Crew Energy Inc. Announces Strategic Acquisition and Increased 2011 Guidance
May 02 2011 - 8:30AM
Marketwired Canada
NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
Crew Energy Inc. ("Crew" or the "Company") (TSX:CR) is pleased to announce that
it has entered into an arrangement agreement (the "Arrangement Agreement")
whereby, subject to certain conditions, Crew will acquire all of the issued and
outstanding shares of Caltex Energy Inc. ("Caltex"), a private oil and gas
company (the "Transaction").
The deemed purchase price is approximately $622 million in value, comprised of
the issuance of approximately 33.24 million common shares of Crew ("Crew
Shares") (at a deemed price equal to $16.30 per Crew Share) and the assumption
of approximately $80 million in net debt estimated at closing.
The Transaction is expected to be completed by way of Plan of Arrangement and is
subject to customary Toronto Stock Exchange, court and regulatory approval and
the requisite approval of Crew and Caltex shareholders. Closing of the
Transaction is expected to occur on or about July 1, 2011.
The Board of Directors of each of Crew and Caltex have unanimously approved the
Transaction and resolved to recommend that their respective shareholders vote in
favour of the Transaction. Holders of in excess of 75 percent of the shares of
Caltex have entered into support agreements with Crew pursuant to which they
have agreed to vote their shares in favour of the Transaction. Caltex has agreed
to not solicit or initiate discussions regarding any other business combination
or sale of material assets and has granted Crew the right to match any superior
proposals. The Arrangement Agreement provides for a mutual $20 million
non-completion fee payable to Crew or Caltex, as the case may be, in certain
circumstances if the Transaction is not completed.
SUMMARY OF THE ACQUISITION
Consistent with Crew's strategy to explore, exploit and acquire large
hydrocarbon in place reservoirs, the Transaction provides Crew with exposure to
significant heavy oil development in the Lloydminster area of Saskatchewan and
liquids rich natural gas assets in the Greater Wapiti area of Alberta. The
Caltex assets are 94% operated, high working interest properties and include
controlled infrastructure. The large inventory of low risk drilling and
recompletion opportunities in combination with the application of new
technologies to enhance oil recoveries provides substantial upside with scale
and repeatability at high capital efficiencies.
Key attributes of Caltex are as follows:
Production (estimated at greater than 10,500 boe/d (68% oil and
closing): liquids)
Proved Reserves (1) : 23.7 mmboe (48% oil and liquids)
Proved Plus Probable Reserves 43.0 mmboe (48% oil and liquids)
(1) :
Reserve Life Index: 6.2 years proved, 11.2 years proved plus
probable
Undeveloped Land: 137,000 net acres
Estimated Future Drilling, 910 (340 booked at year-end 2010)
Recompletion or Reactivation
Locations:
Current Operating Netback greater than $33.00 per boe
(estimated):
1. Reserves evaluated by GLJ Petroleum Consultants as at December 31, 2010.
ACQUISITION METRICS
Based on the deemed purchase price of $622 million and after adjusting for an
estimated undeveloped land value of $34.2 million, the expected acquisition
metrics are as follows:
Production : $55,980 per boe/d of current production
Proved Reserves (1): $24.80 per boe of proved reserves
Proved Plus Probable Reserves $13.67 per boe of proved plus probable
(1): reserves
Proved Plus Probable Recycle 2.4 times
Ratio (2):
Cash flow multiple (3): 5.2 times
1. Reserves evaluated by GLJ Petroleum Consultants as at December 31, 2010.
2. Utilizing the Netback shown above.
3. Based on April 29, 2011 forward strip pricing of US$114.00/bbl WTI, CDN
$4.10/mcf AECO and $1.05US$/CDN$ FX and average production of 10,500
boe/d.
STRATEGIC RATIONALE
The Transaction represents the successful continuation of Crew's strategy of
exploiting high netback assets with significant resource potential. The heavy
oil assets are highly complementary to Crew's oil strategy where Crew has had
significant success pursuing large oil in place reservoirs which can be depleted
at low capital costs and high capital efficiencies.
The successful completion of the Transaction will provide Crew with the
following key benefits:
-- Takes Crew to $2 billion market capitalization (based on current share
price of $16.35) and an estimated 2011 exit production of 32,500 to
34,500 boe/d;
-- Places Crew with significant production and growth potential in two of
the highest Rate of Return oil plays in North America;
-- Building on Crew's strategy of acquiring and exploiting large resource
assets with 2011 exit production expected to be 55% to 60% oil and
liquids;
-- Crew management has experienced a successful history operating and
growing heavy oil production;
-- Acquired inventory of 910 low risk drilling locations, recompletions and
reactivations provide multi- year predictable production growth;
-- Provides substantial stable free cash flow for re-investment purposes in
Crew's emerging Pekisko oil play while accretively adding to the
Company's oil resource;
-- Low recovery to-date estimated at 4% of oil in place provides
significant upside potential through infill drilling;
-- Low booked recovery factor of 27% on liquids rich natural gas assets
provides ample upside for infill drilling;
-- Stable, oil weighted and liquids rich natural gas production with
abundant recompletion opportunities to further expedite Crew's resource
development strategy;
-- Accretive to Crew on all key operational and financial measures;
-- 11% accretive to Crew's estimated Q4 2011 production per share
-- 14% accretive to Crew's estimated Q4 2011 cash flow per share
-- 15% accretive to Crew's proved plus probable reserves per share
-- Increases estimated cash flow netback per boe by 14%
-- Increases oil weighting on both a production and reserve basis;
-- The acquired natural gas production is liquids rich, and averaged over
70 bbls/mmcf of natural gas liquids of which 30% is condensate with
recent drilling yielding rates of 100 to 140 bbls/mmcf.
INCREASED 2011 GUIDANCE
Assuming the successful completion of the Transaction, Crew is pleased to
announce upward revised 2011 guidance:
2011 Average Production: Corporate - 23,000 to 24,000 boe/d (50% oil
and liquids)
2011 Exit Production: Corporate - 32,500 to 34,500 boe/d (55% to 60%
oil and liquids)
2011 Capital Expenditure $330 million
Budget:
2011 Cash Flow (1): $200 million
Q4 2011 Annualized Cash Flow $315 million
(2):
Royalties - 25%
Operating Costs - $10.90/boe
Transportation Costs - $1.60/boe
Year End Net Debt: $280 million
Year-end net debt to Ann. Q4 0.9x
2011 CF:
1. Based on US$104.00/bbl WTI, CDN $4.00/mcf AECO and $1.03 US$/CDN$ FX.
2. Based on US$108.00/bbl WTI, CDN $4.37/mcf AECO and $1.03 US$/CDN$ FX.
ADVISORS
Macquarie Capital Markets Canada Ltd. is acting as financial advisor to Crew
with respect to the Transaction. GMP Securities L.P., Canaccord Genuity Corp.,
and BMO Nesbitt Burns Inc. are acting as strategic advisors to Crew with respect
to the Transaction.
FirstEnergy Capital Corp. is acting as financial advisor to Caltex with respect
of the Transaction and has provided the Board of Directors of Caltex with its
opinion that, as of the date hereof, the consideration to be received by Caltex
shareholders pursuant to the Transaction is fair, from a financial point of
view, to the Caltex shareholders.
Advisory Regarding Forward-Looking Statements
This press release contains forward-looking statements and forward-looking
information within the meaning of applicable securities laws. The use of any of
the words "expect", "anticipate", "continue", "estimate", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and
similar expressions are intended to identify forward-looking information or
statements. More particularly and without limitation, this press release
contains forward looking statements and information concerning the combined and
each of the company's petroleum and natural gas production reserves; undeveloped
land holdings; reserve life index; future drilling locations, well completions
and reactivations, business strategy; future development and growth
opportunities; prospects; asset base; anticipated benefits from the Transaction,
including accretiveness to Crew on key operational and financial measures,
improved operating efficiencies, field optimizations and cost reductions; future
cash flows; value and forecast debt levels; capital programs; forecast 2011
guidance; and oil and natural gas prices. The forward-looking statements and
information are based on certain key expectations and assumptions made by Crew,
including expectations and assumptions concerning prevailing commodity prices
and exchange rates, applicable royalty rates and tax laws; future well
production rates and reserve volumes; the timing of receipt of regulatory and
securityholder approvals, the performance of existing wells; the success
obtained in drilling new wells; the sufficiency of budgeted capital expenditures
in carrying out planned activities; and the availability and cost of labour and
services. Although Crew believes that the expectations and assumptions on which
such forward-looking statements and information are based are reasonable, undue
reliance should not be placed on the forward-looking statements and information
because Crew can give no assurance that they will prove to be correct. Since
forward-looking statements and information address future events and conditions,
by their very nature they involve inherent risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors and risks. These include, but are not limited to, the risks
associated with the oil and gas industry in general such as operational risks in
development, exploration and production; delays or changes in plans with respect
to exploration or development projects or capital expenditures; the uncertainty
of reserve estimates; the uncertainty of estimates and projections relating to
reserves, production, costs and expenses; health, safety and environmental
risks; commodity price and exchange rate fluctuations; marketing and
transportation; loss of markets; environmental risks; competition; incorrect
assessment of the value of acquisitions; failure to realize the anticipated
benefits of acquisitions; ability to access sufficient capital from internal and
external sources; failure to obtain required regulatory and other approvals; and
changes in legislation, including but not limited to tax laws, royalties and
environmental regulations. There are risks also inherent in the nature of the
proposed Transaction, including failure to realize anticipated synergies or cost
savings; risks regarding the integration of the two entities; incorrect
assessments of the values of the other entity; and failure to obtain the
required securityholder, court, regulatory and other third party approvals.
This press release also contains forward-looking statements and information
concerning the anticipated completion of the proposed Transaction and the
anticipated timing for completion of the Transaction. Crew has provided these
anticipated times in reliance on certain assumptions that it believes is
reasonable at this time, including assumptions as to the time required to
prepare meeting materials for mailing, the timing of receipt of the necessary
regulatory and court approvals and the satisfaction of and time necessary to
satisfy the conditions to the closing of the Transaction. These dates may change
for a number of reasons, including unforeseen delays in preparing meeting
materials, inability to secure necessary regulatory or court approvals in the
time assumed or the need for additional time to satisfy the conditions to the
completion of the Transaction. In addition, there are no assurances the
Transaction will be completed. Accordingly, readers should not place undue
reliance on the forward-looking statements and information contained in this
press release concerning these times. Readers are cautioned that the foregoing
list of factors is not exhaustive. Additional information on these and other
factors that could affect Crew's, or the combined company's operations or
financial results are included in reports on file with applicable securities
regulatory authorities and may be accessed through the SEDAR website
(www.sedar.com), or Crew's website (www.crewenergy.com).
The forward-looking statements and information contained in this press release
are made as of the date hereof and Crew undertakes no obligation to update
publicly or revise any forward-looking statements or information, whether as a
result of new information, future events or otherwise, unless so required by
applicable securities laws.
Disclosure provided herein in respect of barrels of oil equivalent (boe) may be
misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1
Bbl is based on an energy equivalency conversion method primarily applicable at
the burner tip and does not represent a value equivalency at the wellhead.
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