Blacksteel Energy Inc.

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Blacksteel Energy Inc. and Drakkar Energy Ltd. Announce Business Combination


CALGARY, Alberta, July 05, 2018 (GLOBE NEWSWIRE) -- Blacksteel Energy Inc. (TSXV:BEY) (“Blacksteel” or the “Corporation”) and Drakkar Energy Ltd. (“Drakkar”) are pleased to announce that they have entered into a non-binding letter of intent dated July 3, 2018 (the “Letter Agreement”) for a proposed transaction (the “Transaction”) between the two companies.

The Transaction is subject to due diligence, the signing of a definitive agreement with customary diligence, representations, warranties and closing conditions and if necessary, shareholder approval of the parties. Among other things, the parties have agreed on a commercially reasonable efforts financing to support an agreed upon capital and business plan, seek to extend the maturity date of the Blacksteel unsecured convertible debentures and agree upon certain resale restrictions on the shares of the post-transaction company.  Additional information on the Transaction will disclosed in future press releases.

The parties are working towards completion of a National Instrument 51-101 compliant reserve report (the “Report”) on its jointly owned property and obtaining all necessary shareholder and regulatory approvals, including the TSX Venture Exchange (“TSXV”). The Transaction is considered a “Fundamental Acquisition” and the common shares of Blacksteel (the “Common Shares”) will remain halted until the TSXV has reviewed the Transaction in accordance with TSXV Policy 5.3, including the Report.

The Proposed Transaction 
It is contemplated that Blacksteel and Drakkar will be entering into a business combination whereby each Drakkar shareholder would receive one (1) common share (the “Resulting Issuer Share”) of the post-transaction entity (the “Resulting Issuer”) for each one (1) Class A common share of Drakkar (the “Drakkar Common Shares”).  Each Common Shareholder would receive one (1) Resulting Issuer Share for each 3.25 Common Shares.  Blacksteel currently has 36,227,416 Common Shares issued and outstanding and Drakkar will have approximately 21,114,040 Drakkar Common Shares outstanding immediately before completion of the Transaction.  The proposed Transaction is an arm’s length transaction.

Pro-Forma Company 
Blacksteel’s primary asset is a 30% working interest in producing oil and gas lands in the Girouxville area in NW Alberta. Drakkar owns a 70% working interest and operates the same oil and gas property (the “Asset”). The proposed Transaction would result in the Resulting Issuer owning 100% of the Girouxville Asset which would provide additional flexibility and alternatives to funding future development and growth. There are expected synergies to be realized including consolidated financing focus, drilling programs, stronger fulltime management and general and administration.

The Asset consists of 18 sections of contiguous lands with 5 horizontal wells and a salt water disposal well. Currently two of the wells are producing 110 to 125 barrels of oil per day with plans to add to production with the tie-in of the 8-9 well during the summer of 2018.

The Corporation has identified up to 60 lower risk development locations (52 unbooked) as well as additional contingent step out locations on the Asset. In addition, the offset operator has implemented a water flood pilot (for the purpose of materially increasing the recovery of oil, natural gas liquids and natural gas volumes), within a couple of miles of the Asset’s key producing wells.

In addition, the operator offsetting the property has drilled a number of new wells since the Asset was acquired by Blacksteel and Drakkar, of which most have now been on production for over a year. The three new wells drilled next to Section 10 are averaging initial production rates of 161 BOE per day; 136 BOE per day and 126 BOE per day.

With the current wells producing, the liability management rating (“LMR”) rating of Drakkar has increased to 5.1 at the end of May 2018 from below 1.0 in February 2017. The minimum LMR a company is allowed is 1.0, so Drakkar is well above regulatory requirements.  The rating will continue to improve with the addition of production from the 8-9 well.  The Corporation as a non-operator does not have a LMR rating so the combined rating is not affected by this Transaction.

Upon completion of the Transaction, it is contemplated that the Board of Directors of the Resulting Issuer will be restructured to consist of a minimum of five (5) directors, namely, two Drakkar nominees, one Blacksteel nominee and two nominees shall mutually be agreed upon by the parties.  Further information on proposed directors will be provided in future news releases.

After the closing of the Transaction, a new management team will be appointed by the Resulting Issuer and will include Keith Macdonald as President and Chief Executive Officer, Riley Waite as Vice President, Engineering, James Lee as Vice President Exploration and Business Development, and a Chief Financial Officer to be determined by the Board of Directors at a later date.  It is also expected that the Corporation will amend its name after completion of the Transaction.

The goal for 2018 will be to grow production and cash flow while reducing operating costs and enhancing the value of our revenue streams.  This may include drilling one to two wells, solution gas monetization battery modifications, land acquisition, and geological science.

Les Treitz, President of Blacksteel commented that “the business combination will result in the consolidation of a 100% working interest in the Girouxville oil and gas asset providing additional flexibility and alternatives to funding future growth and development. We look forward to realizing on a consolidated financing focus, drilling potential, administration efficiencies and the efforts of the new management team.”

Keith Macdonald, President of Drakkar, said “Our team continues to gain confidence in the quality of our Montney asset base and our competitive returns. Activities to date confirm that we have acquired a strategically attractive property with significant upside which is performing as expected while the timing of its acquisition could not have been better.  Challenges will continue around traditional access to capital for the entire industry but as an oil weighted producer with a differentiated value creation strategy capitalizing on new growth opportunities in electricity production we are cautiously optimistic as we move into the latter part of 2018.”

For further information, please contact:

Blacksteel Energy Inc.
Eugene Chen
(403) 536-9598 
 Drakkar Energy Ltd.
Keith Macdonald
(403) 861-1314 

Completion of the transaction is subject to a number of conditions, including TSXV acceptance.

There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Blacksteel should be considered highly speculative.

The TSX Venture Exchange has in no way passed upon the merits of the proposed Transaction and has neither approved nor disapproved the contents of this press release.

Neither the TSX Venture nor its Regulation Service Provider (as that term is defined in the policies of
the TSX Venture) accepts responsibility for the adequacy or accuracy of this release.

Not for distribution to U.S. news wire services or dissemination in the United States.

A Note regarding Forward Looking Information

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws, including without limitation, statements pertaining to the closing of the Transaction, including the parties' ability to close the transactions contemplated herein and obtain necessary approvals from the TSX Venture Exchange and the characteristics and quality of the Asset. The use of any of the words "will", "expects", "believe", "plans", "potential" and similar expressions are intended to identify forward-looking statements or information.

Although Blacksteel, and Drakkar believe that the expectations and assumptions on which such forward looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Blacksteel, and Drakkar cannot give assurance that they will prove to be correct.

Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve and resource estimates; the inability of Blacksteel to bring additional production from the Asset on stream or in the anticipated quantities disclosed herein; the uncertainty of estimates and projections relating to reserves, resources, production, costs and expenses; health, safety and environmental risks; commodity price and exchange rate fluctuations; marketing and transportation; loss of markets; environmental risks; competition; incorrect assessment of the value of acquisitions; failure to realize the anticipated benefits of acquisitions; ability to access sufficient capital from internal and external sources; changes in legislation, including but not limited to tax laws, royalties and environmental regulations, actual production from the Asset may be greater or less than estimates; failure to obtain the necessary regulatory approval and  stock exchange and other regulatory approvals on the timelines planned. Management has included the above summary of assumptions and risks related to forward looking information provided in this press release in order to provide security holders with a more complete perspective on Blacksteel's future operations and such information may not be appropriate for other purposes.

The forward-looking statements and information contained in this press release are made as of the date hereof and none of Blacksteel, or Drakkar undertake any obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Oil and Gas Information

"BOEs" may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. As the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.


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