Lilis Energy Buys Shoreline, Adds Its Wattenberg Acreage For Roughly $40 Million

(Merger transaction terminated by both parties as of April 1, 2014) To buy the Calgary-based E&P company with holdings in the Wattenberg field and in the Peace River Arch area of Alberta.

Lilis Energy Inc. (NasdaqGM: LLEX) announced Feb. 6 that it will acquire Shoreline Energy Corp. (TO: SEQ), including its holdings in the Peace River Arch area of Northwest Alberta and the Wattenberg field in Colorado, in exchange for roughly $40 million in stock and assumed debt.

The announcement comes just days after Shoreline, a Calgary-based E&P company, reached a conditional settlement of working interest rights in the Wattenburg as part of a land title dispute. In the settlement, the company agreed to reduce its interests in certain lands producing from horizontal wells in exchange for additional land ownership land with currently producing vertical wells and multiple horizontal development locations.

The terms of the settlement, announced Feb. 3, reduce Shoreline’s total proved plus probable reserves by $1.2 million in exchange for cancellation of 398,000 common shares of Shoreline originally issued at $3.65, for a positive book value adjustment of $1.45 million.

Lilis, of Denver, entered into a letter of intent (LOI) to acquire all of the issued and outstanding common shares of Shoreline as part of an unanimous agreement from both company's board of directors.

Shoreline said it owned proved plus probable reserves at year end 2012 valued at $141 million. The company planned to invest up to $50 million in the DJ Basin using a U.S. based private equity firm.

Upon closing, Lilis will hold royalty and working interests in 150,000 gross (115,000 net) acres of oil and gas leaseholds in the Denver-Julesburg (DJ) Basin of Colorado, Wyoming and Western Nebraska. The combination of the companies would result in an increase of 1,520 working interest net acres, and 4,835 royalty acres to Lilis' holdings in the Greater Wattenberg field.

In addition, Lilis will hold 270,000 gross (180,000 net acres) in and around Northwest Alberta's Peace River Arch area, an emerging unconventional project for horizontal light oil drilling in the Montney formation.

Under the terms of the LOI, Lilis will issue 6.7 million shares at closing to the shareholders of Shoreline. If the deal were done Feb. 6, the value of the shares would be about $22 million, in exchange for all of the issued and outstanding shares of Shoreline. Lilis will also assume Shoreline’s debt, including bank debt of $20.8 million as of Sept. 30. The terms of the agreement require that Shoreline will not solicit or initiate any inquiries regarding any other business combination or sale of assets.

Canaccord Capital Genuity Corp. provided a verbal fairness opinion to Shoreline.

Closing is expected to occur within 90 days. The combined entity is expected to continue to trade on Nasdaq under the LLEX symbol.