Tri-Valley Corporation and OPUS Special Committee Agree to Preliminary Terms on Restructuring and Resolution of Alleged Claims

19.08.2011  |  Business Wire

Tri-Valley Corporation (NYSE Amex:TIV) ('Tri-Valley?) and the OPUS
Special Committee (the 'Special Committee?) announced today that they
have reached preliminary, amicable terms resolving matters that will
support the continued development and financing of the Pleasant Valley
('PV?) Oil Sands Project.

As previously disclosed, the Special Committee was formed to ensure the
interests of OPUS partners would be represented independently of
Tri-Valley in connection with Tri-Valley′s review and resolution of
potential claims brought to Tri-Valley′s attention by OPUS partner, G.
Robert Miller, in August 2010. Mr. Miller serves on the Special
Committee. These claims relate to alleged breaches of the governing
partnership agreements, including (i) Tri-Valley′s allocation of certain
oil and gas lease acquisition and title defense costs to OPUS, (ii) the
amount of turnkey drilling and well completion costs charged to OPUS,
and (iii) the amount of fees charged to OPUS for the work performed by
finders who assisted in the placement of partnership units.

After a thorough review of the claims, facts, and legal bases presented
by the Special Committee in support of their alleged claims, and
following good faith negotiations between Tri-Valley and the Special
Committee, the parties have agreed on the following preliminary terms to
resolve the issues, which will be unanimously recommended by the Special
Committee and the Tri-Valley Board of Directors to the OPUS partners for
ratification:

• 
  Entry into a new limited liability joint venture company for the
  development of the PV Oil Sands Project. Tri-Valley and the OPUS
  partnership will contribute to the new joint venture company their
  respective working and record title interests in the various PV oil
  and gas leases and related assets ('PV Properties?);
  
• 
  Tri-Valley will contribute 100% of its overriding royalty interests
  ('ORRIs?) on each of the PV Properties to the new joint venture
  company;
  
• 
  Tri-Valley will own a 25% equity interest in the new company and
  current OPUS partners will collectively own a 75% equity interest in
  the new company, subject to the distribution preferences payable to
  the OPUS partners described below;
  
• 
  $32.3 million (plus a 5.25% per annum additional accrual attributable
  to the OPUS Preferred Return Amount, as described below) will be
  allocated to current OPUS partners on a prospective basis from the
  following two sources:
  
  
  • The ORRIs. The parties have assigned a discounted, net
    present value of $12.0 million to the portion of the ORRIs
    attributable to the OPUS partners that will be contributed by
    Tri-Valley. This amount is based on the expected future revenues
    to be generated under the ORRIs by the new joint venture company.
    
  • Preferential Right of Return. The remaining $20.3 million
    (plus a 5.25% per annum accrual on any unreturned portion thereof
    until satisfied) (collectively, the 'OPUS Preferred Return
    Amount?) will be funded from Tri-Valley′s portion of the net cash
    flow generated by the new joint venture company from the PV Oil
    Sands Project. All net cash flow generated by the joint venture
    company that would otherwise be allocable to Tri-Valley will
    instead be allocated solely to the current OPUS partners until
    such time as the OPUS Preferred Return Amount is satisfied in
    full. After satisfaction in full of the OPUS Preferred Return
    Amount, all net cash flow generated by the joint venture company
    will be allocated 25% to Tri-Valley and 75% to current OPUS
    partners;
    
• 
  Tri-Valley will pledge its 25% equity interest in the new joint
  venture company as security for satisfaction of the OPUS Preferred
  Return Amount;
  
• 
  Tri-Valley or one of its wholly owned subsidiaries will be the
  operating manager of the new joint venture company ('Manager?);
  
• 
  A new management committee of the joint venture company will be
  formed, and is expected to be comprised of three current OPUS partners
  yet to be selected. The management committee will work together with
  Tri-Valley, as Manager, to secure project financing on mutually
  agreeable terms;
  
• 
  At the closing, Tri-Valley will either provide or obtain a financing
  commitment for the new joint venture company to fund three SAGD wells,
  as follows: (i) within six months after closing, commitment to fund
  the drilling, completion and equipping of a SAGD pilot project on the
  PV Properties, and (ii) within six months after the completion of the
  SAGD pilot project, assuming the SAGD pilot project is successful and
  meets certain mutually agreeable performance standards, commitment to
  fund the drilling, completion and equipping of two additional SAGD
  wells on the PV Properties;
  
• 
  The existing tolling agreement executed in September 2010 with G.
  Robert Miller will be replaced by a new tolling agreement. The new
  tolling agreement, which will be put in place by Mr. Miller for the
  benefit of current OPUS partners, will be designed to give Tri-Valley
  the ability to satisfy the OPUS Preferred Return Amount on a
  prospective basis from the net cash flow to be generated by the new
  joint venture company without the threat of litigation;
  
• 
  Each member of the Special Committee will execute covenants not to sue
  and contingent general releases in favor of Tri-Valley and each of its
  affiliates. The releases will become effective only upon the earlier
  to occur of (i) satisfaction in full of the OPUS Preferred Return
  Amount, or (ii) such time as the equity interests in the new joint
  venture company pledged by Tri-Valley as security for satisfaction of
  the OPUS Preferred Return Amount are valued at 150% or more of the
  OPUS Preferred Return Amount then remaining unsatisfied, plus interest
  expected to accrue thereon prior to satisfaction. The valuation of
  Tri-Valley′s equity interests will be conducted by an independent
  third party, based on mutually agreeable criteria; and
  
• 
  Each member of the Special Committee has agreed to enter into voting
  agreements approving the transaction.
  

'Tri-Valley had two primary objectives when we formed the OPUS Special
Committee, the first being to amicably resolve outstanding issues
between OPUS and Tri-Valley, and the second being to formulate a plan
that would give us the best opportunity, as collaborative partners, to
maximize the potential value we all see at Pleasant Valley, for OPUS and
Tri-Valley alike,? said Maston N. Cunningham, President and Chief
Executive Officer of Tri-Valley. 'We believe we are well on our way to
accomplishing both objectives, each of which is in the long-term
interests of Tri-Valley shareholders and OPUS partners.?

'The OPUS Special Committee very much appreciates the positive attitude
and candor with which Tri-Valley has engaged in discussions with the
Committee. From the beginning of this process, Tri-Valley and the
Committee have shared the objective of agreeing upon an equitable
outcome, while enabling our two organizations to work productively
together to pursue plans to maximize the assets of the Pleasant Valley
Oil Sands Project,? commented G. Robert Miller, who serves on the
Special Committee. 'We firmly believe that we have taken a huge step
toward the accomplishment of our mutual objective.?

Consummation of the transactions contemplated by the agreed-upon term
sheet is subject to a number of conditions being satisfied, including,
but not limited to, the negotiation and execution of definitive
agreements, the ratification of the settlement terms and new operating
structure by the Board of Directors of Tri-Valley and at least a
majority in interest of the OPUS partners (not including the interests
held by affiliates of Tri-Valley), and no court order or regulatory
action enjoining the consummation of the transactions contemplated by
the term sheet.

About Tri-Valley

Tri-Valley Corporation explores for and produces oil and natural gas in
California and has two exploration-stage gold properties in Alaska.
Tri-Valley is incorporated in Delaware and is publicly traded on the
NYSE Amex exchange under the symbol 'TIV.? Tri-Valley′s website, which
includes all SEC filings, is www.tri-valleycorp.com.

About OPUS

In 2002, Tri-Valley Corporation created a Delaware limited partnership
called the TVC OPUS 1 Drilling Program, L.P. The purpose of this
partnership was to raise $100 million by selling partnership units to
conduct wildcat exploration. In 2006, OPUS began developing producing
properties. The TVC OPUS 1 Drilling Program, L.P. has a 75% working
interest in the Pleasant Valley Oil Sands Project in the Oxnard Oil
Field, with the remaining 25% working interest held by Tri-Valley Oil &
Gas Co., a wholly-owned subsidiary of Tri-Valley Corporation. Tri-Valley
Corporation is the managing partner of the TVC OPUS 1 Drilling Program,
L.P.

Special Note Regarding Forward-Looking Statements

All statements contained in this press release that refer to future
events or other non-historical matters are forward-looking statements.
Although Tri-Valley does not make forward-looking statements unless it
believes it has a reasonable basis for doing so, Tri-Valley cannot
guarantee their accuracy. These statements are only predictions based on
management′s expectations as of the date of this press release, and
involve known and unknown risks, uncertainties and other factors,
including: our ability, and the new joint venture company′s ability, to
obtain additional funding; fluctuations in oil and natural gas prices;
imprecise estimates of oil reserves; drilling hazards such as equipment
failures, fires, explosions, blow-outs, and pipe failure; shortages or
delays in the delivery of drilling rigs and other equipment; problems in
delivery to market; adverse weather conditions; compliance with
governmental and regulatory requirements; geographical concentration of
oil and gas reserves in the State of California; inability to enter into
or maintain strategic and joint venture partnerships; pending and
threatened lawsuits against us; potential rescission rights stemming
from our potential violation of Section 5 of the Securities Act of 1933;
and such other risks and factors that are discussed in our filings with
the Securities and Exchange Commission from time to time, including
under 'Part I, Item 1A. Risk Factors? and 'Part II, Item 7. Management′s
Discussion and Analysis of Financial Condition and Results of
Operations,? contained in Tri-Valley′s Annual Report on Form 10-K for
the year ended December 31, 2010, and under 'Part I, Item 2.
Management′s Discussion and Analysis of Financial Condition and Results
of Operations? and 'Part II, Item 1A. Risk Factors,? contained in
Tri-Valley′s Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 2011, respectively. Except as required by law,
Tri-Valley undertakes no obligation to update or revise publicly any of
the forward-looking statements after the date of this press release to
conform such statements to actual results or to reflect events or
circumstances occurring after the date of this press release.

Notice to OPUS Partners and Additional Information about the
Restructuring Transaction

This press release is neither an offer to purchase nor a solicitation of
an offer to sell any securities. The equity interests of the new joint
venture company to be issued in connection with the restructuring
transaction will not be registered under the Securities Act of 1933, as
amended, and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
No securities of the new joint venture company will be issued or sold in
any state in which such offer, solicitation or sale would be unlawful
absent registration or qualification under the securities laws of such
state.

In connection with the potential restructuring transaction, Tri-Valley
Corporation, as the managing partner of OPUS, will prepare and
distribute an Information Statement and Consent Solicitation to all OPUS
partners. OPUS partners are urged to read carefully the Information
Statement and Consent Solicitation, and the other relevant materials,
when they become available before making any voting or investment
decision with respect to the proposed restructuring transaction, because
they will contain important information about the transaction and the
parties to the transaction. Tri-Valley Corporation and its respective
directors, executive officers, and employees are expected to participate
in the solicitation of consents to the proposed restructuring
transaction from OPUS partners. OPUS partners may obtain more detailed
information regarding the names, affiliations and interests of certain
of Tri-Valley′s executive officers, directors and/or other employees in
the solicitation by reading the Information Statement and Consent
Solicitation, and other relevant materials, when they become available
and are distributed to the OPUS partners.

When available, Tri-Valley Corporation will distribute the Information
Statement and Consent Solicitation, and other relevant materials, to all
OPUS partners of record. OPUS partners may obtain free copies of the
Information Statement and Consent Solicitation, when available, by
contacting Tri-Valley Corporation at 4927 Calloway Drive, Bakersfield,
California 93312, or at (661) 864-0500.