Azabache Maintains 90% Working Interest in Vaca Muerta Assets and Enters Into Loan Agreement

CALGARY, ALBERTA--(Marketwired - Aug. 1, 2014) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Azabache Energy Inc. ("Azabache" or the "Company") (TSX VENTURE:AZA) announces that it has entered into a Termination and Mutual Release Agreement ("Termination Agreement") and a loan agreement (the "Loan Agreement") with RIO BRAVO COMMERCIAL ENTERPRISES INC. ("RBE"), a private Panamanian corporation. Under the Termination Agreement, Azabache and RBE agree to the early termination of the previously announced Participation Agreement (the "PA"), under which RBE was to pay US$5,000,000 in exchange for earning a 23.76% working interest (directly or indirectly) in the Covunco Norte-Sur and the El Corte joint operating agreements and contracts in the Province of Neuquén (the "Contracts"). In consideration for the early termination, RBE has paid US$1,100,000 to the Company. RBE had previously advanced US$2,100,000 to the Company under the terms of the PA and its amendments.

Pursuant to the terms of the Loan Agreement, the entire amount paid by RBE under the PA and the Termination Agreement will be converted to an unsecured convertible loan from RBE to Azabache. Provisions of the Loan Agreement include:

• Principal amount - US$3,200,000
• Interest rate - 6% per annum
• Maturity date - July 25, 2015
• Pre-Payment - Azabache is entitled to pre-pay the principal amount plus accrued interest at any time. The Company agrees to pre-pay US$1,000,000 if it completes a financing that result in net proceeds in excess of US$15,000,000 or a farm-out of any assets which includes a cash payment in excess of US$5,000,000.
• Conversion Rights - subject to TSX Venture Exchange ("TSXV") and shareholder approval, if required, Azabache may convert the principal plus interest into Common Shares of the Company at any time after April 21, 2015.
• Conversion Price - the greater of the volume-weighted average trading price of the Common Shares for a 30 day period prior to conversion or the "Market Price" as defined in the policies of the TSXV.
• Loan Conversion - if required approvals of the TSXV or the Company's shareholders are not obtained within 6 months of the date of the notification of the conversion, Azabache has the option to repay the principal and interest in full or to convert the principal plus interest into a new loan maturing 2 years from the date of the notice of conversion with an interest rate of 10% per annum.

The Company intends to use the proceeds of the loan for working capital and general corporate purposes.