Search to reorganize into Advantage Energy Income Fund
02:16 GMT-04:00 Monday, April 02, 2001
CALGARY, April 2 /CNW/ - Mr. William Davis, Chief Executive Officer of Search Energy Corp. ("Search") is pleased to announce that the Board of Directors has unanimously recommended the reorganization of Search into an oil and gas income fund to be named the Advantage Energy Income Fund ("Advantage").
The purpose of the reorganization is to convert Search from a corporate entity to a trust entity that will distribute a substantial portion of its cash flow to trust unitholders. As a trust, Search will minimize exposure to exploration risk while focusing on growth through the acquisition and development of proven and producing oil and gas properties.
Advantage will be managed through a privately held management company controlled by Mr. Kelly Drader and Mr. Gary Bourgeois. Kelly Drader was an executive with the Enerplus Group for the past 14 years where he held various responsibilities, most recently as Senior Vice President. Gary Bourgeois is a former Managing Director with the Enerplus Group and a former director of Enerplus Resources Fund and Search Energy Corp.
The transaction will be accomplished by way of a Plan of Arrangement (the "Arrangement") and is subject to certain conditions including the approval of Shareholders at a meeting expected to be held on May 23, 2001. Under the Arrangement, Shareholders of Search will receive one trust unit in Advantage in exchange for four common shares of Search.
Based upon detailed production and cash flow modeling, Advantage is forecasting to make monthly distributions to unitholders of 7 cents per Search common share (28 cents per Advantage trust unit) for 2001 or 84 cents per share ($3.36 per Advantage trust unit) annualized. The record date for the first distribution will be June 30, 2001 and payable July 15, 2001.
Reasons for Reorganizing:
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The Arrangement is being proposed to enhance shareholder value given the relative premiums at which comparable sized oil and gas income funds trade versus similar sized junior exploration and production companies. By converting to a cash distributing trust, Search believes it shares should trade substantially closer to the Corporation's April 1, 2001 estimated net asset value (NAV) of $3.40 per Search common share or $13.60 per Advantage unit.
Over the past ten years the oil and gas royalty trust sector has outperformed the E&P sector on a total return basis. In the last two years the Scotia Capital Oil and Gas Income Trust Index has achieved a 40% annual return while the TSE Oil and Gas Producer Index has returned 34%. The oil and gas income fund sector also enjoys better access to capital than the exploration and production sector raising $700 million in new equity in 2000. In addition, the sector completed over $2 billion in acquisitions in 2000.
The asset base of Search consists primarily of operated natural gas and crude oil properties with low risk development and optimization potential that are well suited to a trust structure. In addition, Search has a significant undeveloped land base that will be monetized by way of farmouts, low risk development drilling, property swaps and cash sales that will enhance future cash distributions to unitholders. Undeveloped lands are supported with extensive two-dimensional and three-dimensional seismic.
Financial Advisor to Search:
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Search Energy Corp. has retained Scotia Capital Inc. as the Company's exclusive financial advisor for the transaction. Scotia Capital Inc. is a leading adviser on income fund and royalty trust mergers and acquisitions. Scotia Capital Inc. has prepared a fairness opinion for the transaction stating that, in Scotia Capital's opinion, the arrangement is fair from a financial point of view, to the shareholders of Search. In addition, FirstEnergy Capital Corp. has been retained by the Board of Directors of Search to provide it with a further fairness opinion, which will state that the transaction is fair to the shareholders of Search from a financial point of view.
Advantage Energy Income Fund - Key Attributes
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Attractive Cash Distributions
- The forecast monthly distribution of 7 cents per Search share
represents an annualized yield of 33.6% based on a thirty-day weighted
average share price of $2.50 per share for the period ended March 30,
2001.
Natural Gas Focus
- The reserve base is comprised of 60% natural gas (boe (at) 6 to 1)
which will be among the highest in the oil & gas trust sector.
Net Asset Value
- Search's estimated NAV is $3.40 per share. The thirty-day weighted
average Search share price for the period ended March 30, 2001 of $2.50
per share is approximately 26.5% below the NAV based on independent
engineering and land evaluations.
Low Debt Levels
- The debt to cash flow ratio is forecast to be 0.6 to 1 at year-end 2001
after all distributions; one of the most conservative in the oil & gas
trust sector.
Experienced Management Group
- The fund will be managed by an experienced team led by Mr. Kelly
Drader, a former senior executive with the Enerplus Group of Calgary
that manages Enerplus Resources Fund and Enermark Income Fund.
Valuation Parameters:
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The primary valuation measures for income funds are NAV and cash-on-cash yields. The corporation's NAV has been calculated based upon an independent valuation of the company's established reserves by McDaniel and Associates effective April 1, 2001, and discounting future cash flows at ten percent, before tax. Adjustments have been made for the value of undeveloped land based on a Seaton Jordan report dated March 21, 2001 and deductions have been made for debt, net of working capital. The valuation parameters result in an estimated NAV calculation for the corporation at April 1, 2001 of $3.40 per Search share or $13.60 per Advantage unit, on a fully diluted basis.
Current trading ranges for oil and gas income funds reflect 2001 cash-on cash yields between 20 to 27 per cent. At a cash-on-cash yield of 23.5 per cent, which is the mid-point of the expected range, the Advantage trust units would trade at $14.28 or $3.57 per Search share.
2001 Distribution Forecast:
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Search has completed a detailed financial forecast for Advantage Energy Income Fund for the period from June 1, 2001, to December 31, 2001. The following is a summary of the forecast and the key assumptions used therein:
June 1, 2001 to December 31, 2001 Daily production: Natural gas (mmcf/d) 23.6 Crude oil and NGL (bbl/d) 2,640 Total (boe/d) (6:1 conversion) 6,570 Product prices: Natural gas at AECO (C$/mcf) $6.50 Crude Oil - West Texas Intermediate ($US/bbl) $26.00 - Canadian par (at) Edmonton (C$/bbl) $37.50 Cash available for distribution: Total amount (7 months) $21.4 million $1.68 / Advantage unit Monthly amount $3.6 million $0.28 / Advantage unit Annualized amount $3.36 / Advantage unit
The analysis is based on fully diluted units of 12.7 million after taking into account the 1 for 4 consolidation under the proposed Arrangement.
Total debt including working capital is forecast to be $32.8 million as at June 1, 2001, and $31.2 million as at December 31, 2001.
Reserve Table:
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The following table, based on a McDaniel & Associates report, contains estimates of Search's crude oil, natural gas and NGL reserves at April 1, 2001 in its properties and the present value of estimated future net revenue for these reserves, including provision for the Alberta Royalty Credit, using escalated prices and costs.
Present Worth Values Before Company Gross Reserves Income Tax Discounted at ------------------------------------------------------------------------- Natural Gas Natural Oil Liquids Gas 0% 10% 12% ------------------------------------------------------------------------- Escalated Prices (mbbl) (mbbl) (mmcf) ($000's) ($000's) ($000's) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Proved Reserves ------------------------------------------------------------------------- Producing 4,642 352 41,445 $205,986 $153,408 $146,685 ------------------------------------------------------------------------- Non-Producing - 140 10,830 32,414 20,949 19,593 ------------------------------------------------------------------------- Undeveloped 578 1 796 5,023 2,850 2,533 ------------------------------------------------------------------------- Total Proved 5,220 493 53,071 243,423 177,207 168,811 ------------------------------------------------------------------------- Risked Probable Additional 1,023 44 6,709 32,426 17,021 15,503 ------------------------------------------------------------------------- Total Proved plus Risked Probable 6,243 537 59,780 $275,849 $194,228 $184,314 -------------------------------------------------------------------------
Total proved plus risked probable reserves with natural gas converted at 6 to 1 amount to 16.743 million barrels of oil equivalent.
Management of Advantage Energy:
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Advantage Energy Income Fund will be managed through a privately held management company led by Kelly Drader. Mr. Drader was with the Enerplus Group of companies in Calgary until February 2001 where he held various responsibilities over the past 14 years during which time total funds under management within the Enerplus Group grew to a market capitalization of approximately $2 billion.
Other individuals will augment Mr. Drader's team with extensive experience in the oil and gas income trust sector, together with most of the employees of Search Energy Corp.
Structuring the Transaction:
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The reorganization will be effected pursuant to a plan of arrangement under the Business Corporations Act of Alberta, whereby the holders of common shares of Search will ultimately receive one trust unit of Advantage in exchange for every four shares of Search. This will result in approximately 12.7 million units of Advantage being issued and outstanding on the effective date.
The conversion of Search shares to Advantage units will be a taxable event for shareholders holding Search shares outside of RRSP's or other tax deferred plans.
This arrangement is subject to the approval of 66.66 percent of the holders of common shares of Search casting votes at the arrangement meeting, regulatory approvals and court approval, all of which are expected to be obtained by late May 2001. Pursuant to the arrangement, the company's current shareholder rights plan will terminate.
Search Energy Corp. has scheduled a conference call to discuss the transaction on:
Tuesday, April 3, 2001 at 9:00 a.m. Calgary Time
Interested parties may participate by calling:
216-9050 (local)
1-800-735-3051 (toll free)
Or you may access a recording of the conference any time before 4:00 p.m. on Tuesday, April 17, 2001 by calling:
1-877-653-0545, access code: 131236.
Search Energy Corp. is a Calgary based oil and gas producer with operations in Alberta and British Columbia.
The information in this news release contains forward-looking statements with respect to Search and Advantage Energy Income Fund. By their nature, these statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated. These risks and uncertainties include commodity prices and differentials and the successful implementation of the Plan.
For further information: Mr. William T. Davis, President & Chief Executive Officer or Mr. Jeffrey P. Jongmans, Chief Financial Officer, SEARCH ENERGY CORP., 700, 400 - 5th Avenue SW, Calgary, Alberta, T2P 0L6, Phone: (403) 261-8810, Fax: (403) 262-0723, Web Site: www.searchenergy.com
© 2001 Canada Newswire Ltd. |
