NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A
VIOLATION OF U.S. SECURITIES LAWS.
Pace Oil & Gas Ltd. ("Pace") (TSX:PCE), AvenEx Energy Corp. ("AvenEx") (TSX:AVF)
and Charger Energy Corp. ("Charger") (TSX VENTURE:CHX) announce that they have
entered into an agreement (the "Arrangement Agreement") providing for the
combination of Pace, AvenEx and Charger to form a dividend paying corporation to
be named "Spyglass Resources Corp." ("Spyglass"). Spyglass will have a balanced
commodity profile and sustainable business model underpinned by 18,000 boe/d of
stable, low decline oil and gas production and will be led by an experienced
management team.
The merger will be completed through an amalgamation of the three parties (the
"Merger") on the basis of 1.30 Spyglass shares for each outstanding common share
of Pace (the "Pace Shares"), 1.00 Spyglass share for each outstanding common
share of AvenEx (the "AvenEx Shares") and 0.18 Spyglass shares for each
outstanding Class A share of Charger (the "Charger Shares"). The exchange ratios
represent a value of $4.32 for each Pace Share, $3.32 for each AvenEx Share and
$0.60 for each Charger Share based on the closing price for AvenEx on December
19, 2012.
In conjunction with the Merger, AvenEx has reached a binding agreement for the
sale of its Elbow River Marketing business (the "Elbow River Sale") for
aggregate cash proceeds of $80 million, subject to regulatory approvals,
customary closing conditions and adjustments. The Elbow River Sale is expected
to close by mid-February 2013.
Spyglass will have approximately 129 million common shares outstanding upon
completion of the Merger and, subject to receipt of the final approval of the
TSX, will be listed on the TSX under the symbol "SGL". Spyglass will be managed
by the current Charger team, led by Tom Buchanan as CEO (former President and
CEO of Provident Energy Trust) and Dan O'Byrne as President (former COO of
Provident Energy Trust). The Board of Directors of Spyglass will consist of 8
members with nominees from each party including Randy Findlay as Chair, Dennis
Balderston, Tom Buchanan, Gary Dundas, Mike Shaikh, Jeff Smith, Fred Woods and
John Wright.
"We are very pleased to introduce a new dividend-paying intermediate oil and gas
producer to the Canadian market," said Tom Buchanan, Chairman and CEO of
Charger. "The combined asset base features mature, low decline properties and a
balanced commodity profile coupled with the light oil development opportunities
needed to sustain the model. The management team has previously operated the
majority of the assets that are being contributed to Spyglass and has a proven
track record in respect of the execution, financial and operational discipline
that is required to sustain a cash-distributing entity."
Dividend Policy
Upon closing, Spyglass will implement a monthly dividend of $0.03 per share with
a dividend payout of 35% to 40% of cash flow (approximately $46 million annual
dividend) and a target all-in payout ratio (including $80 to $90 million of
sustaining capital expenditures) of approximately 100% of cash flow. The
dividend policy will be reviewed monthly and is based on a number of factors
including current and future commodity prices, foreign exchange rates, an active
commodity price hedging program, status of current operations and future
investment opportunities. Each dividend declaration will be confirmed by
Spyglass in a monthly news release. Spyglass will consider implementing a
dividend reinvestment plan (DRIP) following completion of the Merger.
Key Attributes and Sustainability Criteria of Spyglass
Each of Pace, AvenEx and Charger believe that the Merger will create immediate
and long term shareholder value through the introduction of an income and growth
company of scale with a low decline, balanced commodity profile and a
sustainable dividend. The business model is supported by the following key
attributes:
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Spyglass Key Attributes
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Pro Forma Operational
Current Production (boe/d) 18,000 boe/d
% Oil & Liquids 45%
Total Proved Reserves(1) 57.5 MMboe
Total Proved plus Probable Reserves(1) 93.9 MMboe
Undeveloped Land (Net) 645,000 acres
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Pro Forma Financial
Shares Outstanding 129 million
Credit Facility Capacity $400 million
Net Debt(2) $280 million
Expected Credit Facility Availability $120 million
Estimated Tax Pools $900 million
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Pro Forma 12-Month Outlook(3)(4)
12-Month Production Forecast 18,000 boe/d
% Oil & Liquids 52%
Operating Netback $21 - $23 / boe
12-Month Cash Flow Forecast(5) $115 - $130 million
Capital Expenditures $80 - $90 million
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Pro Forma Dividend Features &
Sustainability Criteria
Annualized Dividend per Share $0.36
Payment Frequency Monthly
Dividend Payout Ratio 35% - 40%
All-In Payout Ratio 100% - 115%
Base Decline Rate 20%
Development Capital Efficiencies $25,000 / boe/d
Pro Forma Net Debt to Cash Flow 2.2x - 2.4x
Reserve Life Index 14 years
Light Oil Drilling Inventory (Halkirk,
Matziwin, Pembina, Randell, etc.) greater than 1,000 locations
Years of Sustaining Development
Available greater than 20 years
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Notes:
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(1) Reserves from reserve reports for each company as of December 31,
2011 and the updated GLJ report on certain properties for Charger as
of May 31, 2012 adjusted for AvenEx and Charger minor dispositions in
2012 and adjusted for 2012 production to October 31, 2012 as forecast
in the December 2011 reserve reports.
(2) Pro forma net debt incorporates estimated cash proceeds from the
disposition of the Elbow River Sale and estimated transaction costs
and excludes risk management assets and liabilities as of the closing
date of the transaction.
(3) Twelve months commencing on the closing date of the Merger, currently
anticipated to be in mid-February 2013.
(4) Commodity price assumptions: Edm Light C$80.00 to C$86.00, corporate
realized crude oil and liquids price C$71.36 to C$76.80 at the
wellhead, AECO $3.30 / Mcf.
(5) Commodity price sensitivities: a $1.00/bbl change in realized crude
oil prices, results in a $2.2 million change in annualized cash flow;
a $0.50/Mcf change in natural gas prices, results in a $6.0 million
change in annualized cash flow.
Recent crude oil prices, specifically the differential between WTI and realized
wellhead prices in western Canada have shown a high degree of volatility. Until
transportation issues, refinery outages and other contributing factors are
mitigated, the volatility is expected to continue. The light oil production in
the combined asset base currently attracts a much higher price than heavy oil
and the strategic use of available rail transportation further enhances realized
commodity prices. Management expects that the price of Edmonton Light crude oil
will range between C$80/bbl and C$86/bbl in 2013.
A crude oil price of C$80/bbl for Edmonton Light and a corporate average
realized price of approximately C$71/bbl at the wellhead would result in
annualized cash flow of approximately $115 million, an all-in payout ratio of
approximately 115% and pro forma net debt to annualized cash flow of 2.4x.
Alternatively, a crude oil price of C$86/bbl for Edmonton Light and a corporate
average realized price of approximately C$76/bbl at the wellhead would result in
annualized cash flow of approximately $130 million, an all-in payout ratio of
approximately 100% and pro forma net debt to annualized cash flow of 2.2x.
Spyglass will target an all-in payout ratio of 100% going forward and will
manage capital spending in the context of commodity prices and forecasted cash
flow.
Active Hedging Program
Management of Spyglass will employ an active commodity price hedging strategy to
protect the dividend and capital program. Spyglass plans to protect up to 60% of
production by volume using a rolling 12 month hedging strategy featuring a blend
of fixed price and participating products designed to reduce the impact of
commodity price volatility on netbacks and cash flow.
The combined hedging position of the parties currently protects approximately
40% of pro forma forecast 2013 natural gas production at a weighted average AECO
floor price of $3.06/Mcf and approximately 10% of pro forma forecast 2013 crude
oil production at a weighted average WTI floor price of approximately
C$99.00/bbl, assuming a CAD/USD exchange rate of 1.00.
Credit Facility
Spyglass has received proposals for a $400 million senior revolving credit
facility with a syndicate of lenders co-arranged by National Bank Financial and
TD Securities, subject to the closing of the Merger. Management anticipates that
Spyglass will have approximately $120 million availability on the credit
facility at closing.
2013 Capital Program Designed for Sustainability
The 2013 capital program is designed to sustain current production levels and
support the cash flow underpinning the dividend model. A total of $80 to $90
million in capital expenditures are planned and will be focused primarily on
light oil development in the following areas:
-- Halkirk-Provost Viking: approximately 30%
-- Southern Alberta multiple zones (Pekisko and other): approximately 20%
-- Randell Slave Point and Gilwood: approximately 20%
-- Pembina Cardium: approximately 10%
-- Other: approximately 20%
It is estimated that the combined development program as currently contemplated
will yield capital efficiencies of approximately $25,000 per boe/d.
Arrangement
The Merger will be effected by way of a plan of arrangement under the Business
Corporations Act (Alberta), and is anticipated to close in mid-February 2013.
Closing of the Merger is subject to, among other conditions, the closing of the
Elbow River Sale, the approval of at least 66 2/3% of the shares voted at each
of the parties' respective shareholder meetings, the approval of the Alberta
Court of Queen's Bench, the receipt of all necessary regulatory and stock
exchange approvals and satisfaction of certain other closing conditions that are
customary for a transaction of this nature. Closing of the Elbow River Sale is
not conditional on the closing of the Merger.
It is anticipated that separate Pace, AvenEx and Charger shareholder meetings
will be held in February 2013 following the mailing of a joint information
circular regarding the Merger in January 2013 to shareholders of each company.
Closing of the Merger is expected to occur in mid to late February. Each party
has agreed to pay a non-completion fee of approximately 2.5% of its enterprise
value to the other two parties in certain circumstances as set forth in the
Arrangement Agreement, and in the case of AvenEx such non-completion fee is also
payable in the event the Merger does not close as a result of the Elbow River
Sale condition not being satisfied.
The Directors of each of Pace, AvenEx and Charger that are eligible to vote have
unanimously approved the Merger and resolved to recommend that their respective
shareholders vote in favour of the Merger. Tom Buchanan and Mike Shaikh,
Directors of both Pace and Charger, abstained from voting. Each of the Directors
and Officers of Pace, AvenEx and Charger have entered into support agreements
pursuant to which each has agreed to vote their shares in favour of the Merger.
Complete details of the terms of the Merger are set out in the Arrangement
Agreement, which will be filed by each of the parties and will be available for
viewing under each company's respective profile at www.sedar.com.
Financial Advisors and Fairness Opinions
National Bank Financial Inc. is acting as exclusive financial advisor to Pace
and has provided the Board of Directors of Pace with its verbal opinion that, as
of the date hereof and subject to its review of the final form of the
documentation effecting the Merger, the consideration to be received by holders
of Pace Shares pursuant to the Merger is fair, from a financial point of view to
the holders of Pace Shares.
GMP Securities L.P. is acting as strategic advisor to AvenEx with respect to the
Merger and the Elbow River Sale. Peters & Co. Limited is acting as financial
advisor to AvenEx and has provided the Board of Directors of AvenEx with its
verbal opinion that, as of the date hereof and subject to its review of the
final form of the documentation effecting the Merger, the consideration to be
received by holders of AvenEx Shares pursuant to the Merger is fair, from a
financial point of view to the holders of AvenEx Shares. Raymond James Ltd. is
acting as financial advisor to AvenEx with respect to the Elbow River Sale.
TD Securities Inc. is acting as financial advisor to Charger and has provided
the Board of Directors of Charger with its verbal opinion that, as of the date
hereof and subject to the review of the final documentation, that the
consideration received by holders of Charger Shares pursuant to the Merger is
fair, from a financial point of view to the holders of Charger Shares. Macquarie
Capital Markets Canada Ltd. is acting as strategic advisor to Charger with
respect to the Merger.
Conference Call
A conference call in regards to the Merger is scheduled to occur on Thursday,
December 20, 2012 at 8:00 a.m. MST / 10:00 a.m. EST. You can access the call by
dialing 1-866-696-5910 or 1-416-340-2217 and entering the passcode 2043431.
For those unable to participate in the conference call at the scheduled time, it
will be archived for replay. You can access the replay by dialing 1-800-408-3053
or 1-905-694-9451 and entering the passcode 5590839. The replay will be
available approximately two hours following completion of the call.
Reader Advisory and Note Regarding Forward Looking Information
This press release contains forward-looking information within the meaning of
applicable securities laws and is based on the expectations, estimates and
projections of management of each of Charger, Pace and AvenEx as of the date of
this news release, unless otherwise stated. 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. More
particularly and without limitation, this press release contains forward-looking
information concerning: the anticipated benefits of the Merger to the
shareholders of each of Charger, Pace and AvenEx, including anticipated
synergies; anticipated future production, operating netbacks, cash flow, capital
expenditures, dividends, payout ratios, decline rates, development capital
efficiencies, net debt to cash flow, reserve life index, credit facility
availability and years of sustaining development available; the timing and
anticipated receipt of required regulatory, court and shareholder approvals for
the transaction; the ability of each of Charger, Pace and AvenEx to satisfy the
other conditions to, and to complete, the Merger including the Elbow River Sale;
the anticipated timing of the joint information circular regarding the Merger;
the holding of the shareholder meetings of each of Charger, Pace and AvenEx; the
anticipated dividend payments of Spyglass following closing and the closing of
the Merger. Such forward-looking information is provided for the purpose of
providing information about management's current expectations and plans relating
to the future. Investors are cautioned that reliance on such information may not
be appropriate for other purposes, such as making investment decisions.
In respect of the forward-looking information and statements concerning the
anticipated benefits and completion of the proposed Merger and the anticipated
timing for completion of the Merger, each of Charger, Pace and AvenEx has
provided such in reliance on certain assumptions that it believes are reasonable
at this time, including assumptions as to the time required to prepare and mail
shareholder meeting materials, including the required information circular; the
ability of each of Charger, Pace and AvenEx to receive, in a timely manner, the
necessary regulatory, court, shareholder, stock exchange and other third party
approvals, including but not limited to the receipt of applicable competition
approvals; the ability of each of Charger, Pace and AvenEx to satisfy, in a
timely manner, the other conditions to the closing of the Merger; and
expectations and assumptions concerning, among other things: commodity prices
and interest and foreign exchange rates; planned synergies, capital efficiencies
and cost-savings; applicable tax laws; future production rates; the sufficiency
of budgeted capital expenditures in carrying out planned activities; and the
availability and cost of labour and services.
The anticipated dates provided may change for a number of reasons, including
unforeseen delays in preparing meeting materials, inability to secure necessary
shareholder, regulatory, court or other third party approvals in the time
assumed or the need for additional time to satisfy the other conditions to the
completion of the Merger. Accordingly, readers should not place undue reliance
on the forward-looking information contained in this press release. In respect
of the forward-looking information, including the anticipated dividend payments
of Spyglass following closing, each of Charger, Pace and AvenEx has provided
such in reliance on certain assumptions that it believes are reasonable at this
time, including assumptions in respect of: prevailing commodity prices, margins
and exchange rates; that each of Charger's, Pace's and AvenEx's future results
of operations will be consistent with past performance and management
expectations in relation thereto; the continued availability of capital at
attractive prices to fund future capital requirements relating to existing
assets and projects, including but not limited to future capital expenditures
relating to expansion, upgrades and maintenance shutdowns; the success of growth
projects; future operating costs; that counterparties to material agreements
will continue to perform in a timely manner; that there are no unforeseen events
preventing the performance of contracts; and that there are no unforeseen
material construction or other costs related to current growth projects or
current operations.
Since forward-looking information addresses future events and conditions, such
information by its very nature involves 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 industries in which each of Charger, Pace and AvenEx operates in
general such as: operational risks; delays or changes in plans with respect to
growth projects or capital expenditures; costs and expenses; health, safety and
environmental risks; commodity price, interest rate and exchange rate
fluctuations; environmental risks; competition; failure to realize the
anticipated benefits of the Merger and to successfully integrate each of
Charger, Pace and AvenEx; ability to access sufficient capital from internal and
external sources; and changes in legislation, including but not limited to tax
laws and environmental regulations. Risks and uncertainties inherent in the
nature of the Merger include the failure of each of Charger, Pace and AvenEx to
obtain necessary shareholder, regulatory, court and other third party approvals,
or to otherwise satisfy the conditions to the Merger, in a timely manner, or at
all. Failure to so obtain such approvals, or the failure of each of Charger,
Pace and AvenEx to otherwise satisfy the conditions to the Merger, may result in
the Merger not being completed on the proposed terms, or at all.
Readers are cautioned that the foregoing list of factors is not exhaustive.
Additional information on other factors that could affect the operations or
financial results of each of Charger, Pace and AvenEx, and the combined company,
are included in reports on file with applicable securities regulatory
authorities, including but not limited to; the Annual Information Form for the
year ended December 31, 2011 for each of Charger, Pace and AvenEx which may be
accessed on their respective SEDAR profiles at www.sedar.com.
Any financial outlook or future oriented financial information in this press
release, as defined by applicable securities legislation, has been approved by
management of Charger, Pace and AvenEx. Such financial outlook or future
oriented financial information is provided for the purpose of providing
information about management's reasonable expectations as to the anticipated
results of Spyglass and its anticipated business activities for the twelve
months following the closing of the Merger.
The forward-looking information contained in this press release is made as of
the date hereof and each of Charger, Pace and AvenEx undertake no obligation to
update publicly or revise any forward-looking information, whether as a result
of new information, future events or otherwise, unless so required by applicable
securities laws.
Boes are presented on the basis of one Boe for six Mcf of natural gas.
Disclosure provided herein in respect of Boes 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.
Given that the value ratio based on the current price of crude oil as compared
to natural gas is significantly different from the energy equivalency of 6:1,
utilizing a conversion on a 6:1 basis may be misleading as an indication of
value.
This joint news release does not constitute an offer to sell or the solicitation
of an offer to buy any securities within the United States. The securities to be
offered have not been and will not be registered under the U.S. Securities Act
of 1933, as amended, or any state securities laws, and may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements of such Act or other laws.
FOR FURTHER INFORMATION PLEASE CONTACT:
Pace Oil and Gas Ltd.
Fred Woods
President & CEO
(403) 303-8505
fwoods@paceoil.ca
Pace Oil and Gas Ltd.
Chad Kalmakoff
VP Finance & CFO
(403) 303-8504
ckalmakoff@paceoil.ca
AvenEx Energy Corp.
William Gallacher
Chief Executive Officer
(403) 237-9949
info@avenexenergy.com
AvenEx Energy Corp.
Gary Dundas
Chief Financial Officer
(403) 237-9949
info@avenexenergy.com
Charger Energy Corp.
Tom Buchanan
Chairman and CEO
(403) 457-1612
info@chargerenergy.com
Charger Energy Corp.
Dan O'Byrne
President
(403) 457-1612
info@chargerenergy.com
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