CALGARY, Feb. 25, 2013 /CNW/ – Cequence Energy Ltd. (“Cequence”) (TSX:CQE.TO – News) is pleased to announce that it has entered into agreements with Donnybrook Energy Inc. (“Donnybrook”) (TSX:DEI.V – News) pursuant to which Cequence has agreed to acquire Donnybrook’s interests in its oil and gas properties located in the Simonette and Resthaven areas of Alberta (the “Donnybrook Assets”). As consideration for the assets, Cequence will transfer its interest in its non-operated oil and gas properties located in the Fir area (the “Non-core Assets”), and issue an aggregate of 10,300,000 Cequence common shares to Donnybrook, which shares will be distributed to the Donnybrook shareholders, representing aggregate consideration to Donnybrook of approximately $23 million. Cequence believes that this expansion and consolidation of its contiguous Montney land position at Simonette has significant present and future economic and strategic value.
Cequence is also pleased to announce the results of its recent drilling at Simonette/Resthaven.
Assets Being Acquired From Donnybrook
The Donnybrook Assets consist of 19.2 net sections of Montney lands, associated reserves and production in the Simonette and Resthaven areas of Alberta. At Simonette, Cequence will acquire all of Donnybrook’s interest in 33 gross (16.5 net) sections of Montney rights. Cequence is currently a partner with Donnybrook in these assets. In addition, 2.7 net sections of Montney land will be acquired at Resthaven. Current production of the acquired properties is approximately 120 boe/d.
Cequence is acquiring 720 mboe of proved reserves and 1,407 mboe of proved and probable reserves with a net present value estimated at $12 million, based on the December 31, 2011 GLJ reserves report of Cequence. Based on the closing price of the Cequence common shares on February 22, 2012, the value attributed to the land acquired is $11 million or approximately $2,200 per hectare.
The acquisition will increase Cequence’s holdings at Simonette/Resthaven to 96 gross (89 net) Montney sections. The Donnybrook Assets increase Cequence’s working interest to 100% in several sections of land immediately adjacent to the Company’s recent Montney drilling activity. As a 100% working interest owner in substantially all of its Simonette Montney landbase, Cequence will control the pace of future development with no limitations arising from section boundaries or partner interests. Cequence management has identified approximately 70 future net potential horizontal locations that can be added to its existing Montney drilling inventory.
A land map of Cequence’s holdings at Simonette, showing the location of Donnybrook Assets, has been posted to Cequence’s website at www.cequence-energy.com.
Cequence Falher Drilling Results at Simonette/Resthaven
Cequence recently completed a well located at 2-6-61-26W5. The well was drilled to a final measured depth of 5,136 meters in the Falher formation including approximately 2,086 meters of horizontal section. Eighteen 50 tonne fracs were successfully placed using a frac port system. The well flowed on clean-up for 52 hours at a final rate of 13.1 mmcf/d plus liquids with 2,005 psi flowing casing pressure This is the final well drilled in the Resthaven farm-in whereby Cequence earned a 65% working interest in nine sections of land prospective for Falher and Dunvegan natural gas and liquids. The 2-6 well is approximately 2.5 miles south of the Company’s previously announced discovery well at 16-18 and further validates the potential for as many as 30 net locations at Simonette/Resthaven. Well costs to drill and complete the 2-6 well are estimated to be approximately $7.1 million.
The first three wells completed as part of the 2013 drilling program have tested at an aggregate 42.4 mmcfd plus liquids from three separate formations including the Montney, Dunvegan and Falher formations. Two additional Montney wells in Simonette and a Wilrich well in Ansell are expected to be completed before spring break-up.
Agreements and Timing
The transaction will be effected pursuant to the terms of an asset exchange agreement (the “Asset Exchange Agreement”) and an arrangement agreement (the “Arrangement Agreement”), both between Cequence and Donnybrook dated February 22, 2013. Pursuant to the terms of the Arrangement Agreement and the plan of arrangement (the “Arrangement”), at the effective time of the Arrangement, the transactions contemplated by the Asset Exchange Agreement will become effective and Donnybrook will convey to Cequence its rights to the Donnybrook Assets in exchange for all of Cequence’s rights in the Non-Core Assets and the issuance by Cequence to Donnybrook of 10,300,000 Cequence common shares. The Arrangement Agreement further provides that the common shares received by Donnybrook shall immediately be transferred from Donnybrook to the Donnybrook shareholders on a pro rata basis.
The Non-Core Assets are not operated by Cequence and consist of 5 net sections of land with current production of approximately 220 boepd. The Non-Core Assets have proved reserves of 861 mboe and proved plus probable reserves of 1,287 mboe and a net present value of $8.8 million, at December 31, 2012, as estimated by Cequence.
The Arrangement will be effected pursuant to the provisions of the Business Corporations Act (Alberta). Completion of the transaction is expected to occur in mid-April 2013 and is subject to the satisfaction of several conditions, including receipt of the applicable court, stock exchange and regulatory approvals as well as the approval by not less than 66 ⅔% of the Donnybrook shareholders entitled to vote at a meeting of Donnybrook shareholders. In connection with such meeting, Donnybrook will prepare and mail to each Donnybrook shareholder an information circular setting forth, among other things, details of the Arrangement. It is expected that Donnybrook will mail the information circular in mid-March and hold the required meeting of Donnybrook shareholders in mid-April with closing of the Arrangement and the Asset Exchange Agreement to occur shortly thereafter provided that all shareholder, court and regulatory approvals are obtained. Management and directors of Donnybrook holding approximately 12.5 percent of the issued and outstanding Donnybrook common shares have entered into support agreements pursuant to which they have agreed to vote in favour of the Arrangement.
Under the terms of the Arrangement Agreement, Donnybrook has agreed that it will not solicit or initiate any inquiries or discussions that may reasonably be expected to lead to an alternative sale of the Donnybrook Assets or any other transaction which could impede, interfere, prevent or delay the transaction contemplated under the Arrangement Agreement. In addition, should a Superior Proposal (as such term is defined in the Arrangement Agreement) be presented to Donnybrook, Donnybrook has granted Cequence the right to match such Superior Proposal. The Arrangement Agreement also provides for the payment of a reciprocal non-completion fee of $1.0 million under certain circumstances.
Complete details of the Arrangement, the plan of arrangement and the Asset Exchange Agreement are available in their respective agreements which will be available for viewing at www.sedar.com.
Peters & Co. Limited is acting as financial advisor to Cequence in connection with the transaction.
Cequence is a publicly traded Canadian energy company involved in the acquisition, exploitation, exploration, development and production of natural gas and crude oil in western Canada. Further information about Cequence may be found in its continuous disclosure documents filed with Canadian securities regulators at www.sedar.com.
Forward Looking Information and Additional Advisories
Certain information included in this press release constitutes forward-looking information under applicable securities legislation. Such forward-looking information is provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. 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, the timing for completion of the transactions contemplated herein, receipt of regulatory and Donnybrook shareholder approvals, meeting dates, future development plans, future production levels, the viability of future prospective drilling locations and the anticipated benefits resulting from the transactions described in this press release. 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 Cequence believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on forward-looking information because Cequence 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: reserves; field production rates and decline rates; the ability of Cequence to secure adequate product transportation; the timely receipt of any required regulatory and Donnybrook shareholder approvals; the ability of Cequence to obtain qualified staff, equipment and services in a timely and cost efficient manner to develop its business; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters; and the ability of Cequence to successfully market its oil and natural gas products. 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 Cequence and described in the forward-looking information. The material risk factors affecting Cequence and its business are contained in Cequence’s Annual Information Form which is available under Cequence’s issuer profile on SEDAR at www.sedar.com.
The forward-looking information contained in this press release is made as of the date hereof and Cequence 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.
Cequence uses test rate information as one indicator of potential future well productivity. The test rates set forth in this press release are of a short duration and are not necessarily indicative of future performance.
Boes are presented on the basis of one Boe for six Mcf of natural gas. Disclosure provided herein in respect of Boes may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
The Toronto Stock Exchange has neither approved nor disapproved the contents of this press release.
SOURCE: Cequence Energy Ltd.