Primary Petroleum Corporation announced that it has agreed to acquire, subject to certain conditions and board and regulatory approval, the shares of AP Petroleum Company LLC, a private Montana corporation. AP Petroleum owns 100% interest in the Prairie Dell gas field, 31 producing wells, production facilities, 81,300 (gross) or 78,500 (net) acres of prospective oil and gas leases in Montana, and more than 10 miles of 2D seismic and 3 square miles of 3D seismic data. The overriding royalty is 12.5% on all of the leases owned by AP Petroleum.
The total consideration for this proposed acquisition is approximately C$3,482,500. This consideration is made up of a cash payment of C$2,625,000 plus approximately 1,071,875 units of Primary. Each unit will consist of one common share plus a one year warrant exercisable into one common share at a price of $1.10.
Currently 31 gas wells are producing from the Bow Island, Sunburst and Swift Formations at a rate of 360,000 cubic feet per day (60 boe/d) (barrels of oil equivalent per day). The current sale price is U.S. $6.10 per thousand cubic feet of gas.
Primary has reviewed the Prairie Dell field for potential infill and development wells. The preliminary findings of this review have identified 13 infill locations and one re-completion. Based on previous testing, the Devonian and Madison formations have been identified for future gas production potential as the Potlack #1 well tested 2.6 million cubic feet gas per day (433 boe/d) and the Madison formation tested 20 boe/d (116 mcf/d). Neither zone has produced to date. The Company has reviewed the undeveloped lands and its preliminary findings show gas potential in the Sawtooth, Bow Island and Eagle formations.
An independent evaluation report of the Prairie Dell field, effective January 01, 2007, was prepared by AJM Petroleum Consultants of Calgary, AB. The report estimated the Proved Plus Probable Reserves to be 1.4 billion cubic feet gas (240.7Mboe). Based on price and cost forecasts and the aggregate consideration of approximately $3,482,500, Primary will be paying $14.47/boe in connection with this acquisition.
"Upon completion of this transaction, Primary's prospective oil and gas land holdings in Montana will increase by 26% to over 385,000 net acres," stated Mike Marrandino, president and CEO.
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