VANCOUVER, March 31, 2016 /CNW/ - Terrace Energy
Corp. (the "Company") (TSXV: TZR, OTCQX: TCRRF,
Germany: 2TR) announces the following restructuring plans to
preserve cash and protect the prospective value of its
business.
Dave Gibbs, the Company's
President and Chief Executive Officer, commented: "Current market
conditions and the near term projected outlook for the oil and gas
industry require that we take immediate steps to reduce
expenditures and preserve assets so that all stakeholders have an
opportunity to benefit from a future industry wide recovery."
The Company intends to rely on a combination of capital
deferrals (drilling obligations), cost reductions (G&A), and an
exchange of outstanding convertible notes to preserve cash.
Deferral of Capital Obligations
The Company has been successful in pursuing a strategy of
building an attractive inventory of future drilling locations with
minimal near-term capital commitments in order to secure long-term
opportunities. As previously reported, the Company has successfully
negotiated deferrals of drilling commitments on its STS Olmos
and Maverick County Projects until late 2017, allowing it to
maintain its leasehold interest of approximately 40,000 net mineral
acres in these two projects. The Company will continue to pursue
advantageous leasehold acquisition opportunities within its
approximately 240,000 acre Area of Mutual Interest surrounding the
existing STS Olmos Project.
Annual Cost Savings
The Company has taken actions that are expected to reduce its
G&A budget for the current fiscal year by more than 70%, saving
an estimated US$2.6 million. Most
significantly, the Company has eliminated approximately 85% of its
salary obligations, without having to incur any severance costs, by
forming a separate consulting and contract management services
company, which will compensate key technical staff and executive
officers from client billings. This allows the Company to maintain
and grow industry relationships while eliminating a significant
burden on the Company. The Company has also streamlined the expense
of its public reporting and corporate administrative functions by
reducing outside services by approximately 65%, resulting in
expected annual savings of approximately US$750,000 and eliminated or reduced ancillary
costs (rent, communications, etc.) by an additional US$250,000.
Proposed Exchange of Convertible Notes
The Company also plans to hold a special meeting (the "Meeting")
of holders of its 8% convertible unsecured notes (the "Existing
Notes") due in 2018. The Meeting will be held at 10:00 a.m. (Vancouver time) on May
9, 2016. At the Meeting, noteholders will be asked to
consider and vote upon a resolution approving an arrangement (the
"Arrangement") under the Business Corporations Act
(British Columbia) pursuant to
which all of the Existing Notes will be exchanged for new
convertible secured notes of the Company (the "New Notes")
due April 2, 2021 (the "Maturity
Date"). The New Notes will be issued under a new trust
indenture (the "New Indenture").
Pursuant to the Arrangement, noteholders will receive
$1,000 in principal amount of New
Notes for each $1,000 principal
amount of Existing Notes held by such noteholder. All
interest owing to noteholders on the Existing Notes to the date of
such exchange will be forgiven. While the Existing Notes are
unsecured, the New Notes will be a secured obligation of the
Company guaranteed by a general security agreement against all of
the assets of the Company. Additionally, the New Notes will be
interest free but subject to a maturity bonus equal to 5% of the
aggregate total principal amount of the New Notes payable on the
Maturity Date (the "Maturity Bonus"). If the New Notes are
redeemed in accordance with their terms at any time within 180 days
prior to the Maturity Date, one-half of the Maturity Bonus
will be payable. The Maturity Bonus will be payable, at the
Company's election, in cash or through the issuance of common
shares of the Company at a price equal to the volume weighted
average of the Company's common shares on its principal stock
exchange for the 10 trading days prior to any such issuance.
The conversion price under the New Notes will be $0.50 per share, compared to $2.00 per share under the Existing Notes.
To date, the Company has entered into voting support agreements
with holders of Existing Notes representing approximately
C$14.5 million (or 37%) of the
outstanding principal amount of the Existing Notes, pursuant to
which such noteholders have agreed to vote in favour of the
Arrangement.
The Arrangement is subject to court approval and approval by
both a majority in number of noteholders and noteholders
representing 75% in value of the Existing Notes present, in person
or by proxy, at the Meeting. The Arrangement will also be subject
to customary conditions, including, among other things, the receipt
of applicable regulatory approvals, including approval of the TSX
Venture Exchange and the satisfaction of other customary closing
conditions.
Details regarding these and other terms of the Arrangement, the
New Notes and the New Indenture will be set out in a management
information circular, which will be sent to noteholders and made
available under the Company's profile at www.sedar.com prior to the
Meeting.
Discussions with Secured Lender
The Company's subsidiary, Terrace STS, LLC, is in discussions
with its secured lender concerning its non-compliance with certain
covenants under the credit agreement. The loan, which is only
secured by the assets of Terrace STS, LLC, is non-recourse to
Terrace Energy Corp. Terrace STS, LLC assets are limited to the
initial 3,900 net acre STS Olmos Development Project and the
associated producing wells and infrastructure. The discussions are
focused on the prospect and terms of converting the outstanding
loan into equity in the subsidiary. The Company will disclose
additional details when these discussions are concluded.
The Company continues to believe in the strong technical merits
of both the area of mutual interest surrounding its STS Olmos
Project as well as its extensive Maverick County Project. Previous
successful results, combined with improved capital costs, suggest
that these projects may be among the earliest projects in
North America to attract the
required capital to resume drilling operations as commodity prices
improve. The Company will continue taking prudent action, where
possible, so that it may benefit from the long-term value of its
assets and to pursue any and all strategic alternative project
financing to enhance stakeholder value.
About Terrace Energy
Terrace Energy is an oil & gas development stage company
that is focused on unconventional oil extraction in onshore areas
of the United States with a
particular focus on South
Texas.
ON BEHALF OF THE BOARD OF DIRECTORS
"Dave Gibbs"
Dave Gibbs, CEO
NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES
PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX
VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR
ACCURACY OF THIS RELEASE.
Forward-Looking Information
This press release includes forward-looking information and
forward-looking statements (together, "forward-looking
information") within the meaning of applicable Canadian and
United States securities laws.
Forward-looking information includes statements regarding the
expected timing and ability of the Company to complete the
Arrangement, the effect of the cost reductions, capital deferrals
and deferral of the interest payments and the liquidity of the
Company following these actions. Forward looking statements also
include references to any potential outcomes of strategic
alternative processes or discussions. Users of forward-looking
information are cautioned that actual results may vary from the
forward-looking information disclosed in this press release. The
material risk factors that could cause actual results to differ
materially from the forward-looking information contained in this
press release, include, among other things, that the Company may
not obtain necessary approvals or otherwise satisfy the conditions
to the Arrangement and are described under the heading "Risk
Factors" and elsewhere in the Company's most recent Annual
Information Form and other documents filed with Canadian securities
regulators at www.sedar.com.
The Company does not assume the obligation to update any
forward-looking information, except as required by applicable
law.
SOURCE Terrace Energy Corp.