Spartan Energy Corp. Announces Southeast Saskatchewan Asset
Acquisition, Upward Revision to Guidance and $100 Million Equity
Financing
CALGARY, ALBERTA--(Marketwired - May 27, 2014) - Spartan Energy
Corp. ("Spartan" or the "Company") (TSX-VENTURE:SPE) is pleased to
announce a strategic southeast Saskatchewan light oil acquisition
(the "Acquisition"). Spartan has entered into a definitive purchase
and sale agreement to acquire properties from an arm's length oil
and gas producer for consideration of $98 million. The assets to be
acquired pursuant to the Acquisition (the "Assets") are currently
producing approximately 1,000 boe/d of high netback, low decline
light and medium oil and are complementary to Spartan's existing
southeast Saskatchewan assets.
As a result of the Acquisition, Spartan is revising upward our
2014 guidance, as detailed below.
Closing of the Acquisition is expected to occur on or about July
7, 2014. Completion of the Acquisition is subject to customary
conditions and receipt of all regulatory approvals, including the
approval of the TSX Venture Exchange.
Concurrent with the Acquisition, Spartan has entered into a $100
million bought deal financing (the "Financing") with a syndicate of
underwriters, which is further described below. The Financing is
subject to customary conditions, including receipt of all
regulatory and stock exchange approvals, and is expected to close
on or about June 17, 2014.
ACQUISITION OVERVIEW
The Assets consolidate our existing core area in southeast
Saskatchewan and consist of operated, low decline crude oil
production. Characteristics of the Asset include:
- Approximately 1,000 boe/d (96% oil and liquids);
- Annual decline of approximately 18% with immediate free cash
flow generation;
- Netbacks in excess of $52 per boe (based on current realized
pricing);
- Proved plus probable reserves of approximately 3.95 million boe
(96% oil and liquids) as assigned by Sproule and Associates Ltd.,
effective December 31, 2013;
- Ownership of key producing infrastructure including batteries,
pipelines and waterflood facilities;
- Thirty-one net sections of undeveloped land; and
- Twenty-nine net low risk development drilling locations,
including locations in Queensdale, Wordsworth and Crystal
Hills.
The Acquisition is accretive to Spartan shareholders on all key
metrics and provides a stable production base with upside through
step-out and infill drilling locations, optimization opportunities
and waterflood potential.
The Acquisition fits well with Spartan's overall strategy of
sustainable production growth, as the low decline Assets will
reduce our base corporate decline rate to approximately 23%. This
will provide the opportunity to further grow production through
accelerated drilling and/or additional acquisitions while
continuing to maintain our corporate decline rate at acceptable
levels.
ACQUISITION METRICS
Metrics associated with the Acquisition are set out below.
Purchase price metrics are presented net of undeveloped land and
seismic, which Spartan internally values at approximately $10.1
million.
Purchase
Price
The aggregate purchase price for the Acquisition is $98 million,
payable in cash at closing of the Acquisition, and is subject to
customary closing adjustments. The effective date of the
Acquisition is May 1, 2014.
Production
Production relating to the Assets is approximately 1,000 boe/d,
comprised of approximately 96% oil and liquids. On this basis,
Spartan is paying approximately $87,900 per flowing barrel of
production.
Annual Cash
Flow
Based on production of 1,000 boe/d and an operating netback of
$52, annualized cash flow from the Assets is approximately $19
million. On this basis, Spartan estimates that it is paying
approximately 4.6 times annual cash flow for the Acquisition.
Reserves
The Acquisition adds gross proved plus probable reserves of
approximately 3.95 million boe (96% oil and liquids), as assigned
by Sproule and Associates Ltd. effective December 31, 2013,
representing an acquisition cost of approximately $22.25 per boe
(excluding undiscounted future development capital of $16.3
million).
Infrastructure and
Operating Costs
The Assets are tied into existing infrastructure, including
batteries, pipelines and waterflood facilities. The acquired
properties are located within Spartan's core operating areas,
providing the opportunity for operating cost efficiencies.
Upside
Opportunities
The Assets include approximately 31 net sections of undeveloped
lands, and Spartan has identified approximately 29 net low risk
development drilling locations.
EQUITY FINANCING
In connection with the Acquisition, Spartan has entered into an
agreement on a "bought-deal" basis with a syndicate of underwriters
(the "Underwriters") co-led by Peters & Co. Limited, Clarus
Securities Inc. and GMP Securities L.P., and including TD
Securities Inc., Dundee Securities Ltd., Desjardins Securities
Inc., FirstEnergy Capital Corp., AltaCorp Capital Inc., Macquarie
Capital Markets Canada Ltd., National Bank Financial Inc., Paradigm
Capital Inc. and Scotia Capital Inc. for an offering of 26,670,000
common shares ("Shares") of the Company at a price of $3.75 per
Share. The Underwriters will have an option to purchase up to an
additional 15 percent of the Shares, on the same terms, exercisable
in whole or in part at any time up to the 30th day following
initial closing of the Financing.
A portion of the net proceeds from the Financing will be used to
fund the Company's ongoing capital expenditure program and for
general corporate purposes.
The Financing will be completed by way of short form prospectus
in certain of the provinces of Canada except Québec and on a
private placement basis in the United States pursuant to exemptions
from the registration requirements of the U.S securities laws. The
Financing is subject to customary conditions including receipt of
applicable regulatory approvals and is expected to close on or
about June 17, 2014.
UPWARD REVISION TO GUIDANCE
In connection with the Acquisition and the Financing, Spartan is
increasing its 2014 guidance as follows:
|
Guidance Prior to the Acquisition |
Revised Guidance Following Completion of the Acquisition |
Average Production |
5,200 |
5,700 |
Exit
Production |
7,500 |
8,600 |
Cash
Flow (1) |
$80 million |
$88 million |
Capital Expenditures |
$74 million |
$84 million |
|
|
|
(1) |
See
"Non-IFRS measures." |
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this news release.
READER ADVISORY
BOE Disclosure. The term barrels of oil equivalent ("BOE") may
be misleading, particularly if used in isolation. A BOE conversion
ratio of six thousand cubic feet per barrel (6Mcf/bbl) of natural
gas to barrels of oil equivalence is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. All BOE
conversions in the report are derived from converting gas to oil in
the ratio mix of six thousand cubic feet of gas to one barrel of
oil.
Forward-Looking Statements. Certain information included in this
press release constitutes forward-looking information under
applicable securities legislation. Statements relating to
"reserves" are deemed to be forward-looking statements, as they
involve the implied assessment, based on certain estimates and
assumptions, that the reserves described exist in the quantities
predicted or estimated and that the reserves can be profitably
produced in the future. All statements other than statements of
historical fact may be forward-looking statements. Forward-looking
statements typically contains statements with words such as
"anticipate", "believe", "expect", "plan", "intend", "estimate",
"propose", "project" or similar words suggesting future outcomes or
statements regarding an outlook. Forward-looking statements in this
press release may include, but is not limited to, timing for
completion of the Acquisition and the Financing, characteristics of
the Assets, decline rates, average production, exit production,
cash flow and capital expenditures.
These statements involve substantial known and unknown risks and
uncertainties, certain of which are beyond the Company's control,
including: the impact of general economic conditions; industry
conditions; changes in laws and regulations including the adoption
of new environmental laws and regulations and changes in how they
are interpreted and enforced; fluctuations in commodity prices and
foreign exchange and interest rates; stock market volatility and
market valuations; volatility in market prices for oil and natural
gas; liabilities inherent in oil and natural gas operations;
uncertainties associated with estimating oil and natural gas
reserves; competition for, among other things, capital,
acquisitions, of reserves, undeveloped lands and skilled personnel;
incorrect assessments of the value of acquisitions; changes in
income tax laws or changes in tax laws and incentive programs
relating to the oil and gas industry; geological, technical,
drilling and processing problems and other difficulties in
producing petroleum reserves; and obtaining required approvals of
regulatory authorities. Forward-looking information is based on a
number of factors and assumptions which have been used to develop
such information but which may prove to be incorrect. Although
Spartan believes that the expectations reflected in its
forward-looking information are reasonable, undue reliance should
not be placed on forward-looking information because Spartan can
give no assurance that such expectations will prove to be correct.
In addition to other factors and assumptions which may be
identified in this press release, assumptions have been made
regarding and are implicit in, among other things, the timely
receipt of any required regulatory approvals and the satisfaction
of all conditions to the completion of the Acquisition and the
Financing. Readers are cautioned that the foregoing list is not
exhaustive of all factors and assumptions which have been used.
Forward-looking information is based on current expectations,
estimates and projections that involve a number of risks and
uncertainties which could cause actual results to differ materially
from those anticipated by Spartan and described in the
forward-looking information. The forward-looking information
contained in this press release is made as of the date hereof and
Spartan undertakes no obligation to update publicly or revise any
forward-looking information, whether as a result of new
information, future events or otherwise, unless required by
applicable securities laws. The forward looking information
contained in this press release is expressly qualified by this
cautionary statement.
Non-IFRS Measures. This press release provides
certain financial measures that do not have a standardized meaning
prescribed by IFRS. These non-IFRS financial measures may not be
comparable to similar measures presented by other issuers. Cash
flow from operations and operating netback are not recognized
measures under IFRS. Management believes that in addition to net
income (loss), cash flow from operations and operating netback are
useful supplemental measures that demonstrate the Company's ability
to generate the cash necessary to repay debt or fund future capital
investment. Investors are cautioned, however, that these measures
should not be construed as an alternative to net income (loss)
determined in accordance with IFRS as an indication of the
Company's performance. Spartan's method of calculating these
measures may differ from other companies and accordingly, they may
not be comparable to measures used by other companies. Cash flow
from operations is calculated by adjusting net income (loss) for
other income, unrealized gains or losses on financial derivative
instruments, accretion, share based compensation, impairment and
depletion and depreciation. Operating netback is calculated based
on oil and gas revenue less royalties and operating and
transportation expenses.
Spartan Energy Corp.Richard (Rick) McHardyPresident and Chief
Executive Officer(403) 355-8920(403) 355-2779Spartan Energy
Corp.Michelle WigginsVice-President Finance and Chief Financial
Officer(403) 355-8920(403) 355-2779info@spartanenergy.ca
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