News Release
Private Placement
Azabache Energy Inc. ("Azabache" or the "Company") (TSX VENTURE:AZA) announces that it has closed its previously announced brokered private placement (the "Offering") with a syndicate of agents co-led by Toll Cross Securities Inc., Canaccord Genuity Corp. and FirstEnergy Capital Corp. and including Fraser Mackenzie Limited (collectively, the "Agents"). Pursuant to the Offering and the partial exercise of the over-allotment option granted to the Agents, Azabache sold an aggregate of 31,117,990 common shares of the Company ("Common Shares") at a price of
.55 per Common Share for aggregate gross proceeds of $17,114,894. All securities issued pursuant to the Offering will be subject to a four month hold period expiring on September 14, 2011.
The Agents were paid a cash commission equal to 6% of the gross proceeds of the Offering (excluding those subscription proceeds raised from insiders of the Company).
The net proceeds of the Offering will be used for exploration activities, as well as for general working capital.
Antares Block Definitive Agreement
The Company also announces that it has entered into a farmout agreement dated May 10, 2011 along with certain related agreements (collectively, the "Definitive Agreement") with Petróleos Del Mar ("Petromar") in connection with its previously announced transaction with Petromar to farm into the Antares block, an exploration block strategically located in the Upper Magdalena Basin, Colombia (the "Antares Block"). Petromar acquired its interest in the Antares Block pursuant to an exploration and production contract (the "E&P Contract") between Petromar and the Agencia Nacional de Hidrocarburos of Colombia ("ANH").
In exchange for a thirty percent (30%) working interest in the Antares Block and the E&P Contract, Azabache has agreed to:
pay to Petromar US$1 million in cash;
issue US$1.1 million of Common Shares to Petromar upon completion of drilling operations in the first of two exploratory wells in the Antares Block (the "Exploratory Wells");
fund the drilling, completion and well testing of the Exploratory Wells up to US$5 million; and
issue US$1 million of Common Shares to Petromar as a "success fee" upon commercial discovery in at least one of the Exploratory Wells.
The assignment of Petromar's 30% interest in the Antares Block and the E&P Contract to Azabache remains subject to the approval of the ANH. Until approval of the ANH is obtained, the Company is entitled to the economic rights of Petromar attributable to this 30% interest in the Antares Block.
The transaction is also subject to the receipt of all necessary regulatory approvals, including the final approval of the TSX Venture Exchange (the "TSXV"). The deemed price of the Common Shares issuable to Petromar will be determined in accordance with the policies of TSXV.
The Antares Block occupies an area of more than 41,731 gross acres (169 km2) and 12,500 net acres (50 km2), and surrounds the Andalucia field, which has proved recoverable reserves of more than 12 million barrels of oil. The Antares Block is also positioned east of the prolific Neiva sub basin fields, which includes the Dina K, Cebu and Tello trend. Existing 2D seismic analysis together with 3D seismic cube acquired by Petromar identified two drill-ready, independent shallow prospects, as well as various leads which require additional seismic and technical analysis. Azabache anticipates an initial two well program for the Antares Block, with drilling and completion expected before the end of 2011 (subject to the timely receipt of environmental permits and completion of roads and site constructions). The Antares Block will continue to be operated by Petromar.
Stock Options
The Company announces that pursuant to the terms of its stock option plan, its Board of Directors has approved the granting of options to purchase an aggregate of 400,000 Common Shares at a price of
.55 per share to certain of its directors. The options will vest on January 17, 2014. The options will also have performance vesting criteria based upon the trading price of the Company's Common Shares and a group of industry peers. The options will have a term of five years.