Aleem Khan

Toron­to-list­ed Petrobank En­er­gy and Re­sources Ltd and Touch­stone Ex­plo­ration Inc have en­tered in­to an arrange­ment agree­ment that pro­vides for the two en­er­gy com­pa­nies to cre­ate a well-cap­i­talised, oil-fo­cused com­pa­ny with high growth po­ten­tial.

Petrobank and Touch­stone, un­der the Busi­ness Cor­po­ra­tions Act (of Al­ber­ta, Cana­da), will op­er­ate un­der the name Touch­stone Ex­plo­ration Inc which will con­tin­ue trad­ing on the Toron­to Stock Ex­change. Touch­stone is the Cana­di­an com­pa­ny that has ac­tive op­er­a­tions sole­ly in T&T, fol­low­ing its ac­qui­si­tion of the as­sets of Primera En­er­gy of the for­mer CL Fi­nan­cial group.

Pur­suant to the arrange­ment, all of the is­sued and out­stand­ing com­mon shares of Touch­stone will be ex­changed for com­mon shares of Petrobank based on an ex­change ra­tio of 0.471 of a Petrobank share for each Touch­stone share held. By rules of the Lon­don Stock Ex­change (LSE) this is called a re­verse takeover. The arrange­ment rep­re­sents a mar­ket to mar­ket busi­ness com­bi­na­tion based on Petrobank and Touch­stone's 20-day vol­ume-weight­ed av­er­age trad­ing prices end­ed March 5.

"The com­pa­ny will have sig­nif­i­cant fi­nan­cial re­sources, proven op­er­a­tional ex­per­tise and a high qual­i­ty as­set base char­ac­terised by large oil in place, low de­clines and an ex­ten­sive in­ven­to­ry of low risk drilling, workover and re­ac­ti­va­tion op­por­tu­ni­ties," a joint com­pa­ny state­ment said.

The re­spec­tive boards and man­age­ment of Petrobank and Touch­stone be­lieve the arrange­ment will pro­vide sig­nif­i­cant ben­e­fits to their share­hold­ers, and new Touch­stone is ex­pect­ed to sub­stan­tial­ly grow pro­duc­tion and cash flow through an ex­pand­ed and in­ter­nal­ly fund­ed cap­i­tal pro­gramme fo­cused on low-risk drilling and re­ac­ti­va­tion op­por­tu­ni­ties in es­tab­lished fields; gen­er­ate at­trac­tive af­ter-tax op­er­at­ing cash flows while main­tain­ing a fo­cus on tech­nol­o­gy to im­prove oil re­cov­ery and eco­nom­ic re­turns; ben­e­fit from an ex­pe­ri­enced board of di­rec­tors and tech­nol­o­gy-fo­cused man­age­ment team with a proven track record of build­ing val­ue; be­come one of the most ac­tive in­de­pen­dent oil pro­duc­ers in Trinidad with as­sets fo­cused in sev­er­al large, high qual­i­ty reser­voirs with sig­nif­i­cant orig­i­nal oil in place and an ex­ten­sive in­ven­to­ry of low risk de­vel­op­ment op­por­tu­ni­ties; have Cana­di­an heavy oil as­sets fo­cused in two con­cen­trat­ed ar­eas in Al­ber­ta and Saskatchewan with sig­nif­i­cant re­source po­ten­tial; and pro­vide share­hold­ers with en­hanced liq­uid­i­ty.

The state­ment said the new com­pa­ny will have "a strong bal­ance sheet at clos­ing of the arrange­ment with es­ti­mat­ed cash and mar­ketable se­cu­ri­ties of Ca$45 mil­lion, con­sist­ing of Ca$25 mil­lion of cash and 3.5 mil­lion Light­stream Re­sources Ltd shares with a val­ue of Ca$20 mil­lion based on its March 5 clos­ing price, re­sult­ing in pos­i­tive work­ing cap­i­tal of CA$10 mil­lion and ze­ro net debt."

The new com­pa­ny will al­so have "pro­duc­tion of over 2,000 bar­rels of oil per day (100 per cent oil); to­tal proved plus prob­a­ble (P2) re­serves of 11 mil­lion bar­rels of oil (MMb­bl) net, gen­er­at­ing a re­serve life in­dex of over 15 years based on in­de­pen­dent re­serves eval­u­a­tions; and to­tal pos­si­ble re­serves (P1) of 2.9 MMb­bl (net) and best es­ti­mate con­tin­gent re­sources of 68.7 MMb­bl (net) based on in­de­pen­dent re­serves and re­sources eval­u­a­tions."

Petrobank and Touch­stone be­lieve the new com­pa­ny will be in a strong fi­nan­cial po­si­tion and will fo­cus on the ac­cel­er­at­ed de­vel­op­ment of its 18,000-acre on-shore oil re­source base in Trinidad."We have cur­rent­ly iden­ti­fied over 130 low risk de­vel­op­ment drilling lo­ca­tions as well as nu­mer­ous workover and re­ac­ti­va­tion op­por­tu­ni­ties in our 11 pro­duc­ing prop­er­ties in Trinidad," the state­ment said.

John D Wright, chief ex­ec­u­tive of­fi­cer (CEO) and chair­man of Petrobank, said: "The com­bi­na­tion with Touch­stone pro­vides an ex­cit­ing world class de­vel­op­ment plat­form that can ap­ply Petrobank's heavy oil ex­per­tise and pro­vide share­hold­ers with ex­po­sure to an in­ter­na­tion­al port­fo­lio of large re­source op­por­tu­ni­ties."

New Touch­stone will be led by a com­bi­na­tion of the ex­ist­ing man­age­ment team and board of di­rec­tors of Petrobank and Touch­stone. Paul R Baay, cur­rent CEO and chair­man of Touch­stone will be ap­point­ed pres­i­dent, CEO and di­rec­tor of the new Touch­stone.Baay said: "The heavy oil ex­per­tise along with the strong bal­ance sheet of Petrobank will al­low new Touch­stone to take the project in Trinidad from the proof of con­cept stage to full de­vel­op­ment along with fu­ture ex­plo­ration po­ten­tial."

Up­on com­ple­tion of the arrange­ment, the com­pa­ny's board of di­rec­tors will be com­prise four mem­bers from Petrobank's board and three mem­bers from Touch­stone's board. Wright will be nom­i­nat­ed as chair­man of new Touch­stone.