Source: FOREST GATE ENERGY INC.
SYMBOL & EXCHANGE: FGE-V
MONTREAL, Dec. 23 /CNW Telbec/ - Forest Gate Energy reports that it has entered an agreement to purchase oil and gas assets from a privately-held, Calgary company.
Upon closing of the transaction, Forest Gate will own a non-operated 20 percent interest in oil and gas licenses encompassing 19,848 acres in south western Saskatchewan. The remaining 80 percent interest is owned and operated by Trafina Energy Ltd., a publicly-traded oil and gas company based in Calgary.
As part of the transaction, Forest Gate is acquiring approximately 18 barrels per day of existing oil production and the equivalent of ten barrels of oil per day in gas production. The hydrocarbon production is from 12 wells in the south western areas of Saskatchewan known as Rangeview and Divide. Forest Gate is also acquiring contiguous acreage in an area known as Katherine, which has known hydrocarbon reserves.
Production from the existing wells is from the Upper Shaunavon (18 degree API), and Madison formations (10 degree API). Currently the parties to the parties are completing a horizontal well in the Upper Shaunavon formation at Divide, Saskatchewan. Analogous horizontal wells drilled in the area have enabled production of between 75 and 125 barrels of oil per day.
According to the reserve audit filed by Trafina Energy on December 31, 2009, Divide and Rangeview, Saskatchewan, are estimated to have total proved plus probable reserves of 705,000 barrels of oil equivalent. The before-tax present value at a 5% discount is $13,931,000. Both the reserve estimate and the present value calculation are increased by 20% when Spade's interest is considered.
The total consideration for the acquisition is approximately $1.5 million. Forest Gate will issue the vendor 7.98 million shares, assume its bank line of credit in the amount of $350,000 and assume various liabilities of the vendor with its joint venture partner in the amount of $277,000. Forest Gate will also make an additional cash payment to the vendor of approximately $75,000 by March 31, 2011, subject to normal industry adjustments.
"We are adding significantly to our daily oil production with this transaction," said Michael Judson, Forest Gate's President. "With the current production from Divide and Rangeview alone, we almost double our production."
"This does not include the expected oil production from the horizontal being completed in the Upper Shaunavon formation at Divide, Saskatchewan. Our engineers are telling us that there is the potential to drill six more horizontal wells into the Upper Shaunavon formation and four horizontal wells into the Madison formation," said Mr. Judson.
The purchase is subject to various conditions and approvals including satisfactory due diligence review, the receipt of independent reserve audit, bank approval on the transfer of debt and TSX Venture Exchange and board approvals.
About Forest Gate
Forest Gate Energy Inc. is a publicly listed oil and gas exploration and production, and non-energy resource company trading on the TSX Venture Exchange under the symbol FGE. The Company is seeking to increase shareholder value through participation and development of energy and other resources in Canada and internationally.
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