Mr. Jose Francisco Arata reports

NEW STRATUS ENERGY ANNOUNCES SIGNIFICANT ACQUISITION IN VENEZUELA AND CORPORATE UPDATE

New Stratus Energy Inc. has closed the acquisition of a 50-per-cent indirect interest in GoldPillar International Fund SPC Ltd., a private entity organized and existing under laws of the British Virgin Islands, which has acquired a 40-per-cent equity participation in a joint venture company, Petrolera Vencupet SA, which holds the oil production rights for the fields named Adas, Lido, Limon, Leona, Oficina Norte and Oficina Central, all located onshore in the Anzoategui and Monagas states in eastern Venezuela. Petroleos de Venezuela SA (PDVSA), the Venezuelan national oil company, through its subsidiary Corporacion Venezolana de Petroleo SA (CVP), owns the remaining 60 per cent of the share capital of Vencupet. As consideration for the acquisition, New Stratus will be making a significant capital investment to complete a reactivation program for up to 246 wells in the fields, by way of a six-month 60-million-euro ($65.8-million (U.S.)) revolving line of credit to Vencupet through GoldPillar, as described in further detail below. Factoring repayments from the sale of oil and products under the financing agreement, New Stratus expects that its indirect maximum capital exposure under the facility at any point in time will be approximately $25-million (U.S.).

As consideration for securing and presenting this opportunity to New Stratus, a finder's fee is payable to Franco Favilla, an Italian national and formerly the beneficial owner of 100 per cent of the share capital of GoldPillar, in the amount of $8.5-million (U.S.), with $4-million (U.S.) paid at closing and $4.5-million (U.S.) payable in instalments over 24 months from closing.

Acquisition highlights:

• Fields: 794.2 square kilometres, onshore Venezuela;
• Term: initial term ending in December of 2035; will apply for an extension until 2050;
• Credit facility: GoldPillar will provide a six-month 60-million-euro revolving line of credit to Vencupet for a total period of 4.5 years; indirect maximum capital exposure of New Stratus under the facility at any point in time will be approximately $25-million (U.S.);
• Contingent resources -- development pending:
  • Best estimate 100 per cent unrisked of 12,455,000 barrels and 100 per cent risked of 10,587 Mbbl;
  • Best estimate forecast production of approximately 7,400 barrels per day;
• Contingent resources -- development unclarified:
• Best estimate 100 per cent unrisked of 48,905 Mbbl and 100 per cent risked of 30,323 Mbbl;
• Four revenue streams for gold;
• Pillar:
  • Oil production revenue from a 40-per-cent working interest in the fields;
  • Service fees as general contractor to restart production in the fields;
  • Financing fees from providing the upfront capital to finance the capital expenditure requirements for the fields;
  • Oil trading fees from commercializing the production from the fields.

Fields

The fields are located onshore in the Eastern Venezuela basin and have an aggregate area of 794.2 square kilometres. Due to a lack of investment and working capital, the fields are not currently producing. The fields were most recently on production in 2015, when production averaged approximately 800 to 1,000 barrels of oil equivalent per day. In 1960, when the fields initially came on production, the fields achieved peak production of approximately 60,000 boe/d. Production from the fields has consisted of light and medium crude oil, heavy crude oil, conventional natural gas, and natural gas liquids.

Vencupet's assignment of the oil production rights to the fields has an initial duration of 25 years, ending in December of 2035. Under current arrangements with PDVSA, Vencupet will be applying for an extension of such rights for 15 additional years -- that is, until the year 2050. A subsidiary of GoldPillar will be the exclusive contractor for operation activities on the fields and will undertake a reactivation program to restart production.

The reactivation program consists of reactivating 246 wells, with 90 wells being reactivated in 2024 and 2025 and the remaining 156 wells being reactivated in 2026 and beyond. The contractor will perform conventional workovers in each well with the goal of returning the wells to primary production. By reviewing the available technical and geological data, the corporation expects there will be opportunities to recover shut-in and bypassed oil in the previously active fields. The corporation expects commercial production to begin in first quarter 2024. The reactivation program is based on a predevelopment study involving field visits and reservoir analysis.

Contingent resources

Based on the reactivation program described above, the fields include the contingent resources outlined herein. There is uncertainty that they will be commercially viable to produce any portion of the resources.

Contingent resources (subclass: development pending) for the first 90 wells to be reactivated in 2024 and 2025

The contingent resources have been assigned to one zone per well for each of the 90 wells. These 90 wells were mostly drilled in the 1950s and 1960s, and there is well completion data for 46 of the 90 wells to be recompleted. The estimated total capital costs for the 90-well reactivation program is $89.2-million (U.S.) in the low, best and high cases, which will be financed from cash on hand and production revenue. The forecasted gross production for the 90 wells in the best estimate case is approximately 7,400 barrels of oil per day based on the historical production decline curves for each well. An attached table sets forth the net volumes for these contingent resources.

Contingent resources (subclass: development unclarified) for the remaining 156 wells to be reactivated from 2026 onward

Contingent resources have been assigned to the remaining 156 wells to be recompleted from 2026 onward.

Contingent resources (subclass: development unclarified) for additional zones in 46 of the first 90 wells to be reactivated in 2024 and 2025

As described herein, contingent resources have been assigned to one zone per well in the first 90 wells. As there are more zones to be recompleted, these contingent resources have been assigned based on the continuation of the reactivation program in other available zones in 46 of these wells after the first zone is depleted.

The significant positive and negative factors relevant to the estimates are as follows: (i) by reviewing the available technical and geological data, the corporation expects there will be opportunities to recover shut-in and bypassed oil in the previously active fields; and (ii) the geological and geophysical data (that is, 2-D and 3-D seismic data) are limited because the fields are old (with the first discovery dating back to the 1930s), and new seismic acquisition will be required to explore the remaining areas of the fields.

The risks and level of uncertainty associated with the recovery of the contingent resources comprise the following:

• Although U.S. sanctions have lifted in October, 2023, for a period of six months, there is no certainty that this moratorium will continue. If the United States imposes sanctions on Venezuela again, there is no certainty the production from the fields can be marketed or commercialized.
• There is uncertainty in obtaining all the necessary geological and technical data for all the drilled and completed wells. Without the exact data, it will be challenging to perform workovers to reactivate these wells.
• To complete the reactivation program, GoldPillar will require experienced engineers, geologists, production and operating staff. If GoldPillar is unable to retain such personnel, then the start-up of shut-in oil and gas fields and the maintenance of production may prove challenging.

Acquisition overview

Pursuant to the acquisition, the corporation is acquiring its indirect interest in GoldPillar and the fields as follows:

• New Stratus, through a wholly owned subsidiary, has entered into a 50/50 corporate joint venture named Desarrolladora de Oriente Oil & Gas Ltd. (DOOG), a British Virgin Islands company, Favilla, in exchange for the payment of the finder's fee.
• DOOG holds 100 per cent of the share capital of GoldPillar.
• GoldPillar, which has been qualified by PDVSA to be a shareholder of Venezuelan joint venture companies holding oil and gas exploration and production rights in the country, holds 40 per cent of the equity of Vencupet.
• Vencupet is owned 40 per cent by GoldPillar and 60 per cent by CVP, and holds the oil production rights for the fields.

Acquisition framework and revenue streams

The overall acquisition framework consists of four distinct revenue streams, as outlined below:

• As a 40-per-cent working interest owner in the fields, GoldPillar will receive revenue associated with the production from the fields.
• Pursuant to an operation service agreement, a subsidiary of GoldPillar will act as the exclusive general contractor for Vencupet to restart the production in the fields and development of the required surface infrastructure. The services under the agreement will be provided at agreed-upon rates plus an administration fee.
• Pursuant to a financing agreement, GoldPillar will provide a six-month 60-million-euro ($65.8-million (U.S.)) revolving line of credit to Vencupet for a total period of 4.5 years. Borrowings under the facility will be repaid through the assignment by PDVSA of volumes of crude and products equivalent to 60 per cent of the amount of the advances plus interest with instructions to use such proceeds for amortizing the debt. Borrowings under the facility will bear interest at a rate of 9.87 per cent per annum. Factoring repayments from the sale of oil and products under the financing agreement, the corporation expects that its indirect maximum capital exposure under the facility at any point in time will be approximately $25-million (U.S.).
• Pursuant to a crude oil and product commercialization agreement, an affiliated oil trading company will commercialize nominated crude and petroleum products by PDVSA, which proceeds will be for the account of DOOG and subsequently be used to repay the borrowings under the revolving line of credit, to finance operating costs, to pay royalties and taxes, and to pay dividends to the shareholders of Vencupet. Oil trading fees resulting from such commercialization activities will be for the account of GoldPillar.

Any disputes under the agreements referred to herein will be referred to international commercial arbitration in Caracas, Venezuela, under the rules of the International Chamber of Commerce.

Advisers

Cormark Securities Inc. and Horizon Capital Partners LLC acted as financial advisers to the corporation with respect to the acquisition. Dentons Cardenas & Cardenas and Dentons Canada LLP acted as legal counsel to the corporation with respect to the acquisition.

Canaccord Genuity Corp., Echelon Wealth Partners Inc., Paradigm Capital Inc. and Hannam & Partners (U.K.) are acting as financial advisers to the corporation.

Corporate update

Wuilian Mauco has resigned from the board of directors of the corporation. Accordingly, the corporation has accepted his resignation and will commence a search to fill the vacancy on the board of directors. The corporation wishes Mr. Mauco all the best in his future endeavours.

We seek Safe Harbor.