Solara Exploration Ltd.
TSX VENTURE : SAA.A

Solara Exploration Ltd.

October 04, 2012 16:28 ET

Solara Exploration and Verity Energy Provide Further Information Concerning Their Proposed Amalgamation

CALGARY, ALBERTA--(Marketwire - Oct. 4, 2012) - As previously announced on August 30, 2012, Solara Exploration Ltd. ("Solara") (TSX VENTURE:SAA.A) and Verity Energy Ltd. ("Verity") (a private company) have entered into an Amalgamation Agreement (the "Amalgamation Agreement") providing for the merger of Solara and Verity (the "Amalgamation"). The completion of the Amalgamation is subject to certain conditions precedent, including shareholder approval of each of Solara and Verity and the approval of the TSX Venture Exchange ("TSXV") and all other necessary regulatory approvals. Meetings of the shareholders of Verity and Solara seeking (amongst other things) the approval of the Amalgamation have been scheduled to take place at 9:00 a.m. and 10:00 a.m., respectively on Wednesday, October 24, 2012 at the Calgary Petroleum Club, Cardium Room, 319 - 5th Avenue SW Calgary, Alberta, and Information Circulars with respect to the Amalgamation have been mailed to the shareholders of Solara and Verity.

About Verity

Verity is a private oil and gas company which commenced operations in June, 2010. Verity currently has 14,120,470 Common Shares (the "Verity Shares"), issued and outstanding. Verity has production of approximately 421 boe/d (approximately 106 bbls/d of oil and NGLs and 1,879 Mcf/d of natural gas). Verity's core properties are located near Veteran, Alberta (predominantly Viking oil production), Long Coulee, Alberta (predominantly natural gas production), Grande Prairie, Alberta (predominantly natural gas production) and Helmet, British Columbia (predominantly natural gas production). Verity has entered into a letter of intent with a third company by which it proposes to sell the Long Coulee property in exchange for shares of that company.

About Solara

Solara is publicly listed and trades on the TSXV. Solara currently has 108,710,732 Class A Common Shares (the "Solara Shares") issued and outstanding. Solara has production of approximately 204 boe/d (approximately 145 bbls/d oil and NGLs and 354 Mcf/d of natural gas). Solara's core properties are located in the Marwayne/Dewberry area of Alberta (predominantly heavy oil production) and Buck Lake/Pembina (predominantly Cardium oil production).

Details of the Transaction

Pursuant to the Amalgamation Agreement and subject to the Ratio Adjustment described below, the Solara Shareholders will receive 0.2357 of one (1) Amalco Common Share for each Solara Share owned by them and the holders of the Verity Shares will receive 1.77048 Amalco Common Shares for each Verity Share owned by them (the "Exchange Ratios"). The Exchange Ratios are based upon Amalco initially having approximately 50 million Common Shares issued and outstanding upon completion of the Amalgamation and the holders of the Verity Shares and the holders of the Solara Shares will each be issued approximately 25 million Amalco Common Shares respectively, prior to the Private Placement described below. The Exchange Ratios are subject to adjustment (the "Ratio Adjustment") for any additional shares or other securities convertible into shares of either Solara or Verity which are issued after this date and prior to the closing the Amalgamation Agreement. The Boards of Directors of the two companies have approved the Amalgamation subject to certain conditions as set forth the Amalgamation Agreement. The directors and officers of both companies have entered into Lockup Agreements committing their support in favour of the Amalgamation.

Solara and Verity have agreed that the company resulting from the Amalgamation will be named "Corso Energy Ltd." ("Corso" or "Amalco") or such other name as the parties may agree and the TSXV may approve.

The completion of the Amalgamation is subject to the satisfaction of a number of conditions, including the following:

  1. Completion by Verity and Solara of due diligence on each other and being satisfied with the results of the due diligence;

  2. There shall have been no material adverse change, financial or otherwise, in the assets, liabilities, business, operations, prospects, affairs, capital or financial condition of the parties;

  3. The Board of Directors of each of the parties shall not have changed, withdrawn or modified its endorsement of the Amalgamation;

  4. Each of the members of the Board of Directors of and each of the officers of Solara except for Ross O. Drysdale shall have provided their written resignations as directors and officers of Solara upon completion of the Amalgamation;

  5. Each of the Solara Shareholders and the Verity Shareholders shall not have exercised rights of dissent for more than 5% of the issued and outstanding Solara Shares and Verity Shares, in each case in relation to the Amalgamation;

  6. All necessary shareholder, regulatory and similar approvals with respect to the transactions contemplated by the Amalgamation Agreement shall have been obtained including that the TSXV shall have approved the Amalgamation;

  7. All necessary approvals shall have been obtained to list and/or post for trading the Corso Common Shares issuable upon the Amalgamation on the TSXV, subject only to fulfilling the requirements of the TSXV; and

  8. Amalco shall, upon closing, have positive working capital of not less $3 million.

The Amalgamation Agreement contains additional conditions common for transactions of this nature. In addition, the parties may, in their sole discretion, waive the fulfillment of any of the conditions contained in the Amalgamation Agreement or otherwise agree to amend the Amalgamation Agreement. The Amalgamation Agreement further provides that each of Verity and Solara will nominate two directors to the board of directors of Corso and those directors so nominated will mutually agree upon the fifth appointee to the Corso Board. It is intended that the management of Verity will assume the key management positions within Corso upon closing of the Transaction with John Zang, the current President and CEO of Verity, being appointed the President and CEO of Corso and Denny Chow (current CFO of Verity) being appointed as CFO of Corso.

About Corso

Through the Amalgamation, Solara and Verity will combine to form a junior oil and gas producer having combined production of approximately 625 boe/d as of October 31, 2012 with anticipated 2012 exit production of 750 boe/d (with an oil weighting of approximately 60%) Verity has entered into a Letter of Intent to sell its Long Coulee property and in the event the Long Coulee transaction is completed, total production of Amalco would decrease by 179 boe/d.

Corso will have three main core properties on which it will focus its drilling and optimization activities.

The Veteran property is a Viking light oil property currently producing approximately 80 bbls/d oil and 70 Mcf/d natural gas. Verity owns the oil and gas rights to approximately 2,400 hectares (gross) (1,822 hectares net) in the Veteran area. Verity's Veteran production comes from 7 wells which it drilled during 2011 and early 2012. Solara also owns interests in lands in the Veteran area. There are approximately 40 drilling locations currently identified by Verity on the Veteran lands. In addition, following completion of the Amalgamation, a recompletion and disposal well program is anticipated to yield additional production of approximately 25 bbls/d.

The Marwayne/Dewberry property is a heavy oil property currently owned by Solara. Production from the Dewberry property is currently 100 bbls/d (heavy oil). Solara owns the oil and gas rights to approximately 1,152 hectares (gross and net). Solara's Dewberry production comes from 9 wells. There are approximately 10 development drilling locations currently identified by the management of Solara on the Dewberry lands. In addition, a work-over program is anticipated to yield additional production of approximately 75 bbls/d net to Solara.

The Buck Lake/Pembina lands consist of 6 wells currently producing 66 boe/d (45 bbls/d oil and NGLs and 126 Mcf/d of natural gas) producing from the Cardium zone. Solara owns the oil and gas rights to approximately 960 hectares (gross) (310 hectares net) in the Buck Lake area. There are approximately 6 additional drilling locations currently identified by Solara in the Buck Lake area.

The remaining properties of Solara have natural gas production of approximately 38 boe/d (228 Mcf/d) comprised of a combination of oil and natural gas and Verity's properties at Grande Prairie, Helmet and Long Coulee are all predominantly natural gas properties currently having production of approximately 330 boe/d (29 bbls/d oil and NGLs and 1,809 Mcf/d of natural gas).

Reserves, Production and Cash Flow Information

Reserves and production information for Corso as of closing is anticipated to be as follows:

Verity Solara
(1) (2) (3) (2) (3) Total
Production
-Oil (bbls/d) 106 131 237
-Natural gas (Mcf/d) 1,879 354 2,233
-NGL (boe/d) 2 14 17
-Total (boe) 421 204 625
Proved, Developed, Producing
-Oil (Mbbl) 140.7 235.0 375.7
-Natural gas (MMcf) 5,705.9 967.0 6,672.9
-NGL (Mbbl) 21.7 35.0 56.7
Proved, Developed, Non-Producing
-Oil (Mbbl) 30.7 70.0 100.7
-Natural gas (MMcf) 37.8 500.0 537.8
-NGL (Mbbl) 0.0 7.0 7.0
Proved, Undeveloped
-Oil (Mbbl) 385.6 70.0 455.6
-Natural gas (MMcf) 991.4 118.0 1,109.4
-NGL (Mbbl) 0.9 8.0 8.9
Probable
-Oil (Mbbl) 160.7 353.0 513.7
-Natural gas (MMcf) 1,847.4 878.0 2,725.4
-NGL (Mbbl) 6.3 18.0 24.3
Notes:
(1) Includes Long Coulee production of 179 boe/d and Long Coulee reserves of 293,400 Proven and 387,600 Proven and Probable.
(2) Verity reserves are based upon the NI 51-101 Reserve Report of AJM/Deloitte effective as of December 31, 2011 and Solara reserves are based upon the NI 51-101 Reserve Report of GLJ & Associates effective as of December 31, 2011. Reserve estimates are in accordance with NI 51-101 and COGE reserve definitions. Solara's reserve information is available on SEDAR at www.sedar.comand the full Verity Reserve Reports are available for viewing at www.verityenergy.com.
(3) Further to the previously issued press release of August 30, 2012, the following clarifications should be noted including: estimated values above do not represent fair market value, the estimated values (NPV) are based on forecast pricing before income tax and for forecast pricing for Solara, see Solara's summary of reserves at www.sedar.comand for Verity forecast pricing, see Verity's summary of reserves at www.verityenergy.com.

As indicated above, on the closing of the Amalgamation, Corso's production is estimated to be 625 boe/d and assuming the Long Coulee sale is completed, production will be approximately 446 boe/d. Assuming completion of the planned drilling and work-over program in Q4 (and assuming the sale of the Long Coulee property) Corso is expected to exit 2012 with production of approximately 657 boe/d. Cash Flow of Corso (assuming the sale of the Long Coulee property is completed) is anticipated to average $450,000 per month during Q4 and Corso forecasts 2013 Cash Flow to be approximately $9.7 million.

Amalco Board of Directors and Management

On closing of the Amalgamation, the Corso Board of Directors is expected to be comprised of a total of five directors, namely, Ross O. Drysdale, David Hall, John C. Zang, James Schmitt and one other independent director to be announced. The current Verity management team will assume the management role of Corso and will hold the following positions:

  • John C. Zang - President and Chief Executive Officer
  • Denny Chow - Chief Financial Officer
  • James Schmitt - Vice President, Operations
  • Jeff Werner - Exploration Manager

Private Placement and Capitalization

The Amalgamation Agreement provides that upon closing, Corso must have working capital of not less than $3 million. This working capital requirement contemplates the raising of new capital through a private placement and debt financing of Corso. Solara and Verity plan to complete a private placement of equity and/or subordinated convertible debentures (the "Debentures") for up to $10 million to be completed in conjunction with the Amalgamation (the "Private Placement"). The funds from the Private Placement will assist Corso in undertaking its optimization and development drilling program and provide sufficient working capital to Corso to service its capital and operating costs. Solara and Verity have received indicative approval from a lender for a conventional debt financing for Corso of approximately $14 million.

Verity and Solara currently anticipate the Private Placement to consist of Units priced at $0.20 per Unit. Each Unit will consist of one Common Share of Corso and one Common Share Purchase Warrant (the "Purchase Warrants") exercisable at any time until June 30, 2014 at an exercise price of $0.20 per Purchase Warrant. In the event that the Private Placement is concluded in accordance therewith, a total of 25 million Corso Common Shares will be issued together with 25 million Purchase Warrants. If the Debentures are issued, it is contemplated that up to 25 million Corso Common Shares will be issued on the conversion of the Debentures. Verity and Solara maintain the right to modify or otherwise amend the terms of the Private Placement.

Pro Forma Capitalization

The following table sets forth the pro-forma capitalization of Corso as at June 30, 2012 assuming completion of the Amalgamation.

Security Amount Authorized or to be Authorized Amount Outstanding after giving effect to the Amalgamation
Credit Facility $14,000,000 $11,565,280
Common Shares Unlimited 50,000,000
Preferred Shares Unlimited Nil

Selected Pro Forma Financial Information

The following table sets out certain pro forma financial information for: (i) Solara and Verity as at June 30, 2012 before giving effect to the Amalgamation: and (ii) Corso as at and for the period ended June 30, 2012 after giving effect to the Amalgamation.

As at and for the period ended June 30, 2012 (1 )
Solara before giving effect to the Amalgamation Verity before giving effect to the Amalgamation (1 ) Corso after giving effect to the Amalgamation
(expressed in thousands of $, except per share amounts )
Petroleum and Natural Gas Sales 2,467 2,413 4,880
Royalties 317 110 427
Operating expenses 913 1,453 2,366
Net loss (748 ) (1,055 ) (1,213 )
Per share (basic and diluted) (0.01 ) (0.07 ) (0.01 )
Total Assets 23,736 19,587 51,093
Total Liabilities 24,921 16,522 32,551
Shareholders' equity (deficiency) (1,185 ) 3,065 18,542
Note:
(1) Above information includes Verity's Long Coulee property

Capital Structure

The following tables set forth the Fully Diluted Share Capital of Corso after giving effect to the Amalgamation and the proposed Private Placement.

Corso Shares Outstanding (MM)
Initial Common Shares to be issued on Amalgamation 50.0
Private Placement Shares 50.0
Private Placement Warrants (priced at $0.20 per Warrant) 50.0
Options (priced at $0.20) 5.0
Total shares outstanding (fully diluted) 155.0
Capitalization
Bank Operating Line $ 14.0
Bank Acquisition and Development Line (Unused) $ 2.0
Estimating Working Capital $ 5.0

Funds Available

After giving effect to the Amalgamation and the Private Placement, Corso anticipates having available working capital of approximately $3 million. Corso expects that on the closing of the Amalgamation it will complete the Private Placement raising a total of $10 million (prior to financing costs) and will have an available bank line of credit of not less than $14 million. It is expected that (assuming completion of the Private Placement), Corso will have non-material cash on hand and will have drawn on its line of credit (not including any additional funds available through an acquisition and development line of credit) of approximately $11 million.

In addition, both Solara and Verity have made offers to certain of their creditors by which they have proposed to pay to those creditors' amounts invoiced by them by way of payment of a cash portion totaling 20% of the invoiced amount, 30% through the issuance of shares of Corso and 25% through a convertible debenture. The total amounts subject to these proposals in the case of Verity is approximately $3.5 million and in the case of Solara is approximately $4 million. To date Solara has received 60% approval to the proposal and anticipates a higher rate of approval in the next 30 days and Verity is in the process of receiving approvals in the next 30 days. It is possible that Corso will choose to dispose of certain of its non-core assets in order to make available additional capital, pay down debt or to otherwise fulfill its corporate needs.

Strategic Rationale

Solara and Verity believe that there are a number of benefits to their respective shareholders which are anticipated to result from the Amalgamation, including;

  • The Amalgamation creates a well positioned junior oil and gas exploration and production company focusing on oil opportunities in Alberta.

  • Corso will have a diversified production base of crude oil and natural gas production with oil production comprising approximately 60% of the total production. As Corso pursues its development drilling and recompletion program, it will become increasingly oil weighted.

  • Corso will have an inventory of development drilling and exploration opportunities providing it with low cost production additions capable of maintaining existing production levels and provide growth in oil production.

  • Corso is expected to have the critical mass and access to capital required to compete effectively for acquisition and development opportunities.

  • For the Solara Shareholders and the Verity Shareholders who receive Corso Common Shares, the amalgamated entity is anticipated to provide Corso Shareholders with equity ownership and a larger entity with stronger growth potential from a more diverse portfolio of oil weighted properties focused on the Buck Lake (Cardium), Veteran (Viking) and Marwayne / Dewberry (Sparky) areas in Central Alberta and by reason of the technical and financial resources available to Corso to develop such properties.

  • Corso will have a strong Board of Directors and be managed by an experience team of public company professionals who have demonstrated their ability to deliver on exploration, exploitation, acquisition and financial objectives.

  • Solara and Verity anticipate that the combination of the two companies will provide critical mass and sufficient cash flow to exploit Corso's properties through an aggressive development drilling program.

  • Solara and Verity have complimentary assets and the consolidation of operating and administrative functions is anticipated to provide operating and cost efficiencies.

  • The Solara Shareholders and the Verity Shareholders will be able to continue to participate in the growth opportunities associated with the asset base of the combined company and have an established liquid market for their Corso Common Shares.

Advisory and Finders Fees

Advisory and finders fees totaling $250,000 (plus GST) are payable at closing (one-half payable by Corso Shares) to NRG Divestitures Inc. Fees will also be paid in relation to the Private Placement and the conventional bank financing that is expected to be put in place.

Resignation of Solara CEO

The Company also advises that Donald R. Holding has resigned as President, Chief Executive Officer and Director of Solara.

READER ADVISORY

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

This news release may contain certain forward-looking statements, including management's assessment of future plans, acquisitions and operations, and capital expenditures and the timing thereof, that involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. Such risks and uncertainties include, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward- looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that the Company will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

The terms bbls, bbls/d, boe, boes or boe/d may be misleading, particularly if used in isolation. A boe (barrel of oil equivalent) conversion ratio of 6 Mcf per one (1) boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

108,710,732 Class A Common Shares

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.

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