Royale Energy, Inc., (OTCQB:ROYL) and privately
held Matrix Oil Management Corporation (“Matrix”) jointly announced
today the closing and completion of the merger between Royale and
Matrix.
The completion of this strategic transaction creates a
high-growth California-focused operating company with an executive
team experienced in raising accretive capital and acquiring,
operating and developing successful oil and gas projects. The
merger transaction was approved by the Matrix and Royale
shareholders on November 16, 2017 and closed after the companies
received the consent of Matrix’s lender, Arena Limited SPV, LLC
(“Arena”).
Royale’s Chief Executive Officer, Jonathan Gregory, said, “We
are extremely pleased to complete this combination of two
outstanding companies. Matrix brings to Royale a highly skilled and
experienced technical and operations team and a producing property
set with substantial development upside. Our combined years of
experience in the industry and our multiyear inventory of growth
opportunities position us to achieve significant shareholder
value.”
As of December 31, 2016, Matrix had proved reserves of 9.1
million barrels of oil equivalent (“BOE”) (84% oil) with a PV10
value of $58.8 million based on SEC pricing, according to an
internal reserve report.
Highlights of Matrix:
* 9.1 million BOE of proved reserves with a PV-10 value of $58.8
million based on SEC pricing, as estimated by Matrix’s internal
engineering staff as of December 31, 2016
* 10,036 net acres across 14 fields located primarily in
California and West Texas
* Approximately 320 BOE per day of net production for the fourth
quarter of 2017
* More than 75 proved undeveloped drilling locations across
California and West Texas
* Core management team has more than 195 combined years of
technical and operating experience
The merged company will be led by Jonathan Gregory, Chief
Executive Officer, and Johnny Jordan, President and Chief
Operations Officer. Don Hosmer will continue to lead Royale’s
Direct Working Interest line of business.
The Company’s newly constituted board of directors consists of
Harry Hosmer, Chairman, Jonathan Gregory, Ronald Verdier, Ron Buck,
and new directors Johnny Jordan, Michael McCaskey, Jeff Kerns, and
Rod Eson.
The Merger Transaction
In the merger, Royale was merged into a newly formed subsidiary
of Royale Energy Holdings, Inc., a Delaware corporation (“New
Royale”) and Matrix was merged into a second newly formed
subsidiary of New Royale. Additionally, in connection with
the merger, all limited partnership interest of two limited
partnership affiliates of Matrix (Matrix Permian Investments, LP,
and Matrix Las Cienegas Limited Partnership), were exchanged for
New Royale common stock using conversion ratios according to the
relative values of each partnership. All Class A limited
partnership interests of another Matrix affiliate, Matrix
Investments, LP (“Matrix Investments”) were exchanged for New
Royale Common stock using conversion ratios according to the
relative value of the Class A limited partnership interests, and
$20,124,000 of Matrix Investments preferred limited partnership
interests were converted into 2,012,400 shares of Series B
Convertible Preferred Stock of New Royale. Another Matrix
affiliate, Matrix Oil Corporation, was acquired by New Royale by
exchanging New Royale common stock for the outstanding common stock
of Matrix Oil Corporation using a conversion ratio according to the
relative value of the Matrix Oil Corporation common stock.
Each issued and outstanding share of Royale’s common stock was
converted into one shares of common stock of New Royale. In
the merger, a number of New Royale shares were issued to the
shareholders and interest holders of Matrix and its affiliates
which was equal to the number of New Royale common shares issued to
Royale shareholders, resulting in the delivery of 22.6 million
shares of the New Royale common shares to Royale shareholders, 25.8
million shares of the New Royale common stock to a combination of
the Matrix and Matrix Oil Corporation shareholders and Matrix
Permian Investments, LP, Matrix Las Cienegas, LP and Matrix
Investments partners (other than holders of Matrix Investments
preferred limited partnership interests), and 2,012,400 shares of
New Royale Series B Convertible Preferred Common Stock were issued
to the holders of Matrix Investments preferred limited partnership
interests. At the conclusion of the transactions,
approximately 48.4 million shares of New Royale common stock were
issued and outstanding.
The New Royale Series B Convertible Preferred Stock will be paid
dividends in the form of cash, or common shares at a rate of 3.5%
per annum and bears a redemption value of $10.00 per share.
The merger and exchange transactions are being treated as tax
free exchanges under Section 351 of the Internal Revenue Code.
Northland Capital Markets acted as financial advisor to Royale
in the transaction, and legal counsel to Royale was Strasburger
& Price, LLP. Legal counsel to Matrix in the transaction
was Porter & Hedges, LLP.
Sunny Frog Acquisition and New Financing
On November 28, 2017, Royale announced that it had entered into
a definitive purchase and sale agreement with Sunny Frog Oil LLC
(“Sunny Frog”) to acquire Sunny Frog’s 50% non-operated working
interest in the Sansinena and East Los Angeles fields operated by
Matrix for an aggregate purchase price of approximately $15.0
million. Sunny Frog will retain an overriding royalty interest in
production of up to 300,000 barrels of oil from the leases.
The Sunny Frog Acquisition is premised upon obtaining financing for
the $15.0 million purchase price. Royale has entered an agreement
with Sunny Frog which extends the deadline for making the
acquisition to March 30, 2018. Royale, as previously disclosed is
pursuing financing arrangements with a private equity firm and a
Texas based commercial bank that would fund the Sunny Frog
Acquisition, refinance the Arena debt, and provide future working
capital for the Company.
About Royale Energy, Inc.
Founded in 1986, Royale is an independent exploration and
production company focused on the acquisition and development oil
and natural gas. Royale’s primary operations are focused in the Los
Angeles and Sacramento basins of California with non-operated and
royalty interests West Texas and Alaska. Royale’s Direct Working
Interest program typically sells fractional working interests to
accredited investors in certain wells drilled by Royale.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities and
Exchange Act of 1934, as amended. Statements that are not strictly
historical statements constitute forward-looking statements and may
often, but not always, be identified by the use of such words such
as "expects," "believes," "intends," "anticipates," "plans,"
"estimates," "potential," "possible," or "probable" or statements
that certain actions, events or results "may," "will," "should," or
"could" be taken, occur or be achieved. The forward-looking
statements include statements about future operations, estimates of
reserve and production volumes and the anticipated timing for
closing the proposed merger. Forward-looking statements are based
on current expectations and assumptions and analyses made by Royale
in light of experience and perception of historical trends, current
conditions and expected future developments, as well as other
factors appropriate under the circumstances. However, whether
actual results and developments will conform with expectations is
subject to a number of risks and uncertainties, including but not
limited to: the possibility that the companies may be unable to
obtain stockholder approval or satisfy the other conditions to
closing; the possibility that the combined company may be unable to
obtain an acceptable reserve-based credit facility; that problems
may arise in the integration of the businesses of the two
companies; that the acquisition may involve unexpected costs; the
risks of the oil and gas industry (for example, operational risks
in exploring for, developing and producing crude oil and natural
gas); risks and uncertainties involving geology of oil and gas
deposits; the uncertainty of reserve estimates; revisions to
reserve estimates as a result of changes in commodity prices; the
uncertainty of estimates and projections relating to future
production, costs and expenses; potential delays or changes in
plans with respect to exploration or development projects or
capital expenditures; health, safety and environmental risks and
risks related to weather; further declines in oil and gas prices;
inability of management to execute its plans to meet its goals,
shortages of drilling equipment, oil field personnel and services,
unavailability of gathering systems, pipelines and processing
facilities and the possibility that government policies may change.
Royale's annual report on Form 10-K for the year ended December 31,
2016, recent current reports on Form 8-K, and other Securities and
Exchange Commission ("SEC") filings discuss some of the important
risk factors identified that may affect its business, results of
operations, and financial condition. Royale and Matrix undertake no
obligation to revise or update publicly any forward-looking
statements, except as required by law.
Contact:Royale Energy, Inc.Chanda IdanoDirector
of Marketing &
PR619-383-6600chanda@royl.comhttp://www.royl.com
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