GFI Oil & Gas Corporation
TSX VENTURE : GFI

GFI Oil & Gas Corporation

October 18, 2007 18:35 ET

GFI Obtains US$25.5 Million Bridge Loan

CALGARY, ALBERTA--(Marketwire - Oct. 18, 2007) - GFI OIL & GAS CORPORATION ("GFI" or the "Company") (TSX VENTURE:GFI) is pleased to announce that it has obtained US$25.5 million in bridge loan financing (the "Bridge Loan") from a lender group (the "Lenders") consisting of several shareholders of the Company that directly, or indirectly, each own or control 10% or more of the outstanding common shares of the Company, including EnCap Energy Capital Fund V, L.P., EnCap Energy Capital Fund V-B, L.P., EnCap Energy Capital Fund VI, L.P., EnCap Energy Capital Fund VI B, L.P., Macquarie Bank Limited and Laminar Direct Capital L.P., an affiliate of a shareholder (collectively, the "Related Lenders"). The Bridge Loan will be used by the Company to pay costs associated with the Company's Bualuang and Kambuna development projects and corporate general and administrative expenses, all as approved by the Board of Directors of the Company and the Lenders, as well as such other uses as the Board of Directors of the Company and the Lenders may approve from time to time.

The Company estimates its share of the future costs to develop the Bualuang and Kambuna fields to be approximately US$100 million. Over the past few months, significant progress has been made on both projects, placing the Company in a more favorable position to arrange longer term financing. The Bridge Loan allows the Company to continue its project development plans while it completes its efforts to secure longer term financing, including a senior long-term credit facility.

Interest and Prepayment

Interest will accrue monthly on the outstanding balance of the Bridge Loan at a rate of 15% per annum, but will not be payable until July 15, 2008, the end of the term of the Bridge Loan (the "Term"). A commitment fee equal to 2% of the amount of the committed Bridge Loan has been paid to the Lenders by the issuance of 541,486 common shares of the Company on the basis of the volume-weighted average closing price of the common shares of the Company (the "Common Shares") on TSX Venture Exchange Inc. (the "TSX Venture") over the 10 trading day period ending prior to October 15, 2007. The Company may re-pay the Bridge Loan and all accrued interest at any time prior to January 31, 2008 (the "Pre-Payment Date"), without prepayment penalties. The Company may repay the Bridge Loan and all accrued interest at any time until the end of the Term without prepayment penalties, other than the issuance of the warrants described below.

Warrants

If the Company does not repay the Bridge Loan and all interest accrued thereon prior to the Pre-Payment Date, GFI has agreed to issue 0.35 share purchase warrants for every $1.00 of the Bridge Loan then outstanding (the "Initial Warrants"). Each Initial Warrant will entitle the holder to acquire one Common Share for a period of two years from the date of issuance at a price equal to the volume-weighted average closing price of the Common Shares on TSX Venture for the 10 trading day period ending on the last trading day prior to the Pre-Payment Date.

If the Company does not repay the Bridge Loan and all interest accrued thereon prior to the end of the Term, GFI has agreed to issue an additional 0.25 share purchase warrants for every $1.00 of the Bridge Loan then outstanding (the "Additional Warrants"). Each Additional Warrant shall entitle the holder thereof to acquire one Common Share for a period of two years from the date of issuance at a price equal to the volume-weighted average closing price of the Common Shares on TSX Venture for the 10 trading day period ending on the last trading day prior to the last day of the Term.

In the event the Company completes an arm's length equity offering, including an offering of securities convertible into Common Shares, (the "Equity Offering") during the term of the Initial Warrants or Additional Warrants where the offering price or the conversion price, as the case may be(the "Equity Price") is less than the exercise price of the Initial Warrants or the Additional Warrants, the exercise price of the Initial Warrants and Additional Warrants shall be reduced to the Equity Price, but in no event shall the exercise price be adjusted to lower than 80% of the initial exercise price per share at the issuance of the warrant. Also, if the Company repays all or any portion of the Bridge Loan with proceeds of any Equity Offering after the Initial Warrants or Additional Warrants are issued, the exercise price of the Initial Warrants or Additional Warrants issued with regard to the portion of the Bridge Loan that is repaid will not be subject to further adjustment after such repayment.

Security

The Bridge Loan has been secured by a general security agreement over the assets of the Company. The Bridge Loan has also been guaranteed by GFI Oil & Gas Thailand Inc., Duinord Glagah Kambuna Inc., and GFI Bualuang & Kambuna Holdings Inc., which guarantees are secured by a pledge to the Lenders of the shares of each of these three subsidiaries by the Company. The Bridge Loan is also secured by a lien and security interest on the United States dollar deposit and related accounts into which Bridge Loan proceeds will be initially drawn, as well as any short term investment accounts that proceeds are deposited before they are used (collectively, the "Security").

OSC Rule 61-501 Disclosure

The purpose of the Bridge Loan as stated above is to enable the Company to pay the costs of the Company's Bualuang and Kambuna development projects. The Bridge Loan allows the Company to continue its project development plans while it secures longer term financing.

The Related Lenders and the other Lenders are recipients of senior bridge notes (the "Notes") from the Company. The Related Lenders and other Lenders have also been conferred the benefit of the Security pursuant to security documentation, which documentation together with the Notes, are the only material agreements entered into in connection with the Bridge Loan.

The non-interested members of the Board of Directors of the Company, namely Gregory C. Campbell, James H. Coleman, Richard E. MacDougal, Alex T. Warmath and W. Mark Meyer, reviewed and approved the terms of the Bridge Loan after consultation with legal and other advisors. The non-interested directors unanimously approved the Bridge Loan. The interested directors, namely Brent Bechtol, Ian Dundas and Robert L. Zorich as directors or officers of the Related Lenders, declared their interest in the Bridge Loan and abstained from deliberations regarding the Bridge Loan.

No formal valuation was obtained in respect of the Bridge Loan. The Bridge Loan is exempt from the related party transaction requirements of Ontario Securities Commission Rule 61-501 ("OSC Rule 61-501") as the size of the Bridge Loan from Related Lenders, namely $20.5 million, is less than 25% of the market capitalization of the Company pursuant to sections 5.5(2) and 5.7(2) of OSC Rule 61-501.

About GFI

GFI is a public company listed on TSX Venture Exchange Inc. (symbol "GFI.V") with core interests in two offshore fields currently under development, the 104,000 acre Bualuang oilfield offshore Thailand (60%) and a 35% non-operated interest in the 83,000 acre Kambuna natural gas and condensates project located offshore northern Sumatra, Indonesia. GFI also holds working interests in several other non-operated offshore Indonesia licenses with working interests ranging from 22.5% to 35%.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The shares offered will not be and have not been registered under the United States Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

ADVISORY - Certain information regarding GFI set forth in this release, including management's assessment of GFI's future plans, operations and operational results may constitute forward-looking statements under applicable securities law and necessarily involve risks associated with oil and gas exploration, production, marketing, and transportation such as loss of market, volatility of prices, currency fluctuations, imprecision of reserves estimates, environmental risks, competition from other producers, currency exchange risks, uncertain political risk in countries where the operations of GFI take place, and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements.

The TSX Venture Exchange Inc. does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • GFI Oil & Gas Corporation
    Gerald F. Clark
    Chief Financial Officer
    (281) 877-7279
    Email: jerryclark@gfioil.com