CALGARY, Nov. 9, 2017 /CNW/ – Sterling Resources Ltd. (“Sterling“) (Ticker: SLG) and PetroTal Ltd. (“PetroTal“) are pleased to announce that they have entered into an arrangement agreement dated as of November 9, 2017 whereby Sterling and PetroTal will complete a business combination pursuant to a plan of arrangement under the Alberta Business Corporations Act. The plan of arrangement steps will result in the combination of Sterling and PetroTal under the name Sterling Resources Ltd. (“New Sterling“).
New Sterling will be led by the existing management team of PetroTal: Manuel Pablo Zúñiga-Pflucker (President, Chief Executive Officer and Director), Gregory E. Smith (Executive Vice President, Chief Financial Officer and Director), Charles R. Fetzner (Vice President, Asset Development) and Estuardo Alvarez-Calderon (Vice President, Operations).
Upon completion of the plan of arrangement, New Sterling’s board of directors will be comprised of a combination of representatives from PetroTal (Manuel Pablo Zúñiga-Pflucker, James B. Taylor, and Douglas C. Urch), Sterling (Gavin Wilson and a director yet to be determined) and Gran Tierra Energy Inc. (“GTE“) (Gary S. Guidry and Ryan Ellson).
Summary of the plan of arrangement and related transactions
Pursuant to the transaction, each common share of PetroTal (“PetroTal Share“) will be exchanged for 5.35 common shares of Sterling and Sterling and PetroTal will be amalgamated to form New Sterling. The transaction is expected to constitute a “Reverse Takeover” pursuant to the policies of the TSX Venture Exchange and is subject to the acceptance of the TSXV. Sterling is at arms’ length to PetroTal.
In addition, PetroTal has entered into a share purchase agreement dated as of November 9, 2017 with Sterling, GTE (NYSE MKT: GTE, TSX: GTE), a Delaware corporation, and its wholly owned subsidiary Gran Tierra Energy International Holdings Ltd. (“GTEIH“), to acquire Gran Tierra Energy International (Peru) Holdings B.V. (“GTE Peru“), an indirect wholly-owned subsidiary of GTE. Pursuant to the SPA and in the manner set forth in the plan of arrangement, New Sterling shall acquire all of the issued and outstanding common shares in the capital of GTE Peru and, in consideration for the GTE Peru Shares, New Sterling shall issue 187.25 million common shares of New Sterling (“New Sterling Shares“) to GTEIH at a deemed price of approximately USD$0.1869 per New Sterling Share, subject to adjustment in cash as set forth in the SPA (the “Acquisition“). As additional consideration for the transactions contemplated in the SPA, New Sterling will grant GTEIH a 20% working interest in Block 107 at closing of the Acquisition and, following the drilling of an initial exploration well, GTEIH may, for no additional consideration, elect to either retain its 20% working interest (a “Positive Election“) or transfer its 20% working interest to New Sterling for no consideration. From and after the date of a Positive Election, GTEIH will pay its pro rata share of costs associated with its 20% working interest. GTE is at arms’ length to PetroTal and Sterling.
In conjunction with the closing of the transaction, PetroTal has entered into an agreement with a syndicate of investment dealers (the “Agents“) co-led by Eight Capital (which is a “member” within the meaning of the TSXV’s policies) and Pareto Securities AS (which is not a “member” within the meaning of the TSXV’s policies) and including PillarFour Securities Inc. (which is not a “member” within the meaning of the TSXV’s policies), for a brokered private placement offering of subscription receipts on a best efforts agency basis at a price of USD$1.00 per Subscription Receipt for aggregate gross proceeds of a minimum of USD$25 million. The financing is expected to close on or about December 7, 2017. Each Subscription Receipt will be exchangeable into one PetroTal Share without any further action required on the part of the holder of the Subscription Receipt and without payment of any additional consideration, upon the closing of the transaction.
Strategic rationale of the plan of arrangement and related transactions
Management and the board of directors of each of Sterling and PetroTal believe their respective shareholders will benefit from the following attributes of the transaction:
Pure-play Peruvian strategic partnership between Sterling, PetroTal and GTE;
Pro forma net cash position of approximately USD$40 million(1);
100% working interest in Block 95 which includes Bretaña, one of the largest undeveloped discoveries in Peru with 330 MMboe of best estimate discovered oil in place and 39.8 (37.6 net) MMbbl of 2C contingent resources (12% recovery factor(2));
Substantial infrastructure in place at Bretaña, with the ability to deliver first production by Q4 2018 for USD$24 million in anticipated capital expenditure;
Robust netbacks of USD$24/bbl forecasted(3);
Fully financed to commercial production at Bretaña targeting 5,000 bbl/d in first half of 2019;
Significant recovery factor upside at Bretaña as analogous fields in Peru have achieved recovery factors of approximately 20% – 40% versus 12% estimated for Bretaña(2); and
Exploration upside potential with seismically defined Block 107 Osheki prospect.
Overview of New Sterling
Corporate Strategy
New Sterling’s assets will include the Bretaña oil field on Block 95 (100% working interest), Block 107 (80%-100% working interest, depending on whether GTEIH makes a Positive Election to retain its 20% working interest) and Block 133 (100% working interest), which are located onshore Peru.
Following completion of the transaction, New Sterling’s business plan will be focused on building value through the development and exploration of material oil assets in Peru across its 2.2 million net acres of undeveloped land. New Sterling’s immediate focus is to: (i) develop the Bretaña oil field, one of the largest undeveloped discoveries in Peru, by applying management’s knowledge and leveraging management’s experience with the local suppliers and regulatory bodies; and (ii) secure a farm-in partner to finance the drilling of the large Osheki prospect.
New Sterling’s management team has extensive engineering, geological, geophysical, technical, financial and operational experience and valuable knowledge of oil and gas operations throughout Latin America and, in particular, Peru.
Bretaña – Block 95
Based on an independent assessment of contingent resources with respect to GTE’s Peruvian exploration and development properties in the Bretaña oil field, located in Block 95 of the Marañón basin of Peru, which was completed by Netherland Sewell & Associates, Inc. (“NSAI“), a qualified reserves evaluator as defined in Canadian National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101“), with an effective date of June 30, 2017 (the “NSAI Contingent Resources Assessment“), and prepared in accordance with the Canadian Oil and Gas Evaluation Handbook and the standards established by NI 51-101, the risked (2C) contingent resources for such properties are:
| Peru – Bretaña oil field (Block 95) | Unrisked Contingent Resources(1)(2) 2C |
Risk Factor(3) | Risked Contingent Resources(1)(4) 2C |
|||
| Oil (MMbbl) | 39.8 (37.6 net(5)) | 90% | 35.8 (33.8 net(5)) |
Exploration Prospects
The initial exploration portfolio consists of the Osheki prospect, located in Block 107. Osheki is a large oil prospect that, if successful, is expected to deliver light sweet crude. The Osheki prospect is anticipated to be part of the same petroleum system as the Los Angeles light oil field located 150 km to the north in the Ucayali Basin and considered to be on trend with the Camisea gas condensate field, with 10.4 TCF of natural gas and 505 MMboe of condensate reserves(1) to the south. PetroTal intends to seek farm-in partners to finance the drilling of an exploration well targeting the Osheki prospect once the transaction has been completed.
Information with respect to PetroTal’s work program and the Assets will be included in the filing statement to be filed on SEDAR in connection with the transaction at www.sedar.com.
Brokered financing
In conjunction with the closing of the transaction, PetroTal has entered into an agreement with the Agents, for a brokered private placement offering of Subscription Receipts on a best efforts agency basis at a price of USD$1.00 per Subscription Receipt for aggregate gross proceeds of a minimum of USD$25 million. The financing is expected to close on or about December 7, 2017. Each Subscription Receipt will be exchangeable into one PetroTal Share without any further action required on the part of the holder of the Subscription Receipt and without payment of any additional consideration, upon the closing of the transaction.
About Sterling
Sterling is a publicly-traded company listed on the TSXV, and incorporated under the laws of Alberta. Sterling was previously engaged in the exploration for, and the development and production of, crude oil and natural gas in the United Kingdom and the Netherlands. In May 2017, before the transaction was entered into, Sterling commenced a plan to wind-up and dissolve the company. The plan involved redeeming all issued and outstanding bonds, cancelling and paying in full Sterling’s credit facilities, disposing of all funding arrangements for projects, and completing three consecutive cash distributions to the holders of Sterling Shares (“Sterling Shareholders”), with the final cash distribution set to be issued immediately prior to Sterling’s formal dissolution. With all of Sterling’s debt disposed of, and one of the cash distributions completed before the transaction, on June 30, 2017, Sterling’s remaining assets consisted of approximately USD$19.0 million in net working capital as at Sept 30, 2017.
About PetroTal
PetroTal, a company incorporated under the laws of Alberta, is a private junior oil and gas exploration, development and production company formed for the purpose of acquiring, and subsequently enhancing and producing oil and gas from properties in Latin America. PetroTal currently has no production and has not conducted active operations since its incorporation.
The current directors and officers of PetroTal are: Manuel Pablo Zúñiga-Pflucker (President, Chief Executive Officer and Director), Gregory E. Smith (Executive Vice President, Chief Financial Officer and Director), Charles R. Fetzner (Vice President, Asset Development), Estuardo Alvarez-Calderon (Vice President, Operations) and Sony Gill (Director).
As of the date of this press release, 4,000,001 PetroTal Shares are issued and outstanding.
As a group, the directors and senior officers of PetroTal own or control (directly or indirectly) 1,844,933 PetroTal Shares representing approximately 46% of the outstanding PetroTal Shares.
