CALGARY, Alberta – Cardinal Energy Ltd. (“Cardinal” or the “Company“) (TSX: CJ) is pleased to announce it has entered into an arrangement agreement (the “Arrangement Agreement“) to acquire Venturion Oil Limited (“Venturion“), a privately held company, for a purchase price of approximately $47.5 million. The consideration will consist of approximately 6.3 million Cardinal common shares (based on the ten-day volume weighted average share price of the Cardinal shares on the Toronto Stock Exchange prior to signing the Arrangement Agreement) and approximately $27.9 million of cash which will be firstly utilized to repay Venturion’s outstanding net debt at closing (including closing costs) currently estimated to be approximately $10.9 million (the “Acquisition“). The Acquisition is expected to close on or before July 15, 2021.
Venturion’s assets consist of approximately 2,400 boe/d of production (~83% oil) focused in central Alberta and other minor properties. The majority of the acquired assets fall into Cardinal’s Wainwright operating area.
- The Acquisition is a continuation of Cardinal’s strategy of acquiring and developing low decline oil production;
- Synergistic with Cardinal’s operations in the Wainwright area which will allow Cardinal to achieve economies of scale and utilize our existing infrastructure to reduce operating costs per boe;
- Proved developed producing reserves(1) of approximately 7.5 mmboe;
- High percentage of active producing Alberta properties with a Liability Management Rating of 5.3 strengthening Cardinal’s overall liability position;
(1) Based on internally evaluated reserves as of July 1, 2021
The Acquisition is expected to be approximately 16% accretive to Cardinal’s 2021 forecasted adjusted funds flow per share and is anticipated to decrease the Company’s 2021 closing net debt to fourth quarter annualized adjusted funds flow ratio to 1.0x (0.8x net bank debt). With Cardinal’s previously released increased budget combined with the Acquisition, average fourth quarter 2021 production is targeted to average approximately 21,500 boe/d, a 21% increase over our original 2021 budget.
In conjunction with the Acquisition, Cardinal intends to issue up to $12.5 million principal amount of subordinated second lien secured notes (the “Notes”) which will bear interest at 10% per annum and have a three year term (the “Note Financing“). Interest will accrue semi-annually and be added to the principal amount and will be payable on maturity. As part of the Note Financing, Cardinal has also agreed to issue one common share purchase warrant (“Warrant“) for each $5.00 principal amount of Notes. Each Warrant will entitle the holder to acquire one common share of Cardinal at an exercise price equal to the deemed price of the common shares being issued pursuant to the Acquisition for a period of 36 months commencing six months from issue date. The Note Financing is expected to be fully funded by insiders of the Company.
The remainder of the cash consideration will be financed from the Company’s existing bank facility. Under current forecasts, the Company expects the free cash flow generated from our existing properties and the Acquisition will enable us to repay these additional bank drawings by the fourth quarter of 2021.
Completion of the Acquisition is subject to customary closing conditions, including Venturion shareholder approval and receipt of necessary regulatory approvals, including the Toronto Stock Exchange. Closing of the Note Financing is expected to occur on or about the closing date of the Acquisition, and is subject to the approval of the Toronto Stock Exchange and certain other funding conditions.