Royal Capital Corp.
TSX VENTURE : RCX.P

June 01, 2009 14:07 ET

Royal Capital Corp.: Execution of Amalgamation Agreement With DeeThree Exploration Ltd. and Financial and Reserves Information Regarding DeeThree Exploration Ltd.

CALGARY, ALBERTA--(Marketwire - June 1, 2009) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES.

ROYAL CAPITAL CORP. ("Royal") (TSX VENTURE:RCX.P) is pleased to announce that further to the letter of intent entered into among Royal and DeeThree announced on March 30, 2009, Royal has entered into an amalgamation agreement (the "Amalgamation Agreement") with DeeThree and 1467218 Alberta Ltd., a recently incorporated wholly-owned subsidiary ("Newco") of Royal, to effect the amalgamation (the "Amalgamation") of DeeThree and Newco. The Amalgamation will constitute the qualifying transaction of Royal (the "Proposed Transaction") pursuant to the policies of the TSX Venture Exchange (the "Exchange"). The Amalgamation Agreement sets out the definitive terms of the Proposed Transaction and the Amalgamation of DeeThree and Newco. Upon completion of the Amalgamation, DeeThree will be a wholly-owned subsidiary of Royal.

The Amalgamation Agreement provides that prior to Amalgamation, the common shares of Royal ("Royal Shares") will be consolidated on a 12 for one basis (the "Consolidation"). Pursuant to the Amalgamation Agreement, shareholders of DeeThree will receive one (1) post-Consolidation Royal Share for each DeeThree share held (the "Exchange Ratio") at a deemed price of $2.00 per post-Consolidation Royal Share.

In connection with the Proposed Transaction, on May 29, 2009, Royal filed on SEDAR the joint information circular of Royal and DeeThree dated May 25, 2009 (the "Joint Information Circular"), which contains full disclosure regarding the Proposed Transaction, the business of DeeThree and the proposed business of the resulting issuer. Royal expects to close the Proposed Transaction on or about June 25, 2009 in accordance with Policy 2.4 of the Exchange.

Financial and Reserves Information Regarding DeeThree

Royal is also pleased to announce the following information regarding DeeThree.

Financial Information Concerning DeeThree

The following information is derived from audited financial statements as at and for the years ended December 31, 2008 and December 31, 2007. Such information is subject to all other information contained in the relevant financial statements.



As at December 31, As at December 31,
2008 and 2007 and
for the year for the year
ended December ended December
31, 2008 31, 2007(1)
Category ($) ($)
----------------------------------------------------------------------------
Assets 27,971,810 642,406

Liabilities 11,295,251 719,008

Working Capital (2,709,745) (168,908)

Shareholders' Equity 16,676,559 (76,602)

Deficit (511,697) (76,603)

Revenue 1,367,260 140,751

Loss Before Income Taxes (586,086) (76,603)

Net Loss (435,094) (76,603)

Note:
(1) This financial period commences on the date of incorporation of
DeeThree on January 24, 2007.


The audited financial statements of DeeThree as at and for the years ended December 31, 2008 and December 31, 2007, will be included in the management information circular prepared in connection with the Proposed Transaction.

Reserves Information Concerning DeeThree

DeeThree owns working interests ranging from 5.65% to 100% (average of approximately 93%) in 153 wellbores in the Lethbridge, Chinchaga, Killam, and Balsam areas of Alberta.

The reserves of DeeThree were evaluated by Sproule Associates Limited ("Sproule"), as set out in its report (the "Sproule Report") dated March 6, 2009, in which Sproule has evaluated, as of December 31, 2008, the oil and natural gas reserves attributable to all of the properties of DeeThree. The information was prepared between February 2009 and March 2009.

The following table discloses, in the aggregate, DeeThree's gross and net proved reserves, estimated using forecast prices and costs, by product type. "Forecast prices and costs" means future prices and costs used by Sproule in the Sproule Report that are generally accepted as being a reasonable outlook of the future.




SUMMARY OF RESERVES AS OF DECEMBER 31, 2008 (Forecast Prices & Costs)

------------------------------------------------------------
Light & Medium Oil Heavy Oil Natural Gas(1)
------------------------------------------------------------
RESERVES Gross(2) Net(3) Gross(2) Net(3) Gross(2) Net(3)
CATEGORY (Mbbl) (Mbbl) (Mbbl) (Mbbl) (MMcf) (MMcf)
------------------------------------------------------------

PROVED
------------------------------------------------------------
Developed
Producing 13.8 13.0 - - 5,115 4,590
Developed
Non-Producing - - - - - -
Undeveloped - - - - 507 454
Total Proved 13.8 13.0 - - 5,622 5,045
------------------------------------------------------------

------------------------------------------------------------
PROBABLE 5.7 5.2 - - 1,317 1,170
------------------------------------------------------------

------------------------------------------------------------
TOTAL PROVED
+ PROBABLE 19.5 18.2 - - 6,939 6,215
------------------------------------------------------------



-------------------------------------------------
Natural Gas Liquids Total
-------------------------------------------------
Gross(2) Net(3) Gross(2) Net(3)
RESERVES CATEGORY (Mbbl) (Mbbl) (Mboe) (Mboe)
-------------------------------------------------

PROVED
-------------------------------------------------
Developed Producing 1.3 1.0 867.6 779.0
Developed Non-Producing - - - -
Undeveloped - - 84.5 75.7
Total Proved 1.3 1.0 952.1 854.8
-------------------------------------------------

-------------------------------------------------
PROBABLE 0.4 0.3 225.6 200.5
-------------------------------------------------

-------------------------------------------------
TOTAL PROVED + PROBABLE 1.7 1.3 1,177.7 1,055.3
-------------------------------------------------

(1) Estimates of Reserves of natural gas include associated and
non-associated gas.
(2) "Gross Reserves" are Corporation's working interest share of remaining
reserves before the deduction of royalties owned by others.
(3) "Net Reserves" are Corporation's working interest share of remaining
reserves less all Crown, freehold, and overriding royalties and
interests.


The following table discloses, in the aggregate, the net present value of DeeThree's future net revenue attributable to the reserves categories in the previous table, estimated using forecast prices and costs, before and after deducting future income tax expenses, and calculated using discount rates of 0%, 5%, 10%, 15% and 20%.



SUMMARY OF NET PRESENT VALUE OF FUTURE NET REVENUE
AS OF DECEMBER 31, 2008 (Forecast Prices & Costs)

---------------------------------------------
Net Present Value (NPV) of Future Net Revenue (FNR)
--------------------------------------------------
Before Income Taxes - Discounted at (%/yr)
0 5 10 15 20
RESERVES CATEGORY (M$) (M$) (M$) (M$) (M$)
--------------------------------------------------

PROVED
--------------------------------------------------
Developed Producing 25,295 21,235 18,400 16,308 14,699
Developed Non-Producing 0 0 0 0 0
Undeveloped 1,572 1,169 866 631 447
--------------------------------------------------
Total Proved 26,867 22,405 19,266 16,939 15,146
--------------------------------------------------

--------------------------------------------------
PROBABLE 8,134 5,625 4,184 3,265 2,638
--------------------------------------------------

--------------------------------------------------
TOTAL PROVED + PROBABLE 35,001 28,029 23,449 20,204 17,784
--------------------------------------------------


Net Present Value (NPV) of Future Net Revenue (FNR)
------------------------------------------------------------
Unit Value
Before Income
Tax Discounted
After Income Taxes - Discounted at (%/yr) at 10%/Year
------------------------------------------------------------
RESERVES 0 5 10 15 20
CATEGORY (M$) (M$) (M$) (M$) (M$) $/boe $/Mcfe
------------------------------------------------------------

PROVED
------------------------------------------------------------
Developed
Producing 22,401 18,639 16,044 14,149 12,704 23.62 3.94
Developed
Non-Producing 0 0 0 0 0 - -
Undeveloped 1,168 832 579 385 233 11.43 1.91
------------------------------------------------------------
Total Proved 23,569 19,471 16,624 14,534 12,937 22.54 3.76
------------------------------------------------------------

------------------------------------------------------------
PROBABLE 6,538 4,399 3,214 2,479 1,986 20.86 3.48
------------------------------------------------------------

------------------------------------------------------------
TOTAL PROVED
+ PROBABLE 30,107 23,870 19,838 17,013 14,922 22.22 3.70
------------------------------------------------------------

NPV of FNR includes all resource income: sale of oil, gas, by-product
reserves; processing of third party reserves; other income.
Income Taxes includes all resource income, appropriate income tax
calculations and prior tax pools.


The following two tables provide additional information regarding the future net revenue attributable to the reserves outlined in the previous table.

This table discloses, in the aggregate, certain elements of DeeThree's future net revenue attributable to its proved reserves and its proved plus probable reserves, estimated using forecast prices and costs, and calculated without discount.



TOTAL FUTURE NET REVENUE (Undiscounted)
AS OF DECEMBER 31, 2008 (Forecast Prices & Costs)

--------------------------------------------------
Operating Development
Revenue Royalties Cost Costs
RESERVES CATEGORY (M$) (M$) (M$) (M$)
--------------------------------------------------

--------------------------------------------------
Proved Producing 42,434 4,225 11,702 -
Proved Developed
Nonproducing - - - -
Proved Undeveloped 3,966 400 605 1,335
--------------------------------------------------
Total Proved 46,400 4,626 12,307 1,335
--------------------------------------------------

--------------------------------------------------
Total Probable 13,443 1,467 3,776 -
--------------------------------------------------

--------------------------------------------------
Total Proved + Probable 59,843 6,093 16,083 1,335
--------------------------------------------------


--------------------------------------------------
Well BT Future AT Future
Aband. Net Income Net
Costs Revenue(1) Taxes Revenue(1)
RESERVES CATEGORY (M$) (M$) (M$) (M$)
--------------------------------------------------

--------------------------------------------------
Proved Producing 1,211 25,295 2,894 22,401
Proved Developed
Nonproducing - - - -
Proved Undeveloped 54 1,572 404 1,168
Total Proved 1,265 26,867 3,298 23,569
--------------------------------------------------

--------------------------------------------------
Total Probable 67 8,134 1,596 6,538
--------------------------------------------------

--------------------------------------------------
Total Proved + Probable 1,332 35,001 4,894 30,107
--------------------------------------------------

(1) BT = Before Taxes and AT = After Taxes.


This table discloses, by production group, the net present value of DeeThree's future net revenue attributable to its proved reserves and its proved plus probable reserves, before deducting future income tax expenses, estimated using forecast prices and costs, and calculated using a 10% discount rate.



NET PRESENT VALUE OF FUTURE NET REVENUE BY PRODUCTION GROUP
AS OF DECEMBER 31, 2008 (Forecast Prices & Costs)

---------------------------------------------------------------
BT Discounted
(10%/Yr)
Future Net Unit Unit
RESERVES Revenue(1) Value Value
CATEGORY PRODUCTION GROUP (M$) ($/boe) ($/Mcfe)
---------------------------------------------------------------
Light & Medium Crude Oil
PROVED (including solution gas and
PRODUCING other by-products) 900 44.76 7.46
---------------------------------------------------------------
Heavy Oil (including solution
gas and other by-products) - - -
---------------------------------------------------------------
Natural gas (including
by-products but excluding
solution gas from oil wells) 17,500 23.06 3.84
---------------------------------------------------------------


---------------------------------------------------------------
Light & Medium Crude Oil
PROVED (including solution gas and
other by-products) 900 44.76 7.46
---------------------------------------------------------------
Heavy Oil (including solution
gas and other by-products) - - -
---------------------------------------------------------------
Natural gas (including
by-products but excluding
solution gas from oil wells) 18,366 22.00 3.67
---------------------------------------------------------------


---------------------------------------------------------------
Light & Medium Crude Oil
PROVED + (including solution gas and
PROBABLE other by-products) 1,233 42.48 7.08
---------------------------------------------------------------
Heavy Oil (including solution
gas and other by-products) - - -
---------------------------------------------------------------
Natural gas (including
by-products but excluding
solution gas from oil wells) 22,216 21.65 3.61
---------------------------------------------------------------

(1) BT = Before Taxes.


The forecast reference prices used in preparing DeeThree's reserves data are provided in the below table. This price forecast is Sproule's standard price forecast effective December 31, 2008.



Table 3.2
NI 51-101

SUMMARY OF PRICING AND INFLATION RATE ASSUMPTIONS
AS OF DECEMBER 31, 2008 (Forecast Prices & Costs)

-----------------------------------------------------------
OIL GAS NGL INFLATION
-----------------------------------------------------------
WTI Natural Gas(1) Edmonton
Cushing AECO-C Spot Pentanes Inflation Exchange
Oklhoma Price Plus Rate(2) Rate(3)
-----------------------------------------------------------
($US/bbl) ($Cdn/MMBtu) ($Cdn/bbl) (%/Yr) ($US/$Cdn)
-----------------------------------------------------------
Historical
-----------------------------------------------------------
Year 2003 31.14 6.66 44.16 2.5 0.716
-----------------------------------------------------------
Year 2004 41.42 6.87 53.91 1.4 0.770
-----------------------------------------------------------
Year 2005 56.46 8.58 69.13 1.3 0.826
-----------------------------------------------------------
Year 2006 66.09 7.16 75.03 1.5 0.882
-----------------------------------------------------------
Year 2007 72.27 6.65 77.33 2.0 0.935
-----------------------------------------------------------
Year 2008 99.59 8.15 104.70 1.0 0.943
-----------------------------------------------------------

Forecast
-----------------------------------------------------------
Year 2009 53.73 6.82 66.93 2.0 0.800
-----------------------------------------------------------
Year 2010 63.41 7.56 74.54 2.0 0.850
-----------------------------------------------------------
Year 2011 69.53 7.84 81.88 2.0 0.850
-----------------------------------------------------------
Year 2012 79.59 8.38 88.66 2.0 0.900
-----------------------------------------------------------
Year 2013 92.01 9.20 97.27 2.0 0.950
-----------------------------------------------------------
Year 2014 93.85 9.41 99.23 2.0 0.950
-----------------------------------------------------------
Year 2015 95.72 9.62 101.23 2.0 0.950
-----------------------------------------------------------
Year 2016 97.64 9.83 103.28 2.0 0.950
-----------------------------------------------------------
Year 2017 99.59 10.05 105.36 2.0 0.950
-----------------------------------------------------------
Year 2018 101.58 10.27 107.49 2.0 0.950
-----------------------------------------------------------

-----------------------------------------------------------
Thereafter +2%/yr +2%/yr +2%/yr 2.00 0.950
-----------------------------------------------------------

(1) Summary table identifies benchmark reference pricing schedules used in
the analysis.
(2) Inflation rates for forecasting prices and costs.
(3) Exchange rates used to generate the benchmark reference prices in
table.

Note: Product sale prices will reflect these reference prices with further
adjustments for quality and transportation to point of sale.


A statement of DeeThree's reserves data and other oil and gas information regarding DeeThree in the form prescribed by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities will be included in the management information circular prepared in connection with the Proposed Transaction.

READER ADVISORY

Completion of the Proposed Transaction is subject to a number of conditions, including but not limited to, Exchange acceptance. There can be no assurance that the Proposed Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular to be prepared in connection with the Proposed Transaction, any information released or received with respect to the Proposed 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.

Forward-Looking Statements

This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this news release contains forward looking statements and information concerning DeeThree's future operations and prospects. The forward-looking statements and information are based on certain key expectations and assumptions made by DeeThree, including expectations and assumptions concerning equipment and crew availability and financial capability. Although DeeThree believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward looking statements and information because DeeThree can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause DeeThree's actual results and experience to differ materially from the anticipated results or expectations expressed. These risks and uncertainties, include, but are not limited to reservoir performance, labour, equipment and material costs, access to capital markets, interest and currency exchange rates, political and economic conditions. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date it is expressed in this news release or otherwise, and to not use future-oriented information or financial outlooks for anything other than their intended purpose. Royal undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

All estimates of future revenues made by Sproule in the Sproule Report are stated after the deduction of royalties, and capital and operating costs, but before consideration of income Taxes and indirect costs such as administrative, overhead and miscellaneous expenses. It should not be assumed that the estimates of the present value of future net revenues presented in the following tables represent the fair market value of the reserves. There can be no assurance that the constant price and cost assumptions and the forecast price and cost assumptions contained in the Sproule Report will be consistent with actual prices and costs and variances could be material. Other assumptions and qualifications relating to costs and other matters are included in the Sproule Report and summarized in the notes to the following tables. The recovery and reserves estimates described herein are estimates only. The actual reserves may be greater or less than those calculated and differences may be material.

BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl has been used and is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Mcfe is derived by converting oil to gas in the ratio of one barrel of oil to six thousand cubic feet of gas (1bbl:6Mcf). Mcfes may be misleading, particularly if used in isolation. An Mcfe conversion ratio of 1 bbl:6Mcf 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 TSX Venture Exchange Inc. has in no way passed upon the merits of the Proposed Transaction and has neither approved nor disapproved of 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 release.

Contact Information

  • Royal Capital Corp.
    Dennis Nerland
    President, CEO and a director
    (403) 299-9600