Calgary-based Twin Butte Energy Ltd (TSX: TBE) has agreed to acquire oil and gas producing company Black Shire Energy Inc for around $358 million, including $108 million in debt. Black Shire, also of Calgary, is focused on its Provost oil field project in eastern Alberta, and was formed in 2010 with an equity financing from U.S. energy-focused private equity firm Lime Rock Partners. Lime Rock remains the company’s principal shareholder, and under the terms of the acquisition agreement will assume a post-closing stake in Twin Butte. The deal is expected to be closed in the coming weeks, and no later than December 18, 2013.
Twin Butte Energy to Acquire Private Oil Producer and Proceed With $70 Million Bought Deal Financing
CALGARY, Oct. 9, 2013 /CNW/ – Twin Butte Energy Ltd. (TSX: TBE) (“Twin Butte” or the “Company”) is pleased to announce that it has entered into an arrangement agreement (“Arrangement Agreement”) with Black Shire Energy Inc. (“Black Shire”) providing for the acquisition (the “Black Shire Acquisition”) by Twin Butte of all of the issued and outstanding class “A” common shares (“Black Shire Shares”) of Black Shire for total consideration of approximately $358.0 million, including the assumption of approximately $107.6 million of net debt.
Black Shire is a private company with a focused asset base in the greater Provost area, producing approximately 7,000 boe per day (93 percent medium gravity oil). The greater Provost area is directly adjacent to Twin Butte’s core Lloydminster heavy oil area. Black Shire is an attractive acquisition for Twin Butte in that it has demonstrated its ability to generate substantial free cash flow while developing its large and low risk horizontal drilling inventory, providing growth in production and reserves. Twin Butte believes that the Black Shire Acquisition strategically supports Twin Butte’s dividend model and enhances the Company’s long term dividend sustainability. Black Shire was formed in 2010 by President and CEO Suzanne West with equity financing from Lime Rock Partners, a global energy-focused private equity firm.
Pursuant to the terms of the Arrangement Agreement, Twin Butte has agreed to acquire all of the issued and outstanding Black Shire Shares for $3.45 per Black Shire Share, comprised of $2.00 cash and 0.697 of a common share of Twin Butte (each whole share, a “Twin Butte Share”) based on the 10 day volume weighted average trading price of the Twin Butte Shares for the period ended on October 8, 2013, of $2.08 per share.
Post closing the Black Shire Acquisition and the bought deal financing discussed below (including on conversion of all of the subscription receipts issued pursuant to such financing), Twin Butte anticipates having approximately 342.0 million Twin Butte Shares outstanding.
Key attributes of Black Shire:
Solid Production Base, Low Decline, High Netbacks: Current production of approximately 7,000 boe per day with less than a 20 percent decline. Medium gravity crude oil currently generating in excess of $40 per boe netbacks, a significant increase over Twin Butte’s current heavy oil netbacks of $22 per boe. Most production is operated, the majority being 100 percent working interest. Acquisition metrics are attractive at $49,000 per producing boe, net of Twin Butte’s internal assessment of Black Shire’s undeveloped land value.
Concentrated Land Base, Operatorship, High Working Interest: Lands associated with the Black Shire Acquisition comprise over 159 net sections in one concentrated area in the Provost area of Alberta. Net undeveloped lands in excess of 40,000 acres, combined with Black Shire’s operated, mostly 100 percent working interest production and infrastructure, are expected to provide Twin Butte with a significant new operational focus and a platform for future growth in the Provost area. Twin Butte has valued Black Shire’s net undeveloped lands at approximately $13.6 million ($340/acre). Twin Butte will also receive a significant seismic database of 160 km of 2D data and 140 km2 of 3D data.
High Quality Reserves: The Black Shire Acquisition includes proved reserves of 12,599 mboe and proved plus probable reserves of 20,005 mboe based on an independent reserve report effective December 31, 2012. The pre-tax present value of the proved plus probable reserves discounted at 10 percent (PV 10) as at the report date was $464 million. This equates to an attractive acquisition price of $17.90 per proved and probable boe generating an associated recycle ratio of over two times.
Extensive Infrastructure and Development Drilling Opportunities: Blackshire owns extensive oil, gas and water handling infrastructure with excess capacity providing the opportunity for Twin Butte to quickly enhance productivity through infield drilling opportunities. Ownership and operatorship in the extensive infrastructure has allowed Black Shire to maintain a comparatively strong operating cost structure currently under $18.00 per boe. Twin Butte has identified an infill drilling inventory of over 100 wells on the Black Shire lands.
Strategic Benefits and Black Shire Acquisition Summary
The Black Shire Acquisition is accretive to Twin Butte on all key metrics, especially cash flow per share. The Black Shire Acquisition is consistent with Twin Butte’s historic strategy of acquiring quality long life assets, with large resource potential within focus areas where Twin Butte has expertise. Twin Butte’s strategy of providing shareholders with long term total returns comprised of both income and moderate growth is expected to be strengthened through the Black Shire Acquisition by:
Reducing Twin Butte’s anticipated annual production decline rate from 29 percent to 26 percent;
Enhancing Twin Butte’s netback from current levels of $22 to $27 per boe;
Increasing Twin Butte’s liquids production weighting from 88 to 90 percent; and
Reducing Twin Butte’s all in payout ratio from 100 to 90 percent.
Including expected maintenance capital required on the subject assets, the Black Shire assets are expected to generate cash flow that will significantly exceed the capital required to offset expected declines and pay the dividend associated with the Twin Butte Shares to be issued in connection with the Black Shire Acquisition and the bought deal financing. Therefore, Twin Butte believes that the Black Shire Acquisition will strengthen the long term sustainability of the Company’s dividend by reducing declines, and enhancing netbacks, all while maintaining Twin Butte’s low capital efficiencies of under $20,000 per boe per day.
It is anticipated that the Company’s credit facility will be increased from the current $280 million to approximately $445 million upon closing.
Pro-Forma the Black Shire Acquisition and the Bought Deal Financing
Post-closing the Black Shire Acquisition, Twin Butte’s corporate production is anticipated to be approximately 23,200 boe per day. Based on a forecast oil price of $95 US WTI, Twin Butte anticipates the combined assets will generate over $230 million of annual cash flow. With the approximately 342.0 million Twin Butte Shares that are expected to be outstanding subsequent to the Black Shire Acquisition and the bought deal financing, the Company’s aggregate annual dividend payment will be approximately $65 million, before the effects of the Company’s DRIP or Stock Dividend Plan, which is expected to leave significant excess cash to offset annual declines and moderately grow production per share.
Black Shire Acquisition Terms and Conditions
Twin Butte and Black Shire have entered into the Arrangement Agreement pursuant to which Twin Butte has agreed to acquire all of the issued and outstanding Black Shire Shares and assume Black Shire’s net debt, estimated at $107.6 million as at closing of the transaction. Under the terms of the Arrangement Agreement and the related plan of arrangement, Black Shire Shareholders will receive $3.45 for each Black Shire Share held comprised of: (i) 0.697 of a Twin Butte Share (“Share Consideration”); and (ii) $2.00 in cash (“Cash Consideration”).
All of the directors and officers of Black Shire and certain other shareholders of Black Shire who collectively hold approximately 86.3% of the outstanding Black Shire Shares (on a non-diluted basis) have signed support agreements pursuant to which they have agreed to execute a written resolution of shareholders approving the Black Shire Acquisition or to otherwise vote their respective Black Shire Shares held by them in favour of the Black Shire Acquisition at any meeting of holders of Black Shire Shares to approve the Black Shire Acquisition. Black Shire has agreed to use its commercially reasonable efforts to have all holders of Black Shire Shares execute a resolution approving the Black Shire Acquisition on or before October 18, 2013, failing which Black Shire has agreed to convene a shareholders’ meeting to approve the Black Shire Acquisition on or before November 27, 2013.
Black Shire’s largest shareholder, LRP V Luxembourg Holdings S.à r.l., which holds approximately 81% of the outstanding Black Shire Shares (on a non-diluted basis) (and will hold 10.7% of the outstanding Twin Butte Shares post closing the Black Shire Acquisition and the bought deal financing) has agreed with Twin Butte not to sell any Twin Butte Shares received in connection with the Black Shire Acquisition for 12 months following the closing of the Black Shire Acquisition, subject to certain exceptions.
In the event Black Shire is able to receive the written approval of all holders of Black Shire Shares on or before October 18, 2013, the Black Shire Acquisition is expected to close on or about November 5, 2013 or such other date as Twin Butte and Black Shire may agree but not later than December 18, 2013. In the event a meeting of holders of Black Shire Shares is required to approve the Black Shire Acquisition, the Black Shire Acquisition is expected to close on or about November 27, 2013, or such other date as Twin Butte and Black Shire may agree but not later than December 18, 2013.
The Arrangement Agreement provides for non-solicitation covenants, subject to the fiduciary obligations of the board of directors of Black Shire and the right of Twin Butte to match any Superior Proposal (as defined in the Arrangement Agreement). The Arrangement Agreement provides for mutual non-completion fees of $12 million in the event the Black Shire Acquisition is not completed or is terminated by either party in certain circumstances. The Arrangement Agreement provides that completion of the Black Shire Acquisition is subject to certain conditions, including the receipt of all required regulatory approvals, including the approval of the Toronto Stock Exchange (“TSX”), the approval of the holders of Black Shire Shares, and the approval of the Court of Queen’s Bench of Alberta.
Complete details of the terms of the Black Shire Acquisition are set out in the Arrangement Agreement, which will be filed by Twin Butte and will be available for viewing at www.sedar.com.
FirstEnergy Capital Corp. is acting as financial advisor to Black Shire.
Peters & Co. Limited (“Peters & Co.”) is acting as financial advisor and National Bank Financial Inc. is acting as strategic advisor to Twin Butte in connection with the Black Shire Acquisition.
Bought Deal Financing
In connection with the Black Shire Acquisition, Twin Butte has entered into an agreement with a syndicate of underwriters led by Peters & Co., pursuant to which the underwriters have agreed to purchase for resale to the public, on a bought deal basis, 35.9 million subscription receipts (“Subscription Receipts”) of Twin Butte at a price of $1.95 per Subscription Receipt to raise gross proceeds of $70 million (the “Financing”). The gross proceeds from the sale of Subscription Receipts will be held in escrow pending the completion of the Black Shire Acquisition. If all outstanding conditions to the completion of the Black Shire Acquisition (other than payment of the purchase price) are met on or before November 5, 2013, subject to extension to December 18, 2013 by Peters & Co. in its sole discretion (acting reasonably), the net proceeds from the sale of the Subscription Receipts will be released to Twin Butte to fund, in part, the Cash Consideration and each Subscription Receipt will be exchanged for one Twin Butte Share for no additional consideration. If the Black Shire Acquisition is not completed by Twin Butte on or before November 5, 2013, subject to extension to December 18, 2013 by Peters & Co. in its sole discretion (acting reasonably), then the purchase price for the Subscription Receipts shall be returned to subscribers, together with a pro rata portion of the interest accrued on the subscription funds attributable to the Subscription Receipts. The Financing is expected to close on or about October 31, 2013.
Completion of the Financing is subject to certain conditions including the receipt of all necessary regulatory approvals, including the approval of the TSX. The Subscription Receipts will be offered in each of the provinces of Canada other than Québec by way of a short-form prospectus and in the United States on a private placement basis pursuant to exemptions from the registration requirements under Rule 144A and/or Regulation D of the United States Securities Act of 1933.
This news release is not an offer of the securities for sale in the United States. The securities have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This news release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.
About Twin Butte
Twin Butte is a growing, value oriented intermediate producer with a significant low risk, high rate of return drilling inventory focused on large original oil in place medium and heavy oil pool exploitation. With a stable low decline production base, Twin Butte is well positioned to live within cash flow while providing shareholders a sustainable dividend and moderate per share production growth potential over both the short and long term. Twin Butte is committed to continually enhance its asset quality while focusing on the sustainability of its dividend. The Twin Butte Shares are listed on the TSX under the symbol “TBE”.
In the interest of providing Twin Butte’s shareholders and potential investors with information regarding Twin Butte, including management’s assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively “forward-looking statements”) within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as “anticipate”, “continue”, “estimate”, “expect”, “forecast”, “may”, “will”, “project”, “could”, “plan”, “intend”, “should”, “believe”, “outlook”, “potential”, “target” and similar words suggesting future events or future performance. In addition, statements relating to “reserves” are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. In particular, this news release contains, without limitation, forward-looking statements pertaining to the following: expectations of management regarding the proposed Black Shire Acquisition, including the timing of completion of the Black Shire Acquisition, the number of Twin Butte Shares expected to be outstanding subsequent to the Black Shire Acquisition and the Financing, Twin Butte’s expectation to develop a new core operating area as a result of the Black Shire Acquisition, the expected effects of the cash-flow associated with Black Shire’s assets and the effect of the same on Twin Butte’s business, including its growth plans, its dividend and the sustainability of the same, the Cash Consideration and Share Consideration expected to be paid by Twin Butte pursuant to the Black Shire Acquisition, Black Shire’s net debt, Twin Butte’s expectation to increase the borrowing base of its credit facility, operating and financial metrics of the Black Shire Acquisition, potential synergies resulting from the Black Shire Acquisition, the effect of the Black Shire Acquisition on Twin Butte’s production, reserves and undeveloped land position, including those set forth under the heading “Pro-Forma the Black Shire Acquisition and the Bought Deal Financing” and the expected closing date of the Financing,
With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: the timing of receipt of regulatory and shareholder approvals for the Black Shire Acquisition; the ability of Twin Butte to execute and realize on the anticipated benefits of the Black Shire Acquisition; timing of closing and regulatory approvals for the Financing; that Twin Butte’s lenders will increase Twin Butte’s credit facility to the amounts expressed herein on terms and conditions reasonably satisfactory to Twin Butte, or at all; expectations and assumptions concerning prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labor and services; the impact of increasing competition; Twin Butte’s ability to market oil and natural gas successfully; Twin Butte’s ability to access capital, obtaining the necessary regulatory approvals, including the approval of the TSX and under the Competition Act (Canada) and satisfaction of the other conditions to closing the Black Shire Acquisition and/or the Financing.
Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte’s actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following: that the Black Shire Acquisition or the Financing may not close when planned or at all or on the terms and conditions set forth herein; the failure of Twin Butte and/or Black Shire to obtain the necessary shareholder, Court, regulatory and other third party approvals required in order to proceed with the Black Shire Acquisition; the failure of Twin Butte to obtain all necessary regulatory and third party approvals (including the TSX) for the Financing; the failure of Twin Butte to increase its credit facility on terms satisfactory to it, or at all; volatility in market prices for oil and natural gas; incorrect assessment of the value of the Black Shire Acquisition; failure to realize the anticipated benefits and synergies of the Black Shire Acquisition and/or previous acquisitions; the general economic conditions in Canada, the U.S. and globally; and the other factors described under “Risk Factors” in Twin Butte’s most recently filed Annual Information Form available in Canada at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Barrels of Oil Equivalent
Barrels of oil equivalent (boe) are calculated using the conversion factor of 6 Mcf (thousand cubic feet) of natural gas being equivalent to one barrel of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
Future Oriented Financial Information
This news release, in particular the information in respect of anticipated cash flows, may contain Future Oriented Financial Information (“FOFI”) within the meaning of applicable securities laws. The FOFI has been prepared by management of the Company to provide an outlook of the Company’s activities and results. The FOFI has been prepared based on a number of assumptions including the assumptions discussed under the heading “Forward-Looking Statements” and assumptions with respect to production rates (including Black Shire’s production rates) and commodity prices. The actual results of operations of the Company and the resulting financial results may vary from the amounts set forth herein, and such variation may be material. The Company and its management believe that the FOFI has been prepared on a reasonable basis, reflecting management’s best estimates and judgments.
Net Present Value
Estimates of the net present value of the future net revenue from Black Shire’s reserves do not represent the fair market value of Black Shire’s reserves.
This news release contains the terms “net debt”, “netbacks” and “payout ratio” which do not have a standardized meaning prescribed by Canadian generally accepted accounting principles (“GAAP”) and therefore may not be comparable with the calculation of similar measures by other companies. These measures have been described and presented in this news release in order to provide shareholders and potential investors with additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations and dividends. Net debt in this news release, as it relates to Black Shire, means Black Shire’s current assets (not including derivative assets or oil inventory) less current liabilities (not including derivative liabilities), long term debt and cash taxes payable by Black Shire but does not include any proceeds from the exercise of any stock options or performance warrants of Black Shire or any of Black Shire’s transaction costs, in each case calculated in accordance with GAAP. Netbacks are calculated as the average per boe of the Company’s oil and gas sales, realized gains (losses) on derivatives, less royalties, operating and transportation expenses. All in payout ratio is defined as dividends declared plus net capital expenditures divided by the sum of funds flow from operations.
bbl means barrel
boe means barrel of oil equivalent of natural gas and crude oil on the basis of 1 boe for 6 Mcf of natural gas (this conversion factor is an industry accepted norm and is not based on either energy content or current prices)
boe/d barrel of oil equivalent per day
mboe means thousand barrels of oil equivalent
WTI means West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma for the crude oil standard grade
SOURCE Twin Butte Energy Ltd.
For further information:
Twin Butte Energy Ltd.
President and Chief Executive Officer
Tel: (403) 215-2040
Fax: (403) 215-2055
R. Alan Steele
Vice President, Finance, Chief Financial Officer and Corporate Secretary
Tel: (403) 215-2692
Fax: (403) 215-2055
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