Nova Bancorp Reconfirms Opposition to Pace Arrangement

VANCOUVER, British Columbia, March 12, 2013 (GLOBE NEWSWIRE) -- Nova Bancorp Ltd. ("Nova Bancorp") today again confirmed its opposition to the proposed business combination involving Pace Oil & Gas Ltd. ("Pace" or the "Company"), AvenEx Energy Corp. ("AvenEx") and Charger Energy Corp. ("Charger") (as amended, the "Arrangement"). Nova Bancorp urges all Pace shareholders to vote against the Arrangement.

Pace released its 2012 audited financial statements and year-end oil & gas reserves data last week. For the year ended December 31, 2012, Pace reported a loss of $152.9 million. As expected, there were significant write downs of gas assets that contributed to the loss. Cash flow from operating activities for the year was $64.0 million. As at December 31, 2012, total assets were $581.5 million, long term debt was $199.8 million and net book value was $282.5 million or $6.02 per share. As reported by one of Calgary's leading investment banks, "no surprises."

More important to shareholders is the evaluation of Pace's oil & gas reserves at December 31, 2012 by McDaniel & Associates Consultants Ltd., one of the world's leading petroleum consulting firms (the "McDaniel Report"). As disclosed in its recently released Annual Information Form, Pace's estimated net asset value per share (NAV) is based on the present value of reserves discounted at 10% before income taxes and includes estimates for undeveloped lands, seismic and other assets and deducts net debt. In summary:

Reserves Category NAV
Proved Developed Producing (PDP) $5.69
Total Proved (1P) $6.82
Total Proved & Probable (2P) $9.91

These amounts provide support for Nova Bancorp's February 1st estimate of Break-up Value of $5.40 and illustrate that Pace continues to trade at a significant discount to NAV. We believe the discount has been primarily related to concerns about Pace's senior leadership. Pace shareholders understand that more leadership changes are required and that the balance sheet needs to be improved.

The Arrangement proposed by Pace is too dilutive. Under the Arrangement, Pace shareholders are diluted by both Charger, apparently in exchange for the Charger management team, and by AvenEx, likely in exchange for its debt free balance sheet. We do not believe the Charger management team is worth the cost to Pace shareholders. Charger's poor operating and financial performance and its precarious financial position are reflected in its share price. We note that Charger's shares have declined in value by 89% since the current team took over a year ago. Another dilutive factor is the $25.2 million in transaction costs.

We acknowledge that a merger with AvenEx would improve Pace's financial position, but the cost, as measured by dilution must be fair. The current relative valuations between Pace and AvenEx, based on the share exchange ratios in the Arrangement, are not fair.

We are unsettled by the fact that only Pace's financial statements and year-end oil & gas reserves data have been released. When will AvenEx and Charger information be available? Certainly it must be available well in advance of the March 26th meeting, in order to allow all shareholders adequate time to review the information.

This week, Pace, its financial advisors and its proxy solicitors will begin a renewed proxy solicitation and investor relations campaign to sell the Arrangement to shareholders. The amendments to the original arrangement and the governance changes announced on February 25th are completely superficial and ineffectual. The waiver of termination fees and the management shuffle do not change the economics for Pace shareholders. It is the same deal, only the packaging has changed.

This week, Pace will tout the Spyglass dividend model and its sustainability. The promised dividend is not a reason to vote for the deal. Shareholders are being incented with their own money. We know some large shareholders reject the dividend model outright. Generally speaking, they do not believe it provides for maximization of asset value and in turn, shareholder value. As to the sustainability of the Spyglass dividend, we remain unconvinced that it is sustainable. The Arrangement will not unlock Pace's asset value. For far too long, the value has been locked up in an underperforming company. We need to realize the value highlighted by the McDaniel Report.

This week, Pace will begin laying the groundwork for an announcement of a second failed sale process. Shareholders will hear that a superior alternate proposal is unlikely. By delaying the special meeting, management has provided a one-month window for Pace. Currently, both fundraising and M&A markets are difficult. The idea that one month is a sufficient period of time for an effective sale process is unrealistic in light of current market conditions.

This week, Pace may suggest that there is some financial urgency to voting for the Arrangement. We would dispute such a position. Pace is a viable stand-alone entity. Although the Pace balance sheet could be improved, there is no immediate financial pressure to do so. This entire situation is the result of failed leadership. The sale of Dixonville alone would be for substantially more than all of Pace's debt. It will be an insult to shareholders for anyone to suggest there is some imminent threat facing Pace.

This week, Pace will explain that the uncertainty about the Arrangement has negatively affected management, morale and the Company. While we acknowledge there is uncertainty, March 26th is only two weeks away. To minimize the uncertainty thereafter, we are optimistic that any proposal we might make will be constructively received by Pace.

Shareholders must reject Pace's arguments. We urge all Pace shareholders to vote against the Arrangement.

Keep Pace—Next Steps

By our nature, we are optimistic. Perhaps a superior alternate proposal will emerge by March 26th. In any event, Pace shareholders must plan to vote against the Arrangement and pave the way for a process that will ultimately realize better value for the Company's assets. Following the rejection of the Arrangement, Nova Bancorp and other shareholders will propose changes to the leadership of Pace. If Pace is not receptive to these changes, Nova Bancorp will take steps to ensure that a reconstituted slate of directors and a positive plan for the future are available for consideration at the next Pace annual general meeting expected to held in May. In the interim, it would be business as usual at Pace. As noted above, Pace is under no immediate financial pressure to do anything.

We believe that a reconstituted board of directors would need to quickly undertake a new review of strategic alternatives for the purpose of maximizing shareholder value. In our opinion, Pace would need to consider a complete range of alternatives, not just the immediate sale of the Company.

Three alternatives that would need to be considered are:

A Break-up Plan

Pace should consider the possibility of asset rationalization, perhaps to the point where all assets are sold. In our view, the McDaniel Report supports the investment thesis that there is significant asset value within Pace. In current market conditions, finding a purchaser for the entire entity may be difficult, and the sum of the parts may be worth more than the whole. Nova Bancorp is of a view that a breakup plan may well be the optimal method to unlock shareholder value.

A Rights Offering With a Backstop

Pace should consider an equity rights offering with a backstop and/or a concurrent equity private placement to reduce the current levels of bank indebtedness by $25-$50 million. We have been informed that an interested party previously had contacted Pace's financial advisor with a similar transaction in mind. Any such financing would be subject to satisfactory due diligence, changes to the board of directors and an acceptable management plan going forward. A rights offering would allow shareholders to minimize the effective dilution of their ownership position, should they choose to participate. The Company would benefit from an improved balance sheet that would improve flexibility and likely reduce the distressed situation overhang on the share price.

A Scaled Down Merger

Pace should consider a business combination with just AvenEx. There are a number of positive and negative issues to be considered. The current relative valuations between Pace and AvenEx, that are implicit in the Arrangement, are not fair, with Pace having a 52% allocation and AvenEx a 48% allocation. In our view, relative cash flow and net asset value considerations would support a deal with a 60% allocation to Pace and a 40% allocation to AvenEx. One significant negative factor is the location of AvenEx' assets. There are limited synergies with Pace. Pace would be more spread out, more unfocused. In today's market, this lack of focus is a real issue. In any event, to consider such a deal, Pace shareholders would also require significant changes to the board of directors and an acceptable management plan going forward.

Vote Against

Nova Bancorp remains strongly opposed to the Arrangement. In our opinion, Pace management has failed to make a compelling case for the proposed transaction. We will continue to comply with the exemption order we obtained from the Alberta Securities Commission to communicate to shareholders why they should vote against the Arrangement. We are highly confident the Arrangement will be defeated if shareholders make an informed decision.


This solicitation is being made by Nova Bancorp and not by or on behalf of the management of Pace Oil & Gas Ltd. Except for certain non-public solicitations, any solicitation will be made by broadcast, speech or publication. Nova Bancorp will bear all the costs and expenses associated with such solicitation. Affiliates or associates of Nova Bancorp own an aggregate of 108,200 Pace common shares ("Shares"), representing approximately 0.23% of the total Shares issued and outstanding as of the record date. Nova Bancorp Investments Ltd., an affiliate of Nova Bancorp owns 65,200 Shares. Jack Muir and Rick Wlodarczak own or control an aggregate of 43,000 Shares. Messrs. Muir and Wlodarczak are officers of Nova Bancorp and its affiliates.

Vote against the Arrangement using the form of proxy or voting instruction provided by Pace. Shareholders may subsequently revoke such proxy in any manner permitted by law. If you have previously voted on the form of proxy or voting instruction form sent to you by Pace, you may revoke your vote by voting on the internet, by fax, by mail or over the telephone (as available). Only your latest dated form of proxy or voting instruction form will be counted.

The address of Pace Oil & Gas Ltd. is 1700, 250-2 Street S.W., Calgary, Alberta T2P 0C1.

Nova Bancorp is a member of Nova Bancorp Group (, a private investment company based in Vancouver. Nova Bancorp has considerable experience with oil & gas investments and with shareholder activist situations.

Forward-Looking Statements

Certain statements in this press release contain forward-looking information within the meaning of applicable securities laws in Canada ("forward-looking information"). The words "anticipates", "believes", "budgets", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "schedule", "should", "will", "would" and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words.

The forward-looking information in this press release includes, but is not limited to: the timing and holding of the Pace meeting and the future prospects of Pace.

In connection with the forward-looking information contained in this news release, Nova Bancorp has made numerous assumptions. While Nova Bancorp considers these assumptions to be reasonable, these assumptions are inherently subject to significant uncertainties and contingencies. Additionally, there are known and unknown risk factors which could cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information contained herein.

All forward-looking information in this press release is qualified in its entirety by this cautionary statement and, except as may be required by law, Nova Bancorp undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise after the date hereof.

CONTACT: For further information: Jack Muir 604-891-8782 Rick Wlodarczak 604-891-8791 Website www.keeppace.caSource:Nova Bancorp Ltd.