Loreto Resources Corporation and Eagleford Energy Inc. Sign Letter of Intent to Jointly Develop the Eagle Ford Shale, Austin Chalk and Buda Formations in Zavala County, Texas

SARASOTA, Fla., Aug. 11, 2011 /PRNewswire/ -- Loreto Resources Corporation (OTC: LRTC) ("Loreto") today announced that it has signed a non-binding letter of intent with Eagleford Energy Inc. ("Eagleford"), under which Loreto would have the right to farm in to an up to 50% working interest in Eagleford's net working interests in the Matthews Lease and the Murphy Lease in Zavala County, Texas.  

Key highlights of the letter of intent are as follows:

• Farm-in agreement would cover 5,266 gross acres in the Eagle Ford light oil shale play in the Maverick Basin.

• Drill results on both leases indicate potential for significant volumes of recoverable light oil in the Eagle Ford Shale, Austin Chalk and Buda formations based on core samples, log analysis and analogue modeling by Weatherford International. 

• The Matthews Lease is contiguous to the Petrohawk Energy Corporation Red Hawk Land Block, which has shown average initial production rates per well from wells targeting only the Eagle Ford Shale of 375 barrels of oil per day, according to Petrohawk.

• Accelerated work program currently anticipated to include (i) the completion, fracturing and tie in of the Matthews/Dyami #1-H horizontal test well with up to a 15 stage fracture stimulation utilizing a Baker Hughes shot point sleeve, (ii) drilling of a second vertical well on the Murphy Lease which is currently drilling; and (iii) the fracturing, tie in and completion of two Murphy vertical wells.

Nadine C. Smith, Chairman of the Board of Loreto, said, "We are very excited to announce the execution of the letter of intent with Eagleford Energy for joint development of this attractively located acreage in the oil rich sections of the highly sought after Eagle Ford Shale play. We will initially be targeting the Eagle Ford, Austin Chalk and Buda formations but are mindful of the multi-stacked formations prospective for oil and gas in this area. The acreage Eagleford has assembled over the years at considerable expense has been secured on very attractive commercial terms, which is a benefit that would be shared with Loreto in the planned agreement we are announcing today.  We would also be entering into this agreement with the added benefit of the considerable geological and geophysical analysis and fracturing project design developed from data available from recently drilled wells, and in conjunction with well recognized service providers active in the Eagle Ford.  Eagleford's management are experienced industry executives, and we look forward to working together with them to jointly develop these very attractive Eagle Ford resources as a platform for future growth in our collective prospect portfolios."

The Matthews Lease covers approximately 2,629 acres, and the Murphy Lease covers 2,637 acres, over the Austin Chalk, Eagle Ford Shale and Buda formations.  Eagleford has a net 85% (BPO) working interest in the Matthews Lease (excluding the San Miguel formation) and a 90-97% working interest in the Murphy Lease.  Zavala County is part of the Maverick Basin of southwest Texas.  This area is often referred to as the oil window of the present Eagle Ford Shale play.  Eagleford's Matthews Lease is situated contiguous to the Petrohawk Energy Corporation Red Hawk Land Block.

Under the terms of the letter of intent, during Phase I of the farm-in, Loreto would earn between 20% and 25% of Eagleford's net working interests in the Murphy Lease and the Matthews Lease (excluding the San Miguel formation)  (the "Farm-In Leases") in exchange for Loreto's sole funding of between US$2.0 million and US$2.5 million of work activity (the Work Program outlined below) currently underway and anticipated to be accelerated shortly on the Matthews and Murphy Leases.

To date, Eagleford has conducted drilling activities on both the Matthews and Murphy Leases, and conducted extensive geological and geophysical analysis of logs, cores and oil samples acquired from its drilling activities.  During the fourth quarter of 2010 Eagleford drilled the Matthews/Dyami #1-H well targeting the Eagle Ford formation on the Matthews lease as well as the Austin Chalk and the Buda formations.  The well was drilled, by Dawsey Operating LLC to a total measured depth of 8,500 feet, of which over 5,100 feet was vertical depth into the Buda formation, directly below the Eagle Ford shale.  The well was whipstocked at the top of the Austin Chalk formation, found directly above the Eagle Ford formation, and drilled with an 800 foot curve into the Eagle Ford shale.  Drilling continued horizontally such that the well bore was extended 3,300 feet through the Eagle Ford formation.  A shot point sleeve from Baker Hughes Incorporated ("Baker Hughes") was installed to protect the well bore and facilitate a 15 stage fracture stimulation.  

The well was logged extensively by Weatherford International ("Weatherford"), and over 30 sidewall cores were taken from three key formations in descending order, the Austin Chalk, the Eagle Ford and the Buda. The logs were interpreted by Weatherford and the sidewall cores were analyzed by Core Laboratories and Weatherford.  

During January 2011 Eagleford spud the Murphy/Dyami #1-H test well on the Murphy Lease, which was drilled to a vertical depth of 4,588 feet into the Georgetown formation. The Murphy/Dyami #1-H test well was logged and sidewall cores were taken from four key formations – the Serpentine, the Austin Chalk, the Eagle Ford Shale, and the Georgetown formations.  Logs and cores have been analyzed by Weatherford to assist Eagleford to develop a fracturing and completion program.  During the last week of July, 2011 Eagleford spud the Murphy/Dyami #2 vertical well, which is targeting the Serpentine, Austin Chalk and the Eagle Ford formations.  

The Work Program to be funded by Loreto during Phase I currently anticipates (i) the completion, fracturing and tie in of the Matthews/Dyami #1-H horizontal test well (ii) drilling of  a second vertical well on the Murphy lease which is currently drilling; (the Murphy/Dyami #2 well); and (iii)  the fracturing, tie in and completion  of  two Murphy vertical wells (the Murphy #1-H and #2 wells) (or such other work activity on the Matthews and Murphy leases as the parties may agree).

In addition to funds advanced under the Work Program, the letter of intent provides that Loreto would pay Eagleford an equalization payment equal to US$300,000 in cash and US$700,000 of Loreto's common stock valued at the price per share at which Loreto raises the funds for the Phase I program.

Under the terms of the letter of intent, Loreto has committed to provide Eagleford with US$250,000 in bridge financing in the form of a secured convertible note.  Upon the execution of definitive agreements for the farm-in and funding of the Phase I amount, the unpaid principal of the bridge note will be applied against the Phase I amount required to be paid by Loreto, and the bridge note will be cancelled.   Alternatively, if not converted, the note becomes due 90 days after Loreto notifies Eagleford of its intent not to proceed with the farm-in.  Loreto has the right at any time after the maturity date of the bridge note to convert the unpaid principal and accrued interest into common stock of Eagleford at a conversion price per share equal to the 30-day volume weighted average price of Eagleford common stock as of the date of conversion, less 20%.

If Loreto elects to proceed to Phase II of the farm-in, it will earn an additional 25 -30% (for a total of 50%) of Eagleford's net working interests in the Farm-In Leases in exchange for expending US$4.5 million (plus or minus the difference, if any, between US$2.5 million and the amount actually paid by Loreto in Phase I) on operations on either or both the Matthews Lease  and the Murphy Lease.  Loreto may determine its intent to enter into Phase II at the later of October 31, 2011, or fifteen days after completion of the Phase I Work Program.

Upon Loreto's election to proceed to Phase II, Loreto will thereafter in Phase III be obligated to spend an additional US$3.5 million on a schedule to be agreed upon by the parties on operations on either the Matthews Lease and/or the Murphy Lease.  In addition, in connection with Phase III Loreto would pay Eagleford an equalization payment of US$2.0 million in cash on a schedule to be agreed.  

Except for the commitment by Loreto to make the bridge loan, the letter of intent is non-binding and subject to due diligence and necessary internal and external approvals.  It is also subject to Loreto's ability to raise at least $2.3 million of new financing (together with amounts required to pay due diligence and closing costs) to fund the Phase I program and the Phase I equalization payment.

About Loreto Resources Corporation

Loreto Resources Corporation is an early stage oil and gas exploration and development company currently pursuing a business strategy focusing on high impact opportunities, with its initial exploration and development activities expected to concentrate on the Eagle Ford shale.

About Eagleford Energy Inc.

Eagleford Energy Inc. is a growth orientated oil and gas company with a focus on growing hydrocarbon reserves, cash flow, and net asset value per share through exploration and production of mineral properties in South Texas. There are approximately 34 million shares issued and outstanding in the capital of the Company.

Forward-Looking Statements

Certain information regarding Loreto and Eagleford in this news release may constitute forward-looking statements under applicable securities laws.  Forward-looking information includes, without limitation, projections or estimates made by either company and its management in connection with its business operations.  Words such as "expects," "intends," "plans," "proposes," "may", "could," "should," "anticipates," "estimates," "likely," "possible," "potential," "believes" and words of similar import also identify forward-looking statements.  These statements are based on current facts, expectations and analyses and other information and assumptions of management.  Forward-looking information is subject to numerous risks and uncertainties, which could cause actual results to vary and in some instances to differ materially from those anticipated by Loreto or Eagleford and described in the forward-looking information contained in this press release.  In particular, there can be no guaranty that the results of the parties' due diligence will be satisfactory to them, or that Loreto will be able to raise the required financing on acceptable terms or at all, or that the transactions described herein will be consummated.  Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance.  Forward-looking information is based on the estimates and opinions of each company's management at the time the information is released, and each company disclaims any obligation to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise, other than as expressly required by applicable securities laws.  Additional information on risks and other factors that may affect the business and financial results of Loreto and of Eagleford can be found in filings of each company with the U.S. Securities and Exchange Commission.

SOURCE Loreto Resources Corporation

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