Algonquin Oil & Gas Limited
TSX VENTURE : AQX

March 12, 2012 15:03 ET

Algonquin Oil & Gas Completes Business Combination With Mondak Petroleum

CHATHAM, ONTARIO--(Marketwire - March 12, 2012) -

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

Algonquin Oil & Gas Limited (TSX VENTURE:AQX) ("Algonquin") is pleased to announce that it has completed its previously announced arm's length business combination with Mondak Petroleum Inc. ("Mondak"), a private oil and gas company.

Financing

Immediately prior to the completion of the business combination, Mondak completed its previously announced brokered private placement (the "Private Placement") of units ("Units"). Mondak issued an aggregate of 193,500,000 Units at a price of $0.15 per Unit for gross proceeds of $29,025,000. Each Unit was comprised of one Class A common voting share in the capital of Mondak (each, a "Mondak Voting Share") and one-half of one common voting share purchase warrant (each, "Mondak Class A Warrant"). Each whole Mondak Class A Warrant entitles 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. The Private Placement was completed through a syndicate of agents led by Macquarie Capital Markets Canada Ltd. and including Canaccord Genuity Corp., GMP Securities L.P., AltaCorp Capital Inc. and Raymond James Ltd. (collectively, the "Agents"). In consideration for their services under the Private Placement, the Agents received an aggregate fee equal to 6% of the gross proceeds raised under the Private Placement.

M. Bruce Chernoff and/or associates, affiliates or entities in close association with Mr. Chernoff ("Chernoff") acquired 110,666,667 Units under the Private Placement. After giving effect to the Private Placement and the Arrangement (described below), it was expected that Chernoff would own or exert control or direction over approximately 49.9% of the then outstanding Algonquin common voting shares ("Algonquin Voting Shares") and would be considered a new control person of Algonquin. As a result, prior to completing the Private Placement, Algonquin obtained the written approval of disinterested shareholders holding approximately 66% of the current issued and outstanding Algonquin Voting Shares to the creation of Chernoff as a new control person upon completion of the Arrangement.

Option Agreement

Mondak and its wholly-owned United States subsidiary, Mondak Petroleum (US), Inc. ("Mondak Sub"), used the net proceeds of the Private Placement, in part, to fund the exercise of Mondak Sub's option to acquire a 10% non-operated working interest in certain leases held by Alameda Energy, Inc. ("Alameda"), an affiliate of Slawson Exploration Company, Inc. ("Slawson"), on approximately 37,300 acres located in Richland County, Montana and McKenzie County, North Dakota (the "Mondak Leases"). The purchase price paid by Mondak Sub for its working interest in the Mondak Leases was US$14,919,651. Mondak Sub also intends to use the net proceeds of the Private Placement to commence a drilling program on the Mondak Leases and for general corporate purposes.

As a result of exercising its option on the Mondak Leases, Mondak Sub now has an option (the "False Bakken Option") for a period of nine months to acquire a 10% non-operated working interest in approximately 80,000 acres located in the Dawson, Wibaux and Richland Counties of Montana (the "False Bakken Leases"). 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).

Alameda has retained the majority of the working interests in the Mondak Leases and is expected to retain the majority of the working interests in the False Bakken Leases if the False Bakken Option is exercised and Slawson will be the operator of these interests. 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 over 25,000 barrels per day. For further information relating to Slawson, refer to its website at www.slawsoncompanies.com.

The Business Combination

After completing the Private Placement and exercising the option on the Mondak Leases, the business combination of Algonquin and Mondak was completed by way of a plan of arrangement (the "Arrangement") as set forth in an arrangement agreement dated November 12, 2011, as amended on December 13, 2011 and February 24, 2012 (collectively, 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 Arrangement Agreement provided for the following:

  • a wholly-owned subsidiary of Algonquin ("Algonquin Sub") amalgamated (the "Amalgamation") with Mondak to form a new amalgamated entity ("Amalco") that continues under the name "Mondak Petroleum Inc.";
  • Algonquin received shares of Amalco on the basis of one common share in the capital of Amalco for every common share of Algonquin Sub held immediately prior to the Amalgamation, resulting in Amalco becoming a wholly-owned subsidiary of Algonquin;
  • the holders of the issued and outstanding Mondak Voting Shares received Algonquin Voting Shares on a one-for-one basis;
  • the holders of the issued and outstanding Class B common non-voting shares in the capital of Mondak received common non-voting shares of Algonquin (each, an "Algonquin Non-Voting Share") on a one-for-one basis;
  • the holders of Mondak Class A Warrants received common voting share purchase warrants of Algonquin on a one-for-one basis entitling such holders to acquire Algonquin Voting Shares on the same terms and conditions provided for by the Mondak Class A Warrants; and
  • the holders of common non-voting share purchase warrants of Mondak (each, a "Mondak Class B Warrant") received common non-voting share purchase warrants of Algonquin on a one-for-one basis entitling such holders to acquire Algonquin Non-Voting Shares on the same terms and conditions provided for by the Mondak Class B Warrants.

PetroShale Inc.

In addition to the above, concurrent with the completion of the Arrangement, Algonquin changed its name to "PetroShale Inc." and immediately consolidated all of its issued and outstanding securities on a "1 new for 10 old" basis (the "Consolidation"). After giving effect to the Arrangement and the Consolidation, the issued and outstanding capital structure of PetroShale now consists of the following:

  • 22,173,574 common voting shares of PetroShale ("PetroShale Voting Shares");
  • 9,674,996 common voting purchase warrants, each such warrant entitling the holder to acquire a PetroShale Voting Share at a price of $2.50 per share until September 8, 2013;
  • 6,700,000 common non-voting shares of PetroShale ("PetroShale Non-Voting Shares"); and
  • 6,000,000 common non-voting purchase warrants, each such warrant entitling the holder to acquire a PetroShale Non-Voting Share at a price of $2.50 per share until September 8, 2013.

New Board of Directors and Management

In conjunction with the completion of the Arrangement, a new board of directors of PetroShale was formed that is comprised of James Fair, John Hagg, Brett Herman, Daniel Jarvie and Jacob Roorda.

James Fair

Mr. Fair has over 34 years of oil and gas experience in both Canada and the United States. He is currently the President and Chief Executive Officer of Algonquin and was the Chairman and Chief Executive Officer of Algonquin from 1996 to 2008. Previously, Mr. Fair acted as the Vice Chairman of Tristone Energy Services Inc., was a founding partner and former director of Big Rock Brewery, and acted in a variety of roles such as trustee, director or partner in numerous other private entities.

John Hagg

Mr. Hagg has over 35 years of experience in the petroleum exploration and production, service, and financial sectors in Canada and the United States. Mr. Hagg co-founded Canadian Northstar Corporation in 1977 and served as Chairman of Northstar Energy Corporation from 1982 to 2001 and acted as its President and Chief Executive Officer from 1985 to 1999. Mr. Hagg currently serves as a director of the TMX Group Inc. and of The Fraser Institute and is the Chairman of Clark Builders and Strad Energy Services Ltd. Mr. Hagg has previously acted as a director for Berry Petroleum Co., Tristone Capital Inc. and Devon Energy Corp.

Brett Herman

Brett Herman has extensive oil and gas experience in leadership roles at public oil and gas companies and currently serves as the President and Chief Executive Officer of Torc Oil and Gas Ltd. Prior thereto, Mr. Herman served as the Chief Executive Officer and President of Result Energy Inc. and as the Chief Executive Officer and President of Tristar Oil and Gas Ltd. Mr. Herman holds the Chartered Accountant designation.

Daniel Jarvie

Mr. Jarvie is currently the President of Worldwide Geochemistry, LLC, acting as a consultant to the petroleum industry and is focused on unconventional shale resource plays and prospects. Mr. Jarvie is an analytical and interpretive organic geochemist with extensive experience in the evaluation of conventional petroleum systems around the world and in unconventional shale-gas exploration, particularly the Barnett Shale. Mr. Jarvie was founder and President of Humble Instruments and Humble Geochemical Services from 1987 to 2007.

Jacob Roorda

Mr. Roorda currently acts as a director for Angle Energy Inc., Argosy Energy Inc. and is Vice Chairman for Canoe Financial Corp. Mr. Roorda has over thirty years of experience in the oil and gas industry holding various leadership positions including, President and Vice President, Corporate for Harvest Operations Corp. and Vice President, Corporate and director for PrimeWest Energy Inc. Mr. Roorda has also previously held senior corporate finance positions including Senior Vice President and director for Research Capital Corporation.

In addition to the above, Bryce C. Tingle was appointed as Corporate Secretary of PetroShale. Mr. Tingle was a partner of TingleMerrett LLP from 1994 to December 2006 and was the general counsel of a private oil and gas company from 2006 to 2008. Since 2008, Mr. Tingle has served as a consultant and director as well as consulting with a variety of public and private companies. Mr. Tingle received his LL.B. from the University of Alberta, a Master of Law (E-Business) from Osgood Hall Law School, York University and a Master of Law from Duke University Law School. He is an instructor at the University of Calgary Law School and has taught at other U.S. and Canadian law schools. He is a member of the Securities Advisory Committee of the Alberta Securities Commission.

Trading Update

Trading of the PetroShale Voting Shares on the TSX Venture Exchange ("TSXV") is currently halted. Trading is expected to resume under the new symbol "PSH" on a post-Consolidation basis upon TSXV final approval of the business combination.

Reader Advisory

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 the use of proceeds from the Private Placement, the proposed drilling program, and trading in the PetroShale Voting Shares. 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 PetroShale) 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.

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.

Contact Information