Gale Force adds significant new reserves and production, buys Texas Reef Properties, closes equity and bank financings

Wednesday, April 11, 2012
  • The Texas Reef Properties consist of 7,000 gross acres/2,100 net acres under lease in East Texas, with three wells currently producing, in the aggregate, 35 barrels of light crude oil and 200 MCFs of natural gas per day.
  • Since last publicly disclosing reserves estimates for the Company in compliance with N151-101, the Company has purchased the Texas Reef Properties and the Marcellus Properties.
  • The Company today obtained approval for an increase to $10 million in the borrowing base of its line of credit with Green Bank of Houston, Texas.

Gale Force Petroleum Inc. (TSXV: GFP) (OTCQX: GFPMF) announced that it has closed the purchase of the Texas Reef Properties, hitting another milestone in its aggressive plan to grow rapidly through the acquisition of underdeveloped proved reserves.

To finance the transaction and provide sufficient capital to pursue its low-risk development plans that are expected to triple production year-over-year in 2012, the Company closed a $4,210,750 private placement equity financing and obtained an increase in the borrowing base of its bank line of credit to $10,000,000.

"The Texas Reef Acquisition adds new production, enlarges Gale Force's reserves base and adds to our growing portfolio of low-risk development opportunities", said Michael McLellan, Chairman and CEO. "We expect the Texas Reef Property to be highly accretive to shareholders, resulting in significant increases in reserves, production, cash-flows and net income, all on a per share basis, within a 6 to 12 month horizon."

The Company has previously announced that it expects company-wide production to increase to 600 BOE by the end of September, 2012. The Company also expects significant further increases in production and cash-generation before year end 2012.

Fully Funded for 2012

To finance its growth plans, the Company has arranged various funding sources, including the private placement announced today, the current and expected increases in the line of credit, and the GGC assets purchase, which is set to close in early May, 2012. In conjunction with cash generated from operations, the Company expects to deploy over $15 million of new capital on growing its business during 2012, beginning with the purchase of the Texas Reef Properties.

The Texas Reef Properties

The Texas Reef Properties consist of 7,000 gross acres/2,100 net acres under lease in East Texas, with three wells currently producing, in the aggregate, 35 barrels of light crude oil and 200 MCFs of natural gas per day. The Texas Reef Properties have complex geology with proved reserves from multiple zones, and numerous potential proved undeveloped locations for low-risk development drilling.

Today the Company signed agreements purchasing approximately 75% working interests in each the three existing wells, approximately 80% working interest in the remainder of the acreage and project.

The aggregate purchase price for the Texas Reef Properties is US$4,630,988, comprised of US$3,880,988 cash and CA$750,000 in units of the Company (the "Texas Reef Units"), payable to several arms-length sellers. Each Texas Reef Unit issued shall be issued at a price of $0.25 per Unit, and is comprised of one common share and one warrant with an exercise price of 30 cents, expiring April 10, 2014. The common shares and warrants are subject to resale restrictions that expire August 11, 2012. In addition to the purchase price, the Company is responsible to "carry" one of the sellers that has retained a 10% working interest in the properties for $250,000 of capital spending.

The initial development plans for the Texas Reef properties are to recomplete the existing wells, which is expected to result in sizeable production increases. Secondly, the Company is preparing to drill two low-risk, infill, development wells on the properties, beginning before year end 2012. This drilling program is expected to occur in conjunction with the drilling of two other low-risk development wells on the Company's other properties, also expected to begin before year end.

Reserves Estimates

Since last publicly disclosing reserves estimates for the Company in compliance with N151-101, the Company has purchased the Texas Reef Properties and the Marcellus Properties. Therefore, the Company will be publishing updated company-wide reserves estimates, which will include reserves from these new properties. The updated reserves estimates are expected to be published by June, 2012.

Marcellus Properties Operations Update

The Company has received early results from some of the new wells on production on the Marcellus Properties purchased on January 31, 2012, which are located in Wetzel and Marshall Counties in West Virginia. The well production results are in line with publicly announced results by other operators in the area who are providing guidance to well economics in excess of 45% IRRs (internal rate of returns). Facilities and infrastructure construction to handle the large volumes of natural gas, liquids and condensate, as well as completion and new drilling operations are continuing, as expected throughout the Marcellus Properties. The Company will provide new information as it is available.

Bank Line of Credit Increase

The Company today obtained approval for an increase to $10 million in the borrowing base of its line of credit with Green Bank of Houston, Texas. The line of credit has an interest rate of 5.0% per annum, and is currently drawn to $5.85 million.

Private Placement Equity Financing

The Company announced that today that it received gross proceeds of CA$4,210,750 in a private placement financing through the issuance of 16,843,000 units of the Company (the "Units"), each Unit being comprised of one common share and one half common share purchase warrant (each whole common share purchase warrant, a "Warrant"). Each Warrant is subject to a four-month hold period, has an exercise price of $0.30 and expires April 10, 2014.

In connection with the private placement, the Company paid an aggregate of $290,548 cash finder's fees, issued 161,800 common shares at a price of $0.25 per share with an aggregate value of $38,450, and issued 542,190 non-transferable broker's warrants ("Broker's Warrants") to members of the selling group and various other finders. Each Broker's Warrant entitles its holder to acquire one Unit at an exercise price of $0.25 at any time on or before April 10, 2014.

All of the securities issued by the Company in connection with this private placement are subject to resale restrictions which expire on August 11, 2012.

The selling group included All Group, BMO Nesbitt Burns, Canaccord, Northern Securities, Raymond James, Union Securities, and various other finders, all of which are at arm's length from the Company.

After paying the fees associated with the financing, the Company is repaying the bridge loan of $500,000 it had obtained on January 31, 2012 to finance the Marcellus Properties acquisition. The Company is also repaying the $450,000 vendor's note from the purchase of the Thunder Properties on October 19, 2011. The remaining funds are to be used, in conjunction with funds available under the Company's line of credit, to purchase the Texas Reef Properties and for development of the Company's properties.

The GGC Assets Purchase

Great Gulfcan ("GGC") has received proxies from over 90% of GGC's shareholders voting in favour of the transaction to sell the "GGC Assets" to the Company, and therefore the Company expects the GGC Assets purchase to close on or about May 11, 2012. The GGC assets being acquired by Gale Force include approximately CA$3,200,000 cash, an option on a Texas oil and gas lease in South Texas with one well with no current production, and an exclusive right to GGC's tax losses for a limited period of time. The cash and assets being acquired are expected to fuel and provide additional opportunities for the Company's continue its rapid growth.

IFRS Transition

Further to the news published by the Company on March 8, 2012, as a result of issues identified by securities regulators in connection with the Company's transition from Canadian GAAP to IFRS reporting standards, the Company announces that it will be restating its financial reports for the periods ended September 30, 2011 and December 31, 2011. The focus of the restatement will be on modified disclosure in the notes to the financial statements and the management's discussion and analysis, as well as on the effects of changes to accounting policies to bring them into compliance with IFRS as they impact various non-cash balance sheet and income statement accounts. The restatement will be completed when the Company receives regulatory approval of such revised disclosure, and the Company does not expect any significantly material changes from the reports filed on March 8, 2012.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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