Surge Resources Inc.

June 04, 2007 09:25 ET

Surge Resources Inc.: Letter of Intent to Acquire 100% Interest in Petroleum Prospecting Licences in Papua New Guinea

CALGARY, ALBERTA--(Marketwire - June 4, 2007) - Surge Resources Inc. ("Surge") (NEX BOARD:SRH) is pleased to annouce that is has entered into a letter of intent (the "LOI") dated June 1, 2007 with Transeuro Energy Corp. ("Transeuro") (trading symbol "TSU" TSXV) whereby the parties have agreed to negotiate a definitive agreement relating to a proposed purchase by Surge of certain assets from Transeuro (the "Transaction"). Pursuant to the Transaction, Surge will acquire from Transeuro, or its subsidiary, a 100% interest in four petroleum prospecting licenses (the "Licenses") granted by the government of Papua New Guinea and all related geological, seismic and technical data owned or obtained by Transeuro in relation to the lands represented in the Licences (collectively, the "Assets"). Transeuro will be granted a "back in right" whereby, after Surge has drilled and tested three exploration wells on the Assets, Transeuro may elect to acquire a 10% working interest in the Assets by paying to Surge an amount equal to 10% of the exploration and development costs incurred up to that date with respect to the Assets and agreeing, on a go forward basis, to pay 10% of the exploration and development costs incurred after that date.

The Licenses grant the right, among other things, to explore for petroleum and natural gas in an area comprising approximately, in aggregate, 5,841,196 gross (4,526,927 net) acres in Papua New Guinea. The Licences are subject to a 22.5% option held by the government of Papua New Guinea. The Transaction is an arm's length transaction. Upon completion of the Transaction, Surge will operate as an oil and gas exploration company.

Description of the Assets

The Licenses are comprised of Petroleum Prospecting License 257 ("PPL 257"), Petroleum Prospecting License ("PPL 258"), Petroleum Prospecting License 259 ("PPL 259") and Petroleum Prospecting License ("PPL 260").

PPL 260 covers an area of 1,541,196 gross (1,179,015 net) acres located in the Papuan Fold Belt of Papua New Guinea. The area covered by PPL 260 is contiguous to the area covered by Petroleum Development License 1 and the area covered by Petroleum Retention License 11. Together the areas covered by Petroleum Development License 1 and Petroleum Retention License 11 have indicated 5 trillion cubic feet of natural gas. Nine kilometers due south of PPL 260 is the area covered by Petroleum Retention License 02 which has a reported 3 trillion cubic feet of gas reserves. Forty-five kilometers south of PPL 260 is a pipeline that connects the Kutubu field to the pipeline that runs to the offshore Kumul terminal in the Torres Strait between Australia and Papua New Guinea. At present, the offshore terminal is being used for the loading of tankers with crude oil transported by the pipeline for market. Gas production is currently locked in pending the successful completion of a number of infrastructure projects currently under consideration. Remote Sensing and Radarstat studies have been completed and the digital terrain model has been reviewed for PPL 260. Preparations are being made for a preliminary field visit to PPL 260 to establish links with the community leaders and to assess logistics prior to anticipated fieldwork expeditions in 2007.

PPL 259 covers an area of 1,361,051 gross (1,041,204 net) acres located in the foreland area of the Papuan Fold Belt of Papua New Guinea. PPL 259 surrounds the undeveloped gas condensate fields of Stanley, Elevala (611 Bcf) and Ketu (704Bcf). In addition, 50 kilometers to the north is the similar, but more substantial, undeveloped gas/condensate discovery of Pnyang (3.44 Tcf). The main gas producing area in Papua New Guinea lies 75 kilometers to the east and includes the major Hides gas/condensate accumulation (13.416Tcf) and the adjacent fields of Angore (9.2 Tcf) and Juha (5.29 Tcf). Interpretation of 200km 2D seismic has been completed and a high density aerial gravity and magnetic survey has been acquired and processed. Site construction is underway at the Eaglewood location, prior to arrival of a rig.

PPL 257 covers an area of approximately 1,721,329 gross (1,316,816 net) acres in the Cape Vogel Basin area of Papua New Guinea. The prospective area of PPL 257 is predominately offshore but includes a significant onshore tranche which will be significant for conducting geological field work. The offshore area contains several significant leads and prospects which have been identified by past operators from previous seismic surveys but never drilled. Original paper seismic data from the area has been vectorised and reprocessed and interpreted on the workstation. Basin modeling is ongoing. New seismic acquisition is planned for 2007. Further, an aerial gravity and magnetic survey, field mapping and analysis of oil and gas seeps is anticipated for 2007 to identify potential well locations.

PPL 258 covers an area of approximately 2,201,700 gross (1,684,300 net) acres in the North Niugini Basin of the Sepik area of Papua New Guinea. This onshore basin is almost entirely located within the West Sepik Province in the north of Papua New Guinea. The Sepik Basin defines the course of the Sepik River which lies to the north of the main Papuan Highland Basin, and includes a younger sedimentary section. The area is well known for oil and gas seeps, and only a short history of oil exploration with no success to date. The terrain in the area is lower than that of the highlands, consisting of rolling hills and tropical forests with broad flat river valleys and large meandering river systems and the location remains relatively isolated in terms of infrastructure and transport. Approximately 2000kms of 2D seismic has been shot over the area and seismic reprocessing has been successful in delivering a considerable improvement in the clarity of the data. A high resolution aerial gravity and magnetic survey is planned for 2007 as well as additional geological mapping and analysis of oil and gas seeps in anticipate of having drill locations for 2008.

The government of Papua New Guinea has an option under law to acquire a 22.5% interest in the Licences.

All information provided in this press release regarding the Assets has been provided by management of Transeuro and has not been independently verified by management of Surge.

The proposed general work program with respect to the Licences is as follows:

Phase 1:

Conduct offshore bathymetric study (approximately US$2,000,000) with a subsequent offshore seismic program (approximately US$3,000,000) in PPL 257 with completion scheduled for late 2007. Acquisition is subject to availability of seismic boats in the region.

Conduct onshore gravity/magnetic survey in PPL 258 with completion anticipated for the end of October, 2007 (approximately US$1,000,000).

Following the completion of the PPL 258 survey, a gravity/magnetic survey will be performed over PPL 260 (approximately US$1,000,000).

Phase 2:

Drill one well in PPL 259 at a gross cost of US$15,000,00, which is scheduled to spud in Q1 2008.

Details of the Transaction

As consideration for Transeuro transferring the Assets to Surge free with an effective date of May 16, 2007, Surge will issue to Transeuro 30,000,000 common shares of Surge (the "Consideration Shares"), with a deemed price of $0.85 per share for a total deemed consideration of $25,500,000. The Consideration Shares will be subject to a voluntary escrow agreement for a period of 18 months (with one third being released after 6 months, one third being released after 12 months and the remaining one third being released after 18 months) following the closing of the Transaction. The TSX Venture Exchange (the "Exchange") may impose additional escrow conditions with respect to the Consideration Shares.

Upon completion of the Transaction, Surge will grant Transeuro a pre-emptive right to acquire up to 50% of the securities to be issued by Surge pursuant to any financing of Surge involving the issuance of common shares or securities convertible into common shares completed within two years from the closing of the Transaction. Further, Hal Hemmerich, President and Chief Executive Officer of Transeuro will be appointed to the Board of Directors of Surge on closing of the Transaction and an additional nominee of Transeuro will be nominated by management of Surge for election as a director of Surge at the next shareholders' meeting.

Surge has applied to have the Exchange requirement for the appointment of a sponsor waived. Trading of the common shares of Surge will remain halted on the Exchange until certain conditions of the Exchange relating to the Transaction are met.

It is anticipated the Transaction will close on or about July 31, 2007.

Concurrent Private Placement

Surge further announces that it intends to complete a private placement of 10,000,000 common shares at a price of $0.85 per common share concurrent with the closing of the Transaction (the "Private Placement"). It is anticipated that the proceeds received from the Private Placement will be used by Surge to finance the Phase I work commitments related to the Licenses and for general corporate purposes.


Completion of the Transaction is subject to a number of conditions including the following:

(a) execution and delivery of one or more definitive agreements governing the terms of the Transaction by June 30, 2007;

(b) prior to closing of the Transaction, Surge shall obtain an engagement proposal from an investment banking firm with respect to a satisfactory financing in the amount of at least $50,000,000;

(c) prior to closing of the Transaction, Surge shall complete the Private Placement or similar financing for gross proceeds to Surge of at least $7,000,000; and

(d) obtaining shareholder, Exchange and other regulatory approvals.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange requirements, majority of the minority shareholder approval. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon.

This new release shall not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Contact Information

  • Surge Resources Inc.
    Raymond Antony
    President and a Director
    (403) 264-6944