Touchstone Exploration Inc.
TSX VENTURE : TAB

Touchstone Exploration Inc.

May 11, 2011 09:42 ET

Touchstone Announces Proposed Acquisition of Interests in Oil and Gas Properties in Trinidad and Tobago and (CDN)$30,000,000.00 Subscription Receipt Financing

CALGARY, ALBERTA--(Marketwire - May 11, 2011) -Touchstone Exploration Inc., (TSX VENTURE:TAB) ("Touchstone" or "the Company") is pleased to provide an update to its press release dated April 20th, 2011, regarding Touchstone's proposed acquisition of 100% of C L Financial Ltd.'s ("C L Financial") equity interest in Primera Oil & Gas Ltd., Primera Oilfield Management Services Ltd. and Primera East Brighton Ltd. (collectively, the "Primera Group") through the Company's wholly-owned Trinidad subsidiary Territorial Services Limited. Touchtsone had announced in this earlier press release that it had been selected as the preferred bidder by C L Financial with respect to the sale of C L Financial's equity interests in the Primera Group.

The Primera Group consists of equity interests in three privately owned Trinidad-based companies engaged in the exploration for and development and production of oil and gas reserves in Trinidad and Tobago. The underlying assets associated with the Primera Group consists of 16 oil and gas properties comprising 7 on-shore producing oil and gas properties, 1 on-shore exploration property, 1 offshore exploration property and 7 undeveloped properties. All of the properties are located within the Southern Sedimentary and Columbus Basins of Trinidad and Tobago which have a long production history. One of the three private companies to be acquired, Primera Oilfield Management Services Ltd., holds a 42% equity interest in Primera Energy Resources Ltd. ("Primera Energy"), a Canadian public company listed on the TSX Venture Exchange (TSXV: PTT). Touchstone will also acquire technical support, equipment and equipment rentals as well as various administrative and management services with respect to the exploration, development and production of crude oil and natural gas resources in the Trinidad & Tobago region.

The proposed transaction is expected to add over 450 barrels of oil per day of production thereby doubling Touchstone's current production base and hence offering material economies of scale. The Company's field netbacks are expected to increase by over 35% from approximately $24.25 per barrel to over $33.00 per barrel on a proforma basis . Following the transaction, Touchstone will have access to over 1,000 wellbores, ten (10) operated production facilities, one drilling rig and ten service rigs. The Company has identified an initial inventory of over 500 workover operations and 47 drilling locations. The Primera Group also includes a 33.8% direct ownership and a 16.2% indirect interest, through its holdings in Primera Energy, in a light oil discovery at Cory Moruga. The operator of Cory Moruga announced earlier this year, a successful exploration test which tested initial rates of 1,450 barrels of oil per day and up to 6.2 million cubic feet of natural gas per day.

Touchstone's original non-binding proposal set a gross valuation for the C L Financial equity interest of (US)$66.4 million which, net of anticipated assumed liabilities of $16.0 million, equates to a purchase price payable of (US)$50.4 million, which is subject to further downward adjustment with respect to, among other things, the exercise of existing rights of first refusal pertaining to certain oil and gas interests. An aggregate of (US)$23.3 million of the purchase price will be financed by way of vendor take-back notes due two (2) years from closing bearing coupon interest at a rate of 8% per annum and secured exclusively against Primera Group's assets. Payments pursuant to rights of first refusal could result in a further reduction of the purchase price and a consequential reduction in or elimination of the vendor take-back notes by a corresponding amount.

In connection with the proposed acquisition, Touchstone has entered into an engagement agreement with Paradigm Capital Inc. and FirstEnergy Capital Corp. as lead agents of a syndicate comprised of Canaccord Genuity Corp., CIBC World Markets Inc., Fraser Mackenzie Ltd. and Haywood Securities Inc. (collectively the "Agents") pursuant to which these parties will act as agents to Touchstone with respect to a marketed "best efforts" equity private placement available to eligible subscribers in all Provinces of Canada except those resident in the Provinces of Quebec, Prince Edward Island and Newfoundland and Labrador (referred to herein as the "Qualifying Provinces") in reliance upon certain exemptions from the prospectus requirements under applicable Canadian securities laws, with certain accredited investors in the United States pursuant to Rule 144A or Regulation D under the United States Securities Act of 1933, as amended, as well as eligible subscribers in other foreign jurisdictions pursuant to private placement exemptions under applicable securities laws in such jurisdictions. Pursuant to the terms of the engagement agreement, Touchstone has agreed to issue subscription receipts ("Subscription Receipts") for aggregate gross proceeds of (CDN)$30,000,000. The Subscription Receipts will be priced in the context of the market with the final terms of the private placement to be determined at the time of pricing. Each Subscription Receipt will entitle the holder, without payment of any additional amount or further action, to receive one common share of the Company (an "Underlying Common Share"), subject to the Liquidity Penalty (as defined below) and customary anti-dilutive provisions, upon the satisfaction of the certain Escrow Release Conditions (as defined below).

The gross proceeds from the issue of the Subscription Receipts (the "Escrowed Funds") will be held by a Canadian trust company or other escrow agent acceptable to the Company and the Agents under the guidelines of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund and invested in short-term obligations of, or guaranteed by, the Government of Canada (and other approved investments). The Escrowed Funds and accrued interest will be released to Touchstone, for payment of the purchase price for the proposed acquisition of the Primera Group, upon satisfaction of certain escrow release conditions on or before 5:00 p.m. (Calgary time) on July 30, 2011 (the "Acquisition Deadline"). Such escrow release conditions (the "Escrow Release Conditions") will include:

(a) the definitive share purchase agreement with respect to the acquisition of the Primera Group (the "Share Purchase Agreement") shall have been entered into in form and substance satisfactory to Paradigm Capital Inc., on behalf of the Agents, acting reasonably;

(b) all conditions, undertakings and other matters to be satisfied, completed or otherwise met prior to the completion of the proposed acquisition of the Primera Group (in accordance with the Share Purchase Agreement and without waiver of any material provision thereof, in whole or in part, by any of the parties thereto unless the consent of Paradigm Capital Inc., on behalf of the Agents, is given to such waiver) have been satisfied, completed or otherwise met, other than the payment of the consideration to be paid pursuant to the proposed acquisition for which the Escrowed Funds are required, in whole or in part;

(c) there have been no material amendments of the terms and conditions of the Share Purchase Agreement (whether directly or indirectly) which have not been approved by Paradigm Capital Inc. on behalf of the Agents acting reasonably; and

(d) the Company is not in material breach of or default under the agency agreement to be entered into between Touchstone and the Agents at or prior to closing of the offering of Subscription Receipts.

If the Escrow Release Conditions are not satisfied on or before the Acquisition Deadline, or the definitive Share Purchase Agreement is terminated or the Company announces to the public it does not intend to proceed with the acquisition at an earlier time, holders of Subscription Receipts will receive a cash payment equal to the offering price of the Subscription Receipts and any interest that was earned thereon during the term of the escrow.

Provided that the Escrow Release Conditions are satisfied on or before Acquisition Deadline, each Subscription Receipt will entitle the holder thereof to receive one common share of the Sompany (or 1.1 Underlying Common Shares subject to the Liquidity Penalty) on the exercise or deemed exercise of the Subscription Receipt.

The Subscription Receipts may be exercised by a holder at any time following satisfaction of the Escrow Release Conditions provided that any Underlying Common Shares issued prior to the issuance of the Receipt (as defined below) will continue to be subject to the applicable hold period and, if exercised prior to the Qualification Deadline (as defined below), will not be entitled to the Liquidity Penalty, if applicable.

The Subscription Receipts will be deemed to be exercised upon the satisfaction of the Escrow Release Conditions provided the Receipt has been issued. In the event the Receipt has not been issued prior to the satisfaction of the Escrow Release Conditions, the Subscription Receipts will be deemed to be exercised on the earlier of: (a) four months and a day following the closing date of the private placement, and (b) that day on which a passport system receipt (the "Receipt") for a (final) short form prospectus in the Qualifying Provinces is obtained qualifying the distribution of the Underlying Common Shares upon the exercise of the Subscription Receipts.

The Company has agreed to use its best efforts to file and obtain a Receipt and have the Underlying Common Shares listed and posted for trading on the TSX Venture Exchange (the "Liquidity Condition") within 30 days of the closing of the private placement (the "Qualification Deadline"). Each Subscription Receipt will have attached to it one right (the "Right"), each Right entitling the holder thereof to be issued an additional 0.1 of an Underlying Common Share for each Right held, at no additional cost to and without any further action on the part of such holder, if the Liquidity Condition is not satisfied before the Qualification Deadline (the "LiquidityPenalty"). Notwithstanding the foregoing, the Company has agreed to continue to use its best efforts to obtain such Receipt.

As consideration for their services in respect of the private placement, the Agents will be paid a cash commission equal to 6% of the gross proceeds raised in the private placement, one-half payable at closing of the private placement and one-half payable upon satisfaction of the escrow release conditions. Net proceeds from the sale of the Subscription Receipts will be used to fund the balance of the purchase price payable with respect to the acquisition of the Primera Group and to fund ongoing oil and gas activities and general working capital.

Closing of the private placement is anticipated to occur on or about June 7, 2011. Completion of the private placement is subject to customary conditions and regulatory approvals including the filing and acceptance of all required documentation from the TSX Venture Exchange.

Settlement of the Share Purchase Agreement is anticipated shortly and the closing of the proposed acquisition of the Primera Group is anticipated to occur on or about July 30, 2011. Terms and conditions of the proposed acquisition of the Primera Group are non-binding and completion of the transactions described above are subject to a number of conditions, including but not limited to: Touchstone's current review of the most recent financial statements of the Primera Group; execution and delivery of a Share Purchase Agreement; Trinidad & Tobago government consent; and the filing and acceptance of all required documentation from the TSX Venture Exchange with respect to the proposed acquisition. There can be no assurance that the proposed transactions will be completed as proposed or at all. Investors are referred to the specific risks and uncertainties applicable to the oil and gas industry generally, and Touchstone's operations in Trinidad and its securities specifically, as set out in Touchstone's Annual Information Form and the most recent management discussion and analysis, which may be viewed with other Touchstone disclosure documents through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

Investors are cautioned that, except as disclosed in the Company's continuous disclosure documents prepared from time to time or as required in connection with the proposed transactions, any information released or received with respect to the transactions described above may not be accurate or complete and should not be relied upon. The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transactions and trading in the securities of a the Company should be considered highly speculative.

Included in this news release are references to certain financial measures commonly used in the oil and gas industry, such as operating netbacks. These measures have no standardized meanings, are not defined by Canadian generally accepted accounting principles ("GAAP"), and accordingly are referred to as non-GAAP measures. These measures are used by management to assess operating results between periods and between peer companies as they provide an indication of the results generated by the Company's principal business activities before they are taxed and how efficiently its resources are replaced. Touchstone determines operating netbacks as production revenue less royalty, transportation and operating expenses. The Company's reported amounts may not be comparable to similarly titled measures reported by other companies. These terms should not be considered an alternative to, or more meaningful than, cash provided by operating, investing and financing activities or net income as determined by Canadian GAAP as an indicator of the Company's performance or liquidity.

This news release is not for distribution to United States newswire services, should not be disseminated in the United States and does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities of Touchstone Exploration Inc. have not been registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

The companies in which Touchstone Exploration Inc. directly and indirectly owns investments or assets are separate entities. In this news release "Touchstone" are sometimes used for convenience where references are made to Touchstone Exploration Inc. and its subsidiaries in general.

Cautionary Note Regarding Forward-looking Statements: Information in this press release that involves Touchstone's expectations, plans, intentions or strategies regarding the future are forward-looking statements that are not facts and involve a number of risks and uncertainties. Touchstone generally uses words such as "outlook," "will," "could," "would," "might," "remains," "to be," "plans," "believes," "may," "expects," "intends," "anticipates," "estimate," "future," "plan," "positioned," "potential," "project," "remain," "scheduled," "set to," "subject to," "upcoming," and similar expressions to help identify forward-looking statements. Forward-looking information in this press release may include, but is not limited to, information with respect to the timing for and completion of the proposed acquisition of the Primera Group and Subscription Receipt offering and the issuance of the Underlying Common Shares pursuant to the Subscription Receipts. The forward-looking statements in this press release are based upon information available to Touchstone as of the date of this press release. Forward-looking statements believed to be true when made may ultimately prove to be incorrect. These statements are not guarantees of the future performance of Touchstone and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding and are implicit in, among other things, the ability of Touchstone to complete the proposed acquisition of the Primera Group and Subscription Receipt offering as described in this press release and, once completed, to realize the anticipated benefits of such acquisition and the timely receipt of any required regulatory approvals. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used.For further information regarding specific risks and uncertainties applicable to Touchstone please see Touchstone's Annual Information Form and the most recent management discussion and analysis, which may be viewed with other Touchstone disclosure documents through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. Touchstone does not undertake any obligation to publicly update forward-looking information except as required by applicable securities law.

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 news release.

Contact Information

  • Touchstone Exploration Inc.
    Mr. Paul Baay
    Chairman & Chief Executive Officer
    (403) 992 - 8407