BrazAlta Resources Corp.

BrazAlta Resources Corp.

June 09, 2008 09:37 ET

BrazAlta Resources Corp. Announces Intention to Acquire Canacol Energy Inc. and the Planned Spin-Out of BCH Ltd.

CALGARY, ALBERTA--(Marketwire - June 9, 2008) - BrazAlta Resources Corp. (TSX VENTURE:BRX) ("BrazAlta" or the "Corporation") is pleased to announce that it has entered into an arm's length binding letter of intent (the "Letter of Intent") for the acquisition of all of the issued and outstanding common shares and warrants of Canacol Energy Inc. ("Canacol") (the "Transaction"), a private Alberta company operating in South America, with agreements to purchase production and exploration assets in Colombia and on-shore Guyana. 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. 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. 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 Magdallena 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(i) API light oil

- Rig availability through BCH

- Bidding as operator in upcoming Colombian and Brazilian bid rounds

Listings and Name Change

As part of the Reorganization it is expected that BrazAlta will continue to have its listing on the TSX Venture Exchange under the name of Canacol Energy Inc.

Combined BrazAlta/Canacol Team

The following are brief descriptions and titles of the members of the proposed BrazAlta/Canacol management team and the proposed board members following the closing of the Transaction. It is expected that four board members of Canacol will initially join the board of directors of Brazalta on closing of the Transaction, and an additional two members of the Board of Canacol will be nominated at Brazalta's shareholder meeting concurrent with the Reorganization.

David R.P. Mears, Chairman and Director

Current Chief Executive Officer of BrazAlta and BCH. Mr. Mears will remain as CEO of BCH and will become Chairman of BrazAlta.

Dr. Charle Gamba, President, CEO and Director

Current Chief Executive Officer, President, and Director of Canacol based in Bogota, Colombia. Past Vice President of Exploration for Occidental Oil and Gas Company (Oxy) in Colombia. Chief Geologist with Oxy in Ecuador and Chief Geoscientist for Oxy in Qatar. Geologist with 15 years of multidisciplinary experience in the oil and gas industry in Latin America, Middle East, North America, and SE Asia with Occidental Petroleum, Alberta Energy Company (EnCana), Canadian Occidental (Nexen), and Imperial Oil.

Mark Holliday, Chief Operating Officer

Past Vice President of Operations for Petromineralies, a subsidiary of Petrobank, based in Bogota, Colombia. Drilling Manager for Pluspetrol 2001 - 2003 Camisea Project, Peru. Drilling manager for Alberta Energy Company 1998 - 2001, Argentina and Ecuador. A drilling engineer with 18 years of international experience with major oil and gas companies.

Craig F. Nieboer, CA, Chief Financial Officer

Current Chief Financial Officer of BrazAlta and BCH. A Chartered Accountant who articled and consulted with Deloitte & Touche (Calgary) and spent 10 years working internationally in Russia and Central Asia for various companies including Ivanhoe Energy Inc. and Amerada Hess. More recently was CFO for Quorum Information Technologies Inc.

Dr. Arthur Halleran, VP Exploration

An exploration geologist with 27 years of experience in South America, Africa, and North America. Past Geoscience Manager for Rally Energy in Egypt.

Alvaro Barrera, Director

Past President of Empresa Colombiana de Petroleos (Ecopetrol), the national oil company of Colombia, based in Bogota, Colombia. Former President of Prodegas S.A., a major Colombian gas pipeline and distribution company. A chemical engineer with over 50 years experience in the E&P industry in Colombia.

Michael Hibberd, Director

Chairman and Co-Chief Executive Officer of Sunshine Oilsands Ltd, a Canadian Oilsands exploration and development company. Chairman of Heritage Oil Limited. Current Director of Pan Orient Energy and Challenger Energy. Former Director of Rally Energy, an international junior oil and gas company that recently sold for $900,000,000. Founder of a corporate finance advisory business in 1995 that has focused on providing advice primarily to Calgary based energy companies with North American and International operations. Involved in privatization projects in North America, Latin America and Central Asia. Director and Senior Vice-President, Finance of Scotia McLeod (12 year term, ending in 1995).

Jason Bednar, Director

Chief Financial Officer of Pan Orient Energy, a South East Asia Exploration company started in 2005 with a current market cap in excess of $500 MM. Past Manager of Financial Reporting for Canadian 88 Energy Corp. Former Controller of Canadian Superior Energy Inc. and from 1993 to 1998 was in a public accounting practice with clients including several exchange listed oil and gas companies.

Lyle F. Dunkley, Director

Chartered Accountant with over 25 years experience in the oil and gas industry. Past Chairman of Rider Resources Ltd. and was previously Chief Financial Officer of Poco Petroleums Ltd., Senior Oil & Gas Analyst at Nesbitt Burns and Duetsche Bank Securities and Chairman of Meota Resources until its sale.

Louis W. MacEachern, Director

Founding Director of PetroKazakhstan Inc. and also serves on a number of other TSX listed Companies and Public Service Organization Boards. President and owner of Fortune Industries Ltd., the major shareholder in the Servpro/Dalco Group of companies, with businesses in Calgary, Alberta, until the sale of that group in 1999.

Stuart Hensman, Director

Stuart P. Hensman is a member of the Board of Governors of CI Funds and a director of Rifco Inc. Prior to 2003, Mr. Hensman was the Chairman and Chief Executive Officer of Scotia Capital (USA) Inc. Mr. Hensman was a Managing Director (Institutional Equities) at Scotia Capital Inc. (London) from 1987 to 1999. Prior to this, he held a number of analytical and portfolio management positions at Sun Life Assurance Co. of Canada from 1981 to 1986. Mr. Hensman holds a Bachelor of Arts degree from the University of Winnipeg and a Masters of Science from the Loughborough University.

After the Reorganization the following additional proposed two directors would join the Board of BrazAlta.

Dr. David Winter, Director

President and Chief Executive Officer of Excelsior Energy, a Canadian heavy oil exploration and production company. An iinternationally focused Geologist with 23 years of multidisciplinary experience, including various technical roles with BP, Sun Oil, Canadian Occidental (Nexen), Alberta Energy Company (EnCana) and Calvalley Petroleum in Latin America, North Sea, China, Netherlands, S.E.Asia and the Middle East. VP International Exploration of AEC International instrumental in the production growth from 2,000 to over 55,000 BOPD in South America.

Juan Martin Caceido, Director

President and Chief Executive Officers of the Colombian Chamber of Infrastructure, former Secretary of Labour for the Government of Colombia, former Colombian Congressman serving two terms, and former mayor of the City of Bogota S.F.

Canacol Highlights -- Canacol has an operational focus in Colombia and Guyana.

Acquisition of Colombian Production

Canacol has negotiated an arm's length share purchase agreement associated with the acquisition of a private Colombian company 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. The acquisition of the Colombia Assets are subject to a number of conditions, including execution of definitive documents, customary due diligence, the consent of Standard Bank Plc, and TSX Venture Exchange acceptance.

Guyana Farm-in (65% W.I.)

Canacol has negotiated a Farm-in on a large seismically defined prospects on the PPL 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.

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 Management and the Board

The following are brief descriptions of the members of the BCH management team and the board members following completion of the Reorganization: David R.P. Mears, Chairman, CEO and Director, Craig F. Nieboer, CFO, Lyle F. Dunkley, Director, Louis W. MacEachern, Director.

Munawar (Micki) H. Hidayatallah Director

Mr. Hidayatallah is Chairman and Chief Executive Officer of Allis-Chalmers Energy Inc. (NYSE - ALY). Allis-Chalmers Energy Inc. is a multi-faceted Oilfield Services Company with Rental Services, Drilling & Completion Services and specialized rental equipment in North America as well as drilling, completion, workover rigs and related services in Argentina.

Martin Zoldi, Director

Mr. Zoldi is President of DLS Argentina for over a decade. DLS Argentina is a 100% owned subsidiary of Allis-Chalmers Energy Inc. which provides drilling and workover services in Argentina. And is currently the second largest provider of land drilling and workover services in Argentina. With a 2007 year-end fleet of 52 Rigs- 21 Drilling, 18 Workover and 13 Pulling rigs.

Gianni Dell'Orto, Director

Mr. Dell' Orto is Vice Chairman of DLS Argentina. Mr. Dell 'Orto has been in Senior Management roles for DLS for the past four years and prior to DLS was the in various Senior Officer roles for Saipem S.p.A., a global Italian oil and gas industry contractor, which is a 43% owned subsidiary of Italian energy company Eni S.p.A, . Saipem has been contracted for the designing and constructing of several pipelines, carrying out drilling programmes to major oil companies, in Europe, FSU, North and West Africa, Middle and Far East and Americas both off shore and on-shore.

BCH through its wholly owned Brazilian subsidiary BCH Energy Services do Brasil Ltda, is now one of Brazil's largest on-shore drilling service provider 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 control 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

- 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.

Cautionary Language and Conditions

The Common Shares of BrazAlta will remain halted until certain documentation related to the Transaction is received and reviewed by the TSX Venture Exchange. A news release will be issued prior to the reinstatement of trading.

The Letter of Intent 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 in late July, 2008.

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 Rancho Hermoso S.A.

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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