VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 04/29/13 -- Terrace Energy Corp. (the "Company" or "Terrace") (TSX VENTURE: TZR)(OTCQX: TCRRF)(FRANKFURT: 2TR) is very pleased to announce it has received approval from the TSX Venture Exchange and concluded an agreement with BlackBrush Oil & Gas, LP ("BlackBrush") concerning the proposed transactions that were previously announced on February 26, 2013.
The Company and BlackBrush have entered into a binding agreement under which the parties agreed to organize a special purpose limited partnership (the "SPLP") to acquire a 50% working interest (the "WI") in certain oil & gas leases covering approximately 147,000 net mineral acres in South Texas, USA (the "Target Acreage") from SWEPI LP ("Shell"). The SPLP will initially be owned and funded 50% by Terrace and 50% by BlackBrush and jointly managed by the parties. BlackBrush will be contracted by the SPLP to perform the duties of project operator.
BlackBrush is a privately owned partnership organized to acquire and manage significant oil & gas interests in the continental United States. BlackBrush is currently the majority working interest partner and the named operator of the Company's STS Olmos Project.
The Target Acreage is primarily situated in Maverick County, Texas, U.S.A. which is a region of previous prolific conventional oil production. The property is covered by a 300 square mile proprietary 3-D seismic dataset and contains multiple prospective formations, which are productive in the immediate vicinity, including the Pearsall Shale, Eagle Ford, Buda and Georgetown.
Given the large size of the project and the extent of previous conventional production, the property has the potential for 1,225 drilling locations. An Information Report certified by an independent qualified person in accordance with rules set out in National Instrument 51-101 is available for viewing at the Company's profile at www.sedar.com.
Dave Gibbs, the Company's President commented: "This is an extraordinary opportunity for Terrace. The property is well situated in the highly prolific South Texas unconventional oil & gas development trend and is amid other acreage being developed by significant oil and gas producers. We are very pleased we were chosen by BlackBrush and Shell to partner with them on the development of this project."
The Company and BlackBrush have contributed approximately US$26 million in the aggregate to the SPLP to cover acquisition and start-up costs as well as the costs to drill and complete the first well. The first well, aimed at primarily liquid rich gas contained in the Pearsall Shale formation, was spud by BlackBrush on March 31, 2013 in advance of making a binding agreement with Terrace. Blackbrush has advised the Company that it plans to frac the well in the Company's second quarter. Additional drilling will follow based on an analysis of the results and in accordance with the Farmout Agreement as noted below.
The Company and BlackBrush have further agreed that each party must fund its 50% share of the costs to drill and complete four Pearsall horizontal wells and one Eagle Ford horizontal well (the "Obligation Wells") or forfeit their respective interest in the SPLP; and each party's interest in the SPLP may be adjusted, in defined circumstances, where one party finances a disproportionate share of costs to drill and complete additional wells.
The SPLP may secure the WI in the Target Acreage leases through a combination of cash payments, which have been made, and drilling obligations. The material terms of the Farmout Agreement between the SPLP and Shell are as follows:
1. the SPLP is obligated to commence drilling the remaining Obligation Wells on or before April 15, 2015;2. the drilling of each Obligation Well must commence within 120 days of the completion of the previous well;3. the SPLP is obligated to pay liquidated damages equal to US$2 million (US$1 million net to Terrace) for each Obligation Well that is not commenced on or before the times set out above;4. upon completion of a well, the SPLP may request an assignment of 50% of Shell's interest in such well;5. the SPLP has the option, but not the obligation, to earn the assignment of the WI in all of the Target Acreage leases by spending an aggregate of US$104 million (US$52 million net to Terrace), including US$52 million (US$26 million net to Terrace) representing Shell's share of costs, (the "Carry Payment") on certain qualified expenditures as development of the property progresses over time, including those incurred in connection with the drilling and completion of the Obligation Wells;6. upon making the Carry Payment in full, the SPLP will pay 50% of all development costs for the right to participate at 50% working interest in each subsequent well unless Shell elects to convert its working interest in a producing formation into a net profits interest; and7. Shell has the right, but not the obligation to assume operatorship of any formation in which production has been established at any time within two years after the later of (i) the Carry Payment is made in full or (ii) establishment of production from a given formation.
About Terrace Energy
Terrace Energy is an oil & gas development stage company that is focused on unconventional oil extraction in onshore areas of the United States with a particular focus on South Texas.
ON BEHALF OF THE BOARD OF DIRECTORS
Eric Boehnke, Chief Executive Officer
NEITHER THE 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.
Terrace Energy Corp.
Chief Executive Officer
604 687 0885 (FAX)