BrazAlta Resources Corp.
TSX VENTURE : BRX

BrazAlta Resources Corp.

June 18, 2008 13:25 ET

BrazAlta Resources Corp. Announces Financial and Reserve Data for Canacol Energy Inc., Reinstatement of Trading and Additional Information on the Planned Spin-Out of BCH Ltd.

CALGARY, ALBERTA--(Marketwire - June 18, 2008) - Further to the news release of BrazAlta Resources Corp. ("BrazAlta" or the "Corporation") (TSX VENTURE:BRX) on June 9, 2008, BrazAlta is pleased to provide an update on the arm's length acquisition of all of the issued and outstanding common shares and warrants of Canacol Energy Inc. ("Canacol") (the "Transaction").

Canacol is a private Alberta company operating in South America, with agreements to purchase production and exploration assets in Colombia and on-shore Guyana. Certain management prepared financial data of Canacol as at May 31, 2008 is as follows:



Period Ended May 31, 2008
Balance Sheet (unaudited) (Canadian $)
Current Assets 4,762,371
Total Assets 6,168,517
Current Liabilities 25,417
Total Liabilities 25,417
Shareholder Equity 6,143,100
Retained Earnings Nil
Income Statement
Revenue Nil
Expenses Deferred (1) Nil
Loss (1) Nil

(1) G & A Expenses were deferred and capitalized consisting of the
following: travel expenses: $90,648; signing bonuses paid: $358,000;
salaries: $260,105; rent: $16,430; legal: $39,190; office expenses:
$45,685; engineering and evaluation fees $56,235: misc. $39,853, Total
G&A: $906,146.


Canacol has negotiated an arm's length share purchase agreement associated with the acquisition of a private Colombian company ("AcquireCo.") with gross production of approximately 3,800 BOPD located in the Llanos Basin and one exploration block located in the Middle Magdallena Basin. The assets will provide net production of 700 BOPD to Canacol and allow it to qualify with operator status at the upcoming Colombian land auctions. Certain management prepared financial data of AcquireCo. as at the periods indicated therein are as follows:



Period Ended Period Ended
December 31, December 31,
2007 2006
(unaudited) (unaudited)
Balance Sheet (United States $) (United States $)
Current Assets 2,098,637 1,140,818
Total Assets 7,535,689 9,027,786
Current Liabilities 1,404,554 4,461,720
Total Liabilities 3,206,258 6,072,586
Shareholder Equity 4,329,431 2,955,199
Income Statement
Revenue 20,155,878 15,272,090
Operating Costs (15,034,702) (11,876,172)
Gross Profit 5,121,176 3,395,918
Administrative Expenses (1,299,653) (672,544)
Operating Income 3,821,523 2,723,374
Income Before Taxes 3,181,856 2,282,766
Less Provision for Income Taxes (1,221,080) (1,046,662)
Net Income 1,960,776 1,236,144


Certain reserve data in accordance with National Instrument 51-101 - Statement of Disclosure for Oil and Gas Activities for AcquireCo. as prepared by Ryder Scott Company ("Ryder Scott") as at December 31, 2007, is as follows:



CONSTANT PARAMETERS
Estimated Net (After Royalties) Reserve and Income Data
Certain Leasehold and Royalty Interests
of AcquireCo. (United States Dollars)
As of December 31, 2007
----------------------------------------------------------

Proved
Developed
-------------------------
Producing Non-Producing Developed Total Proved
----------- --------------- ---------- -------------

Net Proven Remaining
Reserves
---------------------
---------------------
Oil/Condensate - Mbbls 600 85 - 685
Plant Products - Mbbls - - - -
Gas - MMcf - - - -

Income Data ($U.S.)
-------------------
-------------------
Future Gross Revenue $49,300,860 $6,862,147 - $56,163,007
Deductions $20,119,959 $1,394,585 - $21,514,545
------------- --------------- ----------- ------------
Future Net Income
(FIN) $29,180,901 $5,467,562 - $34,648,463

Discounted FIN @ 10% $20,720,223 $2,328,489 - $23,048,712

Probable
Developed
-------------------------
Producing Non-Producing Undeveloped Total
Probable
----------- --------------- ---------- -------------
Net ProbableRemaining
Reserves
----------------------
----------------------
Oil/Condensate -
Mbbls 13 102 120 234
Plant Products -
Mbbls - - - -
Gas - MMcf - - - -

Income Data ($US)
-------------------
-------------------
Future Gross Revenue $ 1,051,631 $8,685,293 $10,271,973 $19,954,897
Deductions $(1,593,582) $2,167,937 $ 5,256,392 $ 5,830,747
------------- --------------- ----------- ------------
Future Net Income
(FIN) $ 2,645,214 $6,517,356 $4,961,581 $14,124,150

Discounted FIN @ 10% $ 1,980,581 $2,565,216 $2,597,460 $ 7,143,257


The acquisition report prepared by Ryder Scott utilizing information available in the dataroom, does not include abandonment costs however Ryder Scott is of the opinion that these costs will not materially affect the discounted NPV estimates. A NI 51-101 report is being prepared by Ryder Scott that will include the abandonment costs.

The oil and gas assets of AcquireCo. are subject to the standard Ecopetrol Association Contract terms, and the exploration contract by standard ANH terms.

AcquireCo. operates the first field on a Risked Production Contract basis for all producing formations. The Contractor receives 35.88% net royalty interest after an 8% royalty for production from the Mirador formation, and 82.8% royalty for all other formations. The Operator is responsible for all operating costs. The Contract expires February 2013 for the Mirador formation, and to economic limit of field for all other formations.

AcquireCo. operates one of the producing formations in the second field on a Risked Service Contract basis and receives a tariff of $7.11 per gross barrel of production which escalates to $17.56 per gross barrel in 2012 through a series of increments each year. For the other producing formation, AcquireCo. operates on a Risked Production Basis and receives a 27.6% net royalty. The operator is responsible for all operating costs. Both contracts extend to the economic limit of field.

For the ANH Exploration Contact in the Middle Magdalena Basin the operator pays 100% of exploration costs. The royalty is 5 to 25% based on production rate, with 30% tax on surplus income when production exceeds 5 MMBO. The production contract is for 24 years.

The acquisition of the Colombia Assets through the acquisition of AcquireCo. is subject to a number of conditions, including execution of definitive documents, customary due diligence, the consent of Standard Bank Plc,.

The acquisition of Canacol will not close until satisfactory documents are received and reviewed by the TSX Venture Exchange.

Canacol has negotiated a Farm-in on a large seismically defined prospects on the Petroleum Prospecting Licence located on the Southern edge of Guyana bordering Brazil. The block contains a discovery well drilled by Home Oil in 1982 tested 411 barrels of oil per day (42-degree API) from a sub-salt reservoir during a five-hour drill stem test proving the existence of a light oil hydrocarbon system within this frontier basin.

The Transaction will be satisfied by the issuance of 60,000,000 preferred shares of BrazAlta ("Preferred Shares").

BrazAlta, concurrent with the Transaction, intends to spin out BCH Ltd. ("BCH"), the Corporation's subsidiary oilfield service company, to the BrazAlta common shareholders of record on a record date to be established (the "Reorganization") on the basis of one BCH share for every ten shares of BrazAlta held. This ratio will reduce the number of shares held by BrazAlta shareholders in the new BCH entity but will not change the percentage interest. The Preferred Shares issued to Canacol shareholders will be convertible into BrazAlta common shares following completion of the Reorganization. The holders of the Preferred Shares will NOT be entitled to receive any of the BCH shares pursuant to the Reorganization. In conjunction with the Reorganization, BrazAlta's management is considering a number of liquidity options for BCH including a corporate sale or listing of BCH as a publicly traded entity.

The combined company will represent a large regional presence in South America with an extensive portfolio of production, appraisal and exploration assets in the focus region. The attributes of combining BrazAlta and Canacol include:

- Board and management team with extensive South American experience and expertise

- Well balanced exploration portfolio with significant growth opportunities

- Large regional onshore presence in South American countries that have stable political and fiscal environments

- Excellent exploration upside with over 1,200 square kilometers of land and operatorship opportunities on-shore Brazil

- 1.4 MMBOE 2P reserves (net) in Brazil as evaluated by DeGolyer and MacNaughton Canada Limited as at June 30, 2007 and current production of 200 BOPD in Brazil (net)

- Executed a purchase agreement for a 700 net bbl/d operated asset (3,800bbl/d gross) acquisition in Colombia with remaining reserves of 0.92 MMBO 2P reserves (as evaluated by Ryder Scott). The Transaction includes a revenue stream of $7.11 per BOPD, escalating through a series of steps to $17.56 per BOPD in 2012, of 2,300 BOPD associated Tariff Oil production that Canacol receives payments for on the balance of the production under operation.

- Also included in the Transaction is a 51% operated interest in an exploration contract in the Middle Magdalena basin awarded by the ANH in 2007.

- Farm-in for 10,000 sq km appraisal and exploration asset 65%W.I. (operatorship upon earning) on-shore Guyana with historical sub-salt fractured volcanic discovery that flowed 400 BOPD of 42 degrees API light oil

- Rig availability through BCH

- Bidding as operator in upcoming Colombian and Brazilian bid rounds

Details of management of each of BrazAlta following the Transaction and BCH following the reorganization are contained in the press release of BrazAlta dated June 9, 2008.

BCH Ltd. Spin-Out

It is expected that as a result of the Reorganization each BrazAlta shareholder will receive a BCH share on the basis of one BCH share for every ten shares of BrazAlta held as at a record date to be announced. BrazAlta management is evaluating a number of options and will propose the Reorganization on the most tax effective and liquidity focused basis for BrazAlta shareholders. The Reorganization is expected to be completed within four months of closing of the purchase by BrazAlta of Canacol.

Following the Reorganization, the BCH Shares held by the current BrazAlta shareholders will continue to be subject to the rights of acquisition by Allis-Chalmers Energy Inc. in accordance with the news releases of BrazAlta dated January 31, 2008 and February 1, 2008.

BCH through its wholly owned Brazilian subsidiary BCH Energy Services do Brasil Ltda, is now one of Brazil's largest on-shore drilling service providers with a fleet of 7 rigs operational in Country. All rigs have been operational for Petrobras and or BrazAlta under long-term contracts. The contracts in place with Petrobras, Brazil's state controlled oil company, represent in excess of $100 million of gross revenue over the next three years. These contracts awarded to BCH provide stable cash flow and have given BCH the flexibility and opportunity to grow quickly through the Brazilian market and now to other South American regions and grow its operations within the next 12 to 18 months.

Other Transactions Highlights and Benefits

- Prior to the acquisition of AcquireCo, combined with Canacol, BrazAlta will have $17.5 million of cash and working capital

- The balance of BrazAlta's cash, (approximately $9 million), will go to paid up equity inside of BCH

- The JV E&P line of credit, (through Standard Bank), net exposure to BrazAlta of $4.275 million US with W.Washington will remain with BrazAlta

- The $25 million US senior secured lending facility will remain the sole obligation of BCH

- The $40 million US Allis-Chalmers Subordinated Debenture will be the sole obligation of BCH

- BrazAlta becomes a "Pure Play" oil and gas exploration and production company with operations in Colombia, Brazil and Guyana, South America

- BCH becomes a "Pure Play" oil and gas Drilling and Workover service provider in South America's fastest growing energy markets

- BrazAlta shareholders maintain their proportionate interest in BCH post the Reorganization

- The Corporation continues to be back-stopped with a strong relationship to BCH and access to drilling rigs in an increasingly competitive South American market

- BrazAlta's new geo-technical focused Management team and internationally based Board of Directors bring extensive track records and "oil finder" success in South America to the merged entity

Financial Advisors

BrazAlta has retained FirstEnergy Capital Corp. as its financial advisor with respect to the Transaction.

Reinstatement of Trading

The common shares of BrazAlta will be reinstated for trading on the TSX Venture Exchange Inc. today within a short period following this release.

Cautionary Language and Conditions

The Letter of Intent to complete the Transaction is subject to numerous conditions, including board of director approval.

Completion of the Reorganization is subject to the approval of 66 2/3% of the aggregate votes to be cast by shareholders of BrazAlta at a meeting expected to be held within four months of the closing of the Transaction.

Information in this release related to Canacol has been provided by Canacol to BrazAlta and has not been independently confirmed by BrazAlta. Information in this release related to AcquireCo. has been provided by Canacol to BrazAlta and has not been independently confirmed by BrazAlta.

If the requisite shareholder and regulatory approvals are obtained and other conditions to closing are satisfied or waived, including without limitation the conditional approval of the TSX Venture Exchange to the listing of the BCH shares, BrazAlta will as soon as practicable thereafter seek an order from the Alberta Court of Queen's Bench approving the Reorganization.

The Reorganization cannot close until the required shareholder and other approvals are obtained. There can be no assurance that the Reorganization will be completed as proposed or at all.

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

Trading in the shares of BrazAlta should be considered highly speculative. Canacol has agreed to cease any discussions with other parties, not to solicit competing offers and to give notice to BrazAlta of any unsolicited competing proposals that may be received prior to closing the Canacol acquisition. The parties have agreed to pay the other a break fee of $720,000 in certain circumstances if the Transaction is not completed. The Transaction is subject to Canacol entering into a binding agreement to acquire all of the issued and outstanding shares of AcquireCo.

Further details regarding the Reorganization, including certain pro forma information following completion of the Reorganization, will be provided in the Corporation's management information circular to be mailed to BrazAlta shareholders in connection with the shareholders meeting to consider the Reorganization.

BrazAlta is a publicly traded Canadian based international oil and gas corporation with operations in Brazil, Northern Ireland and Canada.

BCH Ltd. is BrazAlta's drilling services subsidiary which provides drilling and workover services in Brazil.

This press release may contain statements within the meaning of safe harbour provisions as defined under US Laws and Regulations. The above statements are based on the current expectations and beliefs of BrazAlta's management and are subject to a number of risks and uncertainties that may cause the actual results to differ materially from those described above. BrazAlta does not undertake any responsibility with regard to the accuracy of this press release nor the obligation to update the abovementioned information.

This press release contains certain forward-looking statements within the meaning of applicable securities law. Forward-looking statements are 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. Forward-looking statements are 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 that could cause actual events or results to differ materially from those projected in the forward-looking statements. The Corporation cannot assure that actual results will be consistent with these forward looking statements. They are made as of the date hereof and are subject to change and the Corporation assumes no obligation to revise or update them to reflect new circumstances, except as required by law. Prospective investors should not place undue reliance on forward looking statements. These factors include the inherent risks involved in the exploration for and development of crude oil and natural gas properties, the uncertainties involved in interpreting drilling results and other geological and geophysical data, fluctuating energy prices, the possibility of cost overruns or unanticipated costs or delays and other uncertainties associated with the oil and gas industry. Other risk factors could include risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities, and other factors, many of which are beyond the control of the Corporation. A barrel of oil equivalent (boe) is derived by converting gas to oil in the ratio of six thousand cubic feet of gas to oil and may be misleading, particularly if used in isolation. A boe conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead, especially in various international jurisdictions.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

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