Glamis Resources Ltd.
TSX VENTURE : GLM.A

Glamis Resources Ltd.

October 20, 2009 08:13 ET

Glamis Resources Ltd. Announces Two Acquisitions, $90 Million Bought Deal Financing and Increased Guidance

CALGARY, ALBERTA--(Marketwire - Oct. 20, 2009) -

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Glamis Resources Ltd. ("Glamis" or the "Company") (TSX VENTURE:GLM.A) is pleased to announce the acquisition of partnership interests from a private company and a private company acquisition (collectively, the "Acquisitions"). Glamis is also pleased to announce a $90 million unit financing (the "Financing") of special warrants and subscription receipts convertible into class A shares of Glamis ("Glamis Shares").

SUMMARY OF THE ACQUISITIONS

Through the Acquisitions, Glamis is acquiring high quality, high netback, light oil assets focused in the Company's southeast Saskatchewan core area for total consideration of $108 million in cash and 88.3 million Glamis Shares. The producing properties are predominately operated with high working interests, 3D seismic coverage and control of key producing infrastructure and are associated with a light oil prospective undeveloped land base.

Through the Acquisitions, Glamis is acquiring high quality, high netback, light oil assets focused in the Company's southeast Saskatchewan core area for total consideration of $108 million in cash and 88.3 million Glamis Shares. The producing properties are predominately operated with high working interests, 3D seismic coverage and control of key producing infrastructure and are associated with a light oil prospective undeveloped land base.

The Acquisitions provide Glamis with conventional high netback light oil assets and a dominant position in an emerging high-impact Bakken light oil resource play, adding appreciably to the Company's already significant Bakken play exposure.

The combined assets have the following characteristics:

Current Production:1,500 Boepd (96% light oil, average 39o API)
Proved plus Probable Reserves1:3.3 MMBoe
Proved plus Probable RLI:6.0 years
Undeveloped Land:63,625 net acres
3D Seismic25 square miles
Total Development Drilling Locations:185 gross, 137.4 net
Bakken Drilling Locations:131 gross, 98.3 net
Operating Net Back2:$50.23 per Boe
  

1. Preliminary reserves evaluated by Sproule Associates Limited in respect of the partnership assets as at October 1, 2009, GLJ Petroleum Consultants Ltd. ("GLJ") with respect to Connaught Energy Ltd. as at October 1, 2009. Company working interest.

2. Based on US$70.00/Bbl WTI and US$/CDN$ exchange rate of 0.95 and calculated by subtracting royalties and operating costs from revenues.

PARTNERSHIP ACQUISITION

Glamis has entered into an agreement (the "Partnership Acquisition Agreement") with a private company dated October 19, 2009 to acquire the interests in a partnership holding southeast Saskatchewan assets (the "Partnership Acquisition") effective November 1, 2009 for consideration of $47.6 million in cash and 5,000,000 Glamis Shares. Glamis has deposited $5.0 million under the terms of the Partnership Acquisition Agreement, which is refundable to Glamis if the Partnership Acquisition does not close, except in the event of default by Glamis. The Partnership Acquisition Agreement provides that the private company shall pay Glamis a Non-Completion Fee of $3,000,000 as liquidated damages if the transaction fails to close in certain circumstances. Closing of the Partnership Acquisition is expected to occur on or about November 2, 2009 and is subject to certain conditions and the receipt of all regulatory approvals, including the approval of the TSX Venture Exchange (the "TSXV").

PRIVATE COMPANY ACQUISITION

Glamis has also entered into an arrangement agreement dated October 19, 2009 (the "Arrangement Agreement") with Connaught Energy Ltd. ("Connaught"). Pursuant to the Arrangement Agreement, Glamis has agreed to acquire all of the outstanding common shares of Connaught by way of a Plan of Arrangement between Connaught and a wholly-owned subsidiary of Glamis within the context of a Plan of Arrangement under the Business Corporations Act (Alberta) (the "Private Company Acquisition"). Glamis will pay $60 million in cash and issue a total of approximately 83.3 million Glamis Shares to the shareholders of Connaught under the transaction. Certain non-core assets of Connaught will be distributed to the current shareholders of Connaught as part of the transaction. The transaction is subject to the approval of the shareholders of Connaught and the Court of Queen's Bench of Alberta. Holders of approximately 40% of the common shares of Connaught have entered into agreements with Glamis pursuant to which they have agreed to vote their shares in favour of the transaction and the board of directors of Connaught has unanimously approved the transaction and recommended that the shareholders of Connaught approve the transaction. The Arrangement Agreement, among other things, provides for a mutual non-completion fee of $6,000,000 in the event the transaction is not completed in certain circumstances. The Private Company Acquisition is anticipated to close on or about November 9, 2009 in the event that Connaught is able to obtain written shareholder approval, or on or about December 3, 2009 in the event that it is required to convene a meeting of its shareholders. Completion of the transaction is subject to certain conditions and the receipt of all regulatory approvals, including the approval of the TSXV.

THE FINANCING

In association with the Acquisitions, Glamis has entered into an agreement with a syndicate of underwriters, co-led by GMP Securities L.P., Macquarie Capital Markets Canada Ltd. and FirstEnergy Capital Corp., and including BMO Capital Markets, Cormark Securities Inc., National Bank Financial Inc. and Scotia Capital Inc. (collectively, the "Underwriters"), providing for the purchase of, on a bought deal basis, of 28,125,000 units ("Units") for gross aggregate proceeds of $90 million. Each Unit will consist of one subscription receipt of Glamis ("Subscription Receipt") at a price of $1.60 per Subscription Receipt and one special warrant of Glamis ("Special Warrant") at a price of $1.60 per Special Warrant for a total subscription price of $3.20 per Unit. In addition, the Underwriters have been granted an option, exercisable prior to closing, to purchase a further 6,250,000 Units for additional gross proceeds of $20 million.

Fifty percent of the net proceeds of the Financing shall be immediately available to Glamis on closing the Financing, with the remainder held in escrow (the "Escrowed Funds") by Olympia Trust Company as escrow agent. Upon closing of the Private Company Acquisition, each holder of a Subscription Receipt shall receive one Special Warrant without any further action or payment of any additional funds and the Escrowed Funds shall be released to Glamis. If the Private Company Acquisition is not completed by November 30, 2009, holders of Subscription Receipts shall be refunded their pro rata portion of the Escrowed Funds, representing half of the subscription price for the Units, and the Subscription Receipts shall be cancelled.

Each Special Warrant, including the Special Warrants issued on the conversion of the Subscription Receipts, will entitle the holder thereof to receive one Glamis Share on the exercise or deemed exercise of the Special Warrant. The Special Warrants will be exercisable for no additional consideration and all unexercised Special Warrants will be deemed to be exercised on the earlier of (a) four months and a day following the closing of the Financing, and (b) that day on which a receipt is issued by the securities regulatory authorities in all the applicable provinces for a final prospectus qualifying the Glamis Shares to be issued upon the exercise of the Special Warrants. Glamis shall use its best commercial efforts to obtain such a receipt for a final prospectus on or before November 30, 2009. Until the receipt is issued for such prospectus, the Special Warrants as well as the Glamis Shares issuable upon exercise thereof will be subject to a four month hold period under applicable Canadian securities laws.

The net proceeds of the Financing will be used to fund a portion of the cash payable by Glamis for the Acquisitions for ongoing capital expenditures and for general corporate purposes. Closing of the Financing is subject to customary conditions and regulatory approvals, including the approval of the TSXV. Closing is expected to occur on or about November 2, 2009.

FINANCIAL ADVISORS

Macquarie Capital Markets Canada Ltd. and GMP Securities L.P. acted as financial advisors to Glamis and National Bank Financial Inc. acted as strategic advisor to Glamis, with respect to the Connaught acquisition.
FirstEnergy Capital Corp. acted as financial advisor to Connaught.

National Bank Financial Inc. acted as financial advisor to the private company in the sale of the partnership interests.

STRATEGIC RATIONALE AND INCREASED GUIDANCE

These Acquisitions represent the successful continuation of Glamis' business plan to acquire high quality conventional light oil assets and high impact light oil resource play assets.

The Partnership Acquisition creates two new core areas: Steelman/Willmar and Alameda for high impact conventional light oil production. Production from the areas comes primarily from the Frobisher. Analogous wells in the area have initial production rates of 175 Boepd. In addition, Glamis has significantly increased its holdings in the Antler/Frys core area. These acquired lands are positioned directly adjacent to the Sinclair Three Forks B Pool (Torquay) in Manitoba and Glamis' Torquay lands in Saskatchewan. The acquired lands in Antler were mapped by an independent third-party consultant (GLJ) effective August 1, 2009 and indicate an estimate of gross lease total resource of 91.9 MMSTB discovered petroleum initially in place ("PIIP")(1).

Glamis' working interest of the PIIP would be slightly under 100%. The Antler lands provide capture of a significant light oil (39o API) resource for future delineation and development drilling and potential waterflood. Portions of the neighbouring Sinclair field are currently being successfully waterflood with potential recoveries of up to 50 percent (based upon public data). The Partnership Acquisition also includes working interests in 26 Saskatchewan oil units, providing a long life, predictable production base.

The Connaught acquisition provides Glamis with the foremost position in an emerging, operated, high working interest (75 percent), high-impact Bakken light oil resource play at Taylorton, adding appreciably to the Company's already significant Bakken play exposure. The Bakken light oil resource play at Taylorton is unique to only this area of Saskatchewan. The Bakken Shale is mature providing local, world-class source rocks. The region at Taylorton is an oil-charged system, leading to prolific, low water-cut production rates from the Bakken and the potential for stacked multi-zone opportunities in horizons above and below the Bakken.

Glamis will have the dominant interest on its lands with October 1, 2009 estimates of discovered and undiscovered resources based on internal mapping totalling 200 - 300 MMSTB (gross) of PIIP(2). The oil is light sweet crude (42-46o API) with significant high heat content, liquids rich associated natural gas. It is estimated that over 60% of the total PIIP resources is discovered with the remaining resource being undiscovered. The contingent resource allocation is due to the early evaluation stage of the project. The Connaught interests encompass approximately 44 (32.8 net) sections of land, with approximately 30 net sections or 19,252 net acres undeveloped.

Based on the wells drilled to date by Connaught and competitors, Glamis believes the lands controlled by Connaught encompass a large resource play for light sweet oil in the Bakken. By capturing the opportunity, Glamis believes it can continue to unlock the large resource potential through continued improvements in technology, including potential secondary and tertiary recovery schemes. As with all resources plays, improvements in technology result in continuous increases in production rates and reserves and decreases in costs over the long lifespan of these types of developments.

Currently producing wells were typically drilled horizontally with long laterals and completed utilizing 7 to 12 stage Packers Plus frac treatment. Initial rates from these wells have generally ranged between 100 and 300 Boepd. However, recent developments in the application of the fracture treatment to the horizontal wells have lead to a dramatic, positive step-change in results. One of the two most recent drilled Connaught wells has been flow tested with initial rates ranging from 600 to 1,000 Boe/d and the second well is undergoing completion and has also shown high initial inflow rates.

Glamis anticipates there are up to 131 (98.25 net) horizontal locations on the acquired lands, of which 126 (95.25 net) or 96 percent are unbooked. Based on anticipated activity levels, this represents four years of drilling inventory.

A large 3D seismic survey covering the majority of the Taylorton lands is currently underway. The 3D will be used to identify additional drilling targets in other horizons. A number of Bakken horizontal wells drilled on the Taylorton lands encountered oil shows and gas detector response while drilling through the Midale and the 3D will help confirm the areal extent of this potential Midale pool. Any non-Bakken locations, including the Midale, would be incremental to the currently identified drilling location inventory.

The Acquisitions dramatically increase Glamis' opportunity inventory in its light oil focus area of southeast Saskatchewan. As a result of the transactions, Glamis will have proforma production of 5,500 Boepd, proven plus probable reserves of 17.6 MMBoe, nearly 270,000 net acres of undeveloped land and a drilling inventory of 385 (268.9 net) development locations, all for high quality light oil (corporate average 38o API). Glamis continues to grow its resource play exposure, with Bakken locations comprising approximately 62 percent of the net development location inventory. The Company is the third largest independent producer in the Bakken and the dominant interest holder in the emerging high impact Taylorton Bakken light oil resource play.

The Company anticipates the Financing will result in an under-levered balance sheet, providing greater certainty to the execution of a capital program and the ability to better weather any commodity volatility, with the flexibility to be opportunistic on future acquisition targets.

The Acquisitions and Financing are expected to be accretive to 2010 forecast cash flow per share and production per share. As a result of these acquisitions as well as successful drilling and optimizations, Glamis is increasing its guidance for 2009 exit rate production from 4,150 Boepd to 5,750 Boepd, representing a 1371% increase in production from Q2 2009 averages.
Glamis continues to differentiate itself from the rest of the junior sector with our light oil, high net back production base, concentrated assets, strong balance sheet, significant light oil resource play exposure and successful consolidation strategy.
Glamis Resources Ltd. is a uniquely positioned, well-capitalized junior oil and gas company with a proven management team committed to aggressive, cost-effective growth of light oil reserves and production in Saskatchewan and Manitoba. Glamis' common shares trade on the TSX Venture Exchange under the symbol GLM.A. Glamis currently has 284.5 million common shares outstanding.

WARNING

The securities 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 absent registration or applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements. More particularly, this press release contains statements concerning the anticipated dates for the closing of the disclosed transactions and the anticipated accretive impact of the transactions on Glamis, the potential exploration and development opportunities existing with respect to Glamis and the acquired assets, the potential results of wells drilled, Glamis' anticipated capital position and Glamis' 2009 exit rate of production.

The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Glamis, including: (i) with respect to the anticipated closing dates of the transactions, expectations and assumptions concerning timing of receipt of required shareholder, court and regulatory approvals and third party consents and the satisfaction of other conditions to the completion of the transactions and (ii) with respect to the remaining forward-looking statements, expectations and assumptions concerning the success of future drilling and development activities, the performance of existing wells, the performance of new wells, the successful application of technology and prevailing commodity prices.

Although Glamis believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Glamis can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the failure to obtain necessary regulatory approvals or satisfy the conditions to closing the transactions, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in Glamis' Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.

The forward-looking statements contained in this document are made as of the date hereof and Glamis undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

MEANING OF BOE

When used in this press release, boe means a barrel of oil equivalent on the basis of 1 boe to 6 thousand cubic feet of natural gas. Boepd means a barrel of oil equivalent per day.

Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6 thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

MEANING OF PIIP

PIIP is that quantity of petroleum that is estimated to exist originally in naturally occurring accumulations. It includes that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations, prior to production, plus those estimated quantities in accumulations yet to be discovered.

Discovered PIIP is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production.

Undiscovered PIIP is that quantity of petroleum that is estimated, on a given date, to be contained in accumulations yet to be discovered.

Investors should be cautioned that: (i) there is no certainty that any portion of the Undiscovered PIIP will be discovered and (ii) there is no certainty that any portion of Discovered PIIP will be economically viable or technically feasible to recover or produce. Accordingly, undue reliance should not be placed on PIIP as a measure of Glamis' prospects.

(1) Due to the early stage of drilling/testing on these lands, a recovery project however has not been defined at this time for this volume of discovered PIIP and therefore no contingent resources are estimated. Neither GLJ nor Glamis make any representation as to whether any of the PIIP is commercially recoverable.

(2) There is no certainty that any portion of the undiscovered resource will be discovered. In addition, no recovery assessment has been conducted at this time and Glamis does not make any representation as to whether any of the PIIP is commercially recoverable.

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.

Contact Information

  • Glamis Resources Ltd.
    Trent J. Yanko, P.Eng.
    President and CEO
    (403) 441-2300
    (403) 441-2017 (FAX)
    or
    Glamis Resources Ltd.
    Matt Janisch, P.Eng.
    Vice-President, Finance and CFO
    (403) 441-2300
    (403) 441-2017 (FAX)