LONDON, UK: Cloudbreak Discovery (LSE: CDL), a leading natural resources project generator with a focus on commodities required for the energy transition, has entered into an agreement with Iron Forge Holdings (III) Ltd. (IF3) whereby Cloudbreak will provide IF3 with USD $1.5 million in development capital for the Butte Strawn Energy Project located in Irion County, Texas.

The capital is being deployed as a convertible debenture which, at Cloudbreak’s discretion, can be converted into a six per cent Overriding Royalty Interest (“ORI”) on the Project in addition to other considerations.

IF3 has defined a detailed program consisting of workovers of existing wells, new drilling and enhanced oil recovery techniques to rapidly grow both oil and natural gas production on the Project. IF3 is well financed and planning to grow through the drill program as well as through acquisition of additional brownfield energy projects that have potential to provide near-term returns through similar production growth programs.

Key Terms of the Transaction

·    Cloudbreak will provide IF3 with a USD $1.5 million debenture on a two-year term and in two tranches

o USD $500,000 on signing

o USD $1 million within 90 days of signing

·    The debenture is convertible into a six per cent ORI on the Project at Cloudbreak’s discretion, in addition to other considerations

·    IF3 will pay 12.5 per cent per annum interest to Cloudbreak, calculated and paid quarterly in cash or shares in IF3 at the discretion of Cloudbreak on the USD $1.5 million debenture

·    IF3 will grant Cloudbreak;

o 6,000,000 Warrants with a CAD $0.35 strike price and a three-year term from financial close. The Warrants are subject to an acceleration clause;

o First position lien on the Project;

o An area of interest providing Cloudbreak Discovery with a six per cent ORI on any project acquired within a two-mile radius of the Butte Strawn lease boundary; and

o An area of influence giving Cloudbreak the right of first refusal to finance additional acquisitions within five miles of the Project boundary and apply its existing six per cent ORI to that project in addition to terms settled on as part of an acquisition.

·    IF3 will endeavor to enter into a definitive agreement related to a public transaction by 30 September 2022, with completion by 31 January 2023

The Company has access to the resources to meet the obligations of this agreement.

Kyler Hardy, President and CEO of Cloudbreak, commented, “This second royalty acquisition in Texas further demonstrates the opportunity in the pipeline of royalties that we have built and are now executing on. We are successfully deploying our project generator methodology from the mineral and metals sector into the energy sector and growing cashflow through equity and royalty payments. Cloudbreak has chosen to focus on brownfield energy projects that can be acquired at favourable valuations and have the potential for rapid returns. Firstly, through workovers and recompletions followed by new drilling locations.

“A key component of Cloudbreak’s energy royalty strategy is identifying operators and management teams with track records of delivering tangible and measurable results. This provides us with confidence in their ability to execute on the agreed plan around projects that we participate in though a royalty structure. We are excited to be working with the team at IF3 and look forward to additional regional acquisitions.

“Through this and similar transactions in the future, we see an opportunity to create significant shareholder value by growing Cloudbreak’s cash-flow though structured deals and portfolio royalty acquisitions in the natural resources sector.”