High North Resources Ltd.

High North Resources Ltd.

March 13, 2015 17:37 ET

High North Resources Ltd. Announces Operations Update and Proposal to Amend the Terms of Its Convertible Debenture Indenture

CALGARY, ALBERTA--(Marketwired - March 13, 2015) -


High North Resources Ltd. (TSX VENTURE:HN) (the "Company" or "High North") is pleased to provide an operational update regarding project development and recent production. High North also announces that it is seeking the approval of the holders ("Debentureholders") of its 12.00% convertible unsecured subordinated debentures (the "Debentures") to amend (the "Indenture Amendments") the terms of the convertible debenture indenture entered into between High North and Computershare Trust Company of Canada (the "Trustee") dated April 4, 2014 (the "Indenture"), at an extraordinary meeting of Debentureholders pursuant to a proposed plan of arrangement under the Business Corporations Act (British Columbia) to be held on May 21, 2015 (the "Meeting").

Operations Update

High North is in the initial stages of developing its lands for Montney oil and gas production. The Company's production remains stable at approximately 260 barrels of oil per day ("bbls/d"). To date, six wells have been drilled and completed by the Company with a 100% success rate. Currently, two wells are on production. The four shut-in wells are capable of commercial production. The Company's full production capabilities will be realized once gas production is tied-in and a water handling facility is constructed. The Company's operations have recently been, and will continue to be, focused on both of these projects over the next few months.

The Alberta Energy Regulator has granted approval to High North to flare the associated gas production from the wells until August 1, 2015. Therefore, the Company is currently pursuing the installation of a power generation facility whereby the produced associated gas will be utilized as fuel gas, and the excess will be marketed to the electrical grid. The Company will then realize the revenue and cash flow for this gas production. In addition, the Company's operating costs, specifically propane and diesel costs, will be significantly reduced with the gas coming on production.

In concert with the development of the gas production and power generation facility, the installation of a water handling and optimization facility is being explored. Once this facility is constructed, High North will be able to significantly reduce its operating costs by reducing both trucking and disposal expenses. High North anticipates that both the gas-to-power and water handling projects will be on-stream by mid-summer, 2015.

The gas production and power generation facility and the water handling and optimization facility are essential for High North to transition into its next phase of production. As noted, the Company is producing approximately 260 bbls/d. An additional 300 barrels of oil equivalent per day (boe/d) is "behind pipe" until the wells are put back onto production and gas sales are realized. The cash flow from the added production, combined with reduced operating costs, are forecasted to fund further drilling in the latter half of 2015.

In addition to the Indenture Amendments summarized below, management ("Management") and the board of directors (the "Board") of High North are working on reducing corporate overhead and operating costs to improve the Company's financial position and ability to operate effectively.

Indenture Amendments

Pursuant to the Indenture, Debentures in the aggregate principal amount of $8,670,000 were issued on April 4, 2014. This amount, together with interest in the amount of $520,200, is due April 4, 2015.

The current state of the oil and gas industry prompted Management and the Board to conduct an investigation into and exhaust a variety of financial and strategic alternatives to enable the Company to pay the amounts due on the Debentures. The Company will not have sufficient funds to meet its obligations under the Indenture and, therefore, so as to enable the Company to continue to operate effectively, the Company is seeking approval from the Debentureholders to amend the Company's obligations under the Indenture.

Management and the Board believe that the Indenture Amendments provide the best available solution, are in the best interests of the Debentureholders and the Company's other stakeholders and provide a number of benefits including the following:

  1. reducing the Company's financial liabilities and/or deferring payments under the Indenture until April 4, 2017;

  2. improving the Company's financial liquidity and sustainability for ongoing operations and asset development;

  3. enabling Management and the Board to focus on enhancing long-term value for its stakeholders; and

  4. enabling the Company to continue as a going concern.

High North intends to continue to operate as usual and will carry on satisfying its trade credits, customers and employees in the ordinary course of business.

Paul Starnino, High North's President and Chief Executive Officer, stated: "After a comprehensive review of alternative options, we believe that it is in all of the stakeholders' best interests to amend the Indenture to restructure the Company's outstanding liabilities. Management expects that the Indenture Amendments will relieve some of the issues impacting the Company's financial position, resulting in a stronger entity that can more effectively pursue its business and operational objectives."

At the Meeting, the Debentureholders will be entitled to vote on an extraordinary resolution (the "Extraordinary Resolution") to approve the Indenture Amendments, and upon approval the Indenture Amendments will be implemented by way of a supplemental convertible debenture indenture entered into between High North and the Trustee on or before July 30, 2015 (the "Supplemental Indenture"). The Extraordinary Resolution must be passed by the favourable votes of the Debentureholders of not less than 66 2/3% of the principal amount of the outstanding Debentures present in person or represented by proxy at the Meeting and voting on the Extraordinary Resolution.

If approved, the Indenture Amendments will provide the Debentureholders with three options (the "Options"). The following are key elements of the Options:

  • Option A shall:

    • give High North a one-time redemption right whereby the outstanding principal amount of the Debentures may be converted by the Company up to and including July 30, 2015 (such date of redemption, the "Redemption Date") into common shares of the Company (the "Common Shares") at a redemption price (the "Redemption Price") equal to $0.06; and

    • allow High North to pay all of the accrued and unpaid interest (except, interest on the interest accrued and unpaid from April 4, 2015 (the "Maturity Date"), up to but not including the Redemption Date, which shall be waived) due on the Redemption Date, up to but not including the Redemption Date, in Common Shares, at the Redemption Price.

  • Option B shall:

    • extend the Maturity Date to April 4, 2017;

    • adjust the annual interest rate to 6.00% per annum, calculated annually and not in advance, not compounded and payable in cash only, effective from April 4, 2015;

    • provide that interest will accrue, effective from the Maturity Date, and will be payable on April 4, 2017;

    • reduce the conversion price of the Debentures from $0.85 per Common Share to $0.18 per Common Share, subject to customary anti-dilution adjustments in the event of a stock consolidation, stock splits, stock dividends and other such events; and

    • allow High North to pay all of the accrued and unpaid interest due (except, interest on the interest accrued and unpaid from the Maturity Date, up to but not including the date of the Supplemental Indenture, which shall be waived) in Common Shares, at the Redemption Price.

  • Option C shall:

    • provide each Debentureholder with the option to elect for a portion of its Debentures to be allocated to Option A and to Option B.

Each Debentureholder will be asked to return to High North along with its proxy, or for those Debentureholders attending the Meeting will be asked to provide to the scrutineer of the Meeting, an executed election form (the "Election Form") indicating which of the Options the Debentureholder elects and the amount of Debentures subject to each Option. Assuming the Extraordinary Resolution is passed, any Debentureholder who does not provide an Election Form, or who does not indicate in the Election Form which of the Options it elects, will be deemed to have selected Option A in respect of all of the Debentures held by that Debentureholder.

Board Recommendation

The Board has unanimously concluded that the Indenture Amendments are in the best interests of High North and recommends that the Debentureholders vote FOR the Indenture Amendments.

The Meeting and Additional Information

The Meeting will be held at First Canadian Centre, Conference Room, 350 - 7th Avenue S.W., Calgary, Alberta, T2P 3N9 on May 21, 2015, at 10:00 a.m. (Mountain Daylight Time). The record date for determining the Debentureholders entitled to receive notice of and vote at the Meeting is April 6, 2015.

As the Meeting will be held following the Maturity Date, High North will be in default of its obligations under the terms of the Indenture unless the holders of a majority of the principal amount of Debentures, then outstanding instruct the Trustee, to waive such event of default by requisition in writing. High North has sent a letter and a voting information form to Debentureholders requesting that they vote in favour of waiving the event of default, by returning the voting information form by March 30, 2015, until the earlier of: (i) the conclusion of the Meeting (or any postponement(s) or adjournments(s) thereof); or (ii) the cancellation of the Meeting (or any postponement(s) or adjournment(s) thereof) for any reason, except if the Resolution has been validly adopted in writing by the Debentureholders; or (iii) July 30, 2015.

Additional information about the Indenture Amendments and the Meeting will be provided in an information circular expected to be mailed to Debentureholders on or about April 22, 2015.

The Indenture Amendments will not require any action by shareholders and are not subject to any shareholder vote.

The Indenture Amendments are subject to certain conditions including, but not limited to, receipt of all necessary regulatory approvals, including the approval of the TSX Venture Exchange.

High North is a Calgary-based company that explores, develops and produces oil and natural gas in Western Canada. High North trades on the TSX Venture Exchange under the symbol HN.

Legal Advisories

Additional information about the Company is available under High North's profile on SEDAR at www.sedar.com.

Certain natural gas volumes have been converted to barrels of oil equivalent (BOE) on the basis of one barrel to six thousand cubic feet. Any figure presented in BOEs may be misleading, particularly if used in isolation. The calculation of BOEs is based on a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil based on an energy equivalency conversion primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of six to one, utilizing a BOE conversion ratio of six thousand cubic feet: one barrel may be misleading as an indication of value.

Forward-looking Statements and Information

This news release contains certain "forward-looking statements" or "forward-looking information" (collectively referred to herein as "forward-looking statements") within the meaning of applicable securities legislation. Such forward-looking statements include, without limitation, forecasts, estimates, expectations and objectives for future operations that are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words "expects", "plans", "anticipates", "believes", "intends", "estimates", "projects", "potential" and similar expressions, or are events or conditions that "will", "would", "may", "could" or "should" occur or be achieved. This news release contains forward-looking statements, pertaining to, among other things, the following: the Company's move to optimize production; oil production rates and recovery from the Company's six wells; infrastructure and facility construction and equipment installation, including the development of a gas production and power generation facility and a water handling and optimization facility, and the costs, timing and effects thereof; commencement of gas conservation through the Company's proposed gas facility; the impact of gas conservation on the Company's operations and operating costs; the sale of any excess gas and the generation of revenue related thereto; the focus of the Company's operations; the impact of the water handling/optimization facility on operating costs; the use of additional cash flow to fund further drilling operations; the Meeting, including anticipated dates; the ability of High North to operate effectively and to continue as a going concern; the benefits of the Indenture Amendments; the impact of the Indenture Amendments on High North's stakeholders and on the Company and its financial position, liquidity and outlook, including that the Indenture Amendments will create a financially stronger company and better allow for the pursuit of High North's business and operational goals; High North's ability to meet its obligations under its credit facility; approval of the Indenture Amendments by Extraordinary Resolution; execution of the Supplemental Indenture; the Options and the elections of the Debentureholders related thereto; receipt of regulatory approval from the TSX Venture Exchange; and the effects of the foregoing on stakeholder value.
Statements regarding future growth initiatives are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. These risks include, but are not limited to, inflation or lack of availability of goods and services, environmental risks, drilling risks, regulatory changes and certain other known and unknown risks detailed from time to time in High North's public disclosure documents, copies of which are available on High North's SEDAR profile at www.sedar.com.

Although High North believes that the material factors, expectations and assumptions expressed in such forward-looking statements are reasonable based on information available to it on the date such statements were made, no assurances can be given as to future results, levels of activity and achievements and such statements are not guarantees of future performance. High North's actual results may differ materially from those expressed or implied in forward-looking statements and readers should not place undue importance or reliance on the forward-looking statements. Statements including forward-looking statements are made as of the date they are given and except as required by applicable securities laws, High North disclaims any intention or obligation to publically update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

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.

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