COSTA Energy Inc.

Artek Exploration Ltd.

November 26, 2009 13:14 ET

COSTA Energy Inc. and Artek Exploration Ltd. Announce Definitive Agreement for the Reverse Takeover of COSTA Energy Inc. and Artek "Bought Deal" Financing

CALGARY, ALBERTA--(Marketwire - Nov. 26, 2009) -


COSTA Energy Inc. (NEX BOARD:CEQ.H) ("COSTA") and Artek Exploration Ltd. ("Artek"), a private Alberta based oil and natural gas exploration company, are pleased to announce that they have entered into a definitive arrangement agreement dated November 24, 2009 (the "Arrangement Agreement") pursuant to which Artek has agreed to complete a reverse takeover of COSTA pursuant to a plan of arrangement (the "Arrangement").

The Arrangement

The Arrangement is an arm's length transaction pursuant to which COSTA and Artek will be amalgamated to form a new corporation (the "Resulting Issuer") that will carry on Artek's current business and operations under the name "Artek Exploration Ltd". The current directors and management of Artek will form the board of directors and management of the Resulting Issuer. The Arrangement will constitute a reverse takeover and change of control of COSTA within the meaning of Policy 5.2 of the TSX Venture Exchange (the "TSXV").

Under the terms of the Arrangement, holders of common shares of Artek ("Artek Shares") will be entitled to receive five common shares (the "New Artek Shares") of the Resulting Issuer for each one Artek Share held (the "Artek Exchange Ratio") and holders of common shares of COSTA ("COSTA Shares") will be entitled to receive 0.028947 of a New Artek Share for each one COSTA Share held (the "COSTA Exchange Ratio"). The respective exchange ratios are based upon a deemed price per COSTA Share of $0.11 and a deemed price per Artek Share of $19.00. Based upon the number of COSTA Shares and Artek Shares outstanding as at today's date, there will be approximately 22.36 million New Artek Shares outstanding following completion of the Arrangement, with shareholders of Artek and COSTA holding approximately 99% and 1% of the outstanding shares, on a non-diluted basis, respectively. The parties have applied to list the New Artek Shares for trading on the TSXV following completion of the Arrangement.

There are currently 4.43 million Artek Shares outstanding. Directors and management of Artek hold an aggregate of 1.7 million Artek Shares (representing approximately 38% of the issued and outstanding Artek Shares). The existing options and warrants to acquire Artek Shares held by the management team of Artek will be replaced with an equivalent number of options and warrants of the Resulting Issuer based upon the same terms and conditions as the existing options and warrants, but will be exercisable for New Artek Shares rather than Artek Shares, and will be adjusted to give effect to the Artek Exchange Ratio.

Conditions to Completion of the Arrangement

Completion of the Arrangement is subject to customary closing conditions including (i) regulatory and TSXV approvals; (ii) requisite court order approving the Arrangement; (iii) approval of 66 2/3% of the votes of holders of COSTA Shares at a meeting of COSTA shareholders; and (iv) approval of 66 2/3% of the votes of holders of Artek Shares at a meeting of Artek shareholders.

A joint management information circular (the "Information Circular") for the meetings of the shareholders of COSTA and Artek is expected to be mailed to such shareholders in December, 2009 with the meetings expected to be scheduled for mid to late January 2010. Closing of the Arrangement is expected to occur shortly following the meetings and in any event before January 31, 2010.

The Information Circular will contain detailed information in respect of Artek, COSTA and the Resulting Issuer, including operational, historical and pro-forma financial information, and will be accessible on COSTA's SEDAR profile at shortly following mailing of the Information Circular to the respective shareholders of each of Artek and COSTA.

The Arrangement Agreement contains customary representations, warranties and conditions, and includes non-solicitation covenants by COSTA and mutual non-completion fees payable in certain circumstances. A copy of the Arrangement Agreement will also be accessible on COSTA's SEDAR profile at

Completion of the Arrangement is subject to a number of conditions, including TSX Venture Exchange acceptance and shareholder approvals (including on a disinterested basis to the extent required). The Arrangement cannot close until the required shareholder approvals are obtained. There can be no assurance that the Arrangement will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the Information Circular to be prepared in connection with the Arrangement, any information released or received with respect to the Arrangement may not be accurate or complete and should not be relied upon. Trading in the securities of either COSTA Energy Inc. or Artek Exploration Ltd. should be considered highly speculative.

Highlights of the Arrangement and the Resulting Issuer

The Arrangement will result in Artek becoming a publicly listed entity and will position Artek for future growth. Upon closing of the Arrangement, the Resulting Issuer will have:

- an experienced, committed and dedicated management team, which will be comprised of the current management team of Artek. The Artek management team, led by Darryl Metcalfe as President and Chief Executive Officer, has extensive technical oil and gas experience and an established track record of achieving its goal of cost-effective per share growth in reserves, production and cashflow. Since commencing operations in early 2005, Artek has grown production from zero to in excess of 2,200 Boe/d primarily through the drill-bit;

- an experienced board of directors that have a track record of building, financing and directing private and public oil and gas companies which brings a wide range of experience, knowledge and innovation to the Resulting Issuer;

- estimated production at closing, assuming normal declines and including the volumes anticipated from current operations, of approximately 2,300 Boe/d comprised of a balanced portfolio of approximately 500 Bbls/d of oil and natural gas liquids and 11 MMcf/d of natural gas ( approximately 78% weighted to natural gas);

- an undeveloped land base of approximately 80,000 net acres;

- a diverse portfolio of low to medium risk drilling and completion opportunities with significant resource potential;

- multi-zone focused operating areas with both conventional and resource type plays including the Montney, Doig, Cadomin and Nikanassin;

- tax pool balances of approximately $110 million;

- a production base that is approximately 75% operated;

- net debt of approximately $48 million (before completion of the Artek financing detailed below) and available credit facilities of $57 million;

- low operating costs of approximately $10.50/Boe; and

- total revenues for Artek for the year ended December 31, 2008 of approximately $35.3 million (six months ended June 30, 2009 - approximately $9.9 million).

About Artek Exploration Ltd.

Artek, a privately held corporation based in Calgary, Alberta, has been engaged in the business of exploring for, developing and producing oil and natural gas, and acquiring oil and natural gas properties in western Canada since it commenced operations in February, 2005. Since commencing operations, Artek has concentrated on exploration and development drilling of prospects in its core areas in the Province of Alberta and British Columbia, including the areas of Farmington, Dunvegan, Valhalla, Clayhurst, Elmworth and Sinclair, Alberta and Noel, British Columbia. Artek's operations are currently directed predominantly towards natural gas and light oil prospects.

The Artek management team has worked closely together for several years in both private and public company environments and has an established track record of achieving its goal of cost-effective per share growth in reserves, production and cash-flow. Artek will continue to implement its proven strategy of exploring, acquiring, and exploiting with a long term focus on large resource based assets. The Artek management team brings a full spectrum of geotechnical, engineering, negotiating and financial experience to its investment decisions. This diverse technical experience combined with a board of directors experienced in consolidating and integrating acquisitions and in the capital markets, will provide a platform for aggressive organic growth complemented by strategic acquisitions.

Artek is led by an experienced board of directors and management team which include the following members:

Management Team Position
------------------ ---------------------------------------------------------
Darryl Metcalfe President, Chief Executive Officer and Director of Artek
since March, 2005. Prior thereto, Vice-President,
Exploration & Development of Ketch Resources Ltd. from
October, 2002 to January, 2005. Prior thereto, Mr.
Metcalfe was Director Northern Alberta Business Unit of
Ketch Energy Ltd. from May, 2000 to September, 2002.

Darcy Anderson Vice President Finance and Chief Financial Officer of
Artek since September, 2009. Prior thereto, Vice-
President Finance and Chief Financial Officer of
Pegasus Oil & Gas Inc. from January, 2006 to August,
2009. Prior thereto, Vice President Finance and Chief
Financial Officer of Mustang Resources Ltd. from
July, 2002 to June, 2005.

Greg Frolek Vice President of Business Development of Artek since
January, 2009. Prior thereto, Manager of Exploitation
Engineering of Artek from October, 2005 to January 2009.
Prior thereto, Senior Engineer with Ketch Resources Ltd.
from October, 2002 to January, 2005 and Ketch Energy Ltd.
from September, 2001 to October, 2002.

Peter Andrews Vice President Drilling and Operations of Artek since
October, 2005. Prior thereto, Manager Drilling and
Operations of Ketch Resources Ltd. from 2002 to
2005. Prior thereto, Mr. Andrews was Sr. Production /
Completions Engineer at Ketch Energy Ltd. from 2001 to

Bruce Nociar Vice President Production of Artek since February, 2009.
Prior thereto, Manager of Production of Artek from
February 2008 to February, 2009. Prior thereto,
Manager Engineering of Kereco Energy Ltd. from January,
2005 to January, 2008. Prior thereto, Sr. Exploitation
Engineer of Ketch Resources Ltd. from September 2003 to
January 2005.

Jennifer Swertz Vice President Land of Artek since July 2005. Prior
thereto, Vice-President Land and Manager, Land of Galleon
Energy Inc. from May, 2003 to May, 2005.

Marc Houle Vice President of Artek since September, 2008. Prior
thereto, Vice President Exploration West and Chief
Geophysicist of Galleon Energy Inc. from October,
2003 to July, 2008.

Tony Sacheli Chief Geologist of Artek since December, 2008. Prior
thereto, Senior Geologist of Artek from March, 2005 to
December, 2008. Prior thereto, Manager of the
Northern Alberta Business Unit for Primewest Energy Ltd.
from early 2002 to
March, 2005.

Board of Directors Occupation
------------------- --------------------------------------------------------
M. Bruce Chernoff Professional Engineer; Co-founder and Chairman of
Harvest Energy Trust; President and Director of Caribou
Capital Corp.; Director of several other public

Rafi G. Tahmazian Managing Director of Canoe Financial LP, an energy
investment partnership; member of the advisory board to
EnergyX, a private equity investment fund.

Gary F. Aitken President of Whitemountain Resource Properties Ltd., a
private investment and resource company. Prior thereto,
a Financial and Land Consultant to Sentry Select Capital
Corp. since 2002. Executive Vice-President and Director
of Precept Resource Management Corp., a limited
partnership manager, since 2005.

David J. Wilson President and Chief Executive Officer of Celtic
Exploration Ltd. since September 30, 2002. Prior
thereto, President of Genesis Exploration Ltd. from
March, 1993 to May, 2001.

Darryl Metcalfe President and Chief Executive Officer of Artek since
March, 2005.

Artek "Bought Deal" Financing

Artek is also pleased to announce that it has entered into a private placement financing agreement, on a bought deal basis, with an underwriting syndicate led by National Bank Financial Inc., and including Peters & Co. Limited, Haywood Securities Inc. and Cormark Securities Inc., pursuant to which Artek will issue 319,000 common shares on a "flow-through" basis at a price of $22.00 per share for total gross proceeds to Artek of approximately $7 million. The private placement financing is anticipated to close on December 10, 2009, subject to customary conditions. Gross proceeds from the sale of the flow-through shares will be used to fund Artek's ongoing exploration activities eligible for Canadian exploration expenses which will be renounced in favour of the subscribers effective on or before December 31, 2009.

About COSTA Energy Inc.

Until October 2008, COSTA was engaged in acquisition, exploration, development and production of petroleum and natural gas reserves in western Canada. COSTA currently has no operating assets and has been inactive since late 2008, other than considering alternatives for the future positioning of COSTA for a reverse takeover and/or change of business transaction. The COSTA Shares are currently listed and posted for trading on the NEX Board of the TSXV.

Recommendations of the Boards of Directors

The Board of Directors of each of COSTA and Artek have determined that the Arrangement is in the best interests of each of their respective companies and shareholders and have unanimously determined to recommend approval of the Arrangement to their respective shareholders. Shareholders of COSTA, including all of the directors and officers and certain other shareholders, holding in the aggregate approximately 48% of the issued and outstanding COSTA Shares, have agreed to vote their shares in favour of the Arrangement.

Application for Exemption from Sponsorship Requirements

In connection with the proposed Arrangement, COSTA and Artek have made application to the TSXV for exemption from sponsorship requirements under Policy 2.4 of the TSXV. There can be no assurances that such approval of the TSXV or such exemption will be granted or be granted on terms satisfactory to the parties.

Trading Halt of COSTA Shares

Trading in the COSTA Shares will remain halted until such time as a further Bulletin of the TSXV is issued announcing recommencement of trading. It is currently anticipated that trading in COSTA Shares will remain halted until such time as the Information Circular, which will contain detailed disclosure on Artek, its operations and the Resulting Issuer, is filed and accessible on COSTA's SEDAR profile.

Subject to all necessary regulatory approvals, including approval of the TSXV, in connection therewith, upon completion of the Arrangement, it is anticipated that the common shares of the Resulting Issuer would be listed and posted for trading on the TSXV.

Cautionary Statements

Disclosure provided herein in respect of BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf to 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. All BOE conversions in this press release are derived by converting gas to oil according to this 6 Mcf to 1 Bbl ratio.

Certain statements contained in this press release constitute forward-looking statements, including, without limitation, Artek management's assessment of future plans and operations, future financial position, the performance characteristics of Artek's oil and natural gas properties, potential of resource plays, oil and natural gas production estimates, expectations of future production rates, drilling programs and drilling efficiencies, the quantity of undeveloped land and drilling locations and inventory, operating costs and capital costs, expectations regarding the ability to raise capital and to continually add to reserves, expectations of debt levels and credit facilities, the Resulting Issuer's future plans, operations and objectives, completion of the Arrangement and receipt of all required approvals thereto and the timing thereof, completion of the Artek financing and the timing thereof. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the party's control including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, 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, inability to meet or continue to meet listing requirements, the inability to obtain required consents, permits or approvals, including, without limitation, shareholder and court approval of the Arrangement, failure to realize the anticipated benefits of the Arrangement and the risk that actual results will vary from the results forecasted and such variations may be material. 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. The Resulting Issuer's actual results, performance or achievement could differ materially from those expressed in or implied by, these forward-looking statements and, accordingly, no assurance 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 the Resulting Issuer will derive therefrom. There is no assurance that the necessary approvals for completion of the Arrangement will be obtained or that some other condition to the closing of the Arrangement or the Artek financing will not be satisfied. Even if such conditions are satisfied, there is risk that closing of the Arrangement or the Artek financing could be delayed and may not meet the timelines planned.

The forward-looking statements contained in this press release are made as of the date of this press release. Except as required by law, COSTA and Artek disclaim any intention and assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Additionally, COSTA and Artek undertake no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed above.

The TSX Venture Exchange has in no way passed upon the merits of the proposed Arrangement and has neither approved nor disapproved the contents of this press release.

Not for distribution to U.S. Newswire Services or for dissemination in the United States of America. Any failure to comply with this restriction may constitute a violation of U.S. Securities laws.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • COSTA Energy Inc.
    David Campbell
    President and Chief Executive Officer
    (403) 242-5676
    Artek Exploration Ltd.
    Darryl Metcalfe
    President and Chief Executive Officer
    (403) 296-4799
    Artek Exploration Ltd.
    Darcy Anderson
    Vice President Finance and Chief Financial Officer
    (403) 296-4775