PetroShale Announces Strategic Acquisition, $40 Million Bought Deal Financing, Concurrent Private Placement and Operations Update

CALGARY, Alberta, July 12, 2018 (GLOBE NEWSWIRE) — PetroShale Inc. (“PetroShale” or the “Company“) (TSXV:PSH) (OTCQX:PSHIF) is pleased to announce that we have entered into an agreement with an independent oil and gas company to acquire high quality, light oil-weighted assets in the core of our focus area in the North Dakota Bakken (the “Acquisition”).  The Acquisition includes approximately 550 barrels of oil equivalent per day (“boepd”) of low decline, producing assets as well as significant undeveloped acreage which will enhance our net drilling location inventory and undeveloped land base (the “Acquired Assets”).  Total consideration for the Acquisition is US$55 million, prior to customary closing adjustments, payable in cash.

Concurrent with the Acquisition, PetroShale has entered into an agreement for a $40 million bought deal financing (the “Bought Deal Financing”) through a syndicate of underwriters led by Haywood Securities Inc. (“Haywood” and together with the other syndicate members, the “Underwriters”).  Pursuant to the terms of the Bought Deal Financing, the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 21,622,000 subscription receipts of the Company (“Subscription Receipts”) at a price of $1.85 per Subscription Receipt for total gross proceeds of $40 million. The Underwriters will have an option to purchase up to an additional 3,243,300 Subscription Receipts issued under the Bought Deal Financing to cover over-allotments, if any, exercisable in whole or in part at any time until 30 days after the closing date of the Bought Deal Financing.

PetroShale has also received commitments from two key investors, M. Bruce Chernoff (“Mr. Chernoff”) and FR XIII PetroShale Holdings L.P.  (“First Reserve”) to invest $10 million through a concurrent private placement of 5,405,405 Subscription Receipts at the same price per Subscription Receipt as the Bought Deal Financing (the “Concurrent Private Placement”, together with the Bought Deal Financing, the “Financings”).  Mr. Chernoff is the Executive Chairman of the Company.  First Reserve is a leading global private equity investment firm exclusively focused on energy and the holder of the Company’s outstanding preferred shares.

The gross proceeds of the Financings are expected to be $50 million and the maximum gross proceeds that could be raised under the Financings are approximately $56 million should the over-allotment option be fully exercised.

THE ACQUISITION

The Acquired Assets are situated in the core of PetroShale’s existing focus area in North Dakota and we expect a straightforward integration.  The Acquired Assets include existing light oil production as well as three drilling units, which are primarily undeveloped and will be 100% operated by PetroShale.

Anticipated benefits of the Acquired Assets include:

• 100% operatorship and held by production, which provides control over timing of development and completion technique;
• Approximately 19 gross (14.3 net) high quality, light oil drilling locations internally identified by management, representing a 24% increase to 73.8 net drilling locations from our current 59.5 net drilling locations;
• Identified locations associated with the Acquired Assets are considered by management to be low-risk, infill locations in the core of the North Dakota Bakken, and are anticipated to provide attractive economics even in lower commodity price environments;
• 1,981 net acres of land, representing a 34% increase over the Company’s existing acreage position;
• High ownership in each drilling unit, ranging from 45% to 98%, is expected to enable PetroShale to realize meaningful participation in production increases from the Acquired Assets; and
• Average royalty rate of approximately 14% is below PetroShale’s current corporate average of 20% and is expected to contribute to enhanced corporate operating netbacks.

The Acquisition is consistent with PetroShale’s focus on acquiring and developing high quality lands in the core of the North Dakota Bakken / Three Forks, which have the potential to provide upside for our shareholders through both production and reserve growth.   With the additional drilling location inventory and operated control from the Acquired Assets, PetroShale is well positioned to grow production and sustain volumes at a higher level going forward.

Acquisition Highlights

The Acquisition has an effective date of March 1, 2018 and is expected to close on August 17, 2018, subject to customary conditions and regulatory approvals.  Haywood is acting as a financial advisor to the Company in respect of the Acquisition.

THE FINANCINGS

PetroShale has entered into an agreement for a $40 million bought deal financing through a syndicate of Underwriters led by Haywood pursuant to which the Underwriters have agreed to purchase, for resale to the public on a bought deal basis, 21,622,000 Subscription Receipts at a price of $1.85 per Subscription Receipt for total gross proceeds of $40 million.  The Underwriters will have an option to purchase up to an additional 3,243,300 Subscription Receipts issued under the Bought Deal Financing to cover over-allotments, if any, exercisable in whole or in part at any time until 30 days after the closing date of the Bought Deal Financing.

The Subscription Receipts will be distributed by way of a short form prospectus in the provinces of British Columbia, Alberta, Saskatchewan and Ontario and certain other jurisdictions as the Company and the Underwriters may agree on a private placement basis. Completion of the Bought Deal Financing is subject to certain conditions including the receipt of all necessary regulatory approvals, including the approval of the TSX Venture Exchange (the “TSXV”) and the closing of the Concurrent Private Placement. Closing of the Bought Deal Financing is expected to occur on or about August 14, 2018.  The gross proceeds from the sale of Subscription Receipts pursuant to the Financings will be held in escrow pending the completion of the Acquisition.  If all outstanding conditions to the completion of the Acquisition (other than funding) are met and all necessary approvals for the Financings and the Acquisition have been obtained on or before September 17, 2018 (subject to extension as agreed to by the Underwriters and the Company), the net proceeds from the sale of the Subscription Receipts will be released from escrow to the Company to fund a portion of the purchase price for the Acquisition and each Subscription Receipt will be exchanged for one common voting share of the Company (“Common Shares”) for no additional consideration and without any action on the part of the holder.

PetroShale has also entered into agreements with Mr. Chernoff and First Reserve whereby they have committed to subscribe for, on a private placement basis, 5,405,405 Subscription Receipts at a subscription price of $1.85 per Subscription Receipt for aggregate gross proceeds of $10 million.  Completion of the Concurrent Private Placement is subject to various conditions, including the concurrent closing of the Bought Deal Financing and receipt of all necessary regulatory approvals (including that of the TSXV).  Pro forma completion of the Financings, Mr. Chernoff is expected to own, or have control over, approximately 32.7% of the outstanding Common Shares of the Company and First Reserve is expected to own approximately 18.6% of the outstanding voting securities of the Company, in each case assuming the over-allotment option is not exercised by the Underwriters.

The net proceeds from the Financings will be used to partially fund the purchase price of the Acquisition, with the balance funded by a draw of approximately US$17.6 million under PetroShale’s senior credit facility, assuming the over-allotment option is not exercised.  The borrowing capacity of PetroShale’s senior credit facility will be increased to US$92 million following completion of the Acquisition and, assuming the over-allotment option is not exercised, PetroShale will have approximately US$42 million of undrawn credit capacity following closing of the Acquisition and the Financings.   This undrawn credit capacity will be available to facilitate execution of PetroShale’s capital development program for the remainder of 2018.

Following completion of the Acquisition and the Financings, the Company’s production, capital and liquidity will be as follows:

OPERATIONS UPDATE

PetroShale’s June 2018 production is approximately 6,100 boepd following completion of 3.5 net wells during the first quarter of 2018. PetroShale is currently participating in four (1.6 net) wells that we anticipate being placed on production in late July or early August.   Earlier in July, PetroShale initiated a multi-well drilling program in our core area with the spudding of our first well on the Horse Camp West pad.

This press release is not an offer of the securities for sale in the United States. The securities may not be offered or sold in the United States absent registration or an exemption from registration. The securities will not be publicly offered in the United States. The securities have not been and will not be registered under the U.S. Securities Act, or any state securities laws.

About PetroShale

PetroShale is an oil company engaged in the acquisition, development and consolidation of interests in the North Dakota Bakken / Three Forks.