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.
The following is a
transcript of a conference call for analysts and investors of Cano Petroleum, Inc.
and Resaca Exploitation, Inc. held at 6:30 pm GMT on September 30,
2009.
Forward Looking Statements
These
statements include forward-looking statements as defined by the SEC. Such statements are those concerning the
companies merger and strategic plans, expectations and objectives for future
operations. All statements included in
this presentation that address activities, events or developments that the
companies expect, believe or anticipate will or may occur in the future are
forward-looking statements. This
includes completion of the proposed merger, completion of reserve estimates,
production, cash flow and EBITDA estimates, future financial performance,
future equity issuance and other matters.
These statements are based on certain assumptions made by the companies
based on their experience and perception of historical trends, current conditions,
expected future developments and other factors they believe are appropriate in
the circumstances. Such statements are
subject to a number of assumptions, risks and uncertainties, many of which are
beyond the control of the companies.
Statements regarding future production are subject to all of the risks
and uncertainties normally incident to the exploration for and development and
production of oil and gas. These risks
include, but are not limited to, inflation or lack of availability of goods and
services, environmental risks, drilling risks and regulatory changes. Investors are cautioned that any such
statements are not guarantees of future performance and that actual results or
developments may differ materially from those projected in the forward-looking
statements.
Exhibit 99.1
FINAL TRANSCRIPT
Conference Call Transcript
CFW
- Resaca Exploitation and Cano Petroleum Merger Conference Call
Event
Date/Time: Sep 30, 2009 / 06:30PM GMT
THOMSON
REUTERS STREETEVENTS |
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1
CORPORATE
PARTICIPANTS
Jeff Johnson
Cano
Petroleum - Chairman, CEO
Jay Lendrum
Resaca
Exploitation, Inc. - CEO, Director
Chris Work
Resaca
Exploitation, Inc. - VP, CFO
Patrick McKinney
Cano
Petroleum - SVP of Engineering & Operations
CONFERENCE
CALL PARTICIPANTS
Noel Parks
Ladenburg
Thalmann - Analyst
Curtis Trimble
Natixis
- Analyst
Manav Gupta
Canaccord
Adams - Analyst
David Hunt
Petro-Hunt
- Analyst
PRESENTATION
Operator
Good
day, ladies and gentlemen, and welcome to the Cano Petroleum/Resaca
Exploitation merger announcement. My name as Tom and I will be your coordinator
for today. At this time all participants are in listen-only mode. We will be
facilitating a question-and-answer session towards the end of todays
conference. (Operator Instructions). I would now like to turn the presentation
over to your host for todays conference, Jeff Johnson, Chairman and CEO of the
Cano Petroleum Corporation. Please proceed.
Jeff
Johnson -
Cano Petroleum - Chairman, CEO
You
bet. Thank you, Tom. I also want to thank everybody for joining us on the call
today. As you know, weve just made an announcement here over the past few
hours that is pretty exciting for the Cano shareholders. Weve announced a
merger with Resaca Exploitation based out of Houston, Texas listed on the AIM
exchange.
And
if you look back, the one thing I would like to comment is we started this
company about five years ago in June, we had a three- to five-year business
model and weve just celebrated our fifth year. And although our business model
I feel like has been successful for the most part where weve been able to go
out and acquire oil reserves domestically onshore in the United States and been
able to do so at a very competitive price, weve seen success through water
flood operations and EOR enhancement that we look to grow into and move forward
with.
I
think that this transaction here as we just entered into our sixth year as a
company truly is given the opportunity to grow and a platform to move forward
in such a manner that I would never have guessed five years ago whenever we
started this company.
For
those that have been around the industry for a little while, Im sure you may
have known or have known of J.P. Bryan or the Torch companies, J.P. will be the
new Chairman and CEO of the Company going forward. And Ive got to tell you as
the Cano Chairman and CEO, one
2
of
the largest shareholders, the largest individual shareholder, Id like to say
that Im excited and I think the company is fortuitous to have somebody such as
J.P. to use this as a platform to build a dynamic EOR company.
And
us as common shareholders as well as our preferred shareholders, I believe we
have a better platform, better cash flow, less net debt and truly have a
company here that both sets of shareholders when combined, as J.P. might say,
one and one is a heck of a lot more then two.
And
so with that being said, sitting here with me today is Jay Lendrum, who will be
the Vice Chairman of the combined companies. And also we also have back in Fort
Worth Ben Daitch who is our current CFO at Cano. Were in San Francisco today,
we just got through presenting at the IPAA, and I also have Patrick McKinney in
here with me as well in San Francisco with Jay. And Jay, I believe is Chris
Work on the phone out of Houston?
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Chris
Work and Dennis Hammond both are.
Jeff
Johnson -
Cano Petroleum - Chairman, CEO
Okay,
very good. With that, Jay, Im going to turn it over to you and glad to be a
part of this and we really appreciate the hard work you and your team have put
together with this.
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Well,
thank you very much, Jeff. I just want to echo exactly the same sentiments that
Jeff just stated. This is going to be a tremendous merger of two companies,
this merger of two equals. We feel very, very confident that we can take these
assets and really create a significant enterprise going forward that will be
profitable for all of the shareholders.
If I
may, I should probably point out Jeff mentioned J.P. Bryan. Just as a little
background, J.P. Bryan if the former founder of Torch Energy and I joined him a
number of years ago. The two of us own Torch Energy, its a private company. We
have actually been actively participating in similar types of operations for
the last 30 years, a significant background in taking assets, putting them
together and creating worth and value for our shareholders and for our partners
until very we coupled with this project and this enterprise is going to do
the same.
Resaca
was a private company that we were the manager of, we took that public in
London on the AIM last year. It was the largest IPO on the AIM as far as
energy IPO in the AIM last year. Its a strong company and its focus is
exactly what it says, its Resaca Exploitation. We are our whole purpose is
not exploration, its exploitation of existing oil reserves and thats exactly
what Cano is too.
So
from that standpoint we really do have a commonality of our assets and we feel
very, very comfortable that these assets will fit together and well be able to
generate a significant amount of cash flow for the partners and create value.
Thats
kind of a background, but going into some more of the specifics and I know
everybody realizes we were up probably most of the night getting all of the
paperwork finalized and merger agreement signed and Board approval so that we
could make this announcement today and be speaking about it today.
Resaca
is the surviving entity, Resaca is headquartered in Houston, I should say this,
that although we said a surviving entity, really this is a 50-50 deal, the
shareholders of Resaca and the shareholders of Cano will have approximately the
same interest. Resaca will have four Board members and Cano will have three
Board members, but I must make it very clear, the day we close, the day we
merge its not the Cano Board members and the Resaca Board members, its all
seven Board members working for the Company.
3
Upon
closing we will have dual listing, one will be on the AIM, London Stock
exchange at AIM and the other will be on the New York Stock Exchange AMEX. So
well be able to basically be on markets in both Europe and in the US. The
exchange ratio, 2.1 shares of Resaca for every share of Cano, we have
approximately 97 million shares outstanding, Cano has about 45 million and that
isnt how it works to the 2.1.
On a
combined basis, the proven reserves, we have 63 million barrels of proved
reserves between the two companies, PV10 of $650 million, and I should add thats
about 81% oil-based reserves. On a combined basis the two companies have daily
production of just a shade under 2,000 barrels equivalent per day, 1970 is the
number that youll see in the presentation.
Two
or three things to think about on the transaction, it calculates out where
Resaca is paying a 32% premium for Cano, this as based on a 30-day average
volume weighted average price. Other metrics to think about is that the price
translates into $3.34 for proven BOE for proven reserves and $16.29 from BOE
for proved developed reserves.
I
think youll see that we have a fairly similar background, we both have been as
[steel] and energy has been in business for three or four or five years,
although we took to the route of going public in London and obviously Cano was
public here in the US. The focus is the same, we both have exploitation efforts,
we both are producing oil and acquiring operating fields that are water floods
that (inaudible) go to to enhance oil recovery and tertiary recovery type
projects, CO2 recovery projects.
Our
proved reserves are very similar, from the standpoint of quality of the
reserves. We have 14 million barrels proven, Cano has 49 million. But in our
case 56% of our reserves are proved developed where only 21% of Canos are
proved developed, the balance being the huge factor is obviously in the proved
undeveloped category.
PV10,
we have a $182 million PV10 of all the proven reserves for Cano as about $470
million. Heres where it gets interesting. Probable reserves are about 14
million barrels in our case and about 13 right at 14 million for Cano as
well. These are the reserves fundamentally that are the water flood reserves
that will be recovered through the CO2 through the tertiary recovery projects.
Thats a lot of the upside of this enterprise and we will actively be moving
towards getting the CO2 projects in place as soon as we can.
Production
rates I think I mentioned is 660 barrels a day for Resaca, 1,309 for Cano for a
total just a shade under 2,000 barrels a day. Properties are very similar,
Permian basin reserves and then also the Panhandle and then some projects up in
Oklahoma as well.
Transaction
rationale, why are we doing this? We both have tremendous long-term potential.
In Resacas case we have a higher short-term potential in developing our proved
developed behind pipe, reserves are not producing reserves. We have a lot of
behind pipe procedures to do and we can access cash flow a little quicker
there. But in the long run theres a tremendous amount of reserves that Cano
represents in their PUD category. So we do have a balance there between the two
companies and its very complementary.
Other
things obviously that come into play putting these two companies together the
mindsets are the same, the rationales are the same for business enterprise and
pieces of the business. In our case we believe that between the two companies
we can achieve cost savings, both G&A and LOE, in the $4.5 million to $5
million per year range. Some of these have already been implemented that youll
see going through with the upcoming financial statements.
Some
of them may not have a big impact on the 6-30 financial statements, but youll
see them coming into play and thats a key here is to eliminate that $5 million
of cost and that just goes to bottom-line and gets you that much more EBITDA to
basically reinvest in the properties themselves.
The
staffs are very complementary, good technical groups, good administrative
(inaudible) have very good long life long histories in operating and
producing oil reserves. So this is very, very significant. And other good
synergies just geographic that youd expect. We also think that on a combined
basis well be seeing increases in production from just more intensive
operational procedures that weve been implementing and also some workovers and
re-completions of certain wells.
Lets
see here, I think Im kind of hitting some of the same points, but theres a
reason here to put this all together, its just the strategic reason. Again its
the same type of properties, significant CO2 recovery potential on all the
properties and weve just got to maximize that value.
4
From
a capital structure standpoint we see a lot of value here; we dont see a
significant amount of overlap in our institutional shareholder base. Most of
Resacas institutional base are UK or Canada where Cano asked Canadian
institutional support as well as US support. So I think it will just broaden
not base of institutional ownership here.
Obviously
with the dual listing in both London and the US well be able to continue to
access more and more institutions and have interest that (inaudible) difficult
for a small company to be in one or the other, but on a combined basis well be
able to pursue multiple list. And again, we just feel like the whole capital
structure will be enhanced, so much that the asset base you have (inaudible) be
able to look at other forms of capital structure and financing that make sense.
From
an organizational structure we mentioned J.P. is going to J.P. Bryan is
Chairman of the Board and will assume the role of CEO. Hell be focused on
really implementing and accelerating the business plan of both companies. I
will be assuming the role as Vice Chairman, probably spending most of my time
working with the investors and investor base, (inaudible) in the UK and with
the European base as well.
As
we go forward we have a good blend of Cano executive management and the Resaca
executive management. Chris Work, CFO of Resaca, will remain in that position.
Mike Ricketts will be working with Chris; Mike is the Vice President and
Accounting Controller for Cano. Dennis Hammond, who is the President of Resaca,
will be in that position and he will continue to have the overall view of the
engineering and of the reserves, exploitation and be accountable for that.
Pat
McKinney, Senior VP of Resaca I mean senior of Cano will assume the role of
Executive Vice President engineering and operations of Resaca with emphasis as
really expanding development work the asset base. And then Phillip Feiner who
is currently at Cano, Chief Legal Counsel, will become the Chief Legal Counsel
for Resaca. Youll see in the presentation if the presentation on the
website?
Unidentified
Company Representative
Yes.
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
I dont
know that I mentioned that, but there is a presentation on the website if you
or dont have access (inaudible). Youll see the background of all of the
people. I think probably the most significant one for everybody on this call
thats important is J.P. J.P. is, for those of you who dont know him, has been
actively involved for 40 years in the energy business. Over that period of time
hes been Chairman of the Board, Executive Chief Executive Officer.
This
in his our sixth public enterprise that Torch and J.P. have been sponsors of.
The other ones include Gulf Canada, Nuevo Energy, Bellwether, and then a couple
of other enterprises. So we really do have a background in creating value for
shareholders and achieving that value. Youll see a background of management
profiles for the rest of the key individuals in the presentation.
Jeff
Johnson -
Cano Petroleum - Chairman, CEO
As a
quick note, that website is www.CanoPetro.com if you did want to look at the
presentation that Jay alluded to that hes looking at.
5
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Okay,
okay. I should add, if you want more background on Resaca, Resacas website is
www.ResacaExploitation.com. And youll find it has a very complete selection of
all of the key information that we have from the formation of Resaca forward.
Youll
see in the presentation that theres a synopsis there of where the properties
are. Again, its primarily the panhandle of Texas and the Permian basin of
Southeast New Mexico and West Texas. There are also some smaller projects in
the Barnett Shale area and also in Oklahoma.
Youll
see on page 11 of the presentation youll see a synopsis of the
categories of reserves to PV10 by entity, by Resaca and by Cano and how they
(inaudible) on a combined basis. If you look at that youll understand the
magnitude of the Company weve been able to achieve by combining these and also
see how they are complementary. Again 1P reserves of PV10 is about $650
million, 2P reserves of PV10 is in excess of $1 billion and almost 90 million
barrels of proven reserves. Obviously proven and probable reserves, 2P
reserves.
Other
things of note that I know you all will be interested in. Youll see a page there
liquidity. The reality is that weve got two or three threshold issues that
every enterprise has, when you merge together you have to take an account and
handle. We have two credit facilities between the two enterprises that need to
be merged together. Union Bank California is the lead on Canos facility and we
anticipate merging the two together and working with Union Bank to see how that
will all fit together here.
The
other side I want to be very clear about is were anticipating doing an equity
raise, primarily one to take care of short-term capital requirements necessary
to really implement this plan. And two, to the extent if we do need to do that
were going to de-lever a little bit which I think is probably prudent in this
market. So well be back in the market (inaudible).
The
development plan, things that are of interest. One is (inaudible) single
biggest asset is the Cooper Jal unit, this is in Southeast New Mexico, its a
waterflood. We have in excess of 60 behind pipe recompletions that those recompletions
will be done in the next I dont know, it might be 12 to 24 months. This will
add each one projects to add about 18 barrels a day equivalency. Then on top
of that we actually have a were in the middle of a refrac program on a
number of recently drilled wells and older wells where were going in and
refracking more modern techniques and so far to date weve achieved about 30
barrel a day increase in production from that as well.
All
of these procedures though further support the repressurization of this
waterflood, and currently were injecting about 18,000 barrels of water a day
into the field. That up from 9000 barrels a day about 12 months ago.
The
program is to maintain that, repressurize that field. And then once we have a
breakover, then we will come back in behind that and (inaudible) the CO2
injection program there.
The
indications are that net to our interest, we own 72% working interest in this
field. Net to our interest, we will actually get this up over to about 500
barrels a day in this field, and that will be the point where we will
pressurize the CO2 (inaudible).
Cato
Field, I think most of you on the call probably are familiar with this. Were
excited about this project. Its similar to our Cooper Jal, but it is in fact
significantly larger. Currently, its on about 650 acres. Were going to expand
that to 1000 acres.
We,
in fact, do have significant more acreage we could possibly incorporate into
the flood. Projections are it will take us up to 21,000 barrels a day of water
injection there. And again, this will take us up to about 400 barrels a day
equivalent here.
And
then in time with that (inaudible) of that field, than we will come back behind
it and our plans are to actively pursue a water a CO2 flood there as well.
You
will see I mentioned Cooper Jal unit. There is a schematic in the presentation
that gives you a good feel here. The key in this is that net to our interest,
we have proved well reserves of almost 5 million barrels. We have PUDs of about
4.8 million and probables of 7 million barrels. Probables are for CO2
potential.
Visual
long plays in this field is 160 million barrels. My thoughts on it are that it
could be more than that, but thats the number we feel very comfortable on. The
69 producing wells, 28 injection wells, and again weve put in play about
18,000 barrels a day there.
6
Our second largest field
is the Jordan San Andres Unit. This is out in Ector County. Its a
noncontiguous unit that is in conjunction with Citations Jordan unit as well.
We are in discussions on how to put those two units together. This is a
significant field, our production is about 130 BOE a day here and, again, this
one is the same thing, it would be pressurized and a lot of the high pipe zones
we have potential to create (inaudible).
Cato Field, weve
already discussed that, theres a good synopsis here. The key here in his there
are like 14,000 acres, is that right? Oh, 15,000 acres. And youve got original
oil in place here of 125 million barrels. A lot of potential here to go at,
really bring in some exploitation techniques that will increase the production.
And then finally the
other one I think probably everybody on the call knows of and thats the
Panhandle Field. 22,000 gross acres, 100% working interest, tremendous
reserves, production 600 barrels a day. Currently were injecting about 70,000 barrels
a day of water, I think were going to be doing some pretty hard evaluation on
how to really maximize the economics of this field, understand where the water
is going to understand what were really doing there. And this is going to be a
focal point for us going forward (inaudible).
From your standpoint
investment highlights, just going back and repeating this a little bit.
Everything is very complementary as far as the reserves, the type of production
we have, its all low risk, its not exploration, its exploitation, its
engineering driven. Were in a beautiful situation, weve got good acreage
position, good net revenue interest, 100% working interest, we operate
everything. In exploitation the key is to be able to control your own destiny
and we have that ability here, its just whether we can actually go out and do
it or not (inaudible) right people to do this.
I mentioned earlier were
going to be moving quickly to cut significant levels of cost, this translates
into higher EBITDA, higher valuation for everybody. And then I do believe that
with our management team and the investor support well have the dual listing,
that well have good, good institutional support. With that being said, thats
pretty much the my comments. And do you want to
Jeff Johnson
-
Cano Petroleum -
Chairman, CEO
Sure.
Jay Lendrum
-
Resaca Exploitation, Inc.
- CEO, Director
throw it open for
questions?
Jeff Johnson
-
Cano Petroleum -
Chairman, CEO
Sure, real quick. One
last comment I would make is whenever I left last night, probably Jay feels the
same way on the airplane to come out here when I landed I didnt know if I
was giving a Cano presentation or a Resaca presentation or something else. So I
was not I did not have a chance to be back home and talk to the employees,
but one thing I want to mention, Jay, is youve got an awfully good group of
people in Fort Worth, the Panhandle, Oklahoma and Eastern New Mexico that you
guys are going to be able to join your team and really help you out. So with
that Ill yes, lets go ahead and open it up for any questions.
QUESTION AND ANSWER
Operator
7
(Operator Instructions). Noel Parks,
Ladenburg Thalmann.
Noel Parks
-
Ladenburg Thalmann -
Analyst
Hello. I had a few
questions. Just to start, maybe if youd talk a little bit more about the
rationale for the transaction with this timing. For each of you, did you have a
particular best case or worse case scenario in mind going forward as far as
commodity prices or the funding environment both on the debt or equity side
that made you feel like this was the right transaction for each company at this
time?
Jay Lendrum
-
Resaca Exploitation, Inc.
- CEO, Director
Noel, this is Jay. From
my standpoint I cant say that the oil prices, commodity prices really impacted
our decision to proceed with this transaction. Were committed to long-term
value ability and long term development of the reserves. We saw this as
basically a very similar asset base, the dynamics were very similar and we
wanted to aggregate the two asset bases and at the same time eliminate some
redundant cost and maximize value for our shareholders and the Cano
shareholders.
So I dont know that I
really can say that the oil prices drove it or not. I think that, again, the
quality assets were so similar to what we were asking, that was what guided us
beside the (inaudible) project.
Jeff Johnson
-
Cano Petroleum -
Chairman, CEO
Yes, this is Jeff. Good
question, Noel. And Jay answered it very well I think. Obviously Im bullish on
pricing, I think oil has a place that it can run over the next few years as
well as gas or we wouldnt have remained in the business. That being said, I
dont believe it was the primary driver, it was a factor obviously. But over
the last year or so weve always this company has always been and any EOR
company has always had to be very reliant upon the capital markets to provide
your funding. Its a capital intensive program.
With the uncertainty in
the markets that weve seen, the challenges, I believe right now at a time when
you can put assets together to build a better base, to have synergies and to be
able to do it in such a manner, from my viewpoint, that youve got a guy like
J.P. Bryan, who has a track record, the sheepskins that he has, to step in and
bring with it a team that can merge with our team and our assets, it was just
it was just a fantastic transaction for both our preferred shareholders and
common shareholders from our viewpoint.
Noel Parks
-
Ladenburg Thalmann -
Analyst
Okay. Looking ahead a
bit, I know its still early, but has there been any thought given to
ultimately who youd use for their reserve engineers for the combined
companies?
Jay Lendrum
-
Resaca Exploitation, Inc.
- CEO, Director
From our standpoint we
basically have three engineering firms involved that were looking at
obviously. One, Miller and Lents is the engineer of record at Cano. For Resaca,
Haas Engineering Service, Bob Haas out of Dallas has been doing this work for a
number of years and has a good database and we feel very comfortable with Bob
on the water floods and on the primary reserves.
8
But Bob will tell you
that he did not have the capabilities on the CO2, whereas we use so because
of that we used John Savage, Roy Williamson, Williamson Petroleum Consultants
out of Midland who over the years have built a tremendous database in the
Permian Basin CO2 fields. Not saying that they havent worked on other areas,
but they really do have a good database in those fields. So those are the three
engineering firms.
Now I mean, in the long
run it probably does make sense to look at consolidating all that together. But
to answer your question of whether weve made a decision about that or not, no,
we have not made a decision about changing engineering firms.
Noel Parks
-
Ladenburg Thalmann -
Analyst
And as part of the
agreement you have at this point, is there a breakup fee involved for either
party?
Jeff Johnson
-
Cano Petroleum -
Chairman, CEO
(multiple speakers).
Yes.
Jay Lendrum
-
Resaca Exploitation, Inc.
- CEO, Director
Yes, there is, $3.5
million.
Jeff Johnson
-
Cano Petroleum -
Chairman, CEO
You might ask Chris to
(multiple speakers).
Jay Lendrum
-
Resaca Exploitation, Inc.
- CEO, Director
Chris, are you online?
Chris Work -
Resaca Exploitation, Inc. - VP, CFO
Yes, Im on.
Jay Lendrum -
Resaca Exploitation, Inc. - CEO, Director
$3.5 million, correct,
for the breakup fee?
Chris Work -
Resaca Exploitation, Inc. - VP, CFO
Ill grab that. I
believe it was $5 million. But basically it only kicks in if theres basically
a topping type of transaction.
9
Jeff Johnson -
Cano Petroleum - Chairman, CEO
If its not $3.5 million
jump back on and let us know (multiple speakers).
Jay Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Yes (multiple speakers).
Chris Work -
Resaca Exploitation, Inc. - VP, CFO
Ill put you on mute and
Ill come back.
Unidentified Company Representative
Jeff, its $3.5 million.
Chris Work -
Resaca Exploitation, Inc. - VP, CFO
Okay.
Noel Parks -
Ladenburg Thalmann - Analyst
Okay, thats all for me
right now, thanks.
Jeff Johnson -
Cano Petroleum - Chairman, CEO
Okay, thank you Noel.
Operator
Curtis Trimble, Natixis.
10
Curtis Trimble -
Natixis - Analyst
Sure, good afternoon,
everyone. Just looking a little bit further out on the food chain and in the
Nowata properties and other properties in Canos portfolio. What would you say
plans for those would be? Are they populating 2013, 14 or is this something
that we would think of as slated for potential sale on a go-forward basis?
Jay Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Well, I dont want to go
on record that theyre for sale, okay. But if you know anything about Torch and
our background, weve always had an approach of rationalizing assets. And if we
get more value for them, especially the smaller assets, if we can get more value
for selling them and using that capital to really enhance the balance sheet and
one way or another we will definitely do that.
So from that standpoint
I think that weve been focused on the primary assets and well take a look at
any or all of the assets to see how to rationalize them either selling them,
maybe do a special JV, bringing another capital source, bringing a partner,
there are a lot of other options that we have that well be evaluating all
those.
Curtis Trimble -
Natixis - Analyst
Okay, switching gears
and looking at the combined credit facility. Should we think of it as what you
guys have on the table now plus what Canos got and that will be in the
[sights] of the facility with terms being fairly consistent with whats already
there? Or have initial conversations pointed in some other direction?
Jay Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Let me tell you, we have
not the banks are working it right now, so they have not given us any
indication of whether in fact they are its going to point in the other
direction or whatever. So I think guidance for you, assume its about what it
is on a combined basis.
Curtis Trimble -
Natixis - Analyst
Okay. And any other
distinction probably would have some bearing on the size of the equity
offering?
Jay Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Yes.
Curtis Trimble -
Natixis - Analyst
Any ideas on what
initial indication might be there or initial I guess interest level from you
guys on size of offering?
11
Jay Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Well, Im not sure I
want to come back and see how this the debt discussions go before we make a
final call, but obviously were not interested in selling a lot of equity right
now. Wed rather try to live within our means and do enough equity to basically
deleverage the balance sheet a little bit and then provide the capital that
(inaudible) develop these projects. Those are the two main (inaudible). But we
try to minimize that.
Curtis Trimble -
Natixis - Analyst
Very good, I appreciate
your time.
Operator
Manav Gupta, Canaccord
Adams.
Manav Gupta -
Canaccord Adams - Analyst
This is Manav Gupta for
Irene. I just wanted to ask, can you give me some additional color about the
2010 CapEx guidance the joint CapEx that you plan to put in for the next
year?
Patrick McKinney -
Cano Petroleum - SVP of Engineering & Operations
Yes, this as Pat
McKinney. Our preliminary CapEx for Cano that weve announced in our 10-K is
roughly $14 million for development capital.
Manav Gupta -
Canaccord Adams - Analyst
Okay.
Patrick McKinney -
Cano Petroleum - SVP of Engineering & Operations
And thats primarily at
our two largest assets of the Cato Field and Panhandle. And I think that we can
let Chris talk on capital for Resaca right now.
Jay Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Yes, Chris or Dennis, if
you could address the Resaca side of that question. Did I lose Chris and
Dennis?
Chris Work -
Resaca Exploitation, Inc. - VP, CFO
This is Chris. We were
having some trouble getting on. I dont know if Dennis made on or not. On our
side were looking at for this fiscal year about $7 million.
12
Manav
Gupta -
Canaccord Adams - Analyst
Okay.
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
I
will say to give you a little color too thats kind of interesting, and Im
sure Cano is seeing the same thing. But that $7 million for Resaca goes a lot
farther than it used to. I mentioned this refrac program that were starting.
Actually we did one of these frac jobs a year ago and it was $600,000. We did
the same frac job on a new drill about six months ago and it was $350,000.
We
did this one refrac that we just completed and it was the largest frac weve
done out there to date, and the same job cost $138,000. So from that standpoint
we are seeing a lot more bang for our buck in business out there now. So this
working out very well from our standpoint.
Manav
Gupta -
Canaccord Adams - Analyst
Okay,
I appreciate that. Anything about your Barnett assets which are still kind of
shut in?
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Our
what? Repeat that question?
Manav
Gupta -
Canaccord Adams - Analyst
The
Barnett assets.
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Barnett
assets.
Jeff
Johnson -
Cano Petroleum - Chairman, CEO
Barnett
assets, right, now this is Jeff. We shut those in in the current price
environment. Obviously we actually took an impairment on that. That being said,
gas prices come back and support the drilling activity out there to take a look
at it again, Im sure that they will, but thats going to be a question for
J.P. and Pat as they go on down the road. But I would say once prices get back,
that generally speaking they probably would take a look at it if gas prices get
to the level where it makes it economic.
13
Manav
Gupta -
Canaccord Adams - Analyst
Is
there any particular number youre looking at?
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Id
be lying if I gave you any number on that Barnett. We just have to take a look
at it and if it makes sense well put it back on.
Manav
Gupta -
Canaccord Adams - Analyst
Okay,
thank you. Thats all from my side.
Jeff
Johnson -
Cano Petroleum - Chairman, CEO
Tom,
as there any other questions?
Operator
(Operator
Instructions). David Hunt, Petro-Hunt.
David
Hunt -
Petro-Hunt - Analyst
This
one is for Jeff or Jay. How are you all proposing treating the preferreds that
are existing at Cano?
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
David,
youre a preferred holder?
David
Hunt -
Petro-Hunt - Analyst
Yes.
How are you doing, Jay?
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
I
was just sitting here and it dawned on me that in my earlier comments I
neglected to address the preferreds.
David
Hunt -
Petro-Hunt - Analyst
Right.
14
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
And
I think everybody knows that theres about $27 million of face value preferred
out there. We actually have come to an agreement with the largest preferred
shareholder to basically extend the term and reduce the conversion price, the
conversion price will be 125% over the transaction price, which I think ends up
being $2 and
Unidentified
Company Representative
(inaudible)
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
$1.78,
$1.75, something like that.
Unidentified
Company Representative
You
might ask Chris.
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Chris,
do you have a current price on that?
Chris
Work -
Resaca Exploitation, Inc. - VP, CFO
Current
price on ?
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
On
what the convert will be on the preferreds? Is it $1.78 or ? David, its in
that range, $1.78 to $1.80, something like that.
David
Hunt -
Petro-Hunt - Analyst
And
whats the term extension, how long? Whats the proposal?
15
Jeff
Johnson -
Cano Petroleum - Chairman, CEO
Yes,
David, this is Jeff. Weve been in discussion a little bit with D.E. Shaw over
the weekend and my understanding is that they would like to extend it 12
months, keep the coupon the same and then just drop the conversion, its
basically it will be up 25% over the deal price.
David
Hunt -
Petro-Hunt - Analyst
Okay.
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
And
David, its my understanding that, one, we wanted to obviously come up with a
fair trade or re-trade on that. And I believe were going to Todd and the
guys, D.E. Shaw are going to be circling back around to everybody else on that.
David
Hunt -
Petro-Hunt - Analyst
Okay.
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
If
you havent heard you should be hearing the details soon.
David
Hunt -
Petro-Hunt - Analyst
Okay,
thank you.
Operator
And
you have no questions at this time.
Jeff
Johnson -
Cano Petroleum - Chairman, CEO
Well,
I appreciate everybody joining us today. Again, were very excited and look
forward to it, building a very dynamic EOR company. And again, if anybody has
any questions for the Cano management members in reference to last years 10-K
or any of those numbers, were very accessible. Give us a call and well be
happy to go with you with those numbers with you at any time. Thank you.
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
And
from my standpoint, as being the CEO of Resaca, I do want to extend my
invitation personal invitation if you have any questions, any thoughts, youd
like to have any discussions on anything about this transaction or going
forward, how to really create value here, please do not hesitate to call any of
us at Resaca. Youve got our number and were in Houston, its easy enough to
give us a call, come on by, whatever. Id like
16
the
opportunity to meet anybody thats interested in sitting down and talking about
the Resaca/Cano combination. With that I guess well sign off and well get
back to work here.
Jeff
Johnson -
Cano Petroleum - Chairman, CEO
Thank
you.
Jay
Lendrum -
Resaca Exploitation, Inc. - CEO, Director
Bye.
Operator
Thank
you for your participation in todays conference. This concludes the
presentation. You may now disconnect, have a great day.
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