Pine Cliff Energy (PNE-V) Nov 9, '15 is pleased to announce that it has entered into an agreement with a senior oil and gas producer to acquire certain mainly natural gas weighted assets in the Viking area of Central Alberta and Ghost Pine area of Central Alberta (the "Ghost Pine Assets" and collectively with the Viking Assets, the "Assets") for cash consideration of $185 million, prior to any closing adjustments. The production of the Assets at the effective date of the Acquisition, was approximately 11,730 barrels of oil equivalent ("Boe") per day, weighted 89% to natural gas, 7% to oil and 4% to natural gas liquids. The Acquisition is consistent with Pine Cliff's strategy of acquiring large, operated, low decline natural gas assets with long-life reserves and low operating costs.
The Acquisition will have an effective date of July 1, 2015 and is presently expected to close on or around December 11, 2015. The asset purchase and sale agreement related to the Acquisition, although binding between the parties, is subject to various standard conditions, including title review, rights of first refusal and regulatory approvals. No assurances can be given that the Acquisition will be completed as proposed or at all.
Acquisition Highlights
Subsequent to the closing of the Acquisition, Pine Cliff is expected to have a total base production of approximately 23,800 Boe per day or 142,800 thousand cubic feet equivalent ("Mcfe") per day, weighted 92% towards natural gas, with a decline rate of approximately 12%.
The Ghost Pine Assets possess a predictable low cost production profile, long reserve life and a geographically focused asset base which is 92% weighted towards natural gas. The Ghost Pine Assets produce approximately 5,400 Boe or 32,400 Mcfe per day on 244,699 net working interest acres (including 10,699 net working interest fee title acres) with a decline rate of 9%, are approximately 76% operated, have low operating costs and include ownership in key strategic infrastructure (approximately 90% working interest ownership in two conventional gas plants with combined capacity of 52 MMcf per day) with approximately $3.6 million of third party revenue in 2014. The Ghost Pine Assets provide opportunities for coal bed methane infill drilling with additional upside in conventional liquids rich gas and oil and are characterized by approximately 25% coal bed methane wells and 75% conventional liquids rich gas wells with favourable royalties and operating costs.
The Viking Assets possess a predictable production profile, high working interest, long reserve life and a geographically focussed asset base which is 85% weighted towards natural gas. The Viking Assets produce approximately 6,330 Boe or 37,980 Mcfe per day on 583,722 net working interest acres (including 89,231 net working interest fee title acres) with a decline rate of approximately 14%, are approximately 85% operated and include ownership in key strategic infrastructure (includes a 100% working interest ownership in two conventional gas plants and associated gas systems with combined capacity in excess of 75 MMcf per day) with approximately $1.3 million of third party revenue in 2014. The Viking Assets provide opportunities for upside in conventional gas and oil and are characterized by shallow gas and oil wells with favourable royalty rates and a royalty stream.
Key attributes of the Assets are as follows:
| Production (July 2015 average provided by Vendor) | | 11,730 Boe per day | | Natural Gas Weighting (1) | | 89% | | Proved Reserves (2) | | 47.5 MMBoe | | Proved and Probable Reserves (2) | | 78.6 MMBoe | | Booked Drilling and Recompletion Locations (2) | | ~550+ gross (~420+ net) | | Net Working Interest Acres | | 828,471 (78% working interest) | | Net Fee Title Acres | | 99,930 | | Decline Rate | | 12% | | 2014 Net Operating Income (3) | | $87 million | | Estimated Funds Flow from Operations from the Assets (12 months following the effective date) (4) | | $36.5 million |
| (1) Based on proved reserves evaluated by an independent third party with an effective date of July 1, 2015. | | (2) Based on reserves evaluated by an independent third party with an effective date of July 1, 2015. The proved and proved and probable reserves, as presented, include 1.2 MMboe and 1.5 MMboe of royalty interest reserves, respectively. The booked drilling and recompletion locations, as presented, are based on the proved and probable reserves. | | (3) As provided by the Vendor. | | (4) Based on natural gas pricing of CDN$2.90/GJ AECO, crude oil pricing of US$60/bbl WTI, July 2015 production of 11,730 Boe per day, an 11% royalty rate (prior to gas cost allowance adjustments), $11.20 per Boe operating costs, $3.3 million of royalty revenue and excludes approximately $3 million of estimated interim adjustments to be paid to the Vendor. |
Acquisition Metrics
Based on the purchase price of the Assets of $185 million, the acquisition metrics are as follows:
| Production | | $15,772 per flowing Boe | | Proved Reserves (1) | | $3.90 per Boe or $0.65 per Mcfe | | Proved and Probable Reserves (1) | | $2.35 per Boe or $0.39 per Mcfe | | Cash Flow Multiple (2) | | 5.1 times | | Recycle Ratio (1) (2) (3) | | 3.8 times |
| (1) Based on reserves evaluated by an independent third party with an effective date of July 1, 2015. | | (2) Based on the estimated funds flow from operations shown above. | | (3) Based on the estimated netback for the assets for the 12 months following the effective date and the acquisition cost per proved and probable reserves. |
Strategic Rationale
Pine Cliff has been actively seeking accretive opportunities to enhance shareholder value by adding low cost and low decline natural gas production with drilling inventory. This Acquisition consists of all of these attributes.
The successful completion of the Acquisition is currently expected to result in:
Two new substantial core areas for the Company, growing total corporate production by 90%;
A significant increase in well recompletion inventory and drilling opportunities (new wells and infill opportunities), focused largely on the Horseshoe Canyon on the Ghost Pine Assets and the emerging Colorado Shale play on the Viking Assets;
A 55% increase to reserve life index on a total proved plus probable basis, moving from approximately 9 years up to approximately 13 years;
Opportunities to reduce operating costs on the Assets;
Opportunities for further synergistic consolidation in both areas;
A significant increase of approximately 60% to funds flow from operations per basic share (after taking into effect the acquisition and the Offering);
An increase of approximately 110% and 140% per basic share to Pine Cliff's total proved and total proved plus probable reserves, respectively (after taking into effect the Acquisition and the Offering);
A material increase to Pine Cliff's limited liability ratio ("LLR"); and
Significantly increasing free funds flow which will enable Pine Cliff to pursue further accretive gas acquisitions and repay debt.
Details of the Offering
Pine Cliff is also pleased to announce that it has entered into an agreement with a syndicate of underwriters co-led by Haywood Securities Inc. and Clarus Securities Inc. (the " Underwriters"), which have agreed to purchase, on a bought deal basis, 55.6 million subscription receipts of Pine Cliff ("Subscription Receipts") at a price of $1.08 per Subscription Receipt, for aggregate gross proceeds of $60 million (the "Offering"). The net proceeds of the Offering will be used by Pine Cliff to fund a portion of the purchase price for the Acquisition. The balance of the purchase price will be funded from the Private Placement (as defined herein), Pine Cliff's syndicated credit facility and working capital.
The gross proceeds from the Offering will be held in escrow pending the receipt by the escrow agent and the Underwriters of a notice from Pine Cliff that all conditions precedent to the completion of the Acquisition have been satisfied or waived. If the Acquisition is completed on or before January 31, 2016, the proceeds and any interest will be released to Pine Cliff and each Subscription Receipt will be exchanged for one common share of Pine Cliff (a "Common Share") for no additional consideration and without further action by holders of Subscription Receipts. If the Acquisition is not completed on or before January 31, 2016, or the Acquisition is terminated at an earlier time, holders of the Subscription Receipts will receive a cash payment equal to the offering price of the Subscription Receipts and any interest that was earned thereon during the time of escrow.
Pine Cliff has granted the Underwriters an option to purchase up to an additional 8.3 million Subscription Receipts (the "Over-Allotment Option") on the same terms and conditions, exercisable for a period of 30 days following the closing of the Offering to cover over-allotments, if any. If the Over-Allotment Option is fully exercised, the aggregate gross proceeds from the Offering and the Over-Allotment Option will be $69 million.
The Subscription Receipts are expected to be offered by way of short form prospectus to be filed in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and New Brunswick, and may be offered in the United States on a private placement basis pursuant to an exemption from the registration requirements of the United States Securities Act of 1933, as amended (the "U.S. Securities Act") and certain other jurisdictions. The Subscription Receipts will not be listed and posted for trading on the TSX Venture Exchange. The Offering is subject to certain conditions including, but not limited to, the receipt of all necessary approvals, including approval of the TSX Venture Exchange. The Offering is presently expected to close on or about November 26, 2015.
This news release does not constitute an offer to sell or a solicitation of any offer to buy the Common Shares in the United States. The Common Shares have not been and will not be registered under the U.S. Securities Act and may not be offered or sold in the United States absent registration under, or an applicable exemption from the registration requirements of, the U.S. Securities Act.
Private Placement
Concurrently with the Offering, Pine Cliff intends to complete a non-brokered private placement of Common Shares (the "Private Placement"), at a price of $1.08 per Common Share, to some of its directors, officers, employees and certain consultants for gross proceeds not to exceed $3 million.
The net proceeds of the Private Placement will be used by Pine Cliff to fund a portion of the purchase price for the Acquisition. The Private Placement is subject to the receipt of all necessary approvals, including approval of the TSX Venture Exchange. Pine Cliff expects to close the Private Placement concurrently with the closing of the Offering.
Bank Facility
Pine Cliff currently has approximately $58 million drawn on its syndicated credit facility of $70 million from its lenders, subsequent to the payment of an $18.5 million deposit to the Vendor of the Assets. Pine Cliff will undergo its mid-year banking review in November and expects to see a significant increase in its borrowing base to reflect the Acquisition and details will be subsequently announced.
Operations Update
In the third quarter of 2015, Pine Cliff increased sales volumes to 12,504 Boe per day (94% natural gas) from 11,814 Boe per day (95% natural gas) in the second quarter of 2015. In the three and nine months ended September 30, 2015, Pine Cliff spent $2.0 million and $5.4 million, respectively, on exploration and development expenses (excluding acquisitions). In the nine months ended September 30, 2015, Pine Cliff drilled one gross (0.4 net) liquids rich gas well and recompleted an existing wellbore in the Carrot Creek/Edson core area and reactivated approximately 80 wells in the Southern Assets core area. Complete third quarter results are expected to be released on November 12, 2015, after markets close.
Pine Cliff is on track to meet its 2015 production guidance of 11,800-12,300 Boe per day while lowering its planned capital spending from $10 million to $7.5 million, prior to acquisitions. Current production is approximately 12,800 Boe per day (94% natural gas), based on field estimates.
About Pine Cliff
Pine Cliff is a natural gas company with a long-term view of creating shareholder value. Pine Cliff's current focus is on acquiring long life assets that are cash flow positive in a low commodity price environment. Further information relating to Pine Cliff may be found on www.sedar.com as well as on Pine Cliff's website at www.pinecliffenergy.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
Pine Cliff Energy Ltd.
Philip B. Hodge
President and CEO
Pine Cliff Energy Ltd.
George F. Fink
Executive Chairman
(403) 269-2289
(403) 265-7488 (FAX) |
