Touchstone Resources Ltd.
TSX VENTURE : TCH.H

Touchstone Resources Ltd.

March 22, 2010 12:18 ET

Touchstone Announces Proposed Acquisition and Financing and Appointment of CFO

",VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 22, 2010) - Touchstone Resources Ltd., (TSX VENTURE:TCH.U) ("Touchstone" or "the Company") is pleased to announce that it has entered into a non-binding agreement in principle (the "Agreement in Principle") to acquire all of the issued and outstanding shares and shareholder debt of Sandy Cove Energy Ltd. ("Sandy Cove"), a private Alberta company (the "Acquisition") which, through Sandy Cove's indirect, wholly-owned Trinidad and Tobago subsidiary Territorial Services Limited, is the beneficial owner of certain lease operatorship rights under a lease operator agreement with the Petroleum Company of Trinidad and Tobago Limited. The consideration for the Acquisition is (Cdn)$4.5 million to be satisfied by the issuance of up to 90,000,000 pre-consolidated common shares of Touchstone at a deemed price of (Cdn)$0.05 per share (or after giving effect to the consolidation described below, up to 9,000,000 post-consolidated common shares of Touchstone at a deemed price of (Cdn)$0.50 per share) and a cash payment of up to (Cdn)$2,200,000 million (the number of shares to be issued inversely related to the aggregate cash consideration paid), pro rata, to the current shareholders of Sandy Cove.

The Agreement in Principle is non-binding and contains a list of key terms and condition precedents for the negotiation and drafting of definitive agreements. Any completion of the proposed acquisition described above is subject to a number of conditions, including but not limited to: ongoing legal, financial and business due diligence related to the proposed acquisition target including the execution and delivery of a lease operatorship agreement by Territorial Services Limited on terms acceptable to the Company as discussed below; execution and delivery of all requisite definitive agreements by the respective parties thereto; all requisite approvals of the TSX Venture Exchange (the "Exchange") and the satisfaction and/or completion of the additional conditions set out below. There can be no assurance that the transactions contemplated in the Agreement in Principle will be completed as proposed or at all.

About Touchstone

The Company previously held certain rights to seismic geophysical data covering certain oil and gas prospects located in South Texas and interest in the Montana and North Dakota projects which after drilling in 2007, were deemed commercially uneconomical and written off by the Company.

As Touchstone did not have any active business operations, on December 4, 2008, the Company's shares were transferred from the Exchange to the NEX board of the TSX Group.

In October, 2009 Mr. Paul Baay and Mr. Ron Bryant were appointed to the Board of Directors of the Company to fill vacancies resulting from the resignation of two incumbent directors. Mr. Baay graduated from the University of Western Ontario in 1983 with a Bachelor of Arts degree in Administrative and Commercial Studies. Mr. Baay is Managing Director of Abacus Energy. Until September 2007, Mr. Baay served as the President and Chief Executive Officer of True Energy Inc., a position he held since founding True Energy Inc. in September 2000. Mr. Baay has been the Chairman of Vero Energy Inc. since 2005. Mr. Baay has been Chairman of Veraz Petroleum Ltd. since June 2007. Mr. Bryant has over 25 years of Oil and Gas experience and is currently the president of a private energy company. Prior to this, Mr. Bryant was the COO of a public energy trust until its sale. He is a professional engineer registered in Alberta and Saskatchewan with reservoir engineering and operations background in the areas of offshore development, conventional production and oil sands.

The Company also completed a non-brokered private placement to raise US$600,000 (Cdn$636,600) and settled an aggregate of US$1,024,208 of liabilities and accrued interest with assignees of certain then outstanding convertible notes by the issuance of 102,420,802 pre-consolidated common shares.

The Company continues to be engaged in the business of assessing and, if deemed appropriate, seeking the acquisition of interests in petroleum and natural gas rights, and the exploration for and development, production and sale of petroleum and natural gas.

About Sandy Cove

Sandy Cove is a private Alberta company which is arm's length to Touchstone and its insiders. Sandy Cove is the legal and beneficial owner of the shares of Sandy Cove Energy Services Ltd. ("Sandy Cove Services"), a Barbados corporation. Sandy Cove Services is the legal and beneficial owner of the shares of Territorial Services Limited ("TSL"), a Trinidad and Tobago corporation. Neither Sandy Cove nor Sandy Cove Services have any business interests other than their respective interests in TSL.

TSL's sole business activity is the production of crude oil under a lease operatorship agreement with the Petroleum Company of Trinidad and Tobago ("Petrotrin"). The current agreement between TSL and Petrotrin is subject to certain proposed amendments negotiated with respect to TSL and the proposed Acquisition directly, and Petrotrin's arrangements with operators generally. The draft proposal and amended agreement (the "Lease Operatorship Agreement") has been forwarded to Petrotrin for review and approval and TSL anticipates that the proposed amendments will be acceptable and the Lease Operatorship Agreement will be signed in the near future. However, it remains a condition precedent to the completion of the Acquisition that the amendments specific to the Acquisition be given effect, the Lease Operatorship Agreement as proposed is executed and that Petrotrin provide its written consent to the change of control of TSL. The Lease Operatorship Agreement will entitle TSL to perform petroleum operations in Lease Operatorship Block WD-8, Forest Reserve, Fyzabad, South Trinidad for a proposed term of 5 years from execution of the Lease Operatorship Agreement, subject to renewal for a further five (5) year term. The nature of the Lease Operatorship Agreement does not allow TSL to claim ownership to the reserves under the lands subject to the Lease Operatorship Agreement. TSL is entitled to retain cash flow from oil and gas operations on the property, subject to a state royalty plus an overriding royalty that is subject to a sliding scale and payable to Petrotrin. Sandy Cove's operations, through its wholly-owned subsidiaries, are subject to all the risks normally incident to oil and gas activities including geological risks, operating risks, political risks, development risks, marketing risks, and logistical risks of operating in foreign territories.

Lease Operatorship Block WD-8

Lease Operatorship Block WD-8 consists of 104 oil wells, of which 52 oil wells are producing from the Forest and Upper, Middle, and Lower Cruse Formations in the southwest part of the Southern Basin and is located approximately 10 miles southwest of the city of San Fernando, which is on the lower western coast of the island of Trinidad.

The independent engineering report prepared by AJM Petroleum Consultants as described below, suggested significant further opportunity inventory supported by 104 wellbores accessing multiple producing horizons within the Cruse and Forest formations with 5 new drill locations identified and multiple workover opportunities present within existing wellbores.

The reserves were evaluated by AJM Petroleum Consultants in the report dated January 21, 2010 and effective as at November 1, 2009 entitled "Touchstone Resources Ltd. – Reserve Estimate and Economic Evaluation" (the AJM Report"), in accordance with National Instrument 51-101 Standard of Disclosure for Oil & Gas Activities. AJM Petroleum Consultants are an independent qualified reserves evaluators appointed pursuant to NI 51-101. AJM attributed total proved reserves of 778.2 MBOE (thousand barrel of oil equivalents) and total proved plus probable reserves of 1749.4 MBOE to TSL's interest. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 "Mcf" or "thousand cubic feet" to 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All reserves definitions are in accordance with standards contained in the Canadian Oil and Gas Evaluation Handbook. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. TSL's total exit production for 2009 was greater than 130 boe/d (barrel of oil equivalents per day - 100% oil).

TSL's operations with respect to Lease Operatorship Block WD-8 are currently undertaken by a group of dedicated employees who oversee the day-to-day operations and engineering and geological consultants who provide technical services on an as needed basis. This allows a fully independent operation of the asset including a field office, workover rig and swabbing unit.

Any future operations would be subject to all of the risks normally incident to the operation and development of oil and natural gas properties and the drilling of oil and natural gas wells and the marketability and price of oil and natural gas that may be acquired by Touchstone will be affected by numerous factors beyond the control of the Company.

Concurrent Financing

In order to fund obligations under the Lease Operatorship Agreement and provide adequate ongoing working capital for Touchstone, the Company will undertake a private placement offering and sale (the "Private Placement") of up to 80,000,000 subscription receipts (the "Subscription Receipts") at a price of $0.05 per Subscription Receipt, for gross proceeds to Touchstone of up to US$4 million, pursuant to registration and prospectus exemptions from applicable securities laws. Each Subscription Receipt represents the right to receive, without payment of any additional consideration, one pre-consolidation common share of the Company (or every ten Subscription Receipts representing the right to receive one post-consolidation common share) upon satisfaction of certain escrow conditions including the completion of the Acquisition and the Company's reactivation (as described below) with the Exchange. All outstanding Subscription Receipts will be automatically exercised and the common shares will be issued immediately following satisfaction by Touchstone of each of the specified escrow conditions.

The closing of the offering and sale of the Subscription Receipts will be subject to the negotiation, execution and delivery of applicable offering documentation, Exchange acceptance of the proposed subscribers and documentation related to the offering and, if required by the rules and policies of the Exchange or applicable securities law, shareholder approvals. The Subscription Receipts and underlying common shares will be subject to a four month and one day hold or restricted period in Canada commencing on the applicable distribution (closing) date in accordance with the rules and policies of the Exchange and applicable Canadian securities laws and such other further restrictions as may apply under foreign securities laws. The securities will not be registered under the United States Securities Act of 1933, as amended or the securities laws of any state of the United States and may not be sold, transferred or assigned in the absence of an effective registration statement for the securities under applicable securities laws, or an available exemption from the registration requirements of those laws, within the United States or to a U.S. Person.

Reactivation

It is intended that the Acquisition and Private Placement will facilitate the Company's reactivation (the "Reactivation") with the Exchange and is therefore subject to the Company's satisfaction of applicable listing and tier maintenance requirements of, and the acceptance by, the Exchange.

Touchstone's shareholders had previously approved a consolidation of the Company's share capital on the basis of up to eleven (11) pre-consolidation common shares to one (1) post-consolidation common share (final consolidation ratio, if any, to be determined by Touchstone's Board of Directors of the Company as is acceptable with the appropriate regulatory authorities) at the Annual General Meeting of the Company's shareholders held on March 17, 2008. In connection with the proposed Reactivation, the Company's Board of Directors has determined the applicable consolidation ratio to be ten (10) pre-consolidation common shares to one (1) post-consolidation common share and intends to pursue the consolidation as part of the proposed Reactivation in order to enhance the marketability of the Company and its Common Shares and facilitate additional financings to fund operations in the future.

No fractional consolidation common shares will be issued. If the holder of any post consolidated common shares would otherwise be entitled to a fraction of a share, the number of such common shares issuable to such shareholder shall be rounded to the nearest whole number and no cash consideration will be paid in respect of fractional shares. In addition, the exercise price and number of common shares of the Company issuable upon the exercise of outstanding options will be proportionally adjusted upon the implementation of the proposed share consolidation.

Currently there are 195,612,064 pre-consolidated common shares of the Company issued and outstanding. On a post-consolidated basis, assuming completion of the Acquisition (and assuming consideration thereunder is satisfied entirely by the issuance of shares) and the Private Placement, the Company anticipates that there will be approximately 36,560,000 post-consolidation common shares of the Company issued and outstanding.

In connection with the Reactivation and share consolidation, the Company is proposing a name change and may also seek a new stock trading symbol from the NEX Board and/or the Exchange. The Company is proposing to change its name to "Touchstone Exploration Inc." or such other name as may be determined by the Company's Board of Directors and as may be accepted to the NEX Board and/or the Exchange.

In connection with the Reactivation of the Company, Management is pleased to announce the appointment of Mr. Trevor Mitzel as the Company's Chief Financial Officer. Mr. Mitzel has also been appointed as a director of Touchstone. Mr. Mitzel received his Bachelor of Commerce Degree from the University of Calgary in 1996; and has both his Chartered Accountant and Chartered Financial Analyst designations and is currently the Chief Financial Officer of Big Country Energy Services LP. In addition to his experience managing public companies, Mr. Mitzel worked as a corporate analyst in the corporate finance group for the TSX Venture Exchange. Mr. Mitzel is also a Director of Veraz Petroleum Ltd. a company listed on the TSX Venture Exchange pursuing exploration opportunities in Peru.

In connection with the foregoing, the Company has agreed to grant, subject to regulatory approval, Mr. Mitzel incentive stock options to purchase an aggregate of 750,000 post-consolidated common shares of the Company at an exercise price of $0.50 per share. The options will have a term of five years, vesting over a three year period from the date of grant.

In addition, at the Company's upcoming annual general meeting (the "Meeting"), Mr. John Zang, who is currently appointed to the Sandy Cove board of directors will be nominated for election as a director of Touchstone. The Company anticipates adding at least two additional directors at the Meeting.

Investors are cautioned that the completion of the transactions set out above are subject to a number of conditions, including NEX Board and/or the Exchange acceptance and, if applicable, approval of the shareholders of Touchstone. In addition, the Acquisition is subject to a number of conditions, including confirmation of amendments to the Lease Operatorship Agreement, confirmation of title and customary closing conditions for a transaction of this nature. There can be no assurance that the Acquisition will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in documents prepared for and on behalf of the Company in connection with the Acquisition, Private Placement and/or Reactivation, any information released or received with respect to the foregoing may not be accurate or complete and should not be relied upon. Trading in the securities of Touchstone should be considered highly speculative.

Cautionary Note Regarding Forward-looking Statements: Information in this press release that involves Touchstone's expectations, plans, intentions or strategies regarding the future are forward-looking statements that are not facts and involve a number of risks and uncertainties. Touchstone generally uses words such as "outlook", "will", "could", "would", "might", "remains", "to be", "plans", "believes", "may", "expects", "intends", "anticipates", "estimate", "future", "plan", "positioned", "potential", "project", "remain", "scheduled", "set to", "subject to", "upcoming", and similar expressions to help identify forward-looking statements. The forward-looking statements in this release are based upon information available to Touchstone as of the date of this release, and Touchstone assumes no obligation to update any such forward-looking statements. Forward-looking statements believed to be true when made may ultimately prove to be incorrect. These statements are not guarantees of the future performance of Touchstone and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations. For further information regarding specific risks and uncertainties applicable to Touchstone please see the most recent management discussion and analysis may be viewed with other Touchstone disclosure documents through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

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 news release.

Contact Information

  • Touchstone Resources Ltd.
    Mr. Paul Baay
    Chairman & Chief Executive Officer
    (403) 619 - 8407
    or
    Touchstone Resources Ltd.
    Mr. Ron Bryant
    Chief Operating Officer
    (403) 660 - 9985
    www.touchstonecanada.com