Vault Energy Trust
TSX : VNG.UN

Vault Energy Trust

May 24, 2005 10:42 ET

Chamaelo Energy Inc. Mails Information Circular and announces Agreement with Orbus

CALGARY, ALBERTA--(CCNMatthews - May 24, 2005) - Chamaelo Energy Inc. ("Chamaelo") (TSX:CLO) is pleased to announce the mailing today of an Information Circular with respect to the reorganization of Chamaelo into an energy trust, Vault Energy Trust (the "Trust") and a junior oil and gas exploration and development corporation ("ExploreCo") by way of a Plan of Arrangement (the "Arrangement") under the Business Corporations Act (Alberta) (the "ABCA"). Pursuant to an interim order of the Court of Queen's Bench of Alberta (the "Court"), an annual and special meeting (the "Meeting") of the securityholders of Chamaelo will be held at the Royal Room of the Metropolitan Conference Centre, 333 - 4th Avenue S.W., Calgary, Alberta, at 9:00 a.m. (Calgary time) on June 20, 2005 to consider the Arrangement. In order for the reorganization to become effective, the resolution approving the Arrangement must be approved by at least two-thirds of the votes cast at the Meeting. The Arrangement will also require the final approval of the Court, the Toronto Stock Exchange and other relevant regulatory authorities.

Chamaelo is also pleased to announce it has entered into an assignment and assumption agreement (the "Come-Along Agreement") with Orbus Pharma Inc. ("Orbus"), whereby Orbus would, subject to certain conditions being satisfied by the closing time, become a party to the Arrangement as ExploreCo. Orbus currently has over $50 million in federal tax pools and a TSX listing. On completion of the Arrangement, ExploreCo will have, on a combined basis, approximately $97 million in federal tax pools, 1,050 boepd of production, $10 million cash, and no debt. In the event that Chamaelo and Orbus are unable to complete the transactions contemplated by the Come-Along Agreement, Chamaelo will proceed with 1166554 Alberta Inc., a newly incorporated company, participating as ExploreCo in the Arrangement.

In conjunction with the Arrangement and as previously announced, Chamaelo will acquire certain oil and natural gas properties (the "Properties") in West Central Alberta and North Eastern British Columbia for $375 million, net of closing adjustments (the "Acquisition"), funded by a combination of Chamaelo's existing credit facility, bridge financing provided by Brascan Bridge Lending Fund and the proceeds of $330,028,000 (prior to fees and associated costs) raised through a "bought deal" private placement co-led by Orion Securities Inc. ("Orion") and GMP Securities Ltd. ("GMP") and including CIBC World Markets Inc., National Bank Financial Inc., Sprott Securities Inc., TD Securities Inc., Trilon Securities Corporation and Tristone Capital Inc. of subscription receipts that was completed on April 27, 2005. The Acquisition is expected to close concurrently with the Arrangement.

The subscription receipts and the securities deliverable pursuant to them have not been and will not be registered under the United States Securities Act of 1933 or the securities laws of any state of the United States and therefore may not be offered or sold in the United States except pursuant to exemptions from the registration requirements of that Act and any applicable state securities laws.

The proposed Arrangement would result in shareholders of Chamaelo exchanging each of their Chamaelo common shares for 0.5 of one trust unit (a "Unit") or 0.5 of one share exchangeable into Units (an "Exchangeable Share"), and 0.2 of one common share of ExploreCo (an "ExploreCo Share") or cash consideration in lieu thereof (estimated to be approximately $0.62 per ExploreCo Share. The Exchangeable Shares to be issued are intended to give Chamaelo shareholders the opportunity to defer the tax consequences of the Arrangement. In lieu of monthly cash distributions, the exchange value of the Exchangeable Shares would be adjusted to account for the amount of the distributions paid to unit holders between the date of issue of the Exchangeable Shares to and the date of the exchange. An aggregate maximum of 5,000,000 Exchangeable Shares will be issued pursuant to the Arrangement to shareholders of Chamaelo. In the event that more Exchangeable Shares are requested than those available, the Exchangeable Shares will be prorated and shareholders will receive Trust Units in lieu of Exchangeable Shares.

Under the proposed Arrangement, the Trust would own approximately 90% of the producing assets from the combination of existing Chamaelo assets and the Properties, with production of approximately 9,550 boepd (65% gas / 35% light oil). The Trust would have a significant inventory of low risk exploitation projects and infill drilling locations, underutilized gas plants with opportunities to generate mid-stream revenues and over 146,000 acres of undeveloped land. The Trust will also have a farm-out arrangement on approximately 41,000 acres of additional lands with ExploreCo.

Under the proposed Arrangement, ExploreCo would own approximately 1,050 boe per day of producing assets and a high potential prospect portfolio of approximately 62,000 acres of undeveloped land drawn from the base assets of Chamaelo and the Properties. As noted above, ExploreCo will have the option to farm-in on approximately 41,000 acres of lands retained by the Trust, on standard industry terms.

Property Acquisition

The Acquisition is comprised of high quality, high netback properties located in West Central Alberta and North Eastern British Columbia. While the Properties are well-established low decline properties that are ideal for a trust, they still have significant low risk drilling and exploitation opportunities.



Acquisition Metrics

Oil Gas Total
---------------------------------------------------------------------
Production 2,300 boe/d 30.6 mmcf/d 7,400 boe/d

Proved P+P
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Reserves 25.8 mboe 31.6 mboe

Proved P+P
------------------------------------------------------
Reserve Life Index 9.1 years 11.3 years


Estimated total net purchase price 375.0 million
Midstream facilities 5.0 million
Undeveloped land 8.8 million
Production and reserves 361.2 million

$ per producing boe per day 48,480
$ per proved boe 14.62
$ per proved plus probable boe 11.84


The reserves as stated above are based on Chamaelo's internal reserve estimates. The reserves as evaluated by the vendor's third party independent engineering consultants were 34.9 mboe proved and 44.5 mboe proved plus probable. Chamaelo's more conservative approach to booking will allow for potential upward revisions in the future as Chamaelo implements its optimization plans.

A relatively minor portion of the production is subject to Rights of First Refusal ("ROFR") that could reduce the purchase price as well as the amount of production acquired.

Benefits for the Proposed Transaction

The proposed reorganization is designed to enhance shareholder value by dividing Chamaelo's assets into two distinct groups. The lower risk assets would continue to be held by Chamaelo shareholders through the Trust creating a platform for optimization and stable growth, while certain less mature production and higher risk exploratory prospects would continue to be held by Chamaelo shareholders through the exploration focused ExploreCo.

Experienced teams of professionals who have demonstrated their ability to attain exploration, exploitation, acquisition and financial objectives and who have been an integral part of the growth of Chamaelo over the past year will manage both the Trust and ExploreCo.

The management of Chamaelo believes that the Acquisition along with the proposed Arrangement will provide the following strategic benefits:

- the acquisition of high quality properties, significant infrastructure and a large undeveloped land base with significant upside;

- the separation of low risk development opportunities suitable for a trust from the exploration-oriented growth potential of a junior oil and natural gas exploration and development corporation better aligns the risks and rewards associated with each asset class while providing shareholders the flexibility to alter their participation in each;

- the creation of a diversified portfolio of assets within the Trust, offering a significant resource base that will provide sustainable production and stability in monthly, tax efficient cash distributions to unit holders;

- the benefit of an experienced and proven and committed management team to further enhance shareholder value;

- the enhanced access to capital to fund both acquisitions and development opportunities; and

- the significant growth potential of the assets within ExploreCo to attract greater value in an exploration focused company.

Based on these and other factors, the Board of Directors of Chamaelo have unanimously determined that the reorganization would be in the best interest of Chamaelo securityholders and accordingly intends to recommend the approval of the Arrangement to the Chamaelo securityholders. All directors and officers of Chamaelo have indicated that they intend to vote all of the securities they hold in support of the Arrangement.

Vault Energy Trust

Pursuant to the Arrangement, Chamaelo shareholders will receive Units that will pay monthly cash distributions derived from approximately 9,550 boe per day of production, comprised of 37.5 mmcf per day of natural gas and 3,300 bbls per day of light crude oil and natural gas liquids. The assets have a reserve life index of 8.7 years on a proved basis and 10.7 years on a proved plus probable basis and include approximately 146,000 net acres of undeveloped land. The Trust's primary mandate will be to grow production and reserves with a strong focus on cost control. The Trust will have a large suite of opportunities for production enhancement through development drilling and low risk exploitation opportunities on the combined asset base. The Trust will also continue to pursue accretive acquisitions that fit strategically with the existing asset base.

Highlights

The characteristics and key attributes of the Trust are as follows:

- 9,550 boepd (65% gas / 35% light oil)

- Large oil and gas fields with identified opportunities to increase recoveries

- Significant exploitation opportunities (water floods, pump changes, recompletions)

- Over 100 development drilling locations

- Material cost cutting initiatives identified

- Gas plant interest with unutilized capacity for generating future processing revenues

- Over 146,000 undeveloped acres to generate production via farm-outs

- Top quartile netbacks due to high quality product being produced

- Top quartile proved producing RLI (7.0 years)

- Top quartile proved RLI (8.7 years)

- Top quartile proved plus probable RLI (10.7 years)

Management

The management team of the Trust is led by Robert Jepson as President and Chief Executive Officer, along with Rick Marshall (VP Operations / COO) and Greg Fisher (VP Finance / CFO).

Mr. Jepson is currently the Executive Vice President of Chamaelo. Prior to Chamaelo, Mr. Jepson was the Executive Vice President of Viracocha Energy Inc. ("Viracocha") and the Vice President, Land and Chief Operating Officer of Bellator Exploration Inc. ("Bellator"). Mr. Jepson was an integral part of the strategic focus and ultimate success of these three oil and gas producers.

Rick Marshall is currently the Chief Operating Officer of Chamaelo. Prior to Chamaelo, Mr. Marshall was the Vice president Operations and Chief Operating Officer of Viracocha. Mr. Marshall spent 17 years at Renaissance Energy Ltd. where he served as Vice President Production and Vice President Technical Services prior to joining Viracocha.

Greg Fisher is currently the Chief Financial Officer of Chamaelo. Prior to Chamaelo, Mr. Fisher served as the controller for Bellator and the Vice President Finance and Chief Financial Officer for Viracocha.

In addition to Mr. Jepson, the Trust Board of Directors includes Sean Monaghan, R. Shawn Kirkpatrick, A.B. (Sandy) McArthur, T.S. (Ted) Rozsa and Rick Marshall, all current directors of Chamaelo.

The Chamaelo management team brings a track record of sound financial management, effective acquisitions and exploitation strategies, and successful execution of exploration and development programs.

ExploreCo

Following the completion of the Arrangement, ExploreCo will be a growth-oriented oil and gas company. ExploreCo will be well-positioned to compete for land and property acquisitions given its strong balance sheet and large tax pool base.

The areas of primary focus will initially be in West-Central Alberta and Northeast British Columbia and include properties from both Chamaelo and the Acquisition. ExploreCo assets would include production of approximately 1,050 boepd (65% gas), approximately 60,000 net acres of undeveloped land and $10 million cash. ExploreCo has also agreed to a farm-in arrangement on approximately 41,000 gross acres of land held by the Trust.
To date, ExploreCo has identified over 20 drillable locations targeting light oil and natural gas.

The management team of ExploreCo will be led by Robert Zakresky as President and Chief Executive Officer and include Rick Sereda (VP Exploration), Weldon Dueck (VP Business Development), and Nolan Chicoine (VP Finance and Chief Financial Officer).

Mr. Zakresky is currently the President and Chief Executive Officer of Chamaelo and was previously the President and Chief Executive Officer of both Viracocha Energy Inc and Bellator Exploration Inc. Bellator was a publicly listed company that achieved an annual compound per share growth rate of 45% over a seven year period from its IPO to its eventual sale in 2000, while Viracocha achieved a 52% annual compound per share growth rate from its IPO to its eventual sale in 2004.

Rick Sereda is currently the VP Exploration of Chamaelo and has held positions of increasing responsibility at Shell, Home Oil, Northrock, Berkley, and Anadarko.

Weldon Dueck is currently the VP Exploitation of Chamaelo. Prior to Chamaelo, Mr. Dueck worked in a reservoir and exploitation capacity for various companies including Viracocha Energy, Beau Canada, Philips Petroleum, Columbia Gas, and Texaco Canada.

Nolan Chicoine is currently the Controller of Chamaelo. Mr Chicoine completed his Masters of Professional Accounting in 2000 and obtained his Chartered Accountant designation in 2002. Prior to Chamaelo, Mr. Chicoine was the controller of Viracocha Energy.

The Board of Directors of ExploreCo will include Robert Zakresky, Larry Moeller, Daryl Gilbert and Donald Cowie.

It is anticipated that a private placement of units for maximum aggregate proceeds of $10 million will be made available to primarily directors, officers, employees and consultants of ExploreCo.

Fairness Opinion

Chamaelo has retained Orion and GMP as its financial advisors in connection with the proposed reorganization. GMP has provided an opinion to the Board of Directors of Chamaelo which states that, in its opinion, as of May 20, 2005, the consideration offered under the Arrangement is fair, from a financial point of view, to the securityholders of Chamaelo.

Information Circular Available on the Internet

A copy of the Information Circular and related documents mailed to the securityholders of Chamaelo will be available on the SEDAR website (www.sedar.com).

Forward Looking Statements

This press release contains certain forward looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond Chamaelo's control, including management's assessment of the future plans and operations of Chamaelo, the Trust and ExploreCo and including the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond these parties' control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements.

Actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward looking statements and accordingly, no assurances can be given that any of the events anticipated by the forward looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that Chamaelo will derive therefrom. Chamaelo disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

Chamaelo is a publicly held oil and gas company headquartered in Calgary, Alberta, Canada that trades under the symbol "CLO" on the Toronto Stock Exchange.

Contact Information

  • Chamaelo Energy Inc.
    700, 639 -5th Ave SW
    Calgary, Alberta T2P 0M9
    (403) 232-8575
    (403) 264-0061 (FAX)
    or
    Chamaelo Energy Inc.
    Robert J. Zakresky
    President
    (403) 232-8575 (ext. 226)
    or
    Chamaelo Energy Inc.
    Greg Fisher
    Vice President Finance
    (403) 232-8575 (ext. 229)
    or
    Chamaelo Energy Inc.
    Robert T. Jepson
    Executive Vice President
    (403) 232-8575 (ext. 225)