Australian-Canadian Oil Royalties Ltd. Announces Farm-out of PEL 112 and PEL 444

CISCO, Texas, May 23, 2012 /PRNewswire/ -- Australian-Canadian Oil Royalties Ltd. (OTCBB: AUCAF) ("ACOR" or "the Company") is pleased to announce the completion of a definitive farm-out agreement with Terra Nova Minerals Inc. on the exploration of its Australian Cooper Basin holdings (the "Farm-Out"). The Farm-Out, which was made effective May 11, 2012, set out terms by which Terra Nova may earn a 55% working interest in ACOR's PEL 112 and PEL 444 concessions by funding seismic acquisition and a six (6) well drilling program on the properties.

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On May 11, 2012, Terra Nova closed an equity financing for gross proceeds of $10,652,000, and has transferred first AUD$4,700,000 payable under the Farm-Out. 

General Terms of the Farm-Out

The Farm-Out provides terms under which Terra Nova may earn a 55% undivided working interest in PEL 112 and PEL 444 (the "Farm-Out Interest").

During March and April 2012, Terra Nova paid Holloman Energy Corp. ("Holloman") non-refundable fees totalling $200,000 and, on or before May 25, 2012, will pay Holloman, ACOR and Sakahi (collectively the "Current Working Interest Partners") in PEL 112 and PEL 444, a total of 1,000,000 shares of their common stock with a current market value of approximately $290,000.  On May 11, 2012, Terra Nova also paid Holloman an additional fee of $150,000.  Holloman has agreed to provide Sakhai and ACOR a full accounting for its use of the Terra Nova fees (totalling $350,000). Holloman has further agreed to share with ACOR and Sakhai, any excess of the fees over the transaction costs it incurs in connection with the Farm-Out. Terra Nova's common stock and any excess fees will be distributed among the Current Working Interest Partners in accordance with their working interest percentages in PEL 112 and PEL 444 on May 11, 2012.

To earn the Farm-Out Interest, Terra Nova is required to fund exploration and development expenditures (the "Earning Obligations") totalling at least AUD$13,700,000 (USD$14,300,000) including:

AUD$4,700,000 (USD$4,900,000) to be placed in escrow on or before May 25, 2012 for use in the completion of a seismic acquisition program sufficient to meet the minimum seismic acquisition requirements, and interpretation of the acquired data for PEL 112 and PEL 444 (earning a 20% working interest in each license); and AUD$4,500,000 (USD$4,700,000) to be placed in escrow on or before November 1, 2012 to secure Terra Nova's obligation to sole fund the dry-hole costs of an initial three (3) well drilling program on either PEL 112 or PEL 444, provided that at least one well is drilled on each license (earning a working interest of 5.833% per well in each license, totalling a working interest of 17.5%); and

AUD$4,500,000 (USD$4,700,000) to be placed in escrow on or before the later of March 1, 2013 or 45 days following completion or abandonment of the third well in the initial well program, for use in funding the first AUD$4,500,000 in dry-hole costs of an optional three (3) well drilling program on either PEL 112 or PEL 444, provided that at least one well is drilled on each license (earning a working interest of 5.833% per well in each license, totalling a working interest of 17.5%).

Terra Nova will act as operator with respect to seismic acquisition on PEL 444 and all drilling work contemplated by the Farm-Out.

Costs incurred in relation to the seismic Earning Obligations in excess of AUD$4,700,000, if any, shall be borne by Terra Nova and the Current Working Interest Partners in accordance with their Working Interest percentages calculated as though Terra Nova had successfully completed all of its Earning Obligations and earned the Farm-In Interest.

In the event Terra Nova elects to complete either or both of the first two wells drilled in connection with the initial three well drilling program, Terra Nova will pay 50% of the completion cost and Holloman will pay the other 50% of the completion costs.  In the event Terra Nova elects to complete the third well drilled in connection with the initial three well drilling program, or any well drilled in connection with the optional three well drilling program, Terra Nova will pay 50% of the completion cost and the Current Working Interest Partners will pay the other 50% of the completion costs in proportion to their working interests on May 11, 2012.

In the event any well drilled in connection with either the initial or optional drilling programs is commercially viable, and Terra Nova elects to complete such well, Terra Nova will be entitled to a preferential recovery of one hundred percent of the costs it has paid to drill and test that successful well. Terra Nova is entitled to 80% of the production from that well until either the well has ceased production or Terra Nova has received net revenue equal to the costs it has paid to drill and test the well, whichever occurs first.

The Farm-Out may be terminated by any party upon the occurrence of an uncured breach of any material term. Terra Nova may terminate the Farm-Out any time before it has earned the Farm-Out Interest upon providing written notice of such termination to each of the Current Working Interest Partners, provided that Terra Nova has paid the required fees to the Current Working Interest Partners and has issued its shares to the Current Working Interest Partners. In the event Terra Nova terminates the Farm-Out, it will only be entitled to any interest in either PEL 112 or PEL 444 that it has earned up to the date of termination.

Benefits to ACOR

ACOR was originally awarded PEL 108, PEL 109 and PEL112 in 2000, and subsequently entered into a farm-out arrangement with Holloman to drill three wells retaining a 13.8325% carried working interest. During the quarter ended March 31, 2008, Holloman drilled the Pecos #1 well on PEL 112 being the first of the three wells. The Pecos #1 well was abandoned as a dry hole. During 2008 Holloman obtained approval from the South Australian Government for new exploration terms giving a new five-year work program for PEL 112 and consolidating PEL 108 & 109 to a new Exploration Permit PEL 444.

Pursuant to the Farm-Out, Terra Nova will earn the Farm-Out Interest in portions based upon successful completion of specific Earning Obligations. In each instance, the Current Working Interest Partners will each contribute a portion of the working interest earned by Terra Nova.  In the event Terra Nova earns the entire Farm-In Interest, the Current Working Interest Partners will transfer to Terra Nova the following working interest percentages in both PEL 112 and PEL 444:

(a)  ACOR will contribute an undivided 8.222% working interest in both PEL 112 and PEL 444, resulting in a residual working interest of 5.6105%; and

(b)  Holloman will contribute an undivided 38.556% working interest in both PEL 112 and PEL 444; and

(c) Sakhai will contribute an undivided 8.222% working interest in both PEL 112 and PEL 444.

ACOR will benefit from the significantly higher capital investment being made by Terra Nova than, that which was obligated under the original Holloman farm-out.  ACOR now has a full carry through 3D seismic and up to 6 exploration wells, compared to a full carry on 2 remaining wells under the Holloman farm-out.  ACOR looks forward to the initiation of the 3D seismic program on PEL 112 and PEL 444, Terra Nova has advised that they intend to undertake at the first possible opportunity.

Cautionary Statements

Certain statements in this material may be "forward-looking statements" including outlook on oil and gas prices, estimates of future production, estimated completion dates of acquisitions and construction and development projects, business plans for drilling and exploration, estimated amount and timing of capital expenditures and anticipated future debt levels and royalty rates. Information concerning reserves contained in this material may also be deemed forward-looking statements as such estimates involve the implied assessment that the resources described can be profitably produced in the future. These statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated by ACOR.

Statements contained in this press release and corporate information relating to future results, events and expectations are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve known and unknown risks, uncertainties, scheduling, re-scheduling and other factors which may cause the actual results, performance, estimates, projections, resource potential and/or reserves, interpretations, prognoses, schedules or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such statements. Such factors include, among others, those described in the Company's annual reports on Form 10K on file with the U.S. Securities and Exchange Commission ("SEC").

Users are cautioned that these values represent resources, and not reserves as defined by the SEC.  Under SEC standards, mineralization may not be classified as a reserve unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Mineral resources that are not mineral reserves do not have demonstrated economic viability. Investors are cautioned not to assume that all of measured or indicated resources will ever be converted into reserves.

We seek safe harbor.

For further information on ACOR, please visit our website at www.aussieoil.com, e-mail [email protected] or call:

1-254-442-2638 (Office)

1-800-290-8342 (Toll Free in the United States)

SOURCE Australian-Canadian Oil Royalties Ltd.