Churchill Energy Inc.
TSX VENTURE : CEI

Churchill Energy Inc.
Welton Energy Corporation
TSX : WLT
TSX : WLT.DB

Welton Energy Corporation

December 16, 2008 07:00 ET

Churchill and Welton Enter Into Arrangement Agreement

CALGARY, ALBERTA--(Marketwire - Dec. 16, 2008) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.

Churchill Energy Inc. (TSX VENTURE:CEI) ("Churchill") and Welton Energy Corporation (TSX:WLT)(TSX:WLT.DB) ("Welton") are pleased to announce that they have entered into an arrangement agreement (the "Arrangement Agreement"), whereby Churchill will acquire all of the issued and outstanding common shares of Welton by way of plan of arrangement (the "Arrangement") under the Alberta Business Corporations Act. As consideration for the transaction, Churchill will assume approximately $3.2 of net debt and issue a total of approximately 5.5 million common shares to Welton debentureholders and shareholders.

Under the terms of the Arrangement Agreement, shareholders of Welton will receive 0.0199255 of a Churchill common share for each 1 common share of Welton held. In addition, all Welton options that have not been exercised will be cancelled under the terms of the Arrangement. The Arrangement Agreement also provides for a cash payment to the holders of Welton debentures of $429.61 for each $1,000 in principal amount outstanding and, following such payment, an exchange of each Welton debenture for a cash payment from Churchill of $266.29 and 428.571 Churchill common shares for each $1,000 in principal amount of outstanding Welton debentures held. There is also the potential for an additional cash payment of up to $23.81 for each $1,000 in principal amount should there be funds remaining from a holdback. An aggregate of $500,000 will be deposited into escrow as a holdback to fund any shortfalls in Welton's estimated net debt of $6.129 million as at December 31, 2008. Fifty percent of the remaining holdback will be paid to two officers of Welton as retention for providing ongoing advisory services until 91 days following the closing of the Arrangement. The other fifty percent of the remaining holdback will be paid out to Welton debentureholders as described above. Should all of the holdback be paid out to the Welton debentureholders, they will receive a total of $7,557,000 on the principal amount of $10,500,000 of the debentures and also 4.5 million shares of Churchill pursuant to the Arrangement.

The proposed arrangement has the unanimous support of the boards of directors of Churchill and Welton. Upon completion of the Arrangement, there will be approximately 41.119 million Churchill common shares outstanding and Welton will become a wholly owned subsidiary of Churchill. Based upon current production from Churchill of approximately 320 boe/d and 150 boe/d of production from Welton, the combined entity is expected to have production of approximately 470 boe/d. The oil and natural gas reserves of the companies will be combined and reported on following closing of the Arrangement.

Upon completion of the Arrangement, existing Churchill management will run the combined entity and Donald A. Engle, formerly President, Chief Executive Officer and a director of Welton, will join the existing Board of Directors of Churchill.

The Welton securityholder meeting relating to the continuation of Welton pursuant to the laws of the Province of Alberta and the Arrangement is expected to be held on or about January 30, 2009 and mailing of an information circular is expected to occur before December 31, 2008. The closing of the Arrangement is expected to occur following the meeting, provided the requisite securityholder approval is obtained and Welton, an Ontario corporation, has been continued under the laws of Alberta. The completion of the transaction is subject to receipt of applicable regulatory and securityholder approvals, as well as approval of the Court of Queen's Bench of Alberta. A minimum of 66 2/3% of the votes cast by the Welton shareholders and optionholders, voting as a single class, and Welton debentureholders of not less than 66 2/3% of the principal amount of the debentures voted must be voted in favour of the Arrangement in order for it to be effected. Securityholders of Welton holding approximately 26% of the Welton shares and 44% of the Welton debentures have agreed to vote securities they hold in favour of the transactions contemplated by the Arrangement at the meeting of Welton securityholders.

Tristone Capital Inc. is acting as exclusive financial advisor to Welton with respect to the Arrangement. Tristone Capital has advised the board of directors of Welton that it is of the opinion, as of the date hereof, that the consideration to be received by Welton shareholders pursuant to the Arrangement is fair from a financial point of view to Welton shareholders.

The boards of directors of each of Churchill and Welton have unanimously approved the Arrangement Agreement. The board of directors of Welton has also concluded that the Arrangement is in the best interests of its shareholders, and has resolved to recommend that securityholders of Welton vote their securities in favour of the Arrangement at the meeting.

The Arrangement is the culmination of the process that began on March 24, 2008, when Welton appointed Tristone Capital Inc. with a mandate to act as exclusive financial advisor to assist in exploring strategic alternatives to address the repayment of the Welton debentures. Welton has previously advised that it does not have the ability to repay the principal amount of the Debentures from budgeted cash flows on January 15, 2009, the maturity date of the debentures. Welton intends to hold a separate meeting of debentureholders on January 14, 2009 to approve the waiver of the obligation to pay interest on the debentures and extending the maturity date of the debentures to March 31, 2009 to allow time for Welton to complete the Arrangement.

Upon completion of the Arrangement, it is expected that both the Welton debentures and common shares will be de-listed from the TSX. It is a condition of completion of the Arrangement that the Churchill common shares to be issued pursuant to the Arrangement are listed on the TSXV.

About Churchill

Churchill is a Calgary-based junior oil and natural gas company with operations in Alberta and Saskatchewan. Churchill's common shares trade on the TSX Venture Exchange under the symbol "CEI".

About Welton

Welton is a junior energy company, focused on exploration for, and development and production of, oil and natural gas in Alberta, Saskatchewan and British Columbia, Canada. Welton's common shares and debentures trade on the Toronto Stock Exchange under the symbol "WLT" and "WLT: DB", respectively.

This news release does not constitute an offer to sell or the solicitation of an offer to buy the securities, or a solicitation of proxies, in any jurisdiction, including but not limited to, the United States. The common shares of Churchill 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 in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this press release contains forward-looking statements and information concerning completion and timing of the Arrangement; the assessment of the combined company including its expected petroleum and natural gas production reserves, undeveloped land holdings, reserve life index, business strategy, future development and growth opportunities, prospects and asset base; and also anticipated benefits from the Arrangement including improved operating efficiencies, field optimizations and cost reductions, future cash flows, value and debt levels, capital programs and treatment under tax laws. The forward-looking statements and information are based on certain key expectations and assumptions made by Churchill and Welton. Although Churchill and Welton believe that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Churchill and Welton can give no assurance that they will prove to be correct.
Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to reserves, production, costs and expenses; health, safety and environmental risks; commodity price and exchange rate fluctuations, marketing and transportation, loss of markets, environmental risks, competition, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, ability to access sufficient capital from internal and external sources, failure to obtain required regulatory and other approvals, and changes in legislation, including but not limited to tax laws, royalties and environmental regulations. There are risks also inherent in the nature of the proposed Arrangement, including failure to realize anticipated synergies or cost savings; risks regarding the integration of the two entities; incorrect assessments of the values of the other entity; and failure to obtain the required security holder, court, regulatory and other third party approvals. This press release also contains forward-looking statements and information concerning the anticipated completion of the proposed Arrangement and the anticipated timing for completion of the Arrangement. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other risk factors that could affect Churchill's, Welton's or the combined company's operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), in the case of Churchill, at Churchill's website (www.churchillenergy.ca), and in the case of Welton, at Welton's website (www.weltonenergy.com). The forward-looking statements and information contained in this press release are made as of the date hereof and Churchill and Welton undertake no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

No Canadian Stock Exchange has approved nor disapproved of the information contained herein. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Churchill Energy Inc.
    Kelly D. Cowan
    Chief Executive Officer
    (403) 693-3001
    Website: www.churchillenergy.ca
    or
    Welton Energy Corporation
    Donald A. Engle
    President and Chief Executive Officer
    (403) 619-3468
    Website: www.weltonenergy.com