PetroShale to raise $94 mln in growth funding from First Reserve

Canadian oil company PetroShale Inc (TSX-V: PSH) has agreed to receive strategic financing of about $94 million (US$75 million) from First Reserve Corp, a U.S. private equity firm. First Reserve agreed to acquire Series A preferred shares in PetroShale’s U.S. subsidiary, which will give Managing Director Brooks Shughart a seat on the board. Calgary-based PetroShale said the deal, expected to close in mid-January, will accelerate its long-term plan to acquire and develop light oil interests in the North Dakota Bakken-Three Forks region. Additionally, the company expects to gain financial flexibility and a secure funding source for its 2018 drilling and completions capital program.

PRESS RELEASE

PetroShale Announces Strategic Financing Transaction and Operations Update

CALGARY, Alberta, Jan. 02, 2018 (GLOBE NEWSWIRE) — PetroShale Inc. (“PetroShale” or the “Company”) (TSXV:PSH) (OTCQX:PSHIF) is pleased to announce that it has entered into an agreement (the “Investment Agreement”) with First Reserve (the “Investor”) in respect of a strategic financing transaction (the “Financing”) for gross proceeds of US$75 million.

First Reserve is a leading global private equity investment firm exclusively focused on energy. With nearly 35 years of industry insight, investment expertise and operational excellence, the Firm has cultivated an enduring network of global relationships and has raised approximately US $31 billion of aggregate capital since inception. First Reserve has completed over 600 transactions (including platform investments and add-on acquisitions), creating several notable energy companies throughout the Firm’s history. Upon closing of the Financing, the parties anticipate that Mr. Brooks Shughart, Managing Director of First Reserve, will be appointed to PetroShale’s board of directors pursuant to the terms of the Investment Agreement.

“Establishing a long-term capital partnership with First Reserve, given their deep energy expertise, represents a significant strategic event for PetroShale,” commented PetroShale’s CEO, Mike Wood. “We are excited about the ability to accelerate our growth plans in the North Dakota Williston basin with this Financing, under terms and structure that are very constructive. We believe the relationship with First Reserve will be instrumental in advancing our continued growth and execution of our strategic plan.”

“First Reserve has a long history of partnering with talented management teams to pursue growth strategies throughout the North American shales,” said Brooks Shughart, Managing Director of First Reserve. “With a dynamic and rapidly evolving development program focused on the Bakken / Three Forks plays, PetroShale represents an exciting opportunity to further execute this strategy. We look forward to working with the PetroShale Board and management team to continue to deliver on their compelling vision and growth opportunities.”

Details of the Financing

Pursuant to the terms of the Investment Agreement, the Investor has agreed to acquire US$75 million of series A preferred shares (the “Subsidiary Preferred Shares”) in the Company’s wholly owned subsidiary, PetroShale (US), Inc. (“PetroShale US”). The Subsidiary Preferred Shares have a term of five years (subject to extension for an additional year at the election of the Investor) and entitle the Investor to a cumulative annual dividend of 9% per year (except that no dividends shall be payable for the extension year, if any). The Subsidiary Preferred Shares are, subject to certain conditions, exchangeable into common voting shares in the capital of the Company (the “Common Shares”) at an exchange price of C$2.40 per share (the “Exchange Price”). The Exchange Price represents a 22% premium to the 30-day volume weighted average trading price of the Common Shares on December 29, 2017, the last trading day prior to entering into the Investment Agreement. As part of the Financing, the Investor will also acquire voting preferred shares (“Parent Preferred Shares”) of the Company which entitle the Investor to the “as-exchanged” voting rights of the Subsidiary Preferred Shares. A proportionate number of Parent Preferred Shares will be redeemed and cancelled by the Company, for nominal consideration, upon any redemption of the Subsidiary Preferred Shares or upon the exchange of the Subsidiary Preferred Shares for Common Shares, and carry no other material rights or privileges.

The Parent Preferred Shares issuable on closing of the Financing are anticipated to represent approximately 20.0% of the Company’s pro-forma voting securities at closing (on a non-diluted basis). As such, pursuant to the terms of the Investment Agreement and the Subsidiary Preferred Shares, the Investor has covenanted and agreed with the Company and the TSX Venture Exchange (“TSXV”) not to exercise voting rights in respect of any Parent Preferred Shares and/or Common Shares that, in aggregate, represent voting rights in excess of 19.9% of all then outstanding voting shares of the Company until receipt by the Company of disinterested shareholder approval (in accordance with the rules of the TSXV) for the creation of the Investor as a new “control person” of the Company. Additionally, as a term of the Subsidiary Preferred Shares, the Investor will not be permitted to exchange any Subsidiary Preferred Shares, and the Company will not be entitled to force the exchange of any Subsidiary Preferred Shares, if the Investor’s voting rights (including by way of ownership in Common Shares and Parent Preferred Shares) would, as a result of such exchange, be in excess of 19.9% of all then outstanding voting shares in the capital of the Company, in each case subject to the subsequent receipt of disinterested shareholder approval as described above. A copy of the Investment Agreement will be made available under the Company’s profile on SEDAR at www.sedar.com in due course.

The Financing is subject to certain third party and regulatory approvals, including approval of the TSXV, and is expected to close in early to mid January, 2018.

Financing Rationale

Management believes that the Financing, and the Company’s financial partnership with a proven and energy-focused investor such as First Reserve will facilitate the ongoing successful execution of the Company’s business plan. PetroShale intends to use the net proceeds of the Financing to fund: (i) capital expenditures; (ii) the non-permanent repayment of its outstanding senior loan balance; (iii) the repayment and retirement of its outstanding subordinated loan; (iv) future potential acquisition opportunities; and (v) general corporate purposes.

Completion of the Financing enhances PetroShale’s financial flexibility, and provides a source of secure capital which will be directed, in part, to funding the Company’s 2018 drilling and completions capital program. Upon closing of the Financing, PetroShale’s senior loan balance and outstanding subordinated loan are expected to be paid in full, resulting in the Company’s existing senior loan facility having material capacity remaining that may be utilized for potential acquisitions or to undertake further attractive drilling opportunities. PetroShale’s senior lender recently re-affirmed the Company’s borrowing base under the senior loan facility as US$39.9 million.

Operations Update

As previously disclosed, PetroShale commenced drilling two (1.7 net) wells on its operated Primus unit in Antelope during the third quarter of 2017. The Company also commenced drilling two wells (100% working interest) on its operated Horse Camp unit during the fourth quarter, and participated in four (0.75 net) non-operated wells at Landforms. Three of the four Landforms wells were placed into production during the fourth quarter, with initial production results consistent with the Company’s Antelope type curve. The Company understands the operator of the Company’s non-operated Landforms wells is working over the fourth well, which has not yet been placed into production, but is expected to be on-line during the first quarter of 2018. PetroShale recently commenced completion operations on its four operated wells which are anticipated to be placed into production through late January and early February. Workover operations on the Company’s first operated well, “8H” (which was completed in December of 2016) had been well underway when suspension of work was required due to the commencement of completion operations on the adjacent Primus pad. PetroShale currently anticipates that the 8H workover will be finalized in early February.

Director Appointment

At closing of the Financing, the parties anticipate that Mr. Brooks Shughart will be appointed to the Company’s board.

Brooks M. Shughart is a Managing Director of First Reserve. His responsibilities include investment origination and structuring, due diligence, execution and monitoring, with a focus on the upstream energy sector. Prior to joining First Reserve, he was a Director in the Mergers and Acquisitions Group for Credit Suisse. Prior to Credit Suisse, he held positions in the energy groups of Lazard Freres and Donaldson, Lufkin & Jenrette/CS First Boston. Mr. Shughart holds a B.B.A. from The University of Texas at Austin.

“On behalf of the Company, I am pleased to welcome Brooks to PetroShale’s Board of Directors on closing of the Financing,” said M. Bruce Chernoff, Chairman of PetroShale. “His deep energy and financial expertise will provide a significant contribution as the team advances through our next phase of growth. We look forward to leveraging his expertise in the execution of PetroShale’s long-term growth strategy.”

About PetroShale

PetroShale is an oil company engaged in the acquisition, development and consolidation of interests in the North Dakota Bakken / Three Forks.

For information about PetroShale, please contact:

PetroShale Inc.
Mike Wood, President and CEO
Email: Info@PetroShaleInc.com
Phone: +1.303.297.1407
www.petroshaleinc.com
OR
Cindy Gray
5 Quarters Investor Relations, Inc.
403.231.4372 or info@5qir.com

For First Reserve media inquiries, please contact:

Jonathan Keehner / Julie Oakes
Joele Frank, Wilkinson Brimmer Katcher
joakes@joelefrank.com
(212) 355-4449

Photo courtesy of PetroShale Inc