Cordero Energy Inc.
TSX : COR

Cordero Energy Inc.
Ember Resources Inc.
TSX : EBR

Ember Resources Inc.

July 04, 2008 08:12 ET

Ember Resources Inc. and Cordero Energy Inc. Announce Execution of Arrangement Agreement

CALGARY, ALBERTA--(Marketwire - July 4, 2008) - Ember Resources Inc. (TSX:EBR) ("Ember") and Cordero Energy Inc. (TSX:COR) ("Cordero") are pleased to announce that they have entered into an arrangement agreement (the "Arrangement Agreement") providing for the acquisition by Ember of Cordero pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement"). Under the Arrangement, Ember will acquire all of the outstanding common shares of Cordero ("Cordero Shares") for a total consideration of $5.50 per Cordero Share, payable, at the election of each Cordero shareholder, in cash or 2.683 common shares of Ember ("Ember Shares").

A maximum aggregate of $70 million and a minimum aggregate of $55 million in cash will be payable to the Cordero shareholders under the Arrangement. In the event that the Cordero shareholders elect, in the aggregate, to receive more than $70 million in cash, the amount of cash to be received by a holder electing to receive cash with respect to a Cordero Share will be reduced proportionately and the balance of the purchase price for that Cordero Share will be paid by a portion of an Ember Share at a deemed price of $2.05 per Ember Share. In the event that the Cordero shareholders elect, in the aggregate, to receive less than $55 million in cash, the number of Ember Shares to be received by a holder electing to receive Ember Shares with respect to a Cordero Share will be reduced proportionately and the balance of the purchase price for that Cordero Share will be paid for in cash.

Ember has entered into subscription agreements to fund $55 million of the cash component of the Arrangement by the issuance of 26,829,269 subscription receipts ("Subscription Receipts") at a price of $2.05 per Subscription Receipt. Each Subscription Receipt will convert into one Ember Share upon the completion of the Arrangement. The balance of the cash component will be paid out of Ember's existing credit facilities. The Subscription Receipt financing will require the approval of the Ember shareholders at a special meeting held prior to the completion of the Arrangement.

The Arrangement requires the approval of the holders of Cordero Shares. The Arrangement Agreement provides that Cordero shall call and hold a special meeting of the Cordero shareholders no later than September 8, 2008 for the purposes of considering the Arrangement. The Arrangement is subject to the approval of the Court of Queen's Bench of Alberta, the TSX and all applicable regulatory authorities. Completion of the Arrangement is also subject to a number of additional conditions set out in the Arrangement Agreement.

Under the Arrangement Agreement, Cordero and Ember have each agreed that they will not solicit or initiate any discussions concerning any business combination or the sale of material assets. The Arrangement Agreement provides for a mutual non-completion fee of $3.5 million if the Arrangement is not completed in certain circumstances.

A copy of the Arrangement Agreement will be filed on SEDAR and will be available for viewing under the profiles of Ember and Cordero at www.sedar.com.

The Board of Directors of Cordero has unanimously determined that the Arrangement and Arrangement Agreement are in the best interests of Cordero and the Cordero shareholders. The Board of Directors of Cordero unanimously recommends that the Cordero shareholders approve the Arrangement.

Tristone Capital Inc. ("Tristone") is acting as exclusive financial and strategic advisor to Cordero with respect to the Arrangement. Tristone has advised the Board of Directors of Cordero, that subject to the review of definitive legal agreements, it is of the opinion, as of the date hereof, that the consideration to be received by Cordero shareholders pursuant to the proposed Arrangement is fair from a financial point of view to Cordero shareholders.

All of the directors and officers of Cordero, holding a total of approximately 3.7 million Cordero Shares representing approximately 9.9% of the outstanding Cordero shares, and additionally holding approximately 2.9 million options and warrants to acquire Cordero Shares, have entered into agreements, or have agreed to enter into agreements, with Ember pursuant to which they have agreed to vote their Cordero Shares in favour of the Arrangement. In addition, Ember has received commitment letters from other shareholders representing an aggregate of 9,837,296 Cordero Shares, or approximately 26.5% of the outstanding Cordero Shares, pursuant to which such holders have agreed, subject to certain terms and conditions or to the receipt of a superior offer, to support the Arrangement. Cordero shareholders representing 5,313,737 Cordero Shares have confirmed they will elect to take all Ember Shares on the exchange, resulting in the balance of the Cordero shareholders being able to elect to receive at least 40% of their total consideration under the transaction in the form of cash.

If all necessary approvals are obtained and the conditions contained in the Arrangement Agreement are met, Ember and Cordero anticipate that the Arrangement will become effective on or about September 9, 2008.

The combination of Ember and Cordero would result in a highly focused and growth oriented coal bed methane (CBM) resource company in a natural gas pricing environment that has seen dramatic improvements over the last three months. Combining the two CBM companies would result in an excellent geographic fit of complementary assets.

Ember's desire to acquire Cordero was based on its assessment of the key attributes of the combined company as follows:

1. Focused Production base

- Cordero's core operated properties of Malmo and Buffalo Lake are in close proximity to Ember's core operated properties of Acme, Fenn-Big Valley and Rosalind. All of the properties are concentrated along major CBM fairways in East Central Alberta.

- Approximately 4,750 boepd of predominately natural gas production from Horseshoe Canyon Coals ("HSC") and conventional sands.

- Based on 2007 year-end reserves, 96 Bcf of proven and 150 Bcf of proven plus probable reserves, over 80% of which are HSC CBM reserves.

- Long life reserves with a reserve life index of 14.2 years.

- High net back natural gas production benefiting from low royalty rates and low operating costs.

- 390 low risk development HSC CBM locations, plus an additional 100 locations with both CBM and shallow gas potential, in current inventory to provide for immediate growth.

2. Significant Resource Upside

- 525 Bcf of original gas in place (OGIP) identified in the HSC. Additional upside could result from increasing recovery factors on HSC CBM reserves and/or additional infill drilling.

- Mannville contingent resource of existing Ember assets estimated at 710 Bcf. Ember estimates additional Cordero Mannville resource potential at 640 Bcf resulting in a combined total resource potential of approximately 1.35 Tcf. Cordero Mannville resource are a continuation of Mannville coals at Ember's Rosalind and Fenn-Big Valley properties where Ember has conducted extensive reservoir evaluation and pilot work.

- Higher production and cashflows in the combined company will make capital available to advance Mannville resource towards commercial stage production.

3. Financial Strength

- Expected market capitalization of the combined entity of approximately $285 million.

- $105 million of bank lines of credit, $70 million of which is currently used excluding amounts to be paid under the Arrangement.

- Annualized cashflow estimated at $65-70 million based on current natural gas prices and estimated third quarter 2008 annualized cash flows.

- Combined land holdings of 410,000 net undeveloped acres and 523,000 total net acres.

4. Focused CBM Resource Strategy

- Ember's management team has focused exclusively on CBM resource development and will continue to do so in the combined entity.

- Immediate production growth will come from inventory of 390 low risk drilling locations in HSC coals.

- Capital will be allocated to advance the commercialization of significant Mannville resources for future growth and shareholder value.

"The Arrangement will provide Cordero shareholders the opportunity to directly participate in a growing resource CBM company" said Doug Dafoe, Chairman and CEO of Ember "We see a great opportunity that will allow Cordero shareholders to realize the full value of their investment in Cordero by participating in direct ownership of Ember's CBM focused model.

Ember is a leader in CBM development in Alberta. Our track record in Horseshoe Canyon CBM development is among the best with 2007 proven plus probable FD&A costs (including future capital) reported at $11.79/BOE and a three year average FD&A cost (including future capital) for the HSC coals of $11.45/BOE.

Ember is at the forefront of technical work being conducted on the Mannville coals and has extensive experience in drilling and piloting production from this significant resource. Although not proven commercial to date, with the current stronger price environment, a royalty regime that continues to favour such development and advances in technology, Ember has the conviction the Mannville coals will become commercial on a larger scale over time."

First Energy Capital Corp. is acting as exclusive financial advisor to Ember on this transaction.

Ember Resources Inc. is a resource company specializing in coal bed methane (CBM) with extensive land and resource holdings in Alberta, Canada. Ember's shares are traded on the Toronto Stock Exchange under the trading symbol "EBR".

Cordero is an independent exploration and development company pursuing conventional oil and natural gas production and reserves as well as coalbed methane development in western Canada. Cordero is based in Calgary, Alberta.

Reader Advisory

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities of Ember within the United States. The securities of Ember have not been and will not be registered under the United States Securities Act of 1933, as amended (the "1933 Act"), or any state securities laws. Accordingly, the shares may not be offered or sold in the United States or to U.S. persons (as such terms are defined in Regulation S under the 1933 Act) unless registered under the 1933 Act and applicable state securities laws or an exemption from such registration is available.

Forward Looking Statements

This press release contains forward-looking statements. More particularly, this press release contains statements concerning the anticipated dates for the holding of securityholder meetings and the anticipated date for the completion of the Arrangement. Ember and Cordero have provided these anticipated dates in reliance on certain assumptions that they believe are reasonable at this time, including assumptions as to the time required to prepare meeting materials for mailing, the timing of receipt of the necessary regulatory and court approvals and the time necessary to satisfy the conditions set out in the Arrangement Agreement. These dates may change for a number of reasons, including unforeseen delays in preparing meeting materials, inability to secure necessary regulatory or court approvals in the time assumed or the need for additional time to satisfy the conditions to the completion of the Arrangement. The Arrangement may not be completed on the timelines indicated or at all. Accordingly, readers should not place undue reliance on the forward-looking statements contained in this press release.

This press release also contains forward-looking statements concerning potential reserves growth, potential drilling locations and anticipated cashflow. These forward-looking statements are based on certain key expectations and assumptions made by Ember, including expectations and assumptions concerning prevailing commodity prices and exchange rates, availability and cost of labour and services, the timing of receipt of regulatory approvals, the performance of existing wells, the success obtained in drilling new wells, the performance of new wells and the sufficiency of budgeted capital expenditures in carrying out Ember's planned activities. Although Ember believes that the expectations and assumptions on which these forward-looking statements are based are reasonable, undue reliance should not be placed on these forward-looking statements because Ember can give no assurance that they will prove to be correct. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., 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 production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in Ember's Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.

The forward-looking statements contained in this press release are made as of the date hereof and neither Ember nor Cordero undertakes any 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.

Barrel of Oil Equivalent

In this press release, a "boe" refers to a barrel of oil equivalent on the basis of 1 boe to 6 thousand cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6 thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Contact Information

  • Ember Resources Inc.
    Mr. Douglas A. Dafoe
    Chairman & CEO
    (403) 270-0803 Ext. 988
    or
    Ember Resources Inc.
    Mr. Terry S. Meek
    President & COO
    (403) 270-0803 Ext. 999
    or
    Cordero Energy Inc.
    Mr. David Elgie
    President & CEO
    (403) 265-7006
    or
    Cordero Energy Inc.
    Mr. Dean Setoguchi
    Vice President CFO
    (403) 265-7006
    (403) 265-7050 (FAX)