Apr 11 - Border Petroleum Announces Business Combination and Completion of Asset Purchase

Source Press Release
Company Border Petroleum Limited 
Tags Deals, Upstream Activities
Date April 14, 2011

Border Petroleum Corp. is pleased to announce it has entered into an agreement dated April 8, 2011 with a private, Alberta based oil and natural gas exploration and production company ("PrivateCo"), to complete a business combination pursuant to which Border will acquire all of the issued and outstanding shares of PrivateCo (the "Transaction"). The Transaction is arm's length and subject to the policies of the TSX Venture Exchange Inc. ("TSXV").

Summary of the Transaction

Pursuant to the Transaction, Border will acquire approximately 20,794 net acres (32.5 sections) of land primarily in central Alberta and the greater Red Earth area of north central Alberta in consideration for the issuance of approximately 36.54 million common shares of Border ("Border Shares").

The Transaction has the following characteristics:

Current Production:  Approximately 220 Boepd (25% light oil and NGL's) 
Proved plus Probable Reserves(i):  3.2 MMBOE (75% light oil and NGL's) 
Proved RLI:  14.7 years 
Undeveloped Land:  20,794 net acres 
(i) As evaluated effective December 31, 2010 by DeGolyer and MacNaughton Canada Limited. 

Mr. Kelly Kimbley, Border's President and CEO, stated, "The Transaction will add a new core area for Border with multi-zone light oil potential and year round access allowing Border to carry on development activities during periods when access to its Red Earth core area is limited. The Transaction also adds 220 boepd of production and significant proven light oil reserves to Border's current asset base. Finally, the undeveloped land component of the transaction gives Border the opportunity to do significant additional development drilling aimed at transitioning the substantial quantity of PrivateCo's probable reserves into proven reserves."

Details of the Transaction

The Transaction is subject to certain conditions, including the completion of due diligence. The Transaction is anticipated to be structured such that PrivateCo will amalgamate with a newly incorporated, wholly owned subsidiary of Border. Pursuant to the Transaction: (i) the holders of debentures of PrivateCo ("PrivateCo Debentures") will receive a maximum of 6,225,800 Border Common Shares; and (ii) the holders of common shares of PrivateCo ("PrivateCo Shares") will receive four (4) Border Shares for each PrivateCo Share with a deemed price of $0.30 per share, resulting in the issuance of a total of approximately 36.54 million Border Shares to the holders of PrivateCo Debentures and PrivateCo Shares combined. All other existing options, warrants or securities convertible into PrivateCo Shares shall be cancelled. In conjunction with the Transaction, Border will also assume PrivateCo's existing net debt with a Canadian bank of approximately $1.6 million. Seventy five percent (75%) of the Border Shares issued to the shareholders of PrivateCo will be subject to a voluntary hold period of four months from the date of closing of the Transaction.

All existing officers, directors, as well as certain shareholders of PrivateCo, who hold in aggregate not less than 70% of the outstanding PrivateCo Shares, have entered into support agreements with Border to vote their PrivateCo Shares in favour of the Transaction.

Upon completion of the Transaction, the holders of PrivateCo Debentures and PrivateCo Shares will hold approximately 34% of the issued and outstanding Border Shares.

In the event that the Transaction is not completed, PrivateCo has agreed to pay Border a break fee.

The Transaction is subject to all necessary regulatory approvals (including the TSXV) and security holder approval of PrivateCo. In connection with the Transaction, the Company will complete all necessary filings, including, if required, preparing a "business acquisition report" ("BAR"), in accordance with National Instrument 51-102 – Continuous Disclosure Obligations, which BAR may include a copy of the financial statements of PrivateCo, as summarized below.

Farmout and Purchase and Sale Agreement

Border is also pleased to announce that it has entered into a purchase and sale agreement (the "PSA") dated April 11, 2011 with a private company (the "Vendor") to acquire certain interests and assets under a farmout agreement between PrivateCo and the Vendor (the "Farmout") pertaining to PrivateCo's land. Under the PSA, Border acquired: (i) a test well drilled under the Farmout; (ii) 1.25 net sections of land; (iii) the option to drill subsequent wells on PrivateCo's lands earning on a well by well basis; and (iv) a right of first refusal to acquire all other PrivateCo lands. Pursuant to the PSA, Border paid consideration of $2,572,265, consisting of (i) $1,000,000 cash; and (ii) the issuance of a promissory note of Border in the amount of $1,572,265 which bears an interest rate of 7% compounded annually for a period of two (2) years from the date of issuance and is convertible into Border Shares at a price of $0.30 per share for a period of two (2) years from the date of issuance of the promissory note.

Reserves Summary

The following is a summary of the oil and natural gas reserves associated with the Transaction and PSA according to independent reserve reports (the "Reports") prepared by DeGolyer and MacNaughton Canada Limited ("DeGolyer") dated March 16, 2011 and March 22, 2011, with both effective as at December 31, 2010. The reserve estimations set forth in the Reports and summarized below were prepared in accordance with the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.

According to the Reports, the forecast price schedule is as follows, assuming escalate oil, gas and product prices at 2% per year thereafter:

Year  Oilfield Costs Inflation
Edm. Light Oil
Alberta Plantgate
2010  1.6  0.971  77.63  3.98 
2011  0.0  0.980  89.30  3.98 
2012  2.0  0.980  92.13  4.69 
2013  2.0  0.980  95.04  5.38 
2014  2.0  0.980  98.02  6.02 
2015  2.0  0.980  101.08  6.31 
2016  2.0  0.980  103.11  6.44 
2017  2.0  0.980  105.17  6.58 
2018  2.0  0.980  107.27  6.72 
2019  2.0  0.980  109.42  6.87 
2020  2.0  0.980  111.60  7.01 
2021  2.0  0.980  113.84  7.16 
2022  2.0  0.980  116.11  7.31 
2023+  Escalate oil, gas and product prices at 2.0% per year thereafter 

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

There is no assurance that the cost assumptions contained in the Reports will be attained and variances could be material. Other assumptions and qualifications relating to costs and other matters are included in the Reports. The recovery and reserves estimates on PrivateCo's properties described herein are estimates only. The actual reserves on PrivateCo's properties may be greater or less than those calculated. The estimates in these tables use forecast prices and costs by DeGolyer as at December 31, 2010. Net present values of future net revenue do not represent fair market value.

  Remaining Reserves as of December 31, 2010 
Reserve Category  Light Crude Oil  Natural Gas  NGL 
Gross  Net  Gross  Net  Gross  Net 
  Mbbl  Mbbl  MMcf  MMcf  Mbbl  Mbbl 
Proved Developed             
  Producing  42  39  1,280  1,173  22  21 
  Non-Producing  54  49  462  438 
Proved Undeveloped  630  510  768  765 
Total Proved  725  598  2,510  2,377  36  33 
Probable  1,629  1,320  2,385  2,329  18  17 
Total Proved + Probable  2,355  1,918  4,894  4,705  54  50 

Based on the Forecast Price Case, estimated future net revenue and net present value of future net revenue before income tax attributable to PrivateCo's net interests in the proved developed producing, total proved developed, total proved and proved-plus-probable reserves are summarized as follows, expressed in thousands of Canadian dollars (M$):

  Future Net Revenue Before Income Tax as of December 31, 2010 
    Undiscounted  Discounted 
Reserve Category        at 5%      at 10%      At 15%      at 20% 
    M$      M$      M$      M$      M$ 
Proved Developed                     
  Producing    4,516    3,959    3,500    3,120    2,803 
  Non-Producing    3,267    2,938    2,653    2,402    2,180 
Proved Undeveloped    17,219    13,087    9,988    7,616    5,766 
Total Proved    25,002    19,984    16,141    13,138    10,749 
Probable    64,468    49,138    38,146    30,038    23,909 
Total Proved + Probable    89,470    69,122    54,287    43,176    34,658 

Selected Financial Information

Based on the unaudited management prepared financial statements of PrivateCo for the nine months ended December 31, 2009, PrivateCo had net revenue of $2,060,213, total expenses of $3,853,117 and incurred a net loss of ($1,792,861). In addition, for the year ended March 31, 2010, PrivateCo had total assets of $13,497,145, current liabilities of $4,018,937, deficit of ($4,012,331) and shareholders' equity of $8,810,648.

Based on the unaudited management prepared financial statements of PrivateCo for the nine months ended December 31, 2010, PrivateCo had net revenue of $2,266,369, total expenses of $4,473,801 and incurred a net loss of ($2,207,432). In addition, as at December 31, 2010, PrivateCo had total assets of $11,020,391, current liabilities of $3,712,039, deficit of ($6,219,738) and shareholders' equity of $6,603,241.

Financial Advisor

Canaccord Genuity Corp. has acted as financial advisor to Border with respect to the Transaction and the PSA.

Option Grant

The Company also announces that it is granting stock options to certain directors, officers, employees and consultants to purchase an aggregate of 2,400,000 Border Shares exercisable at $0.305 per share for a period of five years.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd