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.
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.
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.
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 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.
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.
The Assets include approximately 31 net sections of undeveloped lands, and Spartan has identified approximately 29 net low risk development drilling locations.
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|
|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.
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) McHardy
President and Chief Executive Officer
(403) 355-2779 (FAX)
Spartan Energy Corp.
Vice-President Finance and Chief Financial Officer
(403) 355-2779 (FAX)