TORC Oil & Gas (TOG-T) July 25, '16 is pleased to announce that it has entered into an agreement with an independent Canadian oil and gas company to acquire high quality, light oil assets which are complementary to TORC's existing assets in southeast Saskatchewan. The strategic acquisition (the "SE Saskatchewan Acquisition") includes 1,120 boepd (~95% light oil and liquids) of low decline, high netback, light oil producing assets (the "SE Saskatchewan Assets"). Total consideration for the SE Saskatchewan Acquisition is $89.5 million, prior to customary closing adjustments, payable in cash.
TORC is also pleased to announce that it has completed a series of tuck-in acquisitions in the first half of 2016 for cash consideration of approximately $6.0 million (the "Tuck-in Acquisitions", together with the SE Saskatchewan Acquisition, the "Acquisitions"). The Tuck-in Acquisitions include approximately 80 boepd (~98% light oil) and added significant drilling inventory, primarily in southeast Saskatchewan and also in the Cardium core area (the "Tuck-in Assets" together with the SE Saskatchewan Assets, the "Acquired Assets").
TORC has entered into an agreement for a $75,012,000 bought deal financing (the "Bought Deal Financing") through a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd. (the "Underwriters") pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 10,640,000 common shares of the Company ("Common Shares") at a price of $7.05 per Common Share for total gross proceeds of $75,012,000. The Underwriters will have an option to purchase up to an additional 1,596,000 Common Shares issued under the Bought Deal Financing to cover over-allotments, if any, exercisable in whole or in part at any time until 30 days after the closing date. TORC's cornerstone investor, the Canada Pension Plan Investment Board ("CPPIB") has also committed to invest $25,000,005 through a concurrent private placement of 3,546,100 Common Shares at a price of $7.05 per Common Share (the "CPPIB Investment", together with the Bought Deal Financing, the "Financings"). The maximum gross proceeds that could be raised under the Financings is approximately $111.3 million should the over-allotment option be exercised in full.
The Acquisitions and the Financings further strengthen TORC's business model which is focused on delivering disciplined growth and a sustainable dividend to shareholders.
THE ACQUISITIONS
The Acquired Assets are 96% light oil and liquids providing for a high operating netback and increase TORC's light oil and liquids weighting to 88%. The Acquired Assets are high quality conventional Frobisher and Midale light oil pools that have seen minimal capital expenditures in the last two years. The Acquired Assets have an established decline profile of less than 15%, further solidifying TORC's underlying production base and providing a dependable free cash flow stream.
TORC has identified approximately 50 net high quality light oil drilling locations (28 net unbooked) on the Acquired Assets. The Acquired Assets are greater than 90% operated, providing development control over the long term. The majority of the identified locations are low risk infill locations in established high quality conventional light oil pools which are expected to provide attractive economics even in a lower commodity price environment. Based on the low established decline of the Acquired Assets, it is expected that minimal capital will be required to maintain production, providing TORC with a strong platform for sustainability and growth.
In addition to the identified low risk development drilling inventory, TORC believes there is significant upside associated with the Acquired Assets through down spacing as well as pool and resource extension opportunities on the undeveloped acreage acquired.
With TORC having a long history of operating properties in the areas in which the Acquired Assets are located, integration and go-forward operations are expected to be seamless.
Overall, the Acquisitions are consistent with TORC's strategy to capitalize on opportunities to enhance the quality of the Company's business model and asset base throughout the commodity price cycle. The Acquisitions are accretive on all key per share measures on a leverage neutral basis and are expected to improve TORC's decline profile, operating netback and light oil drilling inventory, further strengthening TORC's disciplined growth plus sustainable dividend business model.
The Acquisitions have the following characteristics:
| Total Transaction Price | $95.5 million | | Production (1) | 1,200 boepd (~96% oil and liquids) | | Total Proved Developed Producing Reserves (2) | 3.3 mmboe | | Total Proved Reserves (2) | 4.6 mmboe | | Proved plus Probable Reserves (2) | 6.1 mmboe | | Average Crude Oil Quality | 33 degree API | | Undeveloped Lands | 29,881 net acres | | Development Locations | 50 net undrilled locations (28 unbooked) | | Reserve Life Index (P+P) (3) | Approximately 13.9 years | | Decline Rate | Less than 15% |
| | | | Notes: | | (1) | Based on current field estimates as of July, 2016. | | (2) | All reserves information in this press release are gross reserves. Gross reserves for the Acquired Assets, are the Acquired Assets' total working interest reserves before the deduction of any royalties and including any royalty interests receivable on the Acquired Assets. | | (3) | Reserve estimates are based on TORC's internal evaluation and were prepared by a qualified reserves evaluator in accordance with National Instrument 51-101 ("NI 51-101") and the COGE Handbook effective May 31, 2016. | | (4) | Reserve life index in this press release is calculated by dividing estimated reserves by estimated current production. |
The SE Saskatchewan Acquisition has an effective date of July 1, 2016 and is expected to close in early September 2016, subject to customary conditions and regulatory approvals including the approval of the Toronto Stock Exchange (the "TSX") and the required approval under the Competition Act (Canada).
THE FINANCINGS
TORC has entered into an agreement for a $75,012,000 bought deal financing through a syndicate of Underwriters led by Macquarie Capital Markets Canada Ltd. pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 10,640,000 Common Shares at a price of $7.05 per Common Share for total gross proceeds of $75,012,000. The Underwriters will have an option to purchase up to an additional 1,596,000 Common Shares issued under the Bought Deal Financing to cover over-allotments, if any, exercisable in whole or in part at any time until 30 days after the closing date.
The Common Shares will be distributed by way of a short form prospectus in all provinces of Canada and in the United States and certain other jurisdictions as the Company and the Underwriters may agree on a private placement basis. Completion of the Bought Deal Financing is subject to certain conditions including the receipt of all necessary regulatory approvals, including the approval of the TSX. Closing of the Bought Deal Financing is expected to occur on or about August 16, 2016.
TORC has also entered into an agreement with CPPIB whereby CPPIB has committed to subscribe for, on a private placement basis, 3,546,100 Common Shares at a subscription price of $7.05 per Common Share for aggregate gross proceeds of $25,000,005. Completion of the CPPIB Investment is subject to various conditions, including the negotiation and execution of a formal agreement in respect of such subscription by CPPIB, the concurrent closing of the Bought Deal Financing and receipt of all necessary regulatory approvals. Pro forma the Financings, CPPIB is expected to maintain its ownership of TORC of approximately 25 percent of TORC's outstanding Common Shares.
The net proceeds from the Financings will initially be used to reduce indebtedness under the Company's credit facility which will subsequently be re-drawn to fund the purchase price of the SE Saskatchewan Acquisition.
This press release is not an offer of the Common Shares for sale in the United States. The Common Shares may not be offered or sold in the United States absent registration or an exemption from registration. The Common Shares will not be publicly offered in the United States. The Common Shares have not been and will not be registered under the U.S. Securities Act, or any state securities laws.
DISCIPLINED BUDGET
Following completion of the SE Saskatchewan Acquisition, TORC intends to maintain the previously announced 2016 capital budget of $90 million. The capital budget remains approximately 70% weighted to the second half of the year providing the operational flexibility to adjust the current 2016 budget to continue to prudently protect the Company's financial flexibility in a sustained low price environment but also take advantage of potential improvement in crude oil prices. Further cost savings combined with operational efficiencies are expected to continue during 2016 and TORC will incorporate these savings into the budget as they are realized during the year.
TORC's 2016 capital budget demonstrates a measured approach to the current uncertainty in the world oil price environment and reflects a balance between managing long term organic production growth, protecting the Company's strong financial position and sustaining the dividend.
Increased Production Guidance
Pro forma the Acquisitions, TORC anticipates that the 2016 budget will result in 2016 exit production of greater than 19,400 boepd (88% light oil and liquids) from 18,200 boepd (87% light oil and liquids) previously.
Dividend
TORC's dividend is reviewed regularly with the Board of Directors and is an important component of TORC's overall strategy. TORC's current dividend policy is $0.02 per share per month. TORC is committed to maintaining a disciplined approach during the current volatility in the world oil markets. TORC's priorities are to act prudently to protect TORC's financial flexibility while positioning the Company to continue to achieve per share growth over the long term while paying out a sustainable dividend.
OUTLOOK
TORC has built a sustainable growth platform of light oil focused assets. The stability of the high quality, low decline, light oil assets in southeast Saskatchewan and the low risk Cardium development inventory in central Alberta, combined with exposure to the emerging light oil resource play in the Torquay/Three Forks in southeast Saskatchewan, positions TORC to provide value creation through a disciplined long term focused growth strategy with a sustainable dividend.
Pro forma the Acquisitions and the Financings, TORC will have the following key operational and financial attributes:
| High Netback Production (1) | | 2016E Average: 18,500 boepd
2016E Exit: 19,400 boepd | | | | | | Total Proved plus Probable Reserves (2) | | Greater than 96 mmboe (84% light oil & liquids) | | | | | | Cardium Light Oil Development Inventory | | Greater than 290 net undrilled locations | | | | | | Southeast Saskatchewan Light Oil Development Inventory | | Greater than 400 net undrilled locations | | | | | | Sustainability Assumptions (3) | | Corporate decline ~23%
Capital Efficiency ~$22,000/boepd (IP 365) | | | | | | 2016 Capital Program | | $90 million | | | | | | Annual Dividend (paid monthly) | | $0.02 per share
$43.0 million
$28.0 million (net of assumed 35% SDP participation) | | | | | | Net Debt & Bank Debt (4) | | Less than $300 million | | | | | | Shares Outstanding (5) | | 179.4 million (basic) | | | | | | Tax Pools | | Approximately $1.6 billion |
| | | | Notes: | | (1) | ~88% light oil & NGLs. | | (2) | All reserves information in this press release are gross reserves. The reserve information in the foregoing table is derived (i) in respect of our reserves as at December 31, 2015, from the independent engineering report effective December 31, 2015 prepared by Sproule & Associates Limited ("Sproule") evaluating the oil, NGL and natural gas reserves attributable to all of our properties (the "TORC Reserve Report"); and (ii) in respect of the reserves associated with the Acquired Assets as at May 31, 2016 based on TORC's internal evaluation prepared by a qualified reserves evaluator in accordance with NI 51-101 and the COGE Handbook. Since the reserves reflected in the above table were estimated as at different dates, they have been generated based on different assumptions in respect of commodity pricing among other metrics. As a result, the presentation of our reserves on a consolidated pro forma basis for the Acquisitions would not reflect the actual combined estimated of our reserves and those of the Acquired Assets at December 31, 2015 and should not necessarily be viewed as predictive of our reserves and future production. | | (3) | Refers to full cycle capital efficiency which is the all-in corporate capital budget divided by the IP365 of the associated wells. | | (4) | As at June 30, 2016 and assuming that the overallotment option is exercised in full. | | (5) | Assumes the overallotment option is exercised in full.
TORC Oil & Gas Ltd.
Brett Herman
President and Chief Executive Officer
(403) 930-4159
(403) 930-4120
TORC Oil & Gas Ltd.
Jason J. Zabinsky
Vice President, Finance and Chief Financial Officer
(403) 930-4159
(403) 930-4120
torcoil.com |
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