Lucas and Victory enter into collaboration and funding agreements

Lucas Energy Inc. (NYSE MKT: LEI) has entered into a collaboration agreement and a separate funding agreement with Victory Energy Corp. (OTCQX: VYEY). These agreements represent a milestone toward completing the planned business combination with Victory. 

The collaboration agreement provides for the transfer of certain well rights in seven Eagle Ford shale wells to Victory, which is now required to fund the development of these wells. Lucas' senior secured lender amended the terms of its credit facility, allowing Lucas to assign the well rights to Victory, regain compliance with the credit facility, and provide flexibility in achieving the business combination. 

If the business combination does not occur, the well rights will remain an asset of Victory, the lender will have the right to receive compensation from Victory, and Lucas will retain its rights to the remaining unassigned leasehold. Otherwise, the well interests will be owned by the combined company as a result of the closing of the business combination.

The transferred well rights include five wells with an average working interest of 2.5%, operated by Penn Virginia and two 50% working interest wells operated by Earthstone Energy Inc. Expected drilling and development costs for these wells are estimated to be $9.4 million, and such wells are scheduled to begin generating production revenues before the end of July.

Lucas and Victory also entered into a funding agreement and working capital budget. All loans made by Victory under this agreement are secured by a pledge of Lucas' treasury stock, which, upon the closing of the business combination, will become intercompany obligations that can be eliminated.

At closing, Victory provided $517,000 per the collaboration agreement and $250,000 per the funding agreement and anticipates providing a total of approximately $12 million under the agreements. The parties expect to raise additional capital for acquisitions that will expand the combined company's drilling and producing property footprint, and have initiated preliminary discussions with potential funding sources for this purpose.



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