CALGARY, AB – Perpetual Energy Inc. (“Perpetual” or the “Company”) is pleased to announce the closing of the previously announced financings of Rubellite Energy Inc. (“Rubellite”), the repayment of its second lien term loan and credit facility extension, and provide an operations update.
Rubellite has raised $83.5 million in equity, all priced at $2.00 per share, through a combination of: (i) a $33.5 million arrangement warrant financing (the “Arrangement Warrant Financing”) whereby shareholders of Perpetual were provided the opportunity to purchase Rubellite common shares (“Rubellite Shares”) in addition to those Rubellite Shares issued under the reorganization of the Company, which was approved by the shareholders on August 31, 2021; (ii) the issuance of Rubellite Shares in exchange for subscription receipts previously issued under a $30 million brokered private placement to a number of arm’s length investors, which funds have been held in escrow since closing on July 13, 2021 (the “Brokered Private Placement”); and (iii) a $20 million non-brokered private placement (the “Non-Brokered Private Placement” and collectively with the Arrangement Warrant Financing and Brokered Private Placement, the “Rubellite Financings”). The Rubellite Financings closed concurrently on October 4, 2021 and approximately 41.7 million Rubellite Shares were issued.
Approximately $53.6 million in funds from the Rubellite Financings will today repay promissory notes owed to Perpetual in connection with Rubellite’s acquisition of its Clearwater assets from Perpetual. Perpetual previously received additional non-cash consideration in the form of a five-year option to purchase 4.0 million Rubellite Shares at $3.00 per share (the “Rubellite Share Purchase Options”), providing an opportunity for Perpetual to remain exposed to potential value appreciation of the Clearwater assets sold to Rubellite.
With payments enabled through the closing of the Rubellite Financings, Perpetual’s total net debt will decline by an estimated 46% from $110 million at June 30, 2021 to approximately $59 million, inclusive of estimated capital spending at East Edson and other forecast corporate revenues and expenses during the third quarter of 2021. Interest cost savings will improve Perpetual’s liquidity by approximately $4 million annually. The general and administrative cost recoveries under the management services agreement with Rubellite are expected to further enhance Perpetual’s liquidity by approximately $2 to $3 million annually.
Second Lien Term Loan Repayment
Pursuant to the terms of the second lien debt repayment agreement with Alberta Investment Management Corporation, Perpetual has settled its $45 million second lien term loan principal plus outstanding interest with the payment of approximately $38.5 million in cash, delivery of 680,485 Rubellite Shares and later today will enter into a new second lien term loan of $2.7 million (the “New Second Lien Term Loan”). The New Second Lien Term Loan bears interest at 8.1% annually, which Perpetual may elect to pay-in-kind, and will mature on December 31, 2024. Perpetual has the ability to repay any or all of the New Second Lien Term Loan at any time without penalty. Perpetual is also committed to pay up to $4.5 million in contingent payments in the event that Perpetual’s annual average realized crude oil and natural gas prices exceed certain thresholds over the three year period ended December 31, 2023.
Credit Facility Extension
On July 15, 2021, Perpetual entered into an agreement with its syndicate of lenders to extend its revolving bank debt facility (“First Lien Credit Facility”) upon closing of the Rubellite Financings. The First Lien Credit Facility established a borrowing limit of $17 million, with an initial term to November 30, 2022 unless the revolving period is extended for a further six months subject to approval by the syndicate. If not extended on or before November 30, 2022, all outstanding advances will be repayable on May 31, 2023. The next Borrowing Limit redetermination is scheduled on or before November 30, 2021.
Including cash proceeds received from the sale of the Clearwater assets, Perpetual expects to be less than 25% drawn on the $17 million First Lien Credit Facility. Furthermore, the First Lien Credit Facility provides Perpetual with an enhanced ability to enter into risk management contracts to mitigate commodity price risk as appropriate.
The Rubellite transactions provide a full capital solution for Perpetual by reducing Perpetual’s net debt, normalizing the balance sheet leverage ratios and enhancing Perpetual’s ability to capture the inherent value in its asset base by funding investment opportunities to grow and sustain production and adjusted funds flow.
Operationally, the Company is participating in an active capital program at Perpetual’s 50% working interest East Edson property. The last well of the 8-well carried interest commitment that formed part of the consideration in the East Edson transaction in April 2020 was spud on July 26, 2021 and was drilled, completed and brought onstream by our joint venture partner in August. An additional six well (3.0 net) drilling program at East Edson is well advanced with the first two-well pad drilled, completed and on production in mid-September, ahead of previous expectations. Drilling operations are continuing on the final four-well pad, with production start-up expected by early November, targeting to fill the West Wolf gas plant to maximize natural gas and NGL sales through next winter.
Activity in Mannville in Eastern Alberta remains focused on waterflood optimization and battery consolidation projects and preparation for potential drilling projects in 2022.