SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report (Date of Earliest Event Reported): May 18, 2005
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ARETE INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 33-16820-D 84-1508638
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
7102 La Vista Place Suite 100, Niwot, Colorado 80503
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (303) 652-3113
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N/A
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(Former name or former address, if changed since last report):
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions:
[ ] Written Communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)]
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c)]
Item 1.01 Entry Into a Material Definitive Agreement
Acquisition of Assets in Colorado
On May 18, 2005, Colorado Oil and Gas, Inc. ("COG") a majority owned
subsidiary of Arete Industries, Inc., the registrant, entered into a Purchase
and Sale Agreement (the "Agreement") to acquire certain assets including oil and
gas properties from Tucker Family Investments, LLLP; DNR Oil & Gas, Inc. and
Tindall Operating Co. (the "Sellers") for a gross purchase price of $2.6 Million
including $2.5 Million in cash and 100,000 shares of restricted common stock of
COG valued at $100,000 (the "Purchase Price"). The common stock of COG issued to
Sellers will be restricted securities subject to restrictions on resale provided
under SEC Rule 144, and will be subject to certain rights granted to Sellers to
have the securities included in any Registration Statement filed by COG
subsequent to the Closing date of the Agreement that allows these securities to
be registered under the federal securities laws and made eligible for trading on
any national exchange or on the NASDAQ market or the OTC Bulletin Board. COG
will acquire oil and gas leasehold interests, development rights and rights to
ownership of surface equipment on thirteen producing oil and gas wells and up to
5 in-field development prospects that consist of four proven undeveloped wells
("PUD's") and one re-entry and re-completion prospect in a currently producing
well. COG is also acquiring all operating rights to the properties and has
designated one of the Seller parties, Tindall Operating Co. as the operator of
the producing wells and for drilling and completing new wells and the
re-completion well on the development prospects. The producing properties and
development prospects are located primarily in Weld, Yuma, Morgan, Cheyenne,
Arapahoe and Baca Counties, Colorado.
The Closing Date for the Agreement is set forth as June 15, 2005 with COG having
an option to extend the Closing Date to July 1, 2005. The effective date of this
Agreement is June 1, 2005, unless COG extends the Closing Date to after June 15,
2005, in which case the Effective Date is July 1, 2005. These dates are
important for purposes of credit to the Seller or buyer for actual production on
the wells prior to Closing, in that if the Closing occurs on or before June 15,
2005, the Sellers are entitled to proceeds of production through June 1, 2005
and if Closing occurs after June 15th, the Sellers are entitled to proceeds from
production through June 30, 2005. The purchase and sale from Sellers to COG
shall be in the form of an Assignment, Bill of Sale and Conveyance, reflecting
the reservation to Sellers of Overriding Royalty Interests ("ORRI's") under
certain Leases covering the development prospects. The Purchase Price is subject
to adjustment at Closing in the event that actual Net Revenue Interests ("NRI")
on any oil and gas leases to be assigned are different than those stated in the
Agreement, in which case the Purchase Price will be adjusted by the difference
between actual NRI to be conveyed and those represented in the Agreement divided
by the agreed valuation of each producing well. Additionally, adjustments in the
Purchase Price may be made for any title defects and/or environmental defects
(defined in the Agreement) discovered by COG prior to the closing date based on
settlement procedures in the Agreement. Sellers or COG may terminate the
Agreement in the event that the aggregate reduction in the Purchase Price on
account of such adjustments equals or exceeds 10% of the Purchase Price and
Sellers and COG cannot mutually agree on the adjustment amount.
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The basis for the valuations of the producing wells in the Agreement were
derived by an independent petroleum engineer retained by the Company.
Volumetrics, well by well production history and the semi-annual average actual
price received by Sellers for the production were the basis for this valuation.
No value was assigned to the PUD's in the generation of the valuation. The
referenced ORRI's was the Sellers sole compensation for assigning the PUD's to
COG.
The Purchase Price does not include a value for the development prospects but
instead the Agreement provides for the reservation by Sellers of certain
Overriding Royalty Interests. The Agreement gives COG a one-year option from
June 1, 2005, on the re-completion well and a two-year option from June 1, 2005,
on the other development prospect scheduled for drilling new wells to purchase
these Overriding Royalty Interests for an aggregate price of $1,000,000.. In the
event that COG has not attempted to perform the re-completion project to a new
producing zone and commingled the production from the two zones into the
well-bore before January 1, 2006 the Sellers have the option to repurchase the
well for the allocated value assigned to such well in the Agreement. With
respect to the development prospect scheduled for new wells to be drilled, in
the event that COG has not drilled and completed two new wells as producing
wells (or drilled and plugged and abandoned such wells) on or before June 1,
2007, COG will be required to reassign to Sellers the un-drilled portions of the
lease for that development prospect. The un-drilled portions is defined in the
Agreement as that portion outside the drilling and spacing units for any wells
capable of production in paying quantities as of June 1, 2007.
Other provisions in the Agreement require COG to evaluate and make substantive
objections to title defects and environmental defects in the properties being
conveyed to COG under the Agreement including methodologies to resolve these
defects prospectively, or to terminate the Agreement in the event that
discovered defects are material and cannot be mutually resolved. The Agreement
gives COG until May 20, 2005 to complete its review of such potential defects
and to notify Sellers of any objections after which time COG is deemed to have
waived any rights under these provisions and accepted the properties on an "As
Is, Where Is" basis. Due to the late signing of the Agreement, this condition
has been verbally extended by the parties to at least June 1, 2005. Upon Closing
of the purchase and sale, COG will assume all obligations for environmental
remediation, including plugging and abandoning costs and all contractual
obligations relating to drilling, re-completion operations and of operating the
producing wells on the properties except any such obligations specifically
retained by the Sellers provided for in the Agreement.
Sellers and COG will make post-closing adjustments to the Purchase Price
pursuant to a final settlement statement that must be provided by Sellers on or
before ninety days from the Closing to reflect any adjustments not finally
determined on the date of Closing, after which time the parties will make final
settlement within sixty days from COG's receipt of the final settlement
statement.
The disclosure under this Item 1.01 provides summary information of the
definitive Agreement as specified in the required disclosure under Item 1.01 of
Form 8-K promulgated by the Securities and Exchange Commission, and is qualified
by the detailed provisions of the definitive Purchase Agreement and Exhibits
thereto which have been contemporaneously submitted by Registrant as Exhibit
10.1 to this Current Report on Form 8-K and incorporated herein by reference.
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Item 8.01. Other Events.
The Registrant has contemporaneously with filing this Current Report, issued a
Press Release disclosing that it has entered into an Agreement to purchase
assets, including producing oil and gas wells, development prospects and
personal property associated with the properties located in five fields in
Colorado, including certain terms and conditions thereof. The Registrant
voluntarily submits a copy of the referenced Press Release hereto as an exhibit
under Item 601 (99) of Regulation SB and incorporates it herein by reference.
The terms and conditions and other information required under this Current
Report, under Item 1.01 pertaining to the Agreement is disclosed in that Item
and in the Exhibit 10.1 included in this Current Report.
Item 9.01. Financial Statements and Exhibits
Exhibit Number Description
10.1 Purchase and Sale Agreement dated May 18, 2005
99.1 Press Release dated May 23, 2005.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(a) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned hereunto duly authorized.
ARETE INDUSTRIES, INC.
Date: May 23, 2005 By: /s/ THOMAS P. RAABE
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Thomas P. Raabe, President,
Chief Executive Officer, and
Chairman of the Board of Directors
EXHIBIT INDEX
Exhibit Number Description
10.1 Purchase and Sale Agreement dated May 18, 2005
99.1 Press Release dated May 23, 2005.
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