Press release from Marketwire
Legacy Oil + Gas Inc. Announces Significant Light Oil Corporate Acquisition, $236 Million Bought Deal Financing, and Increased 2010 Guidance
Tuesday, June 15, 2010
Legacy Oil + Gas Inc. Announces Significant Light Oil Corporate Acquisition, $236 Million Bought Deal Financing, and Increased 2010 Guidance08:04 EDT Tuesday, June 15, 2010CALGARY, ALBERTA--(Marketwire - June 15, 2010) - 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 LAW.Legacy Oil + Gas Inc. ("Legacy" or the "Company") (TSX:LEG) is pleased to announce the acquisition (the "Acquisition") of CanEra Resources Inc. ("CanEra"), a highly focused, Alberta based private oil company, and an increase to Legacy's capital budget and production guidance for 2010.SUMMARY OF THE ACQUISITIONThrough the Acquisition, Legacy is acquiring high quality, high netback, long life, light oil and liquids rich natural gas assets focused in southwest Alberta for total consideration of $241 million in cash (subject to adjustment in certain circumstances) and 20.5 million Legacy common shares. CanEra's primary asset is the dominant, operated working interest in the giant 1.3 billion barrel original oil in-place ("OOIP") and 1.6 Tcf original gas in-place ("OGIP") (both figures from published ERCB estimates) Turner Valley field and associated gathering, treating and compression facilities. Legacy maintains its significant oil and NGL weighting at over 80 percent of proforma production and over 80 percent of proforma proved plus probable reserves. The Acquisition also adds substantial long tenure lands prospective for high impact natural gas drilling opportunities. Furthermore, the Acquisition provides access to 750 contiguous sections of relatively unexplored land in the Strathmore area, east of Calgary, prospective for multi-zone oil and natural gas.The Acquisition has the following characteristics: Current Production: 4,900 Boe/d (60% light oil (40 degrees API) and NGL's) Proved plus Probable Reserves (1): 55.3 MMBoe (76% light oil and NGL's) Proved plus Probable RLI: 30.9 years Undeveloped Land: 70,629 net acres 3D Seismic 93 square miles Total Development Drilling 110 gross, 86.0 net Locations: Operating Netback (2): $31.00 per Boe Assumed Net Debt: $100 million 1. Reserves evaluated by Sproule Associates Ltd. ("Sproule") as at December 31, 2009. Gross Company Reserves. Gross Company Reserves means the Company's working interest reserves before the calculation of royalties, and before the consideration of the Company's royalty interests. 2. Based on US$75.00/Bbl WTI and US$/CDN$ exchange rate of 0.95 and calculated by subtracting royalties and operating costs from revenues. TRANSACTION METRICSThe Acquisition is accretive to Legacy on key metrics: -- 30 percent accretive to net asset value per share (diluted) -- 146 percent accretive to reserves per share -- Neutral to cash flow per share (diluted) based on Q1 2010 results Net of undeveloped land and seismic at an estimated value of $10.4 million and based on the subscription receipt offering price of $11.80 per subscription receipt, as described below, the transaction metrics are as follows: Production: $116,800 per Boe/d Proved plus Probable Reserves (1): $10.35 per Boe Proved plus Probable Recycle Ratio (2): 3.0 times 1. Reserves as disclosed above. 2. Utilizing Netback shown above. PLAN OF ARRANGEMENTLegacy and CanEra have entered into an agreement (the "Arrangement Agreement") pursuant to which Legacy and CanEra have agreed that the Acquisition will be conducted by means of a plan of arrangement under the Business Corporations Act (Alberta). Legacy will pay $241 million cash (subject to adjustment in certain circumstances) and issue a total of approximately 20.5 million Legacy common shares to the shareholders of CanEra, in exchange for all of the outstanding shares of CanEra and subject to the terms and conditions of the Arrangement Agreement.Holders of over 98 percent of the voting shares of CanEra have entered into agreements with Legacy pursuant to which they have agreed to vote their shares in favour of the Acquisition and the board of directors of CanEra has unanimously approved the Acquisition and recommended that the shareholders of CanEra vote in favour of the Acquisition. Upon completion of the Acquisition, J. Paul Charron, President and CEO of CanEra, will join Legacy's board of directors.The Arrangement Agreement, among other things, provides for a mutual non-completion fee of up to $16 million in the event the Acquisition is not completed in certain circumstances. The Arrangement Agreement provides that completion of the Acquisition is subject to certain conditions, including the receipt of all required regulatory approvals, including the approval of the TSX, the approval of the shareholders of CanEra and the approval of the Court of Queen's Bench of Alberta. The Acquisition is anticipated to close no later than August 14, 2010 in the event that CanEra is unable to obtain written shareholder approval and is required to convene a meeting of its shareholders, or earlier in the event that it receives written shareholder approval.THE FINANCINGPursuant to the Acquisition, Legacy has entered into an agreement, on a bought deal basis, with a syndicate of underwriters co-led by GMP Securities L.P., and Macquarie Capital Markets Canada Ltd., and including FirstEnergy Capital Corp., BMO Capital Markets, National Bank Financial Inc., Canaccord Genuity Corp., Cormark Securities Inc., Raymond James Ltd. and Scotia Capital Inc. for an offering (the "Financing") of 20,000,000 subscription receipts ("Subscription Receipts") at a price of $11.80 per Subscription Receipt to raise gross proceeds of $236 million. Legacy will grant the underwriters an option to purchase an additional 3,000,000 Subscription Receipts exercisable at the offering price for a period of 30 days from the closing date for additional gross proceeds of $35.4 million. Closing of the Financing is expected to occur on or about July 6, 2010 and is subject to customary conditions and regulatory approvals, including the approval of the TSX. The net proceeds of the Financing will be used to fund a portion of the cash purchase price payable by Legacy pursuant to the Arrangement. The Subscription Receipts will be issued pursuant to a short form prospectus filed by Legacy in each of the provinces of Canada and will also be offered for sale internationally pursuant to applicable registration or prospectus exemptions as permitted.The gross proceeds of the Financing will be held in escrow pending the completion of the Acquisition. If the Acquisition is completed on or before September 15, 2010, the net proceeds will be released to Legacy and each Subscription Receipt will be exchanged for one common share of Legacy for no additional consideration. If the Acquisition is not completed on or before September 15, 2010 or the Arrangement Agreement is terminated at an earlier time, holders of Subscription Receipts will receive a cash payment equal to the offering price of the Subscription Receipts and any interest that was earned thereon during the term of the escrow.FINANCIAL ADVISORSMacquarie Capital Markets Canada Ltd. and GMP Securities L.P. acted as financial advisors and National Bank Financial Inc. acted as strategic advisor to Legacy with respect to the Acquisition. TD Securities Inc., FirstEnergy Capital Corp. and BMO Capital Markets acted as financial advisors to CanEra with respect to the Acquisition.STRATEGIC RATIONALE AND INCREASED 2010 GUIDANCEThe Acquisition represents the successful continuation of Legacy's business plan to acquire high quality light oil assets that can deliver significant development drilling and exploitation opportunities through the application of new technology while contemporaneously building a sustainable, predictable production base that provides internally generated free cash flow to fund Legacy's extensive light oil development drilling inventory. Turner Valley is Canada's first giant oilfield and its original legacy asset. Discovered in 1913 (Rundle zone discovered in 1924), this 1.3 billion barrel OOIP and 1.6 Tcf OGIP (both figures from published ERCB estimates) field has produced at consistent oil rates for the last 50 years, with an average decline rate of less than one percent per year. Current oil recovery factor is low at 12 percent, relative to analogous reservoirs.Vertical well development in the Rundle Formation ceased in the 1940's and the vertical wells were typically completed open hole with no attempt to selectively stimulate and produce any of the four productive intervals within the Rundle. Horizontal infill drilling in the Rundle began in the 1990's and has been successful in increasing oil rates and recovery, with a total of 30 horizontal re-entries and grassroot horizontals being drilled to-date. Only 12 square miles of 3D seismic have been shot over a small portion of this 45 square mile field and this lack of 3D seismic coverage is uncharacteristic for a field of this magnitude. Portions of the Turner Valley field have been under waterflood since 1952, but minimal efforts have been made to manage the voidage replacement and flood conformance. A number of wells have produced from the uphole strata, predominately Cretaceous and Jurassic aged sands. These wells have produced significant quantities of light oil and natural gas and many wells have excellent oil and natural gas shows in a number of zones that have not been pursued.Legacy believes that Turner Valley represents an extraordinary opportunity to acquire a very large resource of light oil and natural gas that has been exploited historically with antiquated drilling, completion and stimulation techniques, inconsistent reservoir management practices and minimal application of modern exploitation methods. The field's essentially flat production profile provides a strong source of free cash flow to fund Legacy's extensive light oil development drilling.Legacy has identified 110 gross (86.0 net) development locations predominately targeting light oil and numerous re-completion, stimulation, optimization and compression opportunities. Legacy believes that multi-stage fracture stimulation technology could appreciably improve initial production rates leading to a step-change increase in value of the undeveloped locations. No horizontal wells have been fracture stimulated to-date. Legacy expects that implementation of the recently announced changes to the Alberta Royalty Framework should positively impact the value of future horizontal well production and reserves, as horizontal wells now drilled in Turner Valley would be eligible for a five percent royalty rate on up to 70,000 Boe, for a maximum of 30 months. As a result of the Acquisition, Legacy is increasing its 2010 capital budget from $117 million to $130 million. Correspondingly, Legacy is increasing its guidance for 2010 average production to 8,650 Boe/d (89 percent light oil and NGL's) and increasing its guidance for 2010 exit rate production to 12,700 Boe/d (83 percent light oil and NGL's), representing a 121 percent increase over 2009 exit production guidance.Proforma the Acquisition, Legacy has the following characteristics: Average 2010 Production: 8,650 Boe/d (89% light oil and NGL's) Exit 2010 Production 12,700 Boe/d (83% light oil and NGL's) Proved plus Probable 75.9 MMBoe (81% light oil and NGL's) Reserves (1): Proved plus Probable RLI 16.4 years (2): Undeveloped Land: 418,191 net acres 3D Seismic: 703 square miles Total Development Drilling 655 gross, 462.5 net Locations: Operating Netback (3): $41.00 per Boe 123.2 million (basic)(4) Shares Outstanding (basic)(4): Anticipated Bank Line: $305 million (under review) 1. Reserves evaluated by Sproule Associates Ltd. ("Sproule") as at December 31, 2009 for Legacy and CanEra. Reserves evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") as at March 31, 2009 for Villanova Resources Inc. Gross Company Reserves. Gross Company Reserves means the Company's working interest reserves before the calculation of royalties, and before the consideration of the Company's royalty interests. 2. Based on exit 2010 production. 3. Based on US$75.00/Bbl WTI and US$/CDN$ exchange rate of 0.95 and calculated by subtracting royalties and operating costs from revenues. 4. Assumes Subscription Receipts are exchanged for common shares, not including option. In less than one year, Legacy has transformed a micro-cap, modestly capitalized junior producer into a high quality, light oil focused, well capitalized, intermediate producer with concentrated, operated, significant resource assets. Legacy's reserve base and reserve life index, extensive multi-year development drilling inventory, strong balance sheet and substantial free cash flow provide the key ingredients for production and cash flow growth over the next number of years, underpinned by a sustainable reserve base, further differentiating the Company from its peers.Legacy is a uniquely positioned, well-capitalized, technically driven, intermediate oil and natural gas company with a proven management team committed to aggressive, cost-effective growth of light oil reserves and production in large hydrocarbon in-place assets and resource plays. Legacy's common shares trade on the TSX Exchange under the symbol LEG.FORWARD LOOKING STATEMENTS: This press release contains forward-looking statements. More particularly, this press release contains statements concerning the anticipated date for the closing of the Acquisition, the potential exploration and development opportunities associated with the Acquisition, the anticipated accretive impact of the Acquisition on Legacy, the potential impact of technology and techniques on production and recovery, the potential impact of royalty changes, the intention to conduct a seismic survey and other operations, the anticipated bank line and Legacy's projected 2010 exit and average rates of production.The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Legacy, including: (i) with respect to the anticipated closing date of the Acquisition, expectations and assumptions concerning timing of receipt of required shareholder, court and regulatory approvals and third party consents and the satisfaction of other conditions to the completion of the Acquisition and (ii) with respect to the remaining forward-looking statements, expectations and assumptions concerning the success of future drilling and development activities, the performance of existing wells, the performance of new wells, the successful application of technology, prevailing commodity prices and prevailing royalty regimes.Although Legacy believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Legacy can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve 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 failure to obtain necessary regulatory approvals or satisfy the conditions to closing the Acquisition, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations changes to existing laws and regulations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in Legacy's Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.The forward-looking statements contained in this document are made as of the date hereof and Legacy undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.Meaning of Boe: When used in this press release, Boe means a barrel of oil equivalent on the basis of 1 Boe to 6 thousand cubic feet of natural gas. Boe per day means a barrel of oil equivalent per day. Boe's may be misleading, particularly if used in isolation. A Boe conversion ratio of 1 Boe for 6 thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.This press release shall not constitute an offer to sell, nor the solicitation of an offer to buy, any securities in the United States, nor shall there be any sale of securities mentioned in this press release in any state in the United States in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.FOR FURTHER INFORMATION PLEASE CONTACT: Legacy Oil + Gas Inc. Trent J. Yanko, P.Eng. President + CEO 403.441.2300 403.441.2017 (FAX) or Legacy Oil + Gas Inc. Matt Janisch, P.Eng. Vice-President, Finance + CFO 403.441.2300 403.441.2017 (FAX) www.legacyoilandgas.com NEITHER THE TSX EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.