Mr. Grant Fagerheim of Whitecap reports
WHITECAP RESOURCES INC. INCREASES VIKING LIGHT OIL EXPOSURE THROUGH THE ACQUISITION OF INVICTA ENERGY CORP. AND ANNOUNCES INCREASED 2013 GUIDANCE
Whitecap Resources Inc. and Invicta Energy Corp. have entered into an arrangement
agreement providing for the acquisition
by Whitecap of all the issued and outstanding common shares of Invicta. Invicta is a light-oil-weighted public energy
company with its operations immediately offsetting Whitecap's lands and
Viking production in the Lucky Hills area of west-central Saskatchewan.
Under the terms of the transaction, Invicta shareholders will receive,
at their election, for each Invicta share held, either: (i) 0.05891 of
a Whitecap common share; or (ii) 51.911 cents in cash, subject to an
aggregate cash maximum of $10.7-million. Whitecap will also assume the
net debt of Invicta, estimated at $17.4-million, after accounting for
costs, severance and option proceeds associated with the transaction,
as at March 31, 2013.
The 51.911-cent-per-share transaction value represents a 30-per-cent premium
to the closing market price of the Invicta common shares on March 15,
2013, and a 37-per-cent premium to the volume-weighted average trading
price of the Invicta common shares for the 10 trading days ending March
15, 2013. The total transaction value is approximately $60.2-million,
including the assumption of net debt.
Strategic rationale
Since the company's initial entrance into the Viking light oil resource play in
February, 2012, it has steadily improved its operational results and
capital efficiencies and has significantly exceeded initial
expectations. The Invicta lands, and associated locations, are within
the company's core Lucky Hills area where it owns the majority of the offsetting
lands. With 87 per cent of the acreage on Crown lands, the acquired
locations have some of the best economic parameters in the greater
Dodsland area.
In the first quarter of 2013, Whitecap drilled and placed on stream 19
(17.4 net) Viking horizontal wells in Lucky Hills with average drill
and complete costs of $785,000 per well. Of the 19 wells drilled in the
first quarter, 15 have 30 or more days of production with an average IP
(30) rate in excess of 100 barrels of oil equivalent per day (80 per cent light oil). Many of these results
directly offset the Invicta lands and are well above the company's current Viking
type curve.
Whitecap is also acquiring three multiwell oil batteries that are
currently tied in to Whitecap's infrastructure for oil gathering and
gas conservation. The Invicta facilities enhance Whitecap's ability to
lower costs and increase netbacks in this area over time.
The company initially acquired 1,600 boe/d of light oil production in Lucky Hills
as part of the Compass transaction in February, 2012, and now has
current production in excess of 3,500 boe/d, an increase of 119 per cent
before the acquisition of Invicta. This demonstrates the significant
organic growth Whitecap has already experienced with the Viking
horizontal oil play. Pro forma the transaction, Whitecap anticipates
current production in the Viking formation to be in excess of 4,000
boe/d.
The Invicta lands will generate free cash flow and further strengthen
the sustainability of the company's dividend-growth strategy. The company estimates the
transaction to impact Whitecap's 2013 and 2014 forecasts as displayed in the table.
2013 (1) 2014
Average production 400 boe/d 650 boe/d
Cash flow (2) (3) $8.9-million $14.1-million
Development capital spending $4.7-million $7.2-million
Free cash flow (3) $4.2-million $6.9-million
Note: The impact on 2013 is based on a closing date of May
1, 2013, and therefore does not represent full year
2013 average production, cash flow, development capital
spending and free cash flow.
Summary of the transaction
Through the transaction, Whitecap is acquiring high-quality, high
netback light oil assets located in the Lucky Hills area of west-central Saskatchewan, focused on the Viking formation. The acquired
Viking assets are complementary to the company's existing operations and are
immediately offsetting its lands in west-central Saskatchewan. Invicta
has current production of approximately 500 boe/d (more than 80 per cent oil and natural gas liquids)
and a low-risk horizontal development drilling inventory of 77 net
locations. Of these 77 locations, only 36 locations have reserves
booked to them in Whitecap's internal assessment of Invicta's reserves.
The transaction has the following characteristics.
Total transaction price (including net debt): $60.2-million
Current production: 500 boe/d (more than 80 per cent oil and NGLs)
Proved reserves (4): 2,612 million boe (80 per cent oil and NGLs)
Proved plus probable reserves (4): 3,045 Mboe (80 per cent oil and NGLs)
Proved plus probable RLI (5): 16.7 years
Operating netback (2) (3): $58.00/boe
Net of undeveloped land at an estimated value of $5.0-million, using
$100/acre, the associated transaction metrics are as follows.
Current production: $110,400/boe/d
Proved reserves: $21.13/boe
Proved plus probable reserves: $18.13/boe
Proved plus probable reserves recycle ratio: 3.2 times
The transaction is forecast to be accretive on cash flow per share,
production per share, proved plus probable reserves per share and on
net asset value per share to Whitecap, on a fully diluted basis.
Increased 2013 guidance
On a stand-alone basis, Whitecap is
currently producing greater than 17,500 boe/d (71 per cent oil and NGLs).
Following the transaction, Whitecap will continue to expand on its 2013
capital program in west-central Saskatchewan drilling an additional eight
(4.2 net) horizontal wells targeting the Viking formation. The company's revised
2013 guidance has average production increasing 3 per cent to 17,200 to
17,400 boe/d and capital spending increasing 3 per cent to $160-million
from its previous guidance provided. The company anticipates the transaction to
be debt neutral to Whitecap with 2013 year-end net debt to cash flow of
1.3 times to 1.4 times.
Notes:
-
Partial year operating and financial information based on a closing date of May 1, 2013.
- Based on an Edmonton par price of $87.50 (Canadian) per bbl, $3 (Canadian) per gigajoulue AECO and a Canadian/U.S.-dollar exchange rate of 0.98.
- Cash flow, free cash flow and operating netback are non-GAAP (generally accepted accounting principles) measures. Refer to the non-GAAP measures section of this press release.
- Based on Invicta's working interest reserves before the calculation for royalties and before the consideration of Invicta's royalty interest reserves. Reserves estimates are based on Whitecap's internal evaluation and were prepared by a member of Whitecap's management who is a qualified reserves evaluator in accordance with National Instrument 51-101 effective April 1, 2013.
-
Based on current production of 500 boe/d.
Plan of arrangement
Whitecap and Invicta have entered into an arrangement agreement pursuant
to which Whitecap and Invicta have agreed that the transaction will be
undertaken by means of a plan of arrangement under the Business Corporations Act (Alberta). Invicta shareholders will receive, at their election, for
each Invicta share held, either: (i) 0.05891 of a Whitecap common
share; or (ii) 51.911 cents in cash, subject to an aggregate cash maximum
of $10.7-million, in exchange for all of the outstanding shares of
Invicta and subject to the terms and conditions of the arrangement
agreement. The arrangement agreement contemplates that Invicta will
hold a meeting of its shareholders on or prior to May 9, 2013, to permit
shareholders to vote on the arrangement.
The board of directors of Invicta unanimously supports the transaction,
has determined that the transaction is in the best interest of Invicta
and recommends that the shareholders of Invicta vote in favour of the
transaction. Certain Invicta shareholders, including all senior
officers and directors who collectively hold over 22 per cent of the
issued and outstanding voting shares of Invicta (assuming exercise of
in-the-money options), have entered into agreements with Whitecap
pursuant to which they have agreed to vote their shares in favor of the
transaction at the Invicta shareholder meeting.
The arrangement agreement provides for non-solicitation covenants
(subject to the fiduciary obligations of the board of directors of
Invicta and the right of Whitecap to match any superior proposal (as
defined in the arrangement agreement). The arrangement agreement, among
other things, provides for mutual non-completion fees of $2.4-million
in the event the transaction is not completed or is terminated by
either party in certain circumstances. The arrangement agreement
provides that completion of the transaction is subject to certain
conditions, including the receipt of all required regulatory approvals,
including the approval of the TSX Venture Exchange and the Toronto Stock Exchange, the approval of the
shareholders of Invicta including, if applicable the approval of the
majority of the minority and the approval of the Court of Queen's Bench
of Alberta. The transaction is anticipated to close in April, 2013.
Financial advisers
GMP Securities LP is acting as exclusive financial adviser to Invicta
with respect to the transaction and has provided the board of directors
of Invicta with its opinion that, subject to its review of the final
form of documents effecting the arrangement agreement, the
consideration to be received by Invicta shareholders is fair, from a
financial point of view, to Invicta shareholders. Paradigm Capital Inc.
is acting as strategic advisers to Invicta in connection with the
transaction.
We seek Safe Harbor.
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