Regal Energy Ltd.
TSX VENTURE : REG

Regal Energy Ltd.
Azeri Capital Inc.

November 03, 2005 09:30 ET

Regal Energy Corp. Announces Proposed Merger With Azeri Capital Inc.

CALGARY, ALBERTA--(CCNMatthews - Nov. 3, 2005) -

Not for dissemination in the United States of America

Regal Energy Corp. (TSX VENTURE:RGN) ("Regal") announced today that it has entered into an arrangement agreement dated October 31, 2005 with Azeri Capital Inc. ("Azeri"), a private company, in respect of a proposed arrangement of Azeri and Regal (the "Arrangement"). The Arrangement will be an arm's length transaction and is subject to the policies of TSX Venture Exchange Inc. ("TSX Venture").

About the Arrangement

Azeri and Regal have agreed to combine their businesses to form a new oil and natural gas exploration and development company. Pursuant to the Arrangement, Azeri will incorporate a new subsidiary that will amalgamate with Regal, Azeri will change its name to Regal Energy Ltd. ("NewCo") and will split its current shares (the "Azeri Reorganization") on the basis of 7.37 new shares of Azeri (the "NewCo Common Shares") for each existing share. Under the terms of the Arrangement, one NewCo Common Share will be issued for each five common shares of Regal and the outstanding stock options and agent's options of Regal will be replaced with one replacement stock option or agent's option of NewCo for each five options of Regal held, with adjusted exercise prices. The deemed exchange price for the NewCo Common Shares to be issued in exchange for the common shares of Regal shall be $0.95 per NewCo Common Share. NewCo also intends to apply to list the NewCo Common Shares on TSX Venture.

The Board of Directors of NewCo will consist of five members, including Douglas O. McNichol and Owen C. Pinnell, current directors of Regal, as well as Al J. Kroontje and Douglas M. Stuve, current directors of Azeri, and one additional independent director. NewCo will continue under the leadership of the current Regal management team with Douglas O. McNichol, as President and CEO; Wayne R. Wilson, as Vice-President, Finance and CFO; James R. Quillian, as Vice-President, Engineering and Operations; W. Wayne Shepheard, as Vice-President, Exploration; and Greg C. Glenn, as Land Manager.

The Arrangement will be completed after Azeri has completed a private placement for gross proceeds of up to $4,015,000. Azeri will issue up to 350,000 common shares of Azeri (the "Azeri Common Shares") on a "flow-through" basis at a price of $7.20 per share (pre-Azeri Reorganization) for gross proceeds of up to $2,520,000, as well as up to 230,000 Azeri Common Shares at a price of $6.50 per share (pre-Azeri Reorganization) for gross proceeds of up to $1,495,000 (collectively, the "Azeri Private Placement"). Azeri intends to engage an agent (the "Agent") for the Azeri Private Placement and in connection therewith the Agent will be paid a commission of up to 7% of the gross proceeds. In addition, the Agent will be granted agents' options (the "Azeri Agents' Options") to purchase up to 10% of the number of Azeri Common Shares issued pursuant to the Azeri Private Placement, at a price of $6.50 per share, for a period of eighteen (18) months.

Azeri intends to use the proceeds of the Azeri Private Placement for exploration and development expenditures and working capital purposes in the discretion of the board of directors of Azeri. Regal and Azeri have also entered into a farm-in agreement, pursuant to which Azeri will farm-in to certain prospects of Regal on negotiated terms.

Douglas O. McNichol, President and CEO of Regal, commented, "This transaction represents an opportunity for Regal shareholders to participate in a well capitalized company that can further accelerate its growth through acquisitions and the drill bit. NewCo will have substantial tax pool balances that will enable it to acquire and/or merge and issue flow-through shares on a tax effective basis. NewCo's significant seismic database will augment future exploration and development activities."

The Arrangement has been unanimously approved by the directors of Azeri and Regal. Shareholders of Azeri and Regal will be asked to consider the Arrangement at special meetings expected to be held in late December 2005 with closing expected to occur on December 31, 2005.

Completion of the Arrangement is subject to a number of conditions in favor of Azeri and Regal, respectively, including receipt of all necessary regulatory approvals (including the consent of TSX Venture), receipt of the approval of the Alberta Court of Queens Bench, receipt of any necessary third party approvals, approval of the shareholders of each of Azeri and Regal, the listing of the NewCo Common Shares on TSX Venture, and the completion of the Azeri Private Placement for gross proceeds of not less than $2,500,000.

The parties have agreed that Dalco Capital Ltd., a private company controlled by Mr. D. Dalla-Longa, will be paid a fee in connection with the Arrangement equal to 1.25% of the enterprise value of NewCo after completion of the Arrangement payable 50% in cash and 50% by the issuance of NewCo Common Shares with a deemed value of $0.95 per share. In addition, Dalco Capital Ltd. will be granted warrants to purchase up to 4% of the outstanding NewCo Common Shares after completion of the Arrangement at a price of $0.95 per share for a period of two years.

Assuming the completion of the maximum Azeri Private Placement and after payment of the fee to Dalco Capital Ltd., NewCo will have approximately 18 million NewCo Common Shares outstanding and no person will own or control in excess of 10% of such shares.

An application has been made to TSX Venture for an exemption from the sponsorship requirements of TSX Venture in respect of the Arrangement although there is no guarantee this exemption will be granted. Trading in the Common Shares of Regal will remain halted until TSX Venture grants an exemption from sponsorship, or if sponsorship is required, until TSX Venture receives a sponsorship acknowledgement form.

Information Concerning Azeri Capital Inc.

Azeri is a private company formed on September 28, 2002 under the Canada Business Corporations Act as SiberCore Technologies Inc. and subsequently changed its name to Azeri Capital Inc. in December 2004. Azeri has no subsidiaries. Prior to the completion of the Azeri Private Placement, Azeri has approximately $575,000 in net cash assets, no debt or liabilities, 1,003,859 Azeri Common Shares outstanding and approximately $55 million in tax pool balances consisting primarily of non-capital loss carry forwards and scientific research and development expenses.

Azeri has entered into an assignment agreement in respect of a joint venture with Divestco Inc. ("Divestco") and Spectrum Seismic Processors Ltd., both of Calgary, Alberta (the "Seismic Joint Venture"). The seismic underlying the Seismic Joint Venture is the majority of the proprietary seismic data of a senior Canadian integrated oil and gas company which consists of over 32,000 km of data covering several areas throughout Alberta and Saskatchewan (the "Seismic Data") that was acquired by Divestco. Pursuant to the Seismic Joint Venture, Azeri agreed to fund the estimated cost of reprocessing the Seismic Data of $1,375,000, which other than one outstanding payment of $225,000 has been paid, and in exchange Azeri will receive for its own use a fully reprocessed copy of this Seismic Data.

Based on unaudited management prepared financial statements for the nine months ended September 30, 2005, Azeri had revenue of $13,393, expenses of $33,625, incurred a net loss of $20,232, had working capital of $767,791, total assets of $1,517,795 and no liabilities.

The only person or company that is known by management of Azeri to own 10% or more of the voting securities of Azeri is Pellinore Holdings Inc., a private company controlled by Al J. Kroontje. Azeri has approximately 102 shareholders.

The sole officer of Azeri is Al J. Kroontje, and the Board of Directors of Azeri currently consists of Al J. Kroontje, Douglas M. Stuve, Brian Antonen and Ted Anderson. Messrs. Antonen and Anderson will not be continuing as directors of NewCo.

Mr. Kroontje is the President of Telford Services Group Inc., a public oil and gas services company listed on the TSX Venture and the President and a Director of Galleria Opportunities Inc., a public company listed on the NEX of TSX Venture. Mr. Kroontje formerly held positions of Director, Chairman and President of Tesoro Energy Corp., (now Peregrine Energy Ltd.) a public oil and gas company listed on the Toronto Stock Exchange ("TSX") during the period of June 2000 to July 2004. Mr. Kroontje was also the President and Chief Executive Officer of Pelorus Energy Corp. (now Redstar Oil and Gas Inc.), a public oil and gas company listed on TSX Venture, from May 2004 to December 2004. Mr. Kroontje also formerly held positions including Director, Chairman and Interim President of Quarry Oil & Gas Ltd., a public oil and gas company listed on the TSX Venture, from May 1995 to July 2003. Mr. Kroontje has a Bachelor of Engineering degree from the University of Waterloo, Ontario.

Douglas M. Stuve is a partner with the law firm Burstall Winger LLP of Calgary, Alberta. Mr. Stuve's principal area of practice is corporate finance and securities law, as well as general corporate commercial law. Mr. Stuve holds a Bachelor of Arts degree (with distinction) from the University of Alberta and a Bachelor of Laws degree (LL.B) from Queen's University, Kingston, Ontario. Mr. Stuve has served as a Director and officer of several public companies and is currently a Director of International Technologies Corporation, Yangarra Resources Inc., Cascadia International Resources Inc., Kelso Energy Inc. and Golden Odyssey Mining Inc., all public companies listed on TSX Venture. Mr. Stuve is a past director of Tesoro Energy Corp. (now Peregrine Energy Ltd.), a public oil and gas company listed on TSX, and Pelorus Energy Corp.(now Redstar Oil and Gas Inc.), a public oil and gas company listed on TSX Venture.

Information Concerning Regal

Regal is a Calgary-based oil and gas company engaged in the acquisition, exploration, development and production of crude oil and natural gas within its primary core area of southern and central Alberta. Regal, as an early stage oil and gas company, is currently producing approximately 175 Boe/d from three properties at Atlee Buffalo, Veteran and Viking Kinsella, Alberta.

Regal is proceeding with plans to drill four prospects, including locations for Glauconitic oil and Viking gas at Atlee Buffalo, a Mannville oil location at Sounding Lake, and a Gething/Viking gas location at Kaybob all in Alberta. The two locations at Atlee Buffalo are development wells that offset existing producers and the Sounding Lake location will offset a previously drilled well which encountered oil pay in two zones. At Kaybob, located near the town of Fox Creek in west central Alberta, the planned location is immediately adjacent to a previously drilled well completed in a lower formation. Logs indicate two zones with by-passed gas pay in the Cretaceous Viking and Gething formations. Nearby wells have produced up to 3 Bcf and 1 Bcf, respectively, from these zones and, initial gas production rates from nearby wells have ranged from 0.5 MMcf/d to as high as 2 MMcf/d from each zone.

In addition to these proposed drilling activities, Regal is actively exploring in a new focus area located in the general Garrington/Sylvan Lake area of west central Alberta. Regal has identified a number of prospects targeting natural gas and light oil and is pursuing farmin and land acquisition opportunities in the area.

The current directors of Regal are Owen C. Pinnell (Chairman), Douglas O. McNichol, Brian H. Gore, Louis W. MacEachern, and J. Ronald Woods. Mr. Pinnell and the current management of Regal will continue with NewCo.

Owen C. Pinnell, P.Eng., has over twenty years of executive experience with various public and private companies in Canada and the United States. He is currently Managing Partner of the venture capital firm i3 Capital Partners Inc., a private venture capital company focusing on reorganizing and refinancing public and private energy and energy services companies in western Canada. Mr. Pinnell is the Chairman and CEO of Anterra Corporation, as well as a director of Deep Resources Ltd., Ausam Energy Corporation, Magnus Energy Inc. and Purcell Energy Ltd., all public oil and gas companies. He was the founder, President and CEO of Anadime Corporation, a public oilfield service company. Prior to founding Anadime Corporation in 1992, he was the President and CEO of Newalta Corporation, an environmental service company listed on TSX that he founded in 1982. Mr. Pinnell is a graduate of the Auckland Technical Institute in New Zealand in Mechanical Engineering, holds a Certificate in Business Strategy from the Massachusetts Institute of Technology and is a registered Professional Engineer in Alberta and British Columbia.

Douglas O. McNichol, P. Eng., has over twenty five years of experience in the oil and gas industry in reservoir engineering, production operations, property exploitation, property and corporate acquisitions & divestitures and business development and has occupied senior management and executive positions in a number of public Canadian oil and gas companies. Mr. McNichol served as President and CEO and Director of Lexxor Energy Inc., a public oil and gas company listed on TSX, prior to joining Regal. He holds a Bachelor of Science degree in Mechanical Engineering from the University of Calgary and is a registered Professional Engineer in Alberta.

Wayne R. Wilson, CGA, MBA, has over thirty years of experience in the oil and gas industry in the areas of finance, accounting, administration, corporate governance and information systems. Mr. Wilson was a co-founder and Vice-President, Corporate Development, of BelAir Energy Corporation prior to joining Regal. He earned his Certified General Accountant designation in 1977 and his Masters of Business Administration degree in 1996.

James R. Quillian, has over twenty five years of experience in the oil and gas industry in drilling and completions, production operations and acquiring and exploiting producing oil and gas properties. Mr. Quillian was the co-founder of two junior oil and gas companies, Westrex Energy Corp. listed on TSX and Shenandoah Resources Ltd. listed on TSX Venture. He holds a Bachelor of Science degree in Petroleum Engineering from the Montana Institute of Science and Technology.

W. Wayne Shepheard, P. Geol., has over thirty six years of oil and gas experience in the areas of property acquisitions, play generation, exploration and seismic program planning. He has been directly involved in defining exploration and development programs and supervising the professional and technical teams executing the plan. Prior to joining Regal, Mr. Shepheard was President of Strategic Energy Resources Corp., a private geological consulting company and Senior Vice President of Shenandoah Resources listed on TSX Venture. He holds a Bachelor degree in Geology and a Masters degree in Geology from the University of Calgary and is a registered Professional Geologist in Alberta.

Greg C. Glenn, a Certified Mechanical Engineering Technologist, has thirty three years of oil and gas experience. As a thirty year member of the Canadian Association of Petroleum Landmen, Mr. Glenn has extensive industry contacts and experience in all aspects in land both in Canada and the United States. Prior to Regal he was with Evergreen Resources Canada Ltd. for a period of one year and prior thereto was Land Manager at Enerplus Resources Corporation for eight years.

Additional information regarding Regal is available on the internet at www.sedar.com or Regal's website at www.regalenergy.ca.

Other

Regal also announces it has reserved a price of $0.95 per share post Arrangement for the grant of stock options to acquire up to 10% of the number of issued and outstanding common shares of NewCo (the "Stock Options"). The grant of the Stock Options is subject to regulatory approval. The Stock Options will be granted to directors, officers, employees and consultants of NewCo, as determined by the Board of Directors of NewCo following the completion of the Arrangement.

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

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

Except for historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially. Neither Azeri nor Regal will update these forward-looking statements to reflect events or circumstances after the date hereof. More detailed information about potential factors that could affect financial results is included in the documents filed from time to time with the Canadian securities regulatory authorities by Regal and Azeri.

Issued and Outstanding Common Shares: 29,749,841


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

Contact Information

  • Regal Energy Corp.
    Douglas O. McNichol
    President and Chief Executive Officer
    (403) 509-2581
    Email: dmcnichol@regalenergy.ca
    or
    Regal Energy Corp.
    Wayne R. Wilson
    Vice President Finance and Chief Financial Officer
    (403) 509-2584
    Email: wwilson@regalenergy.ca
    or
    Regal Energy Corp.
    Suite 1520, Life Plaza
    734 - 7th Avenue S.W.
    Calgary, Alberta T2P 3P8
    Website: www.regalenergy.ca
    or
    Azeri Capital Inc.
    Al J. Kroontje
    President and Chief Executive Officer
    (403) 215-4830 ext. 225
    or
    Azeri Capital Inc.
    5418 - 11th Street N.E.
    Calgary, AB T2E 7E9