Petro One Energy Corp. (TSX VENTURE:POP)(PINKSHEETS:CUDBF)(FRANKFURT:C6K1) and
Goldstrike Resources Ltd. (TSX VENTURE:GSR)(PINKSHEETS:APRAF)(FRANKFURT:KCG1)
are pleased to announce plans for a joint venture to drill a series of oil wells
on leases controlled by Petro One in Southwestern Manitoba and Southeastern
Saskatchewan. The initial program will consist of up to three test wells to be
drilled at South Reston, Kirkella and Milton, and the arrangement provides for a
series of success contingent option wells thereafter.
Discussions for the proposed joint venture (the "JV") were initiated due to
continuing poor market conditions for junior resource companies. Petro One's
geological team has identified numerous highly prospective targets for oil wells
on leases controlled by it, but management has been reluctant to turn to the
equity markets in the current state, and has therefore focused on farm-outs and
potential joint ventures as sources of non-dilutive financing to drill
additional oil wells. Petro One has farmed out one property and sold another
this year, and it is currently cash-flow positive (exclusive of exploration
costs) due to the success of oil wells in the Milton and Bromhead areas of
Saskatchewan. However, it will require additional funds to continue to explore
and develop its properties, and, accordingly, is in discussions with a number of
prospective partners. That business model has led to the proposed JV and a
number of other opportunities which are currently the subject of ongoing
discussions with third parties.
Background to the Joint Venture
Petro One has a significant investment in Goldstrike in the form of shares and
warrants received as option payments on the Lucky Strike and BRC properties in
Yukon. Consequently, success for Goldstrike means success for Petro One. When
the concept of a JV between the companies was conceived, it quickly became clear
that the potential benefit to both companies is considerable and that the
downside is limited. While Petro One currently has approximately $900,000 in
cash and is generating sufficient positive cash flow to pay its overhead, its
available funds will not permit it to drill and complete the proposed additional
wells in the near term. The proposed JV will permit Petro One and Goldstrike to
drill at least two and possibly three oil wells by splitting drilling costs
50/50, sharing both the risk and potential reward.
For Goldstrike, the JV provides the potential to generate cash flow to sustain
operations over the long term without resort to the equity markets. Goldstrike
holds properties of significant merit in Yukon, the Plateau South property in
particular, and has approximately $1,350,000 in cash. However, that amount will
finance only a modest drilling program and management is concerned that if it
spends its remaining cash reserves at Plateau South next summer, in the current
market it will have difficulty raising the considerable funds needed to move the
property to the next level without experiencing significant dilution. In the
meantime, Goldstrike's cash reserves will continue to be eroded by overhead
costs and it will have no news flow to attract investors. Goldstrike cannot
afford to take that risk. Without access to additional funding or significant
cash flow from the JV, Goldstrike almost certainly has to look at foregoing a
program in 2014 and wait for the market to turn around.
The proposed JV is designed to give Goldstrike a real opportunity to become cash
flow positive over the next several months, with potential for significant
upside after that. If it is able to achieve financial self-sufficiency,
Goldstrike will have the ability to wait out the market and finance its next
program at Plateau South in the next year or so, hopefully at a much higher
share price and or from potential cash flow from operations in Saskatchewan
and/or Manitoba if the JV is successful. The Plateau South claims are currently
in good standing with the Yukon Government until March 30, 2021 and 2022, and
management is of the view that the prudent course of action is to suspend work
there until market conditions improve or the JV results in significant positive
cash flow. The JV does not represent a new direction for Goldstrike, but does
provide it with the potential for near-term success, significant upside with 19
net drill locations, year round operations and news flow.
The Joint Venture Terms
Terms for the proposed JV are set out in a Letter of Intent ("LOI") settled
between the companies on November 22, 2013, and reflect the significant
investment made by Petro One in acquiring the three properties which are the
subject of the JV and completing comprehensive geological programs on them.
Those historic costs are in the range of $3,000,000 in the aggregate, and
results of past work include two producing oil wells at Milton and the
identification of highly prospective targets at South Reston and Kirkella where
the National Instrument 51-101 ("NI 51-101") Report prepared for Petro One in
2010 allocated unrisked prospective resources of 233,000 barrels of oil ("bbl")
to South Reston and 231,000 bbl to Kirkella (news release July 15, 2010).
The LOI provides that costs of drilling all test wells will be split 50/50
between the two companies, which reflects Petro One's confidence in the targets
it has chosen. The LOI also provides that the costs of completing the first two
test wells will be borne 100% by Goldstrike to bring its ultimate investment in
the projects closer inline with Petro One's investment to date. The cost of each
of those wells is estimated to be approximately $420,000 (drilling) and $440,000
(completion). Since the test wells will only be completed if drill stem tests
and open hole core logging indicate significant potential for economic success,
the majority of the risk will be shared by the two companies at the drilling
stage. Drilling costs include costs of casing and cementing or abandonment, as
circumstances dictate. Completion costs include cased hole logging and
perforating, and production testing. Each company will have a 50% working
interest in each completed well.
The Joint Venture Program
The JV program provides for an initial test well at South Reston (Well #SR1) as
soon as regulatory approvals are received. If that well is successful, the
companies will drill a second well at South Reston where 19 net drill locations
have been identified on land controlled by Petro One. Goldstrike will have the
option to participate in all of those wells subject to industry standard
conditions. If the South Reston test well is not successful, the companies will
move to Kirkella, where the potential for success is believed to be strong, but
where there is space for only one well. If the Kirkella test well (Well #K1) is
not successful, Goldstrike will have the right, but not the obligation, to
participate in a well at Milton (Well #M1). If a well is drilled at Milton,
which will only be the case if the first two wells are both abandoned and If
Goldstrike exercises its option, all costs of drilling and completion will be
shared 50/50 by Petro One and Goldstrike.
The wells are planned to be drilled that order because the potential for a big
producer is greater at South Reston (with multiple targets) and Kirkella, while
the potential for economic success at a more modest production rate has already
been proven at Milton. The target formations are the Lodgepole (primary) and
Tilston (secondary) at South Reston, the Lodgepole at Kirkella and the Lower
Viking at Milton. There is also potential for Bakken and Success targets in some
of the drill locations identified at Milton. An NI 51-101 report prepared for
Petro One in 2011 credited the company with a prospective resource of 798,000
bbl in the shallow Middle Bakken sand located only 140 m below the Viking (news
release November 14, 2011). However, if a Milton well is drilled by the JV, the
principal focus will be on the target formation with the highest potential for
economic success, and that will mean a focus on the Lower Viking target.The JV
program may be summarized as follows:
1. Drill Well #SR1 and either:
(a) case and test Well #SR1, and:
(i) if initial production testing indicates a minimum of 30 bbl/day,
Goldstrike will be obliged to complete that well and drill Well
#SR2, with options to drill subsequent wells at South Reston; or
(ii) if initial production testing indicates a minimum of less than
30 bbl/day, Goldstrike will have the option of:
(A) completing Well #SR1; or
(B) capping/suspending Well #SR1 and drilling Well #K1 at
Kirkella; or
(b) abandon it, in which case Goldstrike will be obliged to drill
Well #K1 at Kirkella.
2. If the companies proceed to drill Well #K1, they will on completion
of drilling either:
(a) case and test Well #K1, and:
(iii)if initial production testing indicates a minimum of 30
bbl/day, Goldstrike will be obliged to complete Well #K1
and have the option to also complete Well #SR2 (by Oct. 15,
2014) if it has been suspended; or
(iv) if initial production testing of Well #K1 indicates a
minimum of less than 30 bbl/day, Goldstrike will have the
option of:
(A) completing Well #K1; or
(B) capping/suspending Well #K1 and completing Well #SR1;
or
(C) capping/suspending Well #K1 and drilling a well at
Milton; or
(b) abandon Well #K1, in which case Goldstrike will have the option
to:
(i) go back and complete Well #SR1 (by Oct. 15, 2014) if it has
been suspended; or
(ii) drill a well at Milton.
3. If the companies proceed to drill Well #M1, they will on completion
of drilling either complete the well or abandon it.
Financial Aspects of the Joint Venture
Goldstrike will earn its interest on a well by well basis. If Goldstrike fails
to complete any well, it earns no interest in that well. The LOI also provides
for a $50,000 payment by Goldstrike to Petro One prior to commencement of Well
#SR1 to partially reimburse Petro One for expenses incurred at South Reston.
That payment will be refunded to Goldstrike (or applied to Goldstrike's share of
costs for a Milton well) if Goldstrike spuds a well on section 22 (Milton) by
October 31, 2014 or Goldstrike cannot spud a well on section 22 because Petro
One has farmed out rights to such a well to a third party. The LOI also provides
that Goldstrike will not be obligated to make any more option payments in
respect of the Lucky Strike and BRC mineral claims, but will be deemed to have
earned its interest in those two properties as of the rig release date for the
second well drilled as part of the JV. In any event, the time for making option
payment otherwise due on November 1, 2013 to maintain Goldstrike's option on the
BRC property has been extended to November 1, 2016 due to current market
conditions.
The respective costs of the JV participants are summarized in the following tables:
I. Costs Allocation Assuming Completion of Two Wells at South Reston or One Well
at South Reston and One Well at Kirkella:
Property Petro One Goldstrike
Costs Reimbursement to N/A $50,000
Petro One:
South Reston: Well #SR1 Drilling $210,000 Drilling $210,000
Testing(i) N/A Testing(i) $40,000
Completion N/A Completion $400,000
South Reston: Well #SR2 Geophysics, etc. N/A Geophysics, etc. $100,000
OR Drilling $210,000 Drilling $210,000
Kirkella: Well #K1 Testing(i) N/A Testing(i) $40,000
Completion N/A Completion $400,000
Total: $420,000 $1,450,00
0
II. Costs Allocation Assuming Abandonment of all Three Wells:
Property Petro One Goldstrike
Reimbursement N/A $50,000
Payment to Petro
One:
South Reston Drilling/Abandonment $210,000 Drilling/Abandonment(i) $210,000
Testing N/A Testing $40,000
Kirkella Drilling/Abandonment $210,000 Drilling/Abandonment(i) $210,000
Testing N/A Testing $40,000
Milton
(Optional) Drilling/Abandonment $210,000 Drilling/Abandonment(i) $210,000
(All Costs
50/50) Testing $20,000 Testing $20,000
Total
Excluding $420,000 $550,000
Milton:
Total
Including $650,000 $730,000
Milton:
Other Matters Pertaining to the Joint Venture
Petro One will be Operator of the JV. No fees will be charged by Petro One for
managing the drilling and completion phases of any program, but a project
management fee of 15% will be charged by Petro One after completion of any well.
The costs set out in this release are estimates only, but are considered
reliable as they are based on Petro One's experience in the area and analysis by
its independent engineering consultant. Accordingly, Goldstrike's obligation in
respect of any drilling and completion cost overruns associated with any well
will be capped at 120% of its estimated share of costs. Goldstrike's earned
interest in each well will be from surface to the base of the producing
formation, in all a cases subject to government royalties and the gross
overriding royalty payable to previous owners (see MD&A). The benefit of all
royalty holidays will also be shared ratably.
Conditions Precedent to Commencement of the Joint Venture
Goldstrike's obligation to proceed with the JV is subject to execution and
delivery of a definitive agreement acceptable to Goldstrike and completion of
due diligence to its satisfaction by November 30, 2013. Petro One's
comprehensive geological analysis and seismic and other surveys have been
provided to Goldstrike's independent geologist carrying out due diligence for
Goldstrike. There can be no assurance that the JV or any other financial
arrangement for drilling Petro One properties will be concluded.
The proposed JV is subject to acceptance of required filings by the TSX Venture
Exchange, and will constitute a Fundamental Acquisition by Goldstrike under the
Policies of the Exchange. Petro One and Goldstrike have one director in common.
However, the proposed JV will not be a Related Party Transaction under
Multilateral Instrument 61-101. Further developments will be announced as they
occur.
Goldstrike's Ron Stack Wins Prospector of the Year Award for Plateau South Gold
Discovery
Goldstrike also takes this opportunity to report that the 2013 Yukon Prospector
of the Year Award went to Ron Stack for his discovery of the "Goldbank Trend" on
Goldstrike's Plateau South property. Goldstrike recognized the importance of
Ron's contribution to the project, when it named the "Ron Stack Zone" in his
honour. Ron has been a valued member of Goldstrike's field team. The Award was
presented to Ron at the 41st Yukon Geo-Science Forum Awards Banquet.
Congratulations Ron.
National Instrument 51-101 Disclosure
BOE means barrels of oil equivalent. It may be misleading, particularly if used
in isolation. A BOE conversion ratio of 6 Mcf:1 bbl is based on an energy
equivalency conversion method primarily applicable at the burner tip, and does
not represent a value equivalency at the wellhead.
Oil production during a period is generally expressed in terms of "barrels per
day" ("bbl" or "BBL"), which indicates the total oil produced during a period
divided by the number of hours that the well was in production during that
period. "Barrels per day" is indicative of flow rate while a well is in
production and does not mean that such well was in constant production during
such period.
Proved reserves are those reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves.
Probable reserves are those additional reserves that are less certain to be
recovered than proved reserves. It is equally likely that the actual remaining
quantities recovered will be greater or less than the sum of the estimated
proved plus probable reserves.
Possible reserves are those additional reserves that are less certain to be
recovered than probable reserves. There is a 10% probability that the quantities
actually recovered will equal or exceed the sum of proved plus probable plus
possible reserves.
Prospective resources described in report and in this document are "undiscovered
resources" as defined in the Canadian Oil and Gas Evaluation Handbook.
Undiscovered resources are defined as those quantities of oil and gas estimated
on a given date to be contained in accumulations yet to be discovered. The
estimates of the potentially recoverable portions of undiscovered resources are
classified as prospective resources. Prospective resources are defined as those
quantities of oil and gas estimated on a given date to be potentially
recoverable from undiscovered accumulations. They are technically viable and
economic to recover. Pursuant to s. 5.9(d)(v) of NI 51-101, the Company cautions
that that there is no certainty that any portion of the resource will be
discovered. If discovered, there is no certainty that it will be commercially
viable to produce any portion of the resource.
The estimates in this release have been prepared by independent qualified
reserves evaluators in the form of reports under National Instrument 51-101 ("NI
51-101") in accordance with the Canadian Oil and Gas Evaluation Handbook. The
reserves evaluators having prepared the reports have consented in writing to the
disclosure of information derived from the reports and set out herein.
Pursuant to s. 5.2 of NI 51-101, the Company advises that the estimates have
been made assuming the development of the referenced properties will occur,
without regard to the likely availability to the Company of funding required for
that development.
ON BEHALF OF THE BOARD
PETRO ONE ENERGY CORP.
Peter Bryant, President & Director
ON BEHALF OF THE BOARD
GOLDSTRIKE RESOURCES LTD.
Terrence E. King, President & Director
For further information, please visit the companies' websites, follow the
companies's tweets or contact the Jeff Stuart of King James Capital Corporation,
handling Investor Relations for the Company, by telephone at (604) 805 0375 or
by email at jstuart@kingjamescapital.com.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term
is defined in the policies of the TSX Venture Exchange) accepts responsibility
for the adequacy or accuracy of this release.
Forward-Looking Statements
Certain statements contained herein constitute forward-looking statements or
information (collectively "forward-looking statements") within the meaning of
applicable securities legislation, including, but not limited to management's
assessment of future plans and operations, including: drilling plans and
potential locations; expected production levels; development plans; reserves
growth; production and operating sales and expenses; reservoir characteristics;
the results of applying certain operational development techniques; certain
economic factors; and capital expenditures.
Forward looking statements are typically identified by words such as
"anticipate", "estimate", "expect", "forecast", "may", "will", "project" and
similar words suggesting future events or performance or may be identified by
reference to a future date. In addition, statements relating to oil and gas
reserves and resources are deemed to be forward-looking statements as they
involve the implied assessment, based on certain estimates and assumptions, that
the reserves or resources described, as the case may be, exist in the quantities
predicted or estimated and can be profitably produced in the future. With
respect to forward looking statements herein, the Company has made assumptions
regarding, among other things; future capital expenditure levels; future oil and
natural gas prices; ability to obtain equipment and services in a timely manner
to carry out development activities; ability to market oil and natural gas
successfully to current and new customers; the ability to obtain financing on
acceptable terms; and the ability to add production and reserves through
development and exploitation activities. Although the Company believes that the
expectations reflected in the forward-looking statements contained herein, and
the assumptions on which such forward-looking statements are made, are
reasonable, there can be no assurance that such expectations will prove to be
correct. Readers are cautioned not to place undue reliance on forward-looking
statements included herein, as there can be no assurance that the plans,
intentions or expectations upon which the forward-looking statements are based
will occur. By their nature, forward-looking statements involve numerous risks
and uncertainties that contribute to the possibility that the forward-looking
statements will not occur, which may cause the Company's actual performance and
financial results in future periods to differ materially from any estimates or
projections. The forward-looking statements contained herein are made as of the
date hereof. The Company does not undertake any obligation to, nor does it
intend to, publicly update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise. The forward-looking
statements contained herein are expressly qualified by this cautionary
statement. In addition, readers are cautioned that historical results are not
necessarily indicative of future performance.
FOR FURTHER INFORMATION PLEASE CONTACT:
PETRO ONE ENERGY CORP.
604 566 9089 or IR: 604 805 0375
604 564 8003 (FAX)
www.PetroOneEnergy.com
www.Twitter.com/PetroOneEnergy
GOLDSTRIKE RESOURCES LTD.
604 681 1820 or IR: 604 805 0375
604 681 1864 (FAX)
www.GoldStrikeResources.com
www.Twitter.com/GoldstrikeRes
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