Petroflow has entered into a Letter of Intent (LOI) with Patron Energy, LLC (Patron) regarding the establishment of a joint venture to mutually develop the Hunton and other formations in Oklahoma. This LOI is outside of the seven Oklahoma counties in which Petroflow is presently involved with Enterra Energy Trust.
The LOI, which is subject to due diligence and the execution of a formal joint venture agreement and operating agreement prior to October 17, 2008, will allow the Company to own working interests varying between 65% and 70% in three new project areas initiated by Patron. Patron presently has leased mineral rights in approximately 4,600 net acres of land in one of the project areas and has evaluated the geological potential within the other two areas. In consideration, Petroflow will pay Patron US $1 million.
The purchase price represents reimbursement to Patron for seventy percent of its costs in the three projects, including prospect fees, leasehold, land and administrative costs. Key to the LOI is access to Patron's agreement with a team of experienced geologists which provides Patron with a right of first refusal to acquire any projects proposed by these geologists until June 2009. Each party will have the option, but not the obligation, to participate in any additional projects generated by the geologists. Additionally, if either party receives an offer to purchase its interest in a project covered by the LOI, the other party shall have a right of first refusal to match said offer.
Patron is a privately held Texas limited liability company. Richard Azar, who is a director of Petroflow, owns twenty percent of Patron. Azar intends to participate in the activities to be undertaken pursuant to this LOI with working interests of approximately six percent. Azar was not involved in the Company’s decision to approve this LOI.
This transaction is considered to be a 'related party transaction' as defined under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101). This transaction is exempt from the formal valuation and minority shareholder approval requirements under MI 61-101 as neither the fair market value of the assets that are the subject of the transaction nor the consideration being paid exceeds twenty five percent of the Company's market capitalization.
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