CALGARY, Alberta, Nov. 28, 2018 (GLOBE NEWSWIRE) — Strategic Oil & Gas Ltd. (“Strategic” or the “Company”) (TSXV:SOG) announces that the Company has received the written resolution (the “Resolution and Consents”) of over 96% of the holders (“Noteholders”) of the Company’s 8.0% convertible notes (“Notes”) to affect certain amendments to the trust indenture (“Trust Indenture”) governing the Notes.
In particular the Noteholders have approved, by way of an extraordinary written resolution under the Trust Indenture certain amendments to the Trust Indenture to provide for: (a) a conversion right of the Company allowing for the conversion of the Notes into common shares (“Common Shares”) of the Company; (b) the removal of the covenant in the Trust Indenture that the Company be required to maintain a listing on the TSX Venture Exchange (the “TSXV”); (c) the right to grant first lien debt to parties other than Canadian chartered banks; and (d) certain amendments to the definition of change of control all as contemplated by the Resolution and Consents. The Company and the Trustee under the Trust Indenture have entered into a first supplemental indenture (the “Supplemental Indenture”) giving effect to the foregoing amendments.
In addition, the Company has exercised its right under the Supplemental Indenture to convert (the “Conversion”) the existing Notes and all interest accrued thereon (totalling $116,204,295) into an aggregate of 1,770,721,119 Common Shares at a deemed price of $0.065625 per Common Share (being the 20 day volume weighted average trading price of the Common Shares on the TSX Venture Exchange as of the date hereof). The Conversion was completed on November 26, 2018. After giving effect to the Conversion the Company currently has 1,817,142,079 Common Shares outstanding.
On November 27, 2018 Strategic issued $15 million in first lien secured notes (the “New Note Financing”) to certain investment funds managed by GMT Capital Corp. (the “GMT Funds”) and certain other parties on the same terms as announced by the Company on November 5, 2018. In conjunction with the New Note Financing, Strategic issued 76,190,003 Common Share purchase warrants (“Warrants”) to the subscribers under the New Note Financing. Each warrant is exercisable at a purchase price of $0.065625 per share for a period of five years from the closing date. A second $15 million tranche of notes on the same terms as the first tranche is callable by the Company on the occurrence of certain events. Funds from the first and second tranches will be used by the Company to meet upcoming asset retirement obligations and advance the technical understanding of the Marlowe Asset.
Related Party Considerations
Certain of the parties who have agreed to provide the New Note Financing are related parties (“Related Parties”) of the Company by virtue of their share ownership in the Company and their role as directors of the Company. In particular, the GMT Funds are owned by Tom Claugus, a member of the Company’s board of directors. Collectively the Related Parties own or control 26,673,193 Common Shares, representing approximately 57.5% of the issued and outstanding Common Shares and $73.1 million of principal amount of the Notes, representing approximately 64.1% of the Notes. Upon completion of the Conversion and the New Note Financing, the Related Parties hold, directly and indirectly, 1,160,777,486 Common Shares or 63.9% of the issued and outstanding Common Shares.
The New Note Financing constitutes a “related party transaction” within the meaning of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”). The Company is relying on a financial hardship exemption in connection with the New Note Financing as the Company is in serious financial difficulty and the New Note Financing is the only alternative that has become available to the board since it began its strategic alternatives process in August, 2018. The New Note Financing has been unanimously approved by a special committee (the “Special Committee”) of the board of directors of Strategic, in consultation with RBC Capital Markets who have acted as financial advisors to the Special Committee in respect of the strategic alternatives process. The Special Committee is comprised of Messrs. Rick Skeith, Michael Graham, Jim Riddell and John Harkins, each of whom is independent of Mr. Claugus and the GMT Funds.
As a result of a significant increase in light oil differentials in Canada, combined with lower production volumes due to a lack of development activity, the Company is not generating positive cash flow from operations. Strategic has a working capital deficit, including $7 million in abandonment and reclamation obligations which are scheduled for completion in the next six months.
About Strategic Oil & Gas
Strategic is a junior oil and gas company committed to becoming a premier northern oil and gas operator by exploiting its light oil assets primarily in northern Alberta. The Company maintains control over its resource base through high working interest ownership in wells, construction and operation of its own processing facilities and a significant undeveloped land and opportunity base. Strategic’s primary operating area is at Marlowe, Alberta.