Drift Lake Resources Inc. Provides Update on Proposed Business Combination and Announces First Tranche Closing of Private Placement to Raise $16,215,000
January 28, 2011
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Drift Lake Resources Inc. ("Drift Lake") (TSX VENTURE:DLA) is pleased to announce that it has entered into a definitive Master Agreement with Northbrook Energy, LLC ("Northbrook"), Drift Lake Texas Inc. (a wholly-owned subsidiary of Drift Lake) ("Subco") and a special purpose finance company ("FinanceCo") dated as of January 17, 2011 (the "Master Agreement") in connection with the previously announced business combination of Drift Lake and Northbrook (the "Northbrook Business Combination"). Pursuant to the terms of the Master Agreement, the Northbrook Business Combination is structured in the form of a three-cornered amalgamation pursuant to which Northbrook shall be amalgamated with Subco and all of the issued and outstanding securities of Northbrook shall be acquired by Drift Lake from the existing holders thereof in consideration of the issuance of an aggregate of 27,000,000 common shares of Drift Lake (each, a "DLR Share") and an aggregate cash payment of $330,000. It is currently anticipated that trading in the DLR Shares will resume on the TSX Venture Exchange on or about January 28, 2011.
The newly combined company ("Newco") will be focused on exploration and development opportunities in South America. Northbrook management brings with them experience in the area and has spent significant time evaluating the various hydrocarbon producing basins and the current exploration opportunities in each of the associated countries. The initial focus will be in Peru, Colombia and Paraguay. Northbrook is currently negotiating farm-in deals on blocks in both Peru and Paraguay and will bring those into the newly formed company. Newco will also continue to explore its existing properties in the United States.
In Peru, negotiations are under way to partner on a 175,000 acre concession along a major fault that has acted as the trapping mechanism for a number of large oil and gas fields in the country. The major oil trunkline in the country runs right through the concession and local gas markets are continuing to develop.
In Paraguay, negotiations around two blocks in the Pirity Basin on the border with Argentina are progressing. There are a number of oil and gas fields directly across the border in Argentina.
In addition, there are a number of concessions in Colombia that will be available to Newco pending completion of the technical due diligence and negotiation of farm-in terms.
The new management team will include Doug Manner as Chief Executive Officer, Keith Spickelmier as Executive Chairman and David Cherry as President and head of exploration, as well as Carmelo Marrello who shall remain as Chief Financial Officer.
Chief Executive Officer
Previously, Manner served as Vice-President and Chief Operating Officer of Gulf Canada. Gulf had over 180,000 bopde spread over Canada, Indonesia, the North Sea and Australia. As COO, Manner supervised exploration programs in the Northwest Shelf of Australia, the Southern North Sea gas basins, Indonesia and Northern Alberta. Gulf was ultimately sold to Conoco-Phillips for a four fold increase in stock value.
Manner later served as a Partner and Chief Operating Officer in Kosmos Energy, a private partnership focused on exploration in West Africa and funded by Warburg Pincus and Blackstone Capital Partners. Kosmos discovered the Jubilee Field, a billion barrel oil field off the coast of Ghana in 2008.
Manner also served as Senior Vice President of Ryder Scott Company, a large, international reservoir engineering firm based in Houston and Calgary. At Ryder Scott he provided engineering consultation on oil and gas reservoirs and operations around the world to entities ranging from small private firms to the major energy companies. Before leaving, Manner moved to Calgary and established a new office for Ryder Scott in Canada.
Prior to Northbrook Energy, Manner, along with his partner Keith Spickelmier, built and sold Westside Energy, a Barnett Shale Company traded on the American Stock Exchange in 2008. They had raised approximately $35 MM in equity in the company and sold it for an enterprise value of over $220 MM over a four year period.
President and COO
Newco will have approximately 103 million shares outstanding with 20 million dollars of available cash on hand and no debt. Northbrook brings with it into Drift Lake a 50 million dollar credit facility with MacQuarie Bank out of Houston, Texas. The facility is currently undrawn and is designed to provide for future development and acquisition activity.
Doug Manner stated, "With this management team and the potential of the opportunities we are currently negotiating for in Peru and Paraguay, and the blocks we are evaluating in Colombia, when added to our existing holdings in the United States, we are well positioned to deliver increased shareholder value over the next few years. The hydrocarbon basins in these countries are prolific and extremely underdeveloped. That, in combination, with political environments that encourage oil and gas exploration and provide reasonable fiscal terms, the future for Newco is very positive. We are anxious to assemble our asset base in these countries and begin to build a reserve and production base. If all goes as planned, we should be drilling by the middle of 2011."
Drift Lake also announces that the first tranche of the previously announced private placement to be effected in connection with the Northbrook Business Combination has also been completed, pursuant to which an aggregate of 32,430,000 subscription receipts ("Subscription Receipts") have been issued at a price of $0.50 per Subscription Receipt to raise aggregate gross proceeds of $16,215,000 (the "Financing") Of this total, an aggregate of 2,830,000 Subscription Receipts were issued by Drift Lake directly (the "DLR Subscription Receipts") and an aggregate of 29,600,000 Subscription Receipts (the "FinanceCo Subscription Receipts") were issued by FinanceCo. Each DLR Subscription Receipt is convertible upon the satisfaction of certain release conditions for no additional consideration into units ("DLR Units"), each DLR Unit consisting of one common share of Drift Lake (each, a "DLR Share") and one-half of one common share purchase warrant (each whole such warrant, a "DLR Warrant"), with each DLR Warrant entitling the holder thereof to acquire one additional DLR Share at an exercise price of $0.75 for a period of 18 months (subject to accelerated expiry in the event that the closing price of the DLR Shares exceeds $1.25 for 20 consecutive trading days). Each FinanceCo Subscription Receipt is convertible upon the satisfaction of certain release conditions for no additional consideration into units ("FinanceCo Units"), each FinanceCo Unit consisting of one common share of FinanceCo (each, a "FinanceCo Share") and one-half of one common share purchase warrant (each whole such warrant, a "FinanceCo Warrant"), with each FinanceCo Warrant entitling the holder thereof to acquire one additional FinanceCo Share at an exercise price of $0.75 for a period of 18 months (subject to accelerated expiry in the event that the closing price of the DLR Shares exceeds $1.25 for 20 consecutive trading days). Concurrently with the execution of the Master Agreement, Drift Lake also entered into an amalgamation agreement with 2270805 Ontario Inc. (a wholly-owned subsidiary of Drift Lake) ("Drift Lake Subco") and FinanceCo (the "Amalgamation Agreement") pursuant to which Drift Lake and FinanceCo have agreed to effect a business combination (the "FinanceCo Business Combination", and together with the Northbrook Business Combination, the "Business Combination") concurrently with the Northbrook Business Combination, which is structured in the form of a three-cornered amalgamation pursuant to which FinanceCo shall amalgamate with Drift Lake Subco and all of the issued and outstanding securities of FinanceCo (including all outstanding FinanceCo Shares and FinanceCo Warrants) shall be acquired by Drift Lake from the existing holders thereof in consideration of the issuance of equivalent securities of Drift Lake to each of the holders of FinanceCo Shares and FinanceCo Warrants. Drift Lake anticipates a second tranche closing to occur during the week of January 31, 2011.
At the closing of the Financing, the gross proceeds raised (the "Escrowed Funds") were deposited with Olympia Transfer Services Inc. to be held in escrow pending the satisfaction of certain release conditions relating to the Business Combination, including the receipt of the requisite approval of the Business Combination by shareholders of Drift Lake, and the conditional approval of Business Combination by the TSX Venture Exchange. All securities issued in connection with the Financing are subject to a statutory hold period expiring May 27, 2011.
The Financing was completed on a brokered basis by co-lead agents Jones Gable & Company Limited and PowerOne Capital Markets Limited, with a syndicate that included Clarus Securities Inc., Salman Partners Inc. and Primary Capital Inc. (collectively, the "Agents"). Upon closing of the Financing, an aggregate of 1,864,725 broker warrants (the "Broker Warrants") were issued to the Agents as partial consideration for their services, each such Broker Warrant entitling the holder thereof to acquire one DLR Share at an exercise price of $0.50 until the date which is 18 months following the release of the Escrowed Funds. In addition, aggregate fees in the amount of $932,362 will be paid to the Agents and certain other advisors assisting in the Financing, upon release of the Escrowed Funds.
Northbrook is a private company existing under the laws of Texas seeking to acquire exploration opportunities in Latin America and to continue to explore its existing property interests in the United States. Northbrook originally focused on the acquisition, exploration and development of oil and gas properties in Texas. To date, Northbrook has acquired 5348 gross acres and 3922 net acres in East Texas, covering 6 oil and gas prospects located in various counties, including the prospect known as the Big Cypress Prospect. Northbrook will vend these properties into Newco.
Drift Lake believes that the current Northbrook assets also present excellent potential for increased shareholder value based on an independent resource study dated effective September, 2010 and entitled "Big Cypress Prospect Resource Study, Marion County, Texas, USA" (the "Resource Study"), prepared by AJM Petroleum Consultants for Northbrook which has ascribed the following data to the Big Cypress Prospect in compliance with National Instrument 51-101:
For further details concerning the Big Cypress Prospect, please refer to the Resource Study which is available under the corporate profile of Drift Lake on SEDAR at www.sedar.com.
Completion of the Business Combination is subject to a number of conditions, including the approval of the TSX Venture Exchange and the requisite majority approval of shareholders of each of Northbrook, FinanceCo and Drift Lake. The Business Combination cannot close until the approval of shareholders of each of Drift Lake, FinanceCo and Northbrook and all required regulatory approvals are obtained. There can be no assurance that the Business Combination will be completed as proposed or at all. Investors are cautioned that, except as disclosed in any management information circular or filing statement to be prepared in connection with the Business Combination, any information released or received with respect to the proposed Business Combination may not be accurate or complete and should not be relied upon. Trading in the securities of Drift Lake should be considered highly speculative. The TSX Venture Exchange has in no way passed upon the merits of the proposed Business Combination and has neither approved nor disapproved the contents of this press release.
Certain information set forth in this news release may contain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the control of Drift Lake, FinanceCo and Northbrook, including, but not limited to, the impact of general economic conditions, inherent risks involved in the exploration for and development of crude oil and natural gas properties, the uncertainties involved in interpreting drilling results and other geological and geophysical data, fluctuating energy prices, the possibility of cost overruns or unanticipated costs or delays and other uncertainties associated with the oil and gas industry, and dependence upon regulatory and shareholder approvals. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements.
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