/NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR
DISSEMINATION IN THE UNITED
STATES/
CALGARY,
AB, March 28, 2023 /CNW/ - Spartan Delta
Corp. ("Spartan" or the "Company") (TSX: SDE) is
pleased to announce that it has entered into a definitive purchase
and sale agreement (the "Agreement") with Crescent Point
Energy Corp. ("Crescent Point") which provides for the sale
of the Company's Gold Creek and Karr
Montney assets (the "Assets") for cash consideration
of $1.7 billion, subject to customary
adjustments as provided for in the Agreement (the "Asset
Sale").
Spartan will transfer 4,000 BOE/d1 of production
in the Pouce Coupe and Simonette
areas of north-west Alberta, 500
BOE/d2 of legacy north-east British Columbia production and
55,769 net undeveloped acres in the Flatrock area of north-east British Columbia (the "Logan Assets")
to "Logan Energy Corp." ("Logan"), a newly-formed subsidiary
of Spartan, which will be led by Richard
(Rick) McHardy, as President and Chief Executive Officer,
Brendan Paton, as Chief Operating
Officer, and certain other members of Spartan's existing executive
team (the "Spin-Out"). The Board of Directors of Logan will
include certain members of Spartan's existing Board of Directors
(the "Spartan Board"). It is anticipated that one or more
additional independent board members will be announced in
conjunction with the closing.
Spartan will retain and continue to develop its prolific
liquids-rich, sustainable production Deep Basin assets, with a
focus on returning Free Funds Flow to Spartan Shareholders. The
Company will continue to be led by Fotis
Kalantzis, as President and Chief Executive Officer, and
certain members of the executive team of Spartan. The composition
of the Spartan Board will remain unchanged. Spartan intends to
return a portion of its Free Funds Flow to Spartan Shareholders
through periodic special dividends, while maintaining a strong
financial position targeting a leverage ratio of approximately 0.5x
debt to cash flow.
"I am pleased to announce the successful conclusion of our
strategic repositioning process with our core Montney development
asset sale, the creation of a new growth-focused Montney junior
company and the retention of our sustainable Free Funds Flow and
dividend generating assets in the Deep Basin. We believe this
outcome demonstrates the tremendous success and value creation this
team has created since our initial recapitalization transaction in
December 2019 and the total issuance
of $537 million of equity at an
average cost of $3.16 per share. I
would like to thank our shareholders, our talented employees, our
Board, our stakeholders, and other supporters who helped cultivate
this successful outcome," commented Fotis
Kalantzis, President & CEO of Spartan.
Spartan will distribute the proceeds of the Asset Sale, the
Logan Shares and the Transaction Warrants (each as defined below)
as a return of capital and special dividend to its eligible
shareholders ("Spartan Shareholders").
Spartan Shareholders will receive:
- $9.50 (the "Sale
Dividend") per common share of Spartan (each, a "Spartan
Share")(a);
- 1.0 common share of Logan (each, a "Logan Share") per Spartan Share. The Company
has applied to list the Logan Shares on the facilities of the TSX
Venture Exchange (the "TSXV"); and
- 1.0 Logan Share purchase warrant
(each, a "Transaction Warrant") per Spartan Share. Each
Transaction Warrant is non-transferrable and will entitle the
holder to acquire one Logan Share at
an exercise price equal to Logan's defined net asset value of
$0.35 per Logan Share at any time on or before the close
of business on July 17, 2023 (the
"Distribution" and, collectively with the Asset Sale and the
Spin-Out, the "Transaction").
a) Refer to "Share Capital" section of this press
release.
In addition, Spartan intends to pay an additional special
dividend of $0.10 per Spartan Share
to shareholders of record on June 30,
2023, payable on July 17,
2023.
Eligible Spartan Shareholders will receive the Sale Dividend,
the Logan Shares and the Transaction Warrants partly as a return of
capital and special dividend. See "Meeting and Distribution
Details" for guidance and instructions with respect to
eligibility to receive the Distribution. Further details regarding
the Distribution will be included in an information circular (the
"Circular") to be filed on SEDAR in connection with an
upcoming annual general and special meeting of Spartan Shareholders
to be held on May 16, 2023 (the "Meeting").
STRATEGIC RATIONALE
Spartan's successful capital allocation has resulted in
significant growth in oil and gas production, reserves and cash
flow since the recapitalization in 2019. The Spartan Board and
management continuously review options available to the Company to
ensure that shareholder value is being maximized. On November 30, 2022, the Spartan Board commenced a
formal process to evaluate strategic repositioning alternatives in
an effort to enhance shareholder value. The Transaction is a
culmination of that process and over three years of exploration,
development and acquisitions, pursuant to which the Company
achieved growth from approximately 2503 BOE/d to
current production of approximately
80,0004 BOE/d.
The Spartan Board and management team view the Transaction as
advantageous for Spartan Shareholders. Given Spartan's tremendous
success in growing its assets, the management team is confident
that it will be able to deliver continued value to the Spartan
Shareholders through appreciation in their equity interest in
Spartan and Logan.
- Cash Distribution. Spartan will realize an
immediate and substantial Sale Dividend of $9.50 per share.
- Spartan Ownership. Spartan
Shareholders will participate in the continued development of the
Company's Deep Basin assets, opportunistic strategic acquisitions,
and the declaration of periodic special dividends from Spartan's
Free Funds Flow.
- Logan Ownership. Through ownership of the Logan
Shares and the Transaction Warrants (if exercised), significant
value is accelerated for shareholders through the growth and future
potential of the opportunity rich Logan Assets.
National Bank Financial Inc. ("NBF") has acted as
exclusive financial advisor to Spartan in connection with the Asset
Sale. NBF and Scotia Capital Inc. ("Scotia") have acted as
co-financial advisors to Spartan in conjunction with the creation
of Logan.
NBF has provided the Spartan Board a fairness opinion that, as
at the date of the Agreement, the consideration to be received by
Spartan pursuant to the Asset Sale is fair, from a financial point
of view to Spartan. Separately, NBF has provided the Spartan Board
a fairness opinion that, as at the date of the Agreement, the Logan
Shares and Transaction Warrants to be received by Spartan
Shareholders pursuant to the Distribution is fair, from a financial
point of view to the Spartan Shareholders, other than the Insider
Shareholders (as defined below).
Based on the fairness opinions received from NBF and discussions
with its financial and legal advisors, among other considerations,
the Spartan Board has unanimously determined that the Transaction
and the entering into of the Agreement are in the best interests of
Spartan Shareholders.
ASSET SALE
Spartan entered into the Agreement with Crescent Point in
respect of the sale of the Assets for cash consideration of
approximately $1.7 billion prior to
adjustments. The effective date of the Asset Sale is May 1, 2023, and closing is expected to occur on
May 10, 2023, subject to the receipt of all necessary
regulatory approvals and the satisfaction of other customary
closing conditions.
Spartan believes the Asset Sale is a compelling acceleration of
value to the Spartan Shareholder for the more mature portion of its
Montney assets. The Assets to be sold to Crescent Point
include:
- 377 (362 net) sections of Montney land in Gold Creek East, Gold
Creek West and Karr;
- Estimated sales volumes of approximately 33,198
BOE/d5 (56% liquids) for the two month period ended
February 28, 2023;
- Reserves as at December 31, 2022
based on the evaluation by Spartans independent reserves evaluator,
McDaniel & Associates Consultants Ltd. ("McDaniel") with
year-end pricing (2023 pricing of US$
80.33/bbl WTI and CA$ 4.01/GJ AECO) (see Reserves
Disclosure);
-
- Total proved reserves of 151 MMboe6 with a BTax
NPV10 of $1.6 billion; and
- Total proved plus probable reserves of 294
MMboe7 with a BTax NPV10 of $2.9 billion; and
- The Assets also include facilities and gathering systems
related to the oil and gas properties being sold.
Pursuant to the Agreement, Crescent Point will provide Spartan
with a $68.0 million non-refundable
deposit, except for certain instances as specified in the
Agreement. The Agreement contains customary representations and
warranties of each party and interim operational covenants by
Spartan.
A copy of the Agreement will be filed on Spartan's SEDAR profile
and will be available for viewing at www.sedar.com.
LOGAN AND LOGAN
FINANCING
The management team has been fundamental to Spartan's growth
since inception by leading Spartan's efforts in the exploitation
and acquisition of its high quality oil and gas assets and will be
a key component of Logan's future success. The Transaction allows
the Logan management team to immediately apply its expertise at
creating value in a growth-oriented, pure-play Montney company.
Logan will be well-capitalized with $104.1
million in cash (assuming the Logan Financing (as defined
below) is fully-subscribed and the Transaction Warrants are fully
exercised), no debt, significant management ownership and a premium
focused portfolio of assets.
The primary assets to be transferred to Logan consist of 193,000
net acres of high working interest 95% Montney Crown land across
three properties (Simonette, Pouce
Coupe and Flatrock). Logan
will have approximately 4,500 BOE/d8 of long life,
balanced oil and gas production and 15.59 MMboe of
TPP reserves as evaluated by McDaniel prepared on March 14, 2023, effective March 1, 2023 (the "McDaniel Logan
Report"). The evaluation of Logan's properties was prepared in
accordance with the definitions, standards and procedures contained
in the most recent publication of the Canadian Oil and Gas
Evaluation Handbook ("COGEH") and National Instrument 51-101
– Standards of Disclosure for Oil and Gas Activities ("NI
51-101").
Contemporaneous with the completion of the Distribution,
Logan will complete a non-brokered private placement of securities
of Logan at an issuance price equal to the net asset value per
Logan Share of the Logan Assets to
raise up to $43.5 million (the
"Logan Financing"). Pursuant to the Logan Financing, Logan
will offer up to a maximum of approximately 60.0 million Logan
Shares and 64.3 million units (the "Units") of Logan at a
price of $0.35 per Logan Shares or
Unit, as applicable. Units will be issued to subscribers that are
members of the board and management team of Logan, together with
certain additional subscribers identified by such persons (the
"Insider Shareholders"). Logan Shares will be issued to all
other subscribers.
Each Unit issued pursuant to the Logan Financing will be
comprised of one Logan Share and one
Logan Share purchase warrant (each,
a "Financing Warrant"). Each Financing Warrant will entitle
the holder to purchase one Common Share at a price of $0.35 (the "Exercise Price") for a period
of five years. The Warrants will vest and become exercisable as to
one-third upon the 10-day weighted average trading price of the
Common Shares (the "Market Price") equaling or exceeding
$0.70, an additional one-third upon
the Market Price equaling or exceeding $0.7875 and a final one-third upon the Market
Price equaling or exceeding $0.875.
Completion of the Logan Financing is subject to certain approvals,
including TSXV approval and disinterested approval of Spartan
Shareholders.
The Logan net asset value has been determined to be $0.35 per Logan
Share, calculated as follows:
TPP
reserves(1)
|
$54.9 million
|
Undeveloped
land(2)
|
$5.7
million
|
Total Logan
net asset value
|
$60.6 million
|
Total outstanding Logan
Shares(3)(4)
|
173.1
million
|
Net asset
value per share
|
$0.35
|
Notes
1.
|
Representing the NPV of
TPP reserves discounted at 10% before-tax attributed to the Logan
Assets as evaluated in the McDaniel Logan Report.
|
2.
|
Representing the
undeveloped land value attributed to the undeveloped acreage in the
Flatrock area as evaluated by Seaton‐Jordan & Associates Ltd.
as of December 31, 2022.
|
3.
|
Assuming 173.1 million
Spartan Shares issued and outstanding as of the date of the
Distribution, for which one Logan Share will be issued in respect
of each Spartan Share. Refer to "Share Capital" section of this
press release.
|
4.
|
Prior to giving effect
to the completion of the Logan Financing or the exercise of the
Transaction Warrants.
|
|
|
The Transaction Warrants and the Logan Shares issuable upon
exercise thereof have not been registered under the U.S. Securities
Act or the securities law of any state of the United States, and the Transaction
Warrants may not be exercised within the
United States or by or on behalf of any person in
the United States unless the Logan
Shares issuable upon the exercise of the Transaction Warrants are
registered under the U.S. Securities Act and the securities laws of
all applicable states of the United
States or an exemption from such registration requirements
is available.
Further details regarding Logan and the Logan Financing will be
included in the Circular. The price and corresponding defined net
asset value are subject to final approval of the TSXV, of which
there is no assurance.
POST-TRANSACTION
STRATEGY
The Transaction is a transformational event for Spartan and is
consistent with Spartan's track record of early stage resource
capture and delineation followed by strategic and creative value
realization.
Post-closing, Spartan will continue to be led by Fotis Kalantzis, as President and Chief
Executive Officer, and will include certain members of the current
executive team of Spartan. The composition of the Spartan Board
will remain unchanged.
Following the Transaction, Spartan will have approximately
40,00010 BOE/d of liquids rich production (29%
Liquids). The Company will retain a dominant infrastructure
footprint in central Alberta,
including operatorship of the O'Chiese Nees-Ohpawganu'ck deep cut
gas plant and will have approximately 65% of its 2023 gas
production hedged at an average of C$4.45/GJ.
The Company plans to begin paying a periodic special dividend
based on Free Funds Flow, while also maintaining a solid financial
position with a target leverage ratio of approximately 0.5x debt to
cash flow.
MEETING AND DISTRIBUTION
DETAILS
At the Meeting on May 16, 2023,
Spartan Shareholders will be asked to consider, among other things,
a special resolution authorizing the Company to reduce the stated
capital account maintained in respect of the Spartan Shares by
$579.9 million, which is the current
aggregate stated capital of the Spartan Shares.
Pursuant to the Distribution, the Company will distribute
$519.3 million in cash and
$60.6 million in Logan Shares and the
Transaction Warrants as a return of capital to eligible Spartan
Shareholders.
The balance of the Distribution will be distributed to eligible
Spartan Shareholders as a dividend.
For Canadian income tax purposes, the special dividend will be
designated as an "eligible dividend" and the balance of the
Distribution will be treated as a return of capital by way of a
reduction in the stated capital of the Spartan Shares.
PLEASE NOTE THAT THE CASH TO BE PAID AS PART OF THE
RETURN OF CAPITAL AND SPECIAL DIVIDEND AND THE LOGAN SHARES
AND TRANSACTION WARRANTS TO BE DISTRIBUTED PURSUANT TO THE
DISTRIBUTION WILL NOT BE AUTOMATICALLY PAID AND ISSUED TO
SHAREHOLDERS. REGISTERED SHAREHOLDERS AND FINANCIAL INTERMEDIARIES,
ON BEHALF OF THEIR UNDERLYING CLIENTS, WILL BE REQUIRED TO CONFIRM
ELIGIBILITY TO RECEIVE THE DISTRIBUTION. IN ORDER TO BE ELIGIBLE,
REGISTERED SHAREHOLDERS AND FINANCIAL INTERMEDIARIES, ON BEHALF OF
THEIR UNDERLYING CLIENTS, WILL BE REQUIRED TO CONFIRM THAT NONE OF
THE SHAREHOLDER, ITS ULTIMATE BENEFICIAL OWNER(S) OR ANY PERSON(S)
THAT DIRECTLY OR INDIRECTLY CONTROLS THE SHAREHOLDER THROUGH THE
OWNERSHIP OF EQUITY INTERESTS ARE IGOR MAKAROV, ARETI ENERGY S.A.
(SWITZERLAND), ARETI ENERGY SPV,
LLC (US) OR ARETI ENERGY LIMITED.
Registered Shareholders
Procedure
You are a registered shareholder if you own Spartan Shares in
your own name and either have a share certificate or direct
registration statement that shows your ownership. Registered
shareholders need to follow the procedure outlined below, otherwise
you will not receive the Distribution.
A letter of transmittal and confirmation of eligibility form
(the "Registered Eligibility Form") will be provided to
registered Spartan Shareholders on May 16, 2023, which must be
completed, signed and returned to Kingsdale Advisors (the
"Information Agent") on or prior to 5:00 p.m. (Mountain time) on Tuesday, June 13,
2023 (the "Eligibility Deadline"). Registered shareholders
that are corporations, partnerships or trusts, or where a person is
acting in a power or attorney or executor capacity, will also need
to send evidence of their capacity to confirm eligibility on behalf
of the registered shareholder. The cash portion of the Distribution
will be paid by cheque and the Logan Shares and Transaction
Warrants will be issued only to registered shareholders that have
submitted a Registered Eligibility Form. Registered shareholders
that wish to have their cheque and securities sent to an address
other than the registered address will also be required to obtain a
signature guarantee from a Canadian Financial Institution.
If you have any questions or need assistance in completing the
Registered Eligibility Form, please contact the Information Agent,
Kingsdale Advisors, toll free at 1-888-327-0819 or by email at
corpaction@kingsdaleadvisors.com.
Financial Intermediary
Procedure
You are a beneficial shareholder if you own Spartan Shares
through a financial intermediary such as a bank, broker or trust
company (a "Financial Intermediary"). Beneficial
shareholders will not be required to take action individually in
order to receive the Distribution. Your Financial Intermediary will
be required to confirm eligibility to receive the Distribution on
your behalf. If you have any questions regarding your eligibility
status, you should contact your Financial Intermediary.
Financial Intermediaries will be required to complete a letter
of transmittal and confirmation of eligibility form (the
"Beneficial Eligibility Form") for each of their CDS
Participant positions and return it to the Information Agent as
outlined on the Beneficial Eligibility Form on or prior to the
Eligibility Deadline. Financial Intermediaries will receive an
electronic copy of the Beneficial Eligibility Form from the
Information Agent on May 16, 2023. Any Financial Intermediary
that does not receive the Beneficial Eligibility Form should
immediately contact the Information Agent for assistance. Financial
Intermediaries are instructed to note the eligibility definition
included within the Beneficial Eligibility Form and to confirm
compliance with the definition on its own behalf and on behalf of
its underlying clients. Where a Financial Intermediary's client is
itself an Intermediary (an "Intermediary Client") holding on
behalf of beneficial shareholders, the Financial Intermediary must
seek confirmation of eligibility from any such Intermediary Client,
and for clarity cannot attest on behalf of such Intermediary
Client. The Beneficial Eligibility Form requires separate
confirmation of the aggregate number of Spartan Shares held that
are eligible to receive the Distribution and the aggregate number
of Spartan Shares that are ineligible to receive the Distribution.
Any client or Intermediary Client position that has not been
positively confirmed as either eligible or ineligible must not be
attested for under either category and will be defaulted to a "No
Attestation" status. Only Spartan Shares under the eligible
category will receive the Distribution.
In addition to completing the Beneficial Eligibility Form,
Financial Intermediaries are required to complete a signature and
medallion guarantee section and return the Beneficial Eligibility
Form, all as further explained in the form, on or prior to the
Eligibility Deadline.
Financial Intermediaries will receive the Distribution
entitlement for eligible shareholders by wire payment and CDS
deposit, unless they direct the Information Agent to issue a cheque
and DRS advice in accordance with the Beneficial Eligibility
Form.
Financial Intermediaries that have questions about completing
the Beneficial Eligibility Form should contact the Information
Agent, Kingsdale Advisors, toll free at 1-888-327-0819 or by email
at corpaction@kingsdaleadvisors.com.
ABOUT SPARTAN DELTA
CORP.
Spartan is committed to creating value for its shareholders,
focused on sustainability both in operations and financial
performance. The Company's ESG-focused culture is centered on
generating Free Funds Flow through responsible oil and gas
exploration and development. The Company has established a
portfolio of high-quality production and development opportunities
in the Deep Basin. Following completion of the Transaction, Spartan
will continue to focus on the execution of the Company's organic
drilling program in the Deep Basin, delivering operational
synergies in a respectful and responsible manner to the environment
and communities it operates in. The Company is well positioned to
continue pursuing immediate production optimization, future growth
with organic drilling, opportunistic acquisitions and the delivery
of Free Funds Flow and periodic special dividends to
shareholders.
Spartan's corporate presentation as of March 28, 2023 can be accessed on the Company's
website at www.spartandeltacorp.com.
ADVISORS
NBF acted as exclusive financial advisor to Spartan in
connection with the Asset Sale.
NBF and Scotia acted as co-financial advisors in connection with
the creation of Logan.
Stikeman Elliott LLP is acting as legal counsel to Spartan in
connection with the Transaction and will act as legal counsel to
Spartan and Logan upon completion of the Transaction.
Norton Rose Fulbright Canada LLP is acting as legal counsel to
Crescent Point in connection with the Asset Sale.
This press release is not an offer of the securities for sale
in the United States. The
securities offered have not been, and will not be, registered under
the U.S. Securities Act or any U.S. state securities laws and may
not be offered or sold in the United
States absent registration or an available exemption from
the registration requirement of the U.S. Securities Act and
applicable U.S. state securities laws. This press release shall not
constitute an offer to sell or the solicitation of an offer to buy,
nor shall there be any sale of these securities, in any
jurisdiction in which such offer, solicitation or sale would be
unlawful.
O&G READER ADVISORIES
Notes:
(1)
|
Forecasted production
for June 2023 of 4,000 BOE/d consisting of 18,151 mcf/d, 162 bbl/d
of NGLs, 200 bbl/d of condensate and 613 bbl/d of
oil.
|
(2)
|
Forecasted production
for June 2023 of 500 BOE/d consisting of 2,555 mcf/d of gas, 71
bbl/d of NGLs and 3 bbl/d of condensate.
|
(3)
|
250 BOE/d consisting of
1,247 mcf/d of gas, 17 bbl/d of NGLs and 26 bbl/d of
oil.
|
(4)
|
80,000 BOE/d consisting
of approximately 288 mmcf/d, 13,299 bbl/d of NGLs, 2,946 bbl/d of
condensate and 15,677 bbl/d of oil.
|
(5)
|
33,198 BOE/d consisting
of 88 mmcf/d of gas, 3,373 bbl/d of NGLs, 602 bbl/d of condensate
and 14,574 bbl/d of oil.
|
(6)
|
Consisting of 443 bcf
of gas, 20.1 MMbbl of NGLs, 1.5 MMbbl of condensate and 55.6 MMbbl
of oil.
|
(7)
|
Consisting of 857 bcf
of gas, 39.3 MMbbl of NGLs, 2.3 MMbbl of condensate and 109.6 MMbbl
of oil.
|
(8)
|
Forecasted production
for June 2023 of 4,500 BOE/d consisting of 20,706 mcf/d of gas, 233
bbl/d of NGLs and 203 bbl/d of condensate and 613 bbl/d of
oil.
|
(9)
|
Consisting of 68 bcf of
gas, 732 MMbbl of NGLs, 892 Mbbl of condensate and 2,523 Mbbl of
oil.
|
(10)
|
40,000 BOE/d comprised
of 170 mmcf/d of gas, 9,253 bbl/d of NGLs, 1,541 bbl/d of
condensate and 821 bbl/d of oil.
|
Reserves Disclosure
The reserves information and data provided in this press release
presents only a portion of the disclosure required under NI 51-101.
Spartan's Statement of Reserves Data and Other Oil and Gas
Information on Form 51-101F1 dated effective as at December 31, 2022, which includes further
disclosure of Spartan's oil and gas reserves and other oil and gas
information in accordance with NI 51-101 and COGEH forming the
basis of this press release, will be included in the Company's
Annual Information Form for the year ended December 31, 2022, which will be available on or
before March 31, 2023 on SEDAR at
www.sedar.com.
All reserves values, future net revenue and ancillary
information contained in this press release are derived from the
McDaniel Report unless otherwise noted. All reserve references in
this press release are "Company gross reserves". Company gross
reserves are the Company's total working interest reserves before
the deduction of any royalties payable by the Company. Estimates of
reserves and future net revenue for individual properties may not
reflect the same level of confidence as estimates of reserves and
future net revenue for all properties, due to the effect of
aggregation. There is no assurance that the forecast price and cost
assumptions applied by McDaniel in evaluating Spartan's reserves
will be attained and variances could be material. All reserves
assigned in the McDaniel Report are located in the Province of
Alberta and presented on a
consolidated basis.
All evaluations and summaries of future net revenue are stated
prior to the provision for interest, debt service charges or
general and administrative expenses and after deduction of
royalties, operating costs, estimated well abandonment and
reclamation costs and estimated future capital expenditures. It
should not be assumed that the estimates of future net revenues
presented represent the fair market value of the reserves. The
recovery and reserve estimates of Spartan's oil, NGLs and natural
gas reserves provided herein are estimates only and there is no
guarantee that the estimated reserves will be recovered. Actual
oil, natural gas and NGL reserves may be greater than or less than
the estimates provided herein. There are numerous uncertainties
inherent in estimating quantities of crude oil, reserves and the
future cash flows attributed to such reserves. The reserve and
associated cash flow information set forth herein are estimates
only.
Proved reserves are those reserves that can be estimated with a
high degree of certainty to be recoverable. It is likely that the
actual remaining quantities recovered will exceed the estimated
proved reserves. Probable reserves are those additional reserves
that are less certain to be recovered than proved reserves. It is
equally likely that the actual remaining quantities recovered will
be greater or less than the sum of the estimated proved plus
probable reserves. Proved developed producing reserves are those
reserves that are expected to be recovered from completion
intervals open at the time of the estimate. These reserves may be
currently producing or, if shut-in, they must have previously been
on production, and the date of resumption of production must be
known with reasonable certainty. Undeveloped reserves are those
reserves expected to be recovered from known accumulations where a
significant expenditure (e.g., when compared to the cost of
drilling a well) is required to render them capable of production.
They must fully meet the requirements of the reserves category
(proved, probable, possible) to which they are assigned. Certain
terms used in this press release but not defined are defined in NI
51-101, CSA Staff Notice 51-324 – Revised Glossary to NI 51-101,
Revised Glossary to NI 51-101, Standards of Disclosure for Oil and
Gas Activities ("CSA Staff Notice 51-324") and/or the
COGEH and, unless the context otherwise requires, shall have the
same meanings herein as in NI 51-101, CSA Staff Notice 51-324 and
the COGEH, as the case may be.
Forecast Pricing Assumptions
The following table outlines forecasted future prices that
McDaniel has used in their evaluation of the Logan Assets at
March 1, 2023, which are reflective
of Strip pricing as of March 1, 2023.
The forecast price assumptions consider inflation with respect to
future operating and capital costs.
FUTURE COMMODITY
PRICE FORECAST
|
WTI Cushing
Oklahoma
US$/bbl
|
Edm Light
Crude oil
CA$/bbl
|
Henry Hub
US$/MMBtu
|
AECO-C
Spot
CA$/GJ
|
USD/CAD
Exchange
CA$/US$
|
2023
|
75.90
|
100.12
|
3.27
|
2.79
|
0.736
|
2024
|
71.41
|
92.37
|
3.7
|
3.23
|
0.741
|
2025
|
67.32
|
86.44
|
3.91
|
3.72
|
0.744
|
2026
|
63.89
|
81.49
|
4.05
|
3.97
|
0.747
|
2027
|
60.95
|
83.12
|
4.11
|
4.06
|
0.747
|
Five year average
(1)
|
67.89
|
88.71
|
3.81
|
3.55
|
0.74
|
(1)
|
Prices and costs
escalate at 2.0% thereafter
|
|
|
The following table outlines forecasted future prices that
McDaniel has used in their evaluation of the Montney Assets as at
December 31, 2022, which are based on
published average forecast pricing of McDaniel, GLJ Ltd. and
Sproule Associates Limited. The forecast price assumptions consider
inflation with respect to future operating and capital costs.
FUTURE COMMODITY
PRICE FORECAST
|
WTI Cushing
Oklahoma
US$/bbl
|
Edm Light
Crude oil
CA$/bbl
|
Henry Hub
US$/MMBtu
|
AECO-C
Spot
CA$/GJ
|
USD/CAD
Exchange
CA$/US$
|
2023
|
80.33
|
103.76
|
4.74
|
4.01
|
0.75
|
2024
|
78.50
|
97.74
|
4.50
|
4.17
|
0.77
|
2025
|
76.95
|
95.27
|
4.31
|
3.99
|
0.77
|
2026
|
77.61
|
95.58
|
4.40
|
4.05
|
0.77
|
2027
|
79.16
|
97.07
|
4.49
|
4.11
|
0.78
|
Five year
average (1)
|
78.51
|
97.88
|
4.49
|
4.07
|
0.77
|
(1)
|
Prices and costs
escalate at 2.0% thereafter
|
NON-GAAP MEASURES AND
RATIOS
This press release contains certain financial measures and
ratios which do not have standardized meanings prescribed by
International Financial Reporting Standards ("IFRS") or
Generally Accepted Accounting Principles ("GAAP"). As these
non-GAAP financial measures and ratios are commonly used in the oil
and gas industry, Spartan believes that their inclusion is useful
to investors. The reader is cautioned that these amounts may not be
directly comparable to measures for other companies where similar
terminology is used.
The non-GAAP measures and ratios used in this press release,
represented by the capitalized and defined terms outlined below,
are used by Spartan as key measures of financial performance and
are not intended to represent operating profits nor should they be
viewed as an alternative to cash provided by operating activities,
net income or other measures of financial performance calculated in
accordance with IFRS.
The definitions below should be read in conjunction with the
"Non-GAAP Measures and Ratios" section of the Company's MD&A
dated March 2, 2023, which includes
discussion of the purpose and composition of the specified
financial measures and detailed reconciliations to the most
directly comparable GAAP financial measures.
Adjusted Funds Flow and Free Funds
Flow
Cash provided by operating activities is the most directly
comparable measure to Adjusted Funds Flow. "Adjusted Funds
Flow" is reconciled to cash provided by operating activities by
excluding changes in non-cash working capital, adding back
transaction costs on acquisitions, and deducting the principal
portion of lease payments. Spartan utilizes Adjusted Funds Flow as
a key performance measure in the Company's annual financial
forecasts and public guidance. Transaction costs, which primarily
include legal and financial advisory fees, regulatory and other
expenses directly attributable to execution of acquisitions, are
added back because the Company's definition of Free Funds Flow
excludes capital expenditures related to acquisitions and
dispositions. For greater clarity, incremental overhead expenses
related to ongoing integration and restructuring post-acquisition
are not adjusted and are included in Spartan's general and
administrative expenses. Lease liabilities are not included in
Spartan's definition of Net Debt (non-GAAP measure) therefore lease
payments are deducted in the period incurred to determine Adjusted
Funds Flow.
"Free Funds Flow" is calculated by Spartan as Adjusted
Funds Flow less Capital Expenditures before A&D, which is also
a non-GAAP financial measure. Spartan believes Free Funds Flow
provides an indication of the amount of funds the Company has
available for future capital allocation decisions such as to repay
long-term debt, reinvest in the business or return capital to
shareholders.
OTHER MEASUREMENTS
All dollar figures included herein are presented in Canadian
dollars, unless otherwise noted.
This press release contains various references to the
abbreviation "BOE" which means barrels of oil equivalent. Where
amounts are expressed on a BOE basis, natural gas volumes have been
converted to oil equivalence at six thousand cubic feet (Mcf) per
barrel (bbl). The term BOE may be misleading, particularly if used
in isolation. A BOE conversion ratio of six thousand cubic feet per
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 and is significantly different
than the value ratio based on the current price of crude oil and
natural gas. This conversion factor is an industry accepted norm
and is not based on either energy content or current prices. Such
abbreviation may be misleading, particularly if used in
isolation.
References to "oil" in this press release include light crude
oil, medium crude oil, heavy oil and tight oil combined. NI 51-101
includes condensate within the product type of "natural gas
liquids". References to "natural gas liquids" or "NGLs" include
pentane, butane, propane and ethane. References to "gas" or
"natural gas" relates to conventional natural gas. References to
"liquids" includes crude oil, condensate and NGLs.
SHARE CAPITAL
As of the date hereof, there are 171.4 million common shares
outstanding. There are no preferred shares or special shares
outstanding. The following securities are outstanding as of the
date of this press release: 3.7 million restricted share awards;
and 3.3 million stock options outstanding with an average exercise
price of $4.56 per common share and
average remaining term of 2.8 years.
For the purposes of calculating per share amounts throughout
this press release, the Company has assumed that in advance of
closing (i) all outstanding stock options will be exercised on a
cashless basis resulting in the issuance of an estimated 1.7
million Spartan Shares and (ii) all outstanding restricted share
awards will be settled by the Company in cash, resulting in an
estimated 173.1 million Spartan Shares outstanding at the time of
the Transaction. The actual number of shares to be issued in
connection with the cashless exercise of stock options and
resulting shares outstanding upon closing of the Transaction may
differ from these estimates.
FORWARD-LOOKING AND CAUTIONARY
STATEMENTS
Certain statements contained within this press release
constitute forward-looking statements within the meaning of
applicable Canadian securities legislation. All statements other
than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always,
identified by the use of words such as "anticipate", "budget",
"plan", "endeavor", "continue", "estimate", "evaluate", "expect",
"forecast", "monitor", "may", "will", "can", "able", "potential",
"target", "intend", "consider", "focus", "identify", "use",
"utilize", "manage", "maintain", "remain", "result", "cultivate",
"could", "should", "believe" and similar expressions. Spartan
believes that the expectations reflected in such forward-looking
statements are reasonable as of the date hereof, but no assurance
can be given that such expectations will prove to be correct and
such forward-looking statements should not be unduly relied upon.
Without limitation, this press release contains forward-looking
statements pertaining to: the anticipated benefits of the
Transaction to Spartan and its shareholders; the timing and
anticipated receipt of required shareholder, regulatory, stock
exchange and other third party approvals for the Transaction; the
ability of Spartan and Crescent Point to satisfy the other
conditions to, and to complete, the Asset Sale; and the anticipated
timing of the holding of the Meeting and the closing of the
Transaction; Spartan's and Logan's drilling plans, future growth
plans, reserves and values attributable thereto, per share growth,
Spartan's and Logan's growth strategy, the nature of their assets;
Logan's forecast cash position which assumes the Logan Financing is
fully-subscribed and the Transaction Warrants are fully exercised;
and the forecast number of Spartan Shares outstanding at closing
which will impact the number of Logan Shares and Transaction
Warrants that will ultimately be issued. All statements other than
statements of historical fact may be forward-looking statements. In
addition, statements relating to expected production, reserves,
recovery, costs and valuation are deemed to be forward-looking
statements as they involve the implied assessment, based on certain
estimates and assumptions that the reserves described can be
profitably produced in the future. Future dividend payments, if
any, and the level thereof, are uncertain, as the Company's return
of capital framework and the funds available for such activities
from time to time is dependent upon, among other things, Free Funds
Flow financial requirements for the Company's operations and the
execution of its growth strategy, fluctuations in working capital
and the timing and amount of capital expenditures, debt service
requirements and other factors beyond the Company's control.
Further, the ability of Spartan to pay dividends will be subject to
applicable laws (including the satisfaction of the solvency test
contained in applicable corporate legislation) and contractual
restrictions contained in the instruments governing its
indebtedness, including its credit facility.
The forward-looking statements and information are based on
certain key expectations and assumptions made in respect of Spartan
or Logan, as the case may be, including expectations and
assumptions concerning the business plan of Spartan and Logan, the
timing of and success of future drilling, development and
completion activities, the performance of existing wells, the
performance of new wells, the availability and performance of
facilities and pipelines, the geological characteristics of
Spartan's properties, the successful integration of the recently
acquired assets into Spartan's operations, the successful
application of drilling, completion and seismic technology,
prevailing weather conditions, prevailing legislation affecting the
oil and gas industry, prevailing commodity prices, price
volatility, price differentials and the actual prices received for
the Company's products, impact of inflation on costs, royalty
regimes and exchange rates, the application of regulatory and
licensing requirements, the availability of capital, labour and
services, the creditworthiness of industry partners and the ability
to source and complete acquisitions. In respect of the
forward-looking statements concerning the anticipated benefits and
completion of the Transaction, the timing and anticipated receipt
of required third party approvals and the anticipated timing for
completion of the Transaction, Crescent Point and Spartan have
provided such in reliance on certain assumptions that they believe
are reasonable at this time, including assumptions as to the
ability of the parties to receive, in a timely manner, the
necessary regulatory, stock exchange and other third party
approvals, including but not limited to the receipt of applicable
competition approvals; and the ability of the parties to satisfy,
in a timely manner, the other conditions to the closing of the
Transaction.
Although Spartan believes that the expectations and assumptions
on which such forward-looking statements and information are based
are reasonable, undue reliance should not be placed on the
forward-looking statements and information because Spartan can give
no assurance that they will prove to be correct. By its nature,
such forward-looking information is subject to various risks and
uncertainties, which could cause the actual results and
expectations to differ materially from the anticipated results or
expectations expressed. These risks and uncertainties include, but
are not limited to, fluctuations in commodity prices, changes in
industry regulations and political landscape both domestically and
abroad, wars (including Russia's
military actions in Ukraine),
hostilities, civil insurrections, foreign exchange or interest
rates, increased operating and capital costs due to inflationary
pressures (actual and anticipated), volatility in the stock market
and financial system, impacts of the current COVID-19 pandemic and
the retention of key management and employees. Ongoing military
actions between Russia and
Ukraine have the potential to
threaten the supply of oil and gas from the region. The long-term
impacts of the actions between these nations remains uncertain.
Completion of the Transaction is subject to a number of conditions
which are typical for transactions of this nature. Failure to
satisfy any of these conditions may result in the termination of
the Agreement. The foregoing list is not exhaustive. Additional
information on these and other risks that could affect completion
of the Transaction will be set forth in the information circular,
which will be available on SEDAR at www.sedar.com.
Please refer to Spartan's MD&A for the year ended
December 31, 2022 and AIF for the
year ended December 31, 2021 for
discussion of additional risk factors relating to Spartan, which
can be accessed either on Spartan's website at
www.spartandeltacorp.com or under Spartan's SEDAR profile on
www.sedar.com. Readers are cautioned not to place undue reliance on
this forward-looking information, which is given as of the date
hereof, and to not use such forward-looking information for
anything other than its intended purpose. Spartan undertakes no
obligation to update publicly or revise any forward-looking
information, whether as a result of new information, future events
or otherwise, except as required by law.
This press release contains future-oriented financial
information and financial outlook information (collectively,
"FOFI") about Spartan's and Logan's prospective results of
operations and production, generating Free Funds Flow and organic
growth, 2023 capital budget, expenditures and guidance and
components thereof, all of which are subject to the same
assumptions, risk factors, limitations, and qualifications as set
forth in the above paragraphs. FOFI contained in this document was
approved by management as of the date of this document and was
provided for the purpose of providing further information about
Spartan's future business operations. Spartan and its management
believe that FOFI has been prepared on a reasonable basis,
reflecting management's best estimates and judgments, and
represent, to the best of management's knowledge and opinion, the
Company's expected course of action. However, because this
information is highly subjective, it should not be relied on as
necessarily indicative of future results. Spartan disclaims any
intention or obligation to update or revise any FOFI contained in
this document, whether as a result of new information, future
events or otherwise, unless required pursuant to applicable law.
Readers are cautioned that the FOFI contained in this document
should not be used for purposes other than for which it is
disclosed herein. Changes in forecast commodity prices, differences
in the timing of capital expenditures, and variances in average
production estimates can have a significant impact on the key
performance measures included in Spartan's guidance. The Company's
actual results may differ materially from these estimates.
ABBREVIATIONS
A&D
|
acquisitions and
dispositions
|
AECO
|
Alberta Energy Company
"C" Meter Station of the NOVA Pipeline System
|
AFF
|
Adjusted Funds
Flow
|
AIF
|
refers to the Company's
Annual Information Form dated March 8, 2022
|
B
|
billion
|
bbl
|
barrel
|
bbls/d
|
barrels per
day
|
BOE
|
barrels of oil
equivalent
|
BOE/d
|
barrels of oil
equivalent per day
|
CA$ or CAD
|
Canadian
dollar
|
COVID-19
|
refers to the outbreak
of the novel coronavirus, a public health crisis
|
Edm Light
|
Edmonton light sweet
grade crude oil
|
ESG
|
Environment, Social and
Governance
|
FDC
|
Future development
capital
|
GJ
|
gigajoule
|
Mbbls
|
thousands of
barrels
|
Mboe
|
thousands of barrels of
oil equivalent
|
mcf
|
one thousand cubic
feet
|
mcf/d
|
one thousand cubic feet
per day
|
mmcf/d
|
million of cubic feet
per
|
MMboe
|
millions of barrels of
oil equivalent
|
MMbtu
|
one million British
thermal units
|
MMcf
|
one million cubic
feet
|
MD&A
|
refers to Management's
Discussion and Analysis of the Company dated March 2,
2023
|
MM
|
millions
|
$MM
|
millions of
dollars
|
NI 51-101
|
National Instrument
51-101 – Standards of Disclosure for Oil and Gas
Activities
|
NGL(s)
|
natural gas
liquids
|
NPV
|
Net present value, all
references to NPV in this press release are before-tax
|
NYMEX
|
New York Mercantile
Exchange, with reference to the U.S. dollar "Henry Hub" natural gas
price index
|
PDP
|
Proved developed
producing reserves
|
TSX
|
Toronto Stock
Exchange
|
TSXV
|
TSX Venture
Exchange
|
TP
|
Total proved
reserves
|
TPP
|
Total proved plus
probable reserves
|
US$ or USD
|
United States
dollar
|
WTI
|
West Texas
Intermediate, the reference price paid in U.S. dollars at Cushing,
Oklahoma for crude oil of standard grade
|
SOURCE Spartan Delta Corp.