Connacher Oil and Gas Limited signs definitive agreement to acquire Montana Refining assets
18:29 EST Thursday, March 02, 2006
CALGARY, March 2 /CNW/ - CONNACHER OIL AND GAS LIMITED ("Connacher") - (CLL - TSX) is pleased to announce that today its wholly-owned subsidiary, Montana Refining Company, Inc. ("MRC" or the "Buyer"), has signed a definitive and binding Asset Purchase Agreement whereby MRC will acquire and Montana Refining Company, a Partnership ("Seller") will sell to MRC all right, title and interest in an 8,300 bbl/d refinery, together with related structures and specified tangible assets located in Great Falls, Montana, U.S.A. The Seller is an affiliate of Holly Corporation (NYSE - HOC) of Dallas, Texas.
Additionally, MRC will acquire certain inventory comprised of both petroleum products and equipment. There is also a provision for adjustments related to a planned refinery turnaround, scheduled to commence in April 2006 and for certain capital investments related to the planned installation of a NaHs Unit upgrade to meet emerging air quality standards.
At closing, which is expected to occur on or before April 1, 2006, Connacher's subsidiary intends to offer employment to the valued individuals associated with the refinery. Closing of the acquisition by MRC is subject to a number of conditions, customary for a transaction of this nature.
The consideration for the purchase is approximately US$55 million, comprised of cash and one million (1,000,000) Connacher common shares from treasury. Mustang Capital Partners Inc. of Calgary, Alberta acted as Connacher's advisors in the transaction.
Connacher anticipates financing the transaction and related costs substantially with a new US$51 million bridge financing to be provided by BNP Paribas (Canada). Connacher also anticipates it will refinance this indebtedness from a proposed US$148 million term debt facility, which Connacher also anticipates will be arranged for it by BNP Paribas after the scheduled closing of the refinery purchase, pursuant to a previously-executed Mandate Letter. If as anticipated the term debt facility is completed on satisfactory terms, forecast surplus proceeds after repayment of the bridge facility would be utilized to supplement Connacher's available cash flow and cash balances to finance capital expenditures at the Company's Great Divide SAGD oil sands project, situated approximately fifty miles southwest of Fort McMurray in northeastern Alberta, Canada.
The proposed refinery purchase is anticipated to complement the previously-announced acquisition by Connacher of Luke Energy Ltd. ("Luke"), an Alberta natural gas producer. This transaction is scheduled to close on March 16, 2006 and will provide Connacher with new natural gas production and thereby hedge its anticipated initial requirements for natural gas to create steam for its proposed SAGD operation at Great Divide. Based on current Luke production volumes, the Luke purchase will also provide surplus volumes for sale in the marketplace.
At closing, it is anticipated the refinery purchase by MRC will provide Connacher with protection against the wider and more volatile crude oil price differential swings which have become increasingly frequent in a higher oil price environment for heavy oil such as would be produced at Great Divide. Furthermore, MRC is anticipated to be a profitable and strong business unit which, based on recent experience, has the potential to contribute to Connacher's anticipated cash flow growth in 2006 and beyond.
Connacher recently completed a $100 million equity financing, increasing its cash balances before the refinery and Luke purchases to approximately $165 million. Accordingly, in the opinion of its management, Connacher has also significantly mitigated the balance sheet risk normally associated with financing a major capital program such as that anticipated for its Great Divide project.
Connacher Oil and Gas Limited is a public Canadian crude oil and natural gas company. Its principal asset is a 100 percent interest in 110 sections (70,400 acres) of leases at its Great Divide oil sands project in northeastern Alberta. In August 2005 Connacher submitted its application to regulatory authorities to develop this project and is awaiting approval to proceed with the proposed development program in 2006. Connacher also holds conventional producing properties in the Province of Saskatchewan and owns a 33 percent equity stake in Petrolifera Petroleum Limited (PDP - TSX), which company recently announced a number of significant crude oil discoveries on its Puesto Morales/Rinconada concession located in the Neuquen Basin, Argentina. Connacher is in the process of acquiring Luke Energy Ltd. and certain refining assets in Montana, as described herein.
This press release contains forward-looking statements, including statements related to the proposed acquisition of Luke and the refinery assets, anticipated financial performance of MRC and production volumes of Luke. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to, risks associated with the oil and gas industry (e.g. operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections in relation to production, costs and expenses and health, safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, the risks and uncertainties associated with securing the necessary regulatory approvals and financing to proceed with the Great Divide project and the uncertainties associated with negotiating and completing commercial transactions such as acquisition of the refinery assets, the purchase of Luke Energy Ltd. and completion of the requisite financing in support thereof. The acquisition of Luke is subject to receipt of shareholder and court approvals and certain other conditions, and the acquisition of the refinery assets is subject to the satisfaction of a number of conditions precedent. There can be no assurances that such approvals will be obtained and the other conditions relating to such acquisitions will be satisfied.
Due to the risks, uncertainties and assumptions inherent in forward- looking statements, prospective investors in the company's securities should not place undue reliance on these forward-looking statements. For additional information relating to the risks and uncertainties facing Connacher, refer to Connacher's Revised Initial Annual Information Form for the year ended December 31, 2004 which is available on SEDAR at www.sedar.com.
For further information: contact: Richard A. Gusella, President and Chief Executive Officer, Connacher Oil and Gas Limited, Phone: (403) 538-6201, Fax: (403) 538-6225, inquiries@connacheroil.com, www.connacheroil.com
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