Petrobank Energy and Resources Ltd. (TSX:PBG) is pleased to
announce that we have entered into an agreement with PetroBakken
Energy Ltd. (TSX:PBN), our 57% owned subsidiary, to complete a
corporate reorganization that will see Petrobank shareholders
effectively receive Petrobank's proportionate interest in our
PetroBakken share holdings while maintaining their interest in the
remaining Petrobank assets (the "Reorganization"). Petrobank and
PetroBakken have signed an arrangement agreement detailing the
terms and conditions of the Reorganization. The Board of Directors
of each Company have approved the Reorganization, which is
anticipated to become effective on December 31, 2012 (the
"Effective Date").
Pursuant to the Reorganization, a new Alberta corporation will
be formed ("New Petrobank") which will, through a series of
transactions, directly or indirectly acquire all of Petrobank's
assets and liabilities, including our heavy oil assets, the THAI®
and related patents and cash (anticipated to be over $100 million)
(the "Heavy Oil Business"), but excluding our investment in
PetroBakken (the "PetroBakken Shares"). Existing Petrobank
shareholders will receive one share of New Petrobank for every
share of Petrobank held on the Effective Date.
Following this distribution of Petrobank's Heavy Oil Business to
New Petrobank, Petrobank and PetroBakken will, through a series of
transactions, amalgamate, with the resulting company to continue
under the name "PetroBakken Energy Ltd." ("New PetroBakken").
Existing PetroBakken shareholders will receive one share of New
PetroBakken for every share of PetroBakken held on the Effective
Date and Petrobank shareholders will receive, in aggregate, a
number of New PetroBakken shares equal to the number of PetroBakken
Shares held by Petrobank on the Effective Date. The number of New
PetroBakken shares to be received for each Petrobank share held
will be equal to the PetroBakken/Petrobank exchange ratio ("the
Exchange Ratio") on the Effective Date, which will be calculated by
dividing the number of PetroBakken shares owned by Petrobank by the
number of Petrobank shares outstanding. As of the date of this
press release, Petrobank owns 106.3 million PetroBakken shares and
has 96.3 million basic shares outstanding and 100.4 million fully
diluted shares outstanding, which would result in an Exchange Ratio
ranging between 1.10 and 1.06. The Exchange Ratio on the Effective
Date will be affected by any changes to the number of Petrobank
shares outstanding and the number of PetroBakken shares owned by
Petrobank, including any receipt of PetroBakken shares through
Petrobank's participation in PetroBakken's dividend reinvestment
plan, Petrobank shares being repurchased and PetroBakken shares
being sold under our existing share repurchase and share sale
program, and Petrobank shares being issued upon the exercise of
stock based compensation.
As a result of the Reorganization, New PetroBakken will be owned
directly by existing PetroBakken shareholders and existing
Petrobank shareholders in the same proportion as if the
Reorganization did not occur. Petrobank shareholders will also own
one New Petrobank share for each Petrobank share previously
held.
This transaction is designed to enhance long-term value for
Petrobank and PetroBakken shareholders. The Reorganization is
consistent with our long-held corporate goal of enhancing
shareholder value by creating strong, focused independent
companies. Anticipated benefits of the Reorganization include:
-- Petrobank shareholders will receive direct ownership in the shares of
New PetroBakken plus freely tradable shares in New Petrobank which will
own the Heavy Oil Business;
-- The Reorganization will eliminate the recent negative market valuation
of the Heavy Oil Business;
-- New Petrobank will have a simplified structure with an anticipated cash
balance of over $100 million, sufficient to fund operations for more
than two years at current and expected expenditure rates;
-- Existing Petrobank shareholders will receive future dividends directly
from New PetroBakken following the Reorganization;
-- The Reorganization is not expected to be cash taxable to any of the
corporate entities;
-- The Reorganization is not expected to be cash taxable to Canadian
Petrobank shareholders unless their adjusted cost base for their
Petrobank shares is less than the fair market value of New Petrobank;
and
-- The expected date of the Reorganization of December 31, 2012 may allow
U.S. Petrobank shareholders to benefit from a lower tax rate on the
transaction as the receipt of the New Petrobank shares are expected to
be treated as "qualified dividends", eligible for lower tax rates in
2012 compared to the ordinary income tax rates that are expected in
2013.
The Reorganization will not result in any changes to the
existing Board and senior management of PetroBakken. PetroBakken is
expected to continue to pursue a strategy of shareholder value
creation through growth and income. The Reorganization will not
affect the PetroBakken dividend policy and shareholders are
expected to continue to receive $0.08 per share paid on a monthly
basis. The first dividend payable on New PetroBakken common shares
is expected in mid-February for shareholders of record on January
31, 2013. New Petrobank is expected to receive the December
PetroBakken dividend, payable in mid-January in cash.
The Reorganization will not result in any significant changes to
the existing Board and senior management of Petrobank. Following
the Reorganization, New Petrobank will continue to own the Heavy
Oil Business including cash anticipated to be in excess of $100
million. New Petrobank will be a well-positioned junior heavy oil
company with significant capital, an attractive asset base, a
patented heavy oil extraction technology, and a plan to grow
production and reserve value.
The Reorganization is subject to the approval of the
shareholders of each of Petrobank and PetroBakken. It is
anticipated that a joint-management information circular containing
additional information with respect to the Reorganization will be
mailed to each Petrobank and PetroBakken shareholder in
mid-November and meetings of the shareholders of each Company will
be held in mid-December, 2012. The Board of Directors of each
Company, upon considering the recommendations of their respective
independent committees, have recommended that their shareholders
approve the Reorganization. Pending approvals from the shareholders
of each Company, approval of applicable courts, receipt of
appropriate regulatory approvals and satisfaction of other
customary closing conditions, the transaction is scheduled to
become effective on December 31, 2012.
TD Securities Inc. acted as sole financial advisor to the
independent committee of the Board of Directors of Petrobank. TD
Securities Inc. provided an opinion to Petrobank's Board of
Directors that the Reorganization is fair from a financial point of
view to Petrobank's shareholders.
The Reorganization is expected to be non-taxable to Petrobank
and PetroBakken as well as Canadian resident shareholders of
Petrobank. Canadian resident shareholders of Petrobank will split
their existing adjusted cost base ("ACB") between New Petrobank and
New PetroBakken. The fair market value of the New Petrobank shares
received will form the ACB of New Petrobank. The ACB of Petrobank
less the ACB of New Petrobank will form the ACB of New PetroBakken.
If the ACB of Petrobank is less than the ACB of New Petrobank, a
capital gain will be recognized amounting to this negative ACB
difference. Existing shareholders of PetroBakken will not have any
ACB adjustments, and will not incur any tax liability from the
Reorganization.
For U.S. shareholders of Petrobank, this transaction will be
treated as a taxable dividend according to U.S. tax laws. It is
expected that the dividend will be based on the fair market value
of the New Petrobank shares received and will be considered a
"qualified dividend" for U.S. tax purposes, subject to the reduced
tax rates applicable to long-term capital gains for individuals,
provided shareholders meet the holding-period requirements. Tax
information will be published on the websites of both Petrobank and
PetroBakken in the near future; however shareholders are encouraged
to seek the advice of their own tax professionals.
2013 BUSINESS PLAN FOR "NEW PETROBANK" AND OPERATIONS UPDATE
The business plan of New Petrobank is focused on:
-- Pursuing the commercialization of THAI® at Kerrobert;
-- Commencing cold production at Dawson to condition the reservoir for our
THAI® demonstration project;
-- Exploiting cold production opportunities on existing lands;
-- Planning for future THAI® projects - currently our existing lands
could support as many as three new THAI® projects along the Kerrobert
trend;
-- Adding more prospective resources to our land inventory; and
-- Enhancing our intellectual property portfolio and pursuing future
technology licensing opportunities through Archon.
We expect New Petrobank to enter 2013 with extensive financial
resources, a focused portfolio of heavy oil assets and a multi-year
business plan to capture the significant value potential of the
THAI® technologies and drive long term shareholder value.
During Q3 2012, production averaged 305 barrels of oil per day
(bopd), an increase from 236 bopd in Q2 2012. We have focused on
increasing air injection and continue to target much higher
injection and production rates in the near future.
At Dawson, we have commenced cold oil production at the first of
the two horizontal THAI® production wells. We expect to initiate
cold production at the second well before the end of 2012. These
wells are expected to produce for a period of time to pre-condition
the reservoir for start-up of the THAI® demonstration project.
Petrobank has reactivated eight wells in the Kerrobert trend
lands for cold production. All of these wells are in the early
stages of clean-up and production. We expect to drill four
stratigraphic wells in Q4 2012 to better define our resources in
the Luseland area. We expect to complete these four wells for cold
production in 2013 as part of our plan to opportunistically exploit
the primary production potential of our assets.
During 2012, we have purchased additional lands on the Kerrobert
channel trend and currently own approximately 25 sections of land
in Saskatchewan. We continue to evaluate the THAI® potential and
initial planning is underway for up to three new THAI®
projects.
At Archon, we continue to enhance our existing patents and
progress new processes which have applicability for THAI® and
beyond. We continue to receive international interest for the THAI®
process and several discussions are ongoing. Due to the
complexities of dealing with international parties, we cannot
comment on when or if these discussions will lead to agreements to
license the THAI® patents.
At the end of Q3 2012, Petrobank was well positioned
financially. We had approximately $86 million of positive working
capital, including $96 million of cash. To October 29, 2012, we had
repurchased 3.5 million Petrobank shares and sold the equivalent
number of PetroBakken shares under our renewed Normal Course Issuer
Bid and PetroBakken share sale plan. Under this plan, we have
netted approximately $1.1 million of proceeds to Petrobank since
September 2012. As mentioned above, we expect to have over $100
million of cash in New Petrobank. The additional cash is expected
to come from proceeds from the normal exercise of Petrobank's
existing stock based compensation and the receipt of PetroBakken's
December dividend in January 2013.
IN MEMORIAM
We are sad to announce that the Chairman of Petrobank, Jerald L.
Oaks, passed away September 28. Jerry had been a Director of
Petrobank since September 1993 and was a key player in the
formation and strategic growth of the entire Petrobank group of
companies. Jerry was the perfect epitome of a good man and a gentle
man. He defined the word "gentleman". He was always supportive,
positive and encouraging and able to express strong views and
opinions in a gentle, respectful way. We will miss his guidance,
wisdom, humor and friendship.
INVESTOR WEBCAST AND CONFERENCE CALL
Management of Petrobank will be holding a webcast and conference
call for investors, financial analysts, media and any interested
persons on Tuesday, October 30, 2012 at 9:00 a.m. Mountain Time
(11:00 a.m. Eastern Time) to discuss the Reorganization, our 2013
business plan for New Petrobank and an operations update. Petrobank
will introduce a new investor presentation at this time. The
investor webcast and conference call details are as follows:
Live call dial-in number(s): 416-340-8530 / 877-240-9772
The live audio webcast link is:
http://events.digitalmedia.telus.com/petrobank/103112/index.php and
is also available on our website at:
http://www.petrobank.com/investors/presentations-webcasts.
Petrobank Energy and Resources Ltd. is a Calgary-based oil and
natural gas exploration and production company with operations in
western Canada. The Company currently operates high-impact projects
through two business units and a technology subsidiary. Petrobank's
57% currently owned TSX-listed subsidiary, PetroBakken Energy Ltd.
(TSX:PBN), is an oil and gas exploration and production company
combining light oil Bakken and Cardium resource plays with
conventional light oil assets. Whitesands Insitu Partnership, a
partnership between Petrobank and its wholly-owned subsidiary
Whitesands Insitu Inc., applies Petrobank's patented THAI® heavy
oil recovery process in the field. THAI® is an evolutionary in-situ
combustion technology for the recovery of bitumen and heavy oil.
THAI® and CAPRI® are registered trademarks of Archon Technologies
Ltd., a wholly-owned subsidiary of Petrobank Energy and Resources
Ltd., for specialized methods for recovery of oil from subterranean
formations through in-situ combustion techniques and methodologies
with or without upgrading catalysts. Used under license by
Petrobank Energy and Resources Ltd.
Forward-Looking Statements. Certain information provided in this
press release constitutes forward-looking statements. Specifically,
this press release contains forward-looking statements relating to
the terms of and timing for completion of the Reorganization,
timing of mailing of shareholder materials and holding of
shareholder meetings, payment of future dividends, expected tax
treatment of the Reorganization and the future business of
Petrobank and PetroBakken. Forward-looking statements are
necessarily based upon assumptions and judgments with respect to
the future including, but not limited to, the receipt of required
shareholder and regulatory approvals and satisfaction of other
conditions to the Reorganization, the outlook for commodity markets
and capital markets, the performance of producing wells and
reservoirs, well development and operating performance, general
economic and business conditions, weather, the regulatory and legal
environment and other risks associated with oil and gas operations.
The reader is cautioned that assumptions used in the preparation of
such information, although considered reasonable at the time of
preparation, may prove to be incorrect. Actual results achieved
during the forecast period will vary from the information provided
herein as a result of numerous known and unknown risks and
uncertainties and other factors. You can find a discussion of
certain of those risks and uncertainties in our Canadian securities
filings. Such factors include, but are not limited to: general
economic, market and business conditions; fluctuations in oil
prices; the results of exploration and development drilling,
recompletions and related activities; timing and rig availability,
outcome of exploration contract negotiations; fluctuation in
foreign currency exchange rates; the uncertainty of reserve
estimates; changes in environmental and other regulations; risks
associated with oil and gas operations; risks associated with the
approval of the Reorganization by our shareholders, the receipt of
regulatory approvals, the satisfaction of other conditions to the
Reorganization, and other factors, many of which are beyond the
control of Petrobank and PetroBakken. There is no representation by
Petrobank or PetroBakken that actual results achieved during the
forecast period will be the same in whole or in part as those
forecast. Except as may be required by applicable securities laws,
neither Petrobank nor PetroBakken assumes any obligation to
publicly update or revise any forward-looking statements made
herein or otherwise, whether as a result of new information, future
events or otherwise.
Contacts: Petrobank Energy & Resources Ltd. John D. Wright
President and Chief Executive Officer 403.750.4400 Petrobank Energy
& Resources Ltd. Chris J. Bloomer Senior Vice President and
Chief Operating Officer, Heavy Oil 403.750.4400 Petrobank Energy
& Resources Ltd. Peter Cheung Vice President Finance and Chief
Financial Officer 403.750.4400 Petrobank Energy & Resources
Ltd. Suite 3000, 355 - 8th Avenue S.W. Calgary, Alberta, T2P 1G1
403.750.4400 403.266.5794 (FAX)ir@petrobank.com
www.petrobank.com