Christmas present? Viking is papering KWE Key West for $320 million (max. $66mil. cash) and also creating spinoff newco. Investment bankers are being kept happy too with $75mil. bought deal debenture.......
'Tis the season?
TSX SYMBOL: VKR.UN
AND KEYWEST ENERGY CORPORATION
TSX SYMBOL: KWE
DECEMBER 19, 2002 - 08:04 EST
Viking Energy Royalty Trust Announces $320 Million
Acquisition of KeyWest Energy Corporation and $75
Million Convertible Extendible Debenture Financing
CALGARY, ALBERTA--Viking Energy Royalty Trust ("Viking") (VKR.UN
- TSX) and KeyWest Energy Corporation ("KeyWest") (KWE - TSX)
jointly announced today that they have executed an agreement to
effect a business combination whereby Viking will acquire all of
the outstanding shares of KeyWest for approximately $320 million,
including assumed net debt of approximately $80 million. In
addition, certain petroleum and natural gas properties will be
transferred to a separate company to be distributed to the
KeyWest shareholders.
Plan of Arrangement
The business combination will be implemented pursuant to a Plan
of Arrangement (the "Plan"), which provides that Viking will
acquire all of the outstanding shares of KeyWest in exchange for
consideration of $3.65 per share, payable on the basis of:
* 0.5214 of a Viking trust unit to a maximum aggregate of 28
million units.
* $3.65 per share in cash to a maximum aggregate cash amount of
$66 million.
In the event that all KeyWest shareholders elect cash, the
consideration payable for each share will be comprised of $1.00
cash and 0.3786 of one trust unit.
KeyWest shareholders will also receive, for each ten shares of
KeyWest, one share of a newly incorporated company ("NewCo"),
which will hold Alberta exploration and development properties,
including approximately 11,760 net acres of undeveloped land and
daily production of approximately 120 barrels of oil equivalent
("boe") per day. In addition, NewCo will have the right to
farmin on up to 65,000 acres of undeveloped land in the combined
Viking / KeyWest land base. Viking will benefit from NewCo's
active evaluation of the lands and retains the right to
participate for up to 50% of the pre-farmout interest.
Shareholders of KeyWest will be asked to approve the Plan at a
special meeting of shareholders to be scheduled for February
2003.
The directors of each of Viking and KeyWest have unanimously
approved the transaction. Scotia Capital has acted as the
financial advisor to Viking in conjunction with the Plan.
KeyWest's Board has concluded the transaction is in the best
interests of shareholders and has agreed to recommend the
shareholders vote in favour of the Plan. The senior officers and
directors of KeyWest are fully supportive of the Plan and have
committed to vote their shares in favour of the Plan. KeyWest
shareholders holding approximately 10% of the issued and
outstanding shares have executed Lockup Agreements evidencing
such commitment. Griffiths McBurney & Partners acted as
financial advisors for KeyWest and have provided KeyWest's Board
of Directors with an opinion that the consideration to be
received by the shareholders of KeyWest is fair from a financial
point of view.
The Plan will provide KeyWest shareholders the opportunity to
realize the value of KeyWest's existing developed reserves
through participation in a significant and growing royalty trust,
while retaining ownership of KeyWest's exploration prospects and
certain development opportunities through ownership in NewCo. As
Viking unitholders, they will receive monthly cash distributions
currently established at $0.10 per unit. All Viking unitholders
are expected to benefit from the cash flow accretion from the
transaction, and the current robust commodity price environment.
Bought Deal Financing
In conjunction with the transaction, Viking is also pleased to
announce that it has entered into an agreement, on a bought deal
basis, with a syndicate of underwriters led by Scotia Capital and
including CIBC World Markets Inc., BMO Nesbitt Burns Inc.,
National Bank Financial Inc., TD Securities Inc. and Raymond
James Ltd., for a concurrent offering of $75 million aggregate
principal amount of convertible extendible unsecured subordinated
debentures (the "Convertible Debentures"). The Convertible
Debentures, with a face value of $1,000 per debenture, will have
a coupon of 10.50%, and an initial maturity date of April 30,
2003, but will be automatically extended to mature on January 31,
2008 upon closing of the transaction. If the transaction does
not close on or before April 30, 2003 or if the transaction is
terminated at an earlier time, the Convertible Debentures will
mature on the initial maturity date.
The Convertible Debentures will be convertible into trust units
of Viking at $7.25 per trust unit plus accrued and unpaid
interest. The net proceeds of the offering will be used to fund
the acquisition of KeyWest, to reduce bank indebtedness and for
general corporate purposes. The offering is expected to close on
or before January 15, 2003.
The offering of the Convertible Debentures is being made only in
Canada by means of a short-form prospectus, and is subject to the
approval of securities regulatory authorities. The Convertible
Debentures will not be and have not been registered under the
United States Securities Act of 1933 and will not be offered or
sold in the United States.
Financial and Operational Benefits of Acquisition
This represents Viking's first transaction since unitholders
approved the internalization of its management, and accordingly,
no acquisition fee will be paid to the Manager.
Viking will achieve a number of key financial and operational
benefits from the transaction, including:
* Growing cash flow per unit by approximately 13%.
* Increasing production per unit by approximately 17%.
* Enhancing market liquidity by increasing market capitalization
of the units to $565 million, up from $390 million.
* Diversifying its property base and adding three significant new
core properties bringing total trust production to over 20,000
boe/d.
* Lowering pro forma operating costs per barrel by approximately
16%.
* Obtaining additional light oil production with predictable
production profiles and minimal capital requirements.
Kirk Purdy, Chief Executive Officer of Viking, stated that, "The
acquisition of KeyWest is very positive on key financial and
operational measures, and demonstrates Viking's ability to
continue growing per unit cash distributions and production. We
are very pleased KeyWest management is in full support of the
Plan and believe it reflects an attractive offer to KeyWest
shareholders."
Mr. Purdy added, "KeyWest has a portfolio of high quality, assets
that are well suited to our trust operations. In addition,
KeyWest has a significant inventory of low-risk optimization and
exploitation opportunities, which will provide low risk
production and reserve additions to enhance and sustain our
production base."
Harold Pedersen, President of KeyWest, stated, "The transaction
with Viking recognizes the value of KeyWest's portfolio of high
quality, producing assets assembled over the past four years.
Viking has an excellent management team with a demonstrated
ability to create value for unitholders."
KeyWest is currently producing approximately 8,600 boe per day,
of which approximately 78% is crude oil. Viking's daily
production will increase to in excess of 20,000 boe per day, and
the combined production mix will be approximately 68% light and
medium oil, and 32% natural gas. Viking's combined reserve base
will increase to approximately 62 million boe of proven reserves
and 74 million boe of established reserves, representing a
combined established reserve life index of 10.1 years. The
transaction is neutral to net asset value, on a per unit basis.
NewCo
Members of the current KeyWest management, who will form the
nucleus of the NewCo management team, plan to continue their
successful strategy of growth through drilling and acquisitions.
Non-Completion Fee
KeyWest's Board of Directors has agreed to pay Viking a
non-completion fee of $7.7 million if the transaction is not
completed under certain conditions. KeyWest has agreed not to
solicit proposals from other parties. The Plan will be subject
to receipt of all regulatory and shareholder approvals. |
