Northern Spirit Resources Inc.

September 20, 2011 17:22 ET

Northern Spirit Resources Inc. Announces Business Combination With Cascade Resources Inc.

CALGARY, ALBERTA--(Marketwire - Sept. 20, 2011) - Northern Spirit Resources Inc. ("Northern Spirit" or the "Corporation") (TSX VENTURE:NS) is pleased to announce that it has entered into a formal, definitive agreement (the "Amalgamation Agreement") to acquire (the "Acquisition") all of the issued and outstanding common shares (the "Cascade Shares") of Cascade Resources Inc. ("Cascade"), a private Alberta company actively engaged in oil and gas development and exploration activities in east central Alberta and west central Saskatchewan. The Amalgamation Agreement is dated as of September 16, 2011. The Acquisition is expected to constitute a reverse takeover of Northern Spirit by Cascade as defined in the policies of the TSX Venture Exchange Inc. ("TSXV") and the Acquisition and all related transactions remain subject to the approval of the TSXV.

Cascade is a Calgary based emerging, junior, privately-held petroleum and natural gas exploration, development and production company. Cascade's assets include proved producing and proved non-producing and probable properties in the Cadogan, Klein, Sounding Lake and Veteran areas of Alberta and the Hoosier area of Saskatchewan. Since June 2007, Cascade has grown its production to over 200 BOE/d (prior to its recent sale of 80 BOE/d) through land acquisitions and drilling. Cascade was founded by Kevin R. Baker, Q.C., President and Chief Executive Officer, Sheldon B. Kasper, P. Eng., Vice President Engineering and Operations, and Eric O. Boechler, P. Geol., Vice President Exploration. Messrs. Baker, Kasper and Boechler, together with Messrs. John H. Cassels, Cascade's Vice President and Chief Financial Officer, and James Long, Cascade's Vice President, Land, bring over 120 years of combined oil and gas exploration and development experience to Cascade and have, collectively, successfully founded, developed and sold a number of private and public oil and gas and energy services companies.

Summary of the Proposed Transaction

Northern Spirit has created a wholly-owned subsidiary ("AcquisitionCo") which will amalgamate with Cascade and continue as a new corporation ("Amalco"). Amalco will be wholly owned by Northern Spirit. On the closing of the Acquisition, the shareholders of Cascade ("Cascade Shareholders") will receive 9.00 (the "Exchange Ratio") common shares of Northern Spirit ("Northern Spirit Shares") in exchange for each issued and outstanding Cascade share owned. For the purposes of the Acquisition, Cascade has been valued at approximately $23,136,300. Pursuant to the Amalgamation Agreement, Northern Spirit will acquire from Cascade Shareholders approximately 24,600,000 issued and outstanding Cascade Shares as at the closing date of the Acquisition, which includes approximately 3,990,000 Cascade Shares to be issued upon exercise of all outstanding options ("Cascade Options") to purchase Cascade Shares. Each fully diluted Cascade Share is accordingly valued at $0.94 per share. It is expected that all holders of options to purchase Northern Spirit Shares will agree to exercise or terminate such options for nominal consideration in connection with the closing of the Acquisition. Based on the Exchange Ratio, and including the acquisition of the Cascade Shares issued on exercise of all Cascade Options, it is expected that Northern Spirit will issue an aggregate of approximately 221,400,000 Northern Spirit Shares at a deemed price of $0.1045 per share. Northern Spirit will issue new share purchase options after closing to new officers, directors, employees and consultants of the Corporation pursuant to the option plan of the Corporation, with the exercise price of such options being determined based on the market price of the Northern Spirit Shares at the time of granting.

The Northern Spirit Shares to be issued to the Cascade Shareholders in the Acquisition will be issued pursuant to exemptions from the prospectus requirements of applicable securities legislation and may be subject to escrow conditions as required by the TSXV.

It is anticipated that, assuming completion of the Acquisition, the Corporation will be classified as a Tier 1 Oil and Gas Issuer on the TSXV.

Conditions to the Completion of the Acquisition

The obligations of Northern Spirit and Cascade to consummate the Acquisition are subject to, among other things: (i) the receipt of all necessary regulatory and TSXV approval; (ii) the receipt of all necessary shareholder and board of director approvals; (iii) the confirmation of the representations and warranties of each party to the Amalgamation Agreement; (iv) the absence of any material adverse effect on the financial and operational condition or the assets of each of the parties; (v) the delivery of standard completion documentation; and (vi) other conditions precedent customary for a transaction such as the Acquisition. The conditions listed above are for the benefit of, and may be waived by, Northern Spirit and Cascade as they relate to the obligations of the other party to perform.

Northern Spirit and Cascade Shareholder Consents

The Acquisition is subject to the approval of Northern Spirit, as the sole shareholder of AcquisitionCo, and the unanimous approval of all of the Cascade Shareholders, such approvals to be secured in writing pursuant to written shareholder resolutions, each in an agreed upon form. In addition, as a reverse takeover under TSXV policies, the Acquisition is subject to the approval of the shareholders of Northern Spirit ("Northern Spirit Shareholders"), which approval will be sought, pursuant to the policies of the TSXV, by way of written consent of holders of greater than 50% of the outstanding Northern Spirit Shares, excluding certain holders who are "Non-Arm's Length Parties" in respect of the Acquisition (the "Northern Spirit Consent"). In connection with seeking the consent of Northern Spirit Shareholders, Northern Spirit and Cascade will prepare a filing statement (the "Filing Statement") for submission to Northern Spirit Shareholders and the TSXV in this connection, which Filing Statement will be prepared in accordance with the applicable TSXV rules and policies. The Filing Statement will include, amongst other required information, a more detailed description of the Acquisition, audited financial statements of Cascade and Northern Spirit for at least their most recently completed financial years, quarterly financial statements of the two companies for their second quarters and pro forma financial statements regarding Cascade and Northern Spirit, all as required pursuant to TSXV rules and policies.

Non-Arm's Length Parties to the Acquisition

Although the Acquisition is an Arm's Length Transaction, as defined in the rules and policies of the TSXV and it is not a "business combination" or "related party transaction" as defined in Multilateral Instrument 61-101, the Acquisition involves one "Non- Arm's Length Party", as such term is defined in the rules and policies of the TSXV. Mr. Sheldon Kasper, a shareholder of Northern Spirit, is also an officer and shareholder of Cascade. Mr. Kasper and his affiliates and associates currently own approximately 2,076,152 Northern Spirit Shares, or 13.0% (basic) of the current issued and outstanding Northern Spirit Shares. Mr. Kasper and his affiliates and associates currently hold approximately 10.3% (basic) of the current issued and outstanding Cascade Shares and approximately 12.5% (diluted) of the current issued and outstanding Cascade Shares. All of the Northern Spirit Shares held by Mr. Kasper and his associates and affiliates will be withheld from providing consent with respect to the Northern Spirit Consent to be obtained in connection with the Acquisition.

Proposed Directors and Officers

Concurrent with the completion of the Acquisition, the current directors of Northern Spirit will resign from the Board of the Corporation to allow for the appointment of the following as the new board of directors of Northern Spirit: Mr. Kevin R. Baker, Q.C., Mr. Sheldon B. Kasper, Mr. R. Bruce Allford and Mr. Patrick G. Bell. It is expected that the Board of Directors and officers of Northern Spirit following completion of the Acquisition be composed of the following:

Kevin R. Baker, Q.C., President, Chief Executive Officer and Director

Calgary, Alberta

Mr. Baker is currently President and Chief Executive Officer of Cascade, which company he co-founded with Messrs. Kasper and Boechler. Mr. Baker is a director of Calfrac Well Services Ltd. and also served as President and Chief Executive Officer and a Director of Century Oilfield Services Inc. from August 2005 until November 10, 2009, when that company was acquired by Calfrac Well Services Ltd. He also has served as the President of Baycor Capital Inc. (and its predecessor companies), a company whose principal business is that of a private merchant bank, since January 1990. He is a director and was the President and Chief Executive Officer of Loncor Resources Inc. from September 2000 until November 2009.

Sheldon B. Kasper, P.Eng., Vice President Engineering and Chief Operating Officer and Director

Calgary, Alberta

Mr. Kasper is a Professional Engineer. Mr. Kasper has been providing consulting engineering services to a number of junior exploration and production companies since 2001. Prior to 2001, Mr. Kasper was Chief Engineer for Fletcher Challenge Energy Canada in addition to Engineering Manager and Senior Exploration Engineer. Prior thereto, Mr. Kasper was a Production and Facilities Engineer for Amoco Canada Petroleum Company.

Mr. Kasper is currently Vice President, Engineering of Cascade, which company he co-founded with Messrs. Baker and Boechler.

R. Bruce Allford, Director

Calgary, Alberta

Mr. Allford is a partner with the Calgary law firm, Burnet, Duckworth & Palmer LLP. Mr. Allford is a director or corporate secretary of several other companies in the energy and energy services sectors.

Patrick G. Bell, P. Eng., Director

Calgary, Alberta

Mr. Bell is a Professional Engineer and is currently the President of Kamarata Holdings Ltd., a private Alberta company. Additionally, Mr. Bell was previously a founder and Vice President of Century Oilfield Services Inc., a private oil and gas services company, from 2005 to 2009 when that company was acquired by Calfrac Well Services Ltd. Mr. Bell has also provided consulting engineering services to exploration and production companies, including Clearbrook Resources Inc., Enhance Energy Inc. and EnCana Corporation. Prior thereto, Mr. Bell held senior management positions with each of Anderson Exploration Ltd. and the Saskatchewan Oil and Gas Corporation.

Eric O. Boechler, P. Geol., Vice President, Exploration

Calgary, Alberta

Mr. Boechler is a Professional Geologist. Mr. Boechler co-founded Cascade with Messrs. Baker and Kasper. Mr. Boechler was Senior Geologist with Bowview Petroleum Inc. ("Bowview") from 2004 to 2007 when Bowview was sold. Prior to that, Mr. Boechler was Senior Geologist with ICE Energy Limited.

John H. Cassels, CA, Vice President, Chief Financial Officer and Secretary

Calgary, Alberta

Mr. Cassels is a Chartered Accountant in Canada with 30 years of experience in the Canadian natural gas and oil industry, serving as a senior officer and director of nine natural gas and oil companies. Mr. Cassels is currently a director of Gastar Exploration Ltd., a company listed on the American Stock Exchange. He was a partner and Chief Financial Officer of Purdy & Partners Inc., a private equity/merchant bank in Calgary, from December 2009 until May 2011. Prior thereto, Mr. Cassels was a financial consultant to a Canadian oil and gas exploration company operating in both Argentina and Canada. Earlier, he was a founding shareholder, chief executive officer and director of Highview Resources, a publicly traded firm that built an inventory of natural gas and oil prospects in Alberta and Saskatchewan. Mr. Cassels holds a BA degree from Bishop's University in Sherbrooke, Quebec and a Chartered Accountant designation.

James Long, B.A. Econ., Vice President, Land

Calgary, Alberta

Mr. Long is a Professional Petroleum Landman. Mr. Long has over 28 years experience in business development of oil and gas both domestically, as well as in South America and Australia, in both public and private companies. Mr. Long served as Vice President, Land of Morgan Hydrocarbons Inc. until October 1996, as well as a director and officer of several private companies since 1996 and has been the President of Timberline Ventures Ltd., a private company owned by Mr. Long and his spouse, since November 1996.

Cascade Resources Inc.

Cascade is an emerging, junior, privately-held petroleum and natural gas exploration, development and production company, incorporated on June 10, 1997 under the laws of Alberta and headquartered in Calgary, Alberta. Cascade became active in June 2007. Cascade's assets include proved producing and proved non-producing and probable properties in the Cadogan, Klein, Sounding Lake and Veteran areas of Alberta and in the Hoosier area of Saskatchewan. Since 2007, Cascade has grown its production through strategic acquisitions and drilling.

In April 2011, Cascade sold certain properties located in the Silver Heights area of Alberta for cash of $940,000.

Cascade has grown its initial production base from nil at the time of activation to its current production of 120 BOE/d in just over three years, after its recent sale of 80 BOE/d. Cascade continues to explore and develop its reserves on a land base of 31,527 net acres with over 27,423 net acres of undeveloped land. Cascade's production is expected to exit the year end at 180 BOE/d with the upcoming development program.

Alberta Activities

Cascade has recompletion plans at Cactus, Klein, Veteran and Cadogan from its current inventory of up to 16 locations, with current plans to re-enter wells in Cadogan, Cactus, Veteran and Klein. Cascade holds a 100% working interest in each of these areas.

Saskatchewan Activities

Cascade's primary exploration project in Saskatchewan will be its Hoosier oil prospect located near the town of Kindersley. Cascade has a 100% working interest in over 600 net acres of land in a multi-zone potential area. This project has the potential to add reserves and production to Cascade. The Hoosier prospect is characterized by a McLaren sand defined by a producing well and 2D seismic and Cascade believes that the Hoosier prospect has potential for horizontal drilling.

Budget Summary of Proposed Exploration Programs

Cascade has a preliminary budget of $657,000 allocated for the remainder of 2011. The $657,000 will be spent on re-entries, equipping and facilities. Cascade's preliminary budget is subject to, among other factors, recompletion success, commodity prices, access to service equipment and production levels. Into 2012, Cascade will concentrate on exploitation activities financed by cash flow and available credit facilities and will expand the capital program to include the drilling of up to seven gross wells (6.3 net wells) into 2012 based on successful equity and/or debt financing efforts.

Reserve Report

AJM Deloitte ("AJM") prepared an independent evaluation (the "Reserve Evaluation") of the proved and probable crude oil and natural gas reserves and the net present value of those reserves for the petroleum and natural gas interests of Cascade as of March 31, 2011. The Reserve Evaluation was prepared and presented in accordance with the Association of Professional Engineers, Geologists and Geophysicists of Alberta ("APEGGA") – Practice Standards for Evaluations of Oil and Gas Reserves for Public Disclosure; the APEGGA Code of Ethics; the Canadian standards set out in the Canadian Oil and Gas Evaluations Handbook ("COGEH") and National Instrument 51-101 ("NI 51-101"). AJM is a qualified reserves evaluator and independent from both Cascade and Northern Spirit in accordance with NI 51-101. The properties evaluated include essentially all of Cascade's conventional petroleum and natural gas interests in Western Canada.

The future net revenues and net present values presented below were calculated using forecast prices and costs based on the crude oil, natural gas and natural gas liquids prices as published in AJM's March 31, 2011 price deck. Forecast prices have been adjusted for transportation differentials and quality in Cascade's properties based on the lease operating statements provided to AJM by Cascade. Operating expenses and operating-expense forecasts were determined based on approximately 12 months of historical operating expenses for each property. In certain situations, future expenses, either higher or lower than current expenses may have been used because of anticipated changes in operating conditions. Escalation has been applied to operating expenses to account for inflation. Gross abandonment costs were estimated for each property and were projected to occur in the last year of economic production of each reserves entity and for non-reserves wells 2 years from the effective date of the Reserves Evaluation. Future capital costs were estimated using current capital cost forecasts provided to AJM by Cascade and, where necessary, were scaled and adjusted to fit the scenario being evaluated. Escalation has been applied to capital costs to account for inflation.

Cascade's share of proved remaining and probable additional crude oil and natural gas reserves as of March 31, 2011 and the respective net present values assigned to these reserves based on forecast prices and costs were estimated to be as follows.

Summary and Conclusions

The estimated forecast price case Cascade gross and net proved, probable, and possible reserves, as of March 31, 2011, of the properties evaluated herein are summarized as follows, expressed in thousands of barrels (Mbbl) for oil and NGL and millions of cubic feet (MMcf) for sales gas:

Remaining Reserves as of March 31, 2011
Light and Medium Crude Oil Heavy Crude Oil Natural Gas
Reserves Category Gross Net Gross Net Gross Net
Mbbl Mbbl Mbbl Mbbl MMcf MMcf
Proved Developed
Producing 31.4 29.4 - - 864.4 762.4
Non-Producing 36.4 33.3 - - 518.2 435.3
Proved Undeveloped 82.4 68.8 - - 479.3 382.2
Total Proved 150.2 131.5 - - 1,861.9 1,579.9
Probable 712.2 581.6 70.0 65.3 5,126.9 4,629.6
Total Proved Plus Probable 862.4 713.1 70.0 65.3 6,988.8 6,209.5

Estimated future net revenue and net present value of future net revenue before income tax attributable to Cascade's net interests in the proved developed producing, total proved developed, total proved, proved-plus-probable, and proved-plus-probable-plus possible reserves are summarized as follows, expressed in thousands of Canadian dollars (M$):

Future Net Revenue Before Income Tax as of March 31, 2011(1)
Undiscounted Discounted
Reserves Category at 5% at 10% at 15% at 20%
M$ M$ M$ M$ M$
Proved Developed
Producing 3,322.6 2,912.8 2,583.2 2,317.7 2,101.8
Non-Producing 3,038.3 2,616.5 2,285.1 2,021.1 1,807.6
Proved Undeveloped 4,585.4 3,788.1 3,215.2 2,781.9 2,441.6
Total Proved 10,946.3 9,317.4 8,083.5 7,120.7 6,350.9
Probable 52,928.4 36,362.6 26,723.9 20,512.3 16,222.5
Total Proved Plus Probable 63,874.9 45,680.0 34,807.5 27,633.0 22,573.5


(1) It should not be assumed that the estimates of future net revenues presented in the table above represent the fair market value of the reserves.

The following is a summary of financial information of Cascade for the periods indicated below:

As at and for the year ended December 31, 2010(1)

As at and for the three months ended March 31, 2011(1)
(unaudited(2) and prepared under Canadian GAAP) (unaudited(3) and prepared under Canadian GAAP(1))
Total Revenues $1,760,089 $357,389
Total Expenses $2,047,232 $491,451
Net Loss ($287,143) ($134,062)
Total Assets $6,441,378 $4,960,246
Total Liabilities $1,526,540 $1,613,052
Working Capital (Deficiency) ($220,664) $1,528


  1. The Filing Statement will contain audited year end and unaudited interim financial statements of Cascade as required under the rules and policies of the TSXV and applicable securities laws. Such interim financial statements for periods ended after January 1, 2011 will be prepared under International Financial Reporting Standards ("IFRS") and are not expected to differ materially from the above financial information.
  2. Unaudited financial information for the year ended December 31, 2010 has been prepared by management of Cascade and Cascade's auditor has not completed its audit of these financial statements.
  3. Unaudited interim financial information for the three months ended March 31, 2011 has been prepared by management of Cascade and Cascade's auditor has not performed a review of these financial statements.

Cascade currently has issued and outstanding 20,610,000 Cascade Shares and stock options to purchase up to 3,990,000 Cascade Shares at $0.25 per share. Cascade management, directors and officers currently control approximately 39.6% of the current issued and outstanding Cascade Shares (basic) and approximately 49.4% of the current issued and outstanding Cascade Shares (diluted).

Northern Spirit Resources Inc.

Northern Spirit is an early stage Canadian oil and gas exploration and production company listed on the TSXV under the symbol "NS", with lands and assets in Alberta and British Columbia. The Corporation acquired exploration lands in Belize and has sold its working interest in the Belize properties retaining a gross overriding royalty and a first right of refusal on farm-outs. The Corporation is a former "Capital Pool Corporation" pursuant to TSXV policies and carried out its Qualifying Transaction on January 6, 2009 by acquiring two oil and gas properties, Bowden/ Innisfail in Alberta and Noel in British Columbia. Northern Spirit then acquired two additional sections of land to the south of the Bowden/Innisfail lands. Northern Spirit completed and was producing one well on these lands from the Belly River zone. Subsequent to Northern Spirit's Qualifying Transaction, the Corporation acquired 1250900 Alberta Ltd., which held properties in the Gold Creek area of Northern Alberta. On November 25, 2010, Northern Spirit sold its interest in the Gold Creek properties for a price of $1,001,193 and recognized a loss of $593,378 on the sale. Since that time, Northern Spirit has been identifying and evaluating new oil and gas and merger opportunities, resulting in the negotiations that lead to the Acquisition of Cascade.


Northern Spirit has requested that the TSXV exempt the requirement for a Sponsorship Report in connection with the Acquisition. There are no guarantees that the TSXV will accept Northern Spirit's request to exempt the Sponsorship Report requirement, in which case Northern Spirit will engage a Sponsor to prepare such a report.

Resumption of Trading and Further News

Trading of the Northern Spirit Shares has been halted and will not resume until the TSXV has accepted all requisite documentation in connection with this proposed Acquisition, and until an exemption from the Sponsorship requirement has been granted by the TSXV or a Sponsor has been engaged. The Corporation will issue subsequent news releases upon receipt of further information in relation to the Acquisition, including upon the resumption of trading of the Northern Spirit Shares, upon filing of the Filing Statement on SEDAR and upon completion of the Acquisition.

Cautionary Statements

Completion of the transactions is subject to a number of conditions, including but not limited to, TSXV acceptance and disinterested shareholder approval. The transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Acquisition will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the Filing Statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Northern Spirit should be considered highly speculative.

The TSXV has in no way passed upon the merits of the proposed Acquisition and has neither approved or disapproved the contents of this press release.

"BOEs" means barrels of oil equivalent on the basis of 1 BOE to 6,000 cubic feet of natural gas. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 1 BOE for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent the value equivalency at the wellhead. BOEs have been reported in this press release based on the foregoing conversion ratio.

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

Except for statements of historical fact, this news release contains certain "forward-looking information" and "forward-looking statements" within the meaning of applicable securities law. Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. These forward-looking statements sometimes include words to the effect that management of Northern Spirit or Cascade, as applicable, believes or expects a stated condition or result. All estimates and statements that describe Northern Spirit's and Cascade's future plans are forward-look statements. Forward-looking statements such as the receipt of all applicable TSXV, regulatory and shareholder approvals required in respect of the Acquisition, the proposed management team and board of directors of Northern Spirit following completion of the Acquisition, the anticipated classification of the Corporation on the TSXV following completion of the Acquisition, the issuance of new share purchase options of the Corporation upon completion of the Acquisition, estimates of reserves, the references to Cascade's exploration and drilling programs and capital expenditures relating to, and timing of, such programs, production levels, the ability to access sufficient capital for stated programs and budgets, and the expected congruency between Canadian GAAP financial statements and IFRS financial statements are based on the opinions and estimates at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking statements.

There are uncertainties inherent in forward-looking information, including factors beyond Cascade's and Northern Spirit's control, and no assurance can be given that adequate funds will be available nor that the programs will be completed on time, on budget or at all nor that the Acquisition will be completed as anticipated or at all. In addition, there are numerous uncertainties inherent in estimating reserves, including many factors beyond Cascade's and Northern Spirit's control, and no assurance can be given that the indicated level of reserves or the recovery thereof will be realized. In general, estimates of reserves are based upon a number of factors and assumptions made as of the date on which the estimates were determined, such as geological and engineering estimates which have inherent uncertainties. The reserves estimates for the properties described in this news release may not reflect the same confidence level as estimates of reserves for all of Cascade's properties, due to the effects of aggregation. Further, estimates of net present value do not represent fair market value. Northern Spirit undertakes no obligation to update forward-looking information if circumstances or management's estimates or opinions should change except as required by law. The reader is cautioned not to place undue reliance on forward-looking statements. Additional information identifying risks and uncertainties that could affect financial results is contained in Northern Spirit's filings with Canadian securities regulators, which filings are available at

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

Contact Information

  • Northern Spirit Resources Inc.
    Richard Boyd
    403-269-2655 (FAX)

    Northern Spirit Resources Inc.
    James Tanner
    403-269-2655 (FAX)

    Northern Spirit Resources Inc.
    200, 604 – 1st Street SW
    Calgary, Alberta T2P 1M7