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Tri-Valley Corporation And OPUS Special Committee Agree To Preliminary Terms On Restructuring And Resolution Of Alleged Claims

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.”

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