Madalena Announces Closing of Transformational and Strategic Acquisition in Argentina and Proa-3 Well Results on Surubi Block

 Madalena Announces Closing of Transformational and Strategic Acquisition in  Argentina and Proa-3 Well Results on Surubi Block  /NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE  U.S./  TSXV Trading Symbol: MVN OTC Trading Symbol: MDLNF  CALGARY, June 25, 2014 /CNW/ - Madalena Energy Inc. ("Madalena" or the  "Company") (TSXV: MVN and OTC: MDLNF), is pleased to announce that it has  closed the acquisition (the "Acquisition") of the Argentinean business unit of  Gran Tierra Energy Inc. ("Gran Tierra").  The Acquisition is highly accretive and includes Proved and Probable ("2P")  reserves of 6,513 Mboe at December 31, 2013, estimated current production of  approximately 3,300 Boe/d (~78% oil), 11 exploration and production blocks  comprising approximately 890,000 net acres and a fully functional independent  business unit in Argentina, with an experienced technical and operational  team. The purchase price was US$63 million, payable in US$49 million cash and  29,831,537 common shares of Madalena ("Common Shares") at a deemed issue price  of CDN$0.51 (US$0.469).  The Acquisition provides Madalena with a solid platform for growth which more  than triples the Company's production base and significantly increases cash  flow from its Argentinean assets.  Madalena's current corporate production is  estimated to be approximately 4,900 Boe/d (~72% oil and NGLs), ~80% of which  is from Argentina. Associated cash flow is expected to be reinvested into both  high impact conventional opportunities in Argentina and to accelerate the  delineation of the Company's unconventional shale and tight sand resources  within the Neuquén basin.  Madalena now has a strong portfolio of assets with  exposure to a low decline stable production base, an extensive inventory of  low risk development drilling opportunities, a seismically and technically  defined conventional portfolio of assets, and significant unconventional shale  (Vaca Muerta, Lower Agrio and Los Monos shales) and tight sand resources.  Madalena estimates annual cash flow from operations of US$35 - US$45 million  over the next twelve months which is expected to provide the Company with the  ability, when combined with cash on hand and available credit, to execute a  US$50 - US$60 million capital program over the next 12 to 18 months while  maintaining a strong balance sheet. Madalena will provide additional  go-forward guidance in due course following consideration of a consolidated  budget by the Madalena board of directors.  Acquisition Highlights            --  Acquisition cost per flowing boe of approximately US$19,091,             based on current estimated production of 3,300 Boe/d;         --  Reserve life index of 5.41 years, based on current estimated             production and adjusted 2P reserves;         --  Recycle ratio of approximately 2.1x,based on Q1-2014 operating             property netbacks of US$33.93/Boe and acquisition costs of             approximately US$16.12/Boe;         --  Key producing infrastructure, including batteries and             pipelines;         --  Approximately 890,000 net acres of developed and undeveloped             land; and         --  Lands have an average working interest of approximately 83%,             and the net production acquired is more than 94% operated.  The following is a summary of production, land and reserves information that  is relevant to Madalena, prior to, and following, the Acquisition:                         Madalena(1) Acquisition(2) Adjustments(3) Pro Forma     Current Production(6)                                                       Oil and NGLs     (Bbl/d)                     960          2,610              -     3,570     Gas (Mcf/d)               3,840          4,150              -     7,990     Boe (Boe/d)               1,600          3,300              -     4,900     Oil and NGLs (%)             60             79              -        72     Land (net acres)        239,000        890,000              - 1,129,000     RESERVES(4)                                                                 Proved                                                                      Oil and NGL (Mbbl)        1,350          4,248          (612)     4,986     Gas (MMcf)                8,032          5,599          (510)    13,121     MBOE (6:1)                2,689          5,181          (697)     7,173     Proved plus     Probable                                                                    Oil and NGLs (Mbbl)       2,373          6,295          (900)     7,768     Gas (MMcf)               13,651          7,615          (900)    20,366     MBOE (6:1)                4,648          7,563        (1,050)    11,161                                                                                 Proved FDC(5)     (US$MM)                      20             46           (21)        45     Proved plus     Probable FDC     (US$MM)                      33             77           (35)        75                                                                                 Accretion Analysis     Madalena    Acquisition      Pro Forma Accretion     Diluted Shares (MM)       413.5          127.9          541.4         -     Proved Reserves     (Boe per MM Common     Shares)                     6.5           40.5           13.3      104%     2P Reserves     (Boe per MM Common     Shares)                    11.2           59.1           20.6       83%     Current Production     (Boe/d per MM     Common Shares)              3.9           25.8            9.1      134%     Notes:     1.     Based on the independent reserve reports of Madalena evaluating            the crude oil, natural gas liquids and natural gas reserves of            the Company as at December 31, 2013 prepared by an independent            reserves evaluator in accordance with National Instrument            51‐101 ‐ Standards of Disclosure for Oil and Gas            Activities ("NI 51-101") and the COGE Handbook.     2.     Based on the independent reserve reports of Gran Tierra            evaluating the crude oil, natural gas liquids and natural gas            reserves of Gran Tierra as at December 31, 2013 prepared by an            independent reserves evaluator in accordance with NI 51-101 and            the COGE Handbook.     3.     Adjustments to the acquisition reserves were made pursuant to            internal management estimates conducted by a qualified reserves            engineer.  Adjustments consisted of reduced PUD locations due to            rescheduling or removal of proven undeveloped and probable            locations on the subject assets and acreage consolidations.     4.     Reserves are "gross reserves", being working interest share of            reserves before the deduction of royalties owned by others.     5.     "FDC" means future development costs.  Madalena converted to US$            at 0.92US/CDN.     6.     Based on field estimates.  Rationale for the Acquisition         --  Highly accretive on all metrics and more than triples the             Company's production base.         --  Strong cash flow from the conventional asset bases that can be             directed towards accelerating development of Madalena's             unconventional shale oil and gas plays in Argentina.         --  Strengthens Madalena's Argentinean operations by adding a fully             integrated professional and operating team "on the ground" in             Argentina.         --  Enhances and improves the Company's flexibility regarding the             future delineation of, or transactions associated with,             Madalena's current unconventional shale assets in Argentina.         --  Strategically positions Madalena as a strengthened and emerging             oil and gas producer.         --  Improves Madalena's access to exploration and production             services in Argentina.  Advisors  Dundee Securities Ltd. has acted as financial advisor to Madalena with respect  to the Acquisition. RBC Capital Markets has acted as strategic advisor to  Madalena with respect to the Acquisition.  Proa-3 Well Results on the Surubi Block in Formosa Province, Argentina  The Surubi Block is located within the Noroeste Basin of Argentina. Madalena  Energy has an 85% working interest and is the operator. Recursos y Energia de  Formosa S.A. retains the remaining 15% working interest.  Gran Tierra recently drilled, completed, tested and placed on-stream the  Proa-3 development well. The well was drilled to a depth of approximately  3,920 metres and encountered oil in the Palmar Largo formation, as targeted.  The well was perforated in the Palmar Largo formation between the depths of  3,858.5 metres and 3,866.5 metres and was subsequently tested.  Following the perforating and initial clean-up flow, bottomhole pressure  gauges were set and the well was flow tested on three increasing choke sizes  of 10, 12 and 16mm for 8 hours each. Oil rates and flow pressures stabilized  for each choke setting at the following levels: 1,100 bbls/d oil at 505 psi,  1,240 bbls/d oil at 410 psi and 1,540 bbls/d at 300 psi, respectively. The  water cut was stable throughout the flow test at approximately 3%. The well  was then shut-in to record pressure build-up. Pressure gauges were  subsequently recovered and the well was placed on production on June 16, 2014.   The Proa-3 well is currently producing at gross rates of between 600 to 700  bbls/d of oil.  Oil production from the Proa-3 well has been included in the total corporate  production rates estimated above at rates less than the test and initial  production rates disclosed to account for expected declines. The Company plans  to manage production from this well to maximize oil recovery from the Proa  Palmar Largo oil pool.  About Madalena - International and Domestic Assets (Pre-Acquisition)  Madalena is an independent, Canadian-based, international and domestic  upstream oil and gas company whose main business activities include  exploration, development and production of crude oil, natural gas liquids and  natural gas.  Internationally, Madalena holds 14 large land blocks within five provinces in  Argentina where it is focused on the delineation of large petroleum in-place  shale and unconventional resources in the Vaca Muerta and Lower Agrio shales,  in addition to multiple tight sand plays. The Company is also implementing  horizontal drilling and completions technology to high impact conventional and  resource plays.  Domestically, Madalena's core area of operations is located in the Greater  Paddle River area of west-central Alberta where the Company holds  approximately 195 gross (153 net) sections of land (approximately 78% average  W.I.) encompassing light oil and liquids-rich gas resource plays. Madalena's  primary domestic focus is to exploit its large inventory of horizontal  drilling locations on its Ostracod oil and emerging oil & liquids-rich gas  resource plays.  Madalena trades on the TSX Venture Exchange under the symbol MVN. Basic  corporate information, recent news releases and regularly updated corporate  presentations are available on the Company's website at  Reader Advisories  Forward Looking Information  The information in this news release contains certain forward-looking  statements. These statements relate to future events or our future  performance, in particular, but not limited to, with respect to the  Acquisition, including the characteristics of the Argentinean business unit  being acquired and other expectations related thereto, including pro forma  cash flow and current and future production levels, the strategic value and  opportunities available to Madalena  and the ability of Madalena to execute  its business plan following the completion of the Acquisition. Statements  relating to "reserves" are also deemed to be forward looking statements, as  they involve the implied assessment, based on certain estimates and  assumptions, that the reserves described exist in the quantities predicted or  estimated and that the reserves can be profitably produced in the future. All  statements other than statements of historical fact may be forward-looking  statements. Forward-looking statements are often, but not always, identified  by the use of words such as "seek", "anticipate", "plan", "continue",  "estimate", "approximate", "expect", "may", "will", "project", "predict",  "potential", "targeting", "intend", "could", "might", "should", "believe",  "would" and similar expressions. In particular, this news release contains  forward-looking statements pertaining to operational activities to be  conducted by the Company. These statements involve substantial known and  unknown risks and uncertainties, certain of which are beyond the Company's  control, including: the impact of general economic conditions; industry  conditions; changes in laws and regulations including the adoption of new  environmental laws and regulations and changes in how they are interpreted and  enforced; fluctuations in commodity prices and foreign exchange and interest  rates; stock market volatility and market valuations; volatility in market  prices for oil and natural gas; liabilities inherent in oil and natural gas  operations; uncertainties associated with estimating oil and natural gas  reserves; competition for, among other things, capital, acquisitions, of  reserves, undeveloped lands and skilled personnel; incorrect assessments of  the value of acquisitions; changes in income tax laws or changes in tax laws  and incentive programs relating to the oil and gas industry; geological,  technical, drilling and processing problems and other difficulties in  producing petroleum reserves; and obtaining required approvals of regulatory  authorities. The Company's actual results, performance or achievement could  differ materially from those expressed in, or implied by, such forward-looking  statements and, accordingly, no assurances can be given that any of the events  anticipated by the forward-looking statements will transpire or occur or, if  any of them do, what benefits the Company will derive from them. These  statements are subject to certain risks and uncertainties and may be based on  assumptions that could cause actual results to differ materially from those  anticipated or implied in the forward-looking statements. The forward-looking  statements in this news release are expressly qualified in their entirety by  this cautionary statement. Except as required by law, the Company undertakes  no obligation to publicly update or revise any forward-looking statements.  Investors are encouraged to review and consider the additional risk factors  set forth in the Company's Annual Information Form, which is available on  SEDAR at  Non‐GAAP Measures  This document contains the term "cash flow" and "net backs", which do not have  a standardized meaning prescribed by Canadian generally accepted accounting  principles ("GAAP") and therefore may not be comparable with the calculation  of similar measures by other companies. Madalena uses cash flow and net backs  to analyze financial and operating performance. Madalena feels this benchmark  is a key measure of profitability for Madalena. This term is commonly used in  the oil and gas industry. Cash flow is not intended to represent operating  profits nor should it be viewed as an alternative to cash flow provided by  operating activities, net earnings or other measures of financial performance  calculated in accordance with GAAP. Cash flows are calculated as cash flows  from operating activities less changes in non‐cash working capital.  Information Regarding Disclosure on Reserves  The reserve estimates contained herein are estimates only and there is no  guarantee that the estimated reserves will be recovered. In relation to the  disclosure of estimates for individual properties, companies or business  units, as adjusted, such estimates may not reflect the same confidence level  as estimates of reserves and future net revenue for all properties, due to the  effects of aggregation.  Meaning of Boe  The term "boe" or barrels of oil equivalent may be misleading, particularly if  used in isolation. A boe conversion ratio of six thousand cubic feet of  natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an  energy equivalency conversion method primarily applicable at the burner tip  and does not represent a value equivalency at the wellhead. Additionally,  given that the value ratio based on the current price of crude oil, as  compared to natural gas, is significantly different from the energy  equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as  an indication of value.  Initial Production Rates  Any references in this document to test rates, flow rates, initial and/or  final raw test or production rates, early production, test volumes and/or  "flush" production rates are useful in confirming the presence of  hydrocarbons, however, such rates are not necessarily indicative of long-term  performance or of ultimate recovery. Such rates may also include recovered  "load" fluids used in well completion stimulation. Readers are cautioned not  to place reliance on such rates in calculating the aggregate production for  Madalena. In addition, the rates referred to herein may be subject to high  initial decline rates. Such rates may be estimated based on other third party  estimates or limited data available at this time and are not determinative of  the rates at which such wells will continue production and decline thereafter.   Particular reference is made to the Proa-3 results referred to herein. While  Madalena is very encouraged by the initial results from this well, the testing  information and the initial production information disclosed herein should be  considered preliminary and may not be indicative of the well's long term  performance.  Neither the TSX Venture Exchange nor its Regulation Service Provider (as that  term is defined in the policies of the TSX Venture Exchange) accepts  responsibility for the adequacy or accuracy of this release.  THE SECURITIES OFFERED HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT  OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES  ABSENT REGISTRATION OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS. THIS  PRESS RELEASE SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN  OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES IN ANY STATE IN  WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL.    SOURCE  Madalena Energy Inc.  Kevin Shaw, P.Eng, MBA President and Chief Executive Officer Madalena  Energy Inc. Phone: (403) 262-1901 (Ext. 230)  Thomas Love, CA VP, Finance and Chief Financial Officer, Madalena Energy Inc.  Phone: (403) 262-1901 (Ext. 227)  To view this news release in HTML formatting, please use the following URL:  CO: Madalena Energy Inc. ST: Alberta NI: OIL MNA  
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