Pine Cliff Energy (PNE-V) July 17, '14 is pleased to announce that it has entered into a binding agreement to acquire certain shallow natural gas assets in Alberta and Southern Saskatchewan from a senior oil and gas producer for cash consideration of $100 million, prior to any adjustments. The majority of the Alberta assets are located east of the City of Medicine Hat with some minor assets in Central Alberta near the City of Wetaskiwin. The Saskatchewan assets are located near the Town of Maple Creek.
The cash consideration to be paid by Pine Cliff is expected to be financed by a combination of working capital and debt, details of which will be subsequently announced.
The Proposed Transaction will have an effective date of July 1, 2014 and is presently expected to close on or before November 1, 2014. Although the Agreement is binding between the parties, completion of the Proposed Transaction is subject to numerous conditions, including negotiation and execution of definitive agreements, due diligence, title and environmental review and board of directors and regulatory approvals. No assurances can be given that the Proposed Transaction will be completed as proposed or at all.
Transaction Highlights
The Assets possess a predictable production profile, long reserve life and a geographically focused asset base which is 100% weighted to natural gas. The Assets are 85% operated, high working interest properties (averaging 93%) and include ownership in key strategic infrastructure. Assuming completion of the Proposed Transaction, Pine Cliff has identified a number of potential low risk growth opportunities on the Assets including infill drilling, recompletions and well reactivations. Subsequent to the closing of the Proposed Transaction Pine Cliff is expected to have a combined base asset production of over 11,000 barrels of oil equivalent ("boe") per day with a combined decline rate of approximately 13%. Key attributes of the Assets are as follows:
| Production (May 2014 average provided by vendor) | | 5,300 boe per day | | Natural Gas Weighting | | 100% | | Proved Reserves (1) | | 10.7 Mboe | | Proved and Probable Reserves (1) | | 15.5 Mboe | | Decline Rate | | 14% | | Estimated Funds Flow from Operations (12 months following the effective date) (2) | | $26 million |
| (1) Based on the vendor's internal reserve evaluations with an effective date of December 31, 2013. | | (2) Based on natural gas pricing of CDN$4.55/mcf AECO and using estimated production at July 1, 2014 of 5,200 boe per day, an 8% royalty rate, $8.54 per boe operating costs and net of $3.4 million of interest and taxes to be paid to the vendor. |
Acquisition Metrics
Based on the purchase price of the Assets of $100 million, the acquisition metrics are as follows:
| Production | | $18,870 per flowing boe | | Proved Reserves (1) | | $9.38 per boe | | Proved and Probable Reserves (1) | | $6.45 per boe | | Cash Flow Multiple (2) | | 3.8 times |
| (1) Based on the vendor's internal reserve evaluations with an effective date of December 31, 2013. | | (2) Based on the estimated funds flow from operations shown above. |
Strategic Rationale
Pine Cliff has been actively seeking accretive opportunities to enhance shareholder value by adding low cost and low decline natural gas production. This Proposed Transaction consists of these attributes.
The successful completion of the Proposed Transaction is currently expected to result in:
Increased funds flow from operations on a per share basis; Pine Cliff raising its 2014 production guidance at closing; Pine Cliff having a strong balance sheet with an expected net debt to projected cash flow ratio of less than 1.5:1; and Significant free cash flow which is anticipated to enable Pine Cliff the opportunity to pursue further accretive gas acquisitions and repay debt. |
