CALGARY, Nov. 10, 2016 /CNW/ – Tourmaline Oil Corp. (TSX:TOU) (“Tourmaline” or the “Company“) is pleased to announce that it has closed its public offering of 3,309,700 subscription receipts (“Subscription Receipts“) at a price of $34.75 per Subscription Receipt, which includes 431,700 Subscription Receipts issued pursuant to the exercise in full of the over-allotment option, for gross proceeds of approximately $115 million (the “Prospectus Offering“).
Concurrently with the closing of the Prospectus Offering, Tourmaline has closed its private placement offering of 18,274,000 Subscription Receipts at a price of $34.75 per Subscription Receipt with certain institutional investors for aggregate gross proceeds of $635 million (the “Private Placement“).
In addition to the closing of the Prospectus Offering and Private Placement, certain directors, officers and employees of the Company and their associates, purchased a total of 175,000 Subscription Receipts at the offering price of $34.75 per Subscription Receipt on a private placement basis (the “Non-Brokered Offering“).
The Prospectus Offering and Private Placement were completed through a syndicate led by Peters & Co. Limited and included GMP FirstEnergy, Scotia Capital Inc., National Bank Financial Inc., CIBC World Markets Inc., RBC Dominion Securities Inc., TD Securities Inc., BMO Nesbitt Burns Inc. and Raymond James Ltd.
The gross proceeds from the Prospectus Offering, Private Placement and Non-Brokered Offering totaled approximately $756 million. The proceeds from the Prospectus Offering, Private Placement and Non-Brokered Offering will be used to partially fund the cash portion of the purchase price for the previously disclosed acquisition of strategic assets located in the Alberta Deep Basin (the “Deep Basin Assets“) and the NEBC Montney Complex (Gundy area assets) (the “Montney Assets“) from Shell Canada Energy (“Shell Canada“) for total consideration of $1.369 billion (before customary adjustments) including cash consideration of $1.0 billion and the remainder in Tourmaline common shares (the “Acquisition“).
The gross proceeds from the sale of Subscription Receipts pursuant to the Prospectus Offering, Private Placement and Non-Brokered Offering will be held in escrow pending the completion of the Acquisition. If Peters & Co. Limited is satisfied, acting reasonably, that there is no impediment to the completion of the Acquisition in all material respects in accordance with the terms of the agreement entered into in connection with the Acquisition (other than funding) before January 31, 2017, the net proceeds from the sale of the Subscription Receipts will be released from escrow to Tourmaline and each Subscription Receipt will automatically be exchanged for one common share of Tourmaline for no additional consideration without any action on the part of the holder. If the Acquisition is not completed on or before January 31, 2017, then the purchase price for the Subscription Receipts will be returned pro rata to subscribers, together with a pro rata portion of interest earned on the escrowed funds.
The Acquisition has an effective date of November 1, 2016 and is expected to close on or about November 30, 2016, subject to customary conditions and regulatory approvals including the approval of the Toronto Stock Exchange (the “TSX“) and the required approval under the Competition Act (Canada).
The securities offered have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act“), or any U.S. state securities laws and may not be offered or sold in the United States absent registration or an available exemption from the registration requirement of the U.S. Securities Act and applicable U.S. state securities laws. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful.
THE ACQUISITION AND STRATEGIC RATIONALE
Pursuant to the Acquisition, Tourmaline has agreed to acquire current production of approximately 24,850 boepd, estimated current 2P reserves of 473.5 mmboe(1) and a combined evaluated future drilling inventory of 2,147 locations(2) between the Deep Basin Assets and Montney Assets. The total purchase price of $1.369 billion compares favorably to a current 2P NPV10 of $2.3 billion(3).
The Deep Basin Assets consist of 382 gross sections (154 of which are joint working interest with Tourmaline) and current low-decline production of approximately 18,650 boepd. Tourmaline will also acquire Shell Canada’s infrastructure consisting of three 100%-operated gas plants (estimated processing capacity of 200-225 mmcfpd) and 719 km of pipelines, providing Tourmaline with total operated processing capacity of over 1.0 bcf/day in the Alberta Deep Basin. The Company plans to add approximately 100 mmcfpd of new production in 2017 from the Deep Basin Assets through the drilling of 31 horizontal wells and fill the acquired infrastructure capacity.
The Montney Assets in BC consist of a large, contiguous 100% working interest 101 section land block in an area with 300 metres of Montney gross pay, four separate lobes to develop, and liquid content ranging from 10-80 bbls/mmcf. Current production is approximately 6,200 boepd from 25 existing horizontal wells that have delineated the land block. Estimated 2P reserves are 371 mmboe with an average liquid yield of approximately 30 bbl/mmcf (GLJ Montney Report) with only 375 locations included in the GLJ Montney Report out of an internally estimated 1,647 locations. Tourmaline plans to drill 13 horizontals on the Montney Assets in 2017 and 54 horizontals in 2018 in conjunction with Company infrastructure construction. The natural gas is sweet and the strong liquid content will provide a significant uplift to Tourmaline’s overall condensate production levels. Tourmaline currently drills the lowest-cost completed gas wells in the entire Montney play; transferring this technology to these Montney Assets is expected to yield top-decile play economics/gas supply costs.
The acquired Montney Assets now provide Tourmaline with sufficient size and scope in the Northern Montney play area to drive strategic Company-operated infrastructure development. The Montney Assets also make existing Company lands at Blueberry-Inga-Attachie (approximately 768 potential drilling locations) substantially more strategic through this planned infrastructure development. The lands at Blueberry-Inga-Attachie were previously considered to be non-core as there was not a contiguous operated land base in these areas to justify construction and a development program. With the close proximity of the Montney Assets to these lands, the Company plans to build facilities on the 100% Tourmaline operated Gundy land block and direct natural gas and NGL production from the Blueberry-Inga-Attachie lands through these facilities.
Including the effect of the Acquisition and associated development, the Company is expecting 2017 production of approximately 250,000-260,000 boepd, and 2018 production levels of 310,000-320,000 boepd.
Peters & Co. Limited is acting as financial advisor to Tourmaline with respect to the Acquisition.
_______________________________
(1) |
All reserves information in this press release is gross reserves. Gross reserves are the total working interest reserves before the deduction of any royalties and including any royalty interests receivable. Reserve estimates are based on, in the case of the Montney Assets, a report (the “GLJ Montney Report“) prepared by GLJ Petroleum Consultants Ltd. (“GLJ“) effective June 30, 2016 and in the case of the Deep Basin Assets, a Tourmaline internal evaluation (the “Internal Deep Basin Evaluation“). The Internal Deep Basin Evaluation was prepared by a qualified reserves evaluator in accordance with National Instrument 51‐101 (“NI 51-101“) and the COGE Handbook effective October 1, 2016. |
(2) |
See “Estimated Drilling Inventory”. |
(3) |
Before tax net present value based on a 10 percent discount rate and GLJ’s July 1, 2016 forecast prices as it relates to the Montney Assets and October 1, 2016 GLJ forecast prices as it relates to the Deep Basin Assets. Estimated values of future net revenues do not necessarily represent the fair market value of the reserves. |
FINANCIAL SUMMARY OF THE ACQUIRED ASSETS
The following is the Company’s estimate of certain future operating and financial performance metrics for the combined Deep Basin Assets and Montney Assets:
2017E |
2018E |
||
Average Production (boepd) |
35,000 |
60,000 |
|
% Natural Gas |
85% |
85% |
|
E & P Capital ($millions) |
231 |
381 |
|
Wells Drilled (net) |
44 |
81 |
|
Operating Netbacks ($/boe) (1)(2) |
|||
Montney Assets |
$16.45 |
$17.39 |
|
Deep Basin Assets |
$14.40 |
$15.08 |
(1) |
See non-GAAP financial measures. Operating netbacks are calculated on a per-boe basis and are defined as revenue (excluding processing income) less royalties, transportation costs and operating expenses. |
(2) |
Assumes NYMEX $3.25 U.S./mcf and WTI U.S. $60.00/bbl. |
OPERATIONAL SUMMARY OF THE ACQUIRED ASSETS
Summary |
|
Future Drilling Locations |
2,147 |
Land Montney Assets (Sections) |
101 Gross and Net |
Land Deep Basin Assets (Sections) |
382 Gross and 227 Net |
Natural Gas Processing Capacity (mmcfpd) |
200-225 |
Additional Pipeline Infrastructure |
719 km |
2017 GUIDANCE AND PRELIMINARY 2018 GUIDANCE
The following is the Company’s increased guidance for 2017 and preliminary guidance for 2018, pro forma after giving effect to the Acquisition and the associated equity financings:
Base |
Pro Forma |
Base |
Pro Forma |
|
Average Production (boepd) |
225,000 |
260,000 |
260,000 |
320,000 |
% Natural Gas |
84% |
84% |
83% |
83% |
E & P Capital ($mm) |
$1,100 |
$1,331 |
$1,410 |
$1,791 |
Operating Netbacks ($/boe) (1)(2) |
15.94 |
15.79 |
16.62 |
16.51 |
(1) |
See non-GAAP financial measures. Operating netbacks are calculated on a per-boe basis and are defined as revenue (excluding processing income) less royalties, transportation costs and operating expenses. |
(2) |
Assumes NYMEX U.S. $3.25/mcf and WTI U.S. $60.00/bbl. |