Algonquin Oil & Gas Limited
TSX VENTURE : AQX

November 14, 2011 15:59 ET

Algonquin Oil & Gas Limited Announces Executed Definitive Agreements Regarding Business Combination and Financing

CHATHAM, ONTARIO--(Marketwire - Nov. 14, 2011) -

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Algonquin Oil & Gas Limited ("Algonquin") (TSX VENTURE:AQX) is pleased to announce that it has entered into an arrangement agreement dated November 12, 2011 (the "Arrangement Agreement") 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.

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 onshore and offshore leases located in Lake Erie at Colchester, Ontario.

About Mondak

Mondak was recently incorporated under the Business Corporations Act (Alberta) and is engaged in the acquisition of oil and natural gas resources. The only voting securities that are issued and outstanding in the capital of Mondak are 10,000,000 Class A common voting shares, all of which are held by DelMar Resources LLC, a private company controlled by John Fair's family members.

Through its wholly-owned United States subsidiary, Mondak Petroleum (US), Inc. ("Mondak Sub"), Mondak has entered into an option agreement (the "Option") with Alameda Energy Inc. ("Alameda"), an affiliate of Slawson Exploration Company, Inc. ("Slawson"), pursuant to which Mondak Sub has: (i) the 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 Interest"); and (ii) if it exercises the option on the Mondak Interest, the 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 Interest"). Alameda will retain the remaining working interests in the leases comprising the Mondak Interest and the False Bakken Interest and Slawson will be the operator of these interests. The Option provides that the purchase price to be paid by Mondak for the Mondak Interest shall be US$5,000 per net mineral acre (or an aggregate of approximately US$51,000,000) and the purchase price for the False Bakken Interest shall be US$2,000 per net mineral acre (or an aggregate of approximately US$15,000,000). In consideration for the granting of the Option, Mondak has also issued 100,000,000 Class B common non-voting shares in the capital of Mondak to Alameda.

In addition to the Option, the parties have also entered into an ancillary agreement providing for the terms and conditions upon which the Option may be rescinded in the event that certain financing conditions are not satisfied.

The leases comprising the Mondak Interest and the False Bakken Interest are located within the Williston Basin, among the most active and growing resource plays in the U.S. and proven to contain large accumulations of oil. The U.S. Geological Survey estimates mean recoverable resource volumes in the Williston Basin to be approximately 3.8 billion barrels of oil. Based on well tests performed in surrounding areas, Algonquin management believes that the Mondak Interest and the False Bakken Interest possess technically attractive attributes, such as low water cuts, high pressure yields and the ability to implement stage fracing, that will lead to high ultimate recoveries at low cost.

Slawson is a privately held oil and gas exploration company which has drilled over 3500 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.

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 contemplates the following:

  • a wholly-owned subsidiary of Algonquin ("Algonquin Sub") will amalgamate (the "Amalgamation") with Mondak to form a new amalgamated entity ("Amalco") and in connection therewith, the holders of the issued and outstanding Class A common voting shares of Mondak will receive common voting shares of Algonquin and the holders of the issued and outstanding Class B common non-voting shares of Mondak will receive convertible, common non-voting shares of Algonquin, all on a one-for-one basis;
  • Algonquin shall receive 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;
  • a new management team of Algonquin will be appointed (the "New Management");
  • a new board of directors of Algonquin will be elected (the "New Directors");
  • a proposed amendment to the share capital structure of providing for certain amendments to the rights, privileges and restrictions attaching to the Algonquin common voting shares and the creation of the Algonquin convertible, common non-voting shares (the "Share Capital Amendment");
  • a consolidation of the issued and outstanding shares of Algonquin on a "1 new for 10 old" basis will be effected immediately after completion of the Arrangement (the "Share Consolidation"); and
  • in connection with the Arrangement, Algonquin proposes to change its name to "PetroShale Inc." (the "Name Change").

Completion of the Arrangement is subject to the approval of the Mondak shareholders, as well as customary court, regulatory and TSX Venture Exchange ("TSXV") approvals. At an annual and special meeting of the holders (the "Algonquin Shareholders") of all of the issued and outstanding Algonquin shares, the Algonquin Shareholders will be asked to elect the New Directors, to consider and approve the Name Change, the Share Capital Amendment, the Share Consolidation and other matters related to the Arrangement. The information circular to be mailed to Algonquin Shareholders will contain detailed information in respect of the Arrangement, Mondak and other related matters. There can be no assurance that the Arrangement will be completed as proposed or at all.

It is a condition to the Arrangement that all of the current directors and officers of Algonquin and Mondak enter into lock-up agreements to vote their respective shares in favour of the Arrangement and other matters related to the Arrangement.

The Arrangement Agreement also provides for a reciprocal termination fee of $500,000 payable by either Algonquin or Mondak in certain circumstances.

Closing of the Arrangement is expected to occur on or about January 11, 2012.

Management Team and Proposed Board of Directors

Upon completion of the Arrangement, it is contemplated that the New Directors will be elected to the board of directors of Algonquin and that the New Management will be appointed as officers of Algonquin. The proposed New Directors and New Management team will be comprised of nominees which will be agreed upon by each of Algonquin and Mondak. The proposed New Directors include, 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

Immediately after completion of the Arrangement, it is expected that Algonquin will grant options to purchase Algonquin common voting shares at a price of $0.30 per share to the new directors and officers of Algonquin in a number that is up to 8% of the issued and outstanding Algonquin common voting shares immediately after completion of the Arrangement.

Financings and Debt Settlements

In connection with the Arrangement, Algonquin proposes to complete a non-brokered private placement (the "Algonquin Private Placement") whereby it shall issue up to 12,000,000 common shares ("Algonquin Shares") at a price of $0.10 per share for gross proceeds of up to $1,200,000. The net proceeds from the Algonquin Private Placement will be used to pay for all of the costs relating to the Arrangement and for working capital purposes. Closing of the Algonquin Private Placement is expected to occur on or about November 25, 2011 and is subject to receipt of all necessary regulatory approvals, including the approval of the TSXV.

In addition to the Algonquin Private Placement, Algonquin also intends to issue a number of Algonquin Shares at a price of $0.10 per share to settle US$350,000 of previously incurred debt held by James Fair, the President and Chief Executive Officer of Algonquin (the "Debt Settlement"). Closing of the Debt Settlement is expected to occur on or about November 25, 2011 and is also subject to receipt of all necessary regulatory approvals, including the approval of the TSXV.

Mondak has entered into an engagement agreement with Macquarie Capital Markets Canada Ltd. ("Macquarie") pursuant to which Macquarie has been engaged to lead the offering (the "Mondak Private Placement") of up to 416,666,667 subscription receipts ("Subscription Receipts") at a price of $0.30 per Subscription Receipt for gross proceeds of up to $125,000,000. Mondak has also granted Macquarie an over-allotment option to place up to an additional 62,500,000 Subscription Receipts at a price of $0.30 per Subscription Receipt for additional gross proceeds of up to $18,750,000.

Each Subscription Receipt will represent the right to automatically receive one Class A common voting share ("Mondak Voting Share") in the capital of Mondak. The Subscription Receipts will be issued pursuant to the terms of a subscription receipt agreement and the gross proceeds of the Mondak Private Placement will be held in escrow by an escrow agent. Each Subscription Receipt will automatically be exchanged, without payment of any additional consideration or further action on the part of the holder thereof, into one Mondak Voting Share upon delivery of a notice to the escrow agent that the escrow release conditions have been satisfied, including the receipt of any necessary government, regulatory and shareholder approvals.

Provided that the notice is delivered to the escrow agent pursuant to the terms of the subscription receipt agreement, the net proceeds of the Mondak Private Placement shall be released from escrow to Mondak concurrent with the exercise of the Option and immediately prior to the completion of the Arrangement. If the notice is not provided to the escrow agent pursuant to the terms of the subscription receipt agreement, each Subscription Receipt shall be cancelled and each holder of Subscription Receipts shall be entitled to receive its investment plus interest.

Mondak intends to use the net proceeds of the Mondak Private Placement to fund the exercise of the Option immediately prior to the completion of the Arrangement, to commence a drilling program on the leases comprising the Mondak Interest and for general corporate purposes. Closing of the Mondak Private Placement is expected to occur on or about December 15, 2011.

Other Advisors

Mondak has engaged McDaniel & Associates Consultants Ltd. to prepare an evaluation report in compliance with of the requirements of National Instrument 51-101- Standards of Disclosure of Oil and Gas Activities, on the oil and natural gas reserves and/or resources attributable to the Mondak Interest. The details of such evaluation report are expected to be disclosed in a future press release and will be set out in the information circular to be provided to the Algonquin Shareholders in connection with the annual and special meeting of Algonquin.

Trading Update

Trading of the Algonquin Shares will remain halted pending receipt and review by the TSXV of acceptable documentation regarding the company following completion of the Arrangement. The proposed Arrangement has not been approved by the TSXV and remains subject to TSXV approval.

Reader Advisory

Completion of the Arrangement is subject to a number of conditions, including but not limited to, TSXV acceptance and the approval of the Court of Queen's Bench for the Province of Alberta, as well as any other necessary regulatory approvals. The Arrangement cannot close until the required shareholder approvals are obtained. There can be no assurance that the Arrangement will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular to be prepared in connection with the Arrangement, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Algonquin should be considered highly speculative.

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 Algonquin Private Placement, the Mondak Private Placement, the Debt Settlement, the Share Capital Amendment, the Share Consolidation, the Name Change, the composition of the board of directors and management of Algonquin, the exercise of the Option, the oil and natural gas reserves attributable to the Mondak Interest and the False Bakken Interest, and trading in the Algonquin 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 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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