David - you were right !
LEL.TO & AAE.TO - trust formed .. I was indeed following LEL.TO due to it's Pembina / Nisku plays which are very prolific. However these transactions I do not fancy so much as a growth investor.. I know it's tax efficient for Canadians.. frankly this is just another reasons I like the international plays way more.. such transactions usually put an end to the material upside of the Can.. company converting.. the new ExploreCo has no Pembina acreage also...
biz.yahoo.com
Argo Energy and Lightning Energy Announce Merger, Trust Conversion and Creation of Exploration-Focused Producer
Thursday February 3, 1:59 am ET
(TSX: AAE, LEL)
CALGARY, Feb. 2 /CNW/ - Argo Energy Ltd. and Lightning Energy Ltd. jointly announced today that their respective Boards of Directors have approved a proposal to combine the two entities and create Sequoia Oil & Gas Trust and a public exploration-focused junior producer, White Fire Energy Ltd.
The effect of the transaction is as follows:
The shareholders of Lightning will receive the following for each
Lightning share owned:
- one trust unit of Sequoia Oil & Gas Trust; and
- one share in White Fire Energy.
Shareholders of Argo will receive the following for each Argo share
owned:
- 0.685 of a trust unit of Sequoia Oil & Gas Trust; and
- 0.685 of a share in White Fire Energy.
The units outstanding in Sequoia Oil & Gas Trust and the shares of White Fire Energy will be rolled back on a four for one basis. The transaction will be concluded pursuant to a Plan of Arrangement and is subject to receipt of all necessary approvals, including shareholder approval, Court approval, and regulatory approvals.
Sequoia Oil & Gas Trust will own approximately 95% of Lightning and Argo's current production, including high quality prolific resource plays in the Pembina, Medicine Lodge/Obed, Gift Lake and Sylvan Lake areas of Alberta. The assets of the Trust are expected to produce an average of 9,750 boe/d in the last nine months of 2005. White Fire Energy will own certain of the growth assets and undeveloped lands in Lightning's Pembina area.
The management team of Sequoia Oil & Gas Trust will be led by Bradley Johnson as President and Chief Executive Officer and Ted Hanbury, as Vice-President and Chief Operating Officer. In addition to Mr. Johnson, the Trust Board of Directors will include Ken Woolner, David Tuer, Dennis Chorney, Jim Finkbeiner and Graham Wilson. The Trust expects to name one additional independent Board member prior to closing of the transaction.
White Fire Energy will be managed by current executives of Lightning, and will be led by Ken Woolner as Executive Chairman and Bob Rosine as President and Chief Executive Officer. Mr. Rosine was a founder of Brooklyn Energy Corporation. Along with Mr. Woolner and Mr. Rosine, the White Fire Energy Board of Directors will include Ted Hanbury, John Brussa, Mr. Finkbeiner and Garry Tanner.
Bradley Johnson joined Argo as its CEO in December 2003. Through a focus on strategic acquisitions, cost control and aggressive development, the Argo team has grown production from 600 boe/d to approximately 4,000 boe/d. Prior to joining Argo, Mr. Johnson was President of an oil and gas consulting firm that provided specialized technical advisory services related to asset optimization and analysis of acquisition opportunities. Mr. Johnson and his team were involved in the sourcing, analysis and execution of more than $10-billion in transactions, including the acquisitions of Poco Petroleum and Canadian Hunter Exploration by Burlington Resources.
Ken Woolner founded Lighting Energy in 2001 and has grown the Company from a blind pool start-up to a producer with productive capacity of more than 5,000 boe/d. Since inception, Lightning's stock price has increased 580%. Prior to founding Lightning, Mr. Woolner was CEO of Velvet Exploration, where he and his team generated a return on investment of more than 900% over a five-year period and grew production to approximately 13,000 boe/d.
"This transaction represents an outstanding opportunity to combine two very strong asset bases and create two exciting new entities," said Mr. Woolner. "Bradley Johnson and his team bring an ideal mix of exploitation and acquisition expertise to the Trust. Given the extensive suite of opportunities in the Trust's asset base, I am confident Mr. Johnson and his team will add significant value through aggressive development and through identification and integration of strategic acquisitions. Furthermore, I am pleased to offer shareholders an opportunity to participate in White Fire Energy which will be well positioned to generate growth and shareholder value as a junior exploration and production company with an excellent acreage position in the exciting Pembina Nisku exploration trend."
"Sequoia Oil & Gas Trust will be a growth-oriented trust with a high quality, diversified asset base," added Mr. Johnson. "The focus of the Trust's business model will be to provide unitholders with sustainable distributions by growing production and reserves on a per unit basis. The Trust's portfolio includes high-deliverability light oil at the prolific Pembina play and a number of large natural gas resource plays at the early stages of their productive lives. The Sequoia team has developed a plan to aggressively exploit the Trust's assets by undertaking low-risk development projects, thereby generating a sustainable growth profile on an economically attractive basis. I am also very pleased to structure a transaction that will allow the Argo shareholders to participate in White Fire Energy with Mr. Woolner and his team."
Benefits of the Arrangement
Management and Directors for both Argo and Lightning believe the Arrangement enhances shareholder value by providing the following benefits:
- The separation of lower risk development assets and exploration assets
aligns the risks and returns from each asset grouping and provides
shareholders with the flexibility to determine their desired
participation in each;
- The Trust will have a diversified portfolio of assets with a
significant resource base that allows Trust management to sustain
production by exploiting lower risk drilling opportunities and
generate a stable stream of cash distributions to unitholders;
- Trust management will further enhance unitholder value through an
active acquisition program that leverages off of the Trust's access to
capital and efficient tax structure;
- White Fire Energy provides shareholders with a ground floor investment
in a growth-oriented exploration focused junior E&P company in the
prolific Pembina area.
- All existing shareholders retain exposure to the substantial portfolio
of both exploration and development opportunities that each management
team has accumulated to date.
- The entities will be managed by experienced teams of professionals
that have demonstrated their ability to deliver on their exploration,
exploitation, acquisition and financial management objectives.
Based on these and other factors, the Boards of Directors of Argo and Lightning have unanimously determined that the Arrangement is in the best interests of Lightning and Argo shareholders. Management and directors of Lightning and Argo, representing approximately 24% percent of the outstanding fully diluted common shares of Argo and 11% percent of the outstanding fully diluted common shares of Lightning, have agreed to vote in favour of the Arrangement.
GMP Securities Limited has advised the Board of Directors of Argo that it is of the opinion, subject to its review of the final form of the documents effecting the reorganization, that the consideration to be received by the Argo shareholders pursuant to the Arrangement is fair from a financial point of view to the Argo shareholders.
Tristone Capital Inc. has advised the Board of Directors of Lightning that it is of the opinion, subject to its review of the final form of the documents effecting the reorganization, that the consideration to be received by the Lightning shareholders pursuant to the Arrangement is fair from a financial point of view to the Lightning shareholders.
Pro Forma Attributes of Sequoia Oil & Gas Trust and White Fire Energy
Sequoia Trust White Fire Energy
------------------- -------------------
2005 Q2 to Q4 Production (est.)
Oil and Liquids (bbls/d) 2,450 285
Natural Gas (mmcf/d) 44.0 2.8
Total (boe/d) 9,750 750
Gas % 75 60
Internal Estimate of Reserves(1)
Proved (mmboe) 11.5 1.7
P+P (mmboe) 17.1 2.7
Undeveloped Land (net acres) 98,900 34,600
Net Debt ($mm)(2) 94.0 0
Basic Units/Shares Outstanding (mm)(3) 23.6 27.5
(1) Based on internal Argo and Lightning engineering estimates. It is
anticipated that independent engineering reserve evaluations will be
completed shortly.
(2) Estimated net debt at closing inclusive of transaction costs and net
of the proceeds of planned private placements.
(3) Estimated number of units and shares outstanding after giving effect
to the planned private placements and four to one unit consolidation
in the Trust and four to one share consolidation in White Fire
Energy.
Sequoia Oil & Gas Trust
The Trust's mandate will be to generate stable monthly distributions and
grow production and reserves per unit by focusing on low-cost operations,
active development of the Trust's resource base and value-enhancing
acquisitions. Sequoia is budgeting to produce an average of 9,500 to
10,000 boe/d for the last nine months of 2005, consisting of approximately
44.0 mmcf/d of natural gas and 2,450 bbls/d of crude oil and liquids. Expected
2005 exit production will exceed 10,500 boe/d. Current productive capacity of
the Sequoia Oil & Gas Trust assets is in excess of 9,000 boe/d, which includes
approximately 1,000 boe/d awaiting tie-in and facility capacity. Based on
management's estimates of year-end reserve volumes, Sequoia Oil & Gas Trust
has proved plus probable reserves of 17.1 mmboe, resulting in an RLI of
approximately 6.8 years based on December 2004 estimated average production.
The Trust's asset base is characterized by large hydrocarbon reservoirs
that are in the early stages of their recoverable lives and contain large
inventories of low-risk repeatable drilling opportunities. The assets are
focused, with approximately 70% of production derived from five core areas.
The Trust will have high working interests in these areas and as a result will
have the ability to control its active drilling and optimization program.
One of Sequoia's key focus areas will be the shallow gas program at
Argo's Sylvan Lake core area. The Trust has identified more than 80 low-risk
drilling locations in the area, and plans to drill 55 of them in 2005. The
area also provides extensive exposure to coal bed methane (CBM) gas from dry
Horseshoe Canyon coals, which have the potential to be developed on a very
economically attractive basis given the Trust's extensive infrastructure
position in the area. This CBM potential is not reflected in the current
budgeted production or in year-end 2004 reserve estimates.
Another focus area for the Trust will be the high productivity Pembina
Nisku light oil area. Lightning's wells in the Pembina Nisku II pool have an
estimated productive capacity of 1,000 boe/d net to Lightning, however,
production has been limited to 150 boe/d (net) by the EUB to allow operators
the opportunity to determine the most appropriate production strategy to
optimize recoverable reserves from the pool. Management has conservatively
assumed for forecasting purposes that restrictions will be only partially
removed by July 2005. When higher production volumes are allowed this will add
incremental production and cash flow to the Trust with minimal capital
expenditures. In addition, the Trust has continued development and
exploitation opportunities in Pembina that can cost-effectively add meaningful
additional production volumes.
Sequoia's management team is also excited by the opportunities that exist
in the resource-based sweet natural gas projects at Obed and Medicine Lodge.
At Medicine Lodge, the Trust will have 35 sections of land, control of
infrastructure and an inventory of more than 40 development drilling locations
targeting the liquid-rich Cardium sandstone. Recent drilling in the area has
identified an emerging play in the Cadomin zone. Sequoia's management looks
forward to bringing its significant exploitation and development expertise to
the front end of this project.
The Obed project is an equally promising resource-based opportunity
targeting stacked Cretaceous-aged blanket sands. The Trust will have 100%
working interest in 17.5 contiguous sections of land defined by 3D seismic.
Sequoia will also own 100% of the gas gathering system and compression at
Obed. Sequoia has identified prospective zones at Obed including the Cadomin,
Cardium, Gething, Notikewin and Fahler sands.
An in-depth technical review of the Trust's assets has identified more
than 150 drilling locations, of which it intends to drill 71 wells (43 net) in
the final three quarters of 2005. Based on this review, an initial capital
expenditure budget of $41 million for the first 12 months has been
established. Based on drilling opportunities identified, management is
budgeting to maintain production levels in excess of 10,500 boe/d through 2006
and 2007 with annual capital expenditures of approximately $25 million.
Sequoia expects to distribute $0.16 per unit per month after the planned
unit roll back, which equates to approximately 60% of the Trust's budgeted
cash flow.
Sequoia Oil & Gas Trust plans to implement a risk management policy in
order to provide downside commodity price protection through the use of
physical and financial derivatives while minimizing the price cap on its
product. As part of the Arrangement, the Trust will assume Lightning's current
hedge portfolio.
At closing, the Trust is expected to have approximately $94 million of
net debt, which translates into a debt to cash flow ratio of approximately
1.2 times.
In order to align the interests of management and unitholders, a private
placement of trust units and warrants will be offered to the management team
of Sequoia Oil & Gas Trust. Gross proceeds of $6 million are expected to be
raised under this private placement. Upon closing and after the planned roll
back of units, there will be approximately 23.6 million trust units issued and
outstanding after the initial private placement.
An industry comparable compensation program will be put in place that
aligns unitholder and employee interests, and will include salaries, bonuses
and a trust unit incentive plan. The Trust will feature an internalized
management structure with no fixed percent bonus plan or fees payable on
acquisitions or dispositions.
White Fire Energy Ltd.
Lightning and Argo shareholders will also receive common shares in a
growth and exploration focused natural gas producer, White Fire Energy. Under
the Arrangement, White Fire Energy will receive certain producing assets in
Pembina and West Central Alberta and certain highly prospective undeveloped
lands in the Pembina exploration trend. White Fire Energy will have an initial
production base of approximately 400 boe/d with an additional 265 boe/d tested
behind pipe capacity. With a planned capital expenditure budget of
$15 million, focused primarily in the Pembina area, White Fire Energy is
forecasting a 12-month average production volume of 1,000 boe/d. As of
January 1, 2005, the White Fire Energy assets had estimated proved plus
probable reserves of 2.7 mmboe and an undeveloped land base of approximately
34,600 net acres. An inventory of more than 10 drill-ready prospects has been
identified on White Fire Energy lands.
A $6-million private placement consisting of shares and warrants will be
made available to White Fire Energy management, directors and employees. At
closing, White Fire Energy will have $6 million of net debt prior to taking
into account the $6 million of cash received in the private placement.
Arrangement
A joint information circular detailing the Arrangement is anticipated to
be mailed to securityholders in March 2005. Securityholders' meetings of both
Lightning and Argo to consider the reorganization will occur in early April
2005. The transaction is expected to close no later than May 15, 2005. The
Plan of Arrangement will require the approval of 66 2/3 percent of the votes
cast by the shareholders, optionholders and warrantholders of Argo and
Lightning voting at each of the securityholder meetings as a single class, the
approval of the majority of the securityholders excluding management and the
approval of the Court of Queen's Bench of Alberta and certain regulatory
agencies. In addition, the Boards of Directors have agreed that they will not
solicit or initiate discussions or negotiations with any third party for any
business combination involving Lightning or Argo. Under certain circumstances,
Argo and Lightning have agreed to pay reciprocal non-completion fees of
$5 million.
Financial Advisors
GMP Securities Limited and Mustang Capital Partners Inc. are acting as
financial advisors to Argo with respect to the proposed transaction.
Tristone Capital Inc. is acting as the financial advisor to Lightning
with respect to the proposed transaction.
CIBC World Markets Inc. is financial advisor to both Argo and Lightning
with respect to the formation of Sequoia Oil & Gas Trust.
Conference Call
A joint conference call to discuss the proposed transaction will be held
Thursday, February 3, 2005 at 9:00 a.m. Mountain Daylight Time (11:00 a.m.
Eastern Daylight Time). To participate live, call 416-640-4127 in the Toronto
area and 800-814-4862 from all other areas. Please call 10 minutes prior to
the start of the call. A replay will be available until midnight on Thursday,
February 10. To access the playback service, please dial 416-640-1917 in
Toronto or 1-877-289 8525 elsewhere, passcode 21112194 followed by the number
sign. The conference call will also be webcast at
newswire.ca sign)1013980.
The webcast archive will be available for 30 days.
Forward-Looking Statements
Certain information set forth in this document, including management's
assessment of the future plans and operations of Lightning, Argo, Sequoia Oil
& Gas Trust and White Fire Energy, contains forward looking statements. By
their nature, forward-looking statements are subject to numerous risks and
uncertainties, some of which are beyond these parties' control, including the
impact of general economic conditions, industry conditions, volatility of
commodity prices, currency fluctuations, imprecision of reserve estimates,
environmental risks, competition from other industry participants, the lack of
availability of qualified personnel or management, stock market volatility and
ability to access sufficient capital from internal and external sources.
Readers are cautioned that the assumptions used in the preparation of such
information, although considered reasonable at the time of preparation, may
prove to be imprecise and, as such, undue reliance should not be placed on
forward looking statements. The actual results, performance or achievement of
Lightning, Argo, Sequoia Oil & Gas Trust and White Fire Energy could differ
materially from those expressed in, or implied by, these forward-looking
statements and, accordingly, no assurance can be given that any of the events
anticipated by the forward looking statements will transpire or occur, or if
any of them do so, what benefits that Lightning, Argo, Sequoia Oil & Gas Trust
and White Fire Energy will derive therefrom. Lightning and Argo disclaim any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Barrels of oil equivalent (boe) may be misleading, particularly if used
in isolation. A BOE conversion ratio of 6 mcf : 1 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.
newswire.ca
newswire.ca
For further information
Argo Energy Ltd., Bradley Johnson, Chief Executive Officer, (403) 770-6317
Lightning Energy Ltd., Ken Woolner, President and Chief Executive Officer, Phone (403) 296-4770 |
