CHRONOS RESOURCES LTD. AND SAMOTH OILFIELD INC. ANNOUNCE TRANSFORMATIVE BUSINESS COMBINATION AND $65.0 MILLION EQUITY FINANCING

2022-11-07

TSXV - TSX Venture Exchange · Oil · Natural Gas · Canada

Canada NewsWire

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CALGARY, AB , Nov. 7, 2022 /CNW/ - Chronos Resources Ltd. (" Chronos ") and Samoth Oilfield Inc. (" Samoth ") (TSXV: SCD) are pleased to announce that they have entered into a definitive agreement dated November 7, 2022 (the " Agreement ") providing for a business combination transaction (the " Transaction ").

Pursuant to the Transaction:

The Transaction is expected to be completed on or about December 12, 2022 , subject to the completion of the Financing and customary closing conditions, including approval by the TSXV.

Chronos Overview

Chronos is an oil-focused, exploration, development and production company based in Calgary, Alberta , operating high-quality, heavy-oil, development assets in the Gull Lake area of southwest Saskatchewan and heavy-oil assets in the Lloydminster area of Saskatchewan and Alberta (collectively, the " Assets ").

Pre-Transaction Corporate Highlights

Successful Leadership Team

Extensive experience drilling and completing multi-stage horizontal wells in unconventional resource plays Management team has previously led drilling programs in the Sparky, Shaunavon and Viking Experienced board of directors ensures highest standards of corporate governance and capital stewardship

Compelling Emerging Development Asset

Development inventory of 100+ risked locations Wells are low-cost vs. deeper plays in basin, reducing event risk and increasing economics of program Optimized drilling and completion techniques are leading to improved initial rates and lower costs

Strong Financial Position

Low decline production base provides stable free cash flow with limited maintenance capital or liability management Strong balance sheet with no debt and forecast 2022E Q4 Annualized EBITDA of > $11.7 million Positive working capital of $2.2 million 2022 capital program of $6.7 million fully funded with cash flow 2023 capital program to be expanded to include increased drilling, new facilities and acquisition capital

Low Decline Production Base

Heavy oil production of 1,050 boe/d (99% oil) in SW Saskatchewan and Lloydminster Stable production with low decline rate (<10%)

Asset Summary

| Notes: | | | (1) | Comprised of 829 bbl/d heavy oil, 142 bbl/d light and medium oil, and 474 mcf/d natural gas | | (2) | Decline rate based on 2021 versus 2020 PDP reserves. See " _Reader Advisory – Reserves Disclosure _", below. | | (3) | 15,482 net undeveloped and developed acres in southwest Saskatchewan and 23,422 net undeveloped and developed acres in Lloydminster. | | (4) | 42.5 net booked locations (25.8 proved undeveloped plus 16.7 probable undeveloped). See " _Reader Advisory – Drilling Locations _" for additional details. | | (5) | The estimated operating netback was derived using estimated go-forward royalties and operating costs utilizing 27.01/boe, 2023 flat pricing which averages US$80/bbl WTI, US$17.25 WCS/bbl all for the forecasted 12-month period from January, 2023 to December, 2023 and a US dollar/Canadian exchange rate of 1.35 CAD:USD. The operating cost and royalty utilized for the operating netback calculation is $27.01/boe and $13.01/boe (or 16.5% of oil and gas revenue), respectively. See " _Reader Advisory – Specified Financial Measures _" for additional detail. | | (6) | Run rate net operating income is based on the expected fourth quarter average production of 1,242 boe/d, and an operating netback in respect of the Assets of $33.54/boe. See Note (5), above, and " _Reader Advisory – Specified Financial Measures _" for additional details. | | (7) | Working interest before royalty reserves. See " _Reader Advisory – Reserves Disclosure _". | | (8) | The reserve life index (" RLI ") is calculated by dividing TPP reserves as of December 31, 2021 (5,108 MMboe) by estimated production on the Closing Date of 1,193 boe/d. RLIs are not necessarily comparable between different issuers as there may be variation in calculation methodology. Management views RLI as a useful measure of the length of time the reserves would be produced at the estimated rate of production. See " _Reader Advisory – Reserves Disclosure _". |

New Management Team

The Resulting Issuer will be led by the existing management team of Chronos: Dave Burton (President and Chief Executive Officer); Lindsay Goos (Vice President, Finance and Chief Financial Officer); Jamie Conboy ( Vice President, Exploration); Kyle Boon , (Vice President, Operations); Jeff Rideout (Vice President, Land); and Sony Gill (Corporate Secretary).

Dave Burton , President and Chief Executive Officer ( Calgary, Canada )

Mr. Burton has more than 27 years of experience in the upstream oil and gas industry in all facets of petroleum engineering work including reservoir engineering, evaluations, secondary and tertiary recovery, unconventional oil and gas, area development and acid gas projects including work on CO2 sequestration in coals. He has had numerous executive roles and been involved in founding multiple successful start up energy companies. Prior to founding Chronos, Mr. Burton was a co-founder at Raging River Exploration Inc. (" Raging River ") and Wild Stream Exploration Inc. (" Wild Stream ").

Mr. Burton is a professional engineer and a member of the Alberta Association of Professional Engineers and Geoscientists of Alberta . Mr. Burton holds degrees in Petroleum Engineering from the University of Alberta (BSc) and a Master of Engineering degree in Chemical and Petroleum Engineering from the University of Calgary .

Lindsay Goos , Vice President, Finance and Chief Financial Officer ( Calgary, Canada )

Ms. Goos has 20 years of experience in the oil and gas industry in the disciplines of finance, financial reporting, budgeting, accounting, management, treasury, tax and business development. Previously, Founder, VP Finance & CFO of Imaginea Energy Ltd. and prior thereto Controller of BlackShire Energy Ltd. Ms. Goos began her professional career with KPMG LLP and has held progressively senior roles at various other oil and gas companies.

Ms. Goos is a member of the Chartered Professional Accountants of Alberta and is a Chartered Professional in Human Resources of Alberta . Ms. Goos holds a Bachelor of Commerce and Arts degree from the University of Saskatchewan .

Jamie Conboy , Vice President, Exploration ( Calgary, Canada )

Jamie Conboy is professional geologist, most recently working as subsurface lead with Bison Low Carbon Ventures (CCS) and formerly as founding member of the Storm Group of companies for 20 years in capacities of Vice President Geoscience and Chief Geologist. In his previous 12 years in the industry Mr. Conboy has worked on a variety of properties and play types at Canadian Hunter Exploration Ltd, Renaissance Energy Ltd. and Pinnacle Resources Ltd, among others.

Mr. Conboy is a registered Professional Geologist and Responsible Member of APEGA in the Province of Alberta and holds a B.Sc. (Honours) in Geology from Queen's University (1992).

Kyle Boon , Vice President, Operations ( Calgary, Canada )

Mr. Boon has 20 years' experience in the Western Canadian oil and gas sector. Mr. Boon most recently was a Founder and the Drilling and Completions Manager of Raging River and prior thereto held the role of Senior Production Technologist at Wild Stream.

Mr. Boon holds a Petroleum Engineering Technology Diploma from the Northern Alberta Institute of Technology and is a member of the Association of Science & Engineering Technology Professionals of Alberta (ASET).

Jeff Rideout , Vice President, Land ( Calgary, Canada )

Mr. Rideout has over 20 years of experience in the oil and gas industry in the disciplines of commercial negotiations, acquisitions and divestitures in private, public and service companies. Mr. Rideout was previously a Senior Land/Commercial Negotiator with Whitecap Resources Inc., TORC Oil and Gas Ltd, and prior thereto Founder and Vice President Elkhorn Resources Inc.

Jeff holds his Professional Landman (P.Land) designation and earned a Master of Business Administration (MBA) degree from The Haskayne School of Business, and a Bachelor of Arts (B.A.) degree from the University of Calgary .

Sony Gill, Corporate Secretary ( Calgary, Canada )

Mr. Gill is a partner at Stikeman Elliot LLP in the Capital Markets and Mergers & Acquisitions Groups. His practice focuses on public and private company creation, growth, restructuring and value maximization. He has extensive experience in the negotiation, structuring and consummation of a broad range of corporate finance, securities and M&A transactions, including public and private debt and equity financings, strategic investments, joint ventures, recapitalizations, restructurings, takeover bids, reverse takeovers, asset acquisitions and divestitures, share purchases and dispositions, plans of arrangement, spin-outs and other forms of business combination and corporate activity.

New Board

Upon completion of the Transaction, the New Board will be comprised of Dave Burton and the following independent directors: Kevin Olson (Chair), Ian Atkinson , Ali Horvath , Bruce Beynon , Don Cowie and Kel Johnston . In addition, Neil Roszell will serve as a Special Advisor to the New Board. The members of the New Board have strong track records and distinguished careers in both the oil and gas industry and capital markets, each having held prominent lead positions within a range of successful companies. Their combined experience and expertise will provide the New Management Team with invaluable advice, guidance and support.

Kevin Olson , Chair ( Calgary, Canada )

Mr. Olson has over 27 years of industry experience and is currently a director of Headwater Exploration Inc. (" Headwater "). Mr. Olson is a former board member of Raging River, Wild Stream, Wild River Resources Inc. (" Wild River ") and Prairie Schooner Petroleum Ltd. Mr. Olson has managed four early stage energy funds and served as a director of a variety of exploration and production companies and petroleum services companies. Formerly Mr. Olson was Vice-President, Corporate Finance at FirstEnergy Capital Corp. and Vice-President, Corporate Development for Northrock Resources Ltd. Mr. Olson holds a Bachelor of Commerce degree majoring in finance and accounting from the University of Calgary .

Ian Atkinson ( Calgary, Canada )

Mr. Atkinson has been the founder of several private and public oil and gas companies, with over 27 years of technical, executive and board of director experience. Mr. Atkinson has been President and CEO of Southern Energy Corp. (formerly Gulf Pine Energy Partners LP) since 2014. Prior thereto, Mr. Atkinson was a founder and Senior Executive Officer of Athabasca Oil Corporation.

Ali Horvath ( Calgary, Canada )

Ms. Horvath is the Vice President, Finance and Chief Financial Officer of Headwater. Ms. Horvath was previously a founder and the Controller of Raging River and prior thereto was a Senior Financial Accountant with Wild Stream. Ms. Horvath is a Chartered Professional Accountant and holds a Bachelor of Management degree from the University of Lethbridge .

Kel Johnston ( Calgary, Canada )

Mr. Johnston is currently CEO of Wylander Crude Corp, a firm that provides consultancy services to oil and gas and private equity clients in Canada and the USA . He is also a Technical Advisor to Carbon Infrastructure Partners.

Mr. Johnston has forty years of technical/financial/ ESG experience in the Canadian and Northern USA oil and gas sector, and capital markets experience from public companies to the oversight of private equity investments to leading edge carbon Capture and Storage knowledge. He has been directly involved in the conceptualization, discovery and exploitation of numerous oil and gas pools from the foothills of Alberta , BC and Montana to the plains of SE Saskatchewan . Mr.Johnston has maintained technical skills through ownership/active technical role in a private E&P company that holds interests in 2 CCUS projects. He has over thirty years of experience as a founder, executive and board member of numerous public and private oil and gas companies. Direct experience in a wide range of corporate activities including capital markets, private equity, ESG, mergers, sales/acquisition/strategic processes and IPOs.

Mr. Johnston is a Professional Geologist and holds a Bachelor of Science (Hons.) degree in Geology from the University of Manitoba and a Masters degree in Economics from the University of Calgary .

Bruce Beynon ( Calgary, Canada )

Mr. Beynon is a professional geologist with over 30 years of oil and gas industry experience. Mr. Beynon is currently the President of Tiburon Exploration Corp., a private consulting company. Prior thereto, Mr. Beynon was Executive Vice President, Exploration and Corporate Development at Baytex Energy Corp. Prior to the merger between Baytex and Raging River, Mr. Beynon held several positions with Raging River including President, Executive Vice President and Vice President, Exploration. Mr. Beynon graduated with a Bachelors and Masters of Science degree in Geology from the University of Alberta . Mr. Beynon serves on the Board of Southern Energy Corp., a TSXV listed company with focused operations in the southeast Gulf States of the US.

Don Cowie ( Calgary, Canada )

Mr. Cowie was the founding Partner of JOG Capital in 2002 and was the President of the firm from its inception until his retirement in December 2017. JOG raised over $1 Billion dollars in upstream oil and gas capital during his tenure. Prior to founding JOG, Mr. Cowie was the head of Energy Investment Banking for Bank of America in Calgary , and prior thereto was one of the founders and directors of two junior oil and gas companies.

Special Advisor to the New Board

Neil Roszell ( Calgary, Canada )

Mr. Roszell is the CEO & Chairman of Headwater and has been a founder of six successful oil and gas companies. His roles have included Director, President and Chief Executive Officer of Raging River, Wild Stream and Wild River. Prior thereto he was President and Chief Operating Officer of Prairie Schooner Petroleum Ltd. and Vice-President of Engineering of Great Northern Exploration Ltd. Mr. Roszell has a Bachelor of Applied Science degree in Engineering from the University of Regina .

Corporate Strategy

The New Management Team has extensive experience in creating shareholder value through a focused full-cycle business plan and believes the current market environment provides an excellent opportunity to reposition Samoth through the consolidation of high-quality assets at attractive acquisition values. Following the completion of the Transaction, the New Management Team expects to focus on predominantly heavy oil opportunities in Alberta and Saskatchewan , growing through a targeted acquisition and consolidation strategy complemented by development and exploration drilling. The recapitalized corporate structure will allow the Resulting Issuer to exploit its opportunity suite through internally generated prospects and strategic acquisitions. The New Management Team will focus on maintaining a clean balance sheet while targeting high quality, oil weighted assets with sustainable cash flow under current commodity prices.

The New Management Team expects to acquire and develop underexploited, undercapitalized and distressed assets and corporates. In addition, the New Management Team intends to implement cost reduction strategies and focus on efficient capital allocation to enhance investor returns. The recapitalized Company will invest in the highest tier drilling inventory while generating free cash flow to fund further acquisitions and potential dividends.

Upon completion of the Transaction, the Resulting Issuer is expected to have a net cash position of approximately $63.2 million , assuming the Private Placement is fully subscribed. The New Management Team believes that this starting point will provide it with a platform for aggressive growth through strategic acquisitions and internally generated prospects. Upon completion of the Transaction and subject to all regulatory and shareholder approvals, it is anticipated that the New Management Team will change the name of Samoth from "Samoth Oilfield Inc." to "Lycos Energy Inc.".

The Acquisition

Completion of the Acquisition is subject to the satisfaction of a number of conditions, including, but not limited to: (i) receipt of the approval of shareholders of Chronos; (ii) receipt of conditional approval from the TSXV for the Transaction and the issuance of Samoth Shares pursuant to the Transaction; (iii) completion of the Financing, which shall be deemed to occur once the net proceeds of the sale of the Subscription Receipts (as defined below) are released to Chronos and the subscription receipts (the " Subscription Receipts ") of Chronos are exchanged for Chronos Shares, which shall occur upon the Escrow Release Conditions (as defined below) being satisfied, as described below; (iv) all conditions under the Agreement (other than the issuance of Samoth Shares necessary to complete the Transaction) having been satisfied or waived; and (v) receipt of all other required regulatory, governmental and third party approvals.

Pursuant to the Acquisition:

The Financing

In conjunction with the completion of the Acquisition, Chronos will complete:

The completion of the Financing is expected to occur on or about November 28, 2022 .

Gross proceeds from the sale of Subscription Receipts will be held in escrow pending the satisfaction of the escrow release conditions set out in the subscription receipt agreement (the " Subscription Receipt Agreement ") to be entered into between Chronos and the subscription receipt agent. Gross proceeds from the sale of the Units will also be held in escrow pending the satisfaction of the escrow release conditions set out in the subscription agreements to be entered into in respect of the Unit Private Placement. The escrow release conditions for both the Subscription Receipts and the Units include the satisfaction of all conditions precedent to completing the Transaction as set forth in the Agreement and, in the case of the Subscription Receipts only, the Subscription Receipt Agreement. Upon the satisfaction of the escrow release conditions, net proceeds from the sale of the Subscription Receipts and Units will be released from escrow to Chronos and for no additional consideration and without any further action on the part of the holder thereof: (i) Common Shares will be issued to holders of Subscription Receipts; and (ii) Common Shares and Warrants will be released to holders of Units. If the escrow release conditions are not satisfied or the Agreement is terminated in accordance with its terms, the purchase price for the Subscription Receipts and the Units will be returned pro rata to subscribers, together with a pro rata portion of interest earned on the escrowed funds, if any.

Each Chronos Warrant will entitle the holder thereof to purchase one (1) Chronos Share for a period of five (5) years following the date of issuance at an exercise price of $0.70 per Chronos Warrant (the " Exercise Price ") and shall vest and become exercisable as to one-third upon the 10-day weighted average trading price of the Chronos Shares (the " Market Price ") equaling or exceeding $1.05 , an additional one-third upon the Market Price equaling or exceeding $1.23 and a final one-third upon the Market Price equaling or exceeding $1.40 (which Chronos Warrants, upon completion of the Transaction, shall represent a right to acquire Resulting Issuer Shares, as adjusted to reflect the Transaction and the Consolidation).

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