“We believe that our offer is a unique and compelling opportunity to create the “Cardium Champion”, with a far superior future than Bonterra could achieve on a standalone basis,” said Stephen Loukas, Interim President and Chief Executive Officer of Obsidian Energy. By combining our companies, shareholders of both companies will benefit from a lower cost structure, improved capital efficiency and an ability to generate substantially more free cash flow than either company could alone. With increased cash flow available to accelerate debt repayment, the combined entity could achieve an improved financial position and create a clear path to significant share price appreciation.”
“Since we publicly announced our interest in a combination with Bonterra, we have received encouraging feedback from a significant number of shareholders of both companies and other interested parties that reinforces our view that the combination of Obsidian Energy and Bonterra is in the best interests of both companies and their respective stakeholders. While we are pleased to be able to give Bonterra shareholders this compelling opportunity directly, we remain prepared to immediately engage with Bonterra’s Board of Directors to allow for a smooth and expeditious path to closing.”
REASONS TO ACCEPT THE OFFER
We believe that the Offer is compelling, and that the combined entity will be a stronger, well-positioned company with a far superior future than Bonterra shareholders could achieve on a stand-alone basis, for the following reasons:
- Creates the Cardium Champion with Enhanced Scale and Relevance.
- Meaningful Scale: Top 20 Western Canadian oil producer with 35,000 boe/d of oil-weighted production, more than three times the size of Bonterra as at Q2 2020.
- Financially Attractive: Greater funds flow per share, lower debt to EBITDA, higher free cash flow, and a stronger overall business.
- Enhanced Business: Ability to accelerate debt repayment through improved free cash flow, and to deploy combined capital spending towards best-return inventory at Willesden Green.
- Well Positioned for Further Consolidation: The combined entity would be ~2x the size of any other Cardium-focused firm, and would be positioned to be the Cardium consolidator with the ability to pursue further synergies from follow-on transactions.
- Reduce Risk: Stable Balance Sheet, Debt Reduction, Improved Access to Capital.
- Bonterra is over-levered and Bonterra shareholders are exposed to the risk that its syndicate banks withdraw their support of Bonterra. Bonterra’s current business plan proposes to further increase debt compared to the combined entity, which is expected to generate increased cash flow and to accelerate the pay down of outstanding debt. Lower debt improves the stability of the business and shifts more value to equity owners over time as the combined low-decline, oil-weighted production base is maintained.
- Bonterra’s proposed Business Development Bank of Canada second-lien term facility is currently non-binding and it is unclear whether the facility will be finalized as contemplated due to the requirement that all of Bonterra’s bank lenders will need to agree to additional duration as well as to extend additional credit under revised intercreditor relationships – there is no certainty that these requirements will be acceptable to Bonterra’s bank lenders.
- Significant Accretion to Shareholders.
- The combined entity is projected to deliver significantly higher FFO per share than Bonterra as a stand-alone entity. Greater FFO per share, combined with falling debt due to accelerated debt repayment, enables greater equity value per share.1 The combined entity would benefit from Obsidian Energy’s tax pool position2, thereby further enhancing the FFO per share profile for Bonterra shareholders.
- Maintain Operating Strengths: Low Decline and High Netback Light Oil.
- Low Decline: The combined entity’s high-quality asset base has a low decline rate, providing more stable production levels and lower capital requirements to maintain current production levels. The combined entity’s base production and proved developed producing (“PDP”) reserves have a decline of ~18%, which is below most oil producing peers.
- Track Record of Success in Lowering Costs: Obsidian Energy’s total cash cost per unit of production is lower than Bonterra. Importantly, Obsidian Energy views the break-even price for the combined entity to be below US$40/bbl WTI (assuming US$4.00/bbl Edmonton Par differentials, C$2.04/MMBtu AECO and a 1.36x C$/US$ foreign exchange rate), which is superior to Bonterra’s stand-alone break-even, estimated at US$42.00/bbl WTI under the same assumptions.
- Meaningful Synergies Drive Equity Appreciation.
- The combined entity is expected to benefit from synergies of ~$50MM after the first year (at a US$50/bbl WTI oil price and C$1.95/MMbtu AECO commodity prices) including lower G&A and operating costs, improved capital efficiency from program scale as well as devoting capital to projects expected to yield the highest returns, alignment on decommissioning liability strategy, and lower interest/financing costs over time. These synergies are very meaningful and are larger than Bonterra’s current market capitalization.
The offer to purchase and take-over bid circular and related offer documents (the “Offer Documents”) are being mailed to Bonterra shareholders and have also been filed with the Canadian and United States securities regulators and are available under Obsidian Energy’s SEDAR profile at www.sedar.com, in the United States on EDGAR at www.sec.gov and on Obsidian Energy’s website at www.obsidianenergy.com.
ABOUT THE OFFER
The Offer is open for acceptance until 5:00 p.m. (Mountain Standard Time) on January 4, 2021, unless extended, accelerated or withdrawn.
As set out in further detail in the Offer Documents, the Offer is subject to certain conditions, including: that the Bonterra Shares validly deposited to the Offer, and not withdrawn, represent at least 66 2/3% of the then outstanding Bonterra Shares (on a fully-diluted basis) and certain regulatory and third party approvals (as outlined in the Offer Documents) shall have been obtained, including Obsidian Energy shareholders approving, as required by the rules of the Toronto Stock Exchange, the issuance of the Obsidian Shares to be distributed by Obsidian Energy in connection with the Offer, and other customary conditions. Subject to applicable law, Obsidian Energy reserves the right to withdraw, accelerate or extend the Offer and to not take up and pay for any Bonterra Shares deposited under the Offer unless each of the conditions of the Offer is satisfied or waived by Obsidian Energy at or prior to the expiry of the Offer. Bonterra shareholders are strongly encouraged to read the Offer Documents carefully and in their entirety since they contain additional important information regarding Obsidian Energy and the terms and conditions of the Offer as well as detailed instructions on how Bonterra shareholders can tender their Bonterra Shares to the Offer.
1 Assumptions Underlying FFO Per Share Accretion Analysis:
2 Relative to Bonterra’s tax horizon as stated in its May 2020 corporate presentation.
Questions? Bonterra shareholders should contact Kingsdale Advisors, the information agent and depositary for the Offer, at 1-888-564-7333 (North American Toll-Free Number) or +1-416-867-2272 (Outside North America) or via email at email@example.com.
The offer and sale of Obsidian Shares pursuant to the Offer is subject to a registration statement (the “Registration Statement”) filed with the United States Securities and Exchange Commission (the “SEC”) under the U.S. Securities Act of 1933, as amended. The Registration Statement includes various documents related to such offer and sale. OBSIDIAN ENERGY URGES INVESTORS AND SHAREHOLDERS OF BONTERRA TO READ THE REGISTRATION STATEMENT AND ANY AND ALL OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE OFFER AND SALE OF OBSIDIAN SHARES AS THOSE DOCUMENTS BECOME AVAILABLE, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION. You will be able to obtain a free copy of such registration statement, as well as other relevant filings regarding Obsidian Energy or the Offer, at the SEC’s website (www.sec.gov) under the issuer profile for Obsidian Energy, or on request without charge from the Corporate Secretary of Obsidian Energy at Suite 200, 207 – 9th Avenue, SW, Calgary, Alberta T2P 1K3.
Copies of the Offer Documents may also be obtained free of charge upon request from the Corporate Secretary of Obsidian Energy at Suite 200, 207 – 9th Avenue, SW, Calgary, Alberta T2P 1K3. The Offer Documents will also be available on Obsidian Energy’s website at www.obsidianenergy.com.
The Offer has been unanimously approved by Obsidian Energy’s Board of Directors. Tudor, Pickering, Holt & Co. Securities – Canada, ULC has delivered an opinion to Obsidian Energy’s Board of Directors to the effect that, as of September 18, 2020, and based upon and subject to the assumptions, limitations, qualifications and other matters considered in connection with the preparation of its opinion, the exchange ratio in the Offer was fair to Obsidian Energy from a financial point of view.
Obsidian Energy has engaged Tudor, Pickering, Holt & Co. Securities – Canada, ULC to act as its financial advisor, Stikeman Elliott LLP, Bennett Jones LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP as its legal counsel, Kingsdale Advisors as the information agent and the depositary in respect of the Offer and Longview Communications & Public Affairs as its strategic communications advisors.