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Victory secures Lucas Energy in business combination

05th February 2015

Victory Energy Corporation and Lucas Energy have executed a Letter of Intent and Term Sheet for a proposed business combination between the two companies

Victory Energy Corporation and Lucas Energy have executed a Letter of Intent and Term Sheet for a proposed business combination between the two companies
Junior Eagle Ford operators appear increasingly vulnerable to takeover moves as the fall in oil price slashes equity value

The business combination is contingent on the signing of a definitive merger agreement, which will contain customary terms and conditions.

The parties expect that the business combination will involve the issuance of equity by Lucas to Victory's shareholders with no cash payment being made.

"The expected combination of the two companies will allow Victory and Lucas shareholders to enjoy the benefits of a much larger NYSE MKT listed company, the synergies of a single management structure and reporting company, which will hold valuable assets in two of the most active and profitable basins in North America, the Permian and the Eagle Ford," said Kenny Hill, chief executive officer of Victory Energy Corporation.

The parties also expect that upon completion of the business combination, the shareholders of Victory and Victory's partner Navitus Energy Group will own more than a majority of outstanding Lucas shares.

The letter of intent contains a binding exclusivity provision that requires the two companies to work toward a definitive merger agreement to the exclusion of other potential merger partners. Victory and Lucas are also negotiating the terms of a funding agreement that is intended to provide the capital necessary for Lucas to satisfy its obligations for several Eagle Ford wells, critical accounts payable and to provide Lucas with necessary working capital during the period prior to the consummation of the business combination.

The parties expect that as part of the transaction seven of Lucas' high-grade Eagle Ford wells with varying working interests from a portfolio of 130 future drilling locations will be funded and brought into production during the period from February through June of 2015.

Based on nearby EOG Resources and Marathon Oil well production volumes in addition to internal economic reservoir calculations, the parties anticipate that the monthly production revenue from these combined wells will exceed USD 1.1m of revenue to the company interest, assuming a price per barrel of oil of USD 50, which would bring both companies into a positive cash-flow position and add significant proved producing reserves to the combined 2015 company portfolio.

Victory and Lucas expect that funding of these obligations will come from a variety of sources, including certain affiliates of Victory.

These sources anticipate total funding needs of approximately USD 12m during the business combination with additional funding for post-closing debt reduction and expansion to exceed USD 8m.

"We are extremely excited by the opportunity to combine with Victory," said Anthony C. Schnur, chief executive officer of Lucas Energy, Inc. “We believe that the proposed combination will enhance our access to capital, diversify our asset base, strengthen our balance sheet and allow us to scale. We are pleased to have identified a strategic partner that can help us expand our scope of operations and improve our financial condition.”

Kenneth E. Hill, the current chief executive officer and director of Victory Energy, is expected to serve as the chief executive officer and president of the combined company.

Other executive and officer appointments will be determined at a later date.

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