Bonterra Energy Corp. (TSX:BNE) (“Bonterra“) and Spartan Oil Corp. (TSX:STO) (“Spartan“) are pleased to announce that they have entered into an arrangement agreement (the “Bonterra Arrangement Agreement“) whereby Bonterra has agreed to acquire all of the issued and outstanding common shares (the “Spartan Shares“) of Spartan (the “Bonterra Arrangement“). Pursuant to the terms of the Bonterra Arrangement Agreement, holders (“Spartan Shareholders“) of Spartan Shares will receive 0.1169 (the “Exchange Ratio“) of a Bonterra common share (the “Bonterra Shares“) for each Spartan Share held and will also benefit from their Bonterra Share ownership as Bonterra has committed, subject to the completion of the Bonterra Arrangement and the terms of the Bonterra Arrangement Agreement, to increase its monthly dividend to $0.28 from $0.26 beginning March 2013.
Termination of Pinecrest Arrangement
In accordance with the terms of the arrangement agreement dated November 20, 2012 (the “Pinecrest Arrangement Agreement“) between Spartan and Pinecrest Energy Inc. (“Pinecrest“), the board of directors of Spartan (the “Spartan Board“) determined that the proposed Bonterra Arrangement constituted a “superior proposal”, as such term is defined in the Pinecrest Arrangement Agreement and Spartan has provided notice of the proposed Bonterra Arrangement to Pinecrest.
Pursuant to the Pinecrest Arrangement Agreement, Pinecrest waived its right to revise its existing merger transaction with Spartan (the “Pinecrest Arrangement“) to match the consideration offered under the Bonterra Arrangement. As a result, in accordance with the terms of the Pinecrest Arrangement Agreement, Spartan terminated the Pinecrest Arrangement Agreement and paid to Pinecrest the non?completion fee of $12.5 million. Spartan then entered into the Bonterra Arrangement Agreement.
Completion of the Bonterra Arrangement is subject to the satisfaction of a number of conditions, including the receipt of requisite shareholder, court and regulatory approvals. The Bonterra Arrangement will need to be approved by not less than 66 2/3% of the votes cast by Spartan Shareholders (and by a majority of votes cast by Spartan Shareholders after excluding the votes cast by certain members of Spartan management), voting in person or by proxy, at a special meeting expected to be held on or about January 25, 2013 (the “Spartan Meeting“). In addition, the issuance of the Bonterra Shares in connection with the Bonterra Arrangement is subject to the majority approval of the holders of Bonterra Shares (the “Bonterra Share Issuance Resolution“) pursuant to the policies of the Toronto Stock Exchange voting in person or by proxy, at a special meeting expected to be held on or about January 25, 2013 (the “Bonterra Meeting“). The Bonterra Arrangement also requires the approval of the Court of Queen’s Bench of Alberta.
Under the terms of the Bonterra Arrangement Agreement, Spartan has agreed that it will not solicit or initiate any inquiries or discussions regarding any other business combination or sale of assets. Spartan has granted Bonterra the right to match any superior proposals. The Bonterra Arrangement Agreement also provides for a reciprocal non-completion fee of $12.5 million under certain circumstances. For more information on the Bonterra Arrangement and the Bonterra Arrangement Agreement refer to the full Bonterra Arrangement Agreement, a copy of which will be filed by each of Bonterra and Spartan on SEDAR and will be available for viewing under their respective profiles on www.sedar.com.
TD Securities Inc. is acting as financial advisor to Spartan in connection with the Bonterra Arrangement and has provided the Spartan Board with its verbal opinion that, subject to review of the final documentation, the consideration to be received by the Spartan Shareholders is fair, from a financial point of view, to the Spartan Shareholders. GMP Securities L.P. and Clarus Securities Inc. acted as strategic advisors to Spartan.
The Spartan Board has unanimously approved the Bonterra Arrangement Agreement, and, based on a fairness opinion provided by TD Securities Inc., determined that the consideration to be received by Spartan Shareholders pursuant to the Bonterra Arrangement is fair to Spartan Shareholders, determined that the Bonterra Arrangement is in the best interests of Spartan, and unanimously resolved to recommend that Spartan Shareholders vote in favour of the Bonterra Arrangement. Management and directors of Spartan holding approximately 23.1% of the issued and outstanding Spartan Shares have entered into support agreements to vote their Spartan Shares in favour of the Bonterra Arrangement at the Spartan Meeting.
The Bonterra board of directors (the “Bonterra Board“) has unanimously approved the Bonterra Arrangement Agreement and has determined that the Bonterra Arrangement is in the best interests of Bonterra, and unanimously resolved to recommend that Bonterra Shareholders vote in favour of the Bonterra Share Issuance Resolution. Management and directors of Bonterra holding approximately 21.5% of the issued and outstanding Bonterra Shares have entered into support agreements to vote their Bonterra Shares in favour of the Bonterra Share Issuance Resolution at the Bonterra Meeting.
The mailing of a joint information circular to the Spartan Shareholders and Bonterra Shareholders regarding the Spartan Meeting and Bonterra Meeting is expected to occur in late December, 2012 or early January, 2013. The Spartan Meeting, Bonterra Meeting and the closing of the Bonterra Arrangement are expected to occur on or about January 25, 2013, provided that all shareholder, court and regulatory approvals are obtained.
- Pursuant to the Bonterra Arrangement, Spartan Shareholders will receive consideration of 0.1169 Bonterra Shares for each Spartan Share held.
- As a part of the Bonterra Arrangement, Bonterra has committed, subject to the completion of the Bonterra Arrangement and the terms of the Bonterra Arrangement Agreement, to increase its monthly dividend to $0.28 from $0.26 beginning March 2013. Subject to the Bonterra Arrangement closing prior to February 15, 2013, Spartan Shareholders will also receive a $0.26 per Bonterra Share dividend on February 28, 2013. If Bonterra sustains its current effective yield of 7.2% following the dividend increase, Spartan Shareholders can potentially realize an incremental $0.43 of value per Spartan Share.
- Based on the Exchange Ratio, it is currently anticipated that Bonterra will issue approximately 10.7 million Bonterra Shares to the holders of Spartan Shares.
The merger of Bonterra’s and Spartan’s asset bases is of strong strategic value for both groups of shareholders as the resulting company will have one of the premier light-oil assets concentrated in the Pembina region, which will be comprised of a complimentary production base and a long-term inventory of drilling opportunities that is anticipated to drive future growth. The merger of Spartan and Bonterra is a unique opportunity for Spartan Shareholders to participate, through their approximately 35% ownership, in an established dividend paying company that has a demonstrated history of per share production and dividend growth through a variety of commodity cycles. The merger is anticipated to be accretive for Bonterra on a financial and operating basis and Bonterra expects to continue to demonstrate production per share growth and cash flow per share growth while maintaining a strong balance sheet.
- Bonterra is one of the premier dividend paying companies in the western Canadian sedimentary basin and has increased its monthly dividend from $0.12 to $0.26 cents over the past four years. The combination of Spartan and Bonterra is a strategic consolidation opportunity that is expected to benefit both sets of shareholders. Bonterra, as demonstrated by its past track record of year-over-year growth on a per share basis, has shown a strong ability to manage Pembina Cardium assets to provide measured production growth while providing a sustainable dividend to its shareholders.
- Combined, Bonterra and Spartan will become one of the dominant light oil producers in the Pembina area with a strong asset position of low-risk development drilling opportunities. It is anticipated that the resulting company will have the following characteristics:
- a combined, sustainable, high-netback, production profile;
- current production of 12,700 BOE/D (approximately 75% liquids weighting) with Bonterra currently producing approximately 8,200 BOE/D and Spartan currently producing approximately 4,500 BOE/D;
- post-flush production levels are anticipated to be approximately 11,500 BOE/D;
- high working interest properties with company-owned infrastructure;
- a strong balance sheet with an expected Debt / 2013 Cash Flow of approximately 1.1x; and
- a scalable, high quality, multi-year drilling inventory in excess of 10 years (assuming 4 wells per section), in the heart of the Pembina area.
- The Bonterra Arrangement is anticipated to be accretive to Bonterra Shareholders on key financial and operational metrics.
- It is anticipated that the Spartan Shareholders, through their approximately 35% ownership in Bonterra following the Bonterra Arrangement, will continue to realize further value creation through a measured production growth profile and a growth-oriented dividend policy.
AltaCorp Capital Inc. is acting as financial advisor to Bonterra in connection with the Bonterra Arrangement. TD Securities Inc. is acting as financial advisor to Spartan in connection with the Bonterra Arrangement. GMP Securities L.P. and Clarus Securities Inc. acted as strategic advisors to Spartan.
Bonterra is a conventional oil and gas corporation with operations in Alberta, Saskatchewan and British Columbia.
Spartan is engaged in the business of acquiring crude oil and natural gas properties and exploring for, developing and producing oil and natural gas in western Canada. Spartan is uniquely positioned with a significant position in two of the leading oil resource plays in western Canada, being the Cardium light oil play in central Alberta and the Bakken light oil resource play in southeast Saskatchewan.
Further information about Bonterra or Spartan may be found in their continuous disclosure documents filed with Canadian securities regulators at www.sedar.com.
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.
Certain information included in this press release constitutes forward-looking information under applicable securities legislation. Forward-looking information 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 information in this press release may include, but is not limited to, timing for completion of the transaction with Bonterra and the timing and amount of future dividend payments by Bonterra. 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 Bonterra and Spartan believe that the expectations reflected in its forward-looking information are reasonable, undue reliance should not be placed on forward-looking information because Bonterra and 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 (including Court and shareholder approvals). 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 Bonterra and Spartan undertake 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.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy securities in the United States, nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The Bonterra Shares to be offered have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended and may not be offered or sold in the United States or to a U.S. person absent registration or an applicable exemption from the registration requirements.