June 4, 2018 - 3:44 PM EDT
Print Email Article Font Down Font Up Charts


Front Range Resources Ltd. and Arrow Exploration Ltd. to Combine to Become an International E&P Company Through the Strategic Acquisition of Operations in Colombia and US$30 Million Equity Financing

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.

Final FRRL Logo Colour.jpg


CALGARY, Alberta, June 04, 2018 (GLOBE NEWSWIRE) -- Front Range Resources Ltd. (“FRK” or “Front Range”) (TSXV:FRK) and Arrow Exploration Ltd. (“Arrow”) are pleased to announce that they have entered into an arrangement agreement dated as of June 1, 2018 (the “Arrangement Agreement”) whereby FRK and Arrow will complete a business combination (the “Arrangement”) pursuant to a plan of arrangement (the “Plan of Arrangement”) under the Business Corporations Act (Alberta) (the “ABCA”).

Upon completion of the Transaction (as defined below), the resulting entity (“New Arrow”, as defined below) will be led by Gary Wine as Chief Executive Officer, John Newman as Chief Financial Officer and Jack Scott as Chief Operating Officer. The board of directors of New Arrow will consist of Bruce McDonald as Chairman, James McFarland, Dominic Dacosta, Steven Smith, Ravi Sharma and Dr. Luis Baena, in addition to Mr. Wine.

Summary of the Plan of Arrangement and Related Transactions

Pursuant to the Arrangement, among other things, each common share of Arrow will be exchanged for 8.5 common shares of FRK (“FRK Shares”) and Arrow will amalgamate with 2118295 Alberta Ltd. (“FRK Subco”), a wholly-owned subsidiary of FRK, to form an amalgamated corporation (“Amalco”), which will be a wholly-owned subsidiary of FRK. The Arrangement will constitute a reverse takeover (“RTO”) of FRK and FRK will carry on the business currently carried on by Arrow and FRK under the name “Arrow Exploration Ltd.” (“New Arrow”). New Arrow expects to be listed on the TSXV as a Tier 1 Oil and Gas issuer.

In addition, Arrow and Canacol Energy Ltd. (“Canacol”) (TSX:CNE) have entered into a share purchase agreement (the “Canacol SPA”) dated as of May 31, 2018, pursuant to which Arrow will acquire Carrao Energy Ltd. (“Carrao”), a Panamanian corporation and wholly-owned subsidiary of Canacol immediately prior to the closing of the Arrangement (“Closing”). As consideration under the Canacol SPA, Canacol will receive US$20 million cash and US$20 million in common shares of Arrow (“Arrow Shares”), subject to customary adjustments.

In connection with the Canacol SPA, Arrow and Samaria Exploration & Production S.A. (“Samaria”) have entered into an asset purchase agreement (the “Samaria APA” and together with the Canacol SPA, the “Colombia Acquisitions”) dated as of May 31, 2018, pursuant to which Arrow will acquire a 50% beneficial interest in an undeveloped block in Colombia’s Llanos Basin from Samaria immediately prior to Closing. As consideration under the Samaria APA, Samaria will receive US$10 million in Arrow Shares.

In conjunction with the entering into of the Arrangement Agreement, Arrow has entered into an agreement with Macquarie Capital Markets Canada Ltd. (“Macquarie Capital”) as sole bookrunner and co-lead agent and Haywood Securities Inc. as co-lead agent, on behalf of a syndicate of agents (collectively, the “Agents”), to effect a brokered private placement offering of subscription receipts (the “Subscription Receipts”) on a best efforts agency basis (the “Concurrent Financing”). Each holder of Subscription Receipts will receive one (1) Arrow Share and one half of one (½) common share purchase warrant of Arrow (each, an “Arrow Warrant”) for each Subscription Receipt held in connection with the Arrangement. The terms of the Financing are outlined below under the heading “Concurrent Financing” below.

Collectively, the Arrangement, the transactions contemplated by the Colombia Acquisitions and the Concurrent Financing are referred to herein as, the “Transaction”. The Transaction is expected to close before mid-July, 2018.

In connection with the Arrangement, it is expected that Front Range will hold a shareholder meeting to seek approval of, among other things,: (i) the acquisition of the securities of Arrow; (ii) the consolidation of the issued and outstanding FRK Shares on the basis of one (1) post-consolidation FRK Share for every 8.5 pre-consolidation FRK Shares (the “Consolidation”); (iii) the change of name to “Arrow Exploration Ltd” (the “Name Change”); and (iv) the reduction of Front Range’s share capital, (collectively, the “FRK Meeting Matters”).

Directors, officers and certain shareholders holding 12.96% of the issued and outstanding FRK Shares have entered into lock-up agreements with Arrow pursuant to which they have agreed to vote their FRK Shares in favour of the FRK Meeting Matters. All of the Arrow Shareholders have entered into lock-up agreements with Front Range pursuant to which they have agreed to vote their Arrow Shares in favour of the Arrangement.

Benefits of the Plan of Arrangement and Related Transactions

Management and the board of directors of each of FRK and Arrow believe their respective shareholders will benefit from the following attributes of the Transaction:

  • Entry into a tightly held region through the acquisition of a complementary and undercapitalized portfolio of oil assets focused on the Llanos and Middle Magdalena basins in Colombia;
  • High working interest land base and Brent-linked commodity price exposure yields attractive field netbacks of ~US$37/bbl (US$70/bbl Brent) and provides a basis for strong return on capital through low risk work-overs, development and exploration;
  • Organic growth opportunities across 148,000 net acres in the Llanos basin with substantial underutilized processing and water disposal capacity;
  • Producing assets (expected at approximately 1,600 bbl/d at closing, H2 2018 budgeted production of 2,110 bbl/d);
  • Exploration and development upside, with the potential for improved efficiencies;
  • The combined company will have increased financial capacity with estimated positive net working capital of approximately US$10 million and no bank debt upon closing of the Arrangement;
  • Seasoned, hands-on management team and board with an extensive track record in Colombia and operating experience across the E&P value chain; and
  • Key members of the prospective management team of New Arrow will become shareholders of New Arrow, in part through participation for a minimum of US$1.5 million in the Concurrent Financing. Ownership interests by management of New Arrow will further align the interests of management with those of New Arrow which are anticipated to contribute to New Arrow’s success. Following closing of the Transaction, it is anticipated that certain members of the New Arrow management team and board of directors and new employees will invest up to an additional US$1 million in a subsequent private placement.

The Transaction will provide Front Range with the opportunity to broaden the company to an international exploration and production company, which is in part a reflection of the challenging business environment for petroleum and natural gas development in Canada.

“The Board and management of Front Range see an opportunity to provide shareholders with a very attractive entry point to participate and position Front Range into an oil-weighted asset base in a country where oil pricing reflects the world oil environment. We are fully supportive of the New Arrow team and the fact that it also maintains the Front Range asset base as a valuable option to the future benefit of shareholders should conditions in Canada improve for natural gas” said Malcolm Todd, Chief Executive Officer of Front Range.

Charle Gamba, President and CEO of Canacol, stated “The planned divestment of our remaining conventional oil assets will allow us to focus our capital on exploring and developing our significant gas resource base in Colombia. Upon closing of the proposed transaction, we plan to distribute the US$20 million in New Arrow stock to our shareholders as free trading shares, so that they might benefit directly from any upside associated with New Arrow’s planned capital investment in the assets. The remainder of the cash proceeds of US$20 million will go into treasury.”

Bruce McDonald, Founder and Chairman of Arrow said, “Colombia continues to be one of the most attractive countries for oil investment with great fiscal terms. There is ample unused pipeline capacity to transport oil for export and the country receives premium (Brent) oil pricing. With a return to strong oil prices and a pro-business environment, the creation of New Arrow and its proven management team is well-timed.”

President and CEO of Arrow, Gary Wine added, “the solid base oil production from the oil assets gives Arrow strong cash flow to fund the underdeveloped upside potential of the Colombian oil assets. This, in combination with new equity will fund our business plan which is going to provide New Arrow with ample opportunities to add reserves and production in the next few years.”

Overview of New Arrow

The Colombia Acquisitions will result in New Arrow indirectly holding Colombia oil assets that are multi-basin, multi-play type, low royalties (ranging from 8% to 14%) with a large contiguous land position and undercapitalized assets. An expected US$10 million of working capital will finance an 18-month workover, development and drilling program in Colombia, made up of US$4.5 million for workovers, US$36-37 million for development and exploration drilling, US$8-9 million for 3D seismic and US$4-5 million for facilities for a total of US$53-55 million. On Closing, Carrao will become a recognized operator in Colombia by the Agencia Nacional de Hidrocarburos (“ANH”), the regulatory authority in respect of the exploration and development of oil and natural gas in Colombia.

Key Transaction Information

Total Purchase Price of Colombia Acquisitions(1)US$50 million
Effective Date of the Colombia AcquisitionsJune 1, 2018
Llanos production facilities replacement value(2)US$30 million
18-month projected capital expenditure programUS$53-55 million
Estimated New Arrow production at Closing(3)1,600 bbl/d
H2 2018 budgeted New Arrow Production(4)2,110 boe/d
Current Operating Netback(5)

          Light Crude Oil (84% of production)

          Heavy Crude Oil (16% of production)

 

US$37/bbl

US$22/bbl
Colombia Reserves(6)(7)

          Proved reserves

          Proved + Probable reserves

 

3.9 MMbbl

9.1 MMbbl
Before Tax Net Present Value of Colombia Reserves(8)

          Proved reserves before tax NPV10%

          Proved + Probable reserves before tax NPV10%
 

US$38 million

US$102 million

Notes:

  1. The purchase price will be subject to normal purchase price adjustments for transactions of this type with an effective date of June 1, 2018.
  2. These production facilities will be wholly-owned by New Arrow and include US$30 million replacement value based on estimated construction cost in 2014 and 2015.
  3. Colombian production only.
  4. Includes 108 boe/d of Canadian production.
  5. Operating Netback is a non-IFRS measure. See “Non-IFRS Measures” below. Operating netback for the Colombia Acquisitions is an annualized estimate for the year ending December 31, 2017, based on recent lease operating statements provided by the Vendor using an estimated US$70/bbl Brent and assumes an 11% royalty rate, US$17.50/bbl operating expenses (including transportation).
  6. Working interest reserves after the calculation for royalties and before the effect of corporate taxes. Reserves estimates for the Canacol Acquisition are based on a reserves report prepared by Degolyer & McNaughton (“D&M”), a qualified reserves evaluator as defined in National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (“NI 51-101”), with an effective date of December 31, 2017 (the “Canacol Reserves Report”). Reserves estimates for the Samaria Acquisition are based on a reserves report prepared by Boury Global Energy Consultants Ltd. (“Boury”), a qualified reserves evaluator as defined in NI 51-101, with an effective date of December 31, 2017 (the “Samaria Reserves Report” and, together with the Canacol Reserves Report, the “Reserves Reports”). Each of the Canacol Reserves Report and the Samaria Reserves Report were prepared in accordance with NI 51-101 and the COGE Handbook (as defined in NI 51-101).
  7. These estimates of reserves and future net revenue for the Colombia Acquisitions are based on an arithmetic sum of figures in the Canacol Reserves Report and the Samaria Reserves Report. The estimates of reserves and future net revenues in a reserves report may not reflect the same confidence level as estimates of reserves and future net revenue in the other reserves report.
  8. Based on Canacol Reserves Report forecast prices for WTI: 2018 – US$58.13/bbl, 2019 – US$58.90/bbl, 2020 US$63.35/bbl and Boury 2018 – US$57.00/bbl, 2019 – US$60.00/bbl, 2020 – US$63.00/bbl. For reference purposes only, Brent prices estimated by Boury at the date of the Samaria Reserves Report were 2018 – US$65.42/bbl, 2019 – US$67.95/bbl, 2020 – US$70.72/bbl. Estimated 2P Future Development Capital in 2018 and 2019 is US$8.0 million for light oil and US$6.9 million for heavy oil.

Indicative Colombia Acquisition Metrics     

Purchase Price US$50 million
Llanos production facilities replacement value   US$30 million
Purchase Price per Proved and Probable (2P) barrel (1) US$5.50/bbl
Purchase Price per flowing barrel (2) US$31,250/bbl/d
Purchase Price per H2 2018 budgeted flowing barrel (3)   US$25,000/bbl/d
H2 2018 EBITDA annualized (4)   US$25.4 million

Notes:

  1. Calculated based on the Reserves Reports; inclusive of facilities valued at $30 million.
  2. Estimated average daily production before royalties at Closing.
  3. Budgeted H2 2018 production of the Colombia Acquisitions before royalties of approximately 2,000 bbl/d.
  4. EBITDA has been calculated using Brent strip pricing as of May 30, 2018 for H2-2018.

Following completion of the Transaction, New Arrow will be focused on building value and production through workovers on existing properties, 3D seismic delineation of Llanos Basin prospects and exploration drilling on prospects identified by the 3D seismic delineation. In addition, underdeveloped oil fields in the Middle Magdalena Basin will be evaluated for planned future waterflood projects to increase reserves recovery and production. With the recent strength in global oil prices, Arrow and its partner will be evaluating the Capella heavy crude oil discovery for further development, given the field’s recent return to sustained production and the presence of significant processing capacity at the field. Arrow currently estimates that capital expenditures over the next 18 months to complete the plan as anticipated will be approximately US$53-55 million.

New Arrow Colombian Reserves and Production

Asset

 
Basin

 
Proved + Probable
Reserves

(MMboe)
Current Production

(bbl/d)
Block LLA-23
(100%, op)
Llanos2.6(1)930
Tapir Block
(50%, op)
Llanos0.6(2)-
Mono Araña
(40%, non-op)
Magdalena1.1(1)240
Oso Pardo
(100%, op)
Magdalena0.1(1)190
Capella
(10%, non-op)
Caguan/
Putumayo
4.9(1)240
Three other blocks
(20%-37.5%, non-op)
Putumayo--
Total-9.1(3)1,600

Notes:

  1. From the Canacol Reserves Report.
  2. From the Samaria Reserves Report.
  3. These estimates of reserves for the Colombia Acquisitions are based on an arithmetic sum of figures in the Reserves Reports. The estimates of reserves and future net revenues in a Reserves Report may not reflect the same confidence level as estimates of reserves and future net revenue in the other Reserves Report.

Llanos Basin

Following Closing, New Arrow will have two strategic operated blocks in the Llanos Basin, the largest producing area of Colombia. The Llanos 23 Block (100% working interest) and the adjacent Tapir Block (50% working interest and operatorship) contain approximately 180,000 gross acres (148,000 net) and cross ten fault trends (nine of which have not been explored). Approximately 37% of the total acreage has been delineated with 3D seismic. A number of prospects identified on 3D seismic are in close proximity to a pipeline connected to the facility that will be 100% owned by New Arrow, at Pointer on the Llanos 23 Block.

Exploration on the Llanos 23 Block commenced after being acquired in 2011 by Canacol on the fault trend extending from the adjacent Rancho Hermoso oil block. After shooting 3D seismic on the Llanos 23 Block, Canacol started exploration drilling on 3-way, fault bound structures on one of three fault trends on the block. Current gross and net production on the block is 930 bbl/d.

The Tapir Block has one discovery at Mateguafa, which was discovered in the late 1990s. Several wells have been drilled on the structure but are currently shut-in. The block contains up to six separate fault trends with one drill-ready prospect identified on 3D seismic (Rio Cravo Este) expected to be drilled in late 2018. The Tapir Block is expected to be further delineated by 3D seismic in the next 12-18 months. The Tapir Block has no other commitments other than drilling one well on Rio Cravo Este.

Llanos 23 and Tapir are expected to be strategic to New Arrow as they are adjacent to each other and there is a 30,000 bbl/d processing facility with 22,000 bbl/d of water disposal capacity at Pointer on the Llanos 23 Block. The facility is relatively underutilized and will be used to process any new exploration discoveries from both the Llanos 23 Block and Tapir blocks, giving excellent half-cycle economics to new discoveries on both blocks. Water handling facilities are vital to producing oil in the Llanos Basin.

The Llanos 23 Block is expected to be the immediate focus of New Arrow following Closing. The Canacol Reserves Report has identified a number of wells for recompletion in Q3-2018. Late in 2018, the first exploration well is expected to be drilled on the Tapir Block in addition to 3D seismic acquisition on both the Tapir Block and Llanos 23 Block.

Middle Magdalena Basin

The Middle Magdalena Basin is the second largest oil producing basin in Colombia and has seen recent success with discoveries in conventional producing horizons. Also acquired by Canacol in 2011, the area was the target of exploration by Canacol and multinational companies in the search for deep La Luna oil shales. As a result of exploration on both the Santa Isabel and VMM-2 Blocks, two shallow oil fields were discovered at Oso Pardo and Mono Araña. The exploration phase of these ANH contracts have been completed with no further commitments and the process of relinquishing has begun. Following Closing, New Arrow will have a 100% interest on the Oso Pardo discovery and 40% interest in the Mono Araña discovery.

There are three wells drilled into the Oso Pardo structure, which are currently producing approximately 190 bbl/d (gross and net). There are seven wells drilled into the Mono Araña structure, which are currently producing approximately 240 bbl/d (net) from four wells.

Unlike the Llanos Basin, the Middle Magdalena Basin does not have an active water drive to support strong production rates. New Arrow will review both Oso Pardo and Mono Araña production and commence engineering studies and modelling for potential future waterfloods on both fields.

Caguan/Putumayo Basin – Ombu Block

In 2008, Canacol farmed-in on public company Emerald Energy to drill the twin of an old oil discovery on the Ombu Block. Canacol earned a 10% interest in the block as a result of drilling this well and confirmed the discovery named Capella. Following Closing, New Arrow will hold this 10% interest.

From 2008 through 2015, more than 50 wells were drilled to develop this heavy oil discovery and associated field processing facilities were constructed. The field reached 4,169 bbl/d in 2015 under cold flow production before lower oil prices halted field activity. With the recovery of oil prices, the Capella field was recently reactivated at approximately 1,700 bbl/d (170 bbl/d net) and is currently producing 2,400 bbl/d (240 bbl/d net). Production capabilities are being reviewed in the light of higher oil prices, but no immediate plans have been made to recommence development beyond the existing wells and infrastructure.

Following Closing, the officers and directors of New Arrow are expected to be the following individuals:

New Arrow Management Team

Gary Wine, Chief Executive Officer and Director

Gary Wine has a proven track record of finding oil with more than 35 years of industry experience. Prior to Arrow, he was the President and Chief Executive Officer of Pan African Oil and also Petrolifera Petroleum, where he was President and Chief Operating Officer. Mr. Wine has lived and worked internationally, predominantly in South America and has extensive experience in Colombia. Mr. Wine will be relocating to and establishing New Arrow’s headquarters in Bogota, Colombia on Closing.

John (Jack) Scott, Chief Operating Officer

Mr. Scott is a Professional Engineer with 25 plus years of operations, management and executive experience in the oil and gas industry specializing in project development in the Latin America. He was previously Chief Operating Officer and Country Manager of Petrominerales, based in Bogota, Colombia where he managed production in excess of 25,000 bbl/d.

John Newman, Chief Financial Officer

Mr. Newman has over 35 years of domestic and international oil and gas sector experience at the CFO and Director level including South America. He has 17 years of junior oil and gas company experience in Canada, including co-founding Reliable Energy and financial roles with Schlumberger in Africa, Europe, the North Sea and Canada. Mr. Newman holds a degree in Business (Accounting) from Curtin University and is a Fellow of CPA (Australia).

Phil Miller, Vice President, Exploration

Phil Miller is a geoscientist with over 35 years of experience managing exploration and development projects throughout Africa, the Middle East, North Sea and Latin America. Previously, Mr. Miller has held senior management roles with Pan African Oil, Nexen and Home Oil International.

Frederick Kozak, Vice President, Corporate Development

Frederick Kozak is a Professional Engineer with over 35 years of industry experience. Most recently, Mr. Kozak was Senior Vice President of Investor Relations for an oil company with production of more than 150,000 bbl/d in Colombia. Mr. Kozak was previously a top ranked international oil and gas equity research analyst.

New Arrow Board of Directors

Bruce McDonald, Chairman & Director

Bruce McDonald brings more than 25 years of corporate planning, investment banking, advisory and equity research in energy. He was formerly Global Head of Energy Investment Banking for Canaccord Genuity and previous to was Global Head of Energy Research. Mr. McDonald has extensive international energy financing experience including Colombia. Mr. McDonald is the founder of Arrow.

James McFarland, Director

James McFarland is a Professional Engineer with over 45 years of oil and gas industry experience internationally and in Canada, including senior executive roles with Imperial Oil, ExxonMobil and Husky Oil. Previously, Mr. McFarland was the co-founder, President and CEO of Valeura Energy, active in Turkey, and remains a director. Prior to that was co-founder, President and CEO of Verenex Energy, active in Libya. He is also a director of MEG Energy and Pengrowth Energy.

Dominic Dacosta, Director

Dominic Dacosta is a business lawyer with 16 years of experience in energy transactions and management of oil and gas companies. Mr. Dacosta is a board member and advisor to multiple E&P and service companies in Colombia, Peru, Ecuador, Brazil and Argentina and former Director of Canacol.

Ravi Sharma, Director

Ravi Sharma is a Professional Engineer with more than 30 years of experience in the Americas, Middle East, Russia, Australasia and Africa. He was previously Global Petroleum Engineering Manager for BHP Billiton Petroleum. Mr. Sharma also held the position of Worldwide Chief Reservoir Engineer for Occidental Oil and Gas and is currently Chief Operating Officer of Canacol.

Dr. Luis Baena, Director

Dr. Baena is Executive Vice President Business Development and a co-founder of Canacol. He has significant experience in the public and the private sector in Colombia, where he has managed several enterprises and represented CNPC (China) in Colombia. He is a former Director of Canacol.

R. Steven Smith, Director

Mr. Smith brings more than 35 years of business experience, including in excess of 20 years of award-winning investment management experience as a Portfolio Manager and Research Analyst. He started his career in the oil and gas industry in finance with management and executive roles at companies including Canadian Pioneer, Poco Petroleums, Renaissance Energy, and Pan East Petroleum before becoming an equity analyst. Mr. Smith is a CA, CPA and is currently the CFO of Broadview Energy and a Director of Broadview Energy and Karve Energy.

Pro-Forma Financial Information

The table below presents selected Pro-forma financial information for New Arrow on a consolidated basis.

Income Statement

 Three Month period ended
March 31, 2018(1)


(thousands of US Dollars)
Twelve Month Period ended
December 31, 2017(2)


(thousands of US Dollars)
 
Revenues$7,357$23,648 
Expenses$6,013$22,901 
Income Before Tax$1,344$747 
Net Income$502$(150)

Balance Sheet

 Three Month period ended
March 31, 2018(1)


(thousands of US Dollars)
Total Assets$79,387
Total Liabilities$17,414
Shareholders’ Equity$61,973

Notes:

  1. Based on the unaudited interim financial statements for the three month period ended March 31, 2018 for each of Arrow, Carrao, Front Range and the asset acquisition from Samaria.
  2. Based on the audited annual financial statements for the year ended December 31, 2017 for each of Arrow, Carrao, Front Range and the asset acquisition from Samaria.
  3. Source: Arrow Exploration Ltd. – Pro forma Consolidated Statement of Financial Position and Statements of Operations and Comprehensive Loss. As at and for the three months ended March 31, 2018 and twelve months ended December 31, 2017.

The Arrangement

FRK entered into the Arrangement Agreement with Arrow and FRK Subco, pursuant to which Arrow and FRK Subco will amalgamate to form Amalco, which will be a wholly-owned subsidiary of FRK and will result in an RTO of FRK. In connection with the Arrangement, FRK intends to effect the Consolidation and Name Change.

The Transaction is an Arm’s Length Transaction and the number of FRK Shares to be issued in connection with the Arrangement was determined pursuant to arm’s length negotiations between each of FRK and Arrow. Pursuant to the Transaction, and assuming the minimum proceeds are raised pursuant to the Concurrent Financing, Arrow Shareholders (including holders of Subscription Receipts), will be issued an aggregate of 71,365,989 FRK Shares on a post-Consolidation basis (“New Arrow Shares”) at a deemed price of US$1.00 per share, for a deemed aggregate value of US$71,365,989 in exchange for their Arrow Shares. In addition, holders of Arrow Warrants will receive an aggregate of 15,000,000 common share purchase warrants, on a post-Consolidation basis, of New Arrow (“New Arrow Warrants”).

Upon the Closing of the Transaction, the amalgamated entity, Amalco will be wholly-owned by FRK. The Transaction will result in an RTO and FRK, as New Arrow will carry on the business theretofore carried on by Arrow and FRK.

It is anticipated that the issued and outstanding capital of New Arrow, assuming the minimum proceeds are raised pursuant to the Concurrent Financing, will consist of 77,819,526 New Arrow Shares, on a post-Consolidation basis. As a result: (i) existing FRK Shareholders will hold an aggregate of 6,453,537 New Arrow Shares representing approximately 8.29% of the outstanding Resulting Issuer Shares; and (ii) former Arrow Shareholders (including former holders of Subscription Receipts) will hold an aggregate of 71,365,989 New Arrow Shares representing approximately 91.7% of the outstanding New Arrow Shares.

Completion of the Arrangement is subject to the satisfaction of a number of conditions, including, but not limited to: (a) completion of the Concurrent Financing; (b) completion of the Colombia Acquisitions; (c) approval of the FRK Meeting Matters by FRK’s shareholders by the requisite threshold, all in accordance with the applicable provisions of the ABCA and the policies of the TSXV; and (d) all necessary third party and regulatory and governmental approvals, including the approval of the Plan of Arrangement by order of the Court of Queen’s Bench of Alberta.

Trading of FRK Shares are currently halted pending review by the TSXV.

Financial, Legal Advisors and Fairness

Fasken Martineau DuMoulin LLP acted as legal counsel to Arrow.

A special committee of FRK’s board of directors engaged Industrial Alliance Securities Inc. to prepare and deliver a fairness opinion to such special committee and provided a verbal fairness opinion to the effect that, as of May 31, 2018 and subject to the assumptions, qualifications and limitations contained therein, the consideration to be paid under the Arrangement is fair, from a financial point of view, to FRK and the FRK Shareholders. Borden Ladner Gervais LLP acted as legal counsel to FRK.

A special committee of Canacol’s board of directors engaged Bordeau Capital Inc. to prepare and deliver a fairness opinion to such special committee and provided the fairness opinion to the to the effect that, as of May 22, 2018 and subject to the assumptions, qualifications and limitations contained therein, the consideration to be paid under the Canacol SPA is fair, from a financial point of view, to Canacol. DLA Piper acted as legal counsel to Canacol.

Macquarie Capital acted as exclusive financial advisor to Arrow with regards to the Arrangement and Colombia Acquisitions. Torys LLP acted as legal counsel to Macquarie Capital.

Concurrent Financing

It is a condition to the Closing of the Colombia Acquisitions and the Arrangement that the Concurrent Financing be completed at a price of not less than US$1.00 per Subscription Receipt for minimum aggregate gross proceeds of US$30,000,000.

Each Subscription Receipt shall evidence the right to receive one (1) unit of Arrow (each, an “Arrow Unit”) upon satisfaction of certain escrow release conditions, each Arrow Unit being comprised of one (1) Arrow Share and one half of one (½) Arrow Warrant, which shall automatically convert, without payment of any additional consideration and without further action on the part of a subscriber immediately prior to the Closing of the Transaction. Each Arrow Warrant shall entitle the holder thereof to acquire one Arrow Share at a price per Arrow Share of US$1.30 (or Canadian dollar equivalent) for a period of 18 months following the completion of the Transaction.

The gross proceeds of the Concurrent Financing will be held in escrow pending the completion of the Transaction. If all conditions to the completion of the Transaction (other than funding) are satisfied on or before 90 days following closing of the Concurrent Financing (the “Escrow Deadline”), the net proceeds from the sale of the Subscription Receipts will be released from escrow to Arrow and each Subscription Receipt will be exchanged for one Arrow Unit, following which the underlying Arrow Share and Arrow Warrant of each Arrow Unit shall be converted into shares and warrants of New Arrow, respectively. If the Transaction is not completed on or before the Escrow Deadline, or is terminated at an earlier time, then the purchase price for the Subscription Receipts will be returned to subscribers, together with a pro rata portion of interest earned on the escrowed funds, if any.

The Agents will be entitled to receive the following consideration from Arrow for agreeing to provide its services to Arrow in respect of the Concurrent Financing: a cash fee in an amount equal to 6% of the gross proceeds raised by Arrow under the Transaction; compensation subscription receipts (the “Agent SRs”) of Arrow, which shall be automatically exchanged for Agent Options (the “Agent Options”) of Arrow at Closing, entitling the Agents to purchase that number of Units, as the case may be, equal to 5% of the aggregate number of Subscription Receipts issued by Arrow under the Concurrent Financing with an exercise price per Subscription Receipt or Unit, as the case may be, equal to the offering price for the Concurrent Financing for a term of 12 months from Closing. The net proceeds of the Concurrent Financing are expected to be used to fund Arrow’s development and exploration program following completion of the Transaction and for general corporate purposes.

Additional Information

Additional information regarding the Transaction and Arrow will be made publicly available by Front Range in due course, including pursuant to an information circular to be filed on SEDAR by FRK in connection with the Transaction at www.sedar.com.

It is expected that Front Range will apply to the TSXV for an exemption from the sponsorship requirements in connection with the Transaction. There is no assurance that such exemption will be granted.

About FRK

Front Range is a Canadian public company with natural gas assets in Western Canada. At Pepper, Alberta, Front Range has an operated 100% working interest in 56 contiguous sections (35,840 acres) of prospective Montney land, located at the south end of the Montney trend in Alberta. In addition, Front Range has non-operated production at Fir, Alberta from 13 sections (4.1 net sections), producing approximately 135 boe/d net to Front Range. Front Range currently has no debt and approximately US$2.25 million in estimated working capital.

Further information relating to Front Range is also available on its website at www.frrl.ca.

For further information, please contact:

Malcolm Todd, Chief Executive Officer
Telephone: (403) 237-5700 Email: [email protected] 

About Arrow

Arrow, a corporation incorporated under the laws of Alberta, is a private junior oil and gas exploration and development company formed for the purpose of acquiring, and subsequently enhancing and producing oil and gas from properties in Colombia. Arrow currently has no oil or natural gas assets or production and has not conducted active operations since its incorporation.

As of the date of this press release, 10,000,000 Arrow Shares are issued and outstanding.

For further information, please contact:

Frederick Kozak, VP Corporate Development
Telephone: (403) 606-3165 Email: [email protected] 

Gary Wine, President & Chief Executive Officer
Telephone: (403) 389-7079 Email: [email protected] 

Bruce McDonald, Chairman
Telephone: (403) 606-9784 Email: [email protected]

Reader Advisory

Completion of the Transaction is subject to a number of conditions, including but not limited to, TSXV acceptance and if applicable, disinterested shareholder approval. Where applicable, the Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the information circular to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of FRK should be considered highly speculative.

The TSXV has in no way passed upon the merits of the Transaction and has neither approved nor disapproved of the contents of this press release. This press release is not an offer of the securities for sale in the United States. The securities have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.

Neither the TSXV nor its regulation services provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.

Presentation of Oil and Gas Information

All evaluations and reviews of future net revenue are stated prior to any provision for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures for wells to which reserves have been assigned. There is no assurance that such price and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of the reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein.

The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due the effects of aggregation.

Where amounts are expressed on a boe basis, natural gas volumes have been converted to oil equivalence at six thousand cubic feet per barrel. The term boe may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value. References to oil in this discussion include light and medium crude oil NGLs. NGLs include condensate, propane, butane and ethane. References to gas in this discussion include natural gas.

Abbreviations

BblBarrel
BblsBarrels
bbls/dbarrels per day
Boebarrels of oil equivalent
boe/dbarrels of oil equivalent per day
MMbblmillion barrels
MMboe million barrels of oil equivalent
NGLsnatural gas liquids
WTIWest Texas Intermediate oil at Cushing, Oklahoma, the benchmark for North American crude oil pricing

Non-IFRS Measures

This press release provides certain financial measures that do not have a standardized meaning prescribed by IFRS. These non-IFRS financial measures may not be comparable to similar measures presented by other issuers. Operating netback is not recognized measures under IFRS. Management of Arrow uses certain industry benchmarks such as operating netback to analyze financial and operating performance. This benchmark as presented does not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. Operating netback equals total petroleum and natural gas sales, realized gains and losses on commodity contracts, less royalties, operating costs and transportation costs calculated on a boe basis. Management considers operating netback an important measure to evaluate its operational performance as it demonstrates its field level profitability relative to current commodity prices.

Forward-Looking Statements

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends” and similar expressions are intended to identify forward-looking statements or information. In particular this press release contains forward-looking statements and information relating to the completion of the Transactions and the timing thereof; the timing of release and the use of proceeds of the Concurrent Financing; the funding of the purchase price of the Colombia Acquisitions; the anticipated benefits to be obtained as a result of the Transaction; the business, operations and development plans of New Arrow and the anticipated directors and officers of New Arrow. Although FRK and Arrow believe that the expectations and assumptions on which the forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because FRK and Arrow cannot give any assurance that they will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. The forward-looking statements and information is based on certain key expectations and assumptions made by management of each of FRK and Arrow, including expectations and assumptions concerning: the satisfaction of all conditions to the closing of the Transaction and on the time frames contemplated; New Arrow’s ability to develop the assets and obtain the benefits thereof; the ability to efficiently integrate the assets; prevailing and future commodity prices, exchange rate, interest rates, inflation rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserves volumes; anticipated timing and results of capital expenditures in carrying out planned activities; the state of the economy and the exploration and production business; the regulatory framework regarding royalties, taxes and environmental laws; results of operations; performance; business prospectus and opportunities. Actual results could differ materially from those currently anticipated due to a number of factors and risk. These include but are not limited to: failure to complete the Transaction in all material respects; failure to obtain in a timely manner, shareholder, regulatory, stock exchange, court and other required approvals in connection with the Transaction; the failure to realize the anticipated benefits of the Transaction; unforeseen difficulties in integrating the assets in New Arrow’s operations; risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses; failure to obtain necessary regulatory approvals for planned operations; health, safety and environmental risks; uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures; volatility of commodity prices, currency exchange rate fluctuations; imprecision of reserve estimates; and competition from other explorers) as well as general economic conditions, stock market volatility, and the ability to access sufficient capital. FRK and Arrow caution that the foregoing list of risks and uncertainties is not exhaustive. These risks and other risks are set out in more detail in FRK’s Annual Information Form for the year ended December 31, 2017.

In addition, the reader is cautioned that historical results are not necessarily indicative of future performance. The forward-looking statements and information contained in this press release are made as of the date hereof and FRK and Arrow undertake no obligation to update publicly or revise any forward-looking statement or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Primary Logo


Source: GlobeNewswire (June 4, 2018 - 3:44 PM EDT)

News by QuoteMedia
www.quotemedia.com

Legal Notice