PROPERTY ACQUISITION / Arlington Ventures Acquisition Update
ARLINGTON VENTURES LTD.
VSE SYMBOL: AVMJANUARY 19, 1999
Arlington Ventures Acquisition Update
VANCOUVER, BRITISH COLUMBIA--Arlington Ventures Ltd. (the
"Company"), through its wholly-owned subsidiary, Golden
Exploration and Production Corp. ("Golden") is engaged in the
exploration for and production of oil and gas, primarily in the
Iuka-Carmi Field, Pratt County, Kansas. The Company announces
that it and Golden have completed agreements with arm's length
third parties to acquire additional oil and gas interests and
necessary financing to acquire and develop those interests. A
summary of these agreements is as follows:
1. The acquisition of oil and gas wells, oil and gas leaseholds
and related personal property, fixtures and improvements from
Temblor Petroleum Company, LLC. ("Temblor") of Bakersfield,
California. The purchase price for these assets is the assumption
of a US$4,100,000 debt and accrued interest owed by Temblor to
Energy Income Fund, LP ("EIF") of Longmeadow, Ma. (or related
entity), plus the issuance of treasury shares in January, 2000 to
Temblor. The number of treasury shares shall be determined by
reference to a prescribed formula calling for the valuation on
January 1, 2000 of the Temblor oil and gas leases, net of the
above debt and miscellaneous obligations to be assumed by the
Company and 150 percent of the costs of the Company to develop or
enhance the Temblor properties, and dividing the result by the net
value of the Company.
The oil and gas assets acquired from Temblor are 100 percent
working interest leases (approximately 73 percent net revenue
interest) in the Raisin City and the Guijarral Hills fields in
California, comprising approximately 1,600 acres. These properties
are located in the San Joaquin Basin near the large Coalinga and
Kettleman Dome fields. The total net proved reserves attributed to
the Raisin City and Guijarral fields are independently estimated
to be 1.6 million barrels of oil and 1.53 bcf of gas. Estimated
present worth net cash flow using a 10 percent discount rate and
constant oil and gas prices based upon the average of the prices
received from these fields for the previous twelve months is
US$4,042,000.
Results of independent engineering and geological studies of the
Guijarral Hills field and fields with similar geological and
reservoir characteristics, shows there are an estimated probable
net reserves of 6.29 million barrels of oil which may be recovered
through the implementation of a waterflood. In the Raisin City
field area, an analysis of existing 2-D seismic data, geologic
data, mud log shows and drilling results, indicate there are
additional possible reserves of 2 - 4 million barrels of oil and
50 - 100 bcf of gas to be exploited in deeper formations in the
Raisin City field and in off structure formations currently
producing in the Raisin City field. To further develop these
formations, Golden, in a joint venture in which Golden's cost of
the 3-D seismic survey is carried by the joint venture partner,
will shoot a 60 square mile 3-D seismic survey over the Raisin
City field and surrounding acreage. Based on the results of the
3-D seismic survey, Golden plans on commencing the drilling of a
gas well in the third or fourth quarter of 1999 to test the deeper
formation.
2. The acquisition of all of the issued share capital of Sagebrush
Petroleum, Inc. ("Sagebrush") and Rocky Mountain Royalty Corp.
("Rocky Mountain") both of Denver, Colorado, for US$2,362,028,
payable by issuance of up to10,844,940 treasury shares of the
Company, which acquisition is subject to the completion of
documentation, due diligence by the Company and Vancouver Stock
Exchange and shareholder approvals. A condition precedent to
Sagebrush and Rocky Mountain completing the transaction is that
the existing convertible debentures of the Company be converted
into shares of the Company prior to closing. The Company is
currently causing an independent valuation to be prepared on the
oil and gas lands of Sagebrush and Rocky Mountain and other due
diligence related to this transaction. An Extraordinary General
Meeting of Shareholders has been scheduled for February 26, 1999
to seek approval to the acquisition of the shares of Sagebrush and
Rocky Mountain.
Through the acquisition of Rocky Mountain, the Company acquires
additional interests in its Iuka-Carmi Field located in Kansas and
in two smaller fields located in Kansas and Texas. The estimated
value of these properties using a 10 percent discount rate and
constant oil and gas prices based upon the average of the prices
received from these properties for the previous twelve months is
US $1,000,000. Sagebrush is responsible for managing US $5,500,000
of Partnership funds which funds are used to evaluate, acquire and
shot 3-D seismic prospects. Sagebrush provides the professional
staff necessary to evaluate detailed geological, engineering and
geophysical data for in-house prospects and third party prospects
brought to it. In exchange for these services and their expertise,
Sagebrush earns a 20 percent carried working interest (prorated to
the Partnerships interest) on geological, geophysical and lease
acquisitions funded by the Partnerships. During the first quarter
of 1999, the Partnership is expected to drill 4-6 wells.
3. To finance the Temblor acquisition and to provide funds for
development and related expenses on the Temblor properties and
for additional funds relative to the Company's and Sagebrush's
existing properties, the Company has negotiated a debt financing
of up to US$15,000,000, with EIF. The EIF Agreement provides for
US$4,760,000 of the loan proceeds to be applied to the assumption
of Temblor debt (US$4,100,000) and to pay accounts payables of
Temblor (US$150,000) with a further US$510,000 being available
prior to December 31, 1999 for use in paying additional existing
debt of Temblor.
An additional US$2,970,000 of the aggregate loan proceeds will be
advanced and will be used to retire existing debt, pay the loan
closing costs of the EIF financing agreement, provide working
capital, and fund development activities on the Temblor and Golden
properties. The development activities on the Temblor properties
will consist of drilling one horizontal well, one gas well and
re-working eight existing wells. On the Golden properties, the
activities will consist of evaluating a 3-D seismic survey and the
drilling of three identified locations and re-working a number of
existing wells.
The US$7,270,000 balance of the aggregate loan proceeds will be
available for draw down on or before December 31, 1999 for related
and unrelated oil and gas projects, subject to Vancouver Stock
Exchange acceptance of the projects to be funded.
The rate of interest on advances made by EIF is 12 percent before
default and 15 percent after default. Payments will be monthly,
interest only to July 1, 1999 and thereafter the loan and accrued
interest will be retired by monthly payments of principal and
interest to January 1, 2007.
Other consideration to EIF will be:
A. A Share Purchase warrant ("Warrant") entitling EIF to purchase
approximately 7,983,570 shares of the Company, ("Warrant Shares")
exercisable over 5 years as follows: 4,790,142 Warrant Shares at
an exercise price of $0.35 per share, an additional 1,596,714
Warrant Shares at a price of $0.55 per share, and 1,596,714
Warrant Shares at an exercise price of $0.65 per share. The exact
number of Warrants to be issued to EIF will be determined on the
basis that the number of Warrant Shares which EIF will be entitled
to receive will equal 25 percent of the issued capital of the
Company assuming the exercise of all currently issued incentive
stock options, the conversion into shares of the existing
convertible debentures and the completion of the issuance of
treasury shares in the Sagebrush and Rocky Mountain acquisition.
B. A gross overriding royalty in perpetuity paid on gross revenue,
proportionally reduced by the Company's net revenue interest (the
"Royalty"), less only State Severance Tax. The Royalty will be up
to 10 percent on the properties acquired from Temblor and 3
percent on wells which are financed by EIF in the Iuka-Carmi Field; |
