RPT Resources Ltd.
TSX VENTURE : RPT

RPT Resources Ltd.

December 24, 2010 08:00 ET

RPT Resources Ltd. Announces Executed Definitive Agreement Regarding Business Combination

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 24, 2010) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

RPT Resources Ltd. ("RPT" or the "Corporation") (TSX VENTURE:RPT) is pleased announce that RPT and ArPetrol Inc. ("ArPetrol") have now entered into a definitive agreement dated December 23, 2010 (the "Agreement") in connection with the arm's length business combination of RPT and ArPetrol which was previously announced on November 22, 2010. The Agreement contemplates the following (collectively, the "Transactions"): 

  • under the terms of the Agreement, a wholly-owned subsidiary of RPT will amalgamate by way of a plan of arrangement (the "Amalgamation") with ArPetrol and pursuant thereto RPT will issue 7.494 common shares of RPT (each an "RPT Share") for each common share of ArPetrol (each an "ArPetrol Share") at a deemed price of $0.13 per RPT Share for aggregate deemed consideration of approximately $27.9 million;
  • a new management team will be appointed led by Timothy Thomas as President and Chief Executive Officer, Ian Habke as Chief Financial Officer, Ian Moffat as Vice President, Exploration and Troy Wagner as Vice President, Argentina (the "New Management") (see biographical information below);
  • a new board of directors will be comprised of five of the current directors of ArPetrol: Claudio Ghersinich (Chairman), Abdel Badwi, Jeffrey Boyce, Timothy Thomas and Ronald Williams, as well as Michelle Gahagan who is a current director of RPT (the "New Directors") (see biographical information below);
  • RPT will be recapitalized through the previously announced private placement (the "Private Placement") of up to 207,693,000 subscription receipts of RPT ("Subscription Receipts") at a price of $0.13 per Subscription Receipt for aggregate gross proceeds of up to approximately $27 million which is expected to close on January 11, 2011 and for which the agents have been granted a 10% option (the "Agents' Option") to increase the size of the Private Placement prior to closing by up to an additional 20,769,300 Subscription Receipts or approximately $2.7 million. Notwithstanding the above, the Agreement provides that receipt of a minimum of $14.3 million in gross proceeds from the Private Placement is a mutual condition precedent for both parties to the closing of the Amalgamation (unless amended or waived); and
  • RPT will be continued to the Province of Alberta under the name "ArPetrol Ltd.".

Trading of RPT Shares has been halted pending finalization of the terms of the Transactions and this news release describing the Transactions. Trading of RPT Shares is expected to resume on or about December 29, 2010. 

Pro-Forma Highlights

Assuming the completion of the Transactions (which is targeted for on or around March 15, 2011), the Corporation is expected to have the following attributes (on a pro forma basis):

Production1    375 boepd4
Gross Proved Reserves2    4.9 MMboe4
Gross Proved plus Probable Reserves2    7.5 MMboe4
Working Capital3   Approx. $39 million (net of transaction costs)
Notes:
1. This is based on year-to-date average daily production of ArPetrol as of September 30, 2010. 
2. Based on the December 31, 2009 Gaffney, Cline & Associates reserves report for ArPetrol. "Gross Reserves" are ArPetrol's working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of ArPetrol.
3. Assumes completion of the maximum Private Placement and exercise in full of the Agents' Option for an aggregate of approximately $29.7 million from the Private Placement. In addition to the Private Placement, this working capital amount includes $1.2 million raised from the ArPetrol Convertible Debentures referred to below.
4. This represents natural gas production of 2.1MMcf/d with associated condensate production of approximately 10 Bbls/d. The term "boe" may be misleading, particularly if used in isolation. A boe conversion of 6 Mcf:1 bbl is based upon an energy equivalency conversion method primarily applicable at the burner tip and it does not represent a value equivalency at the well head.

Upon completion of the Transactions, the Corporation is expected to be debt free with a working capital position of approximately $39 million (net of transaction costs and based on the assumptions in note 3 above). In Argentina, the Corporation will own and operate 100% of approximately 375 boepd of production from its Faro Virgenes concession. The Corporation's Argentine assets will also include expected high productivity redevelopment wells, several anticipated high impact, low cost exploration targets, a strategically located 85 MMcf/d gas plant (at full capacity) and a 65% working interest in 60,244 gross acres of undeveloped lands.

Merits of the Transaction and Corporate Strategy

The Transactions will provide the Corporation with an experienced management team and board of directors to execute a fully-funded capital program on an inventory of drilling opportunities in Argentina. The Transactions are expected to provide the resources necessary for growth of ArPetrol's current production and reserves base. 

The Corporation's growth strategy is expected to have the following elements:

- Focus on expanding its core operation and cash-flow base in Argentina;
- Drill low cost and high reward exploration wells identified in Argentina;
- Drill low risk and high impact redevelopment wells at Faro Virgenes in Argentina; and
- Pursue strategic acquisitions in South America.

The Corporation's target for organic growth is projected to be approximately 2,000 boepd by the end of 2011 based on the planned capital program, development success and other assumptions set forth elsewhere in this press release. 

Boards of Directors' Recommendations

The board of directors of each of RPT and ArPetrol has considered the Amalgamation at length and has, based upon the verbal fairness opinion of its respective financial advisors and other considerations, unanimously determined that the Transactions are fair to their respective shareholders and are in the best interests of RPT and ArPetrol, respectively, and recommends that its respective shareholders approve the Transactions. The board of directors and officers of each of RPT (holding approximately 0.4% of the RPT Shares) and ArPetrol (holding approximately 46% of the ArPetrol Shares) have entered into support agreements in which they have agreed, among other things, to vote in favour of the Transactions, subject to certain conditions. 

New Management Team

The New Management brings a long and successful track record in the international and Canadian oil and gas sectors. This experience spans all areas of the upstream oil and gas business, including conventional and unconventional resource plays and operational success in numerous countries worldwide, including Canada, Argentina, Colombia, Peru, UK, the Middle East, Africa and Indonesia. The New Management has demonstrated operational expertise and helped build international oil and gas organizations.

Timothy J. Thomas, P.Eng.
President & CEO
Mr. Thomas is a professional engineer with more than 32 years of oil and gas experience. Most recently, Tim was Senior Vice President Canadian Oil and Gas and an officer at Nexen Inc. (TSX, NYSE), a successful oil & gas company with assets in Canada, US, UK, Yemen, Nigeria and Colombia. He served in senior executive roles in Canada, Yemen, UK and Indonesia. During his 18 year career with Nexen, he was instrumental in identifying and positioning the company in the Horn River shale gas property and maintaining Canadian production levels through selective investments. While the President and General Manager in Yemen he identified and led the capital investments to raise production to a plateau rate of 230,000 boepd. In addition, he was responsible for a wide range of upstream exploration and production projects and business development activities in Nigeria, Colombia, Vietnam, Pakistan and Australia. Prior to Nexen, Tim worked for Gulf Canada (formerly TSX, NYSE) with a focus on the Arctic and East Coast areas and Texaco (formerly NYSE) where he worked on both development and exploration activity in the North Sea.
Ian Habke, CA
CFO
Mr. Habke is a Chartered Accountant with more than 20 years of diverse industry experience.  Most recently Mr. Habke was Director of Supply Management for Nexen Inc.  Other roles with Nexen have included Finance Director for their UK operations and VP Finance for Yemen.  In these positions Mr. Habke was an integral member of the in-country management groups directing the daily operations of these assets.  His corporate roles have included President of Nexen Energy Holdings International in the UK and assignments in financial reporting and budgeting and strategic planning.  Mr. Habke has a Bachelor of Commerce from the University of Alberta.
Ian Moffat, P. Geol.
Vice President, Exploration
Dr. Moffat is a professional geologist with more than 30 years of exploration, exploitation and development experience gained in North and South America, Africa, Southeast Asia, the former Soviet Union and the Middle East.  Prior to joining ArPetrol, Dr. Moffat was VP Exploration New Ventures at Talisman Energy Inc. (TSX).  In his 17 year career at Talisman, Dr. Moffat played an instrumental role in significant oil and gas discoveries in Western Canada, Algeria, Sudan, Peru and Colombia.  During this period he led teams that grew Talisman's Latin American acreage position and played a significant role in its execution of a global exploration, acquisition and exploitation strategy.  Prior to joining Talisman, Dr. Moffat worked for Gulf Canada both in North America and in International Exploration and Development.
Troy Wagner, P. Eng. MBA
Vice President, Argentina
Mr. Wagner is a professional engineer and MBA graduate with 18 years of engineering and management experience.  Prior to joining ArPetrol in 2007 as the in-country manager in Argentina, Mr. Wagner was COO and VP Engineering of Elmworth Energy/Triangle USA Petroleum (OTC - US), a company focused on developing domestic and international shale gas projects.  Mr. Wagner also spent 10 years at NAL Resources Management Ltd. (TSX) managing assets with combined production of 36,000 boepd.  As the Vice President of Operations at NAL, Mr. Wagner was responsible for leading all technical and operations staff with annual Capital and Operating budgets of over $175 million and $110 million per year, respectively.

Board of Directors

The New Directors have strong track records in the oil and gas industry. The New Directors have held executive and director positions with a number of successful companies with operations in Canada, USA, Europe, Africa, Asia, the Middle East, Australia and South America. 

Claudio A. Ghersinich, P.Eng.
Chairman
Claudio Ghersinich is an independent businessman and professional engineer with more than 30 years of oil and gas experience. He is a co-founder and former Executive VP and VP Business Development of Vermilion Energy Trust (TSX). He serves or has served on the Board of Directors of various public companies including Verenex Energy Inc. (formerly TSX), Vermilion Energy Inc. (TSX), Aventura Energy Inc. (formerly TSX), Bulldog Energy Inc. (TSX), Bulldog Resources Inc. (formerly TSX) and Pegasus Oil & Gas Inc. (formerly TSXV), and Valeura Energy Inc. (TSXV), as well as several private and non-profit organizations. These companies have operated assets in Canada, Europe, Libya, Trinidad, Argentina and Australia.  He has been Chairman of ArPetrol since its inception. 
Abdel F. Badwi, P. Geol.
Director
Abby Badwi is an international energy executive and professional geologist with more than 35 years experience in the exploration, development and production of oil and gas fields in North America, South America, Europe, Asia and the Middle East. Mr. Badwi has been a director of ArPetrol since its inception.  He is currently President & CEO of Bankers Petroleum Ltd. (TSX, London-AIM), an oil & gas company with heavy oil operations in Albania. Previously, he served as President & CEO of Rally Energy Ltd. (formerly TSX, Frankfurt) which had heavy oil operations in Egypt and other assets in Pakistan and Canada, and which was sold in 2007. He has been an officer and director of several Canadian public and private companies and is currently a director of Bankers Petroleum Ltd. (TSX, London-AIM), Valeura Energy Inc. (TSXV) and ArPetrol.
Jeffrey S. Boyce
Director
Mr. Boyce is Chairman & CEO of Sure Energy Inc. (TSX). Previously, Mr. Boyce was the President & CEO of Clear Energy Inc. (formerly TSX) and prior thereto, President & CEO, co-founder of Vermilion Resources Ltd. As one of the founders, Mr. Boyce was directly involved in stewardship of Vermilion Resources Ltd. which grew from having $200,000 in the bank in 1994 to a business with a current enterprise value exceeding $3 billion.  Mr. Boyce has more than 30 years experience in public financial markets, corporate planning, negotiating, developing land and exploration strategies, and managing oil and gas companies. Mr. Boyce has served on the Board of Directors of various public, private and non-profit organizations.  These companies have operated assets in Canada, Europe, Trinidad, Argentina, Colombia and Australia.   Mr. Boyce has been a director of ArPetrol since its inception.
Michelle Gahagan.
Director
Ms. Gahagan is currently a principal in a privately-held merchant bank based in Vancouver and London.  Prior to the commencement of her involvement in merchant banking five years ago, Ms. Gahagan graduated from Queens University Law School and practiced corporate law for 20 years.  Ms. Gahagan has extensive experience advising companies with respect to international tax-driven structures, mergers and acquisitions.  Ms. Gahagan has successfully completed the Investment Management Certificate course and is a Qualified Person under the Financial Services Authority (UK) regime.  Ms. Gahagan has been the president of RPT Resources Ltd. since the fall of 2009 and is currently the managing director of Northern Rand Resource Corp. and a director of Bowood Energy Corp.
Timothy J. Thomas, P. Eng.
Director
(See above)
Ronald A. Williams, CA
Director
Mr. Williams is Vice President Finance and Chief Financial Officer of Questfire Energy Corp., a private oil and gas company.  Prior thereto he was the Vice President Finance and Chief Financial Officer of Stonefire Energy Corp (formerly TSXV), a public company sold in 2010, and prior thereto, Director, Finance for Vermilion Energy Trust (TSX). He joined the ArPetrol Board in June 2007 and brings over 19 years of domestic and international oil and gas industry experience. Mr. Williams has an extensive background in the areas of audit, finance, and taxation as well as property and corporate acquisitions.

The New Directors will become the board of directors of the Corporation immediately following the effective time of the Amalgamation. 

Private Placement

As previously announced, on December 16, 2010, RPT entered into an agreement with a syndicate of agents led by Raymond James Ltd. and including Canaccord Genuity Corp. (the "Agents") providing for the issuance on a private placement agency basis of up to 207,693,000 Subscription Receipts at a price of $0.13 per Subscription Receipt for aggregate gross proceeds of up to $27 million. In addition, RPT has granted the Agents the Agents' Option to increase the size of the Private Placement by up to an additional 20,769,300 Subscription Receipts or $2.7 million, exercisable prior to the closing of the Private Placement. Closing of the Private Placement is expected to occur on or about January 11, 2011 and is subject to receipt of all necessary regulatory approvals, including the approval of the TSX Venture Exchange ("TSXV"). Each Subscription Receipt will represent the right to automatically receive one RPT Share and one common share purchase warrant ("RPT Financial Warrant"). Each RPT Financial Warrant will entitle the holder thereof to purchase one RPT Share at a price of $0.26 at any time prior to the date that is two years after the closing of the Private Placement.

The Subscription Receipts will be issued pursuant to the terms of a subscription receipt agreement and the gross proceeds of the Private Placement will be held in escrow by an escrow agent. Each Subscription Receipt will automatically be exchanged, without payment of any additional consideration or further action on the part of the holder thereof, into one RPT Share and one RPT Financial Warrant upon delivery of a notice to the escrow agent that the escrow release conditions have been satisfied, including the receipt of any necessary government, regulatory and shareholder approvals.

Provided that the notice is delivered to the escrow agent on or before March 31, 2011 pursuant to the terms of the subscription receipt agreement, the net proceeds of the Private Placement will be released from escrow to the Corporation. If the notice is not provided to the escrow agent on or before March 31, 2011 pursuant to the terms of the subscription receipt agreement, the Agreement is terminated, or RPT or ArPetrol advises the Agents or announces to the public that it does not intend to proceed with the Amalgamation, each Subscription Receipt will be cancelled and each holder of Subscription Receipts will be entitled to receive its investment plus interest.

The Agreement provides that receipt of a minimum of $14.3 million in gross proceeds from the Private Placement is a mutual condition precedent for both parties to the closing of the Amalgamation (unless amended or waived). The Agents will receive a commission of 4.5% of the gross proceeds raised under the Private Placement. The net proceeds from the Private Placement will be used to fund the Corporation's exploration and redevelopment program and for general working capital purposes. 

In addition, ArPetrol has recently issued to certain board members convertible debentures in the aggregate principal amount of $1.2 million ("ArPetrol Convertible Debentures") and 1,231,753 common share purchase warrants ("ArPetrol Financial Warrants"). In accordance with the their terms, immediately prior to the Amalgamation, the ArPetrol Convertible Debentures will be converted into ArPetrol Shares on the basis of one ArPetrol Share per $0.97422 of principal amount outstanding. Pursuant to the Amalgamation, these ArPetrol Shares will then be exchanged for RPT Shares at a ratio of 7.494:1. The ArPetrol Financial Warrants will also be exchanged at a ratio of 7.494:1 on the Amalgamation for common share purchase warrants of RPT having the same terms as the RPT Financial Warrants issued pursuant to the conversion of the Subscription Receipts.

Overview of the Transaction, Incentives and Capitalization

Under the terms of the Agreement, each outstanding ArPetrol Share will be exchanged for 7.494 RPT Shares at a deemed price of $0.13 per RPT Share for aggregate deemed consideration of approximately $27.9 million. RPT currently has approximately 117.0 million RPT Shares outstanding and ArPetrol currently has approximately 28.5 million ArPetrol Shares outstanding. There are no control persons of either RPT or ArPetrol.

The pro forma capitalization of the Corporation following the Amalgamation is described in the table below on the basis of both the minimum Private Placement and the maximum Private Placement. Following the closing of the Transactions, assuming completion of the maximum Private Placement and exercise in full of the Agents' Option and the other assumptions set forth below: (i) the Corporation will have approximately 570 million RPT Shares outstanding, of which approximately 14% of the RPT Shares will be owned or controlled by the New Management and New Directors; (ii) on a diluted basis, the New Management and New Directors will own or control approximately 14% of approximately 835 million diluted RPT Shares; and (iii) there will be outstanding options representing on an aggregate basis approximately 4.3% of the issued and outstanding RPT Shares. The Corporation's options (which are described below) will be subject to a rolling option plan for up to 10% of the RPT Shares outstanding from time to time and will be subject to TSXV policies and guidelines.

Expected Pro-Forma Capitalization Following Amalgamation   Minimum RPT Shares(1)   Maximum RPT Shares(2)
RPT Equity   116,988,073   116,988,073
ArPetrol Equity (7.494:1)(3)   214,856,374   214,856,374
RPT Shares from Private Placement(4)   119,230,770   237,693,070
RPT Shares for Finder's Fee (5)   2,000,000   2,000,000
RPT Shares Outstanding (basic)   453,075,217   571,537,517
         
RPT Shares issuable pursuant to RPT Financial Warrants (6)   119,230,770   237,693,070
RPT Shares issuable pursuant to stock options (7)(8)   24,539,615   24,539,615
RPT Shares issuable pursuant to performance warrants (9)(10)   2,997,600   2,997,600
RPT Shares (fully diluted)   599,843,202   836,767,802
Notes:
  1. This assumes completion of the minimum of $14.3 million in gross proceeds under the Private Placement.
  2. This assumes completion of the maximum Private Placement and exercise in full of the Agents' Option.
  3. This assumes the exercise of 200,000 existing "in-the-money" options of ArPetrol prior to completion of the Amalgamation.
  4. Includes RPT Shares ultimately issued as a result of the conversion of the ArPetrol Convertible Debentures and RPT common share purchase warrants issued for the ArPetrol Financial Warrants pursuant to the Amalgamation.
  5. A finder's fee of 2,000,000 common shares of the combined entity will be issued to Sam Charanek at a deemed price of $0.13 per share upon completion of the Transaction. Mr. Charanek is a principal of CEE Merchant Group and has over 12 years of capital markets consulting experience. 
  6. Each RPT Financial Warrant will entitle the holder thereof to acquire one RPT Share at a price of $0.26 for a period of 24 months.
  7. Continuing options: This amount includes an aggregate of 20,703,815 of options which will be held by persons who will be New Management, New Directors or employees of the Corporation: 18,517,485 options with an exercise price of $0.13 (which will expire in 2017), 725,000 options with an exercise price of $0.20 (which will expire in 2014), 1,124,100 options with an exercise price of $0.27 (which expire between 2015 and 2017) and 337,230 options with an exercise price of $0.24 (which will expire in 2017). This does not include any option allocations for future hires.
  8. Expiring Options: This amount also includes an aggregate of 3,835,800 of options which will be held by persons who will not be New Management, New Directors or employees of the Corporation and which are expected to be exercised or expire within a certain period following completion of the Amalgamation as follows: 2,175,000 options with an exercise price of $0.20, 12,000 options with an exercise price of $0.27 and 150,000 options with an exercise price of $0.40, all of which will be exercised or expire within 180 days following closing. 
  9. Continuing Performance Warrants: This amount includes performance warrants with an exercise price of $0.134 which will be held by one member of New Management. These RPT performance warrants will be issued pursuant to the Amalgamation for the existing performance warrants granted to ArPetrol management around the time of their original subscription in ArPetrol. One-third of the performance warrants will be vested and the remainder will be subject to vesting thresholds of $0.400 and $0.534 and will expire on January 10, 2015. These performance warrants are not expected to be part of the "security based compensation arrangements" of the Corporation because they were granted at the time of earlier financings of ArPetrol.
  10. Expiring Performance Warrants: This amount also includes 1,498,800 of performance warrants which reflects the vested portion performance warrants with an exercise price of $0.134 which will be held by persons who will not be New Management, New Directors or employees of the Corporation and which are expected to expire within 30 days following completion of the Amalgamation. This amount excludes 2,997,600 of performance warrants which represents the unvested portion of such persons' performance warrants with the same exercise price but which are subject to vesting thresholds of $0.400 and $0.534 and which will also expire within 30 days following completion of the Amalgamation. These performance warrants are also not expected to be part of the "security based compensation arrangements" of the Corporation because they were granted at the time of earlier financings of ArPetrol.

Timing and Required Approvals

Completion of the Amalgamation is subject to the satisfaction of a number of conditions under the Agreement, including receipt of the approval of the TSXV, approval of the Amalgamation and election of the New Directors by not less than 50% of the shareholders of RPT who vote at the RPT shareholder meeting, approval of the Amalgamation by not less than two-thirds of the shareholders of ArPetrol who vote at the ArPetrol shareholder meeting and approval by the Court of Queen's Bench of Alberta. RPT has applied for and received a sponsorship exemption pursuant to the policies of the TSXV. A joint information circular is expected to be mailed to RPT and ArPetrol shareholders in early-February and the annual and special meetings of shareholders of each of RPT and ArPetrol are expected to be held in early-March 2011. 

It is expected that the Amalgamation will be closed on or about March 15, 2011 on the assumption that RPT and ArPetrol receive the requisite approvals and all of the conditions to closing are satisfied. In light of the pending shareholder meeting to vote on the Amalgamation and election of the New Directors, RPT applied to the British Colombia Registrar of Companies and obtained an extension of the deadline for its annual general meeting until March 31, 2011.

Termination of the Agreement

The terms of the Agreement provide for termination of the Agreement and the Amalgamation if the Amalgamation is not completed by an outside date of March 31, 2011, unless extended by the parties. In addition to the terms of the Agreement discussed above, the Agreement contains reciprocal non-solicitation covenants, customary representations, warranties, covenants and conditions and provides for reciprocal non-completion fees under certain circumstances of $1,000,000 or a reimbursement of costs of up to $750,000 (depending on the type of break-fee event). The complete Agreement will be accessible under RPT's profile on SEDAR at www.sedar.com.

Financial Advisors

Raymond James Ltd. is acting as financial advisor to RPT with respect to the Amalgamation and provided a verbal fairness opinion to RPT's board in respect of the consideration to be issued by RPT pursuant to the Amalgamation.

Canaccord Genuity Corp. is acting as financial advisor to ArPetrol with respect to the Amalgamation and provided a verbal fairness opinion to ArPetrol's board in respect of the consideration to be received by ArPetrol's shareholders pursuant to the Amalgamation.

Raymond James Ltd. and Canaccord Genuity Corp. are also acting as underwriters in respect of the Private Placement.

A written fairness opinion of each of the financial advisors is expected to be included in the joint information circular to be mailed to RPT and ArPetrol shareholders.

About RPT Resources Ltd.

RPT is a Canadian mineral exploration company based in Vancouver, British Columbia and incorporated under the Business Corporations Act (British Columbia). Since August 2009, RPT's principal focus has been to search for mineral properties, primarily zinc oxide mineralization, which may be suitable for application of the proprietary mineral processing technology developed by MetaLeach Limited, a wholly owned subsidiary of Alexander Mining PLC. The RPT Shares are listed on the TSXV under the trading symbol "RPT".

About ArPetrol Inc.

ArPetrol is a Calgary, Alberta based private company engaged in oil and gas exploration and production in Argentina. It was incorporated under the Business Corporations Act (Alberta) on September 17, 2004 and in July 2007 purchased Geodyne Energy S.A. ("GESA"). GESA (now known as ArPetrol Argentina S.A.) was a private Argentine oil and gas company with assets in the Province of Santa Cruz. Through this purchase, ArPetrol owns and operates 100% of the Faro Virgenes concession which currently produces natural gas and condensate at approximately 375 boepd from two wells in the Springhill formation. ArPetrol has planned a three well redevelopment program to be conducted in 2011 and 2012 which will target the underdeveloped crest of the structure. Costs of all three wells are currently estimated to be approximately $22 million. 

In conjunction, ArPetrol's technical team in Argentina has identified a potential onshore exploration prospect on its 100% owned and operated Faro Virgenes concession. ArPetrol has planned to test the possible oil accumulation through an exploration well in 2011 at an estimated cost of $1.8 million.

In addition, ArPetrol's assets include a 100% interest in a 85 MMcf/d gas plant (at full capacity) strategically located on the Faro Virgenes concession and a 20% operated working interest (with an option to increase to a 50% working interest at casing point) in the Blanco de Los Olivos Oriental ("BOO") and Catriel Viejo Sur exploration permits. Both exploration permits are located in the hydrocarbon rich Neuquen Basin in the province of Rio Negro. ArPetrol has scheduled an exploitation program of two to three shallow gas wells on its BOO permit for late 2011. Total costs of the program are currently estimated to be between $0.5 and $1.3 million (depending on final working interest).

ArPetrol Reserves Data

Gaffney, Cline & Associates Inc. ("GCA") has prepared an audit examination (the "GCA Report") of the hydrocarbon liquid and natural gas reserves of ArPetrol dated April 29, 2010. The effective date of the GCA Report is December 31, 2009 and it consists of an audit of the hydrocarbon liquid and natural gas reserves attributable to ArPetrol's interest in the Faro Virgenes concession as originally estimated by ArPetrol. The GCA Report has been prepared using assumptions and methodology guidelines outlined in the Canadian Oil and Gas Evaluation Handbook and in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.

The following table sets forth the natural gas and natural gas liquid reserve estimates attributable to ArPetrol's interest in the Faro Virgenes concession as presented in the GCA Report. The reserve estimates provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual natural gas and natural gas liquid reserves may be greater than or less than the estimates provided herein. Although the gas structure extends beyond ArPetrol's concession limits and ArPetrol has made application for a 10-year extension to the concession term, the reserve estimates provided herein are based only on the reserves estimated inside the concession limits and during its primary term (through 2016).

ArPetrol Reserves Summary - December 31, 2009
    Natural Gas   Natural Gas Liquids
    Gross(1)
(MMcf)(2)
    Net(1)
(MMcf)
  Gross(1)
(Mbbl)(2)
    Net(1)
(Mbbl)
Proved Developed Producing &                
Proved Developed Non-Producing(3)(6)(7)(8)   4,402   3,874   76   67
Proved Undeveloped(3)(9)   22,031   19,387   382   336
Total Proved(3)   26,433   23,261   458   403
                 
Total Probable(4)   14,229   12,521   246   217
                 
Total Proved Plus Probable(3)(4)   40,662   35,782   704   620
                 
Total Possible(5)   12,961   11,407   225   197
                 
Total Proved Plus Probable Plus Possible(3)(4)(5)   53,623   47,189   929   817
Notes:
(1) "Gross Reserves" are ArPetrol's working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of ArPetrol. "Net Reserves" are ArPetrol's working interest (operating or non-operating) share after deduction of royalty obligations plus ArPetrol's royalty interests in reserves.
(2) "MMcf" means million cubic feet and "Mbbl" means thousand barrels.
(3) "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.
(4) "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.
(5) "Possible" reserves are those additional reserves that are less certain to be recovered than probable reserves. There is only a 10% probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable plus possible reserves.
(6) "Developed" reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (for example when compared to the cost of drilling a well) to put the reserves on production.
(7) "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.
(8) "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.
(9) "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.

Management of ArPetrol has confirmed that no material work has been performed on ArPetrol's properties since the date of the GCA Report. ArPetrol will prepare an updated independent audit examination of its hydrocarbon liquid and natural gas reserves in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities and information from such updated report will be included in the joint information circular to be provided to RPT and ArPetrol shareholders in connection with the Transactions. Management of ArPetrol does not currently expect that the reserves estimates in such updated report will differ materially from the reserve estimates disclosed above. However, ArPetrol has made application for a 10-year extension to the concession term which, if received prior to such report, is expected to have a positive impact on the reserve estimates. Although management of ArPetrol is optimistic that the extension will be granted on a timely basis, there is currently no certainty as to whether the extension will be granted or the timing thereof.

Selected Financial Information

The following table sets forth certain unaudited financial information for ArPetrol as at and for the six months ended June 30, 2010 and audited financial information for ArPetrol as at and for the year ended December 31, 2009:

    Six Months ended
June 30, 2010
(unaudited)
  Year ended
December 31, 2009
(audited)
Total Assets   $21,415,224   $23,019,588
Current Liabilities   $1,083,509   $1,998,682
Working Capital   $1,135,803   $1,416,923
Property, Plant and Equipment   $18,013,893   $18,375,714
Revenue   $2,392,078(1)   $200,084
Net Loss   $1,569,775   $3,139,213
Shareholders' Equity   $17,962,560   $18,501,887
Note:
(1) This includes gain on termination of lease

ArPetrol is currently preparing its unaudited financial information as at and for the nine months ended September 30, 2010, which will be included in the joint information circular to be provided to RPT and ArPetrol shareholders in connection with the Transactions. Management of ArPetrol does not currently expect such financial information to have materially changed from the financial information set forth above as at and for the six months ended June 30, 2010 except that working capital as at September 30, 2010 is expected to be approximately $200,000, with a significant portion of the decrease due to the reclassification of refundable Argentinean taxes from current to long-term. However, subsequent to September 30, 2010, ArPetrol completed the issuance of ArPetrol Convertible Debentures as described above which has resulted in cash proceeds to ArPetrol of $1.2 million.

For further information with respect to ArPetrol, the Corporation and the Transactions, please see the contact information below.

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

Reader Advisory

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

The proposed Transactions has not been approved by the TSX Venture Exchange and remains subject to TSX Venture Exchange approval.

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

Except for statements of historical fact, this news release contains certain "forward-looking information" within the meaning of applicable securities law. Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. In particular, forward-looking information in this press release includes, but is not limited to, statements with respect to timing and completion of the Transactions, the merits of the Transactions, timing, size and completion of the Private Placement, the satisfaction of the conditions precedent to the Transactions (including receipt of TSX Venture Exchange approval and shareholder approvals), the timing for calling and holding shareholders meetings of RPT and ArPetrol, the preparation of reserve reports and financial statements and the timing and results thereof, the Corporation's growth and business strategy, operational plans and strategies and the timing thereof, development and exploration plans and strategies and the timing and expected costs thereof, and future production levels. Although we believe that the expectations reflected in the forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. We cannot guarantee future results, performance or achievements. Consequently, there is no representation that the actual results achieved will be the same, in whole or in part, as those set out in the forward-looking information.

Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking information. Some of the risks and other factors that could cause the results to differ materially from those expressed in the forward-looking information include, but are not limited to: general economic conditions in Canada, the United States and globally; industry conditions, including fluctuations in the prices of oil and natural gas; governmental regulation of the oil and gas industry, including environmental regulation; unanticipated operating events or performance which can reduce production or cause production to be shut in or delayed; failure to obtain industry partner and other third party consents and approvals, if and when required; competition for and/or inability to retain drilling rigs and other services; the availability of capital on acceptable terms; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, skilled personnel and supplies; incorrect assessments of the value of acquisitions; geological, technical, drilling, processing and transportation problems; changes in tax laws and incentive programs relating to the oil and gas industry; failure to realize the anticipated benefits of acquisitions and dispositions; the ability of the Corporation to successfully manage the political and economic risks inherent in pursuing oil and gas opportunities in foreign countries; and the ability of the Corporation to successfully market its oil and natural gas products. Readers are cautioned that this list of risk factors should not be construed as exhaustive. 

The forward-looking information contained in this news release is expressly qualified by this cautionary statement. We undertake no duty to update any of the forward-looking information to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation. Readers are cautioned not to place undue reliance on forward-looking information.

The TSX Venture Exchange has in no way passed upon the merits of the proposed Transactions 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 release.

Contact Information

  • RPT Resources Ltd.
    Michelle Gahagan
    President
    (604) 639-4459
    or
    ArPetrol Inc.
    Tim Thomas
    President and Chief Executive Officer
    (403) 263-6738