January 13, 2020

Corridor Resources Inc. Announces Proposed Appointment of Former Raging River Management Team, Financing and Changing of Name to Headwater Exploration Inc.

NOT FOR DISSEMINATION IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW.

Calgary, Alberta –  Corridor Resources Inc. (“Corridor” or the “Company“) (CDH: TSX) is pleased to announce it has entered into a definitive investment agreement (the “Investment Agreement“) with Neil Roszell, Jason Jaskela, Ali Horvath, Jonathan Grimwood and Terry Danku (the “Initial Investors“) which provides for: (i) a non-brokered private placement of units of Corridor (the “Units“) for gross proceeds of $20.0 million (the “Non-Brokered Private Placement“); (ii) a brokered private placement of common shares of Corridor (“Common Shares“) for gross proceeds of up to $30.0 million (the “Brokered Private Placement” and together with the Non-Brokered Private Placement, the “Private Placements“); (iii) the appointment of a new management team (the “New Management Team“) and the reconstitution of the board of directors of Corridor (the “Corridor Board“) (collectively, the “Transaction“).  The Private Placements are being completed at $0.92 per Unit and $0.92 per Common Share representing an approximate 8% premium to the volume weighted average trading price (“VWAP“) for the five trading days prior to the date hereof and an approximate 20% premium to the VWAP for the 20 trading days prior to the date hereof.  Following completion of the Transaction, it is expected that the name of the Company will be changed to “Headwater Exploration Inc.”, subject to receiving the necessary shareholder approvals.

The New Management Team will be led by Neil Roszell as Chairman and Chief Executive Officer, Jason Jaskela as President and Chief Operating Officer, Ali Horvath as Vice-President, Finance and Chief Financial Officer, Jonathan Grimwood as Vice-President, Exploration and Terry Danku as Vice-President, Engineering.

“This is an exceptional opportunity to invest in a company with a material cash position and strategic assets that provide significant free cash flow at current commodity prices” said Neil Roszell. “The Headwater management team is energized and truly believes that the Corridor platform can lead us into becoming a leading Canadian energy producer”.

Upon completion of the Transaction, the Initial Investors and Corridor have agreed that the Corridor Board will be reconstituted and shall consist of two of the Initial Investors, Neil Roszell and Jason Jaskela, two members of the existing Corridor Board, Phillip Knoll and Martin Fräss-Ehrfeld, and four new independent directors, Chandra Henry, Kevin Olson, Stephen Larke and Dave Pearce. Edward (Ted) Brown, a partner with Burnet, Duckworth and Palmer LLP, will act as Corporate Secretary.

New Management Team

The New Management Team has a long track record of creating value across several commodity cycles in growth-oriented oil and gas companies through a disciplined financial and operational strategy of exploitation and acquisition. Most recently, the New Management Team led Raging River Exploration Inc. (“Raging River“), a light oil producer focused in the Viking formation in Southwest Saskatchewan and Southeast Alberta, growing from 1,000 boe/d in 2012 to 24,000 boe/d prior to the sale to Baytex Energy Corp. in August of 2018.  During a period of unprecedented volatility and change in the Canadian energy industry, the Raging River management team was able to deliver returns that significantly outpaced the S&P/TSX Capped Energy Index.

Prior to Raging River, certain members of the New Management Team grew Wild Stream Exploration Inc. (“Wild Stream“), a light oil focused producer in Southwest Saskatchewan, from 350 boe/d to 6,400 boe/d prior to its sale in 2012. Prior to Wild Stream, certain members of the New Management Team grew Wild River Resources Inc. (“Wild River“), a private company focused in the Lower Shaunavon formation of Southwest Saskatchewan, from 0 boe/d to 2,000 boe/d in 2 years prior to its sale in 2009.  Both Wild Stream and Wild River delivered significant returns to their shareholders that materially outpaced the S&P/TSX Capped Energy Index.

Neil Roszell, P. Eng.

Chairman and Chief Executive Officer

Mr. Roszell has been a founder of five successful oil and gas companies.  His roles have included Director, President and Chief Executive Officer of Raging River, Wild Stream and Wild River. Prior thereto he was President and Chief Operating Officer of Prairie Schooner Petroleum Ltd. and Vice-President of Engineering of Great Northern Exploration Ltd. Mr. Roszell has a Bachelor of Applied Science degree in Engineering from the University of Regina.
Jason Jaskela, P. Eng.

President and Chief Operating Officer

Mr. Jaskela was previously a founder and the Chief Operating Officer of Raging River and prior thereto a founder and the Vice-President, Production at Wild Stream. Mr. Jaskela has a Bachelor of Science degree in Petroleum Engineering from Montana Tech University.
Ali Horvath, CPA

Vice-President, Finance and Chief Financial Officer

Ms. Horvath was previously a founder and the Controller of Raging River and prior thereto a Senior Financial Accountant with Wild Stream. Ms. Horvath has a Bachelor of Management degree from the University of Lethbridge. Ms. Horvath is a Chartered Professional Accountant.
Jonathan Grimwood, P.Geo

Vice-President, Exploration

Mr. Grimwood was previously the Vice-President, Exploration of Raging River and prior thereto a founder and the President of RMP Energy Inc. Mr. Grimwood has a Bachelor of Science degree from Brandon University and a Masters Degree in Earth Sciences from the University of Waterloo.
Terry Danku, P. Eng.

Vice-President, Engineering

Mr. Danku was previously the Vice-President, Engineering of Raging River and prior thereto the Manager of Reserves and Engineering at Wild Stream. Mr. Danku has a Bachelor of Science degree in Engineering from the University of Saskatchewan.
Edward (Ted) Brown, LL.B.

Corporate Secretary

Mr. Brown is a partner at Burnet Duckworth and Palmer LLP.  Mr. Brown has extensive experience in corporate finance, mergers and acquisitions, governance, regulatory compliance in addition to early stage start-up companies. Mr. Brown previously acted as Corporate Secretary to Raging River. Mr. Brown has a Bachelor of Arts degree in Economics and a Bachelor of Laws degree from the University of Manitoba.

New and Continuing Board

The members of the Corridor Board have strong track records and collectively have significant experience in the oil and gas industry, corporate finance, capital markets and environmental, social and governance matters.

Chandra Henry, CPA, CFA, ICD.D Ms. Henry is currently Chief Financial Officer and Chief Compliance Officer of Longbow Capital Inc. and formerly a director of Pengrowth Energy Corporation.  Prior to her role with Longbow, Ms. Henry was the Chief Financial Officer of FirstEnergy Capital Corp. Ms. Henry has a Bachelor of Commerce degree from the University of Calgary and has earned the Chartered Professional Accountant (CPA, CA), Chartered Financial Analyst (CFA) and Institute of Corporate Directors (ICD.D) designations.
Martin Fräss-Ehrfeld Mr. Fräss-Ehrfeld has served on the Corridor Board since 2011 and is currently the Chairman of AVE Capital Limited, an investment advisory firm, providing investment services to The Children’s Investment Fund Management (UK) LLP.  Mr. Fräss-Ehrfeld has over 25 years or investment fund experience and a Masters degree (Distinction) in Economics and Management.
Phillip Knoll, P. Eng. Mr. Knoll has served on the Corridor Board since 2010 and serves as a director of AltaGas Ltd.  Previously Mr. Knoll has held roles as the President and Chief Executive Officer of Corridor, Vice-President of Duke Energy Gas Transmission, Senior Vice-President of WestCoast Energy Inc. as well as numerous other senior executive roles. Mr. Knoll has over 35 years of varied experience in the energy sector and has held leadership roles in the development, acquisition, implementation and operation of businesses across the natural gas industry. Mr. Knoll holds a Bachelor of Applied Science from the Technical University of Nova Scotia in Chemical Engineering and has the Institute of Corporate Directors (ICD.D) designation.
Stephen Larke, B. Comm, CFA, ICD.D Mr. Larke has over 20 years of experience in energy capital markets, including research, sales, trading and equity finance and currently serves on the board of Topaz Energy Corp. and Vermillion Energy Inc. He is formerly a Managing Director and Executive Committee member with Calgary-based Peters & Co. Limited. Mr. Larke has a Bachelor of Commerce degree (Distinction) from the University of Calgary and has earned the Chartered Financial Analyst (CFA) and Institute of Corporate Directors (ICD.D) designations. In addition, Mr. Larke is a Fundamentals of Sustainability Accounting (FSA) Credential Holder.
Kevin D. Olson, B. Comm Mr. Olson has over 25 years of industry experience and is currently President of Camber Capital Corp. Mr. Olson is a former board member of Raging River, Wild Stream, Wild River and Prairie Schooner Petroleum Ltd.  Mr. Olson has managed four early stage energy funds and served as a director of a variety of exploration and production companies and petroleum services companies. Formerly Mr. Olson was Vice-President, Corporate Finance at FirstEnergy Capital Corp. and Vice-President, Corporate Development for Northrock Resources Ltd. Mr. Olson holds a Bachelor of Commerce degree (Distinction) majoring in finance and accounting from the University of Calgary.
Dave Pearce, P. Eng. Mr. Pearce is currently a Deputy Managing Partner with Azimuth Capital Management, is a director of Baytex Energy Corp. and was formerly a board member of Raging River. Previously Mr. Pearce was the President and Chief Executive Officer of Northrock Resources Ltd. Mr. Pearce has a Bachelor of Science degree in Mechanical Engineering (Honors) from the University of Manitoba.

Corporate Strategy

The New Management Team believes current market conditions in the Canadian energy sector provide an ideal entry point for a well capitalized company.  The under-appreciated assets of Corridor, including its positive estimated adjusted working capital balance of approximately $64.7 million as at December 31, 2019, stable field-based cash flow of $7 to $9 million per year and strong tax pool balance of approximately $160 million as at September 30, 2019 provide an ideal platform to build a leading Canadian energy producer.

The market price for assets relative to net asset value has only been this low twice in the last 20 years as a direct result of the current scarcity of capital available for the sector.  Corridor’s adjusted working capital balance, anticipated to be $110 million at close, will allow the Company to first, take advantage of mispriced assets and second, unlock the value of the assets through disciplined capital allocation and greenfield development.  The New Management Team intends to take a unique approach to oil and gas development, which will include giving full cycle consideration to profitably reducing emissions and water-use while appropriately stewarding all abandonment obligations.  This will be combined with an approach consistent with their historical successes of generating strong earnings, return on capital employed and free cash flow. The New Management Team believes this will allow Corridor to flourish through the entire business cycle.

Upon completion of the Transaction and in conjunction with the next annual general meeting, it is expected that the shareholders of Corridor will be asked to approve amongst other items: (i) a change of Corridor’s name to “Headwater Exploration Inc.”; and (ii) a consolidation of the Common Shares on the basis of one post-consolidation Common Share for every three pre-consolidation Common Shares.

Corridor Strategic Asset Base

Corridor currently has strategic natural gas production and reserves in the McCully Field near Sussex, New Brunswick that supply a portion of Atlantic Canada’s natural gas needs. Corridor owns and operates a 49 km pipeline lateral to the Maritimes & Northeast Pipeline and a natural gas processing facility with 35 mmcf/d (5,800 boe/d) of processing capacity. The McCully Field is strategically produced primarily in the winter months at anticipated average rates of approximately 7.5-8.0 mmcf/d (net to Corridor) in the 2019–2020 winter season. The McCully Field remains shut in for the balance of the year. The winter production cycle allows revenue maximization during peak demand months when Corridor typically receives a significant premium to Nymex Henry Hub gas pricing.

Atlantic Canada remains undersupplied by regional gas by approximately 140 mmcf/d.  The New Management Team believes this allows for unabated growth in McCully Field gas supply.  In June 2019, the New Brunswick Government issued an order-in-council that permits the Minister of Energy & Resource Development to exempt Corridor’s McCully Field from the province-wide fracking moratorium. The New Management Team intends to engage in First Nations consultation and pursue such exemption, allowing Corridor to continue the development of the McCully Field.  The New Management Team has identified numerous drilling and recompletion projects that can significantly increase production from the McCully Field to the benefit of Atlantic Canadians.

Private Placements

Pursuant to the Non-Brokered Private Placement, the Initial Investors, together with additional subscribers identified by the Initial Investors, will subscribe for 21,739,130 Units at a price of $0.92 per unit for aggregate proceeds of $20.0 million.  Each Unit will be comprised of one Common Share and one warrant (“Warrant“) entitling the holder to purchase one Common Share at a price of $0.92 per Common Share for a period of 4 years from the issuance date.  The Warrants will vest and become exercisable as to one-third upon the 20 day VWAP of the Common Shares (the “Market Price“) equalling or exceeding $1.30 per Common Share, an additional one-third upon the Market Price equalling or exceeding $1.60 per Common Share and a final one-third upon the Market Price equalling or exceeding $1.90 per share.

Concurrent with the Non-Brokered Private Placement, the Brokered Private Placement will be completed with a syndicate of dealers co-led by Stifel FirstEnergy and National Bank Financial Inc. and including Peters & Co. Limited for a minimum of 21,739,130 Common Shares and a maximum of 32,608,696 Common Shares at a price of $0.92 per share for a minimum gross proceeds of $20 million and a maximum aggregate gross proceeds of $30 million.

Proceeds from the Private Placements will be used to enhance Corridor’s existing strong working capital position and ultimately for acquisition, development and greenfield drilling opportunities.

Upon completion of the Private Placements, assuming the maximum number of Common Shares is issued, Corridor will have approximately 144.4 million basic Common Shares and 167.3 million fully diluted Common Shares.

The Common Shares and Warrants issued in connection with the Private Placements, and the Common Shares issuable on exercise of the Warrants, will be subject to a Canadian statutory hold period of four months plus one day from the closing of the Private Placements in accordance with applicable securities legislation. Completion of the Transaction, including the Private Placements, is subject to certain conditions, including the approval of the Toronto Stock Exchange, and is expected to occur on or about February 4, 2020 assuming all conditions have been met by such day. The resignation of the non-continuing members of the Corridor Board and management team of Corridor and the appointment of the New Management Team and new members of the Corridor Board will occur concurrently with closing of the Transaction.

The Transaction is not expected to materially affect control of Corridor nor create a new control person of Corridor.

Corridor Board Recommendation

After receiving the advice of its financial and legal advisors, the Corridor Board has unanimously approved the Transaction and determined that the Transaction is in the best interests of Corridor. As a result of entering into the Investment Agreement, the Corridor Board has discontinued its strategic alternatives review process that it commenced in October 2019.

Steve Moran, President and Chief Executive Officer of Corridor commented: “We believe that the Transaction is transformative for Corridor and its shareholders, combining the strength of our existing financial position and cash flow generating asset with the proven expertise of Neil Roszell and his team.”

Advisors

National Bank Financial Inc. is acting as the lead financial advisor to the New Management Team and Stifel FirstEnergy is acting as financial advisor in connection with the Transaction.  Burnet, Duckworth and Palmer LLP is acting as counsel to the Initial Investors and will act as counsel to the recapitalized Company upon completion of the Transaction.  RBC Capital Markets is acting as financial advisor to Corridor in connection with the Transaction.  Bennett Jones LLP is acting as counsel to Corridor in connection with the Transaction. Stikeman Elliott LLP is acting as counsel to the agents in respect of the Brokered Private Placement.

This press release is not an offer of the securities for sale in the United States. The securities have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.

Information regarding the Initial Investors and the New Management Team and their plans has been provided by the Initial Investors

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements and forward-looking information (collectively, “forward-looking statements“). More particularly, this press release contains forward-looking statements concerning: the number, the price and the type of securities to be issued by Corridor pursuant to the Private Placements; the aggregate proceeds from the proposed Private Placements and the anticipated use therefore; Corridor’s estimated adjusted working capital as at December 31, 2019 and following the Transaction; the tax pools associated with the Corridor Assets; estimated field based cash flow from Corridor’s assets; the directors of the Corridor Board and members of the New Management Team following completion of the Transaction; the ability of incoming New Management Team to repeat its financial and operational success through on completion of the Transaction; the business plan of Corridor following the completion of the Transaction; the expectations relating to business advantages and opportunities in the Canadian oil and gas industry given current market conditions; the expectation that the name of the Company will be changed following completion of the Transaction; the expectation that the Common Shares will be consolidated following completion of the Transaction; the treatment under governmental regulatory regimes timing of production, time production is shut-in and expected average production from the McCully Field; the expectation that Corridor’s winter production cycle allows revenue maximization during peak demand months; the expectation that Corridor’s gas production will receive a significant premium to Nymex Henry Hub gas pricing; various factors that impact commodity prices and supply and demand of natural gas in Atlantic Canada; expectations relating to the Sussex area of New Brunswick province receiving an exemption from the Province wide fracking ban; the expectation of conducting consultations with First Nations and pursuing the exemption from the Province wide fracking ban; and the expectation that numerous drilling and recompletion projects can be completed to significantly increase production from the McCully Field. In addition, the use of any of the words “guidance”, “initial, “scheduled”, “can”, “will”, “prior to”, “estimate”, “anticipate”, “believe”, “should”, “forecast”, “future”, “continue”, “may”, “expect”, and similar expressions are intended to identify forward-looking statements.

The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by the Initial Investors including but not limited to expectations and assumptions concerning the availability of capital, current legislation, egress constraints, receipt of required regulatory approvals, the success of future drilling, development and acquisition activities, the performance of existing wells, the growth and acquisition strategy of the New Management Team, general economic conditions, availability of required equipment and services, assumptions of future commodity natural gas prices (including premiums), Canada-U.S. exchange rate, and other assumptions identified herein, including certain expectations and assumptions made by Corridor in respect thereof. Although the New Management Team believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because there is no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (including but not limited to operational risks in development, exploration and production); delays or changes in plans with respect to exploration or development projects; receiving all necessary approvals for the Transaction (including that of the Toronto Stock Exchange), consolidation of Common Shares and the name change and any conditions to such approvals; capital expenditures, acquisitions or other corporate transactions; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations, changes in legislation affecting the oil and gas industry and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. To the extent any guidance or forward looking statements herein constitute a financial outlook or future oriented financial information (“FOFI”), they are made as of the date hereof and included herein to provide prospective investors with an understanding the plans and assumptions for budgeting purposes and prospective investors are cautioned that the information may not be appropriate for other purposes. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on any financial outlook or FOFI. Corridor’s actual results, performance or achievement following the completion of the Transaction could differ materially from those expressed in, or implied by, these FOFI, or if any of them do so, what benefits Corridor will derive therefrom. Corridor and New Management Team disclaim any intention or obligation to update or revise any FOFI statements, whether as a result of new information, future events or otherwise, except as required by law.

Additional information on these and other factors that could affect Corridor’s operations and financial results following the completion of the Transaction are included in its Annual Information Form for the year ended December 31, 2018 and other reports on file with Canadian securities regulatory authorities, which may be accessed through the SEDAR website (www.sedar.com).

The forward-looking statements contained in this press release are made as of the date hereof and neither Corridor nor the New Management Team undertake any obligation to update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

The information contained in this press release does not purport to be all inclusive or to contain all information that prospective investors may require.  Prospective investors are encouraged to conduct their own analysis and reviews of Corridor and the New Management Team and the other information contained in this press release. Information in relation to the previous experience of New Management Team is not indicative of the future performance of Corridor following the Transaction. Without limitation, prospective investors should consider the advice of their financial, legal, accounting, tax and other advisors and such other factors they consider in investigating and analyzing Corridor and the New Management Team.

NON-IFRS MEASURES

This press release contains the terms “adjusted working capital” and “field based cash flow” which do not have standardized meanings prescribed by International Financial Reporting Standards and therefore may not be comparable with the calculation of similar measures by other companies.

Corridor and the New Management Team believe that “adjusted working capital” is a useful measure to assist investors in understanding liquidity at a specific point in time and is calculated as an estimate by Corridor and the New Management Team of Corridor’s current assets less current liabilities including non-current restricted cash in the amount of $0.35 million as at December 31, 2019.  Corridor and the New Management Team believe that “field based cash flow” (referred to by Corridor as “field operating netback”) is a useful measure for demonstrating the potential cash flow generation of Corridor’s assets before considering any general and administrative burdens or other corporate costs.  “Field based cash flow” is calculated based on estimates by Corridor and the New Management Team of Corridor’s natural gas sales of for the 2020 year, realized financial derivative gains and other revenue less estimated royalties, transportation expenses and production expenses.

BARRELS OF OIL EQUIVALENT:

The term “boe” or barrels of oil equivalent may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given that the value ratio based on the current price of crude oil, as compared to natural gas, is significantly different from the energy equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.