REGINA, SK – ROK Resources Inc. (“ROK” or the “Company“) (TSXV:ROK) is pleased to announce that it has successfully closed the previously announced transformational acquisition (the “Acquisition“) of certain oil & gas assets (the “Assets“), primarily in Saskatchewan and Alberta, from Federated Co-operatives Limited and its wholly-owned subsidiary 2214896 Alberta Ltd. (“FCL“). The Assets include approximately 2,962 boe/d (72% liquids)[1] of low-decline, oil-weighted production in Southern Saskatchewan and Alberta which, at US$75/bbl WTI pricing, is expected to generate an operating netback of $37/boe resulting in annualized net operating income (“NOI“) of $40 million, implying a 1.8x TV / NOI multiple.
Total consideration paid for the Acquisition was approximately $72 million (“Transaction Value” or “TV“), prior to realizing a downward purchase price adjustment of $9.6 million to account for, among other things, the November 1, 2021 effective date of the Acquisition, and was funded through a combination of proceeds from the previously announced Bought Public Offering (as defined herein) and the previously announced Senior Loan Facility (as defined herein), details of which can be found within the Company’s press release dated March 4, 2022.
Acquisition Highlights
The Acquisition is completely aligned with ROK’s long-term business strategy to grow into a premier, publicly traded energy producer through the acquisition and responsible exploration and development of diversified and sustainable assets in strategic locations, including in Alberta and Saskatchewan, where the management team has a deeply rooted track record of value creation through successfully building and exiting four prior private companies.
Description of Assets
The highlights of the Acquisition and the anticipated benefits associated with the Assets include the following:
- Land Positions within Economic Conventional and Unconventional Resource Plays
- Land position of 1,380,556 gross (333,347 net) acres of land within four core areas in Saskatchewan (Dodsland, Butte Shaunavon, and Southeast Saskatchewan) and Alberta (Kaybob)
- Recent offsetting industry drilling activity is focused on the Midale, Frobisher, Shaunavon and Viking, and the Cardium, Bluesky, Dunvegan, and Montney
- No significant near-term expiries and unrestricted year-round access
- Average working interest of nearly 50% (excluding Weyburn)
- Interest in several conventional units, including the Weyburn CCUS EOR project
- Booked Reserves & Long-Term Resource Development Upside
- Remaining proved developed producing (“PDP“) reserves of 6.7 million BOE (comprised of 4.9 million Bbls of Crude Oil, 4,750 MMcf of Natural Gas and 294,000 Bbls of Natural Gas Liquids), valued at an NPV10% of $96 million
- Total Proved Plus Probable reserves of 13.5 million BOE (comprised of 9.0 million Bbls of Crude Oil, 2,160 MMcf of Natural Gas and 896,000 Bbls of Natural Gas Liquids) valued at an NPV10% of $168 million
- Over 100 identified Gross drilling locations (including 341 locations identified by McDaniel)
- Historically under-capitalized; primary development and secondary / tertiary EOR potential
- Base Production Yields Free Funds Flow Potential
- Fiscal 2021 estimated production average of 3,163 Boepd (comprised of 2,143 Bopd, 5,132 Mmcf/d and 165 Bpd of NGLS)
- First year production estimate of approximately 2,962 BOE/d (comprised of 2,000 Bopd, 4,800 Mmcf/d and 162 Bpd of NGLS), including ~460 BOE/d (comprised of 445 Bopd and 15 Bpd of NGLs) at Weyburn
- Medium-to-light oil weighted production between 27-38° API gravity
- Free funds flow driven by a 22% base decline (including 4% at Weyburn), operating netbacks ($37/BOE) and capital efficiencies (less than $20,000/BOE/d)
- Opportunity to efficiently optimize production via several workover candidates
- Integrated Operations Delivering the following Structures
- High working interest and operatorship in key growth properties ensures substantial control over pace of development
- Readily available area processing capacity and strategic access to markets
- Attractive royalties (<13%) and operating costs (<$20/BOE)
- Annualized NOI of $40 million driven off a $37/ BOE operating netback
- Asset retirement obligations (ARO) expected to be fully serviced by spending approximately $1.2 million2 per year
- ESG Characteristics Underpin Responsible and Sustainable Development
- Weyburn CCUS EOR project provides significant CO2 & GHG production offsets
- Licensee liability ratios of greater than 2 in Alberta and greater than 1 in Saskatchewan
- Program to actively manage abandonment obligations on an annual basis
- Weyburn CO2 sequestration offsets current Vendor GHG emissions by 86%
- The Corporation endeavors to become carbon neutral in the future through a combination of gas conservation, fugitive emission reduction and vent to flare conversions where applicable.
___________________________________
1. 34 Gross locations identified in the McDaniels Estimates, of which 17 have been assigned Probable Reserves and 34 have been assigned Proved plus Probable Reserves. There are an additional 7 locations identified that have no reserves assigned as at October 31, 2021.
2. $1.2MM/year spend on is calculated based on a 5%/year of current inactive sites in the jurisdictions of the Assets. This is consistent with the provincial regulators existing guidelines for minimum annual ARO spend.
Proforma ROK Highlights
ROK is strongly positioned to pursue a cost-focused and operationally efficient development plan that is designed to maximize organically generated free funds flow which will be used initially to deleverage the balance sheet, in the medium-term to provide significant flexibility to accelerate growth via development drilling or through completing other accretive acquisitions, and ultimately over the long term ROK believes that these Assets will prove to be the cornerstone to providing attractive yield back to its shareholders.
After completion of the Acquisition, the Bought Public Offering, and Senior Note Conversion (as defined below), the Company expects to have approximately 186 million Common Shares outstanding and net debt of approximately $40 million[2]. Furthermore, the pro forma Company expects to produce 3,174 boe /d (72% liquids)[3] and to generate an annualized net operating income of $42 million[4].
ROK is currently unhedged and immediately after completion of the Acquisition, intends to enter into a hedge program. Details of which will follow.
Capitalization | ROK | ROK | % | |||||
($MM, except per share) | Standalone | Post-Deal [5] | Change | |||||
Issue Price |
$0.18 |
|
$0.18 |
|||||
Basic Shares |
74 |
|
186 |
|||||
Market Capitalization |
$13 |
|
$33 |
|||||
Net Debt (current / as at YE22E) |
$3 / $0 |
|
$55 / $40 |
|||||
Enterprise Value (current / as at YE22E) |
$16 / $13 |
|
$89 / $73 |
|||||
|
|
|
||||||
Estimated ROK |
|
Estimated ROK |
% |
|||||
Projected as at YE22E [6] [7] |
Standalone |
|
Post-Deal [8] |
Change | ||||
|
|
|
||||||
EV / Production |
$ 56k |
|
$23k |
|
(59%) |
|||
EV / NOI |
5.8x |
|
1.8x |
|
(70%) |
|||
Debt-Adjusted Free Funds Flow Yield |
(24%) |
|
37% |
|
61% |
|||
PDP Reserves (Mboe / $MM) |
307 / $5 |
|
6,959 / $101 |
|
2,165% / 1,891% |
|||
boe / share |
0.00 |
|
0.04 |
|
807% |
|||
NAV10% / share |
$0.03 |
|
$0.25 |
|
759% |
|||
TP Reserves (Mboe / $MM) |
$836 / 15 |
|
$9,275 / 124 |
|
1,010% / 753% |
|||
boe / share |
0.01 |
|
0.05 |
|
345% |
|||
NAV10% / share |
$0.16 |
|
$0.37 |
|
137% |
|||
TPP Reserves (Mboe / $MM) |
1,494 / $32 |
|
15,035 /$ 200 |
|
907% / 523% |
|||
boe / share |
0.02 |
|
0.08 |
|
303% |
|||
NAV10% / share |
$0.39 |
|
$0.78 |
|
99% |
Financings
The Acquisition was funded through the previously announced bought public offering of subscription receipts (the “Subscription Receipts“) led by Echelon Capital Markets for gross aggregate proceeds of approximately $17.3 million, including the over-allotment option (the “Bought Public Offering“), and the previously announced senior secured loan facility with Anvil Channel Energy Solutions for an aggregate principal amount of $65 million (the “Senior Loan Facility“).
Each Subscription Receipt will entitle the holder thereof to receive, upon the satisfaction of certain conditions, and without payment of additional consideration or further action, one unit (a “Unit“), consisting of one Common Share and one Common Share purchase warrant (each a “Warrant“). Each Warrant will entitle the holder thereof to acquire one additional Common Share at an exercise price of $0.25 for a period of 36 months from the closing date. The Company has applied to list the Common Shares and Warrants underlying the Unit on the TSX Venture Exchange (the “Exchange“).
In connection with the Acquisition and the Senior Loan Facility, the Company converted $2.8 million principal amount of its existing senior secured notes (the “Senior Secured Notes“) into equity on the same terms as the Bought Public Offering (“Senior Note Conversion“). The remaining Senior Secured Notes were fully repurchased by the Company, pursuant to the terms of the Senior Secured Notes. The Units issued to the former holders of Senior Secured Notes are subject to a four month and a day hold period, expiring on July 8, 2022. In addition $0.5 million, plus a 3% origination fee, will be repaid to certain management members of the Corporation which was used to contribute to the $1.0 million deposit on Transaction Value under the term of the Acquisition.
Advisors
Echelon Capital Markets acted as exclusive financial advisor to ROK with respect to the Acquisition and Senior Loan Facility.
McDougall Gauley LPP, Norton Rose Fulbright, and EnerNext Counsel acted as legal advisor to ROK with respect to the Acquisition and Senior Loan Facility, with EnerNext Counsel also acted as legal advisor to ROK with respect to the Bought Public Offering.
Qualified Person
The technical content of this news release has been reviewed and approved by Bryden Wright, P. Eng., a qualified person for the purpose of National Instrument 41-101.