Centillion Industries Inc.
NEX BOARD : CID.H

Centillion Industries Inc.

March 16, 2007 19:06 ET

Centillion Industries Inc.: Acquisition of Interest in Bankers Petroleum Ltd. Texas Palo Duro Oil and Gas Field, Change of Business to The Oil and Gas Industry and Financing Up to CDN $40 Million

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - March 16, 2007) -

NOT FOR DISSEMINATION IN THE UNITED STATES OR TO US PERSONS OR FOR DISTRIBUTION TO OR THROUGH U.S. NEWSWIRE SERVICES

Centillion Industries Inc. (the "Company") (NEX:CID.H) announces that, further to its press release of February 21, 2007, the Company and its subsidiary Palo Duro Operating (US), Inc. ("Palo Duro US") have entered into a purchase and sale agreement executed March 6, 2007 but effective as of January 1, 2007 (the "Purchase Agreement") with Bankers Petroleum (US) Inc. ("Bankers US"), a wholly-owned subsidiary of Bankers Petroleum Ltd. under which Palo Duro US will acquire 27% of the working interest of Bankers US in the Palo Duro Basin oil and gas field located in the state of Texas, US (the "Acquisition"). The Company acquired the right to enter into the Purchase Agreement under a previously executed assignment agreement (the "Assignment Agreement") with Peninsula Merchant Syndications Corp. ("Peninsula"). The Company's interest is expected to be approximately 100,000 net acres.

The Acquisition will be a "Change of Business" in accordance with the policies of the TSX Venture Exchange and the NEX. The closing of the Acquisition is subject to a number of conditions, including (a) regulatory and shareholder approval; (b) completion of a financing of not less than CDN $39 million by the Company, and (c) closing of the Acquisition on or before May 29, 2007 or such later date as may be agreed to under the applicable agreements.

Proposed Financing

The Company currently has approximately CDN $150,000 in working capital. Successful completion of the rights and obligations pursuant to the Assignment Agreement and the Purchase Agreement will require a total of CDN $37 million. Further to its press release of March 2, 2007, the Company has appointed Canaccord Capital Corporation as lead agent and book runner of a syndicate that includes Salman Partners Inc., Haywood Securities Inc. and PowerOne Capital Markets Limited (collectively, the "Agents") to act as the Company's agents in connection with a private placement of subscription receipts on a reasonable best efforts basis.

The Company intends to raise up to CDN $40 million through the issuance of up to 114,285,714 subscription receipts at an issue price of CDN $0.35 per subscription receipt. Each subscription receipt will entitle the holder to receive one unit of the Company without payment of any additional consideration, on satisfaction of certain conditions. Each unit will be comprised of one common share of the Company and one-half of one common share purchase warrant. Each whole warrant will entitle the holder to purchase one common share of the Company at a price of CDN $0.50 per share for the period expiring two years following the closing of the private placement offering. The securities will be subject to a four-month hold period under applicable securities laws.

The closing of the private placement is expected to occur on or about March 21, 2007, and is subject to the receipt of all necessary regulatory and stock exchange approvals. Upon closing of the offering, the proceeds from the sale of the subscription receipts will be deposited in escrow and will be released to the Company upon the satisfaction by the Company of certain conditions, including the completion of the Acquisition on or before May 29, 2007 or such later date as may be agreed between the Company and the Agents under the applicable agreements.

The proceeds from the private placement will be used: (a) to pay Peninsula US $1.1 million as required under the Assignment Agreement; (b) to reimburse Peninsula for the US $250,000 deposit paid to Bankers US; (c) to finance the US $15 million purchase price under the Purchase Agreement; (d) to finance the Company's share of initial capital expenditure requirements pursuant to the Acquisition, which are currently estimated to be approximately $15.7 million for up to 9 vertical wells, 4 horizontal wells, additional 3D seismic and further land acquisitions or payments; and (e) for general working capital purposes. The use of proceeds is subject to further change based upon the results of initial work programs.

The Palo Duro Basin Oil and Gas Field

Under the Acquisition, the Company's wholly owned subsidiary, Palo Duro US, will acquire 27% of the working interest of Bankers US in the Palo Duro Basin oil and gas field. Bankers US will continue to be the operator of the project. The acquisition of a 27% working interest equates to an approximate net revenue interest in the Palo Duro Basin of 20.25%, after accounting for applicable landowner royalty and over-riding royalty interest burdens that range from 22% to 25%. The acquired interest is comprised of approximately 100,000 acres net to the Company in the southern part of the Palo Duro Basin. Bankers US has a current leasehold position of approximately 375,000 acres in Briscoe, Hall, Motley and Floyd Counties, Texas, USA.

The Palo Duro Basin is located in the Texas Panhandle district and is bound on the north by the Amarillo-Wichita Uplift in Oklahoma, to the south by the Matador Arch-Permian Basin in West Texas, to the east by the Hardeman Basin-Red River Arch, and on the west by Bravo Dome and the Sierra Grande Uplift in New Mexico.

Bankers US has drilled three science wells in the Palo Duro Basin and has acquired two additional science wells and four other wells. Science wells are wells drilled to uncover basin characteristics such as formation depth, thickness, hydrocarbon bearings, and rock properties. Additionally the wells help operators understand drilling conditions, learn ways to increase drilling speeds, determine mud weights, and to make decisions on drilling with air or water. There are currently no proved or probable undeveloped reserves in the acreage being purchased or associated with the science wells.

Bankers US is in the process of drilling and completing the Cogdell #64-1 well which is being drilled underbalanced with air to increase the drill rate, lower costs and minimize formation damage. The primary targets of the prospects are the Lower Pennsylvanian Bend shales (vertical drill depths from 7,500 to 10,000 feet) and Lower Permian Wolfcamp shales (5,000 feet). Gross objective thickness of the shale is 500 to 1,000 feet and total organic carbon content ranges from 2.5 to 4.5%. In the early phase of vertical drilling, drainage area is anticipated to be 160 acres and it is expected that spacing ultimately will be reduced to 40-80 acres per well.

Secondary targets are the Atoka sands (Granite Wash), which are interbedded in the Bend shales. Additional potential may occur in Middle Pennsylvanian Strawn and Canyon limestone and dolomite buildups (6,500 to 8,000 feet) and Lower Permian Wolfcamp limestones (4,000 to 5,000 feet). Oil and gas shows have been recorded in all zones in the previously drilled wildcats in the southern Palo Duro Basin.

Shallow oil and gas potential occurs in San Andres dolomites (2,000 to 2,400 feet) and Glorieta-Upper Clearfork dolomites (2,500-3,000 feet), all prolific reservoirs in the Permian Basin just south of Bankers US leasehold position. Drainage areas for these reservoirs are anticipated to be 10 acres. The position of Bankers US in the Palo Duro Basin is additionally attractive in that under explored potential exists in Pennsylvanian and Permian carbonates and sandstone reservoirs that are in close proximity to the shale hydrocarbon source beds.

The Purchase Agreement

The Purchase Agreement provides the purchase price payable to Bankers US for the Acquisition is US $19.5 million, of which US $15,000,000 will be payable in cash at closing and US $4.5 million will be payable by the issuance of approximately 15,000,000 units of the Company at a price of CDN $0.35 per unit. Each unit will be comprised of one common share of the Company and one-half of one common share purchase warrant. Each whole warrant will entitle the holder to purchase one common share of the Company at a price of CDN $0.50 per share for the period expiring two years following the closing of the Acquisition. The securities will be subject to a four-month hold period under applicable securities laws.

The closing of the Acquisition is subject to a number of conditions, including (a) regulatory and shareholder approval; (b) the completion of a financing of not less than CDN $39 million by the Company and net proceeds from such financing being deposited in escrow by March 21, 2007, or such later date as may be agreed to under the agreements, and (c) closing of the Acquisition on or before May 29, 2007.

The Assignment Agreement

Under the Assignment Agreement, Peninsula agreed to transfer to the Company all of its right, title and interest in and to a letter agreement between Peninsula and Bankers US, under which Peninsula had obtained the right to acquire 27% of the working interest of Bankers US in the subject Palo Duro Basin properties, in consideration of: (i) a cash payment of US $1.1 million to Peninsula; (ii) the reimbursement to Peninsula of the US $250,000 deposit paid to Bankers US, and (iii) the issuance of 3,000,000 common shares of the Company to Peninsula, upon closing of the Acquisition.

Peninsula is a company existing under the laws of the Province of British Columbia and is based in Vancouver, British Columbia. Peninsula is controlled by Sam Magid.

Change of Business

The completion of the transactions contemplated in the Assignment Agreement and Purchase Agreement will be a change of business for the Company with a new focus on the international oil and gas industry. The Company was previously engaged in the business of marketing, distributing and manufacturing purpose-designed components and providing manufacturing services for use in commercial, consumer and industrial products. As announced on April 18, 2006, a secured creditor realized on its security over the assets of the Company's (then) subsidiary, MPC Circuits Ltd. ("MPC"), and the business of the subsidiary was significantly impaired as a result. As announced on August 11, 2006, as a result of this seizure the Company no longer had an active business and did not meet the requirements for a Tier 2 company on the TSX Venture Exchange and, therefore, effective at the opening on August 14, 2006, the Company's listing was transferred to the NEX board of the TSX Venture Exchange and the Company's tier classification was changed from Tier 2 to NEX. The trading symbol for the Company changed from CID to CID.H. There was no change in the Company's name or CUSIP number and no consolidation of capital.

As further announced on August 11, 2006, the Company entered into an agreement dated as of August 10, 2006 with 1473622 Ontario Inc., an arms length company, to purchase MPC for nominal consideration, and effective August 11, 2006 the (then) board of the Company resigned with the exception of Garnet Bailey and Stephen Barley, Sargent Berner and Kurt Bordian were appointed as new directors, with Stephen Barley also serving as President and Kurt Bordian appointed as Chief Financial Officer. As announced September 29, 2006, Kathleen Butt was appointed the new Chief Financial Officer upon the resignation of Kurt Bordian. Kurt Bordian remains a director of the Company.

Upon completion of the Assignment Agreement and Purchase Agreement, the Company will concurrently apply to transfer from the NEX board to either Tier 1 or Tier 2 of the TSX Venture Exchange. The Company also intends to change its name to one more suitable to the oil and gas business it will be involved in. The change in business to the oil and gas industry and the change in the Company's listing status remains subject to meeting all of the conditions necessary to close the Assignment Agreement and the Purchase Agreement and to shareholder and regulatory approval.

Board & Management Changes

Upon completion of the transactions proposed pursuant to the Assignment Agreement and Purchase Agreement, the board of directors and the senior officers of the resulting issuer are expected to change to include the following individuals:

Mark Bush, President and CEO - Mr. Bush has over 22 years of experience in all phases of oil and gas exploration. He has been involved in a number of discoveries, both domestically and internationally. Mr. Bush began his career as Land and Operations Manager with Lawless Energy, Inc. in Midland, Texas beginning in 1983 until 1993, where he was involved in a number of deep gas tests drilled on the Central Basin Platform and in the Delaware Basin of West Texas and New Mexico. In 1993, he formed Mescalero Energy, Inc. and was there until 1999. This company was responsible for drilling and operating over 36 horizontal wells in the Austin Chalk trend, from the Pearsall to the Giddings fields and additional wells in South Louisiana near Abbeville.

In 1997, Mr. Bush formed Fortis Energy, LLC, where he directed West Texas exploration and exploitation efforts for joint ventures with Shell-Amoco, Mobil, and Tom Brown. These projects involved the interpretation of large 3D seismic data sets. In 1999, this company was absorbed into Touchstone Resources Ltd., where Mr. Bush was President and CEO. Touchstone Resources Ltd. has explored for oil and gas in South Louisiana, West Texas, South Texas, and Southeast Texas. In 2002, Mr. Bush was a founding and Managing Partner in APICO, LLC that has participated with Amerada Hess onshore Thailand. Mr. Bush was responsible for bringing underbalanced drilling to this project, which resulted in a discovery projected to be 3 trillion cubic feet of gas (TCF). APICO, LLC apart from Amerada Hess, has licensed over 2 million acres surrounding the Phu Horm discovery.

Mr. Bush was a founder and the General Manager for KnoxMiss Partners, LP in 2002. This project was a 50% partnership with Clayton Williams Energy, which established a leasehold position of 120,000 acres in a play which has followed up the Fina-Devon discovery of the 190 BCF Maben Field. Mr. Bush started South Oil, Inc. in 2004, where in this capacity, he managed the leasehold acquisition of 6,400 acres in the prolific Vicksburg trend of South Texas, where 12 wells have been drilled to date. South Oil, Inc. was also responsible for the acquisition of 20,000 acres in the Maverick Basin from Blue Star Oil and Gas. Additionally, South Oil, Inc. acquired and managed 41,000 contiguous acres in western Colorado near Grand Junction, where the potential exists to drill 500 Dakota wells at an average depth of 2,800 feet. The program has drilled its 12th well to date.

In December 2005, Mr. Bush completed an acquisition and financing of participation in a 5,400 acres leasehold in the Barnett Shale through South Barnett Resources, Inc., a subsidiary of South Oil, Inc. In 2006, 27 horizontal Barnett Shale wells were drilled.

Stephen Barley, B.Comm., LLB. - Mr. Barley is a lawyer whose securities law practice (1982-1997) included a number of publicly traded companies involved in the business of mineral exploration. Mr. Barley left private practice in 1997 to pursue investment opportunities in private and public companies and continues to act as a director, investor or corporate finance advisor to various public and private organizations including mineral resource and oil and gas companies at various stages of exploration and development. Mr. Barley holds a B.Comm. degree from Mount Allison University; a LL.B. degree from Dalhousie University; and is a member of the Law Societies of British Columbia and Alberta.

Sargent Berner, B.A., LLB., LLM. Mr. Berner currently serves as a director and advisor of numerous public companies. He was a senior partner of DuMoulin Black LLP, a Vancouver law firm, where he practiced in the areas of corporate, securities and natural resources law. Mr. Berner holds a B.A. and LL.B. from the University of British Columbia and a LL.M. from the London School of Economics.

Kathleen Butt, C.A. - Chief Financial Officer. Ms. Butt is a Chartered Accountant and holds a Bachelor of Commerce degree from the University of British Columbia. Over the past 10 years, Ms. Butt has worked in the oil and gas industry with Duke Energy's Gas Transmission Division. She held management positions in various financial capacities including Manager of Financial Reporting and Manager of Forecasting and Budgeting. Ms. Butt was also a tax manager with Ernst & Young LLP (Vancouver), where she articled and obtained her Chartered Accountant designation.

The Company expects to add additional directors with industry experience.

The completion of the Acquisition will be a change of business for the Company with a new focus on the international oil and gas industry. Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the transaction, 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 a NEX company should be considered highly speculative.

This news release may contain forward-looking statements based on assumptions and judgments of management of the Company regarding future events or results. Such statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ materially from those reflected in the forward-looking statements. The Company disclaims any intention or obligation to revise or update such statements except as may be required by law.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The securities offered have not 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 many not be offered or sold in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable states securities laws.

Shares Outstanding: 25,049,202

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

Contact Information

  • Centillion Industries Inc.
    Stephen Barley
    President
    (604) 926-4300
    Email: sbarley@shaw.ca