PrimeWest Exploration Inc.
TSX VENTURE : PWI

November 26, 2010 17:58 ET

PrimeWest Exploration Inc. Announces Acquisition Agreement and Financing

CALGARY, ALBERTA--(Marketwire - Nov. 26, 2010) -

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.

PrimeWest Exploration Inc. (the "Corporation") (TSX VENTURE:PWI) and its Chief Executive Officer, Greg Noval, are pleased to announce that further to the Corporation's press release dated September 9, 2010, the Corporation has entered into a formal acquisition agreement effective August 31, 2010 (the "Acquisition Agreement") with International Sovereign Energy Corp ("ISEC") for the purchase of a 2.7934% working interest in the Wildmere Lloydminster "A" Pool Unit No.1 (the "Acquisition"). The Corporation is also pleased to announce that the Corporation has entered into an engagement agreement effective November 15, 2010 with Wolverton Securities Ltd. of Vancouver, British Columbia (the "Agent") contemplating the engagement of the Agent to act as agent for a short form offering (the "Short Form Offering") of Units (as defined below) in the Provinces of British Columbia and Alberta in accordance with the policies of the TSX Venture Exchange (the "Exchange") (the "Short Form Offering"). The Corporation has also entered into an engagement agreement effective November 15, 2010 with the Agent contemplating the engagement of the Agent to act on a "commercially reasonable efforts" basis with respect to a brokered private placement in all jurisdictions of Canada, excluding Quebec (the "Brokered Financing").

The Qualifying Transaction

The Acquisition Agreement

Pursuant to the terms of the Acquisition Agreement, the Corporation intends to complete the Acquisition, which was negotiated at arm's length, by acquiring ISEC's 2.7934% working interest in the Wildmere Lloydminster "A" Pool Unit No. 1 (the "Property"). The purchase price will be $2,800,000 and upon approval by the Exchange, a refundable deposit in the amount of $225,000 must be paid by the Corporation to ISEC. The Exchange has granted it's approval of the refundable deposit, which is anticipated to be paid pursuant to the terms of the Acquisition Agreement.

As previously publicly announced, ISEC is a Canadian public corporation incorporated under the provisions of the Business Corporations Act (Alberta) with its registered and head office in Calgary, Alberta. ISEC owns and operates an asset base of producing oil and gas properties in Western Canada. The Property is currently being operated by Husky Oil Operations Limited, one of the major oil and gas operators in Western Canada. The Property is expected to provide the Corporation with a stable long reserve life production base. The Acquisition is not a Non-Arm's Length Transaction (as such term is defined in the policies of the Exchange). The completion of the Acquisition by the Corporation is dependent upon approval of the Board of Directors of the Corporation, approval by the Exchange of the Acquisition as a Qualifying Transaction (as such term is defined in the policies of the Exchange) and closing of the Short Form Offering and the Brokered Financing. The conditions above do not necessarily represent a complete list of all the conditions contained in the Acquisition Agreement. They are, however, conditions that may be reasonably considered to be material to the completion of the Acquisition by the Corporation.

Brokered Short Form Offering

The Short Form Offering will be for 6,666,666 units to be issued from the Corporation's treasury, at $.30 per unit (the "Unit") for gross proceeds of approximately $2,000,000. Each Unit shall consist of one common share (the "Common Share") and one half of one share purchase warrant (the "Warrant"). Each full Warrant will be exercisable into one (1) Common Share at a price of $0.50 per Common Share for a period of two (2) years from the closing of the Short Form Offering.

Among other things, the completion of the Short Form Offering will be conditional upon the Short Form Offering being accepted for filing by the Exchange, compliance with applicable corporate and securities laws, no adverse material changes occurring in respect of the Corporation's business and affairs prior to the closing of the Short Form Offering and will occur concurrent with closing of the Acquisition and the Brokered Financing. In consideration of completing the Short Form Offering, the Corporation has agreed to pay to the Agent as follows:

a) A commission equal to ten (10%) percent of the gross proceeds of the Short Form Offering of which the Agent may elect to be paid in cash, Units, or any combination thereof. The commission will be reduced to six (6%) percent for president's list subscribers;

b) All reasonable expenses including the Agent's legal counsel;

c) A corporate finance fee of twenty thousand ($20,000) dollars plus H.S.T., of which fifteen thousand ($15,000) has been paid, and the Agent may elect for the remaining five thousand ($5,000) to be paid in cash, Units or any combination thereof; and

d) Agent's options entitling the Agent to purchase up to such number of Units of the Corporation equal to ten (10%) percent of the total number of Units subscribed for under this Short Form Offering, exercisable for a period of two (2) years from the closing of the Short Form Offering (the "Agent's Options").

Brokered Private Placement

The Corporation will be completing the Brokered Financing in the amount of $1,500,000 in Canadian funds for 5,000,000 units at the value of $.30 per unit (the "Brokered Unit"). The Corporation will also grant the Agent an overallotment option to sell up to an additional 15% of the Units sold pursuant to the Brokered Financing. The closing of the overallotment option will occur at the same time and the closing of the Brokered Financing. Each Brokered Unit will consist of one (1) common share (the "Brokered Common Share") and one half of one share purchase warrant (the "Brokered Warrant"). Each full Brokered Warrant will be exercisable into one (1) Brokered Common Share at a price of $0.50 per Brokered Common Share for a period of two (2) years from closing of the Brokered Financing.

Among other things, the completion of the Brokered Financing will be conditional upon the Short Form Offering being accepted for filing by the Exchange, compliance with applicable corporate and securities laws, no adverse material changes occurring in respect of the Corporation's business and affairs prior to the closing of the Brokered Financing and will occur concurrent with closing of the Acquisition and Short Form Offering. In consideration of completing the Brokered Financing, the Corporation has agreed to pay to the Agent as follows:

a) A commission equal to ten (10%) percent of the gross proceeds of the Brokered Financing of which the Agent may elect to be paid in cash, Units, or any combination thereof. The commission will be reduced to six (6%) percent for president's list subscribers;

b) A corporate finance fee of fifteen thousand ($15,000) dollars plus H.S.T., which the Agent may elect to be paid in cash, Units or any combination thereof;

c) All reasonable expenses including the Agent's legal counsel; and

d) Agent's options (the "Broker Agent's Options") entitling the Agent to purchase up to such number of Brokered Units of the Corporation equal to ten (10%) percent of the total number of Brokered Units subscribed for under this Brokered Financing, exercisable for a period of two (2) years from the closing of the Brokered Financing.

The net proceeds of the Short Form Offering and Brokered Financing, together with the Corporation's existing funds will be used by the Corporation to finance the Acquisition.

Summary of Financial Information of the Property

The following tables set forth certain selected annual audited and interim unaudited financial and operational information of the Property for the periods indicated.



Six Months Ended June 30, Years Ended December 31,
----------------------------------------------------
2010 2009 2009 2008
----------------------------------------------------
(Unaudited) (Audited)
Oil and gas production
revenue 407,973 358,736 818,801 1,221,643
Other revenue 3,349 - - (673)
Royalties (78,859) (31,770) (102,086) (149,077)
----------------------------------------------------
332,463 326,966 716,715 1,071,893

Operating Expenses 104,967 91,210 241,611 225,851
----------------------------------------------------

Net operating income 227,496 235,756 475,104 846,042
----------------------------------------------------


Reserves Data

The reserves data set forth below is based upon GLJ Petroleum Consultants Ltd.'s ("GLJ") evaluation of certain oil and gas properties of ISEC located in the Property as at July 31, 2010 as set forth in the NI 51-101 compliant evaluation prepared by GLJ in respect of the petroleum and natural gas reserves of ISEC's interests in the Property effective as of July 31, 2010 and dated September 21, 2010 (the "GLJ Report"). The GLJ Report was prepared in accordance with NI 51-101, using standards consistent with the Canadian Oil and Gas Engineering Handbook.

The following tables summarize the oil, natural gas and NGL reserves attributable to ISEC's Wildmere Lloydminster "A" Pool Unit No.1 and the present value of future net revenue for such reserves using forecast price assumptions and costs, all as estimated by GLJ in the GLJ Report.



Summary of Oil and Gas Reserves as of July 31, 2010
(Forecast Prices and Costs)

Light Crude Oil Heavy Crude Oil Natural Gas
-----------------------------------------------------

Mbbl Mbbl MMcf
-----------------------------------------------------
Gross Net Gross Net Gross Net
-----------------------------------------------------
Proved Producing - - 120 109 35 33

Proved Developed
Non-producing - - - - - -

Proved Undeveloped - - - - - -

Total Proved - - 120 109 35 33

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Natural Gas Total Oil
Liquids Equivalent
------------------------------------

Mbbl Mbbl
------------------------------------
Gross Net Gross Net
------------------------------------
Proved Producing - - 126 115

Proved Developed
Non-producing - - - -

Proved Undeveloped - - - -

Total Proved - - 126 115

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Light Crude Oil Heavy Crude Oil Natural Gas
-----------------------------------------------------

Mbbl Mbbl MMcf
-----------------------------------------------------
Gross Net Gross Net Gross Net
-----------------------------------------------------
Total Probable - - 42 34 11 10

Total Proved + Probable - - 162 144 45 42

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Natural Gas Total Oil
Liquids Equivalent
------------------------------------

Mbbl Mbbl
------------------------------------
Gross Net Gross Net
------------------------------------
Total Probable - - 43 36

Total Proved + Probable - - 169 151

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Net Present Values of Future Net Revenue as of July 31, 2010
(Forecast Prices and Costs)

Before Income Tax
Discounted at (%/year)
-----------------------------------------------
Reserve Category 0% 5% 10% 15% 20%

Proved Producing 4,983 3,507 2,697 2,199 1,866

Proved Developed
Non-producing - - - - -

Proved Undeveloped - - - - -

Total Proved 4,983 3,507 2,697 2,199 1,866

Total Probable 2,026 1,044 693 522 420

Total Proved + Probable 7,010 4,551 3,390 2,721 2,285



After Income Tax
Discounted at
-----------------------------------------------
Reserve Category 0% 5% 10% 15% 20%

Proved Producing 3,713 2,612 2,005 1,632 1,382

Proved Developed
Non-producing - - - - -

Proved Undeveloped - - - - -

Total Proved 3,713 2,612 2,005 1,632 1,382

Total Probable 1,528 782 516 386 309

Total Proved + Probable 5,242 3,393 2,252 2,018 1,691



Unit Value Before Unit Value Before
Income Tax Discounted Income Tax Discounted
at 10%/year at 10%/year
----------------------------------------------
($/boe) ($/Mcfe)
Proved Producing 23.49 3.92
Proved Developed Non-producing - -
Proved Undeveloped - -
----------------------------------------------
Total Proved 23.49 3.92
Total Probable 19.22 3.20
----------------------------------------------
Total Proved + Probable 22.47 3.75


The following table summaries the forecast price and cost assumptions used in the GLJ Report. The forecast price and cost assumptions used in the GLJ Report assume the continuance of current laws and regulations and increases in well-head selling prices and take into account inflation with respect to future operating capital costs.

Crude oil and natural gas benchmark reference pricing, inflation and exchange rates utilized by GLJ in the GLJ Report were GLJ's forecasts as of July 31, 2010, which were as follows:

http://cnrp.marketwire.com/cnrp_files/20101126-pwilink.pdf


Trading

The common shares of the Corporation are to remain halted. Assuming the Exchange grants final acceptance of the Acquisition, it is anticipated that the common shares of the Corporation will resume trading on the Exchange shortly after the Exchange issues the final approval.

Sponsorship

In relation to the Acquisition, the Corporation applied for and received an exemption from the Exchange with respect to the Exchange's sponsorship requirement pursuant to Section 3.4 of Policy 2.2 "Sponsorship and Sponsorship Requirements" of the Exchange's Corporate Finance Manual.

Cautionary Statements

Certain statements contained in this release constitute forward-looking information. These statements relate to future events or future performance. The use of any of the words "could", "intend", "expect", "believe", "will", "projected", "estimated" and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and are based on the Corporation's current belief or assumptions as to the outcome and timing of such future events. Actual future results may differ materially. In particular, this release contains forward looking information relating to the Corporation's oil & natural gas properties, information concerning reserves, statements relating to the ongoing nature of the Corporation's business and the receipt of final Exchange Approval. Various assumptions or factors are typically applied in drawing conclusions or making the forecasts or projections set out in forward looking information. Those assumptions and factors are based on information currently available to the Corporation. The material factors and assumptions include that the Corporation will obtain final Exchange approval within the required time frame, that the actual results relating to the Corporation's oil & gas properties is accurate and that the continuation of the Corporation's current business is in the best interests of the Corporation. Risk factors that could cause actual results or outcomes to differ materially from the results expressed or implied by forward looking information include, among other things: general economic and business conditions; changes in the regulatory regulation, the implied assessment that the resources described can be profitably produced in the future and failure to obtain regulatory approval in a timely fashion. The Corporation cautions the reader that the above list of risk factors is not exhaustive. The forward-looking information contained in this release is made as of the date hereof and the Corporation is not obligated to update or revise any forward looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Because of the risks, uncertainties and assumptions contained herein, investors should not place undue reliance on forward looking information. The foregoing statements expressly qualify any forward looking information contained herein.

BOE's (or 'McfGE's' or other applicable units of equivalency) may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 bbl (or 'An McfGE conversion ratio of 1 bbl:6 Mcf') 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 evaluations of future net production revenue set forth in the press release are based on GLJ's pricing assumptions as at July 31, 2010 which will be contained in the Filing Statement. It should not be assumed that the discounted future net production revenue estimated by the GLJ Report represents the fair market value of the reserves set forth in such report. There is no assurance that the future price and cost assumptions used in the GLJ Report will prove accurate and variances could be material. The recovery and reserve estimates of oil, natural gas and NGL provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual oil, natural gas and NGL reserves may be greater than or less than the estimates provided herein.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the filing statement 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 a capital pool company should be considered highly speculative.

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

Contact Information

  • PrimeWest Exploration Inc.
    Manjeet Dhillon
    Chief Financial Officer
    (403) 974-8861