May 14, 2003
TUSK to Make Offer for Sunfire Energy Corporation
TUSK Energy Inc. ("TUSK") (TSX:TKE) and Sunfire Energy Corporation ("Sunfire") (TSX-V:SFE.A) jointly announce that TUSK and Sunfire have entered into an agreement whereby TUSK has agreed to make an offer to acquire all of the issued and outstanding shares of Sunfire, a public corporation trading on the TSX Venture Exchange, for $3.41 per share in cash. A total of 14,340,273 fully diluted Sunfire shares are expected to be outstanding at the closing of the take-over bid (the "Bid") to be made by TUSK. The transaction, including the assumption of debt, net of stock option proceeds and including estimated expenses of the Bid, will have a total cost of approximately $61.3 million.
The offer price represents a 9% premium to the weighted average trading price of $3.13 per Sunfire share for the 20 trading days ending May 13, 2003. Peters & Co. Limited has acted as financial advisor for Sunfire and has provided an opinion that the consideration to be offered is fair, from a financial point of view, to Sunfire's shareholders.
As announced on May 12, 2003, TUSK has entered into an agreement to sell, on a bought-deal basis, 7,500,000 Subscription Receipts, each exercisable for no additional consideration, into one common share of TUSK, at $3.05 per Subscription Receipt, to a syndicate of underwriters led by Yorkton Securities Inc. and including Lightyear Capital Inc., Jennings Capital Inc. and Brant Securities Inc. In addition, TUSK has granted the underwriters an option to acquire up to 2,000,000 additional Subscription Receipts on the same terms and conditions until 48 hours prior to closing of the issue. If the option is exercised in full total gross proceeds of the financing will be $28,975,000. TUSK currently has approximately 20.7 million shares issued and outstanding and would have approximately 30.2 million shares issued and outstanding if the option is fully exercised. The offering is subject to normal regulatory approvals and is expected to close by May 23, 2003. At the closing of the issue, the net proceeds of the offering of Subscription Receipts, will be placed in escrow pending TUSK taking up and paying for not less than 66 2/3% of the outstanding securities of Sunfire. Upon release of the funds from escrow, the net proceeds of the issue, together with additional bank debt, will be used to fund the Sunfire acquisition.
TUSK's current net debt is approximately $26 million. Net debt will increase to approximately $58 million at the time of the closing of the Bid. The total line of credit available to TUSK at the closing of the Bid will be $65 million.
The board of directors of Sunfire has resolved unanimously to recommend to its shareholders that they accept the TUSK offer. TUSK anticipates mailing its offer to Sunfire shareholders on May 23, 2003. Closing of the take-over offer is subject to the tendering of at least 66 2/3 % of the outstanding shares of Sunfire, regulatory approval and other standard conditions. TUSK expects to take up and pay for the Sunfire shares approximately June 30, 2003.
The officers and directors of Sunfire and certain other Sunfire shareholders have agreed to execute lock-up agreements representing approximately 65% of the fully-diluted outstanding shares of Sunfire under which they will agree to deposit their shares under the Bid. Sunfire has agreed that it will not solicit, continue or initiate discussions or negotiations with any third party for any business combination involving Sunfire. Under certain circumstances, Sunfire has agreed to pay TUSK a non-completion fee of $2.5 million and TUSK has a right of first refusal in certain circumstances to match any unsolicited competing bid.
The Sunfire acquisition has the following attributes:
current daily production of approximately 1,500 boe, consisting of 8.2 MMcfd of gas and 120 bpd of oil and natural gas liquids which is expected to increase to 1,800 boe per day near the end of Q2 with the expansion of third party compression facilities;
approximately 94% of Sunfire's production at closing will be natural gas;
production concentrated in 4 core areas;
properties will expand TUSK's East Central Alberta shallow gas production, extend its Peace River Arch area into NE British Columbia, increase its holdings in the Pembina area and further diversify activities into several new areas;
acquisition cost of approximately $34,000 per producing boepd and $9.70 per boe of established reserves;
approximately 60% of daily production is operated;
80% of the established reserves are "proven"; and
more than 56,000 net acres of undeveloped land.
The acquisition will increase TUSK's production to approximately 6,000 boepd (71% gas) and add 60% to its inventory of undeveloped land. The closing of the acquisition will increase TUSK's proven reserves by 50%, production by about 40% and reserve life index by 20%. A number of wells will be drilled on Sunfire properties during the third quarter.
Sunfire's oil and gas assets were evaluated by Martin & Brusset Associates in a report effective January 1, 2003. The report indicates proved producing reserves of 3,802 Mboe, total proved reserves of 5,067 Mboe and established reserves of 6,327 Mboe.
TUSK Energy Inc. is a Calgary-based conventional oil and gas company that acquires, develops, produces and sells crude oil, natural gas, and natural gas liquids for the generation of cash flow for investment in a growth oriented exploration, development and acquisition program. On May 5, 2003 TUSK released its first quarter results, reporting first quarter cash flow of $8.5 million, average production of 3,292 boepd, cash flow per share of $0.43 and earnings per share of $0.18. Current production is approximately 4,500 boepd. The common shares of TUSK are traded on the TSX Exchange under the symbol "TKE".
The combined TUSK-Sunfire capital expenditure program for 2003, not including any amount for acquisitions, is expected to be approximately $40 million. |
