NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
Madalena Energy Inc. ("Madalena" or the "Company") (TSX
VENTURE:MVN)(PINKSHEETS:MDLNF), is pleased to announce that it has entered into
an agreement to acquire (the "Acquisition") the Argentinean business units of
Gran Tierra Energy Inc. ("Gran Tierra"). The Acquisition is highly accretive and
includes Proved and Probable ("2P") reserves of 6,513 mboe at December 31, 2013,
estimated production on close of the Acquisition of approximately 3,300 boe/d
(approx. 78% oil), 11 exploration and production blocks comprising approximately
890,000 net acres and a fully functional independent business unit in Argentina
with an experienced technical and operational team. The purchase price is US$63
million, payable in US$49 million cash and 27,661,971 common shares of Madalena
("Common Shares") at a deemed issue price of CDN$0.55 (US$0.506).
In connection with the Acquisition, Madalena has entered into an agreement with
Dundee Securities Ltd. as lead underwriter and sole bookrunner ("Lead
Underwriter") on behalf of itself and a syndicate of Underwriters including RBC
Capital Markets, Haywood Securities Inc., Beacon Securities Limited, National
Bank Financial Inc., FirstEnergy Capital Corp., Mackie Research Capital
Corporation, TD Securities Inc., Canaccord Genuity Corp., Jennings Capital Inc.
and Raymond James Ltd. (the "Underwriters") for a bought deal equity financing,
("Financing"), for aggregate gross proceeds of CDN$50 million (described in more
detail below).
The Acquisition provides Madalena with a solid platform for growth which more
than triples the Company's production base and significantly increases cash flow
from its Argentinean assets. Pro forma the closing of the Acquisition,
Madalena's corporate production is estimated to increase to approximately 4,900
boe/d (approx. 72% oil and NGLs), approx. 80% of which will be from Argentina,
with cash flow expected to be reinvested into both high impact conventional
opportunities in Argentina and to accelerate the delineation of the Company's
unconventional shale and tight sand resources within the Neuquen basin. Pro
forma the Acquisition, Madalena will have a strong portfolio of assets with
exposure to a low decline stable production base, an extensive inventory of low
risk development drilling opportunities, a seismically and technically defined
conventional portfolio of assets, and significant unconventional shale (Vaca
Muerta, Lower Agrio and Los Monos shales) and tight sand resources.
Madalena estimates pro forma annual cash flow of US$35 - US$45 million over the
next twelve months which is expected to provide the Company with the ability to
execute a US$50 - US$60 million capital program. Madalena will provide
additional go-forward guidance subsequent to the closing of the Acquisition and
the approval of a consolidated budget by the Company's board of directors.
Pro forma the Acquisition and the Financing and after all transaction costs, the
Company estimates positive working capital of approximately US$5.0 million.
Acquisition Highlights
-- Total purchase price of US$63 million comprised of US$49 million in cash
and US$14 million in Common Shares (at a deemed price of CDN$0.55
(US$0.506) per Common Share);
-- Acquiring adjusted 2P reserves of 6,513 mboe at approximately
US$16.12/boe (US$9.67 excluding FDC);
-- Acquisition cost per flowing boe of approximately US$19,091, based on
current estimated production at the expected closing date of the
Acquisition of 3,300 boe/d;
-- Reserve life index of 5.41 years, based on current estimated production
and adjusted 2P reserves;
-- Recycle ratio of approximately 2.1x, based on Q1-2014 operating property
netbacks of US$33.93/boe and acquisition costs of approximately
US$16.12/boe;
-- Key producing infrastructure, including batteries and pipelines;
-- Approximately 890,000 net acres of developed and undeveloped lands; and
-- Lands have an average working interest of approximately 83%, and the net
production acquired is more than 94% operated.
The following is a summary of production, land and reserves information that is
relevant to Madalena, prior to, and following, the Acquisition and the
Financing:
Madalena(1) Acquisition(2) Adjustments(3) Pro Forma
Current
Production(6)
Oil and NGLs (bbl/d) 960 2,610 3,570
Gas (mcf/d) 3,840 4,150 7990
Boe (boe/d) 1,600 3,300 4,900
Oil and NGLs (%) 60 78 72
Land (net acres) 239,000 890,000 (125,000) 1,004,000
RESERVES(4)
Proved
Oil and NGL (mbbl) 1,350 4,248 (612) 4,986
Gas (mmcf) 8,032 5,599 (510) 13,121
mmBOE (6:1) 2,689 5,181 (697) 7,173
Proved plus Probable
Oil and NGLs (mbbl) 2,373 6,295 (900) 7,768
Gas (mmcf) 13,651 7,615 (900) 20,366
mmBOE (6:1) 4,648 7,563 (1,050) 11,161
Proved FDC(5)
(US$mm) 20 46 (21) 45
2P FDC (US$mm) 33 77 (35) 75
Accretion Analysis Madalena Acquisition Total Accretion
Diluted Shares (mm) 413.5 118.6 532.1
Proved Reserves (boe
per mm shares) 6.5 43.7 13.5 107%
2P Reserves (boe per
mm shares) 11.2 63.4 20.6 87%
Current Production
(boe/d per mm
shares) 3.9 27.8 9.2 138%
Notes:
1. Based on the independent reserve reports of Madalena evaluating the
crude oil, natural gas liquids and natural gas reserves of the Company
as at December 31, 2013 prepared by an independent reserves evaluator in
accordance with National Instrument 51-101 - Standards of Disclosure for
Oil and Gas Activities ("NI 51-101") and the COGE Handbook.
2. Based on the independent reserve reports of Gran Tierra evaluating the
crude oil, natural gas liquids and natural gas reserves of Gran Tierra
as at December 31, 2013 prepared by an independent reserves evaluator in
accordance with NI 51-101 and the COGE Handbook.
3. Adjustments to the acquisition reserves were made pursuant to internal
management estimates conducted by a qualified reserves engineer.
Adjustments consisted of reduced PUD locations due to rescheduling or
removal of proven undeveloped and probable locations on the subject
assets and acreage consolidations.
4. Reserves are "gross reserves", being working interest share of reserves
before the deduction of royalties owned by others.
5. "FDC" means future development costs. Please see the end of this news
release for important information on FDC. Madalena converted to US$ at
0.92US/CDN.
6. Based on field estimates.
Rationale for the Acquisition
-- Highly accretive on all metrics and more than triples the Company's
production base.
-- Strong cash flow from the conventional asset bases that can be directed
towards accelerating development of Madalena's unconventional shale oil
and gas plays in Argentina.
-- Strengthens Madalena's Argentinean operations by adding a fully
integrated professional and operating team "on the ground" in Argentina.
-- Enhances and improves the Company's flexibility regarding the future
delineation of, or transactions associated with, Madalena's current
unconventional shale assets in Argentina.
-- Strategically positions Madalena as a strengthened and emerging oil and
gas producer.
-- Improves Madalena's access to exploration and production services in
Argentina.
In respect to the benefits of the proposed transactions Mr. Kevin Shaw,
President and Chief Executive Officer of Madalena commented:
"Madalena is very pleased to enter into this transaction, which is expected to
simultaneously accomplish several steps in building value for Madalena
shareholders. The combination of achieving critical mass in Argentina and the
addition of a fully integrated professional and operating team in country will
assist Madalena in accelerating a growth strategy that is balanced between
conventional production focused development, and the delineation of the
Company's unconventional shale and tight sand resources."
"I look forward to having the Argentina based Gran Tierra team join us in
delivering this conventional growth and assisting us in the delineation and
prove-up of Madalena's unconventional resources."
Dana Coffield, President and Chief Executive Officer of Gran Tierra added:
"The combined assets in Argentina will provide Madalena with a solid operational
platform to advance the conventional assets and unlock the Vaca Muerta shale
potential, benefiting Argentina stakeholders, Madalena and GTE shareholders
through its ownership in Madalena."
"Gran Tierra Energy had its start with operations in Argentina in 2005. Since
that time, our Argentine team has successfully grown our business in the
country, and contributed to the growth of Gran Tierra Energy in the intervening
years. We would like to thank the Argentine team for their contributions and
wish them the best for continued success in the years to come with Madalena."
Equity Financing
In connection with the Acquisition, Madalena has entered into an agreement with
the Underwriters, pursuant to which the Underwriters have agreed to purchase for
resale to the public, on a bought deal basis, 90,910,000 subscription receipts
of the Company ("Subscription Receipts"), at a price of $0.55 per Subscription
Receipt, for aggregate gross proceeds of approximately CDN$50 million.
The Underwriters have also been granted an over-allotment option, exercisable at
any time up to 30 days following closing of the Financing, in whole or in part,
to purchase from the Company, up to an additional 13,636,500 Subscription
Receipts, to cover over-allotments and for market stabilization purposes.
Madalena will apply to list the Subscription Receipts and the Common Shares
issuable pursuant to the Financing on the TSX Venture Exchange.
The Subscription Receipts will be offered by way of a short-form prospectus to
be filed in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba,
Ontario and New Brunswick pursuant to National Instrument 44-101 - Short Form
Prospectus Distributions.
The gross proceeds from the Financing will be held in escrow pending the
satisfaction of all conditions to the completion of the Acquisition (other than
funding), provided that the closing date of the Acquisition is on or before July
31, 2014, upon which time each Subscription Receipt will entitle the holder to
receive a Common Share, without further payment or action on the part of the
holder, upon the closing of the Acquisition. If the Acquisition is not completed
on or before July 31, 2014 or it is terminated at an earlier time, then the
purchase price for the Subscription Receipts will be returned to subscribers,
together with a pro rata portion of interest earned on the escrowed funds.
Completion of the Acquisition and the Financing are subject to certain
conditions including the receipt of all necessary regulatory approvals,
including the approval of the TSX Venture Exchange. Closing of the Financing is
expected to occur on or about June 24, 2014 and the Acquisition is expected to
close on or about June 30, 2014.
Advisors
Dundee Securities Ltd. has acted as financial advisor to Madalena with respect
to the Acquisition. RBC Capital Markets has acted as strategic advisor to
Madalena with respect to the Acquisition. Haywood Securities Ltd. has provided
the board of directors of Madalena with its opinion, pending review of the
finalized form of documents effecting the Acquisition, that the consideration to
be paid by Madalena pursuant to the Acquisition is fair, from a financial point
of view, to Madalena shareholders.
About Madalena - International and Domestic Assets (Pre-Acquisition)
Madalena is an independent, Canadian-based, domestic and international upstream
oil and gas company whose main business activities include exploration,
development and production of crude oil, natural gas liquids and natural gas.
Internationally, Madalena holds three large blocks within the Neuquen basin in
Argentina where it is focused on the delineation of large petroleum in-place
shale and unconventional resources in the Vaca Muerta and Lower Agrio shales, in
addition to multiple tight sand plays. The Company is also implementing
horizontal drilling and completions technology to high impact international
plays and is currently focused on a conventional oil play in the Sierras Blancas
formation. Madalena holds approximately 132,200 net acres on the Coiron Amargo
(34,950 net acres), Curamhuele (50,600 net acres) and Cortadera (46,650 net
acres) blocks.
Domestically, Madalena's core area of operations is located in the Greater
Paddle River area of west-central Alberta where the Company holds approximately
195 gross (153 net) sections of land (approximately 78% average W.I.)
encompassing light oil and liquids-rich gas resource plays. Madalena's primary
domestic focus is to exploit its large inventory of horizontal drilling
locations on its Ostracod oil and emerging oil & liquids-rich gas resource
plays.
Madalena trades on the TSX Venture Exchange under the symbol MVN. Basic
corporate information, recent news releases and regularly updated corporate
presentations are available on the Company's website at www.madalenaenergy.com.
Reader Advisories
Forward Looking Information
The information in this news release contains certain forward-looking
statements. These statements relate to future events or our future performance,
in particular, but not limited to, with respect to the Acquisition, including
the characteristics of the Argentinean business units being acquired and other
expectations related thereto and the timing thereof, the Financing and the
timing thereof and the Company's expected use of proceeds from the Financing.
Statements relating to "reserves" are also deemed to be forward looking
statements, as they involve the implied assessment, based on certain estimates
and assumptions, that the reserves described exist in the quantities predicted
or estimated and that the reserves can be profitably produced in the future. All
statements other than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always, identified by
the use of words such as "seek", "anticipate", "plan", "continue", "estimate",
"approximate", "expect", "may", "will", "project", "predict", "potential",
"targeting", "intend", "could", "might", "should", "believe", "would" and
similar expressions. In particular, this news release contains forward-looking
statements pertaining to operational activities to be conducted by the Company.
These statements involve substantial known and unknown risks and uncertainties,
certain of which are beyond the Company's control, including: the impact of
general economic conditions; industry conditions; changes in laws and
regulations including the adoption of new environmental laws and regulations and
changes in how they are interpreted and enforced; fluctuations in commodity
prices and foreign exchange and interest rates; stock market volatility and
market valuations; volatility in market prices for oil and natural gas;
liabilities inherent in oil and natural gas operations; uncertainties associated
with estimating oil and natural gas reserves; competition for, among other
things, capital, acquisitions, of reserves, undeveloped lands and skilled
personnel; incorrect assessments of the value of acquisitions; changes in income
tax laws or changes in tax laws and incentive programs relating to the oil and
gas industry; geological, technical, drilling and processing problems and other
difficulties in producing petroleum reserves; and obtaining required approvals
of regulatory authorities.
The Company's actual results, performance or achievement could differ materially
from those expressed in, or implied by, such forward-looking statements and,
accordingly, no assurances can be given that any of the events anticipated by
the forward-looking statements will transpire or occur or, if any of them do,
what benefits the Company will derive from them. These statements are subject to
certain risks and uncertainties and may be based on assumptions that could cause
actual results to differ materially from those anticipated or implied in the
forward-looking statements. The forward-looking statements in this news release
are expressly qualified in their entirety by this cautionary statement. Except
as required by law, the Company undertakes no obligation to publicly update or
revise any forward-looking statements. Investors are encouraged to review and
consider the additional risk factors set forth in the Company's Annual
Information Form, which is available on SEDAR at www.sedar.com.
Non-GAAP Measures
This document contains the term "cash flow" and "net backs", which do not have a
standardized meaning prescribed by Canadian generally accepted accounting
principles ("GAAP") and therefore may not be comparable with the calculation of
similar measures by other companies. Madalena uses cash flow and net backs to
analyze financial and operating performance. Madalena feels this benchmark is a
key measure of profitability for Madalena. This term is commonly used in the oil
and gas industry. Cash flow is not intended to represent operating profits nor
should it be viewed as an alternative to cash flow provided by operating
activities, net earnings or other measures of financial performance calculated
in accordance with GAAP. Cash flows are calculated as cash flows from operating
activities less changes in non-cash working capital.
Information Regarding Disclosure on Reserves
The reserve estimates contained herein are estimates only and there is no
guarantee that the estimated reserves will be recovered. In relation to the
disclosure of estimates for individual properties, companies or business units,
as adjusted, such estimates may not reflect the same confidence level as
estimates of reserves and future net revenue for all properties, due to the
effects of aggregation.
Meaning of Boe
The term "boe" or barrels of oil equivalent may be misleading, particularly if
used in isolation. A boe conversion ratio of six thousand cubic feet of natural
gas to one barrel of oil equivalent (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. Additionally, 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 ratio of 6:1 may be misleading as an indication of value.
Finding and Development Costs
NI 51-101 specifies how finding and development costs ("F&D costs") should be
calculated if they are reported. Essentially NI 51-101 requires that the
exploration and development costs incurred in the year along with the change in
estimated F&D costs be aggregated and then divided by the applicable reserve
additions. The calculation specifically excludes the effects of acquisitions and
dispositions on both reserves and costs. Since acquisitions can have a
significant impact on annual reserve replacement costs, excluding these amounts
could result in an inaccurate portrayal of Madalena's cost structure. F&D costs
disclosed herein are based on working interest gross reserves. The aggregate of
the exploration and development costs incurred in the most recent financial year
and the change during that year in estimated future development costs generally
will not reflect total F&D costs related to reserve additions for that year.
Neither the TSX Venture Exchange nor its Regulation Service Provider (as that
term is defined in the policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
THE SECURITIES OFFERED HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT
REGISTRATION OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS. THIS PRESS
RELEASE SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL.
FOR FURTHER INFORMATION PLEASE CONTACT:
Madalena Energy Inc.
Kevin Shaw, P.Eng, MBA
President and Chief Executive Officer
(403) 262-1901 (Ext. 230)
kdshaw@madalenaenergy.com
Madalena Energy Inc.
Thomas Love, CA
VP, Finance and Chief Financial Officer
(403) 262-1901 (Ext. 227)
tlove@madalenaenergy.com
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