Algonquin Oil & Gas Limited
TSX VENTURE : AQX

February 29, 2012 17:45 ET

Algonquin Oil & Gas Amends Terms of Business Combination and Financing

CHATHAM, ONTARIO--(Marketwire - Feb. 29, 2012) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Algonquin Oil & Gas Limited ("Algonquin") (TSX VENTURE:AQX) announces that it has amended the terms of the arrangement agreement dated November 12, 2011, as amended (the "Arrangement Agreement"), entered into 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.

Mondak Option Agreement

Mondak and its wholly-owned United States subsidiary, Mondak Petroleum (US), Inc. ("Mondak Sub"), previously entered into an option agreement (the "Option Agreement") with Alameda Energy, Inc. ("Alameda"), an affiliate of Slawson Exploration Company, Inc. ("Slawson"), pursuant to which Mondak Sub had: (i) an 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 Leases"); and (ii) if it exercised the option in respect of the Mondak Leases, an 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 Leases"). In consideration for the granting of the options, Mondak issued 100,000,000 Class B common non-voting shares in the capital of Mondak to Alameda.

The parties to the Option Agreement have agreed to amend the terms such that Mondak Sub now has: (i) an option (the "Mondak Option") to acquire a 10% non-operated working interest in the Mondak Leases (now comprising approximately 36,725 acres); and (ii) if it exercises the Mondak Option, an option (the "False Bakken Option") for a period of nine months to acquire a 10% non-operated working interest in the False Bakken Leases. The amendments to the Option Agreement also provide that Alameda's share ownership in Mondak would be reduced to 67,000,000 Class B common non-voting shares, however, Alameda would also be granted 60,000,000 common share purchase warrants ("Mondak Class B Warrants"), each such Mondak Class B Warrant entitling Alameda to acquire one Class B common non-voting share of Mondak at a price of $0.25 per share for a period of 18 months from the date of issuance of such warrants.

Alameda will retain the remaining working interests in the Mondak Leases if the Mondak Option is exercised and the remaining working interests in the False Bakken Leases if the False Bakken Option is exercised and Slawson will be the operator of these interests. The Option Agreement provides that the purchase price to be paid by Mondak to exercise the Mondak Option shall be US$4,000 per net mineral acre (or an aggregate of approximately US$14,690,000) and the purchase price to be paid by Mondak to exercise the False Bakken Option shall be US$2,000 per net mineral acre (or an aggregate of approximately US$15,000,000).

Slawson is a privately held oil and gas exploration company which has drilled over 3,500 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.

Financing

In order to provide Mondak with the funds necessary to exercise the options that were originally granted pursuant to the Option Agreement, Mondak had previously entered into an engagement agreement with Macquarie Capital Markets Canada Ltd. ("Macquarie") pursuant to which Macquarie had been engaged to lead the offering (the "Mondak Private Placement") of up to 416,666,667 subscription receipts at a price of $0.30 per subscription receipt for gross proceeds of up to $125,000,000. The parties have agreed to amend the terms of the Mondak Private Placement such that Macquarie will now lead the offering of up to 193,500,000 units ("Units") of Mondak at a price of $0.15 per Unit for gross proceeds of up to $29,025,000. Each Unit will be comprised of one Class A common voting share in the capital of Mondak ("Mondak Voting Share") and one-half of one common share purchase warrant ("Mondak Class A Warrant"). Each whole Mondak Class A Warrant will entitle the holder to acquire one Mondak Voting Share at a price of $0.25 per share for a period of 18 months from the date of issuance of such warrants.

It is expected that M. Bruce Chernoff and/or associates, affiliates or entities in close association with Mr. Chernoff will acquire a sufficient number of Units under the Mondak Private Placement such that, after giving effect to the Mondak Private Placement and the Arrangement (as defined below), it is expected that Mr. Chernoff will be considered a new control person of Algonquin. As a result, prior to completing the Arrangement, Algonquin will be required to obtain the written approval of shareholders holding in aggregate more than 50% of the current issued and outstanding Algonquin common shares (excluding any Algonquin common shares currently owned or controlled by Mr. Chernoff and/or the proposed new directors of the Corporation upon completion of the Arrangement) to the creation of Mr. Chernoff as a new control person upon completion of the Arrangement.

Mondak intends to use the net proceeds of the Mondak Private Placement to fund the exercise of the Mondak Option immediately prior to the completion of the Arrangement (as defined below) and also to commence a drilling program on the Mondak Leases and for general corporate purposes. Closing of the Mondak Private Placement is expected to occur on or before March 7, 2012.

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 and the amendments thereto are available for review under Algonquin's profile on SEDAR (www.sedar.com) and the material terms of the Arrangement Agreement were summarized in Algonquin's Information Circular dated December 22, 2011 (also available for review under Algonquin's profile on SEDAR). The parties have amended the terms of the Arrangement Agreement in order to give effect to the amendments to the Option Agreement and the Mondak Private Placement. In addition to the matters contemplated in this press release, the material amendments to the Arrangement Agreement provide for the following:

  • the holders of the issued and outstanding Mondak Class A Warrants will receive common share purchase warrants of Algonquin on a one-for-one basis entitling such holders to acquire common voting shares of Algonquin on the same terms and conditions provided for by the Mondak Class A Warrants; and
  • the holders of the issued and outstanding Mondak Class B Warrants will receive common share purchase warrants of Algonquin on a one-for-one basis entitling such holders to acquire common non-voting shares of Algonquin on the same terms and conditions provided for by the Mondak Class B Warrants.

At an annual and special meeting of the holders (the "Algonquin Shareholders") of all of the issued and outstanding common shares of Algonquin that was held on January 24, 2012, the Algonquin Shareholders approved all of the matters provided for in Algonquin's Information Circular dated December 22, 2011, including:

  • approving a new board of directors of Algonquin to hold office effective immediately following completion of the Arrangement ;
  • approving an amendment to the share capital structure of Algonquin providing for certain amendments to the rights, privileges and restrictions attaching to the Algonquin common voting shares and the creation of convertible, common non-voting shares of Algonquin, which amendments will be effected immediately prior to the completion of the Arrangement;
  • approving a consolidation of the issued and outstanding shares of Algonquin on a "1 new for 10 old" basis which will be effected immediately after completion of the Arrangement; and
  • in connection with the Arrangement, authorizing Algonquin to change its name to "PetroShale Inc.".

On February 27, 2012, Mondak received the final order of the Court of Queen's Bench of Alberta approving the Arrangement, as amended. Completion of the Arrangement remains subject to customary regulatory and TSX Venture Exchange ("TSXV") approvals. Provided that all regulatory and TSXV approvals are obtained, closing of the Arrangement, as amended, is expected to occur on or before March 7, 2012.

Trading Update

Trading of the common shares of Algonquin will remain halted pending receipt and review by the TSXV of acceptable documentation regarding the amendments to the Option Agreement, the Mondak Private Placement and the Arrangement.

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 leases near Colchester, Ontario, both onshore and offshore in Lake Erie.

Reader Advisory

Completion of the Arrangement is subject to a number of conditions, including but not limited to, TSXV acceptance, as well as any other necessary regulatory approvals. There can be no assurance that the Arrangement will be completed as proposed or at all.

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 Mondak Private Placement, the share capital amendment, the share consolidation, the name change, the exercise of the option under the Option Agreement, and trading in the common shares of Algonquin. 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.

The TSXV has in no way passed upon the merits of the proposed Arrangement and has neither approved nor disapproved the contents of this press release. Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.

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