Probe Resources Ltd.
TSX VENTURE : PBR.H

Probe Resources Ltd.

February 22, 2012 16:42 ET

Probe Resources Ltd. Announces Amalgamation to Form Rooster Energy Ltd. Concurrent With Up to CDN$40 Million Common Share Equity Offering by Way of Subscription Receipts

CALGARY, ALBERTA--(Marketwire - Feb. 22, 2012) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.

Probe Resources Ltd. (TSX VENTURE:PBR.H) ("Probe") is pleased to announce that it has entered into an arm's-length arrangement agreement dated February 22, 2012 with Morrison Energy Group, LLC, Rooster Resources, LLC, K2 Principal Fund L.P. and Rooster Probe GOM Oil & Gas Ltd. ("Canco") (the "Transaction Agreement") to merge Probe with Canco to create a financially strong, oil prospect rich, Gulf of Mexico exploration and production company, pursuant to a plan of arrangement respecting Canco under the Business Corporations Act (British Columbia) (the "Transaction").

Pursuant to the Transaction, as further described below, Probe will merge with Canco to form Rooster Energy Ltd. ("Amalco"), which will continue to explore and produce offshore oil and natural gas assets in the Gulf of Mexico, USA. Concurrently with the Transaction, Canco intends to raise up to $40 million in equity through a private placement offering of subscription receipts, as further described below, which will be used to fund Amalco's ongoing Gulf of Mexico development and drilling program, repayment of Canco debt and for general corporate purposes.

"This transaction and capital raise will provide an opportunity for the current shareholders of Probe to benefit from the many development and exploration opportunities both companies currently have, and also to share in the vision of a new management team with an excellent track record", stated David Elgie, CEO of Probe Resources.

Robert Murphy, Chief Executive Officer of Rooster Energy, LLC commented, "The combination of Probe and Rooster provides for a strategic fit from both the development of proved undeveloped reserves on the two companies' existing producing leasehold and the multiple exploration prospects, all located in the shallow waters of the U.S. Gulf of Mexico. Rooster Energy Ltd., will be well capitalized not only to execute the operating program in place, but also to pursue the numerous opportunities that currently exist in this mature oil and gas producing province. The management team has over 100 years combined operating experience in the Gulf of Mexico and has a proven track record of value creation for its shareholders". Post amalgamation, Mr. Murphy will serve as President and Chief Executive Officer of Rooster Energy, Ltd.

The Transaction

Immediately prior to the completion of the Transaction, Probe will consolidate the outstanding common shares of Probe (the "Probe Shares") on a 250 to 1 basis and change its name to "Rooster Energy Ltd."

Pursuant to the Transaction, Probe will acquire all of the issued and outstanding common shares of Canco (the "Canco Shares") in exchange for, at the election of each holder of Canco Shares, either: (i) one Probe Share (on a post-consolidated basis, issued at a deemed price of $1.00 per Probe Share, subject to acceptance by the TSX Venture Exchange (the "TSXV")) for each Canco Share held or (ii) one-thousandth of one Probe proportionate voting share ("Proportionate Voting Shares") (issued at a deemed price of $1,000.00 per Proportionate Voting Share, subject to TSXV acceptance) for each Canco Share held.

Canco is a corporation that was recently incorporated under the Business Corporations Act (British Columbia). The sole material asset of Canco is an option agreement with Rooster Resources, LLC (the "Rooster Option"). Pursuant to the Rooster Option, Canco has the option to acquire all of the outstanding membership interests of Rooster Energy, LLC, a Louisiana limited liability company. Rooster Energy, LLC is the sole member of Rooster Oil & Gas, LLC, and Rooster Petroleum, LLC. Rooster Oil & Gas, LLC owns oil and natural gas assets in the Gulf of Mexico that produced an average 864 barrels of oil equivalent per day in January, 2012. Rooster Petroleum, LLC, is the operator of all the oil and gas assets of Rooster Oil & Gas, LLC.

Immediately following the Transaction: (i) the current directors and officers of Probe, with the exception of Paul Crilly and Richard Buski, who will remain directors, will be replaced by nominees of Canco; and (ii) Probe and Canco will be amalgamated under the name Rooster Energy Ltd.

Canco and the Rooster Option

Pursuant to the Transaction Agreement, the Rooster Option will be exercised immediately following the completion of the Transaction and the assets of Rooster Energy, LLC will be integrated with Probe's existing assets. The consideration payable to Rooster Resources, LLC upon the exercise of the Rooster Option will consist of approximately 56,738 Proportionate Voting Shares (at a deemed price of $1,000.00 per Proportionate Voting Share, subject to TSXV acceptance).

The Proportionate Voting Shares will be a new class of shares of Probe. Each Proportionate Voting Share: (i) will carry 1,000 votes at meetings of the shareholders of Probe, (ii) will be entitled to 1,000 times the amount distributed per Probe Share in the event of the liquidation, dissolution or winding-up of Probe, and (iii) will be entitled to 1,000 times the amount of any dividend paid per Probe Share. Probe Shares will, at any time, at the option of the holder, be convertible into Proportionate Voting Shares on the basis of 1,000 Probe Shares (on a post-consolidated basis) for one Proportionate Voting Share. Proportionate Voting Shares, will at any time, at the option of the holder, be convertible into Probe Shares on the basis of 1,000 Probe Shares (on a post-consolidated basis) for each Proportionate Voting Share

Rooster Resources, LLC is a limited liability company organized under the laws of Louisiana, with its head office located at 16285 Park Ten Place, Suite 120 Houston, TX, 77084. Chester F. Morrison, Jr., a resident of Louisiana, is the manager and sole trustee of The CMC Grantor Trust, which is the sole member of Rooster Resources, LLC. Rooster Resources, LLC holds all outstanding membership interests of Rooster Energy, LLC.

Canco Offering

Canco has entered into an engagement letter dated February 13, 2012 with Macquarie Capital Markets Canada Ltd. ("Macquarie") pursuant to which Macquarie has agreed to lead an offering (the "Canco Offering") of subscription receipts of Canco ("Canco Subscription Receipts"), on a best efforts basis, for gross proceeds of between $20 million and $40 million. It is anticipated that the engagement letter will be superseded by an agency agreement among Canco, Macquarie and any other agents participating in the offering (the "Agents") pursuant to which the Agents will agree to offer a minimum of 20,000,000 and up to a maximum of 40,000,000 Canco Subscription Receipts at a price of $1.00 per Subscription Receipt, subject to TSXV acceptance. It is anticipated that the Agents will receive a cash commission equal to 6% of the gross proceeds raised under the Canco Offering and Canco will reimburse the Agents for all of their reasonable expenses incurred in connection with the Canco Offering. Closing of the Canco Offering will occur on or prior to the closing date of the Transaction.

Each Canco Subscription Receipt will represent the right to automatically receive one (1) Canco Share. The Canco Subscription Receipts will be issued pursuant to the terms of a subscription receipt agreement and the gross proceeds of the Canco Offering will be held in escrow by an escrow agent pursuant to the terms of the subscription receipt agreement. Each Canco Subscription Receipt will automatically be exchanged, without payment of any additional consideration or further action on the part of the holder thereof, into one Canco Share upon delivery of a notice to the escrow agent that the escrow release conditions have been satisfied, including that all conditions to the closing of the Transaction shall have been satisfied (or waived) substantially and in all material respects on the terms set forth in the Transaction Agreement, including that Probe and Canco are satisfied that the Rooster Option will be exercised immediately following the completion of the Transaction and the amalgamation of Probe and Canco.

Provided that the notice is delivered to the escrow agent pursuant to the terms of the subscription receipt agreement prior to a predetermined deadline set out in the subscription receipt agreement (the "Release Deadline"), the net proceeds of the Canco Offering shall be released from escrow to Canco immediately prior to the completion of the Transaction. If the notice is not provided to the escrow agent pursuant to the terms of the subscription receipt agreement prior to the Release Deadline, each Canco Subscription Receipt shall be cancelled and each holder of Canco Subscription Receipts shall be entitled to receive its investment plus earned interest thereon.

Proceeds from the Canco Offering will be used to fund Amalco's Gulf of Mexico drilling program and for general corporate purposes. In addition, US$10 million of the net proceeds of the Canco Private Placement will be used to settle certain outstanding indebtedness owed by Rooster Petroleum, LLC to Chet Morrison Contractors, L.L.C.

Probe will issue a further press release respecting the details of the Canco Offering, including the anticipated closing date thereof and the Release Deadline, at such time that Canco and the Agents enter into the agency agreement.

Amalco

There are currently 3,546,106,667 Probe Shares issued and outstanding on a pre-consolidation basis. Immediately prior to the completion of the Transaction, Probe will consolidate the outstanding Probe Shares on a 250 to 1 basis, resulting in a total of 14,184,427 outstanding post-consolidation Probe Shares.

Assuming: (i) the minimum of 20 million Canco Subscription Receipts are issued under the Canco Offering and the holders of such Canco Subscription Receipts do not elect to receive any Proportionate Voting Shares under the Transaction, and (ii) approximately 56,738 Proportionate Voting Shares are issued to Rooster Resources, LLC pursuant to the exercise of the Rooster Option; approximately 34,184,427 post-consolidation Probe Shares and 56,738 Proportionate Voting Shares will be outstanding following the completion of the Transaction and the exercise of the Rooster Option. Of these, approximately 41.5% of the post-consolidation Probe Shares will be held by the current Probe Shareholders, 58.5% of the post-consolidation Probe Shares will be held by the former holders of Canco Subscription Receipts and 100% of the Proportionate Voting Shares will be held by Rooster Resources, LLC.

Assuming: (i) the maximum of 40 million Canco Subscription Receipts are issued under the Canco Offering and the holders of such Canco Subscription Receipts do not elect to receive any Proportionate Voting Shares under the Transaction, and (ii) approximately 56,738 Proportionate Voting Shares are issued to Rooster Resources, LLC pursuant to the exercise of the Rooster Option; approximately 54,184,427 post-consolidation Probe Shares and 56,738 Proportionate Voting Shares will be outstanding following the completion of the Transaction and the exercise of the Rooster Option. Of these, it is anticipated that approximately 26.2% of the post-consolidation Probe Shares will be held by the current Probe Shareholders, 73.8% of the post-consolidation Probe Shares will be held by the former holders of Canco Subscription Receipts and 100% of the Proportionate Voting Shares will be held by Rooster Resources, LLC.

Amalco (Rooster Energy Ltd.) will be an independent oil and gas exploration and production company headquartered in Houston, Texas, USA. Upon completion of the Transaction and the exercise of the Rooster Option, all of Amalco's oil and gas properties will be located in the Gulf of Mexico offshore in the United States and in the future it anticipates expanding operations to include locations on land and in the inland waters of the U.S. Gulf Coast region. At September 30, 2011, Amalco's oil and natural gas properties covered an aggregate of approximately 102,054 gross (46,904 net) acres.

The following is a summary of selected operational and reserves information for: (i) Rooster Energy, LLC prior to giving effect to the Transaction as at September 30, 2011; (ii) Probe prior to giving effect to the Transaction as at August 31, 2011, and (iii) Amalco on a pro forma basis following the completion of the Transaction and the exercise of the Rooster Option, for the periods indicated.

Rooster Energy
prior to giving
effect to the
Transaction
Probe prior to
giving effect to
the Transaction
Amalco after
giving effect to
the Transaction
and the exercise
of the Rooster
Option
(1)
Average Daily Production(4)
Natural gas (Mcf/d) 3,511 2,091 5,602
Light and medium oil (bbls/d) 375 - 375
Heavy oil (bbls/d) - - -
Natural gas liquids (bbls/d) 63 10 73
Combined (BOE/d) 1,023 358 1,382
Total Proved Reserves(2)(3)(4)
Natural gas (MMcf) 10,686 7,397 18,083
Light and medium oil (Mbbls) 644 - 644
Heavy oil (Mbbls) - - -
Natural gas liquids / condensate (Mbbls) 337 103 440
Oil, natural gas liquids and condensate combined (Mbbls) 980 103 1,083
Combined (MBOE) 2,762 1,336 4,098
Total Proved plus Probable Reserves (1)(2)(3)
Natural gas (MMcf) 16,574 18,819 35,393
Light and medium oil (Mbbls) 952 - 952
Heavy oil (Mbbls) - - -
Natural gas liquids / condensate (Mbbls) 510 221 731
Oil, natural gas liquids and condensate combined (Mbbls) 1,462 221 1,683
Combined (MBOE) 4,224 3,358 7,582
Net undeveloped land 29,825 17,079 46,904
Gross undeveloped land 75,896 26,158 102,054

Notes:

(1) The numbers in this column were calculated by adding the numbers in the Rooster Energy, LLC column with the numbers in the Probe column.
(2) Reserves information in respect of Rooster Energy, LLC prepared by Netherland, Sewell & Associates, Inc. in their report dated October 10, 2011 and effective September 30, 2011 and in respect of Probe prepared by Netherland, Sewell & Associates, Inc. in their report dated January 10, 2012 and effective August 31, 2011.
(3) Reserves presented are net reserves as defined in NI 51-101 utilizing forecast price and costs assumptions as at September 30, 2011 in the case of Rooster Energy, LLC and August 31, 2011 in the case of Probe.
(4) Columns may not add due to rounding.

The following is a summary of: (i) selected unaudited financial information for Rooster Energy, LLC as at and for the nine months ended September 30, 2011 and (ii) selected audited financial information for Rooster Energy, LLC as at and for the year ended December 31, 2010, which information has been prepared in accordance with International Financial Reporting Standards.


Nine Months Ended
September 30, 2011
Year Ended December
31, 2010
(unaudited) (audited)
Oil & Gas Sales $ 16,059,700 $ 22,007,909
Total Costs and Expenses (13,242,992) (21,681,685)
Operating Income (loss) 2,816,708 326,224
Finance Expenses (706,821) (509,468)
Income (loss) $ 2,109,887 $ (183,244)

As at
September 30, 2011
As at
December 31, 2010
(unaudited) (audited)
Total Assets $ 37,741,592 $ 34,699,496
Total Liabilities 36,950,956 36,018,387
Member's Equity $ 790,996 $ (1,318,891)

The following is a summary of selected financial information for Amalco on a pro forma basis following the completion of the Transaction and the exercise of the Rooster Option and assuming that 20,000,000 Canco Subscription Receipts are issued pursuant to the Canco Offering, for the period indicated.


Pro Forma
Year Ended
August 31, 2011
(unaudited)
Oil & Gas Sales $ 27,517,184
Operating Costs (12,196,360)
Cash Flow from Operations(1) 15,320,824
General & Administrative Expense (5,695,714)
EBITDA(2) 9,625,110
Depreciation, Depletion and Amortization (14,043,588)
Loss from Operations (4,418,478)
Interest Expense (659,580)
Gain on Sale of Assets 34,157
Deferred Income Tax (76,276)
Foreign Exchange Gain 2,923,287
Total Other Income 2,221,587
Net Income (loss) $ (2,196,891)

Pro Forma
as at
August 31, 2011
(unaudited)
Total Assets $ 79,332,169
Total Liabilities 45,144,825
Shareholders' Equity $ 34,187,344

Notes:

(1) Cash flow from operations was calculated by deducting operating costs, excluding general and administrative expenses, depletion, depreciation and amortization, from oil and gas sales. Cash flow from operations does not have any standardized meaning according to Canadian Generally Accepted Accounting Practices ("Canadian GAAP"). It is therefore unlikely to be comparable to similar measures presented by other companies. Probe presented cash flow from operations here to show the pro forma cash generated by operations and available to Amalco. Probe believes that certain investors and analysts use cash flow from operations to measure a company's liquidity and ability to generate funds to finance its operations. Cash flow from operations is provided for illustrative purposes only and is not intended to replace the GAAP measures of loss from operations and net income employed in the above table.

(2) EBITDA is defined as net loss before interest, taxes, depreciation, depletion, amortization, gain on sale of assets, and foreign exchange gain, calculated as follows:

Net Income (loss) $ (2,196,891)
Depreciation, Depletion and Amortization 14,043,588
Interest Expense 659,580
Gain on Sale of Assets (34,157)
Deferred Income Tax 76,276
Foreign Exchange Gain (2,923,287)
EBITDA $ 9,625,110

EBIDTA does not have any standardized meaning according to Canadian GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies. Probe presented EBITDA here to show the pro forma operating performance of the business of Amalco without the effects of depletion, depreciation and amortization, interest expense, gain on the sale of assets, deferred income tax and foreign exchange gain. Probe believes that certain investors and analysts use EBITDA to measure a company's ability to service debt and to meet other payment obligations EBITDA is provided for illustrative purposes only and is not intended to replace the GAAP measures of loss from operations and net income employed in the above table.

Probe Shareholder Meeting

Probe intends to call a meeting (the "Meeting") of the holders of Probe Shares ("Probe Shareholders") for the purposes of approving the Transaction and the creation of the Proportionate Voting Shares. Probe anticipates that the Meeting will be held in March, 2012 and that a management proxy information circular respecting the Meeting will be mailed to the Probe Shareholders in February, 2012. Probe will issue a further press release confirming these dates and the anticipated closing date of the Transaction once they are confirmed.

The Transaction constitutes a reverse take-over under Policy 5.2 of the TSXV. Accordingly, the Transaction must be approved by an ordinary resolution of the Probe Shareholders. The majority required to pass the resolution approving the Transaction will be not less than 50% of the votes cast by the Probe Shareholders represented in person or by proxy at the Meeting.

The creation of the Proportionate Voting Shares requires the approval of the Probe Shareholders. The creation of the Proportionate Voting Shares is a condition to the completion of the Transaction. The majority required to pass the resolution approving the creation of the Proportionate Voting Shares will be not less than 66 2/3% of the votes cast by the Probe Shareholders represented in person or by proxy at the Meeting.

K2 Principal Fund L.P. owns 3,095,751,120 Probe Shares, representing approximately 87% of the issued and outstanding Probe Shares. K2 Principal Fund L.P. has entered into a support agreement with Canco, pursuant to which it has agreed to support the Transaction and, subject to certain limited exceptions, vote the Probe Shares which it owns in favour of the Transaction and the creation of the Proportionate Voting Shares.

The Transaction Agreement

The Transaction Agreement contains a number of representations, warranties and conditions that are customary for agreements of this type and also provides for non‐solicitation covenants, rights to match superior proposals and reciprocal non-completion fees in the amount of $250,000 payable in certain circumstances. The complete Transaction Agreement will be accessible in due course under Probe's SEDAR profile at www.sedar.com.

Conditions to the Completion of the Transaction

The completion of the Transaction is subject to the approval of the TSXV and to certain others conditions set out in the Transaction Agreement, including: (i) approval by the Probe Shareholders of the Transaction and the creation of the Proportionate Voting Shares; (ii) the creation of the Proportionate Voting Shares; (iii) the receipt by Canco of all necessary court approval of the Transaction required under the Business Corporations Act (British Columbia); and (iv) the completion of the Canco Offering for a minimum of $20,000,000 Canco Subscription Receipts.

Trading in Probe Shares

The trading in Probe Shares on the NEX is currently suspended and will remain so pending consideration of the Transaction.

Sponsorship

No sponsor has been obtained in connection with the Transaction. Probe has applied to the TSXV for a sponsorship exemption pursuant to TSXV Policy 2.2, but there are no assurances that the TSXV will grant such an exemption.

Financial Advisor

Canaccord Genuity Inc. is acting as financial advisor to Probe and has provided the Board of Directors of Probe with a verbal opinion to the effect that, subject to its review of the final form of the documentation effecting the Transaction and based on and subject to the scope of review, assumptions, limitations, and other matters to be set out in its written opinion, the issuance by Probe of the Probe Shares and the Proportionate Voting Shares to Canco shareholders pursuant to the Transaction, and the issuance by Amalco of 56,738 Proportionate Voting Shares to Rooster Resources, LLC pursuant to the due exercise of the Rooster Option, each as set forth in the Transaction Agreement, is fair, from a financial point of view, to Probe and its shareholders (other than Canco, Morrison Energy Group, LLC, Rooster Resources, LLC, K2 Principal Fund L.P. and their respective affiliates).

Sunrise Securities Corp. is acting as financial advisor to Rooster Resources, LLC and its affiliates in connection with the Transaction.

Recommendation of the Probe Board of Directors

The Board of Directors of Probe: (i) has unanimously concluded that the Transaction is in the best interests of Probe and the Probe Shareholders and (ii) recommends that the Probe Shareholders vote in favour of resolutions at the Meeting to approve the Transaction and the creation of the Proportionate Voting Shares.

United States Securities Matters

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

Caution

Completion of the Transaction is subject to a number of conditions, including TSXV acceptance and approval of the Probe Shareholders. The Transaction cannot close until the required Probe 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 circular of Probe 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 Probe should be considered highly speculative.

Forward-Looking Statements

This press release contains forward-looking statements. More particularly, this press release contains statements concerning the intended name change of Probe and consolidation of the Probe Shares, the completion of the Transaction, the completion of the Canco Subscription Receipt Financing, the anticipated dates for the holding of the Meeting and the mailing of the information circular respecting the Meeting, and the future operating plans and prospects of Amalco.

The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Probe, including expectations and assumptions concerning timing of receipt of required regulatory and court approvals and the satisfaction of other conditions to the completion of the Transaction.

Although Probe believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Probe can give no assurance that they will prove to be correct. The Transaction may not be completed on the terms described or at all.

The forward-looking statements contained in this document are made as of the date hereof and Probe undertakes no 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.

Meaning of Boe

When used in this press release, Boe means a barrel of oil equivalent on the basis of 1 Boe to 6 thousand cubic feet of natural gas. Boe per day means a barrel of oil equivalent per day. 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.

The TSXV has in no way passed upon the merits of the Transaction and has neither approved nor disapproved the contents of this press release.

Contact Information

  • Probe Resources Ltd.
    David Elgie
    President and Chief Executive Officer
    (250) 816-3297

    Rooster Resources, LLC
    Robert Murphy
    Chief Executive Officer
    (832) 772-6313