CALGARY, ALBERTA--(Marketwire - Sept. 11, 2012) - Twoco Petroleums Ltd. ("Twoco" or the "Company") (TSX VENTURE:TWO) is pleased to announce that it has entered into an arm's length definitive agreement (the "Sale Agreement") to sell 70% of its working interests in the Company's Sparky heavy oil property in the Warspite area of Alberta to an oil and gas investment fund (the "Fund") based in Seoul, Republic of Korea, for cash consideration of Cdn.$28 million. The sale is effective June 1, 2012 (the "Effective Date") and is expected to close on or about October 17, 2012, subject to, among other things, the finalization of the formation of the Fund by no later than October 12, 2012 and receipt of all necessary regulatory approvals.
Pursuant to the Sale Agreement, Twoco and the Fund (or a Canadian entity to be established by the Fund, such entity and the Fund, collectively, the "Purchaser") will, at the closing of the sale, also enter into a net revenue guarantee and transfer agreement (the "Net Revenue Agreement") providing for, among other things, a development drilling program in respect of Twoco's Sparky heavy oil property and a net revenue guarantee in favour of the Purchaser. Pursuant to the Net Revenue Agreement, the Purchaser will agree to fund its 70% share of a ten (10) well development drilling program to be completed within one year of closing of the sale. The Purchaser's share of the development drilling program is expected to be approximately Cdn.$10 million.
Pursuant to the Sale Agreement, the Purchaser will acquire seventy percent (70%) of Twoco's working interests in the Company's Sparky heavy oil property in the Warspite area of Alberta, including Twoco's working interests in its existing 5 producing horizontal oil wells, related tangible equipment, pipelines and miscellaneous interests for total cash consideration of Cdn.$28 million, subject to normal adjustments as of the Effective Date.
Twoco's working interests in its Sparky heavy oil property range between ninety-six and one-half percent (96.5%) and one hundred percent (100%). The Company's current production from the heavy oil property is approximately 150 barrels per day of oil and natural gas liquids. Following the closing, Twoco will remain as the operator of the Sparky heavy oil property pursuant to an industry standard joint operating agreement.
Twoco intends to use the estimated net proceeds of Cdn.$26.2 million realized from the sale, after the payment of fees and transaction costs, to reduce its existing bank debt, provide for the letter of credit described below and to fund its share of future development drilling costs on the Sparky heavy oil property.
Net Revenue Agreement and Development Arrangement
Pursuant to the Net Revenue Agreement, Twoco will, within one (1) year of the date of the closing, propose and use its best commercial efforts to drill and complete or abandon a minimum of ten (10) wells on the Sparky heavy oil property (each a "Commitment Well"). The Purchaser shall agree to participate in each of the Commitment Wells for its working interest share of the costs associated with each such well. The Purchaser's share of such costs is expected to be approximately Cdn.$10 million in total. The Purchaser shall grant reasonable extensions to the satisfaction of Twoco's obligations with respect to the Commitment Wells if such extension is required due to surface access, rig availability and/or government approvals.
Twoco will agree in the Net Revenue Agreement that the Purchaser should receive Cdn.$38 million of Net Revenue, as defined in the Net Revenue Agreement, from the Purchaser's working interests in the heavy oil property within seven (7) years of the date of the closing ("Investment Recovery Date"). In the event that the Purchaser has received less than this amount as of the Investment Recovery Date, Twoco will be liable for and shall pay the Purchaser an amount equal to twenty percent (20%) of the difference between the amount of Net Revenue actually received by the Purchaser and Cdn.$38 million ("Guaranteed Obligation"). To guarantee Twoco's payment of the Guaranteed Obligation, Twoco concurrently with the execution of the Net Revenue Agreement will deliver to the Purchaser, an irrevocable letter of credit in the amount of Cdn.$7.6 million ("Letter of Credit") in form and substance acceptable to the Purchaser (acting reasonably). In the event that Twoco becomes liable to the Purchaser for the Guaranteed Obligation, the Purchaser shall be entitled to draw upon the Letter of Credit for an amount equal to the Guaranteed Obligation. In the event that prior to the Investment Recovery Date, the Purchaser has received Net Revenue from the heavy oil property in excess of Cdn.$30.4 million, Twoco shall be entitled to reduce the amount of the Letter of Credit by the amount that the Net Revenue received by the Purchaser exceeds Cdn.$30.4 million.
If at any point after the Effective Date, the Net Revenue realized by the Purchaser from the Sparky heavy oil property is greater than the amount of Cdn.$38 million plus an internal rate of return of eight percent (8%), the Purchaser shall thereafter pay to Twoco, within 60 days of the end of the applicable calendar quarter, thirty percent (30%) of the Purchaser's Net Revenue attributable to such calendar quarter which is in excess of such amount and such internal rate of return.
Certain information set forth in this news release contains forward-looking statements or information ("forward-looking statements"), including statements regarding the timing of the drilling of the Commitment Wells, the Net Revenue to be received from the Sparky heavy oil property by the Purchaser and payments of excess Net Revenue to Twoco. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Twoco's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, operational risks in exploration and development, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and the ability to access sufficient capital from internal and external sources. Although Twoco believes that the expectations in our forward-looking statements are reasonable, our forward-looking statements have been based on factors and assumptions concerning future events which may prove to be inaccurate. Those factors and assumptions are based upon currently available information. Such statements are subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated or implied in the forward-looking statements. As such, readers are cautioned not to place undue reliance on the forward-looking statements, as no assurance can be provided as to future results, levels of activity or achievements. The risks, uncertainties, material assumptions and other factors that could affect actual results are discussed in our Annual Information Form and other documents available at www.sedar.com. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and, except as required by applicable law, Twoco does not undertake any obligation to publicly update or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement. This news release shall not constitute an offer to sell or the solicitation of any offer to buy securities in any jurisdiction.
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.