CALGARY, ALBERTA–(Marketwired – June 13, 2016) – Chinook Energy Inc. (TSX:CKE) (“Chinook” or the “Company“) announced today that it has completed the divestiture of the majority of its Alberta oil and natural gas assets, excluding its Montney assets (the “Subject Assets“), with an effective date of May 1, 2016, to Tournament Exploration Ltd (“Tournament“), a private oil and natural gas company, for common shares in Tournament (the “Transaction“) representing approximately 70% of the issued and outstanding share capital of Tournament upon closing of the Transaction. In connection with the Transaction, Chinook also made a payment of $925,000 to Tournament. A copy of the asset purchase and sale agreement will be available for review on Chinook’s SEDAR profile at www.sedar.com.
The Subject Assets, which represent all of Chinook’s Alberta oil and natural gas assets, excluding its Montney assets, have the following characteristics:
Average Daily Production (Q1 2016) (1) | |
985 Bbl/d Oil and Natural Gas Liquids | |
12.0 MMcf/d Conventional Natural Gas | |
2,987 BOE/d Total | |
33% Oil & Natural Gas Liquids | |
Reserves (2) | |
7.88 MMBOE Proved | |
12.05 MMBOE Proved and Probable | |
Reserve Values (3) | |
88.0 MM$ Proved | |
122.2 MM$ Proved and Probable | |
(1) | Based on current field estimates. |
(2) | Reflects “gross” reserves assigned to the Subject Assets effective December 31, 2015 by the Company’s independent reserves evaluator, McDaniel & Associates Consultants Ltd. (“McDaniels“), in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101“) and the definitions and provisions contained in the COGE Handbook. |
(3) | Reserve values are the before tax present values of cash flow at a 10% discount rate (as at December 31, 2015) and do not necessarily represent fair market value. |
All, or a portion, of the common shares of Tournament received by Chinook from the Transaction are expected to be distributed to Chinook shareholders (the “Share Distribution“). It is anticipated that Chinook will convene a meeting (the “Meeting“) of its shareholders in due course, expected by the end of 2016, to approve the proposed Share Distribution. The exact number of shares to be distributed and the date for determining the Chinook shareholders of record who will be entitled to the distribution will be confirmed at a later date. The Share Distribution will be subject to, among other things, shareholder approval at the Meeting. Until the Share Distribution is approved and completed, Chinook’s financial statements will include the consolidated results of Tournament.
Strategic Rationale
Chinook’s management and Board of Directors have continuously reviewed options available to Chinook to ensure that shareholder value is being maximized. As part of this review, Chinook determined that the disposition of the Subject Assets would allow Chinook to focus on its emerging Montney assets at Birley/Umbach, British Columbia and at Gold Creek, Alberta. Through the proposed Share Distribution and retained ownership of Chinook, Chinook shareholders are expected to benefit from the ownership of Tournament shares and the continued participation in the growth and future value creation of Chinook.
Based on these and other factors, the Board of Directors of Chinook has unanimously approved the Transaction.
In addition to Chinook’s disposition of the Subject Assets in connection with the Transaction, WOGH Limited Partnership (“WOGH“), a wholly-owned subsidiary of Chinook’s major shareholder, Alberta Investment Management Corporation (“AIMCo“), on behalf of certain of its clients, concurrently disposed of its interests in oil and natural gas assets that overlapped the Subject Assets to Tournament in consideration for shares of Tournament representing approximately 10% of the issued and outstanding share capital of Tournament upon closing of the Transaction. AIMCo is one of Canada’s largest and most diversified institutional investment managers with more than $90 billion of assets under management.
Chinook After the Transaction and the Share Distribution
As a result of the completion of the Transaction, Chinook will concentrate on its remaining core Montney acreage at Birley/Umbach where Chinook has been progressing with a development program since 2014.
Chinook expects to have the following operational characteristics, pro-forma the Transaction and the Share Distribution (assuming such Share Distribution is effective upon closing of the Transaction):
Average Daily Production (Q1 2016) (1)(4) | |
510 Bbls/d Oil and Natural Gas Liquids | |
13.0 MMcf/d Conventional Natural Gas | |
2,677 BOE/d Total | |
19% Oil & Natural Gas Liquids | |
Reserves (2)(4) | |
11.10 MMBOE Proved | |
18.29 MMBOE Proved and Probable | |
Reserve Values (3)(4) | |
38.6 MM$ Proved | |
74.0 MM$ Proved and Probable | |
Montney land holdings | |
175 gross (122 net) sections | |
(1) | Based on current field estimates. |
(2) | Reflects “gross” reserves assigned to the assets retained by Chinook effective December 31, 2015 by Chinook’s independent reserves evaluator, McDaniels, in accordance with NI 51-101 and the definitions and provisions contained in the COGE Handbook. |
(3) | Reserve values are the before tax present values of cash flow at a 10% discount rate (as at December 31, 2015) and do not necessarily represent fair market value. |
(4) | Gives effect to the pending disposition by Chinook of certain of assets located in the Gold Creek area of Alberta announced on May 25, 2016. As at December 31, 2015, Chinook had total proved and total proved plus probable reserves associated with these properties of 98.6 MBOE and 137.8 MBOE, respectively, with associated estimated net present values of approximately $0.7 million and $0.9 million using forecast pricing at a 10% discount. Chinook’s first quarter 2016 average production from such assets were 23 BOE/d (38% natural gas and 62% oil and natural gas liquids). |
Given Chinook’s strong positive cash position (unconsolidated June 30, 2016 net surplus forecasted to be approximately $21 million), Chinook has elected to voluntarily reduce the amounts available under its syndicated and operating credit facilities to an amount equal to Chinook’s outstanding letters of credit, thereby eliminating the requirement to pay standby fees thereunder. Chinook intends to re-establish the borrowing base under its credit facilities to an amount that exceeds its outstanding letters of credit in due course once its lenders have had an opportunity to re-determine the borrowing base after taking into account the Transaction.
About Tournament
Tournament’s current assets are primarily located in the Willesden Green and Ferrier areas of Alberta, with other minor interests in Wilson Creek, Lochend and Pembina areas of Alberta. Subsequent to the Transaction, Tournament expects to continue to be a growth-oriented, exploration-focused entity. Subject to the receipt of the requisite shareholder approvals, Tournament intends to change its name to “Craft Oil Ltd.”.
The management team of Tournament is led by Trevor Spagrud as President and Chief Executive Officer and Larry Hammond as Chief Operating Officer. The Board of Directors of Tournament upon closing of the Transaction will consist of Brent Ronald, Brian Krausert, Herb Pinder, Rob Zakresky, Walter Vrataric (the nominee of Chinook) and a nominee of WOGH. In accordance with the terms and conditions of a shareholders’ agreement entered into among Chinook, Tournament and the other working interest partner who also disposed of their interest in the Subject Assets to Tournament, the parties have agreed that for so long as Chinook continues to own or control 10% or more of the issued and outstanding common shares of Tournament, it shall be entitled to one nominee on the Board of Directors of Tournament.
Tournament expects to have the following financial and operational characteristics, pro-forma the Transaction:
Average Daily Production (Q1 2016) (1) | |
1,690 Bbls/d Oil and Natural Gas Liquids | |
20.1 MMcf/d Conventional Natural Gas | |
5,041 BOE/d Total | |
34% Oil & Natural Gas Liquids | |
Reserves (2) | |
14.27 MMBOE Proved | |
21.26 MMBOE Proved and Probable | |
Reserve Values (3) | |
129.1 MM$ Proved | |
192.2 MM$ Proved and Probable | |
(1) | Based on current field estimates. |
(2) | Reflects “gross” reserves assigned to Tournament’s assets effective December 31, 2015 by Tournament’s independent reserves evaluator, Sproule Associates Ltd. and reserves assigned to the Subject Assets effective December 31, 2015 by Chinook’s independent reserves evaluator, McDaniels, in accordance with NI 51-101 and the definitions and provisions contained in the COGE Handbook, which reserves have been increased as necessary to account for the additional interests of the vendor of the other interests in certain of the Subject Assets. |
(3) | Reserve values are the before tax present values of cash flow at a 10% discount rate and do not necessarily represent fair market value. |
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and natural gas exploration and development company with multi-zone conventional production and resource plays in western Canada. The common shares of Chinook are listed for trading on the TSX under the symbol: “CKE”.