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Enter Symbol
or Name
USA
CA



Invicta Energy Corp
Symbol VCA
Shares Issued 75,609,049
Close 2013-03-15 C$ 0.40
Market Cap C$ 30,243,620
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Whitecap Resources to acquire Invicta for cash, shares

2013-03-18 08:23 ET - News Release

See News Release (C-WCP) Whitecap Resources Inc (2)

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:

  1. Partial year operating and financial information based on a closing date of May 1, 2013.
  2. 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.
  3. 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.
  4. 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.
  5. 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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