Filed by Resaca Exploitation, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
(Commission File No.: None)
Subject Company: Cano Petroleum, Inc.
(Commission File No.: 001-32496)
On September 29, 2009,
Resaca Exploitation, Inc. (Resaca) and Cano Petroleum, Inc. (Cano)
entered into a definitive agreement and plan of merger.
This communication is being
made in respect of the proposed business combination involving Resaca and Cano.
In connection with the proposed transaction, Resaca and Cano plan to (a) file
documents with the Securities and Exchange
Commission (SEC), including the filing by Resaca of a Registration
Statement on Form S-4 containing a Joint Proxy Statement/Prospectus, (b) publish
an admission document for the purpose of admitting the issued common stock of
the enlarged group to trading on the AIM Market of the London Stock Exchange (AIM)
and (c) file with AIM and the SEC other necessary documents regarding the
proposed transaction. Investors and security holders of Resaca and Cano are
urged to carefully read the Joint Proxy Statement/Prospectus and AIM admission
document (when available) and other documents filed with AIM and the SEC by
Resaca and Cano because they will contain important information about the
proposed transaction. Investors and security holders may obtain free copies of
these documents (when they are available) and other documents filed with the
SEC by contacting Resaca Investor Relations at (713) 753-1441 or Cano Investor
Relations at (817) 698-0900. Investors and security holders may obtain free
copies of the documents filed with the SEC and published in connection with the
admission to AIM on Resacas website at www.resacaexploitation.com or Canos
website at www.canopetro.com. Free
copies of the information filed with the SEC will be available on the SECs
website at www.sec.gov. Resaca, Cano and
their respective directors and executive officers may be deemed participants in
the solicitation of proxies with respect to the proposed transaction.
Information regarding the interests of these directors and executive officers
in the proposed transaction will be included in the Joint Proxy
Statement/Prospectus and AIM admission document described above. Additional
information regarding the directors and executive officers of Resaca is also
included in Resacas website. Additional
information regarding the directors and executive officers of Cano is also
included in Canos proxy statement for its 2008 Annual Meeting of Stockholders,
which was filed with the SEC on December 3, 2008.
1
The following is a
transcript of Resaca Exploitation, Inc.s conference call for analysts and
investors held at 10am BST on September 30, 2009
Participants:
Jonathan Wright, Seymour Pierce
JP Bryan and Chris Work,
Resaca Exploitation, Inc.
Nathan Piper with RBC
Bryce Linsenmayer, Haynes
and Boone LLP
Chris Work:
Welcome everyone to our
call; I guess everyone has read our announced transaction with Cano. Were pleased to get everybody together and
talk about the transaction which we are very excited about. Im CFO of Resaca and on the call with me we
have our Chairman, JP Bryan, who you may have read in the press release will
assume the role of CEO after the transaction.
The presentation we are going to be going over is on our website,
www.resacaexploitation.com. If you go to
the investor tab, under presentations, you will see it listed there. With that Ill turn it over to JP and he will
go over the transaction.
JP Bryan:
Yes, well first of all, let
me welcome all of you all to the call and tell you that and reiterate what
Chris said, that were really quite pleased to be able to announce this
transaction. As you know, when we
floated Resaca more than a year ago now, we had suggested that one of our key
objectives over time would be to make acquisitions that would be complimentary
to ourselves in the areas in which we are currently operating to give us a
bigger presences there and the efficiencies that come with scale and before we
began a reach around the globe. We think
we have accomplished our first stated objective and done so in a way that youll
be very pleased with. What we have done
here is acquire a company that has properties which very much compliment
ours. In this acquisition Resaca will be
the surviving company, our shareholders will own slightly more than 50% of the
enterprise going forward. Well have
four Board members from Resaca; there will be three from the company we are
acquiring, Cano. Well be dually listed
on both the AMEX and the AIM. The
exchange will be 2.1 shares of Resaca for each Cano share, and interestingly
the combined proved reserves of the two enterprises will be 63.2 million
barrels of reserves or pv10 of about 652 million dollars. Production as of 7/1/09 was just about 30
barrels short of 2,000 barrels per day.
The transaction metrics, were paying on a 30 day weighted average about
a 32% premium, much higher if you look at our current price, but on a 30 day
running average about 32%. An
interesting number that I know you all will want to focus is what are we paying
per barrel in the
2
ground, and it is $3.34
proved reserves only, and its about $16 plus a barrel for proved developed reserves. So we think those are, for our Resaca
shareholders, we think those are numbers that should be very pleasing. The history as you know for ourselves,
obviously we became public on the AIM back in July. Our focus has always been exploitation, not exploration. And, we had told you, and told all of our
investors, consistently that where we dont have the sort of face changing
event that comes with an exploration or an exploration success, we also dont
suffer the indignity of the kind of failure that comes with a big dry
hole. You know, we just make money the
old fashioned way, one day at a time.
So, with us we think you invest in the asset not the ambition and we
have proven that through some very difficult times in this business. As you know, we went through our black dog
days when our stock was down to about 14p, but as oil prices have come up our
stock has begun to come back also. And
it has also given us the opportunity to make what we think is a very significant
acquisition. If we just break down what
we think are the important numbers here, if you look at proved reserves for
Resaca, as many of you know, our proved reserves are about 14 million barrels,
Canos proved reserves are 40, now almost 50 million barrels of proved
reserves. 50% of our proved reserves, or
about 56% are proved developed, about 21% of theirs are proved developed. 84% of our reserves are oil, about 80% of
theirs. Our proved pv10 is about 160,
excuse me, about 181 million, theirs is about 471 million. Now in the United States as you know,
probable reserves are not important in the metrics of measuring value for oil
and gas companies, but obviously it is in the UK. And our probable reserves, which weve said
many times, we think are very quality probable reserves because they are simply
the transition that we go through from oil, or from waterflood to CO2 flood in
our oil properties. We have about 14
million barrels of probable; they have about 14 million barrels of probable. Our daily production is running close to 700
barrels, about 660, and theirs is about 1300 barrels a day. The properties are almost an overlay; they
are in Texas and New Mexico and Oklahoma.
Obviously, as you know, we are in Texas and New Mexico. Chris, do you want to talk about the
transaction rationale?
Chris Work:
Transaction rationale. We believe this combination of these
companies provide a lot of benefits going forward. As we have, as JP just mentioned,
complimentary assets and very similar assets: long life property with lots of
opportunities to improve production. We
have, youll notice they have a large amount of proved undeveloped reserves;
whereas, we have a lot of proved developed nonproducing reserves with related
recompletion opportunities that well get into here in a minute. Between the two companies well be able to
look at the best projects we have and then pursue those, well have operating
efficiency at both the field and corporate levels. Weve already begun to work on determining
where we could save money, and weve already been able to determine well be
able to save between $4.5-5 million a year over the prior year, between G&A
and LOE reduction. That becomes, comes
from natural synergies and also the way we can operate both in the engineering
and the operations side in the field. We
have complimentary technical and operational staff; we believe well be able to
manage our New Mexico properties from our current office in Odessa. Youll see in the slide the properties are
very close together. As we move forward
with our capital programs, well be able to generate savings through improved
contracts with our service companies and suppliers. The next slide, the next item, we
3
have mentioned is the
ability to increase production which you may have seen in our release regarding
our operations and reserve update. We
recently refraced a well using a large sand frac and we were very encouraged by
the results we got from that. And we
believe we have 20 to 30 of those opportunities to use in the near term to
increase production. Both of our
companies, I mean, it is amazing, were both focused on exploitation of oil and
gas, properties are same location, we even have the same fiscal year end. We are engineering driven companies, we dont
take exploration risks. The properties
have mature long life property with secondary and tertiary CO2 recovery
potential. There is very little overlap
on an institutional basis, theyre listed on the NSE AMEX exchange, of course
were listed on the AIM. We believe that
this will provide opportunities to access the capital both in the US and in
London, and will hopefully result in increased liquidity and access to capital. Our organizational structure, JP will assume
the role of interim CEO in addition to his role as Chairman. Jay will assume the role of Vice Chairman and
will still be actively involved in the growth of our company. I will maintain my role as CFO. Their Chief Accounting Officer will report to
me. Dennis will remain as President. Their Senior Operations and Engineering
Officer will remain at the company as Executive VP. Their General Counsel will also stay with the
company. I wont spend too much time on
management profiles, but we believe the combined company provides a nice
compliment of, between the two companies of, experienced professionals in each
of their fields. JP you want to review
that asset profile?
JP Bryan:
Yes, we have a little
schematic in the presentation that shows where the properties of the respective
companies are located. As you see it is
a very complimentary geographic mix, which as Chris has said, is going to give
us nice efficiencies at the field level.
Within our geographic areas there are going to be 63.2 million barrels
of proved reserves. As we said earlier,
81% of those reserves will be oil. A
pv10 of 652 million dollars. If we look
at the addition of the proved reserves, our reserves go up to almost 100
million barrels, 91.7 exactly, with a pv10 of a billion dollars. And, production, daily production, as I said
earlier, just under 2,000 barrels a day currently. If we sort of take a further unveiling of our
reserves to look at how nicely they complement each other. If we look at our proved developed producing
reserves, Resaca has 2.2 million and Cano has 7.7 million barrels, so our
proved developed producing are about 10 million barrels of reserves. Proved developed non-producing, Resaca were
at 5.6 million, theyre at 2.3 million, for a total of 7.9 million, and then if
you look at our PUD reserves, this is where there is an interesting
distinction. Resaca, we have about 6
million of PUD reserves, they have some 39 million in PUD reserves, for a total
of about 45 million barrels. So that is
an interesting compliment because where we can continue to add value in the
short term to our proved developed non-producing; they over time will be able
to significantly increase our production profile by bringing in the current PUD
reserves. Of course, that is going to
require raising capital to do so, but its a very nice opportunity,
prospectively for the combined entities and were extremely pleased with
that. If you go and look at it on a pv10
break down, as opposed to the barrels, in terms of value, our proved developed
producing is 27 million; their proved developed producing is 63 million for a
combined total of 90. Our proved
developed nonproducing, and this is the behind the pipe stuff that we think we
can bring on fairly quickly, I say quickly in our business that is over the
next several years, proved developed nonproducing is 88 million and theirs is
14, for a combined total of 103. And
then our PUD valuation is 65 million,
4
theirs 392. So theirs has big value opportunity for us
prospectively from their PUD portfolio.
You want to talk about liquidity, Chris?
Chris Work:
As part of this transaction
well enter into a combined senior facility covering both companies. We, our, senior facility is currently with
CIT and NGP Capital Resources. Their
loan is lead by Union Bank and also Natixis, who is part of their first and
second lien. We are in discussions with
those groups and others on a combined facility.
Weve had productive discussions, and well continue to work with them
over the coming months. Part of
this is were likely to arrange some equity and that could come in the US, UK,
Canada and Switzerland. Now, onto
anticipated development plan.
JP Bryan:
Lets just finish up with
this and then take any questions that you may have after that. In looking at these two portfolios and trying
to decide where there are obvious synergies and how we can use what we have
with, in combination of theirs, to do something attractive for our shareholders. What weve been able to identify, first of
all out of the Resaca portfolio, as many of you know, we have been working
diligently at the Cooper Jal field to get our water injection levels up and weve
been successful in that and weve consistently been injecting 18,000 barrels of
water a day and we are beginning to the see the benefits of that. We also, at the same time, have through work
weve been doing on recompletions and refracs, have determined that we have an
inventory now of about 61 behind pipe recompletion opportunities, we forecast
those to produce an incremental 18 barrels a day, and then we have 20 to 30
refrac opportunities were we would be using sand fracs as opposed to our former
foam fracs, and we just completed one quite successfully. We think the initial production opportunity
there is about 30 barrels a day. So 20
to 30 refrac opportunities at about 30 barrels a day which would be a nice
uplift in our daily production.
Currently we are producing about 285 barrels net, that is net to us,
actually about 500 gross at Cooper Jal and we expect that to be up to 500
barrels by June of 2010. As far as
Cano is concerned, they have a field called Cato. A successful waterflood there, and they are
going to be increasing their waterflood footprint from approximately 650 acres
a day to up to 1,000 acres by adding some new injectors and increasing the
injection rate to about 21,000 barrels, and this will increase their
production, we believe, by another 80 maybe 100 barrels by June of
2010. So those are just some of the
early objectives we have, but we feel very comfortable that we will be able to
enjoy a nice uplift in our production as we work our way through 2010. The idea is this deal will be closing in December or
maybe early January. And we are excited
about the prospects for these combined entities in 2010. Not only for our ability to increase our
production profile but also obviously the improving cash flow and just to give
you a range, and well refine this much more over time, as we can spend a
focused amount of effort together looking at all of our properties, but wed be
suggesting that a conservative number would be 13 million dollars in combined
cash flow, up to 18 on a go forward basis beginning in 2010, on annual
basis. So, any questions?
5
Nathan
Piper at RBC:
I
guess Ive got two questions guys, and I guess first of all it looks like a
sensible deal, but I think Id like to know more about the Cano listing. I mean are they much more liquid than you
guys are in the States relative to where you guys are in AIM. Is it realistic that there is going to be
massive differences, to do a listing? I
guess my second point is that youve talked about all these opportunities
Dennis, behind pipe and also from the frac jobs. What is the timeline between turning those
into opportunities and then moving that into production? Just looking at it on a very rounded basis
you could maybe add up almost 2,000 barrels a day based on those two sets of
opportunities. Will we see those extra
2,000 barrels a day in 12 to 18 months or would it be longer than that?
JP Bryan:
Let me take the first
question.
Chris Work:
About the liquidity.
JP Bryan:
Obviously if you follow
stocks in the United States, you know the greater liquidity probably comes from
New York listed companies as opposed to American Stock Exchange listed
companies, but clearly they trade actively on the AMEX, so we think it is going
to be a nice plus for us. Well have the
arbitrage between the two exchanges and well also have a new cast of
investors, that we hope to have some very enthusiastic support from. As to the fracs, they cost about, sand fracs
cost about 150,000 dollars a piece, and so well be staging these on a monthly
basis; so youre not going to suddenly see a big uplift in our production month
one. Its just something that well be
consistently doing at the field level throughout the year. Well give you better information, just
wanted to give you sort of the gross numbers as to what if we had them all done
on day one what it would look like. But
thats not the way its going to occur, so youll just see a progressive uplift
in our production as we do these at a rate of probably about 3 lets say to 5 a
month, but Ill let the engineers decide what that program will look like.
Nathan Piper at RBC:
I guess the question I was
asking in a roundabout way is what do you think production could look like in
one or two years time. So youre
currently at, as a combined entity, roughly speaking 2,000 barrels of oil
equivalent a day. What would that be in
a years time, what would that be in two years time. Obviously this a part of the reason why youre
proposing the acquisition?
JP Bryan:
Sure. Obviously the objective is not to at the end
of 2010 to be at 2,000 barrels a day.
And, obviously if you look at the profile of these refracs, that in
itself at 30 barrels a day, just take 20 of them. Uh, thats you know 600 barrels a day and we
get 60% of that, so that is roughly 360 barrels a day of additional
6
production net to us. And so, I would think that by the end of the
year we would hope to be at a run rate of somewhere close to 3,000 barrels a
day in the combined entities at the end of 2010. But I dont want to give you a number that is
overly optimistic or something that we cant meet. Based upon our current experience I think
that is a reasonable number, but Id feel much better a month or so after weve
had a chance to look at our combined property and come back with
something. But were excited about our
ability to increase production, let me just say that.
Nathan Piper at RBC:
One final question if I
may. On the deal itself, what stage are
you at regarding shareholder approvals and what is the mechanism between now
and having an approved deal?
JP Bryan:
You want to answer that
Chris?
Chris Work:
Yes. Both shareholders will
need to approve. In addition I mean
both common shareholdersof course our shareholder group is fairly concentrated,
with the Torch group itself approximately 19%, the original shareholder group,
were up around 50% already. So, were
confident that our original group will be supportive and well be able to get
more than 50%. The other group that
would need to approve this is, they have a preferred shareholder group. And, we have already reached out to the
largest preferred holder there and have made arrangements with them. They are supportive. We believe that we just make a good case for
a combined company and well go out there and try and get it done.
Nathan Piper at RBC:
About how long do you think
this will take, Chris? I mean you are
mentioning this to be, and I understand that youve reached out to Cano
preferred shareholder, or the bigger one; and its a much longer list of
shareholders than Resaca. I guess people
have also maybe seen the parallel deal, quite a nice deal, that happened in
your neighborhood, so maybe some Cano shareholders would see this to be quite a
cheeky bid for the company and quite a low price to pay for all of these
reserves.
Chris Work:
Right. From a timing perspective, the biggest thing
will be the registration statement that we have to file with the SEC. It will take us a couple of weeks to get that
filed and then there where be a 30 day waiting period where we are waiting for
comments from the SEC and then well be responding to those comments. That is
the biggest, the waiting period, so it will be in the December time frame
when we are seeking shareholder approval.
And we will be making rounds with both sets of shareholders, beginning
today and reaching out to them and winning their support.
7
JP
Bryan:
Nathan,
we think that this will be well received, or should be well received, by both
classes of shareholders: both the Resaca shareholders and the Cano
shareholders. This is a deal that is
very good for both shareholder bases.
And it is a nice premium for their shareholders and it is a good
purchase for us. The assets we are
bringing in here, very much strengthens the company going forward and gives us
opportunity. Weve just touched on the
things that are very obvious. We havent
obviously spent the time to look at the synergies that would come from the
combinations of the staffs and the properties themselves. So, we havent seen anything in the months
that weve been negotiating this transaction that would lead us to believe that
this is not going to be well received by both shareholder groups.
Nathan Piper at RBC:
Great thanks.
Chris Work:
Thanks, Nathan. Anyone else?
JP Bryan:
Well if you have any further
questions, please dont hesitate, you know how to reach us and well be glad to
discuss any of the issues that we raised today.
Thank you very much for your attendance.
Chris Work:
Thank you everyone. Ill be in the office today. If anyone has any thoughts or questions just
give me a call. Thank you.
8
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