Rodeo Capital II Corp.
TSX VENTURE : ROP.P

July 05, 2011 21:44 ET

Rodeo Capital II Corp. Updates Reserve Information Regarding Proposed Amalgamation With Shona Energy Company, Inc. by Way of Reverse Take-Over and Announces Amendment to Financing Terms

CALGARY, ALBERTA--(Marketwire - July 5, 2011) -

NOT FOR DISSEMINATION IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW.

Rodeo Capital II Corp. (TSX VENTURE:ROP.P) (the "Company" or "Rodeo II"), a capital pool company, is pleased to provide independent petroleum reserve information for Shona Energy Company, Inc. ("Shona") relating to its previously announced "Qualifying Transaction" with Shona (the "Transaction"), as such term is defined in the policies of the TSX Venture Exchange (the "Exchange"). Collarini Associates ("Collarini") prepared an evaluation (the "Shona Reserves Report") of certain petroleum and natural gas reserves of Shona as at December 31, 2010 and dated effective January 1, 2011. The Shona Reserves Report is an evaluation of the proved, probable, and possible reserves and future net revenue in and related to the interests of Shona in the Arianna, Cana Flecha, Katana, and Nelson Fields of the Esperanza Block in Colombia.

The Shona Reserves Report has been prepared in accordance with the standards contained in the COGE Handbook and the reserves definitions contained in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). See "Pricing Assumptions" below for a summary of the pricing assumptions used in the Shona Reserves Report. A summary of the Shona Reserves Report will be included in the disclosure document the Company will prepare in connection with the Transaction. The Shona Reserves Report has been prepared by Collarini and the reserves information contained in this press release has been reproduced from the Shona Reserves Report. Neither Rodeo II nor any of its directors or officers has performed an independent review of the reserves information contained in the Shona Reserves Report, this press release or otherwise

Oil and Gas Reserves

The following tables set forth certain information relating to the oil and natural gas reserves of Shona's interests in the Arianna, Cana Flecha, Katana, and Nelson Fields of the Esperanza Block, Colombia, the undiscounted value and the net present value, discounted at 5%, 10%, 15% and 20%, of Shona's estimated future net revenue based on forecast price and cost assumptions as presented in the Shona Reserves Report. Due to rounding, certain columns may not add exactly. All evaluations and reviews of future net revenues are stated prior to any provision for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures for wells to which reserves have been assigned. It should not be assumed that the estimated future net revenue shown below is representative of the fair market value of Shona's interests in the Arianna, Cana Flecha, Katana, and Nelson Fields of the Esperanza Block. The recovery and reserve estimates of crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas liquids and natural gas reserves may be greater than or less than the estimates provided herein. See "Risks and Assumptions" below.

Shona Energy Company, Inc. Reserves
Natural Gas Total Oil Equivalent(3)
Gross(1)(4 ) Net(1)(4 ) Gross(3)(4 ) Net(3)(4 )
Reserves Category MMCF MMCF MBOE MBOE
Proved
Developed Producing 1,841 1,687 307 281
Developed Non-Producing 17,474 15,832 2,913 2,639
Undeveloped 49,544 45,382 8,257 7,564
Total Proved 68,860 62,901 11,477 10,484
Total Probable 34,959 31,981 5,827 5,330
Total Proved + Probable 103,819 94,822 17,303 15,814
Total Possible 89,745 82,077 14,958 13,680
Total PPP 193,564 176,959 32,261 29,493
Shona Energy Company, Inc. Net Present Value of Future Net Revenue
Before Income Tax Discounted at After Income Tax Discounted at
0 % 5 % 10 % 15 % 20 % 0 % 5 % 10 % 15 % 20%
Reserves Category M$(2 ) M$ M$ M$ M$ M$(2 ) M$ M$ M$ M$
Proved(5)
Developed Producing(6) 1,898 1,827 1,761 1699 1,641 3,601 3,437 3,284 3,140 3,004
Developed Non-Producing(7) 71,665 54,190 42,054 33,469 27,280 49,267 37,814 29,769 24,018 19,832
Undeveloped(8) 187,127 130,397 94,799 71,166 54,702 124,716 86,885 62,899 46,860 35,633
Total Proved 260,691 186,415 138,615 106,336 83,623 177,585 128,137 95,952 74,018 58,470
Total Probable(9) 141,921 103,185 77,349 59,502 46,763 92,649 67,784 51,105 39,509 31,174
Total Proved + Probable 402,612 289,600 215,964 165,838 130,386 270,234 195,921 147,057 113,527 89,644
Total Possible(10) 420,563 227,533 128,667 75,451 45,489 281,630 153,585 87,424 51,544 31,213
Total PPP 823,175 517,133 344,631 241,289 175,875 551,864 349,506 234,481 165,071 120,587
Notes:
1. "MMCF" means million cubic feet and "MBOE" means thousand barrel of oil equivalent.
2. "M$" means thousand United States dollars.
3. Natural gas volumes convert to oil equivalent volumes on a basis of 6 MCF to 1 barrel of oil.
4. "Gross Reserves" are Shona's working interest (operating or non-operating) share before deducting royalties and without including any royalty interest of Shona. "Net Reserves" are Shona's working interest (operating or non-operating) share after deduction of royalty obligations, plus Shona's royalty interests in reserves.
5. "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
6. "Developed Producing" reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.
7. "Developed Non-Producing" reserves are those reserves that either have not been on production, or have previously been on production, but are shut in, and the date of resumption of production is unknown.
8. "Undeveloped" reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned.
9. "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
10. "Possible" reserves are those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.

Readers should be aware that the reason that the Proved Developed Producing reserves category's after income tax NPVs are greater than the before tax NPVs is both the Cana Flecha and Katana Fields have undepreciated tax balances in excess of their future cash flow resulting in a tax credit. The Nelson-2 well, a proved developed non-producing category (shut in and waiting on pipeline facilities), has a cash flow greater than its depreciation and taxes are paid. These taxes exceed the credit in the proved producing category. Combining the two categories results in taxes paid in 2011, 2012 and 2013. The combined NPV before tax is then greater that the NPV after tax. The proved developed producing category lasts through 2013. The total Esperanza Block is treated as a tax entity.

Pricing Assumptions – Forecast Prices and Costs

Shona used the following pricing and inflation rate assumptions as of June 13, 2011 in estimating reserve and cash flow data using forecast prices and costs. Historical data is provided for 2010.

Year WTI
$US/BBL
La Guajira Index
$US/MMU
Esperanza Block
Aggregate Price
$US/MMBTU
Capital and Costs
Inflation Rates
%
2010 79.42 3.94 3.67 -
Forecast
2011 99.58(1 ) 4.26(2)/5.75(3 ) 4.99(4 ) 3
2012 100.88 5.73 5.35 3
2013 100.98 5.74 5.19 3
2014 100.27 5.70 5.13 3
2015 99.82 5.67 5.18 3
2016 99.85 5.67 5.26 3
2017 100.48 5.71 5.29 3
2018 101.14 5.75 5.46 3
2019 102.10 5.80 5.51 3
Thereafter - 5.80 5.51 3
Notes:
1. Actual and strip prices of NYEX as of June 13, 2011.
2. Actual price February 1, 2011 to July 1, 2011.
3. Estimated calculated price based upon Gulf Coast Fuel Oil No. 6, which runs in tandem with WTI, effective August 1, 2011.
4. Aggregate price based upon sales contracts; one contract with fixed price with annual escalations and one contract indexed to La Guajira gas price.

Risks and Assumptions

There are numerous uncertainties inherent in estimating quantities of proved reserves. The reserve data included herein represents estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the future net revenues therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary considerably from actual results. All such estimates are to some degree speculative and classifications of reserves are only attempts to define the degree of speculation involved. For those reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties and classification of such reserves based on risk of recovery and estimates of future net revenues expected therefrom, prepared by different engineers or by the same engineers at different times, may vary substantially. The actual production, revenues, taxes and development and operating expenditures of Shona with respect to these reserves will vary from such estimates, and such variances could be material.

Estimates with respect to proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be substantial, in the estimated reserves.

Possible reserves are those additional resources which 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.

Consistent with the securities disclosure legislation and policies of Canada, the Shona Reserves Report used forecast prices and costs in calculating reserve quantities included herein. Actual future net revenues also will be affected by other factors such as actual production levels, supply and demand for oil and natural gas, curtailments or increases in consumption by oil and natural gas purchasers, changes in governmental regulation or taxation and the impact of inflation on costs.

All evaluations of future revenue are after the deduction of future income tax expenses, unless otherwise noted in the tables, royalties, development costs, production costs and well abandonment costs but before consideration of indirect costs such as administrative, overhead and other miscellaneous expenses. The estimated future net revenues contained in the tables herein do not necessarily represent the fair market value of Shona. There is no assurance that the forecast price and cost assumptions contained in the Shona Reserves Report will be attained and variances could be material. The recovery and reserves estimates on Shona's properties described herein are estimates only. The actual reserves on Shona's properties may be greater or less than those calculated.

The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.

Exploration for, and subsequent exploitation and production of, oil and natural gas involves a high degree of risk, which even the combination of experience, knowledge and careful evaluation by management of the combined company may not be able to avoid. There is no assurance that commercial quantities of hydrocarbons will result from exploration programs of the combined company. The operations of the combined company will be subject to all of the risks normally incidental to the operation and development of natural gas and oil properties and the drilling of natural gas and oil wells including encountering unexpected formations or pressures, blow outs, cratering and fires, all of which could result in personal injuries, loss of life and damage to the property of the combined company and others.

Any references herein to barrels of oil equivalent mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil. Barrels of oil equivalent may be misleading, particularly if used in isolation. A barrel of oil equivalent conversion ratio of six thousand cubic feet of gas to one barrel of oil is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Financing

The terms of the financing engagement previously announced on May 25, 2011 have been amended. In connection with the Transaction, Rodeo ll, Shona, or one of their respective wholly-owned subsidiaries, or any combination thereof, will now complete a combination of brokered and non-brokered offerings of subscription receipts ("Subscription Receipts") at a price of CDN$0.70 per Subscription Receipt (or the equivalent amount in US dollars) for aggregate gross proceeds of approximately CDN$20,000,000 (the "Financing") (amended from CDN $30,000,000), with the gross proceeds from the Financing being held in escrow until closing of the Transaction. AltaCorp Capital Inc., as lead agent in respect of $10 million of the Financing, together with a syndicate of agents, will continue to have an option to increase the size of the offering by 3,000,000 Subscription Receipts, as previously announced. Concurrently with the closing of the Transaction, the Subscription Receipts will be automatically exchanged for common shares of the Resulting Issuer, on a one-for-one basis, on the effective date of the business combination between Rodeo II and Shona in accordance with the definitive agreement entered into by Rodeo II and Shona in respect of the Transaction (the "Definitive Agreement"). The Resulting Issuer will use the proceeds to continue and expand Shona's current oil and gas programs and for general corporate purposes. The Financing is expected to close on or about July 26, 2011.

About Rodeo Capital II Corp.

Rodeo II is a CPC that completed its initial public offering and obtained a listing on the Exchange in February 2011 (Trading Symbol: "ROP.P"). Prior to entering into the Definitive Agreement with Shona, Rodeo II did not carry on any active business activity other than reviewing potential transactions that would qualify as Rodeo II's Qualifying Transaction.

About Shona Energy Company, Inc.

Shona, incorporated in Delaware and based in Houston, Texas, is an international oil and gas exploration, development and acquisition company that was founded in January 2005. Shona's primary business focus is on South America including, without limitation, Colombia and Peru, where management of Shona has extensive exploration, production and financial expertise.

Rodeo II will prepare and disseminate a subsequent Press Release including summary financial information in respect of Shona.

Cautionary Note

The completion of the Transaction is subject to a number of conditions including, without limitation, approval of the Exchange, approval of the Supreme Court of British Columbia, approval of certain of the securityholders of Shona and Rodeo II, completion of the share consolidation by Rodeo II and completion of the Financing. Where applicable, the Transaction cannot close until all required approvals have been 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 continuous disclosure document containing full, true and plain disclosure regarding the Transaction, required to be filed with the securities regulatory authorities having jurisdiction over the affairs of the Company, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. The trading in the securities of Rodeo II on the Exchange, if reinstated prior to completion of the Transaction, should be considered highly speculative.

ON BEHALF OF THE BOARD OF DIRECTORS:

Michael G. Thomson, President, Chief Executive Officer and Chief Financial Officer and Director

This press release contains forward-looking information. More particularly, this press release contains statements concerning oil and gas reserves estimates in respect of Shona Energy Company, Inc. The oil and gas reserves information has been prepared by an independent reserves evaluator exclusively retained by Shona. Such information about Shona contained in this press release has not been independently verified by the Company, its directors or management employees. Undue reliance should not be placed on such forward looking statements because the Company can give no assurance that they will prove to be correct. Forward¬looking information involves known and unknown risks, uncertainties, assumptions (including, but not limited to, assumptions on the results of Shona's exploration program, ongoing access to funding, and the future price of oil and gas) and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. The forward-looking statements contained in this press release are made as of the date hereof and the Company undertakes no obligations 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.

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 approvals are obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

This press release is not an offer of the securities for sale in the United States. The securities have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.

Investors are cautioned that, except as disclosed in the management information circular, filing statement or other continuous disclosure document 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 a capital pool company should be considered highly speculative.

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

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

Contact Information

  • Rodeo Capital ll Corp.
    Michael G. Thomson
    President, Chief Executive Officer and Chief Financial Offic
    tsxthomson@gmail.com
    Vancouver Office: (604) 484-6628
    (604) 312-4777 (Cellular)