Madalena Energy (MVN-V) May 29, '14, is pleased to announce that it has entered into an agreement to acquire (the "Acquisition") the Argentinean business units of Gran Tierra Energy Inc. ("Gran Tierra"). The Acquisition is highly accretive and includes Proved and Probable ("2P") reserves of 6,513 mboe at December 31, 2013, estimated production on close of the Acquisition of approximately 3,300 boe/d (~78% oil), 11 exploration and production blocks comprising approximately 890,000 net acres and a fully functional independent business unit in Argentina with an experienced technical and operational team. The purchase price is US$63 million, payable in US$49 million cash and 27,661,971 common shares of Madalena ("Common Shares") at a deemed issue price of CDN$0.55 (US$0.506).
In connection with the Acquisition, Madalena has entered into an agreement with Dundee Securities Ltd. as lead underwriter and sole bookrunner ("Lead Underwriter") on behalf of itself and a syndicate of Underwriters including [RBC Capital Markets, Haywood Securities Inc., Beacon Securities Limited, National Bank Financial Inc., FirstEnergy Capital Corp., Mackie Research Capital Corporation, TD Securities Inc., Canaccord Genuity Corp., Jennings Capital Inc. and Raymond James Ltd.] (the "Underwriters") for a bought deal equity financing, ("Financing"), for aggregate gross proceeds of CDN$50 million (described in more detail below).
The Acquisition provides Madalena with a solid platform for growth which more than triples the Company’s production base and significantly increases cash flow from its Argentinean assets. Pro forma the closing of the Acquisition, Madalena's corporate production is estimated to increase to approximately 4,900 boe/d (~72% oil and NGLs), ~80% of which will be from Argentina, with cash flow expected to be reinvested into both high impact conventional opportunities in Argentina and to accelerate the delineation of the Company’s unconventional shale and tight sand resources within the Neuquén basin. Pro forma the Acquisition, Madalena will have a strong portfolio of assets with exposure to a low decline stable production base, an extensive inventory of low risk development drilling opportunities, a seismically and technically defined conventional portfolio of assets, and significant unconventional shale (Vaca Muerta, Lower Agrio and Los Monos shales) and tight sand resources.
Madalena estimates pro forma annual cash flow of US$35 - US$45 million over the next twelve months which is expected to provide the Company with the ability to execute a US$50 – US$60 million capital program. Madalena will provide additional go-forward guidance subsequent to the closing of the Acquisition and the approval of a consolidated budget by the Company's board of directors.
Pro forma the Acquisition and the Financing and after all transaction costs, the Company estimates positive working capital of approximately US$5.0 million.
Acquisition highlights:
- Total purchase price of $63-million (U.S.) comprising $49-million (U.S.) in cash and $14-million (U.S.) in common shares (at a deemed price of 55 cents (50.6 U.S. cents) per common share);
- Acquiring adjusted proved and probable reserves of 6,513 million barrels of oil equivalent at approximately $16.12 (U.S.) per boe ($9.67 (U.S.) excluding FDC);
- Acquisition cost per flowing boe of approximately $19,091 (U.S.), based on current estimated production at the expected closing date of the acquisition of 3,300 boe per day;
- Reserve life index of 5.41 years, based on current estimated production and adjusted 2P reserves;
- Recycle ratio of approximately 2.1 times, based on first quarter 2014 operating property netbacks of $33.93 (U.S.) per boe and acquisition costs of approximately $16.12 (U.S.) per boe;
- Key producing infrastructure, including batteries and pipelines;
- Approximately 890,000 net acres of developed and undeveloped lands;
- Lands have an average working interest of approximately 83 per cent, and the net production acquired is more than 94 per cent operated.
The attached table is a summary of production, land and reserves information that is relevant to Madalena prior to, and following, the acquisition and the financing.
Madalena(1)
| Acquisition(2)
| Adjustments(3)
| Pro Forma
| Current Production(6)
| Oil and NGLs (bbl/d)
| 960
| 2,610
| 3,570
| Gas (mcf/d)
| 3,840
| 4,150
| 7990
| Boe (boe/d)
| 1,600
| 3,300
| 4,900
| Oil and NGLs (%)
| 60
| 78
| 72
| Land (net acres)
| 239,000
| 890,000
| (125,000)
| 1,004,000
| RESERVES(4)
| Proved
| Oil and NGL (mbbl)
| 1,350
| 4,248
| (612)
| 4,986
| Gas (mmcf)
| 8,032
| 5,599
| (510)
| 13,121
| mmBOE (6:1)
| 2,689
| 5,181
| (697)
| 7,173
| Proved plus Probable
| Oil and NGLs (mbbl)
| 2,373
| 6,295
| (900)
| 7,768
| Gas (mmcf)
| 13,651
| 7,615
| (900)
| 20,366
| mmBOE (6:1)
| 4,648
| 7,563
| (1,050)
| 11,161
| Proved FDC(5) (US$mm)
| 20
| 46
| (21)
| 45
| 2P FDC (US$mm)
| 33
| 77
| (35)
| 75
| Accretion Analysis
| Madalena
| Acquisition
| Total
| Accretion
| Diluted Shares (mm)
| 413.5
| 118.6
| 532.1
| Proved Reserves
(boe per mm shares)
| 6.5
| 43.7
| 13.5
| 107%
| 2P Reserves
(boe per mm shares)
| 11.2
| 63.4
| 20.6
| 87%
| Current Production
(boe/d per mm shares)
| 3.9
| 27.8
| 9.2
| 138%
|
Rationale for the acquisition:
- Highly accretive on all metrics and more than triples the company's production base;
- Strong cash flow from the conventional asset bases that can be directed toward accelerating development of Madalena's unconventional shale oil and gas plays in Argentina;
- Strengthens Madalena's Argentine operations by adding a fully integrated professional and operating team "on the ground" in Argentina;
- Enhances and improves the company's flexibility regarding the future delineation of, or transactions associated with, Madalena's current unconventional shale assets in Argentina;
- Strategically positions Madalena as a strengthened and emerging oil and gas producer;
- Improves Madalena's access to exploration and production services in Argentina.
In respect to the benefits of the proposed transactions, Kevin Shaw, president and chief executive officer of Madalena, commented:
"Madalena is very pleased to enter into this transaction, which is expected to simultaneously accomplish several steps in building value for Madalena shareholders. The combination of achieving critical mass in Argentina, and the addition of a fully integrated professional and operating team in the country will assist Madalena in accelerating a growth strategy that is balanced between conventional production-focused development, and the delineation of the company's unconventional shale and tight sand resources.
"I look forward to having the Argentina-based Gran Tierra team join us in delivering this conventional growth, and assisting us in the delineation and prove-up of Madalena's unconventional resources."
Dana Coffield, president and CEO of Gran Tierra, added:
"The combined assets in Argentina will provide Madalena with a solid operational platform to advance the conventional assets and unlock the Vaca Muerta shale potential, benefiting Argentina stakeholders, Madalena and GTE shareholders through its ownership in Madalena.
"Gran Tierra Energy had its start with operations in Argentina in 2005. Since that time, our Argentine team has successfully grown our business in the country, and contributed to the growth of Gran Tierra Energy in the intervening years. We would like to thank the Argentine team for their contributions and wish them the best for continued success in the years to come with Madalena."
Equity financing
In connection with the acquisition, Madalena has entered into an agreement with the underwriters, pursuant to which the underwriters have agreed to purchase for resale to the public, on a bought-deal basis, 90.91 million subscription receipts of the company at a price of 55 cents per subscription receipt, for aggregate gross proceeds of approximately $50-million.
The underwriters have also been granted an overallotment option, exercisable at any time up to 30 days following closing of the financing, in whole or in part, to purchase from the company up to an additional 13,636,500 subscription receipts to cover overallotments and for market stabilization purposes. Madalena will apply to list the subscription receipts and the common shares issuable pursuant to the financing on the TSX Venture Exchange.
The subscription receipts will be offered by way of a short-form prospectus to be filed in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and New Brunswick pursuant to National Instrument 44-101 -- short-form prospectus distributions.
The gross proceeds from the financing will be held in escrow pending the satisfaction of all conditions to the completion of the acquisition (other than funding), provided that the closing date of the acquisition is on or before July 31, 2014, upon which time each subscription receipt will entitle the holder to receive a common share, without further payment or action on the part of the holder, upon the closing of the acquisition. If the acquisition is not completed on or before July 31, 2014, or it is terminated at an earlier time, then the purchase price for the subscription receipts will be returned to subscribers, together with a pro rata portion of interest earned on the escrowed funds.
Completion of the acquisition and the financing are subject to certain conditions, including the receipt of all necessary regulatory approvals, including the approval of the TSX-V. Closing of the financing is expected to occur on or about June 24, 2014, and the acquisition is expected to close on or about June 30, 2014.
Advisers
Dundee Securities has acted as financial adviser to Madalena with respect to the acquisition. RBC Capital Markets has acted as strategic adviser to Madalena with respect to the acquisition. Haywood Securities has provided the board of directors of Madalena with its opinion, pending review of the finalized form of documents effecting the acquisition, that the consideration to be paid by Madalena pursuant to the acquisition is fair, from a financial point of view, to Madalena shareholders. |
