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Oronova Energy amends acquisition agreement

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Oilfield Technology,

Oil and gas exploration and production company, Oronova Energy Inc. (Oronova) has announced an amendment to the definitive purchase and sales agreement for the acquisition of the Production Sharing Contract of Block 1-2006 in Guatemala. The company has also confirmed a proposed private placement of up to 112 500 000 subscription receipts of a subsidiary of Oronova (SubCo) at a price of CAN$0.40 per subscription receipt for total gross proceeds of CAN$45 million.

The company has signed an amendment to the definitive purchase and sale agreement in relation to the acquisition with City Peten S. DE RL (City Peten). The effective purchase price for Block 1-2006 will be paid in a combination of cash and Oronova shares. Oronova will issue to City Peten 131 200 000 common shares, which will be subject to the standard TSXV escrow agreement and also a minimum one year hold period. Oronova will also pay cash consideration of US$5 million at closing and, at the first anniversary of the closing date, City Peten will have the option to receive an additional cash consideration of CAN$5 million or a number of common Shares of Oronova, equal to CAN$5 million divided by the issue price.

The acquisition provides Oronova with an opportunity to acquire a producing gas condensate asset with significant development and exploration upside, in a growth market with a high regional demand for power and refined petroleum products. The following discusses some of the benefits of the acquisition:

  • Near term capital initiatives drive significant incremental cash flow.
    • Installation of a gas sweetening plant to sell gas for power generation into the local market; presently, produced gas is flared.
    • Installation of a condensate sweetening plant to receive condensate pricing at an estimated 1.1 - 1.3 times WTI.
    • Installation of a topping plant by mid 2018 to refine liquid products and more than double the current sale price of the condensates (estimated to be up to 1.7 times WTI).
  • Multiple high quality drilling opportunities
    • Three well locations identified in existing reservoir; wells will be drilled over the next two years and are expected to deliver 1000 boe/d each, with total company production expected to reach 4700 boe/d by 2019.
  • High regional demand for gas and refined petroleum products
    • Guatemala imports nearly 100% of its refined products (mostly from the US Gulf Coast), estimated at more than 100 000 bpd. Neighbouring Central American countries also import considerable volumes of refined petroleum products and represent a potential future market.
    • Guatemala is also connected to the Central American electricity transmission system and is therefore well positioned to export power surplus to its requirements.

Private placement

Oronova has engaged Peters and Co. Limited (Peters & Co.) as lead agent in connection with CAN$40 million principal amount of the private placement on a fully-marketed and "best efforts" private placement basis. As part of the private placement, Oronova will complete a non-brokered private placement to certain officers, directors and employees of the company, as well as certain outside parties for up to a minimum of CAN$5 million.

Coincident with the acquisition: (i) the subscription receipts will be exchanged for common shares of SubCo; (ii) SubCo will be amalgamated with Oronova; and (iii) as a result of the amalgamation, former holders of SubCo Shares will receive Oronova shares on a one for one basis, such that the subscribers will, on closing, receive free trading Oronova shares.

Each subscription receipt represents the right to receive, at no additional cost, one (1) SubCo share (to be exchanged for one Oronova share as described above) on satisfaction of certain release conditions.

The net proceeds from the private placement will be used to complete the acquisition, and for future drilling, infrastructure development and general corporate purposes.

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