Hawkley Oil And Gas : Agreement to Acquire Interest in US Oil & Gas Project

Hawkley Oil and Gas Limited

ABN: 68 115 712 162

Suite 3 / Level 3, 1292 Hay Street

West Perth WA 6005

GPO Box 2870

West Perth WA 6872

t: [phone]

f: [phone]

e: [e-mail]

www.hawkleyoilandgas.com

ASX Announcement - 24 October, 2019

Agreement to Acquire 33% Operating Interest in Producing Oil Project in USA

HIGHLIGHTS

• Hawkley has entered into a sale and purchase agreement ("SPA") to acquire an approximately 33% interest and operatorship in a producing oil and gas project ("Project") in North Dakota, USA, for total consideration of US$2.51m (50% cash/50%scrip). The Project comprises 10 wells in 6,600 gross acres located in Burke County, North Dakota, within the Williston Basin.
• Total 12 month production to June 2019 averaged 133 BOPD plus 368 MCF of gas and 42 equivalent BOPD natural gas liquids with net operating cash flows of more than US$1.1 million (US$0.4 million for 33% purchase interest).
• Opportunities to significantly increase production with 29 horizontal drilling locations identified and a proven well workover strategy already successfully carried out on some existing wells.
• The Company intends to consolidate its existing capital on a 1:10 basis.

Directors

Tom Fontaine

Managing Director

Murray Wylie

Non-Executive Director

Share Information

ASX Code:	HOG
Shares on Issue:	456.2M
Options on Issue:	38.4M
Share Price*:	0.3¢
Market Cap*:	$1.4M

• The acquisition is subject to a number of conditions,
  including obtaining shareholder approval and re-compliance with Chapters 1 and 2 of the Listing Rules.
• Hawkley intends to raise $5million-$7million (before costs) through a public offer, including a priority offer to existing shareholders ("Public Offer")
• Woodchester Capital Pty Ltd ("Woodchester") has been appointed by Hawkley as the Lead Manager for the Public Offer.

Hawkley Oil & Gas Limited ("Hawkley" or "the Company") is pleased to announce that it has entered into a sale and purchase agreement ("SPA") with a group of vendors ("Vendors" - see Appendix 1 for details) to acquire an approximately 33% working interest in an operating oil and gas project comprising 10 wells situated on 6,600 gross acres in Burke County, North Dakota ("Acquisition").

In connection with the proposed acquisition under the SPA, and subject to obtaining relevant shareholder approvals, the Company intends to:

1. Raise $300k-$500k interim funding via convertible notes to be issued to sophisticated and professional investors;

1. consolidate its securities on a 1 for 10 basis ("Consolidation");
2. raise $5million-$7million (before costs) through a public offer, including a priority offer to existing shareholders;
3. appoint a nominee of the vendors to the board of the Company; and
4. seek to re-comply with Chapters 1 and 2 of the Listing Rules.

About the North Dakota Project

The Company is proposing to acquire an approximately 33% interest and operatorship in an oil and gas project located in Burke County, North Dakota which comprises 10 wells, 6,600 gross acres and 29 identified horizontal drilling locations.

The Project presently has 7 (of its 10) wells in production and achieved net operating cash flows of approximately US$1.15 million in 2018-19 (being approximately US$0.4 million based on the Company's proposed 33% acquisition interest).

The Project is focused on the Midale/Nesson formations within the Williston Basin (there are presently around 300 producing wells in the area). During the year ending 30 June 2019, total production for the Project averaged 133 barrels of oil per day (BOPD), plus a further 368MCF (61 equivalent BOPD) of natural gas and 42 equivalent BOPD natural gas liquids. Hawkley is arranging for an independent reserves report to be prepared for inclusion in the forthcoming prospectus.

Hawkley is reviewing a number of options to increase production and reduce operating expenses following completion of the acquisition. The Company intends to drill and frac one new vertical well. The total estimated cost for this is US$1m, with Hawkley's share being US$350k. Based on previous wells, the initial production for a new well is anticipated to be 50-100BOPD, reducing to 50BOPD after one month then slowly declining.

Hawkley is also proposing to carry out a workover and recompletion of an existing well using a strategy that has already been successfully applied. The total cost for this is estimated at US$1.8M, with Hawkley's share being US$630k. The process involves casing a preferentially selected one mile lateral in the existing birdsfoot open hole design, then a 20 stage slickwater frac. A similar recompletion of the Paradox Oil 34-31 well resulted in oil flow increasing to about 100BOPD for three months before reducing to 50BOPD then slowly declining as shown below:

The Company is also considering a proposal to develop a salt water disposal system that is expected to reduce operating expenditure by approximately US$8 per barrel. The estimated cost for this is US$1M, with Hawkley's share being US$350k.

Project is located in Burke County, North Dakota, near the Canadian border.

Interim Funding

The Company is in the process of raising $300k-$500k to provide funds to undertake the recompliance with Chapters 1 and 2 of the ASX Listing Rules and for working capital, through the issue of unsecured convertible notes to sophisticated or professional investors. The investors include entities associated with former directors who are no longer considered to be related parties to Hawkley. Subject to shareholder approval, the notes would be convertible following the recompliance at 2 cents per share (post consolidation basis) with 1 free attaching option for every 2 shares with an exercise price of 5 cents per share on or before 31 March 2021.

Public Offer

The Company plans to undertake a capital raising to raise $5 million-$7 million (before costs) through the issue of fully paid ordinary shares pursuant to a prospectus, at a price of $0.03 (3 cents) per share.

The Public Offer is planned to include a priority offer to existing shareholders, with further details to be provided once they have been finalised.

Funds raised will be used to fund the cash consideration of US$1,256,410 (subject to compliance with ASX Listing Rule 1.1 Condition 11), along with capital projects currently being evaluated to reduce operating costs and to boost production via well workovers and the drilling of a new well. The Company is also reviewing other acquisition opportunities including exploration projects within Australian with the objective of developing and supplying gas to the eastern seaboard of Australia. The Company will keep the market updated as these developments progress.

Hawkley has appointed Woodchester Capital Pty Ltd as the Lead Manager for the Public Offer and to assist with the Interim Funding. Under the terms of the engagement, Hawkley has agreed to issue 20,000,000 shares to Woodchester or its nominees as facilitation/incentive shares to assist with the timely completion of the capital raising. International Island Group Pty Ltd ("IIG") has also been appointed to provide corporate advisory services in relation to the transaction. Hawkley has agreed to issue 12,000,000 shares to IIG or its nominee at completion of the recompliance process.

Below is a table showing the Company's current capital structure and anticipated capital structure on completion of the Acquisition.

Minimum Subscription

Shares Options

Maximum Subscription

Shares Options

Currently on issue	456,239,077	25,355,649	456,239,077	25,355,649
Post-Consolidation (1:10)	45,623,908	2,535,565	45,623,908	2,535,565
Interim Funding Convertible	15,000,000	7,500,000	25,000,000	12,500,000
Notes
Issued to Vendors	61,815,367(1)(2)	-	61,815,367(1)(2)	-
Advisor Shares	32,000,000	-	32,000,000	-
Directors Shares	20,000,000	10,000,000	20,000,000	10,000,000
Public Offer	166,666,667(2)	-	233,333,333(2)	-
Total (post-Consolidation)	341,105,942	20,035,656	417,772,608	25,035,565

Note:

1. Based on the Consolidation occurring on a 1 for 10 basis (subject to change).
2. Assumes an issue price of $0.03.

Board Composition

It is proposed that at the completion of the acquisition, the board of directors of Hawkley will comprise existing director Tom Fontaine, Jason Ferris of Woodchester, and Jason Spittlehouse as the vendor nominee.

Mr. Ferris is a director of Woodchester Capital. He is based in Perth, Western Australia, and has worked in financial services, property and corporate finance industries for more than 25 years. Mr. Ferris is an experienced company director having served on the board of numerous public and private companies in Australia, South Africa and United Kingdom. He holds an AFSL and is a Fellow of the

Australian Institute of Management (FAIM) and is a Member of the Australian Institute of Company Directors (MAICD). He has also facilitated many joint venture opportunities in the property, tech and mining sectors. He is a current non-executive director of Titanium Sands Limited (ASX:TSL) and resigned on 4 December 2018 from his role as Executive Chairman of Connected IO Limited (ASX:CIO).

Mr. Spittlehouse has held geoscience positions in Australia, UK and SE Asia and holds an MSc from Imperial College, London. Mr. Spittlehouse was a founding director and seed investor at Neon Energy Pty Ltd in 2005. He also founded Houston-based VistaTex Energy LLC in 2010, a privately held producer, operating in seven states, with interests in 50 fields. The company was sold in August, 2014.

Proforma Balance Sheet

The unaudited balance sheet and unaudited proforma balance sheet of Hawkley, both as at 30 September 2019, are set out in Appendix 2.

The financial information is presented in an abbreviated form, insofar as it does not include all of the disclosures required by Australian Accounting Standards applicable to annual financial statements but is prepared on the basis of the accounting policies normally adopted by Hawkley and reflect the changes to its financial position.

The proforma has been prepared assuming settlement of the acquisition of the North Dakota Project (incorporating the issue of the consideration securities, the issue of securities for the interim funding and capital raising, and the proposed issue of shares to advisors) and no existing options are exercised.

Indicative Timetable

The indicative timetable for completion of the proposed transaction is outlined below:

Event	Date
Announcement of Acquisition	24 October 2019
Due diligence completion	24 October 2019
Dispatch Notice of Meeting seeking approval for the acquisition of the	19 November 2019
North Dakota Project
General Meeting to approve the acquisition of the North Dakota Project	19 December 2019
Completion of consolidation	20 December 2019
Lodgment of prospectus with ASIC	20 December 2019
Closing date of offer under the prospectus	21 February 2020
Payment of cash consideration and issue of consideration securities for	28 February 2020
acquisition of North Dakota Project
Despatch of holding statements	28 February 2020
Re-quotation of securities on ASX (subject to HOG re-complying with	Week commencing
Chapters 1 and 2 of the ASX Listing Rules and subject to ASX agreeing to
8 March 2020
reinstate HOG's securities to quotation)

The above table is an indication only and is subject to change. Shareholders should also note that if shareholder approval of the acquisitions is obtained, the Company's securities will remain suspended until such time as the Company has satisfied Chapters 1 and 2 of the ASX Listing Rules.