Nov. 4, 2009 (Filing Services Canada) -- Western Canada Energy Inc. (WCE - TSX Venture), has experienced a major decrease in operating income and a diminished ability to meet its financial obligations due to the collapse of oil and gas prices related to the recent global financial crisis. As a result, WCE's banker, Canadian Western Bank ("CWB"), reduced WCE's credit facility and began the process to recover all amounts owing. The board of directors of WCE concluded that the best alternative for all stakeholders (the debenture holders, preferred shareholders, common shareholders and creditors) was to sell sufficient assets to repay the CWB but retain enough assets to form the basis of an on-going entity. On November 3, 2009 the CWB delivered a demand for payment in the amount of $3,281,728.52 as of that date with per diem interest of $611.78.
WCE has entered into agreements with two arms-length private companies, Tallahassee Petroleum Inc. ("Tallahassee") and Dewpoint Resources Ltd. ("Dewpoint"), to sell producing oil and natural gas assets for total proceeds of $3.0 million. These assets represent about 70% of the value of WCE's proved plus probable reserves, as determined by independent evaluation. The net proceeds of these sales, after costs and adjustments, would reduce the amount outstanding on the CWB loan to approximately $400,000. The remaining proved producing reserves of WCE have been valued at $1.8 million and the total proved plus probable reserves have been valued at $5.8 million.
In order to fully repay the CWB, WCE plans to raise up to $500,000 in short term, bridge financing from accredited investors, secured by the issuance of a new debenture having a principal amount of not more than $500,000, bearing interest at the rate of 12% per annum, and becoming due six months after funding. This new debenture would rank ahead of the existing deed of trust and mortgage (the "Indenture') between WCE and Olympia Trust Company, which would continue as a second charge on WCE's remaining assets. The consent of the current debenture holders under the Indenture to the sale of the assets and the priority of the new debentures is required by November 12, 2009 in order for these transactions to close. The board of directors believes that the assets which WCE would retain after the proposed asset sale and the new debenture financing present WCE with drilling and development opportunities that, with time, could be exploited to enhance the prospects of WCE recovering full value for all stakeholders. The proposed asset sale and the new debenture financing are considered by the board of directors to be the only alternative that would provide the time required to pursue these opportunities.
Following completion of the asset sales and elimination of the CWB debt, WCE would be left with net assets valued at about $9 million including tax pools, seismic data, land inventory, and the properties and opportunities identified above. (Note that the reserve values attributed to the retained properties by WCE's independent engineering evaluators totaled $5.8 million. An incremental proved and probable reserve value of $2.6 million for the Mitsue property and several other prospects not included in the independent evaluation, was based on an internal evaluation prepared by WCE technical staff and not by WCE's independent third party engineering evaluators. The remaining $0.6 million of asset value is attributed to the undeveloped lands, tax pools and seismic data). However, WCE would still have about $500,000 of net negative working capital and secured net debt of $3.8 million including the Indenture and the new debentures. WCE's plan going forward involves cost control and cash flow maximization from existing producing properties, conversion of development prospects into producing reserves via farmouts or other forms of innovative financing to minimize capital outlay and maximize net production, and identification and pursuit of financing and/or corporate restructuring opportunities to benefit the Company's stakeholders.
WCE intends to file a Material Change Report on SEDAR later today.
Certain statements contained herein constitute forward-looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Corporation believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this report should not be unduly relied upon. These statements speak only as of the date of this presentation. The Corporation does not undertake any obligation to publicly update or revise any forward-looking statements.
THE TSX VENTURE EXCHANGE HAS NEITHER APPROVED NOR DISAPPROVED THE INFORMATION CONTAINED HEREIN AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.
FOR FURTHER INFORMATION CONTACT:
Ronald W. Shepherd, President and Chief Financial Officer, or Daniel P. O'Neill, Chief Executive Officer, Western Canada Energy Ltd., 1000, 635 - 8th Avenue S.W., Calgary, Alberta, T2P 3M3, Telephone: (403) 266- 0955 Fax: (403) 266-1955
Source: Western Canada Energy Ltd. (WCE - TSX-V) http://www.wcenergy.ca
Maximum News Dissemination by Filing Services Canada Inc. *
www.usetdas.com
