Mr. Jason Skehar reports
BONAVISTA ANNOUNCES SYNERGISTIC ASSET ACQUISITION
Bonavista Energy Corp. has acquired certain oil-and-liquids-rich natural-gas-weighted properties located within its west-central Alberta core area which are synergistic to the company's existing operations, complementary to its development plans and accretive to its debt leverage.
The transaction closed on Dec. 4, 2019, with an effective date of Nov. 1, 2019. The purchase price of $53.3-million, which is subject to customary postclosing adjustments was financed through the company's existing bank credit facility in addition to adjusted funds flow.
This asset acquisition is consistent with Bonavista's strategy to concentrate the company's portfolio in two core areas in Alberta. Its consolidation efforts have led to sustainable and scalable low-cost operations in its core areas with numerous profitable and predictable development opportunities. The acquired assets reside in the company's west-central core area where it operates numerous oil and natural gas processing facilities, over 70,000 horsepower of natural gas compression and nearly 3,200 kilometres of pipeline infrastructure. In August, 2019, average production from the acquired assets was 8,900 barrels of oil equivalent per day (41 per cent oil and natural gas liquids (NGL)) with a moderate annual production decline of 20 per cent.
The acquired assets include ownership in approximately 500 net sections of mineral rights most of which are located in close proximity to Bonavista's existing land position. Approximately 60 net horizontal drilling opportunities have been identified, some of which are extended-reach locations adjacent to the company's existing lands, enhancing the economic value of the combined drilling spacing unit. The acquired assets will have a nominal impact on Bonavista's corporate LMR ratio decreasing it by approximately 8 per cent to 3.4. Given the company's significant presence in the area, acquired liabilities will be efficiently managed through its existing area-based closure programs and will result in a modest increase of incremental capital allocation to its annual abandonment and reclamation program in future years.
- Enhances the quality, efficiency and sustainability of the company's west-central core area with the addition of a low-decline, predictable production base estimated to average 8,200 boe per day in the first quarter of 2020, weighted 44 per cent toward oil and natural gas liquids and generating an average operating netback of $11 per boe based on forward commodity prices as at Nov. 19, 2019;
- Scales up the company's developed and undeveloped position in the Glauconite formation in central Alberta which is accretive in oil and NGL composition to the company's corporate production and will be instrumental in enhancing profitability within the core area;
- With approximately 80 per cent of the acquired production flowing through operated infrastructure, the company will immediately align and optimize operations within its west-central core area with the potential to reduce operating expenses on the acquired assets by an estimated 30 per cent in 2020 when compared with 2019;
- Development opportunities that complement the company's existing opportunities resulting in the allocation of between $30-million to $35-million of exploration and development capital spending per year on the acquired assets over the next two years. This is expected to generate approximately $80-million of adjusted funds flow over the next 24-month period based on forward commodity prices as at Nov. 19, 2019, on the acquired assets.
Natural gas Oil and natural gas liquids Total
Reserves (Bcf) (mbbl) (mboe)
Proved producing (1) (2) (3) 58.9 7,202 17,015
Total proved (1) (2) (3) 99.8 13,681 30,308
Total proved plus probable (1) (2) (3) 153.8 21,806 47,432
(1) Reserves are working interest reserves prior to the deduction of royalties and including
(2) Reserve estimates are based on McDaniels &; Associates Consultants Ltd.'s reserve
evaluations dated June 7, 2019, and effective June 1, 2019, prepared in accordance with
National Instrument 51-101 and the COGE Handbook.
(3) The estimates of reserves for individual properties may not reflect the same confidence
level as estimates of reserves for all properties, due to the effects of aggregation.
This acquisition is another meaningful step in strengthening our asset portfolio by improving the sustainability in the company's west-central core area. The acquisition increases the company's inventory of predictable and profitable drilling opportunities and provides incremental operating scale enabling continued cost reductions and heightened profitability in this unpredictable commodity price environment. Ultimately, the synergies created by the proximity of the acquired assets to the company's existing operations will lead to continued improvements in both capital and operating efficiencies, augmented development opportunities and enhanced long-term shareholder value.
With the addition of the acquired assets to the company's portfolio, Bonavista anticipates corporate production to average between 65,000 and 67,000 boe per day in the first quarter of 2020. Notwithstanding recent strength in natural gas and NGL pricing, the company will remain prudent with its development plans for 2020 and spend within adjusted funds flow to allow for the continued focus on reducing net debt. Capital spending of between $40-million and $50-million on the company's corporate exploration and development program is currently planned for the first quarter of 2020.
We seek Safe Harbor.
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