British Columbia

During 2011, Transerv agreed to acquire 55% of Carnaby Energy Limited (Carnaby). Carnaby, with funding from shareholders, then placed a non-refundable deposit of C$1.25m to purchase all of the existing production and exploration oil and gas properties of a Canadian independent producer located in British Columbia, Canada. The total cost of the asset acquisition was C$12.7m and Transerv has funded 66.67% of the acquisition cost and will fund 66.67% of the working capital for its 55% working interest.

Carnaby, incorporated in Calgary, Canada, is operator of most of the assets. Under the terms of a shareholders’ agreement, Transerv and other private investors have now funded the full C$12.7m acquisition cost (Transerv 66.67% / Private investors 33.33%) and will fund the working capital requirements of the project over the next two years to a maximum cumulative cost of C$30m. Also, under the terms of the agreement, the Canadian management team will eventually earn up to a 16% interest in Carnaby. The Canadian Management are being carried for their share of the first C$30m by way of a loan arrangement in place under the shareholders’ agreement, and repayment of their share of the $30m funding is linked to vesting of their full 16% equity interest.

The petroleum assets being acquired in British Columbia through the Carnaby acquisition encompass 18,870 hectares (gross) of leases over 72 sections (Transerv holds 6,434 net hectares, of which 4,086 hectares are held by production) (see map below). Carnaby will be operator of most of the acquired lands. A reserve review of the producing assets by international petroleum consultants McDaniel and Associates (independent reserve evaluators) established 2P reserves of 1.14mmboe (627,000 boe net to Transerv) of which approximately 40% are oil reserves. Over 58% of these reserves are developed. The acquisition cost to Transerv represents C$13.70/boe for the 2P reserves. The assets are situated in a prolific oil and gas area with extensive production infrastructure. Oil and gas production has been established in eight separate zones, all of which are present in the leases.

Transerv’s work has identified additional pay and other stratigraphic development opportunities that are expected to add between 3 – 5mmboe net (70% oil). In addition, there are numerous exploration opportunities with a net risked potential of a further 3.5 – 5 mmboe net (80% oil).

The transaction also brings a highly experienced oil and gas management team to the Joint Venture, which will assume responsibility for the assets and ensure that the newly identified production opportunities are captured.