CALGARY, Alberta – Distinction Energy Corp. (“Distinction” or the “Company”) is pleased to announce that it has closed, together with Kiwetinohk Resources Corp. (“Kiwetinohk”), the previously announced $335 million acquisition (including $15 million in potential contingent payments based on future commodity prices) of certain interests in the Simonette area of northwest Alberta (the “Acquisition”).
The Acquisition consists of certain multi-zone, oil and liquids-rich natural gas producing assets in the Simonette area of northwest Alberta, including associated infrastructure and additional assets in the Willesden Green, Ferrier and other areas of Alberta. As of the fourth quarter of 2020, the assets were producing approximately 10,000 barrels of oil equivalent per day, weighted 43% to NGLs.
An independent reserves report on the Acquisition properties effective as of December 31, 2020 was prepared by McDaniel & Associates Consultants Ltd. (“McDaniel”), an independent qualified reserves evaluator, in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook, in which 50% of the volumes and values represent the net working interest to Distinction of Proved Developed Producing Reserves of 13 MMboe (NPV10 $160 million), Proved Reserves of 30 MMboe (NPV10 $309 million) and 71 MMboe (NPV10 $548 million) on a Proved Plus Probable basis.
The purchase price was shared equally between the Company and Kiwetinohk, with each acquiring a 50% interest in the assets. Distinction’s portion of the Acquisition was financed with cash on hand and a new $127.5 million credit facility from a syndicate of lenders, which will be approximately 50% drawn to fund closing, including ATB Financial (as agent), Bank of Montreal and National Bank of Canada (the “New Credit Facility”). The New Credit Facility amends and restates the Company’s existing credit facility in its entirety and includes, among other amendments, the addition of a syndicated facility, the removal of the accordion feature and an extension of the maturity date to May 31, 2022.
ATB Capital Markets acted as financial advisor to Distinction on the Acquisition. McDaniel acted as a strategic advisor to Kiwetinohk on the Acquisition.
Related Transactions and Changes to the Board of Directors
In connection with the closing of the Acquisition, and pursuant to a settlement agreement (the “Settlement Agreement”) entered into on February 17, 2021, among Luminus Energy IE Designated Activity Company (“Luminus Energy”), 1266580 B.C. Ltd. (an affiliate of Luminus Energy) (“Luminus B.C.”), Kiwetinohk, the Company and Distinction Energy Partnership (“DEP”):
- Messrs. P. Eric Gallie and Shawn Singh resigned from the board of directors of the Company (the “Board”) and were replaced with Messrs. Glenn Koach and Steven Sinclair;
- Glenn Koach is the co-founder and principal of Concise Capital with over 35 years of experience in managing short-term, high-yield funds. As a corporate board director, Mr. Koach has guided several companies through difficult financial situations including, turn-arounds, workouts and bankruptcies. In addition, Mr. Koach is an experienced corporate executive holding key positions with both public and private companies, including serving as: CEO of Group Long Distance. Mr. Koach began his career as Senior Tax Specialist for Peat, Marwick, Mitchell & Co. and was a CPA. Mr. Koach holds a Bachelor of Science in Economics with a major in Finance and Accounting from the Wharton School at the University of Pennsylvania; and
- Steven Sinclair is a corporate director who has over 35 years of senior operating and financial management experience with a number of publicly traded and private companies. Mr. Sinclair retired from his position of Senior Vice President and Chief Financial Officer of ARC Resources Ltd. in 2014 and currently is a Director and Chair of the Audit Committee of TransGlobe Energy Corporation and also a Director and Audit Committee chair of a Calgary headquartered private oil and gas company. Mr. Sinclair received his Bachelor of Commerce degree from the University of Calgary in 1978 and his Chartered Accountant’s designation in 1981.
- Luminus B.C., Kiwetinohk and the Company entered into a participation agreement termination agreement, terminating the participation agreement entered into by such parties on October 16, 2020 in respect of the area of mutual interest described therein (the “AMI”).
- Kiwetinohk, the Company and DEP entered into a further amended and restated management services agreement providing for the following amendments:
- the timing of when fees are paid to Kiwetinohk (in its capacity as manager) in respect of management assistance services was amended from commencing on the receipt of conditional approval for the listing and posting for trading of the Company’s Class A common shares (the “Common Shares”) on the Toronto Stock Exchange, the TSX Venture Exchange or other comparable stock exchange or trading system (“Recognized Exchange”) as is approved by the Board (the “Listing”) to the date of the amended and restated management services agreement; and
- the term of the amended and restated management services agreement was increased to a period of five years from the date of the amended and restated management services agreement, subject to earlier termination in certain circumstances and the Company’s ability to terminate such agreement was removed.
- Luminus Energy, Kiwetinohk and the Company entered into a further amended and restated investor agreement providing for the following amendments:
- Luminus Energy is now entitled to select one director nominee to serve on the Board, who is initially Tim Schneider, and Kiwetinohk is now entitled to select two director nominees, who are initially Kevin Brown and Pat Carlson, and Luminus Energy and Kiwetinohk shall agree upon two independent directors, who are Messrs. Glenn Koach and Steven Sinclair, to serve in that capacity until the next meeting of the shareholders of the Company at which directors of the Company are to be elected. After the next meeting of the shareholders of the Company at which directors of the Company are to be elected, the Board shall be reconstituted to be comprised of eight (8) members consisting of three directors nominees of Kiwetinohk, who shall initially be Kevin Brown, Pat Carlson, and Leland Corbett, two director nominees of Luminus Energy, who shall initially be Tim Schneider and Peter Eric Gallie, and three independent directors selected by Luminus Energy and Kiwetinohk, which director nomination entitlements may be reduced if Kiwetinohk or Luminus Energy holds less than 20% of the then issued and outstanding Common Shares;
- the Board has established a listing committee for the purposes of pursuing and completing the Listing on a Recognized Exchange by the later of September 30, 2021 or the date unanimously determined by the listing committee (or failing unanimity, as determined by the Board) (the “Listing Committee”);
- the officers of the Company shall be those proposed by Kiwetinohk’s director nominees;
- certain consent rights of Luminus Energy over fundamental actions of the Company have been removed such that the Company will only require the prior consent of Luminus Energy with respect to changing the composition of or the powers delegated to the Listing Committee, issuing additional securities or incurring any indebtedness other than indebtedness to be drawn down under the New Credit Facility; and
- the provisions relating to the AMI, the restrictions on non-arm’s length transactions, and the reimbursement of certain expenses of Kiwetinohk, have been removed.
- Luminus B.C. received an aggregate net $10 million payment from the Company (as to $5.75 million) and Kiwetinohk in connection with closing the transactions contemplated in the Settlement Agreement.
The summary of the provisions of the further amended and restated management services agreement and the further amended and restated investor agreement described above does not purport to be complete and is qualified in its entirety by reference to the provisions of such agreements, copies of which will be filed with the securities regulatory authorities in Canada and be available on Distinction’s SEDAR profile at www.sedar.com.
Early Warning Disclosure
The following disclosure is provided pursuant to National Instrument 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues (“NI 62-103”) in connection with the filing of amended Early Warning Reports regarding the amendment and restatement of the investor agreement described above:
- Luminus Energy: The amendment and restatement of the investor agreement reflects a material change to the disclosure in section 6 of the early warning report of Luminus Energy filed on October 16, 2020, as amended January 15, 2021 (the “Original Luminus Report”). Accordingly, pursuant to NI 62-103, Luminus Energy, of Rocktwist House, Block 1, Western Business Park, Shannon, Co. Clare V14 FW97, Ireland, reconfirms its early warning disclosure in the Company’s press release dated October 16, 2020, as amended January 15, 2021, as follows (with capitalized terms below having the same meaning given to them in such press releases): Luminus Energy acquired an aggregate of 2,601,167 Common Shares from the treasury of the Company pursuant to the Company’s recapitalization and financing transaction (the “Restructuring Transaction”) implemented as a plan of compromise and arrangement under the Companies’ Creditors Arrangement Act (Canada) and the Canada Business Corporations Act on October 16, 2020, representing approximately 42.7% of the issued and outstanding Common Shares (on an undiluted basis). Immediately prior to implementation of the Restructuring Transaction, Luminus Energy owned nil Common Shares and 33,204,500 warrants to purchase common shares (“Existing Warrants”), and indirectly owned 14,065,138 (57%) common shares (“Existing Shares”) of the Company through its indirect subsidiary, Luminus Delphi Holdings II Ltd. Upon implementation of the Restructuring Transaction, all 14,065,138 Existing Shares indirectly owned by Luminus Energy and all 33,204,500 Existing Warrants owned by Luminus Energy were cancelled for no consideration and without any return of capital. Luminus Energy acquired the Common Shares for investment purposes. Luminus Energy may acquire or dispose of additional securities of the Company in the future through the market, privately, or otherwise, as circumstances or market conditions warrant. A copy of the Early Warning Report reflecting the amendment to section 6 of the Original Luminus Report can be obtained on the Company’s SEDAR profile at www.sedar.com or from Luminus Energy c/o 1700 Broadway, 26th Floor, New York, NY, 10019 or phone: Shawn Singh at (212) 424-2889 or e-mail firstname.lastname@example.org.
- Kiwetinohk: The amendment and restatement of the investor agreement described above reflects a material change to the disclosure related thereto in the early warning report of Kiwetinohk filed on October 16, 2020, as amended on January 15, 2021 (the “Original Kiwetinohk Report”). Kiwetinohk, of 250 – 2 Street S.W., Suite 1900, Calgary, Alberta, T2P 0C1, initially acquired 1,522,181 Common Shares (the “Initial Acquired Common Shares”) from the treasury of the Company, representing 25% of the issued and outstanding Common Shares (on a non-diluted basis) as of the date of issuance, together with 3,348,799 purchase warrants to acquire Common Shares (the “Warrants”), which Warrants are collectively exercisable into such number of Common Shares as will result in Kiwetinohk holding 50%+1 of the Common Shares (on a fully diluted basis excluding any Common Shares issuable upon the exercise of any stock options to purchase Common Shares (“Options”)) as of the date of issuance (being 4,870,980 Common Shares assuming 9,741,959 issued and outstanding Common Shares (on a fully diluted basis excluding any Common Shares issuable upon the exercise of any Options and Special Warrants) and 304,436 Options outstanding at such time) upon satisfaction of certain conditions in the future and payment of an aggregate exercise price of $37,500,000, equal to $11.20 per Common Share (subject to certain adjustments in accordance with the terms of the Warrants) pursuant to the Restructuring Transaction. If any Options are exercised after the initial exercise date of the Warrants, the number of Warrants will be deemed increased on a 1:1 basis by the number of Options so exercised and the Warrants deemed issued shall also be exercisable for Common Shares at an exercise price of $11.20. The Initial Acquired Common Shares and Warrants were acquired for an aggregate purchase price of $22,916,670. On January 15, 2021, Kiwetinohk exercised the Warrants and pursuant thereto acquired 3,348,799 Common Shares (the “Additional Acquired Common Shares”) for an aggregate exercise price of $37,500,000 (prior to a working capital adjustment of $2,500,000 paid by Kiwetinohk to the Company) amounting to $11.20 per Additional Acquired Common Share. Prior to the completion of the Restructuring Transaction, Kiwetinohk did not own any securities of the Company. Immediately prior to the acquisition of the Additional Acquired Common Shares, Kiwetinohk owned 1,522,181 Common Shares representing 25% of the issued and outstanding Common Shares (on a non-diluted basis). Upon acquiring the Additional Acquired Common Shares, Kiwetinohk owned 4,870,980 Common Shares representing 51.61% of the issued and outstanding Common Shares (on a non-diluted basis or 50% +1 on a fully diluted basis excluding Common Shares issuable upon exercise of the Options). The acquisition of the Initial Acquired Common Shares and the Warrants by Kiwetinohk pursuant to the Restructuring Transaction and the acquisition of the Additional Acquired Common Shares pursuant to the exercise of the Warrants were each made for investment purposes. Kiwetinohk has a long-term view of the investments and subject to applicable law, Kiwetinohk may from time to time acquire additional securities of the Company or redeem, convert, exercise or otherwise dispose of the Initial Acquired Common Shares or the Additional Acquired Common Shares, in each case, including (without limitation) on the open market or through private dispositions in the future depending on market conditions, the terms of any such securities, reformulation of plans and/or other relevant factors. Kiwetinohk is an oil and gas company organized under the laws of the Province of Alberta with its head office located at: Suite 1900, 250 – 2nd Street SW, Calgary, Alberta T2P 0C1. A copy of the Early Warning Report reflecting the noted amendments to the Original Kiwetinohk Report with additional information in respect of the foregoing matters will be filed and made available on the Company’s SEDAR profile at www.sedar.com. To obtain a copy of such Early Warning Report, you may also contact Jakub Brogowski, Chief Financial Officer of Kiwetinohk at (587) 392-4416.
About Distinction Energy Corp.
Distinction Energy Corp. is a leading junior oil and gas company focused on liquids-rich natural gas produced primarily from the Montney formation. The Company achieved very attractive drilling results last year through the further development of its high quality Montney property, uniquely positioned in the Bigstone region of northwest Alberta. Distinction is headquartered in Calgary, Alberta.