Madalena Energy Inc. (the "Company" or "Madalena") (TSXV: MVN and OTCQX: MDLNF) announces its financial and operating results for the three months and year ended December 31, 2016 and the Company's 2016 year end reserves. The Company also announces that its audited consolidated financial statements for the year ended December 31, 2016, the related management's discussion and analysis (the "MD&A") and the Annual Information Form (the "AIF") for the year ended December 31, 2016 will be available on the System for Electronic Document Analysis and Retrieval ("Sedar") under the Company's profile at www.sedar.com and on the Company's website at www.madalenaenergy.com.
Recent Highlights in 2017
With the assistance of Evercore Group Inc., the Company is actively pursuing strategic alternatives with a view to enhance liquidity and meet ongoing capital commitments. There can be no guarantee that this review will result in a transaction(s), or if a transaction(s) is undertaken, as to its terms or timing. At the same time, the Board of Directors is seeking to identify the appropriate CEO candidate to lead the Company.
Highlights in 2016
The Company entered 2016 with liquidity restraints due to limited working capital. Accordingly, the focus for 2016 was directed towards accessing additional funding and opportunities to monetize assets. Changes in management and the Board were made in March 2016 with Mr. Steven Sharpe, Chairman of the Board appointed as Interim President and Chief Executive Officer and Mr. Eric Mark appointed to the Board as an independent director. Both have significant experience in corporate restructurings, capital and debt markets.
Measures were taken to reduce expenses and conserve cash. Office and field personnel have been reduced in both countries, office space has been downsized in Canada and other costs saving measures were implemented.
Review of Strategic Alternatives
In April 2016, Madalena retained Evercore Group LLC ("Evercore") as its exclusive financial advisor in connection with identifying and securing a joint venture partner for the 90% working interest Curamhuele block in Argentina. In late June 2016, Evercore had its mandate broadened to encompass a complete review of strategic alternatives.
On July 11, 2016, the Company entered into definitive agreements whereby Coirón Amargo Sur (35% working interest) was divided into two evaluation lots – CASE and Coirón Amargo Sur Oeste ("CASO"). Madalena sold its interest in CASO in return for an additional 55% working interest at CASE, thereby increasing its working interest to 90% and becoming operator.
On December 7, 2016, the Company entered into agreements with Pan American Energy LLC, Sucursal Argentina ("PAE") relating to its 90% working interest at CASE. Pursuant to these agreements, Madalena received cash payments of an aggregate of $10 million on closing and sold a 55% working interest and operatorship to PAE, thereby retaining a 35% non-operated working interest in CASE. A 2017 work program ("Work Program"), comprised of two well re-entries, will be undertaken by PAE as the new operator of CASE. Madalena will receive $5.6 million in carried capital costs through this Work Program. Concurrently, PAE agreed, subject to certain conditions, to provide Madalena with a loan of up to $40 million, on a limited recourse basis, to be drawn-down as required to fund CASE capital expenditures. This limited recourse loan will bear interest at 7% per annum and is repayable in five years from the net revenue generated from the CASE capital expenditure program. This transaction closed on January 10, 2017.
The Yapai.x-1001 well was successfully completed in Q1-2016 with four hydraulic fractures, the upper three intervals being within the Lower Agrio shale and the lowest interval containing both the Lower Agrio shale and Mulichinco tight sand formations. Initial test results were sufficiently encouraging for the Company to request renewal of the Curamhuele evaluation concession for four years with a total of $8.2 million of work commitments to be incurred by March 9, 2019.
Sale of Canadian Assets
On June 28, 2016, Madalena and Point Loma completed a transaction pursuant to which, Point Loma acquired Madalena's Canadian petroleum and natural gas assets in exchange for 6.2 million escrowed common shares of Point Loma, with a value of $1.9 million and a five-year $2.4 million secured convertible debenture ("Point Loma Convertible Debenture"), bearing interest at 3% per annum, payable at the end of the debenture term.
In December 2016, the Company sold the Point Loma Convertible Debenture for net cash proceeds of $0.5 million.
Madalena Convertible Debenture Issuance
On July 13, 2016, the Company closed a private placement of CAD $1.8 million 12% secured convertible debentures, with a June 30, 2019 maturity date. The debentures are convertible into common shares of the Company at a conversion price of CAD $0.25 per common share any time after January 13, 2017. Interest on the debentures is payable semi-annually, in arrears, on December 31 and June 30. Under certain conditions, the Company may repay the outstanding indebtedness. Such repayments involve call premiums that reduce as the date to maturity approaches.
SUMMARY FINANCIAL AND OPERATIONAL RESULTS
For the year ended December 31, 2016, the Company reported a net loss from continuing operations of $32.1 million, had a working capital deficit of approximately $4.4 million and significant future capital commitments to develop its properties. It is currently anticipated that forecasted cash flow from operating activities will not be sufficient to resolve the current working capital deficit and fund the anticipated capital commitments through 2017. As a result, for the year ended December 31, 2016, the Company continued to include a note of going concern uncertainty in the consolidated financial statements.
Summary of 2016 Reserves
The reserve report ("GLJ Report") was prepared in accordance with the definitions, standards and procedures contained in NI 51-101 and the COGE Handbook by GLJ Petroleum Consultants. The GLJ Report contains several cautionary statements that are required by NI 51-101 and the reserves information presented is subject to the contents of the full reports.
Year End 2016 Reserves Highlights:
As at December 31, 2016, Madalena held a 90% working interest ("WI") in CASE, which includes all of the tight oil and shale gas reserves disclosed above. In a news release dated January 11, 2017, the Company announced the closing of the sale of 55% of its working interest at CASE. As a result, the Company now holds a 35% WI in the CASE evaluation block.
As a result of the sale of 55% of CASE, proved plus probable reserves associated with the Company's undeveloped unconventional reserves in the Vaca Muerta were reduced by 1.4 million boe with an associated reduction in 10% NPV before tax of $12.1 million. Total consideration received by the Company was $15.6 million ($10 million of cash and $5.6 million in carried costs).
About Madalena Energy
Madalena is an independent, Canadian headquartered, Argentine focused upstream oil and gas company with operations in four provinces of Argentina where it is primarily focused on the delineation of unconventional oil and gas resources. The Company is implementing horizontal drilling and completions technology to develop both its conventional and resource plays.
Madalena trades on the TSX Venture Exchange under the symbol MVN and on the OTCQX under the symbol MDLNF.
SOURCE: Madalena Energy Inc.
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