Blacksteel Energy and Drakkar Energy have signed a non-binding letter of intent for a proposed transaction between the two companies.


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The Transaction is subject to due diligence, the signing of a definitive agreement with customary diligence, representations, warranties and closing conditions and if necessary, shareholder approval of the parties. Among other things, the parties have agreed on a commercially reasonable efforts financing to support an agreed upon capital and business plan, seek to extend the maturity date of the Blacksteel unsecured convertible debentures and agree upon certain resale restrictions on the shares of the post-transaction company.  Additional information on the Transaction will disclosed in future press releases.

The parties are working towards completion of a National Instrument 51-101 compliant reserve report (the “Report”) on its jointly owned property and obtaining all necessary shareholder and regulatory approvals, including the TSX Venture Exchange (“TSXV”). The Transaction is considered a “Fundamental Acquisition” and the common shares of Blacksteel (the “Common Shares”) will remain halted until the TSXV has reviewed the Transaction in accordance with TSXV Policy 5.3, including the Report.

The Proposed Transaction
It is contemplated that Blacksteel and Drakkar will be entering into a business combination whereby each Drakkar shareholder would receive one (1) common share (the “Resulting Issuer Share”) of the post-transaction entity (the “Resulting Issuer”) for each one (1) Class A common share of Drakkar (the “Drakkar Common Shares”).  Each Common Shareholder would receive one (1) Resulting Issuer Share for each 3.25 Common Shares.  Blacksteel currently has 36,227,416 Common Shares issued and outstanding and Drakkar will have approximately 21,114,040 Drakkar Common Shares outstanding immediately before completion of the Transaction.  The proposed Transaction is an arm’s length transaction.

Pro-Forma Company
Blacksteel’s primary asset is a 30% working interest in producing oil and gas lands in the Girouxville area in NW Alberta. Drakkar owns a 70% working interest and operates the same oil and gas property (the “Asset”). The proposed Transaction would result in the Resulting Issuer owning 100% of the Girouxville Asset which would provide additional flexibility and alternatives to funding future development and growth. There are expected synergies to be realized including consolidated financing focus, drilling programs, stronger fulltime management and general and administration.

The Asset consists of 18 sections of contiguous lands with 5 horizontal wells and a salt water disposal well. Currently two of the wells are producing 110 to 125 barrels of oil per day with plans to add to production with the tie-in of the 8-9 well during the summer of 2018.

The Corporation has identified up to 60 lower risk development locations (52 unbooked) as well as additional contingent step out locations on the Asset. In addition, the offset operator has implemented a water flood pilot (for the purpose of materially increasing the recovery of oil, natural gas liquids and natural gas volumes), within a couple of miles of the Asset’s key producing wells.

In addition, the operator offsetting the property has drilled a number of new wells since the Asset was acquired by Blacksteel and Drakkar, of which most have now been on production for over a year. The three new wells drilled next to Section 10 are averaging initial production rates of 161 BOE per day; 136 BOE per day and 126 BOE per day.

With the current wells producing, the liability management rating (“LMR”) rating of Drakkar has increased to 5.1 at the end of May 2018 from below 1.0 in February 2017. The minimum LMR a company is allowed is 1.0, so Drakkar is well above regulatory requirements.  The rating will continue to improve with the addition of production from the 8-9 well.  The Corporation as a non-operator does not have a LMR rating so the combined rating is not affected by this Transaction.

Upon completion of the Transaction, it is contemplated that the Board of Directors of the Resulting Issuer will be restructured to consist of a minimum of five (5) directors, namely, two Drakkar nominees, one Blacksteel nominee and two nominees shall mutually be agreed upon by the parties.  Further information on proposed directors will be provided in future news releases.

After the closing of the Transaction, a new management team will be appointed by the Resulting Issuer and will include Keith Macdonald as President and Chief Executive Officer, Riley Waite as Vice President, Engineering, James Lee as Vice President Exploration and Business Development, and a Chief Financial Officer to be determined by the Board of Directors at a later date.  It is also expected that the Corporation will amend its name after completion of the Transaction.

The goal for 2018 will be to grow production and cash flow while reducing operating costs and enhancing the value of our revenue streams.  This may include drilling one to two wells, solution gas monetization battery modifications, land acquisition, and geological science.

Les Treitz, President of Blacksteel commented that “the business combination will result in the consolidation of a 100% working interest in the Girouxville oil and gas asset providing additional flexibility and alternatives to funding future growth and development. We look forward to realizing on a consolidated financing focus, drilling potential, administration efficiencies and the efforts of the new management team.”

Keith Macdonald, President of Drakkar, said “Our team continues to gain confidence in the quality of our Montney asset base and our competitive returns. Activities to date confirm that we have acquired a strategically attractive property with significant upside which is performing as expected while the timing of its acquisition could not have been better.  Challenges will continue around traditional access to capital for the entire industry but as an oil weighted producer with a differentiated value creation strategy capitalizing on new growth opportunities in electricity production we are cautiously optimistic as we move into the latter part of 2018.”

Source: Company Press Release