Tri-Valley Corporation (NYSE Amex:TIV) (“Tri-Valley”) and the
OPUS Special Committee (the “Special Committee”) announced today
that they have reached preliminary, amicable terms resolving
matters that will support the continued development and financing
of the Pleasant Valley (“PV”) Oil Sands Project.
As previously disclosed, the Special Committee was formed to
ensure the interests of OPUS partners would be represented
independently of Tri-Valley in connection with Tri-Valley’s review
and resolution of potential claims brought to Tri-Valley’s
attention by OPUS partner, G. Robert Miller, in August 2010. Mr.
Miller serves on the Special Committee. These claims relate to
alleged breaches of the governing partnership agreements, including
(i) Tri-Valley’s allocation of certain oil and gas lease
acquisition and title defense costs to OPUS, (ii) the amount of
turnkey drilling and well completion costs charged to OPUS, and
(iii) the amount of fees charged to OPUS for the work performed by
finders who assisted in the placement of partnership units.
After a thorough review of the claims, facts, and legal bases
presented by the Special Committee in support of their alleged
claims, and following good faith negotiations between Tri-Valley
and the Special Committee, the parties have agreed on the following
preliminary terms to resolve the issues, which will be unanimously
recommended by the Special Committee and the Tri-Valley Board of
Directors to the OPUS partners for ratification:
- Entry into a new limited liability
joint venture company for the development of the PV Oil Sands
Project. Tri-Valley and the OPUS partnership will contribute to the
new joint venture company their respective working and record title
interests in the various PV oil and gas leases and related assets
(“PV Properties”);
- Tri-Valley will contribute 100% of its
overriding royalty interests (“ORRIs”) on each of the PV Properties
to the new joint venture company;
- Tri-Valley will own a 25% equity
interest in the new company and current OPUS partners will
collectively own a 75% equity interest in the new company, subject
to the distribution preferences payable to the OPUS partners
described below;
- $32.3 million (plus a 5.25% per annum
additional accrual attributable to the OPUS Preferred Return
Amount, as described below) will be allocated to current OPUS
partners on a prospective basis from the following two sources:
- The ORRIs. The parties have assigned a
discounted, net present value of $12.0 million to the portion of
the ORRIs attributable to the OPUS partners that will be
contributed by Tri-Valley. This amount is based on the expected
future revenues to be generated under the ORRIs by the new joint
venture company.
- Preferential Right of Return. The
remaining $20.3 million (plus a 5.25% per annum accrual on any
unreturned portion thereof until satisfied) (collectively, the
“OPUS Preferred Return Amount”) will be funded from Tri-Valley’s
portion of the net cash flow generated by the new joint venture
company from the PV Oil Sands Project. All net cash flow generated
by the joint venture company that would otherwise be allocable to
Tri-Valley will instead be allocated solely to the current OPUS
partners until such time as the OPUS Preferred Return Amount is
satisfied in full. After satisfaction in full of the OPUS Preferred
Return Amount, all net cash flow generated by the joint venture
company will be allocated 25% to Tri-Valley and 75% to current OPUS
partners;
- Tri-Valley will pledge its 25% equity
interest in the new joint venture company as security for
satisfaction of the OPUS Preferred Return Amount;
- Tri-Valley or one of its wholly owned
subsidiaries will be the operating manager of the new joint venture
company (“Manager”);
- A new management committee of the joint
venture company will be formed, and is expected to be comprised of
three current OPUS partners yet to be selected. The management
committee will work together with Tri-Valley, as Manager, to secure
project financing on mutually agreeable terms;
- At the closing, Tri-Valley will either
provide or obtain a financing commitment for the new joint venture
company to fund three SAGD wells, as follows: (i) within six months
after closing, commitment to fund the drilling, completion and
equipping of a SAGD pilot project on the PV Properties, and (ii)
within six months after the completion of the SAGD pilot project,
assuming the SAGD pilot project is successful and meets certain
mutually agreeable performance standards, commitment to fund the
drilling, completion and equipping of two additional SAGD wells on
the PV Properties;
- The existing tolling agreement executed
in September 2010 with G. Robert Miller will be replaced by a new
tolling agreement. The new tolling agreement, which will be put in
place by Mr. Miller for the benefit of current OPUS partners, will
be designed to give Tri-Valley the ability to satisfy the OPUS
Preferred Return Amount on a prospective basis from the net cash
flow to be generated by the new joint venture company without the
threat of litigation;
- Each member of the Special Committee
will execute covenants not to sue and contingent general releases
in favor of Tri-Valley and each of its affiliates. The releases
will become effective only upon the earlier to occur of (i)
satisfaction in full of the OPUS Preferred Return Amount, or (ii)
such time as the equity interests in the new joint venture company
pledged by Tri-Valley as security for satisfaction of the OPUS
Preferred Return Amount are valued at 150% or more of the OPUS
Preferred Return Amount then remaining unsatisfied, plus interest
expected to accrue thereon prior to satisfaction. The valuation of
Tri-Valley’s equity interests will be conducted by an independent
third party, based on mutually agreeable criteria; and
- Each member of the Special Committee
has agreed to enter into voting agreements approving the
transaction.
“Tri-Valley had two primary objectives when we formed the OPUS
Special Committee, the first being to amicably resolve outstanding
issues between OPUS and Tri-Valley, and the second being to
formulate a plan that would give us the best opportunity, as
collaborative partners, to maximize the potential value we all see
at Pleasant Valley, for OPUS and Tri-Valley alike,” said Maston N.
Cunningham, President and Chief Executive Officer of Tri-Valley.
“We believe we are well on our way to accomplishing both
objectives, each of which is in the long-term interests of
Tri-Valley shareholders and OPUS partners.”
“The OPUS Special Committee very much appreciates the positive
attitude and candor with which Tri-Valley has engaged in
discussions with the Committee. From the beginning of this process,
Tri-Valley and the Committee have shared the objective of agreeing
upon an equitable outcome, while enabling our two organizations to
work productively together to pursue plans to maximize the assets
of the Pleasant Valley Oil Sands Project,” commented G. Robert
Miller, who serves on the Special Committee. “We firmly believe
that we have taken a huge step toward the accomplishment of our
mutual objective.”
Consummation of the transactions contemplated by the agreed-upon
term sheet is subject to a number of conditions being satisfied,
including, but not limited to, the negotiation and execution of
definitive agreements, the ratification of the settlement terms and
new operating structure by the Board of Directors of Tri-Valley and
at least a majority in interest of the OPUS partners (not including
the interests held by affiliates of Tri-Valley), and no court order
or regulatory action enjoining the consummation of the transactions
contemplated by the term sheet.
About Tri-Valley
Tri-Valley Corporation explores for and produces oil and natural
gas in California and has two exploration-stage gold properties in
Alaska. Tri-Valley is incorporated in Delaware and is publicly
traded on the NYSE Amex exchange under the symbol “TIV.”
Tri-Valley’s website, which includes all SEC filings, is
www.tri-valleycorp.com.
About OPUS
In 2002, Tri-Valley Corporation created a Delaware limited
partnership called the TVC OPUS 1 Drilling Program, L.P. The
purpose of this partnership was to raise $100 million by selling
partnership units to conduct wildcat exploration. In 2006, OPUS
began developing producing properties. The TVC OPUS 1 Drilling
Program, L.P. has a 75% working interest in the Pleasant Valley Oil
Sands Project in the Oxnard Oil Field, with the remaining 25%
working interest held by Tri-Valley Oil & Gas Co., a
wholly-owned subsidiary of Tri-Valley Corporation. Tri-Valley
Corporation is the managing partner of the TVC OPUS 1 Drilling
Program, L.P.
Special Note Regarding Forward-Looking Statements
All statements contained in this press release that refer to
future events or other non-historical matters are forward-looking
statements. Although Tri-Valley does not make forward-looking
statements unless it believes it has a reasonable basis for doing
so, Tri-Valley cannot guarantee their accuracy. These statements
are only predictions based on management’s expectations as of the
date of this press release, and involve known and unknown risks,
uncertainties and other factors, including: our ability, and the
new joint venture company’s ability, to obtain additional funding;
fluctuations in oil and natural gas prices; imprecise estimates of
oil reserves; drilling hazards such as equipment failures, fires,
explosions, blow-outs, and pipe failure; shortages or delays in the
delivery of drilling rigs and other equipment; problems in delivery
to market; adverse weather conditions; compliance with governmental
and regulatory requirements; geographical concentration of oil and
gas reserves in the State of California; inability to enter into or
maintain strategic and joint venture partnerships; pending and
threatened lawsuits against us; potential rescission rights
stemming from our potential violation of Section 5 of the
Securities Act of 1933; and such other risks and factors that are
discussed in our filings with the Securities and Exchange
Commission from time to time, including under “Part I, Item 1A.
Risk Factors” and “Part II, Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations,”
contained in Tri-Valley’s Annual Report on Form 10-K for the year
ended December 31, 2010, and under “Part I, Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and “Part II, Item 1A. Risk Factors,” contained in
Tri-Valley’s Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 2011, respectively. Except as required by
law, Tri-Valley undertakes no obligation to update or revise
publicly any of the forward-looking statements after the date of
this press release to conform such statements to actual results or
to reflect events or circumstances occurring after the date of this
press release.
Notice to OPUS Partners and Additional Information about the
Restructuring Transaction
This press release is neither an offer to purchase nor a
solicitation of an offer to sell any securities. The equity
interests of the new joint venture company to be issued in
connection with the restructuring transaction will not be
registered under the Securities Act of 1933, as amended, and may
not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements. No
securities of the new joint venture company will be issued or sold
in any state in which such offer, solicitation or sale would be
unlawful absent registration or qualification under the securities
laws of such state.
In connection with the potential restructuring transaction,
Tri-Valley Corporation, as the managing partner of OPUS, will
prepare and distribute an Information Statement and Consent
Solicitation to all OPUS partners. OPUS partners are urged to read
carefully the Information Statement and Consent Solicitation, and
the other relevant materials, when they become available before
making any voting or investment decision with respect to the
proposed restructuring transaction, because they will contain
important information about the transaction and the parties to the
transaction. Tri-Valley Corporation and its respective directors,
executive officers, and employees are expected to participate in
the solicitation of consents to the proposed restructuring
transaction from OPUS partners. OPUS partners may obtain more
detailed information regarding the names, affiliations and
interests of certain of Tri-Valley’s executive officers, directors
and/or other employees in the solicitation by reading the
Information Statement and Consent Solicitation, and other relevant
materials, when they become available and are distributed to the
OPUS partners.
When available, Tri-Valley Corporation will distribute the
Information Statement and Consent Solicitation, and other relevant
materials, to all OPUS partners of record. OPUS partners may obtain
free copies of the Information Statement and Consent Solicitation,
when available, by contacting Tri-Valley Corporation at 4927
Calloway Drive, Bakersfield, California 93312, or at (661)
864-0500.
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