Mr. Claudio Larotonda reports

AZABACHE MAINTAINS 90% WORKING INTEREST IN VACA MUERTA ASSETS AND ENTERS INTO LOAN AGREEMENT

Azabache Energy Inc. has entered into a termination and mutual release agreement and a loan agreement with Rio Bravo Commercial Enterprises Inc. (RBE), a private Panamanian corporation. Under the termination agreement, Azabache and RBE agree to the early termination of the previously announced participation agreement, under which RBE was to pay $5-million (U.S.) in exchange for earning a 23.76-per-cent working interest (directly or indirectly) in the Covunco Norte-Sur and the El Corte joint operating agreements and contracts in the province of Neuquen. In consideration for the early termination, RBE has paid $1.1-million (U.S.) to the company. RBE had previously advanced $2.1-million (U.S.) to the company under the terms of the participation agreement and its amendments.

Pursuant to the terms of the loan agreement, the entire amount paid by RBE under the participation agreement and the termination agreement will be converted to an unsecured convertible loan from RBE to Azabache. Provisions of the loan agreement include:

• Principal amount -- $3.2-million (U.S.);
• Interest rate -- 6 per cent per year;
• Maturity date -- July 25, 2015;
• Prepayment -- Azabache is entitled to prepay the principal amount plus accrued interest at any time; the company agrees to prepay $1-million (U.S.) if it completes a financing that results in net proceeds in excess of $15-million (U.S.) or a farm-out of any assets that includes a cash payment in excess of $5-million (U.S.);
• Conversion rights -- subject to TSX Venture Exchange and shareholder approval, if required, Azabache may convert the principal plus interest into common shares of the company at any time after April 21, 2015;
• Conversion price -- the greater of the volume-weighted average trading price of the common shares for a 30-day period prior to conversion or the market price as defined in the policies of the TSX-V;
• Loan conversion -- if required approvals of the TSX-V or the company's shareholders are not obtained within six months of the date of the notification of the conversion, Azabache has the option to repay the principal and interest in full or to convert the principal plus interest into a new loan maturing two years from the date of the notice of conversion with an interest rate of 10 per cent per year.

The company intends to use the proceeds of the loan for working capital and general corporate purposes.

As a result of the early termination mentioned above, the company recovers a 23.76-per-cent working interest in the El Corte and Covunco Norte-sur blocks and maintains a total of 90-per-cent working interest in the Vaca Muerta assets.

We seek Safe Harbor.