CALGARY, Nov. 21, 2012 /CNW/ - Pinecrest Energy Inc. (TSX-V: PRY) ("Pinecrest") and Spartan Oil Corp. ("Spartan") (TSX: STO) are pleased to announce that they have entered into an
arrangement agreement (the "Arrangement Agreement") providing for the combination of Pinecrest and Spartan (collectively,
the "Combined Company") to form a premier light oil weighted entity that will provide
shareholders with a sustainable model of income and production growth.
The Combined Company will have an enterprise value approaching $1
billion and an attractive suite of high netback light oil projects.
Under the terms of the Arrangement Agreement, the merger will be
completed through the acquisition by Pinecrest of all of the
outstanding common shares of Spartan (the "Spartan Shares") on the basis of 2.738 common shares of Pinecrest (the "Pinecrest Shares") for each outstanding Spartan Share (the "Transaction"). The exchange ratio in respect of the Transaction represents a deemed
price of $5.12 per Spartan Share and a deemed price of $1.87 per
Pinecrest Share. The combination of Pinecrest and Spartan creates a
premier light oil weighted entity that will provide shareholders with a
sustainable model of income and growth. The Combined Company is
targeting a medium and long term payout ratio of less than 100%; the
forecasted 2013 capital spending and dividend payments are expected to
represent approximately 103.8% of the funds from operations.
Pinecrest's existing executive team, led by Wade Becker, will manage the
Combined Company. At closing, and prior to the proposed 3 for 1 share
consolidation to be completed under the terms of the Arrangement
Agreement, the Combined Company will have approximately 513.4 million
shares outstanding with Spartan shareholders owning approximately 49
percent of the Combined Company (assuming the exercise of certain
Pinecrest warrants and options). It is contemplated that Richard
McHardy and Don Archibald, currently members of Spartan's Board of
Directors, will be appointed to the Board of the Combined Company at
closing.
Creating a Sustainable Premier Light Oil Income and Growth Company
The combination of high netback oil weighted assets at Red Earth and
Pembina allow for the transition to an income and growth model that
supports sustainable dividend payments to shareholders and provides the
opportunity for annual per share growth. Through industry leading
netbacks (greater than 91% light oil and liquids) and greater than $190
million of anticipated credit facility capacity, the Combined Company
will have the discretionary ability to accelerate production and cash
flow growth. The combination of a high corporate netback, low risk
drilling, decreasing corporate decline and year round drilling access
allows for efficient long term sustainability. The key attributes to
the Combined Company sustainability under the dividend model are as
follows:
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Industry leading Netbacks
-
Combining the top 2 netback E&P juniors
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91% oil and liquids weighting provide $60.00/ boe combined operating
netback (2013 combined pro forma)
-
Measured Corporate Decline and Capital Efficiency Management
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Complement horizontal multistage drill program with 7 waterflood schemes
to be implemented in 2013
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Waterflood capital efficiency forecasted at $10,000/bbl
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Attractive capital efficiencies on low risk development drilling
opportunities at Pembina of approximately $30,000 per boe
-
Forecast corporate declines of:
-
40% in 2013
-
33% in 2014
-
27% in 2015
-
Two core light oil resource play areas provide operational diversity and
extensive inventory of horizontal drilling locations across large oil
in place assets
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Red Earth Slave Point carbonate play:
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Planned implementation of 7 waterflood schemes in 2013
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Pembina Keystone Cardium play:
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Low risk, repeatable drilling; year round access; extensive existing
infrastructure
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Financial Flexibility
-
The Combined Company will have the strongest balance sheet among both
the intermediate and the yield Canadian E&P universe; proforma 0.2 x
Debt/ cashflow
-
Annual cash flow in excess of $200MM supports dividend and capital
program
-
A $225 million anticipated credit facility to accelerate growth,
including through strategic acquisitions
-
Anticipated hedging program of up to 5,000 boe/d for 2013 to ensure
stability of cash flows
-
Experienced Board of Directors and Management Team
-
Technically focused with a proven track record of value creation
Subject to the completion of the Transaction, Pinecrest's Board of
Directors has approved an initial annualized dividend of $0.155 per
share that is anticipated to be declared in the first month subsequent
to the completion of the Transaction. Based on Pinecrest's closing
share price on November 20, 2012 of $1.87, the dividend translates to
an 8.3 percent yield.
The dividend, on an annualized basis, will require $79.6 million or 39.8
percent of the Combined Company's estimated 2013 pro-forma cash flow of
approximately $200 million (Cdn $85.00/bbl and $3.00/mcf, AECO) based
on estimated average pro forma 2013 production of 9,200 - 9,600 boe/d
(91% oil and liquids). Subject to board of director approval, Pinecrest
anticipates allocating approximately $130 million to 2013 capital
expenditures for an estimated 2013 all-in payout ratio of 103.8
percent. With pro forma tax pools of approximately $535 million, the
Combined Company has sufficient tax pool coverage to provide
shareholders with a tax efficient yield vehicle.
The Combined Company's capital expenditures will continue to be focused
in the Cardium light oil resource play in the Pembina area of central
Alberta and the Slave Point light oil play in Otter/Evi and Red Earth
areas of northern Alberta. The Combined Company's significant low risk
development drilling inventory, together with attractive capital
efficiencies and the high netback nature of these plays supports the
sustainability of the Combined Company's cash flow and dividends for
the foreseeable future.
In addition, the Combined Company will look for opportunities to acquire
stable, low decline, assets with attractive netbacks. As a larger,
dividend paying company, Pinecrest management believes the Combined
Company will be well positioned to compete for acquisitions.
Management feels that the Combined Company's balance sheet will give it
a unique competitive advantage that will enable it to generate
measurable accretion, while maintaining a conservative debt to cash
flow ratio.
Upon completion of the transaction the Combined Company may operate
under a different name to be released at a later date.
Key Attributes of the Combined Company:
-
An enterprise value approaching $1 billion (based on the current trading
price of the Pinecrest and Spartan Shares and the net debt at the time
of closing);
-
Unlevered balance sheet with an estimated working capital deficit of
approximately $35 million at closing, relative to an anticipated credit
facility of $225 million.
-
Expected pro forma 2013 average production of approximately 9,200 -
9,600 boe/d (91% light oil and liquids);
-
Top-decile operating netbacks of greater than $60.00/boe;
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39.1% basic payout ratio and 103.8% all-in payout ratio;
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Shallowing corporate declines year over year;
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Proved reserves of 20.1 mmboe and Proved plus Probable reserves of 29.8
mmboe based on the independent reserve reports as at December 31, 2011;
-
RLI of 8.7 years (based on mid range 2013 average production of 9,200 -
9,600 boe/d); and
-
Greater than 500 (gross) horizontal light oil drilling locations
targeting between the Slave Point at Red Earth and the Cardium at
Keystone.
Arrangement
The Transaction is to be effected by way of an arrangement under the Business Corporations Act (Alberta). Completion of the Transaction, which is anticipated to occur
in mid January, 2013, and is subject to, among other things, the
approval of shareholders holding at least 66⅔ percent of the Spartan
Shares and Pinecrest Shares voting on the Transaction, the approval of
the Court of Queen's Bench of Alberta, the receipt of all necessary
regulatory and stock exchange approvals, and certain closing conditions
that are customary for a transaction of this nature.
The Directors of each of Spartan and Pinecrest that are eligible to vote
have unanimously approved the Transaction and resolved to recommend
that their respective shareholders vote in favour of the Transaction.
Wade Becker, a director of both Pinecrest and Spartan, abstained from
voting on the Transaction. Directors and officers of Spartan, who
collectively hold approximately 27% of the outstanding Spartan Shares
(on a fully diluted basis), have entered into support agreements with
Pinecrest pursuant to which each has agreed to vote in favour of the
Transaction. Directors and officers of Pinecrest, who collectively
hold approximately 24% of the outstanding Pinecrest Shares (on a fully
diluted basis), have entered into support agreements with Spartan
pursuant to which each has agreed to vote in favour of the Transaction.
Each of Spartan and Pinecrest has agreed to not solicit or initiate any
discussions regarding any other business combination or sale of
material assets of the other and has granted the other the right to
match competing, unsolicited proposals. The Arrangement Agreement
provides for a mutual $12.5 million non-completion fee payable by
Spartan or Pinecrest, as the case may be, in certain circumstances if
the Transaction is not completed.
Complete details of the terms of the Transaction are set out in the
Arrangement Agreement, which will be filed by each of Spartan and
Pinecrest and will be available for viewing under each of Spartan's and
Pinecrest's profiles at www.sedar.com.
Financial Advisors and Fairness Opinions:
Dundee Securities Ltd. ("Dundee") is the lead financial advisor to Pinecrest with Scotiabank also
acting as a financial advisor to Pinecrest. Dundee has provided the
Board of Directors of Pinecrest with a verbal opinion that, subject to
its review of the final form of document effecting the Transaction, the
consideration offered by Pinecrest pursuant to the Arrangement, is
fair, from a financial point of view, to Pinecrest.
TD Securities Inc. ("TD") is acting as financial advisor to Spartan and TD has provided the
Board of Directors of Spartan with its verbal opinion that, as of the
date hereof and subject to the review of final documentation, that the
received by Spartan shareholders pursuant to the Transaction is fair,
from a financial point of view, to Spartan shareholders.
Clarus Securities Inc. and GMP Securities L.P. are acting as strategic
advisors to Spartan. Canaccord Genuity Corp. is acting as strategic
advisor to Pinecrest.
Conference Call Details
Conference call in regards to the Transaction will occur at 11:00 a.m.
EST. A press release will be issued with conference call details.
About Pinecrest and Spartan
Pinecrest is engaged in the acquisition and exploration for and
development and production of oil and natural gas in Western Canada.
Pinecrest has a significant position in the emerging, light oil Slave
Point carbonate resource play focussed in the greater Red Earth area of
north-central Alberta. The common shares of Pinecrest are listed on
the TSXV under the symbol "PRY".
Spartan Oil Corp. is engaged in the business of acquiring crude oil and
natural gas properties and exploring for, developing and producing oil
and natural gas in western Canada. Spartan is uniquely positioned with
a significant position in two of the leading oil resource plays in
western Canada, being the Cardium light oil play in central Alberta and
the Bakken light oil resource play in southeast Saskatchewan. The
common shares of Spartan are listed on the TSX under the symbol "STO".
READER ADVISORIES
Dividends
The payment and the amount of dividends declared in any month will be
subject to the discretion of the board of directors and will depend on
the board of director's assessment of the Combined Company's outlook
for growth, capital expenditure requirements, funds from operations,
potential acquisition opportunities, debt position and other conditions
that the board of directors may consider relevant at such future time.
The amount of future cash dividends, if any, may also vary depending on
a variety of factors, including fluctuations in commodity prices and
differentials, production levels, capital expenditure requirements,
debt service requirements, operating costs, royalty burdens and foreign
exchange rates.
Forward-Looking Statements
This press release contains forward-looking statements. More
particularly, this press release includes, without limitation,
forward-looking statements concerning the timing and completion of the
Arrangement, the characteristics of the Spartan assets and the
Pinecrest assets, the timing and amount of future dividend payments,
the Combined Company's future hedging activities, the Combined
Company's capital expenditure program, the Combined Company's drilling
plans, the expected ability of the Combined Company to execute on its
exploration and development program and the Combined Company's
anticipated production (both in terms of quantity and raw attributes)
funds flow from operations, operating netbacks, exit net debt and other
similar matters.
The forward-looking statements contained in this document are based on
certain key expectations and assumptions made by Pinecrest and Spartan,
including: (i) with respect to capital expenditures, generally, and at
particular locations, the availability of adequate and secure sources
of funding for the Combined Company's proposed capital expenditure
program and the availability of appropriate opportunities to deploy
capital; (ii) with respect to drilling plans, the availability of
drilling rigs, expectations and assumptions concerning the success of
future drilling and development activities and prevailing commodity
prices; (iii) with respect to the Combined Company's ability to execute
on its exploration and development program, the performance of the
Combined Company's personnel, the availability of capital and
prevailing commodity prices; and (iv) with respect to anticipated
production, the ability to drill and operate wells on an economic
basis, the performance of new and existing wells and accounting risks
typically associated with oil and gas exploration and production; (v)
oil prices; (vi) currency exchange rates; (vii) royalty rates; (viii)
operating costs; and (ix) transportation costs. Although Pinecrest and
Spartan believe that the expectations and assumptions on which the
forward-looking statements are based are reasonable, undue reliance
should not be placed on the forward-looking statements because neither
Pinecrest nor Spartan can give any assurance that they will prove to be
correct. Since forward-looking statements address future events and
conditions, by their very nature they involve inherent risks and
uncertainties. Actual results could differ materially from those
currently anticipated due to a number of factors and risks. These
include, but are not limited to, the failure to obtain necessary
regulatory, shareholder and court approvals for the Transaction and
risks associated with the oil and gas industry in general (e.g.,
operational risks in development, exploration and production; delays or
changes in plans with respect to exploration or development projects or
capital expenditures; the uncertainty of reserve estimates; the
uncertainty of estimates and projections relating to production, costs
and expenses; health, safety and environmental risks; commodity price
and exchange rate fluctuations; and uncertainties resulting from
potential delays or changes in plans with respect to exploration or
development projects or capital expenditures).
Any references in this news release to initial production (IP) rates are
useful in confirming the presence of hydrocarbons, however, such rates
are not determinative of the rates at which such wells will continue
production and decline thereafter are not necessarily indicative of
long term performance or ultimately recovery. While encouraging,
readers are cautioned not to place reliance on such rates in
calculating the aggregate production for Pinecrest, Spartan or the
Combined Company.
Any references in this news release to undiscounted or discounted net
present values of future net revenue do not represent the fair market
value of the reserves.
The forward-looking statements contained in this document are made as of
the date hereof and neither Pinecrest nor Spartan undertakes any
obligation to update publicly or revise any forward-looking statements
or information, whether as a result of new information, future events
or otherwise, unless so required by applicable securities laws. Please
refer to Pinecrest's 2012 Annual Information Form for additional risk
factors relating to Pinecrest and Spartan's 2012 Annual Information
Form for additional risk factors relating to Spartan, both of which are
available for viewing on www.sedar.com.
Conversion
The term barrels of oil equivalent ("boe") may be misleading,
particularly if used in isolation. A boe conversion ratio of six
thousand cubic feet of natural gas to one boe (6 mcf/bbl.) is based on
an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead.
All boe conversions in this report are derived from converting gas to
oil in the ratio of six thousand cubic feet of gas to one barrel of
oil. Given that the value ratio based on the current price of crude oil
as compared to natural gas is significantly different from the energy
equivalency of 6:1, utilizing a conversion on a 6:1 basis may be
misleading as an indication of value.
This news release shall not constitute an offer to sell or the
solicitation of an offer to buy any securities nor shall there be any
sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful. The securities issued pursuant
to the plan of arrangement and financing described herein have not been
and will not be registered under the United States Securities Act of
1933 and may not be offered or sold in the United States except in
transactions exempt from such registration.
Neither the TSX Venture Exchange nor its Regulation Services Provider
(as that term is defined in the policies of the TSX Venture Exchange)
accepts responsibility for the adequacy or accuracy of this release.
SOURCE: Pinecrest Energy Inc.