STRATA-X ENERGY TO MERGE WITH REAL ENERGY TO BECOME PURE ENERGY

  • Scheme of arrangement agreed by both boards.

  • Strata -X Energy (SXA) to offer one (1) SXA share for three (3) Real Energy shares.

  • Nil premium applied to the value of either company.

  • Significant benefits for all shareholders as part of the merged group.

  • Strata-X Energy to delist its shares from the TSX Venture Exchange.

  • Logical consolidation of the complementary Real Energy and Strata X Energy portfolios will provide the platform to create a meaningful gas business.

  • Strata-X Energy to change its name to ‘Pure Energy Corporation Limited’

  • The Board of Directors of Strata-X Energy unanimously recommend that Strata-X Energy shareholders vote in favour of the name change to Pure Energy Corporation Limited.

  • The Board of Directors of Strata-X Energy, who collectively hold approximately 16% of Strata-X’s ordinary shares have approved the proposal.

BRISBANE, QUEENSLAND AUSTRALIA and VANCOUVER, BRITISH COLUMBIA CANADA - 15 July 2020 (AEST) (TSX-V:SXE) (ASX:SXA)

Strata-X Energy Limited (ASX:SXA, TSXV: SXE) (“Strata-X”) and Real Energy Corporation Limited (ASX: RLE) (“Real Energy”) with on shore domestic gas appraisal and development in Queensland and Botswana, are pleased to announce that the Companies have entered into an arm’s length binding Scheme Implementation Agreement dated July 15, 2020 (“SIA”) to pursue a nil premium merger whereby Real Energy shareholders will receive one (1) new Strata-X share for three (3) Real Energy shares that they own. A copy of the SIA is attached to this announcement.

The combination of Strata-X and Real Energy will be renamed Pure Energy Corporation Limited (‘Pure Energy’) and represents a compelling opportunity to create a material gas business from the significant 100% owned gas resources contained within projects located in the Surat and Cooper Basins in Queensland and the Republic of Botswana.

Pure Energy’s gas projects offer significant Company Growth Potential (Post-Merger)

Pure Energy’s Project Venus is located within the Walloon CSG fairway and immediately adjacent to gas pipeline infrastructure in the Surat Basin.(1)

In addition, the merged entity’s 100% owned broader asset portfolio in Australia and the Republic of Botswana presents further upside potential. Pure Energy will have a total 11.8 TCF(1,2,3) of Prospective Gas Resources with 770 BCF of 3C(2) and 353 BCF of 2C(2,3) Contingent Gas Resources. Stated Prospective Resource figures are from a Report dated 10 December 2019 by Timothy Hower, Senior Advisor at MHA Petroleum Consultants for Project Venus along with Prospective and Contingent Resources for the Serowe CSG Project by the same author in a report dated 10 May 2019 and for the Windorah Gas Project in a report dated 5 June 2015 from Paul Szatkowski, Senior VP of DeGolyer and MacNaughton.

ASX disclosure note - 5.28.2 – Prospective Resources - The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons.

Pure Energy’s gas projects have several common attributes:

  1. Wells are drilled that prove the gas resources are present including third party certifications.

  2. The primary technical risk is finding completion methods to prove commercial gas flows.

  3. Over the next 12 months, Pure Energy plans to use innovative well completion and non-frack reservoir enhancement methods with the goal to prove commercial gas flows.

  4. Proving commercial gas flows is the precursor to predictable reserves increases and the potential for substantial company growth.

  5. All three gas projects have ready gas markets.

The merger of Strata-X Energy and Real Energy into Pure Energy has the goal to create the next ASX energy growth stock.  With the significant resources in the three gas projects and finding the keys to unlock those resources, this goal is achievable.

Pure Energy targets lower emissions and joining the Hydrogen Economy

Pure Energy’s vision is to lower emissions initially through substitution of methane for coal and diesel.  Pure Energy is also investigating the feasibility of building a methane to hydrogen plant in Gladstone. Looking ahead, one of Pure Energy’s goals is converting methane to hydrogen and value add graphite products using a hybrid methane pyrolysis method.

Merger to reduce administration costs and combine technical and management expertise

The removal of duplicate administrative functions and listing costs delivers significant cost savings to the merged entity.  Scott Brown, Real Energy’s current Managing Director is the nominated Managing Director for Pure Energy.  Strata-X Energy’s current Executive Chairman, Ron Prefontaine, a 41-year veteran and one of the pioneers of CSG in Australia, is the nominated Chairman of Pure Energy.

A summary presentation of the merger and Pure Energy is attached to this announcement.

Strata-X’s internal Review of Real’s potential R&D claim liability.

Since 2013, Real Energy had drilled and tested several deep wells (2600 to 3000 metres) in the Cooper Basin in Queensland with the goal to prove sustained commercial gas flows rates from a proven Cooper Basin centered gas resource.  

By 2019, Real Energy’s systematic approach and innovative technical methods did result in initial encouraging and potentially commercial gas flow rates from two wells. Unfortunately, those gas flow rates could not be sustained.

About the same time, Ausindustry had rejected Real Energy’s ~$13 million R&D claim (of which it had already been paid ~$7 million) which negatively impacted their share price.

Mr. Ron Prefontaine, as part of Strata-X's due diligence of Real Energy, reviewed the methods and results of Real Energy’s experimentation and trials to prove commercial gas flow rates. Following his review, he offered the following comments based on his many decades of industry experience: " I believe that while Real's systematic approach to proving commercial gas flow rates discounted some methods, on the whole, Real was on the right track.  In my view, there are current and emerging hybrid reservoir enhancement methods that need to be tested in order to establish that improvements and potentially sustained commercial gas flow rates are possible."

Mr. Prefontaine also reviewed Real’s AusIndustry R&D submissions and the assessor’s report.  Mr. Prefontaine noted that "there are compelling grounds to challenge the assessor's findings, leaving open the possibility that they could be reversed on appeal to an arbitrator." He stated that "while it is impossible to predict the final outcome of arbitration, I believe that a significant portion of Real’s R&D claim could ultimately be upheld as constituting valid R&D within the meaning of the Federal tax legislation.  Should such an outcome be obtained, Real's R&D claim could prove to be an asset. That being said, the simpler and more prudent approach, and the one adopted by Strata-X, was to assign a zero value to the R&D cost claim."

Scott Brown, Managing Director of Real Energy said:  “This is a compelling combination taking the best elements of both companies and having a strong portfolio of Projects with positions in both the Surat Basin and Cooper Basin, and having a significant project in Botswana together with the potential to supply gas East Coast markets.

“Real Energy and Strata-X Energy’s combined interest of 100% in the Project Venus and our broader portfolios enhances the likelihood of the merged entity becoming a meaningful gas operator in the east coast of Australia. Work on the Connor-1 re-entry on Project Venus is expected to commence in the next month, and from an operational perspective, it is business as usual while seeking shareholder approval for the merger. Pure Energy will have exposure to highly prospective and significant projects including Project Venus in the Surat Basin, the Windorah Gas Project in the Cooper Basin, and Serowe Gas Project in Botswana and of course benefit from the opportunities that we are pursuing through Pure Hydrogen. We have lots of optionality to deliver value.”

Ron Prefontaine, Chairman of Strata-X Energy added: “It is an exciting time to be building a new company - Pure Energy, which will have a meaningful Queensland-focused gas operated business and a great position in the Botswana CSG fairway together with the exciting hydrogen initiatives.

“This transaction plays to Strata-X’s strengths of being a low cost and high-impact on-shore exploration and appraisal operator, which makes it an extremely attractive opportunity for both Real Energy and Strata-X Energy shareholders alike.”

Real Energy will prepare a Scheme Booklet and commission an independent experts report for its shareholders. The Scheme requires Real Energy’s shareholder approval and Strata-X Energy shareholders’ approval for changing the Company name to “Pure Energy Corporation Limited”.

Conditions precedent

The implementation of the SIA is subject to conditions, including:

  • Real Energy shareholders approving the Scheme at the Scheme meeting;
  • Court approving the Scheme;
  • No adverse Material Adverse Effects in relation to either Real Energy or Strata-X Energy
  • Strata X Energy delisting its shares from the TSX.V. As Strata-X will remain listed on the ASX, it is not anticipated that majority of the minority shareholder approval will be required in connection with the delisting application;
  • Other customary conditions including satisfaction of regulatory approvals and no legal constraints on completion.

Exclusivity and Break Fees

The SIA contains customary exclusivity provisions including no shop and no talk, a notification obligation and a matching right, subject Real Energy directors’ fiduciary obligations where appropriate. The SIA also details circumstances under which Real Energy or Strata-X Energy be required to pay a break fee of $100,000.

No finder’s fees are payable in connection with the SIA or the transactions contemplated thereby.

By order of the Board of Strata-X Energy Limited

Ron Prefontaine

About Strata-X Energy

Strata-X Energy is a Brisbane, Queensland, Australia based company and is engaged in the business of CBM exploration and appraisal in Queensland, Australia and the Republic of Botswana. Strata-X has 112,538,318 common shares outstanding and trades under the symbol "SXE" on the TSX-V and "SXA" on the ASX.

About Real Energy Corporation

Real Energy is an Australian east coast focused gas company with interests in the Cooper Basin, Australia’s most prolific onshore producing petroleum basin, and the Surat Basin in Queensland. Real Energy has 100% ownership in 2 large permits in Queensland – ATP 927P & ATP1194PA, and a 50:50 JV with Strata X Energy Limited (ASX: SXA) to develop the 154km2 ATP2051 permit in the Surat Basin as a Coal Seam Gas project.     

  1. PROJECT VENUS –
LR 5.25.1 – The Prospective resources are reported as at 10 December 2019 LR 5.25.2 – The petroleum resources are Prospective Resources in accordance with SPE-PRMS. LR5.25.3 – There are currently no reserves in the permit. Estimates for prospective resources have not been adjusted for development risk LR 5.25.5 – The Prospective resources are reported as 100% - Strata-X’s share is 50%. Gross royalty over Project Venus is 10%. LR 5.25.6 - The prospective resources volumes were obtained by deterministic method, calculating the potentially recoverable portion of the gas-in-place using the overall prospect area, the mapped net coal thickness, raw gas content and coal density, as well as a range of estimates of the gas recovery factor of the coals. The review was carried out in accordance with the standards in the Canadian Oil and Gas Evaluation Handbook as amended from time to time, maintained by the Society of Petroleum Evaluation Engineers. This leads to a Best Estimate of prospective resources in the subject areas of 658 Bcf, a Low Estimate of 526 Bcf, and a High Estimate of 789 Bcf (all numbers are gross 100% volumes). There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.  LR 5.28.1 – The Prospective Resources estimate is based on best estimate and low and high estimate.  LR 5.28.2 - Cautionary Statement: The estimated quantities of petroleum that may be potentially recovered by the application of a future development project relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration, appraisal and evaluation are required to determine the existence of a significant quantity of potentially movable hydrocarbons. Prospective Resource assessments in this release were estimated using probabilistic methods in accordance with SPE-PRMS standards. LR 5.35.1 – The Prospective Resources are reported for the area ATP2051 (previously PLR2019-1-11) in the State of Queensland.  LR 5.35.2 – The existence of a significant moveable hydrocarbons are determined by the results of previous petroleum wells in and around the permit area and review of seismic data.  LR 5.35.3 – The changes of the Prospective Resources being converted to a higher PRMS designation (i.e contingent resource or reserves) is high and there is a high degree of confidence in leading to development status however there are the usual risks associated with a gas resource of this type- see Cautionary Statement above.   LR 5.35.4 – The estimates were not adjusted for risk. LR 5.41 - The Prospective Gas Resources are prepared by MHA Petroleum Consultants, technical consultancy and business development services for the petroleum industry and Mr Tim L. Hower is the Senior Technical Advisor responsible for the estimates.  LR 5.42 - The information contained in this release pertaining the area ATP2051 Prospective Resources estimates are based on, and fairly represent, information prepared under the supervision of Mr Tim L Hower , Senior Technical Advisor of MHA Petroleum Consultants in a report dated 10 December 2020.. Mr Tim L. Hower is a qualified petroleum reserves and resources evaluator within the meaning of the ASX Listing Rules and consents to the inclusion in this release of the prospective resources estimates related information in the form and context in which that information is presented.
  1. WINDORAH GAS PROJECT –
LR 5.25.1 – The Contingent Resources are reported as at 31 July 2019. LR 5.25.2 – The petroleum resources are contingent resources. LR5.25.3 – There are currently no reserves in the permit. Estimates for contingent resources have not been adjusted for development risk LR 5.25.5 – The contingent resources are reported as 100% share.  LR 5.25.6 - The stochastic method was used to estimate contingent resources in ATP 927P. The stochastic method is based on assigning a statistical distribution to each of the various parameters of the volumetric calculation of recoverable hydrocarbons (in this instance gas) and varying them in a Monte Carlo simulation. LR 5.27.3 – Arithmetic summation has been used in each category to determine Contingent Resources LR 5.33.1 – The contingent resources are reported for Authority to Prospect (ATP927P) in the State of Queensland.  LR 5.33.2 – The existence of a significant moveable hydrocarbons are determined by the results of 4 petroleum wells and the flow of gas to surface from these wells.  LR 5.33.3 – The analytical procedures used to estimate the contingent resources are based on the Petroleum Resource Management System (PRMS). The key contingent that prevents the contingent resource from being classified as petroleum reserves are production rates and recoverable volumes. Based on the correlations between wells and volumetric calculations, there appears to be sufficient reservoir to provide the recoverable volumes. However, it appears that fracture stimulations may not currently be contacting sufficient reservoir to provide commercial recoveries. LR 5.33.5 The Contingent Resources relate to unconventional petroleum resources with an area of approximately 1,718 sq kilometres in which 4 petroleum wells have been drilled.  LR 5.41 - The contingent Resources for Queenscliff area are prepared by DeGolyer & MacNaughton, al leading international consulting firm in June 2015 and for Tamarama are are prepared by Aeon Petroleum Consultants, an independent petroleum engineering firm, whose principals are James R. Weaver, P.E. and Stephen E. Dunbar. LR 5.42 - The information contained in this release pertaining to the ATP927P contingent resources estimates are based on, and fairly represent, information prepared under the supervision of Mr James Weaver, CEO of Aeon Petroleum Consultants. Mr Weaver is a qualified petroleum reserves and resources evaluator within the meaning of the ASX Listing Rules and consents to the inclusion in this release of the contingent resources and prospective resources estimates related information in the form and context in which that information is presented. ATP 927P Prospective Resources and Queenscliff area contingent resources estimates are based on, and fairly represent, information prepared under the supervision of Mr Paul Szatkowski, Senior Vice President of DeGolyer and MacNaughton in 5 June 2015.  Mr Szatkowski is a qualified petroleum reserves and resources evaluator within the meaning of the ASX Listing Rules. The prospective resources figures have been adjusted on a pro-rata basis for the reduced area of ATP927P after the renewal in September 2019.
  1. SEROWE CSG PROJECT -
Prospective and Contingent Resources figures are from an audit report prepared by Timothy Hower Senior Technical Advisor of MHA Petroleum Consultants, a qualified independent reserves auditor, dated and effective 10 May 2019 following MHA’s audit in accordance with the COGE Handbook of the available technical data including the geological interpretation, information from relevant nearby wells, Company drilled wells, analogous reservoirs and the proposed program for the Project, prepared and presented to MHA by Strata-X. Tim Hower is a member of the Society of Petroleum Engineers and has consented to the resources estimates in the context they appear. Stated Prospective and Contingent Resources are based on, and fairly represents, information and supporting documentation prepared and/or audited by, or under the supervision of Timothy Hower. Prospective Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development project. Prospective Resources have both an associated chance of discovery and a chance of development. A high level of uncertainty exists with the Prospective resources given the lack of historical drilling, available data and other productivity factors that limit the economic viability of coal seam gas deposits. The reports Prospective and Contingent Resources are over Prospecting Licenses Strata-X holds for methane production the Republic of Botswana. Actual sales from the Prospecting License cannot begin until converted by Strata-X election and environmental filings to the Republic of Botswana. Stated Prospective Resource figures are Best Estimate estimated using deterministic method – unrisked, undiscovered natural gas quantities and net of a royalty and are shown at a 100% working interest in the Project and are derived from coal characterization data from the 19B-1 well comprised of 10 net metre of coal, gas saturation yields of 120 cubic feet per ton, coal density of 1.7g/cm and using a 75% recovery factor. Stated Contingent Resource figures are Best Estimate – natural gas quantities and net of a royalty and are shown at a 100% working interest in the Project and are derived from coal characterization data from the 19B-1 well comprised of 10 net metre of coal, gas saturation yields of 120 cubic feet per ton, coal density of 1.7g/cm and using a 75% recovery factor. Contingent Resources stated are estimated using low, best and high analytical inputs, using deterministic method. Contingent Resources were extrapolated over an area of 15km2 using the coal characterization of the 19B-1 well which area assumes consistent coal characterization as seen in the 19B-1 well over this area. Contingent Resources stated are prevented from being reserves until sufficient production tests are carried out and to date these tests have not been carried out.  The total costs associated with establishing the commerciality of this project are unknown at this time given the early stage of the Project’s development. There is no certainty that any portion of the Prospective Resources will be discovered, if discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.
This announcement was made in Canada for the TSX.V and in Australia for the ASX.
 
Public documents for Strata-X Energy Ltd. can be found at SEDAR (Canada) (
www.sedar.com) and ASX.com.au  (Australia).
 
FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements, which relate to future events or future performance, including but not limited to, the completion and size of the Placement, receipt of regulatory approvals and timing thereof, the Corporation’s business strategies and plans for the use of such Placement proceeds, capital expenditure programs and estimates relating to timing and costs, and reflect management's current expectations and assumptions, including, but not limited to the timing and receipt of necessary regulatory approvals and third party approvals and completion of the Placement and stability of general economic and financial market conditions. The use of any of the words "anticipate", "continue", "estimate", "expect", 'may", "will", "project", "should", 'believe", and similar expressions is intended to identify forward-looking statements. Such forward-looking statements reflect management's current beliefs and are based on assumptions made by and information currently available to the Company. Readers are cautioned that these forward-looking statements are neither promises nor guarantees, and are subject to risks and uncertainties , including imprecision in estimate capital expenditures and operating expenses, stock market volatility, general economic and business conditions in North America and globally, risks associated with liquidity and capital resource requirements, that may cause future results to differ materially from those expected and the forward-looking statements included in this news release should not be unduly relied upon. See also "Risks Factors" in the Company's Annual Information Form available on SEDAR at www.sedar.com. Those factors are not, and should not be construed as being exhaustive. These forward-looking statements are made as of the date hereof and the Company does not assume any obligation to update or revise them to reflect new events or circumstances save as required under applicable securities legislation. This news release does not constitute an offer to sell securities and the Company is not soliciting an offer to buy securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
 
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.