSXV.
In addition to the Algonquin Private Placement, Algonquin also intends to issue
a number of Algonquin Shares at a price of $0.10 per share to settle US$350,000
of previously incurred debt held by James Fair, the President and Chief
Executive Officer of Algonquin (the "Debt Settlement"). Closing of the Debt
Settlement is expected to occur on or about November 25, 2011 and is also
subject to receipt of all necessary regulatory approvals, including the approval
of the TSXV.
Mondak has entered into an engagement agreement with Macquarie Capital Markets
Canada Ltd. ("Macquarie") pursuant to which Macquarie has been engaged to lead
the offering (the "Mondak Private Placement") of up to 416,666,667 subscription
receipts ("Subscription Receipts") at a price of $0.30 per Subscription Receipt
for gross proceeds of up to $125,000,000. Mondak has also granted Macquarie an
over-allotment option to place up to an additional 62,500,000 Subscription
Receipts at a price of $0.30 per Subscription Receipt for additional gross
proceeds of up to $18,750,000.
Each Subscription Receipt will represent the right to automatically receive one
Class A common voting share ("Mondak Voting Share") in the capital of Mondak.
The Subscription Receipts will be issued pursuant to the terms of a subscription
receipt agreement and the gross proceeds of the Mondak Private Placement will be
held in escrow by an escrow agent. Each Subscription Receipt will automatically
be exchanged, without payment of any additional consideration or further action
on the part of the holder thereof, into one Mondak Voting Share upon delivery of
a notice to the escrow agent that the escrow release conditions have been
satisfied, including the receipt of any necessary government, regulatory and
shareholder approvals.
Provided that the notice is delivered to the escrow agent pursuant to the terms
of the subscription receipt agreement, the net proceeds of the Mondak Private
Placement shall be released from escrow to Mondak concurrent with the exercise
of the Option and immediately prior to the completion of the Arrangement. If the
notice is not provided to the escrow agent pursuant to the terms of the
subscription receipt agreement, each Subscription Receipt shall be cancelled and
each holder of Subscription Receipts shall be entitled to receive its investment
plus interest.
Mondak intends to use the net proceeds of the Mondak Private Placement to fund
the exercise of the Option immediately prior to the completion of the
Arrangement, to commence a drilling program on the leases comprising the Mondak
Interest and for general corporate purposes. Closing of the Mondak Private
Placement is expected to occur on or about December 15, 2011.
Other Advisors
Mondak has engaged McDaniel & Associates Consultants Ltd. to prepare an
evaluation report in compliance with of the requirements of National Instrument
51-101- Standards of Disclosure of Oil and Gas Activities, on the oil and
natural gas reserves and/or resources attributable to the Mondak Interest. The
details of such evaluation report are expected to be disclosed in a future press
release and will be set out in the information circular to be provided to the
Algonquin Shareholders in connection with the annual and special meeting of
Algonquin.
Trading Update
Trading of the Algonquin Shares will remain halted pending receipt and review by
the TSXV of acceptable documentation regarding the company following completion
of the Arrangement. The proposed Arrangement has not been approved by the TSXV
and remains subject to TSXV approval.
Reader Advisory
Completion of the Arrangement is subject to a number of conditions, including
but not limited to, TSXV acceptance and the approval of the Court of Queen's
Bench for the Province of Alberta, as well as any other necessary regulatory
approvals. The Arrangement cannot close until the required shareholder approvals
are obtained. There can be no assurance that the Arrangement will be completed
as proposed or at all.
Investors are cautioned that, except as disclosed in the management information
circular to be prepared in connection with the Arrangement, any information
released or received with respect to the transaction may not be accurate or
complete and should not be relied upon. Trading in the securities of Algonquin
should be considered highly speculative.
All information contained in this news release with respect to Algonquin and
Mondak was supplied by Algonquin and Mondak, respectively, for inclusion herein.
Algonquin and its directors and officers have relied on Mondak for any
information concerning Mondak.
Statements in this press release contain forward-looking information within the
meaning of applicable securities law. 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: timing and completion of the Arrangement, the Algonquin Private
Placement, the Mondak Private Placement, the Debt Settlement, the Share Capital
Amendment, the Share Consolidation, the Name Change, the composition of the
board of directors and management of Algonquin, the exercise of the Option, the
oil and natural gas reserves attributable to the Mondak Interest and the False
Bakken Interest, and trading in the Algonquin Shares. Readers are cautioned that
assumptions used in the preparation of forward-looking information may prove to
be incorrect. Although we believe that the expectations reflected in the
forward-looking information are reasonable, there can be no assurance that such
expectations will prove to be correct. We cannot guarantee future results, level
of activity, performance or achievements. Consequently, there is no
representation that the actual results achieved will be the same, in whole or in
part, as those set out in the forward-looking information.
Forward-looking information is based on the opinions and estimates of management
at the date the statements are made, and are subject to a variety of risks and
uncertainties and other factors (many of which are beyond the control of
Algonquin and Mondak) 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:
general economic conditions in Canada, the United States and globally, the risks
associated with the oil and gas industry, failure to obtain all approvals
required to implement the transactions contemplated herein, including all
requisite shareholder approvals, financing and capital market risks,
transactional risks, commodity prices and exchange rate changes. Industry
related risks could 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
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. Algonquin 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.
This press release does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities described herein. The securities have not
been and will not be registered under the United States Securities Act of 1933,
as amended (the "U.S. Securities Act"), or any state securities laws and may not
be offered or sold within the United States or to United States Persons unless
registered under the U.S. Securities Act and applicable state securities laws or
an exemption from such registration is available.
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