Petroamerica to Acquire all of PetroNova's Issued & Outstanding Shares

Source: 6/15/2015, Location: South America

Petroamerica Oil Corp, and PetroNova Inc, both Canadian oil and gas companies operating in Colombia, are pleased to announce that they have entered into an arrangement agreement dated June 12, 2015 (the "Arrangement Agreement") whereby Petroamerica has agreed to acquire all of the issued and outstanding common shares of PetroNova by way of a statutory plan of arrangement under the Business Corporations Act. Pursuant to the terms of the Arrangement Agreement, holders of PetroNova Shares will receive 0.85 common shares of Petroamerica for each PetroNova Share held.

Based on Petroamerica’s closing price on June 12, 2015 of CDN$0.115 per share, the Exchange Ratio reflects a value of CDN$0.098 per PetroNova Share representing a 15% premium over PetroNova’s closing price on June 12, 2015 of $0.085 and a 45% premium over PetroNova's 10-day volume weighted average trading price. The Arrangement is expected to close on or around July 29, 2015, provided all required PetroNova Shareholder, court, stock exchange and regulatory approvals are obtained.

Key Attributes of PetroNova:
- PetroNova operates and holds a 75% and 40% working interest (“W.I.”) in the PUT-2 and Tinigua blocks in the Caguan-Putumayo basin of Colombia and holds a 20% non-operated W.I. in both the CPO-7 and CPO-13 blocks in the Eastern Llanos basin in Colombia.
- Significant prospective resource upside potential, especially on the Tinigua block.
- Proved and probable (“2P”) W.I. reserves (before royalty) as at December 31, 2014 of 6.3 million barrels (“MMbbls”) (after royalty 3.5 MMbbls) with before-tax net present value (discounted at 10%) of $67.2 million.
- All four of PetroNova’s blocks have environmental licences in place.
- PetroNova has exposure to 1.3 million gross acres in Colombia with an extensive portfolio of drill-ready prospects.
- PetroNova farmed out a 50% working interest in the Tinigua block to a wholly owned subsidiary of Pacific Rubiales for $12.5 million in back costs and Pacific Rubiales will carry the cost of drilling, completing, and testing of up to two wells for up to $19 million. Pacific Rubiales will also fund the cost of two additional wells for $14 million, to be paid back from PetroNova future production from these wells.
- PetroNova holds a 75% operated W.I. in the PUT-2 block (Petroamerica holding the other 25% working interest) which holds multiple N-sand prospects and leads.
- The CPO-13 block is adjacent to the prolific Rubiales and Quifa heavy oil fields and the heavy oil trend has been confirmed to extend onto PetroNova’s block.
- PetroNova’s W.I production during the month of May 2015 averaged 304 barrels (“bbl”) per day (“bbls/d”) of oil from two discoveries in the Llanos basin.
- PetroNova assets have minimal near-term commitments and are unencumbered.

Strategic Rationale :
“This acquisition ticks a number of boxes for Petroamerica, delivering significant strategic, financial and operational benefits, as well as medium to long-term growth potential for both the Company and shareholders alike. PetroNova’s portfolio is highly complementary to our existing asset base bringing reserves, near-term reserve growth potential, operatorship (of two blocks) and significant exploration upside including one of the largest undrilled foothills structures covered by 3D seismic in Colombia. It further consolidates our land position in the prolific N-sand play in the Putumayo Basin with a 100% operated W.I. position in the PUT-2 block, and provides exposure to a world class medium to heavy oil play in the Eastern Llanos Basin, with two blocks abutting the significant oil fields of Rubiales, Quifa and Caracara. PetroNova’s blocks come with minimal near-term commitments and given that Petroamerica is currently debt free, we should find ourselves better positioned to leverage these additional reserves in a debt market that continues to improve” commented Ralph Gillcrist, President and CEO of Petroamerica.

“PetroNova has an excellent portfolio of Colombian blocks with significant growth potential and this transaction will result in a stronger company with the increased ability to develop PetroNova’s assets, including the Tinigua block, resulting in increased upside potential for our shareholders. PetroNova shareholders will now be a part of a company that has increased liquidity and the capital structure which positions it for future growth” commented Antonio Vincentelli, President and Chief Executive Officer of PetroNova.

- Operatorship– PetroNova operates both the Tinigua and PUT-2 blocks
- Adds a Material Catalyst– The first well in the Tinigua block is expected to spud in the first half of 2016 targeting a high impact prospect defined by 3D seismic where PetroNova will be carried by Pacific Rubiales for the cost of drilling, completing and testing the well.
- Consolidate PUT-2 Interest– The transaction would consolidate Petroamerica’s W.I. in the PUT-2 block to 100%, providing further exposure to the prolific N-sand oil play in the Putumayo Basin.
- Enhance Reserves– PetroNova’s 6.3 MMbbls of 2P reserves (W.I. before royalty), consisting of 17% light/medium oil and 83% heavy oil, increases Petroamerica’s before royalty W.I. reserve base by 78%to 14.5 million barrels of oil equivalent (“MMboe”) consisting of 63% light/medium oil, 36% heavy oil, and 1% natural gas (after royalty – 10.8 MMboe) with before-tax net present value (discounted at 10%) of $228.1 million as at December 31, 2014.
- Extends Reserve Life – The addition of PetroNova’s discoveries significantly improve Petroamerica’s reserve life index.
- Rounds Out Prospect Inventory– Transaction adds a number of exciting exploration prospects, leads and new plays with significant resource exposure providing ample running room to support future reserves and production growth.
- Strengthens Borrowing Base– With no debt outstanding and a robust reserve base, Petroamerica will look to accelerate future development and unlock value through cash-on-hand, future cash flow, and the debt capital markets for appraisal and development funding.

The Arrangement
Under the terms of the Arrangement, each PetroNova Shareholder will receive consideration of 0.85 Petroamerica Shares per PetroNova Share.

It is anticipated that Petroamerica will issue an aggregate of approximately 216 million Petroamerica Shares to PetroNova Shareholders and assume $1.6 million of PetroNova net debt, exclusive of transaction costs, in connection with the Arrangement. Upon completion of the Arrangement, it is anticipated that Petroamerica will have approximately 1.089 billion basic Petroamerica Shares outstanding and no debt. The total cost of the deal to Petroamerica, including the assumption of working and transaction costs is approximately CDN $29 million. It is the Company’s intention to implement the ten for one share consolidation, previously approved by shareholders at the last Annual General Meeting, shortly after closing the Arrangement.

Pursuant to the Arrangement Agreement, PetroNova will issue a notice under its stock option plan giving the holders thereof 30 days to exercise all outstanding options (vested or unvested), following which they will be cancelled. As of today, none of PetroNova’s outstanding options are in the money. In addition, under the terms of the Arrangement Agreement, all holders of PetroNova warrants will be entitled to receive Petroamerica Shares, adjusted for the Exchange Ratio and the share consolidation, in lieu of the number of PetroNova Shares otherwise issuable upon the exercise thereof. Further, the holder of the one issued and outstanding Series A Preferred Share of PetroNova will receive a preferred share in the capital of Petroamerica with substantially the same terms and provisions as the Series A Preferred Share.

Completion of the Arrangement is subject to customary closing conditions, including requisite PetroNova Shareholder, court, government and regulatory approvals. The Arrangement will need to be approved by not less than two-thirds of the votes cast by PetroNova Shareholders, andby a majority of votes cast by PetroNova Shareholders after excluding the votes cast byshareholders who are excluded shareholders under applicable securities requirements, in person or by proxy at the special meeting (the "PetroNova Meeting") of PetroNova Shareholders to be held on or about July 28, 2015. In addition, while not a condition of the completion of the Arrangement, the Arrangement must also be approved by the holder of the Series A Preferred Share of PetroNova. The Arrangement also requires approval of the TSX Venture Exchange and of the Court of Queen’s Bench of Alberta.

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