Veraz Petroleum Ltd.
TSX VENTURE : VRZ

Veraz Petroleum Ltd.

June 04, 2012 11:43 ET

Veraz Petroleum Announces Sale of Assets to Petrominerales

CALGARY, ALBERTA--(Marketwire - June 4, 2012) - Veraz Petroleum Ltd. ("Veraz") (TSX VENTURE:VRZ) is pleased to announce that it has entered into a purchase and sale agreement and related arrangement agreement (the "Agreements") with Petrominerales Ltd. ("Petrominerales") pursuant to which Petrominerales will acquire all of the shares of Veraz's subsidiary, Veraz Petroleum Peru S.A.C. ("Veraz Peru"), by way of plan of arrangement under the Business Corporations Act (Alberta) (the "Transaction").

Summary of the Transaction

Under the terms of the Transaction, Petrominerales will acquire the shares of Veraz Peru for total consideration of US$5 million, payable in common shares of Petrominerales ("PM Transaction Shares"). The number of PM Transaction Shares issuable will be calculated by dividing US$5 million (converted into Canadian dollars on the day prior to the closing date) by the volume weighted average trading price of Petrominerales' shares on the Toronto Stock Exchange for the five trading days prior to the closing date of the Transaction. Concurrent with closing the Transaction, Veraz will distribute a minimum of US$3 million of the PM Transaction Shares to Veraz's shareholders as a return of capital. The total number of PM Transaction Shares to be distributed to Veraz's shareholders at closing, and the portion of a PM Transaction Share to be distributed in respect of each issued and outstanding Veraz common share (a "Veraz Share"), will be determined by Veraz's board of directors (the "Board") and will be disclosed on or prior to the closing date by way of press release. The Board intends to distribute the maximum number of PM Transaction Shares possible, while retaining a sufficient number of PM Transaction Shares to ensure that it has sufficient financial resources to discharge Veraz's Transaction costs and continuing obligations as a public company.

The Transaction will be completed pursuant to the Agreements and a plan of arrangement which contain certain conditions precedent, including the approval of at least two-thirds of the votes cast by Veraz shareholders at a special meeting (the "Veraz Meeting") to be called to consider the Transaction and other customary regulatory, stock exchange, court and other approvals. The Agreements prohibit Veraz from soliciting other offers for any of the shares or assets of Veraz Peru.

An information circular outlining the Transaction is expected to be mailed to Veraz shareholders in late June or early July 2012. Shareholders of record will be entitled to vote on the Transaction and related matters at the Veraz Meeting, which is expected to be held on or about July 24, 2012. Assuming that all approvals are obtained and that all other conditions precedent are satisfied, closing of the Transaction will occur as soon as possible following the Veraz Meeting.

Plans for Veraz

Veraz Peru holds all of Veraz's oil and gas assets, being its 20% non-operated interest ("Oil and Gas Interests") in exploration Blocks 126, 141 and 161 (the "Exploration Blocks"). Following closing of the Transaction, Veraz will not have an active business and its only material assets will be the PM Transaction Shares that it does not distribute to Veraz shareholders and its working capital.

Veraz intends to sell the PM Transaction Shares that it does not distribute to Veraz shareholders and to use the net proceeds of such sale (together with Veraz's working capital) to satisfy Veraz's liabilities (including financial advisory, severance, legal and accounting costs incurred in connection with the Transaction) and to fund Veraz's ongoing working capital requirements as a public company. The Board intends to consider strategic alternatives for Veraz following the closing of the sale of Veraz Peru.

Veraz will also seek shareholder approval at the Veraz Meeting to consolidate the Veraz Shares on a 3 to 1 basis following the closing of the Transaction. The consolidation will be subject to the approval of at least two-thirds of the votes cast by Veraz shareholders at the Veraz Meeting and the approval of the TSX Venture Exchange. Veraz currently has 53,523,580 Veraz Shares outstanding, and following the proposed consolidation will have 17,841,193 Veraz Shares outstanding. The Board believes that the proposed consolidation will facilitate its pursuit of strategic alternatives for Veraz following closing.

Rationale for the Transaction

Although Veraz had originally anticipated being in a position to fund its financial obligations on both the La Colpa 2X well and the Sheshea 1X well on Block 126 based on the original budgets for these wells and related infrastructure, the project experienced weather and contractor related cost overruns for the drilling of the La Colpa 2X well and related logistics support and infrastructure work. This has left Veraz unable to fund its participation in the Sheshea 1X well absent additional financing. Veraz explored various financing and strategic alternatives and retained FirstEnergy Capital Corp. ("FirstEnergy") to assist it in this regard, however, the combination of challenging capital markets for the resource sector and the failure to encounter commercial hydrocarbon resources in the La Colpa 2X well resulted in Veraz being unable to secure the financing necessary to fund further exploration activities on the Exploration Blocks.

Veraz Peru is currently in default under the joint operating agreements ("JOAs") governing the parties' interests in the Exploration Blocks for failure to pay outstanding cash calls and Petrominerales has issued default notices to Veraz Peru. As a result, Veraz Peru does not have access to information in respect of the Exploration Blocks and is unable to transfer its Oil and Gas Interests to a third party without Petrominerales' consent. Under normal circumstances, Petrominerales would also be in a position to pursue its remedies under the JOAs, including its remedy to cause Veraz Peru to forfeit its interests in the Exploration Blocks to Petrominerales without compensation. However, Petrominerales has agreed not to enforce its remedies under the JOAs provided that the Transaction closes in accordance with the terms and conditions of the Agreements.

Veraz's management and Board believe that the Transaction will have the following benefits for Veraz and its shareholders:

  • Veraz shareholders will have the opportunity to continue to participate in Veraz's Oil and Gas Interests, including the Sheshea 1X well that Petrominerales has indicated will commence drilling in July 2012;
  • Veraz shareholders will be gaining exposure to a well capitalized exploration and production company with significant operations in Colombia that has the financial resources to fund the exploration and development of Veraz's assets;
  • Veraz shareholders will have the ability to participate in any upside in Petrominerales' shares;
  • The distribution of PM Transaction Shares to Veraz shareholders will be structured as a return of capital, which will be tax deferred for a Veraz shareholder who is a resident of Canada for income tax purposes so long as the shareholder's adjusted cost base in his Veraz Shares is at least equal to the fair market value of the PM Transaction Shares received; and
  • There is a liquid market for the Petrominerales' shares should Veraz shareholders elect to dispose of some or all of the PM Transaction Shares distributed to them.

Board of Director Recommendation

In light of the foregoing and other factors, and based on, among other things, the financial advice of FirstEnergy, the Veraz Board has unanimously approved the Transaction, concluded that the Transaction is fair, from a financial point of view, to Veraz shareholders and is in the best interests of Veraz and its shareholders, and has resolved to recommend that Veraz shareholders vote in favour of the Transaction.

All of the directors and officers of Veraz, who beneficially own or control an aggregate of approximately 7.1% of the Veraz Shares, have entered into support agreements with Petrominerales pursuant to which they have agreed to vote their shares in favour of the Transaction (subject to any voting restrictions that may be imposed on such persons by the TSX Venture Exchange or applicable securities laws).

Financial Advisor

FirstEnergy has acted as exclusive financial advisors to Veraz in respect of the Transaction. FirstEnergy has provided a verbal opinion to the Veraz Board to the effect that, as of the date thereof and subject to the assumptions, limitations and qualifications contained therein, the consideration to be received pursuant to the Transaction is fair, from a financial point of view, to the Veraz shareholders.

About Veraz Petroleum Ltd.

Veraz is a junior South American focused oil and gas exploration company based in Calgary, Alberta.

Forward-Looking Statements

Certain information provided in this press release constitutes forward-looking statements. The words "anticipate", "expect", "project", "estimate", "forecast", "plan" and similar expressions are intended to identify such forward-looking statements. This press release contains forward-looking statements pertaining to, without limitation, the following: the proposed terms of the Transaction; the Board's intention to distribute the maximum number of PM Transaction Shares as possible to Veraz shareholders, and in any event a minimum of US$3 million of the PM Transaction Shares, as a return of capital; the proposed timing for holding the Veraz shareholders meeting and for closing the Transaction; Veraz's plans following closing, including Veraz's intention to consider strategic alternatives for Veraz following the closing of the Transaction and to consolidate the Veraz Shares; and the benefits that Veraz and its shareholders might realize as a result of the Transaction. We have made various assumptions relating to the forward-looking statements contained herein, including in respect of our ability to obtain all requisite approvals and otherwise satisfy the conditions precedent to closing the Transaction. Although we believe that the expectations reflected in these forward-looking statements, and the assumptions on which they are made, are reasonable, undue reliance should not be placed on them as we can give no assurance that they will prove to be correct.

Since forward-looking statements address future events and conditions and are based on various assumptions, by their very nature they involve inherent risks and uncertainties that contribute to the possibility that the forward-looking statements may not be accurate, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: failure to obtain requisite third party and regulatory consents and approvals required to complete the Transaction and otherwise satisfy all of the conditions precedent to closing the Transaction; failure to close the Transaction on the terms described herein or at all; failure to distribute the number of PM Transaction Shares to Veraz shareholders indicated herein; failure to realize the anticipated benefits of the Transaction; the possibility that we will not be able to close the Transaction and that as a result of our default under the JOAs, Petrominerales will be entitled to exercise its remedies under the JOAs, which under certain circumstances could include forfeiture of our interest in our Oil and Gas Interests without compensation; failure of Veraz to identify a strategic alternative following closing of the Transaction; and the other factors described in our public filings available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this press release are made as of the date hereof and we undertake no obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

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

  • Veraz Petroleum Ltd.
    Gerardjan ("Oppe") Cosijn
    President and Chief Executive Officer
    (403) 781-7930/7931

    Veraz Petroleum Ltd.
    Colin Christie
    Vice President, Finance and Chief Financial Officer
    (403) 781-7930/7931

    Veraz Petroleum Ltd.
    200, 209 8th Avenue SW,
    Calgary, Alberta, Canada T2P 1B8
    (403) 781-7930/7931
    www.verazpetroleum.com