CALGARY, ALBERTA–(Marketwired – May 31, 2016) – Raging River Exploration Inc. (“Raging River” or the “Company“) (TSX:RRX) and Rock Energy Inc. (“Rock“) (TSX:RE) are pleased to announce that they have entered into an agreement (the “Arrangement Agreement“) providing for the acquisition by Raging River of all the issued and outstanding Rock common shares (the “Rock Shares“) pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the “Acquisition“).
Under the terms of the Arrangement Agreement, Rock shareholders will receive, for each Rock Share held, 0.082 Raging River common shares. Based on Raging River’s five day weighted average trading price of $10.93 per share, the total consideration for the Acquisition is approximately $109 million. The consideration for the Acquisition is comprised of the issuance of 3.896 million common shares of Raging River and the assumption of approximately $67 million of net debt inclusive of bank debt, working capital deficiency and Rock’s expected transaction costs including severance obligations.
The Acquisition includes 2,550 boe/d (95% oil) of production and approximately 25 net sections of highly prospective land targeting Viking light oil in the Kerrobert area of southwest Saskatchewan complementary to Raging River’s existing Viking assets. The Viking light oil drilling inventory associated with the Acquisition includes over 200 net Viking horizontal drilling locations identified by Raging River.
In addition to the Viking assets, Raging River is also acquiring interests in low decline, heavy oil assets, which include a recently initiated polymer flood at Mantario (Laporte) and legacy water floods at Onward, both in southwest Saskatchewan.
|450 bbls/d Viking light oil|
|1,950 bbls/d heavy oil|
|800 mcf/d natural gas|
|Proved developed producing reserves(2):||6.5 MMboe (97.6% oil)|
|Light oil||0.8 MMbbl|
|Heavy oil||5.6 MMbbl|
|Total undeveloped land:||97,000 net acres|
|Land prospective for Viking oil:||16,000 net acres|
|Total risked Viking drilling locations(3):||200 net horizontal wells|
|Current operating netback(4):||$17.75/boe|
|Tax pools (5)||$208 million|
- Based on forecasted average volumes for May 2016. Gross production before the deduction of royalties and without including any royalty interest.
- Gross Company Reserves. Reserves are prepared by GLJ Petroleum Consultants Ltd. (“GLJ“) in a report (“GLJ Report“) effective December 31, 2015 using the GLJ January 1, 2016 forecast prices and costs in accordance with National Instrument 51‐101 – Standards of Disclosure of Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook. Gross Company Reserves means the company’s working interest reserves before the calculation of royalties, and before the consideration of the company’s royalty interests.
- All of the 200 Viking drilling locations identified by Raging River are considered unbooked.
- Based on Raging River’s forecast WTI of US$50.00/bbl, an exchange rate of 0.77 CAD/US and $2.00 /mcf for natural gas.
- Based on Rock’s December 31, 2015 Financial Statements.
|Production(1):||$42,750 per producing boe|
|Proved developed producing reserves(2):||$16.80 per boe|
|Cash flow multiple @ US $50/bbl WTI(3):||6.6 times|
- Based on estimated May 2016 production. Gross production before the deduction of royalties and without including any royalty interest.
- Proved Developed Producing Reserves as disclosed above.
- Calculated as $109 million/ (2,550 boe/d x $17.75/boe x 365 days)
Under the terms of the Arrangement Agreement, Rock has also agreed that it will not solicit or initiate any inquiries or discussions regarding any alternative business combination or acquisition proposal, and includes a mutual termination fee payable in certain circumstances, including if Rock enters into an agreement with respect to a superior proposal or if the board of directors of Rock withdraws or modifies its recommendation with respect to the proposed Acquisition. Payment in favour of Rock would occur for certain breaches of representations, warranties or covenants by Raging River.
The Acquisition is expected to close on or prior to July 22, 2016. Completion of the Acquisition is subject to certain closing conditions, including approval of Rock’s shareholders, receipt of the approval of the Toronto Stock Exchange, approval of the Court of Queen’s Bench of Alberta and certain other third party and regulatory approvals.
Further to the press release issued by Rock and FrontFour Capital Group LLC (“FrontFour”) on March 11, 2016 in respect of the special meeting of shareholders of Rock that was requisitioned by a fund managed by FrontFour, the special meeting will not be held on June 15, 2016 as previously announced, and the parties have agreed that Rock will postpone the requisitioned meeting until on or before July 21, 2016, which will also serve as Rock’s annual meeting of shareholders and the meeting to approve the Acquisition (the “Meeting”), subject to the approval of the Toronto Stock Exchange. Should the Acquisition not be approved by shareholders at the Meeting, shareholders will be asked to consider fixing of the number of directors to be elected at the Meeting at five and the election of five directors from among three nominees of Rock and three nominees of FrontFour.
FINANCIAL ADVISORS AND ROCK BOARD RECOMMENDATION
FirstEnergy Capital Corp. (“FirstEnergy”) and Dundee Securities Inc. have acted as Rock’s financial advisors and FirstEnergy has provided the board of directors of Rock with its verbal opinion that, subject to the assumptions, limitations and qualifications set forth therein and review of the final form of the documents effecting the Acquisition, the consideration to be paid to Rock shareholders pursuant to the terms of the Arrangement Agreement is fair, from a financial point of view, to the Rock shareholders.
On December 15, 2015, Rock announced that it had initiated a full public process to identify and examine strategic alternatives for the purpose of preserving and enhancing shareholder value. After a thorough process and a comprehensive review and analysis of strategic alternatives, the board of directors of Rock, based upon, among other things, the verbal fairness opinion from FirstEnergy, has unanimously determined that the consideration to be received by the Rock shareholders pursuant to the Acquisition is fair, from a financial point of view, to the Rock shareholders and the Acquisition is in the best interests of Rock and unanimously recommends that Rock shareholders vote in favor of approving the Acquisition. Certain Rock shareholders, including directors and management of Rock, who collectively hold approximately 37% of the issued and outstanding shares of Rock, have entered into agreements with Raging River pursuant to which they have agreed to vote their Rock Shares in favor of the Acquisition.
Raging River has continued to focus on expanding our Viking footprint. The Acquisition further consolidates our already dominant position in the southwestern Saskatchewan Viking fairway solidifying Raging River as the largest land holder and Viking light oil producer in western Canada.
The business approach taken by the Company since our inception four years ago has been to prudently manage our balance sheet and maintain significant per share growth while establishing an extensive drilling inventory. Pro forma the Acquisition, our drilling inventory of approximately 3,900 locations (approximately 78% unbooked) is expected to provide continued stable per share growth for in excess of 10 years. Pro forma the Acquisition, Raging River anticipates net debt to be approximately $110 million, representing approximately 0.5 times net debt to expected proforma third quarter cash flow.
Raging River anticipates providing a revised capital budget and updated guidance upon completion of the Acquisition.