Legacy Oil + Gas Acquires Villanova

Calgary’s Legacy Oil + Gas Inc. has acquired light oil assets from a senior producer along with Villanova Oil Corp., a Regina, Saskatchewan-based exploration and development company, for a combined C$108.6 million in cash and 13.9 million Legacy common shares. The deals are expected to close in the second quarter. Villanova was backed by Canadian private equity firms, including PFM Capital and Westcap Management. Legacy has also received private equity investments in past, along with US$200 million in unsecured debt from CPPIB Credit Investments in 2012.


Legacy Oil + Gas Inc. (“Legacy” or the “Company”) (TSX:LEG) is pleased to announce the acquisition of light oil assets within the Company’s core areas (the “Asset Acquisition”) from a senior producer and the acquisition of Villanova Oil Corp. (“Villanova”), a Saskatchewan based private oil company, (together, the “Acquisitions”), an increase to Legacy’s production guidance for 2013 and initiation of a crude oil hedging program.


Through the Acquisitions, Legacy is acquiring high quality, high netback, light oil assets focused in the Company’s southeast Saskatchewan and Turner Valley core areas for total consideration of $108.6 million in cash (subject to certain adjustments and including assumed net debt) and 13.9 million Legacy common shares. The producing properties are predominately operated with high working interests, 3D seismic coverage and control of key producing infrastructure and are associated with a light oil prospective undeveloped land base. The Acquisitions also add several key sections of land in Legacy’s Taylorton and Pinto core areas.

The Acquisitions have the following combined characteristics:

Current Production 1,775 Boe/d (90 percent light oil, average 39o API)

Proved plus Probable Reserves (1): 9.1 MMBoe

Proved plus Probable RLI: 14.0 years

Undeveloped Land: 32,522 net acres

3D Seismic 225 square kilometers

Total Development Drilling Locations: 194 gross, 82.6 net (65 percent unbooked)

Operating Netback (2): $60.00 per Boe

1.Reserves are Gross Company Reserves evaluated by GLJ Petroleum Consultants Ltd. (“GLJ”) as at December 31, 2012 for Villanova and the prorated share of Legacy’s reserves as evaluated by Sproule Associates Ltd. (“Sproule”) as at December 31, 2012 for the Asset Acquisition. Gross Company Reserves are the Company’s working interest reserves before the deduction of royalties, and without including any of the Company’s royalty interests.
2.Based on estimated spot prices as at April 1, 2013 and calculated by subtracting royalties and operating costs from revenues.


The Acquisitions are 5 percent accretive to Legacy on an annualized cash flow per share basis. Net of undeveloped land and seismic at an estimated value of $8.1 million and based on Legacy’s five day VWAP ending April 1, 2013, the combined transaction metrics for the long reserve life, high netback acquired production are as follows:

Production: $99,363 per Boe/d

Proved plus Probable Reserves (1): $19.46 per Boe

Proved plus Probable Recycle Ratio (2): 3.1 times

1.Reserves as disclosed above.
2.Utilizing Netback shown above.


The Asset Acquisition is being conducted pursuant to an acquisition agreement between Legacy and a Canadian senior producer. The acquisition agreement provides for the acquisition by Legacy of partner interests in light oil producing assets, facilities and undeveloped land in its operated core areas of Turner Valley and Taylorton for total consideration of $57.5 million plus Legacy’s minor working interest in the Freda Lake Unit. Legacy has deposited $5.75 million under the terms of the acquisition agreement, which is refundable to Legacy if the Asset Acquisition does not close, except in the event of default by Legacy. Closing of the Asset Acquisition is expected to occur in the second quarter of 2013 and is subject to certain conditions and the receipt of all regulatory approvals.


Legacy and Villanova have entered into an agreement (the “Arrangement Agreement”) pursuant to which Legacy has agreed to acquire all of the outstanding common shares of Villanova by means of a plan of arrangement under the Business Corporations Act (Alberta). Legacy will pay $21.3 million cash and issue a total of approximately 13.9 million Legacy common shares at a deemed price of $5.48 each to the shareholders of Villanova. Legacy will also assume Villanova’s net debt, estimated at approximately $29.8 million at the time of the execution of the Arrangement Agreement.

Holders of approximately 41 percent of the common shares of Villanova have entered into agreements with Legacy pursuant to which they have agreed to vote their shares in favour of the transaction and the board of directors of Villanova has unanimously approved the transaction and recommended that the shareholders of Villanova vote in favour of the transaction. The board of directors of Villanova has received a verbal opinion from National Bank Financial Inc. that the consideration to be received under the transaction is fair, from a financial point of view, to the Villanova shareholders.

The Arrangement Agreement, among other things, provides for a mutual non-completion fee of $6,000,000 in the event the transaction is not completed in certain circumstances. Completion of the transaction is subject to customary conditions, including the receipt of all required regulatory approvals, the approval of the TSX, the approval of the shareholders of Villanova and the approval of the Court of Queen’s Bench of Alberta.

The transaction is anticipated to close no later than May 23, 2013 in the event that Villanova 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.


Macquarie Capital Markets Canada Ltd., GMP Securities L.P. and FirstEnergy Capital Corp. acted as financial advisors to Legacy with respect to the private company acquisition. Raymond James Ltd. acted as strategic advisor to Legacy with respect to the Asset Acquisition.

National Bank Financial Inc. is acting as exclusive financial advisor to Villanova, and has provided the board of directors of Villanova with its opinion that the consideration to be received by Villanova shareholders under the Acquisition is fair, from a financial point of view, to Villanova shareholders.


Legacy will finance the Acquisitions through existing bank lines. These bank lines are currently under regular semi- annual review and are also being reviewed for the Acquisitions. Legacy anticipates the bank lines will increase upon conclusion of the review and closing of the Acquisitions.

Pro-forma the Acquisitions, Legacy’s debt to annualized cash flow will be approximately 1.8 times based on current strip pricing.

In conjunction with the Acquisitions, Legacy has initiated a crude oil hedging program. Legacy has entered into an initial swap position of 2,000 Bbls per day at an average price of C$97.63 per Bbl (WTI) for the period of May 2013 to December 2013. Legacy intends to reach a minimum hedge position of 5,000 Bbls per day and will include swaps and/or collars/options of WTI, Edmonton Par and/or WTI to Edmonton Par differentials.


In the first quarter of 2013, the Company drilled 43 gross (34.6 net) oil wells, with a 100 percent success rate. Activity in the first quarter included the drilling of 14 gross (11.0 net) Spearfish horizontal wells in the Company’s Pierson and Bottineau County areas.

Legacy continues to have good success in Steelman, with seven successful wells brought on production in the first quarter 2013. Four wells have been on for more than 60 days in the first quarter and have 30 day initial production rates of 200 Boe per day per well. These wells have continued to perform, with 60 day average production rates in excess of 165 Boe per day per well. The three other wells brought on in the quarter have demonstrated un-optimized initial production rates ranging between 125 and 550 Boe per day.

At Frys/Antler, a pilot waterflood initiated in early December 2012 has shown early signs of response. Application has already been made to expand the pilot to the offsetting sections. Located immediately east of Frys/Antler, the analogous field at Sinclair now has 33 sections under waterflood and has seen oil production rate increases ranging from 50 to 100 percent after waterflood response.

At Turner Valley, Legacy has continued to evolve drilling and completion practices to optimize both production rate and capital costs. Drilling to-date has targeted infill locations testing areas of varying water cut, reservoir pressure, proximity to water injection and three different stratigraphic horizons. Legacy’s most recent well at Candor #2 exemplifies the successful evolution of the development at Turner Valley. Candor #2 was brought on production recently and is already producing in excess of 300 Boe per day with a 25 percent water cut. Drilling will continue on Legacy’s Hartell #7 well through spring break-up. Also, during the first quarter, Legacy completed a 35 square mile 3D seismic survey over the south half of the Turner Valley pool. The Turner Valley Field was discovered nearly 100 years ago and most of the drilling to date has been based on geological mapping. The 3D seismic will be instrumental in mapping the complex foothills geology and will be invaluable in identifying underdeveloped areas suitable for more drilling, planning identified future drilling locations and in optimizing water injection patterns.


The Acquisitions represent the successful continuation of Legacy’s business plan to acquire high quality conventional and resource play light oil assets and strengthen its operating position within its core areas. The Acquisitions increase Legacy’s opportunity inventory in its light oil focus areas. Legacy has identified 194 (82.6 net) horizontal locations on the acquired lands, of which 65 percent are unbooked. Based on anticipated activity levels, this represents more than five years of drilling inventory on these assets.

The Asset Acquisition increases Legacy’s working interests in its operated core areas at Turner Valley and Taylorton. The Company will now have an average working interest in Turner Valley of 81 percent and nearly 100 percent in Taylorton.

Villanova’s lands and production provide an excellent operational fit with Legacy’s current southeast Saskatchewan holdings, with a number of the properties located immediately adjacent to Legacy operated assets. In addition, the Villanova acquisition includes 18 gross sections of prospective land for Midale, Bakken and Three Forks light oil at and immediately adjacent to Legacy’s Pinto property. Over the past two years, Legacy was the first mover in establishing highly economic oil production from the Midale Formation along the Saskatchewan and North Dakota border. Other operators, including Villanova, have been active in the area, expanding the play’s areal extent and delineating an emerging light oil resource play in the Bakken and Three Forks formations. Villanova’s production results from the Midale play are as follows:

Initial Rate Period Bbls Oil per Day Number of Wells Producing
30 Day Average 155 12
60 Day Average 139 12
90 Day Average 131 11
The acquisition of Villanova enables Legacy to consolidate interests in these plays while adding “bolt on” production and lands in its other SE Saskatchewan conventional production areas at Alameda, Manor and Carnduff/Souris Flat.


As a result of the Acquisitions, and giving effect to production declines and timing of closing the Acquisitions, Legacy is increasing its guidance for 2013 average production to 19,000 Boe per day (90 percent oil and NGL’s) and increasing its guidance for 2013 exit rate production to 21,500 Boe per day (91 percent oil and NGL’s), representing a 20 percent increase over 2012 exit production. Royalties are expected to average 15.7 percent and operating and transportation costs are expected to average $16.25 per Boe. With the increased production and cash flow, Legacy now expects to spend $310 million in capital expenditures in 2013. The above guidance takes into account year to-date production volumes and a worse than historical spring breakup based on the current ground conditions in southeast Saskatchewan and southwest Manitoba.

Proforma the Acquisitions, Legacy has the following key attributes:

Average 2013 Production 19,000 Boe per day (90 percent light oil and NGL’s)

Exit 2013 Production 21,500 Boe per day (91 percent light oil and NGL’s)

Proved plus Probable Reserves (1): 103.3 MMBoe (85 percent light oil and NGL’s)

Proved plus Probable RLI (2): 14.9 years

Undeveloped Land: More than 400,000 net acres

3D Seismic: 5,005 square kilometers

Total Development Drilling Locations: More than 2,080 net

1.Reserves are Gross Company Reserves evaluated by Sproule as at December 31, 2012 for Legacy and the Asset Acquisition. Reserves evaluated by GLJ as at December 31, 2012 for Villanova. Gross Company Reserves are the Company’s working interest reserves before the deduction of royalties, and without including any of the Company’s royalty interests.
2.Based on 2013 average production.
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 under the symbol LEG.

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.

SOURCE: Legacy Oil + Gas Inc.

For further information:
Trent J. Yanko, P.Eng.
President + CEO

Legacy Oil + Gas Inc.
4400 Eighth Avenue Place
525 – 8th Avenue SW
Calgary, AB T2P 1G1

Telephone: 403.441.2300
Fax: 403.441.2017

Photo courtesy of Shutterstock.