An anonymous director reports

MADALENA ANNOUNCES A STRATEGIC TRANSACTION AT COIRON AMARGO SUR ESTE WITH PAN AMERICAN ENERGY AND A DEBT FINANCING AGREEMENT

Madalena Energy Inc. has entered into agreements with Pan American Energy LLC (PAE), Sucursal, Argentina, relating to its 90-per-cent working interest (WI) in the Coiron Amargo Sur Este (CASE) block. Concurrent with this transaction, Madalena and PAE have entered into an agreement whereby PAE will provide a limited recourse loan to Madalena of up to $40-million (U.S.), to be drawn down as required to finance certain capital expenditures.

Transaction highlights:

• Madalena will receive cash payments of an aggregate of $10-million (U.S.) by closing;
• Madalena will transfer a 55-per-cent WI and operatorship to PAE, retaining a 35-per-cent non-operated WI in CASE;
• A 2017 work program will be undertaken by PAE, with a net benefit to Madalena of $5.6-million (U.S.);
• Madalena to obtain a limited recourse loan of up to $40-million (U.S.), to be drawn down as required to finance certain capital expenditures.

Payment

Madalena will receive a refundable deposit within two business days, with the balance of the $10-million (U.S.) due upon closing, which is expected to occur within 90 days. Within that period, the parties must obtain the approvals of Gas y Petroleo del Neuquen Sociedad Anomina and the province of Neuquen, Argentina.

Working interests and operatorship

PAE will become the operator at CASE, with resulting WI in the block as shown in the attached table.

Pan American Energy LLC                                55%
Madalena Energy Inc.                                   35%
Gas y Petroleo del Neuquen Sociedad Anomina            10%
             

Work program

The work program will consist of either two horizontal multifrac completions in the Vaca Muerta shale formation or one horizontal multifrac in the Vaca Muerta and one deep Grupo Cuyo sandstone gas test, using existing cased wellbores on the block.

Loan

PAE has agreed to provide up to $40-million (U.S.) to Madalena to be drawn down as required to finance certain capital expenditures. This limited recourse loan will bear interest at 7 per cent per annum and is repayable in five years.

Benefits to Madalena

This transaction delivers a number of positives for the company. It provides significant assistance to addressing the liquidity and working capital challenges which Madalena has been facing. As well, Madalena stands to benefit from its relationship with a well-established, experienced operator, which will provide the necessary capital and expertise so that the CASE block can be efficiently developed.

Strategic alternatives update

The strategic alternatives process previously announced continues. The company, along with its financial adviser, Evercore Group LLC, is in discussions with a number of parties who have expressed interest in other aspects of Madalena's operations. As indicated previously, there can be no assurance that such transactions will be consummated.

We seek Safe Harbor.