/THIS PRESS RELEASE IS NOT FOR PUBLICATION OR
DISSEMINATION IN THE UNITED
STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY
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CALGARY, July 7, 2017 /CNW/ - Manitok Energy Inc.
("Manitok") (TSXV: MEI) and Questfire Energy Corp.
("Questfire") (TSXV: Q.A) are pleased to announce that on
July 5, 2017 they have entered into a
definitive agreement (the "Arrangement Agreement") providing
for the acquisition by Manitok of all the issued and outstanding
common shares of Questfire (the "Questfire Shares") pursuant
to a plan of arrangement under the Business Corporations Act
(Alberta) (the
"Acquisition").
In addition, Manitok is in the final stages of negotiating a new
credit facility with a syndicate of lenders (the "Lender")
in connection with obtaining a new $132.2
million credit facility consisting of $117.2 million senior secured term facility with
a $15.0 million delayed draw
acquisition facility (the "Credit Facility") to finance the
Acquisition. Manitok intends to close the Credit Facility
concurrently with the Acquisition.
The Arrangement
Under the terms of the Arrangement Agreement, Questfire
shareholders will receive, for each Questfire Share held, 2.25
Manitok common shares ("Manitok Shares"). The aggregate
transaction value is approximately $55.4
million including $51.8
million to replace the bank debt, infrastructure-backed
debt, other Questfire obligations, anticipated transaction costs
(including due diligence, legal, accounting and various fees),
expected proceeds from the exercise of in-the-money options to
purchase Questfire Shares, severance costs and change of control
payments. The transaction will be financed with the Credit Facility
and issuance of common shares. Upon the completion of the
Acquisition, Manitok and Questfire shareholders will hold
approximately 86% and 14% of the pro forma shares of the resulting
issuer, respectively.
Arrangement Agreement
Pursuant to the Arrangement Agreement, Manitok and Questfire
have agreed that the Acquisition will be completed by way of a plan
of arrangement under the Business Corporations Act
(Alberta). The Arrangement
Agreement provides for non-solicitation covenants, subject to the
fiduciary obligations of the board of directors of Questfire, and
the right of Manitok to match any Superior Proposal (as defined in
the Arrangement Agreement) within 72 hours. The Arrangement
Agreement provides for mutual non-completion fees of $2.0 million in the event that the Acquisition is
not completed or is terminated by either party in certain
circumstances.
The Arrangement Agreement provides that the completion of the
Acquisition is subject to certain conditions, including the receipt
of all required regulatory approvals, including the approval of the
TSX Venture Exchange, the approval of holders of Questfire Shares
including the approval of disinterested Questfire shareholders, the
approval of the Court of Queen's Bench of Alberta and the closing of the Credit
Facility.
A joint management information circular outlining the details of
the Arrangement Agreement and the Acquisition is anticipated to be
mailed to the holders of Questfire Shares on July 20, 2017 for a shareholder meeting to
be held on or before August 15,
2017 where holders of Questfire Shares will vote on the
Acquisition. Closing of the Credit Facility is one of the
conditions to the closing of the Acquisition.
Following the completion of the Acquisition, Manitok's current
board of directors and management team will manage the pro forma
resulting issuer.
Questfire Board Recommendation and Lock-Up Agreements
The board of directors of Questfire has, based upon, among other
things, a verbal fairness opinion from Integral Wealth Securities
Limited, unanimously approved the Acquisition and Questfire's
execution of the Arrangement Agreement, determined that the
Acquisition is in the best interests of Questfire and its
shareholders and recommends that holders of Questfire Shares vote
in favour of the Acquisition. All directors and officers of
Questfire, representing more than 40% of the issued and outstanding
Questfire Shares, have entered into support agreements with Manitok
pursuant to which they have agreed to vote their Questfire Shares
in favour of the Acquisition.
Strategic Rationale
Management and the board of directors of each of Manitok and
Questfire believe that the combined asset bases will provide
synergistic benefits to both Manitok shareholders and to Questfire
shareholders.
Size and Scale Improves Access to Capital: The
combination of Manitok and Questfire creates an intermediate oil
& gas company with a stable and diverse asset base. The pro
forma resulting issuer will have production exceeding 10,600 boe/d
(32% oil), proved plus probable reserves of 57 million boe,
annualized adjusted EBITDA of $22.2
million, and total proved plus probable PV10 reserve value
of $470 million, effective
December 31, 2016, based on
management prepared pro forma aggregation of reserves based on the
independent reserves evaluation of Manitok's reserves effective
December 31, 2016, prepared in
accordance with the COGE Handbook and National Instrument 51-101 -
Standards of Disclosure for Oil and Gas Activities ("NI
51-101") by Sproule Associates Limited ("Sproule") and
dated April 28, 2017 (the "Manitok
Report") and the independent reserves evaluation of Questfire's
reserves effective December 31, 2016,
prepared in accordance with the COGE Handbook and NI 51-101 by GLJ
Petroleum Consultants Ltd. ("GLJ") and dated March 10, 2017 (the "Questfire Report").
The larger resulting issuer is expected to have better access to
capital and higher relevance to the capital markets than each of
Manitok and Questfire as standalone entities.
Addition of Complementary, High Quality Assets:
Questfire's land position in Lookout Butte and west central
Alberta are complimentary to
Manitok's existing asset portfolio. Manitok believes that its
management team possesses the technical expertise and experience
required to successfully develop and exploit the oil potential of
the shallower geological formations at Lookout Butte. Questfire
also has most of its production in close proximity to Manitok's
existing assets in the Willesden Green area in west central
Alberta, where there are
development opportunities in the Cardium oil and Mannville liquids rich gas formations.
Significantly Improved Cost Profile: The
Acquisition is expected to decrease the combined entity's corporate
cost structure through cost savings from areas including, but not
limited to, public company reporting, executive compensation and
general operating overhead. In addition, proximity between certain
Manitok and Questfire assets creates cost saving opportunities
through scale and quick payback capital projects. Manitok believes
a material reduction in operating and general and administrative
expenses can be realized going forward.
Liquidity Unlocks Shareholder Value: Upon the
closing of the Acquisition and the Credit Facility, Manitok is
expected to have cash on hand in excess of $20 million and access to a delayed draw
acquisition facility of $15 million
(the "Acquisition Facility"). Manitok plans to use the funds
to increase its production and reserves through its newly funded
capital program and to pursue accretive acquisitions to create
additional shareholder value. Current low oilfield service costs
allow Manitok to drill and to develop its land base at attractive
economics. Furthermore, Manitok is of the view that it is an
opportune time to make strategic acquisitions at highly attractive
prices, while the current market conditions prevail.
Upon Close, the Term Debt Financing Allows Focus on Long
Term Value Creation: Prior to the Acquisition, both Manitok
and Questfire had demand credit facilities outstanding with their
respective senior lenders, which are each subject to a regular,
bi-annual, borrowing base redetermination, as well as
infrastructure-backed debt. Being able to replace the demand loans
with the proposed Credit Facility is anticipated to result in
balance sheet stability and certainty around financial planning,
which provides management with additional opportunities to create
long term shareholder value.
Numerous Low Risk Future Opportunities: There are
recompletion opportunities that would provide quick turn-around
production volume additions. These recompletions include: multiple
zones in wellbores at Lookout Butte, three oil locations and five
gas locations in west central Alberta. In addition, in west central
Alberta there are three oil wells
that can be re-activated with artificial lift installations. Also,
compressor facility consolidations would enhance productivity at
both Medicine Hat and Oberlin.
Among the many drilling prospects that Questfire has in inventory,
several offer low risk opportunities including: two drill ready
locations at Viking-Kinsella, two at Morningside and one at Open
Lake.
Pro Forma Summary
On a management estimated pro forma basis, the resulting issuer
is anticipated to have the following attributes:
|
|
Pre-Acquisition
|
|
|
|
Manitok
|
Questfire
|
Pro
Forma
|
Shares
Outstanding(1)
|
(mm)
|
319.7
|
22.8
|
371.1
|
|
|
|
|
|
Market
Capitalization(2)
|
($mm)
|
$22.4
|
$3.6
|
$26.0
|
Total Debt
Outstanding(3)
|
($mm)
|
$76.2
|
$47.9
|
$148.4
|
Less: Cash at
closing
|
($mm)
|
-
|
-
|
$20.0
|
Enterprise
Value
|
($mm)
|
$98.6
|
$51.5
|
$154.4
|
|
|
|
|
|
2017 Q1
Production
|
(boe/d)
|
6,300 (63%
gas)
|
4,310 (77%
gas)
|
10,610 (68%
gas)
|
2017 Q1 Annualized
Adjusted
|
($mm)
|
$14.9
|
$7.3
|
$22.2
|
EBITDA(4)
|
|
|
|
|
|
|
|
|
|
Gross
Reserves(5)
|
|
|
|
|
|
Proved Developed
Producing
|
(mmboe)
|
9.7 (59%
gas)
|
13.5 (66%
gas)
|
23.1 (63%
gas)
|
|
Proved
|
(mmboe)
|
17.0 (55%
gas)
|
17.6 (68%
gas)
|
34.6 (62%
gas)
|
|
Proved Plus
Probable
|
(mmboe)
|
28.2 (57%
gas)
|
28.9 (62%
gas)
|
57.0 (59%
gas)
|
|
|
|
|
|
NPV10% Before
Tax(5)
|
|
|
|
|
|
Proved Developed
Producing
|
($mm)
|
$114.9
|
$94.6
|
$209.5
|
|
Proved
|
($mm)
|
$188.3
|
$113.6
|
$301.9
|
|
Proved Plus
Probable
|
($mm)
|
$299.8
|
$170.2
|
$470.0
|
|
|
|
|
|
Total Undeveloped
Land(6)
|
(000
acres)
|
336
|
93
|
429
|
|
|
|
|
|
(1)
|
Upon completion of
the Acquisition, assuming the exercise of all of the in-the-money
options of Questfire, the cancellation of all of the out-of-the
money options of Questfire and warrants of Questfire. Pro forma
shares does not include $6.0 mm of Manitok Shares to be issued in
connection with the termination of the infrastructure-backed debt
at a deemed per Manitok Share price equal to 5-day volume weighted
average price of Manitok Shares, calculated based on 5 consecutive
trading days of Manitok Shares on the TSX Venture Exchange
immediately preceding the date of the termination of such
infrastructure-backed debt.
|
(2)
|
Assumes Manitok Share
price of $0.07 as of July 5, 2017, being the closing price of
Manitok Shares prior to the date of this press release and assumes
pro forma closing price remains unchanged.
|
(3)
|
Total debt
outstanding is equal to the sum of outstanding bank debt, term
loans, infrastructure-backed debt and principal balances
outstanding on Collateralized Exchange Listed Notes™ as
at March 31, 2017. Pro forma balance is estimated as at closing of
the transaction, and includes expected transaction costs and option
proceeds from the exercise of in-the-money options of Questfire.
See "Non-GAAP Measures" in the advisories at the end of this
press release.
|
(4)
|
Adjusted EBITDA for
the quarter ended March 31, 2017, multiplied by 4. See "Non-GAAP
Measures" in the advisories at the end of this press
release.
|
(5)
|
Gross interest before
royalties; based on the Manitok Report prepared by Sproule and the
Questfire Report prepared by GLJ.
|
(6)
|
As at June 30, 2017
for Manitok and as at December 31, 2016 for Questfire.
|
(7)
|
Reserves and net
present value numbers are based on the Manitok Report prepared by
Sproule and the Questfire Report prepared by GLJ.
|
Proposed New Credit Facility
Manitok is currently in the final stages of negotiating the
Credit Facility with the Lenders which is to be completed
concurrently with the closing of the Acquisition. The proposed
Credit Facility will increase the resulting issuer's pro forma
borrowing capacity by way of a new multi-tranche first lien secured
term loan credit facility of $132.2
million, which includes a $117.2
million term loan (the "Term Loan") bearing a
consolidated coupon rate of 11.3% with warrants to purchase 10% of
the fully-diluted Manitok Shares following the completion of the
Acquisition with an exercise price equal to Manitok's volume
weighted average price for the 30 calendar days prior to the
closing of the Credit Facility. The Term Loan is subject to
standard covenants, tests and conditions for first lien term loans
of this nature. The Credit Facility also includes a $15.0 million delayed draw term loan previously
referred to herein as the "Acquisition Facility" with draw down
conditions that are customary to facilities of this nature. Upon
completion, the resulting issuer will extinguish the
existing reserves based bank credit facilities and
infrastructure-backed debt of both Manitok and Questfire,
and will have an average cost of debt capital of 11.1% versus
the current 9.7% and will have $20.0
million of additional liquidity at close.
Summary of Debt Outstanding of the Pro Forma Entity
Below summarizes the debt outstanding of the pro forma
entity:
Debt Outstanding
($mm)
|
Outstanding
|
Term Loan
|
$117.2
|
Collateralized
Exchange Listed Notes™
|
$ 31.2
|
Total Debt
Outstanding
|
$148.4
|
It is anticipated that concurrently with the closing of the
Acquisition and the Credit Facility, Manitok's demand credit
facility, Manitok's infrastructure-backed debt, Questfire's demand
credit facility and Questfire's infrastructure-backed debt will be
extinguished.
The pro forma resulting issuer shall have total debt outstanding
of approximately $148.4 million,
comprised of the Term Loan of $117.2
million and Collateralized Exchange Listed™ Notes
of $31.2 million.
This press release shall not constitute an offer to sell
or the solicitation of an offer to buy any securities nor shall
there be any sale of securities in any jurisdiction in which such
offer, solicitation or sale would be unlawful. The securities
issued pursuant to the Acquisition and/or the financing described
herein may not be offered or sold in the
United States absent registration or applicable exemption
from the registration requirements.
Caution Respecting BOE
The term barrels of oil equivalent ("BOE") may be
misleading, particularly if used in isolation. A BOE conversion
ratio of 6 Mcf:1 Bbl and an Mcfe conversion ratio of 1 Bbl:6 Mcf
are based on an approximate energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead. Since the value ratio based on
the current price of crude oil compared to natural gas is
significantly different from the energy equivalency conversion
ratio of 6:1, utilizing a conversion based on a 6:1 ratio is
misleading as an indication of value.
Forward-looking Information Cautionary
Statement
This press release contains forward-looking statements. More
particularly, this press release contains statements concerning the
terms of the Acquisition and the Credit Facility, the timing and
completion of the Acquisition and the Credit Facility, the
anticipated benefits of the Acquisition and the Credit Facility to
Manitok, Questfire and the shareholders of both Manitok and
Questfire, including, but not limited to, having better access to
capital and decrease in corporate cost structure (including
reduction in operating and general and administrative expenses) and
the anticipated extinguishment of both Manitok's and Questfire's
current long term demand credit facility and infrastructure-backed
debt following the completion of the Arrangement and the Credit
Facility.
The forward-looking statements in this press release are
based on certain key expectations and assumptions made by Manitok
and Questfire, including expectations and assumptions concerning
the prevailing market conditions, the intentions of their lenders,
commodity prices, and the availability of capital.
Although Manitok and Questfire believe 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 Manitok and Questfire 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, risks associated with adverse market
conditions, the inability of Manitok or Questfire to complete the
Acquisition at all or on the terms announced, not obtaining the
required court, shareholder and regulatory approvals, a lender not
approving the amendment to a credit facility and the 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
reserves estimates; the uncertainty of estimates and projections
relating to production, costs and expenses; and health, safety and
environmental risks), uncertainty as to the availability of labour
and services, commodity price and exchange rate fluctuations,
unexpected adverse weather conditions, general business, economic,
competitive, political and social uncertainties, capital market
conditions and market prices for securities and changes to existing
laws and regulations. More information about certain of these risks
are set out in the documents filed from time to time with the
Canadian securities regulatory authorities, available on Manitok's
and Questfire's SEDAR profiles at www.sedar.com.
Forward-looking statements are based on estimates and
opinions of management of Manitok and Questfire at the time the
statements are presented. Manitok and Questfire may, as considered
necessary in the circumstances, update or revise such
forward-looking statements, whether as a result of new information,
future events or otherwise, but Manitok and Questfire undertake no
obligation to update or revise any forward-looking statements,
except as required by applicable securities laws.
The estimates of reserves and future net revenue for
individual properties may not reflect the same confidence level as
estimates of reserves and future net revenue for all properties,
due to the effects of aggregation.
Non-GAAP Financial Measures
This press release contains a reference to "Adjusted EBITDA".
Such measure does not have standardized meanings prescribed by
generally accepted accounting principles ("GAAP"), including
International Financial Reporting Standards ("IFRS") and
therefore should not be considered in isolation. Such reported
amount and the underlying calculation are not necessarily
comparable or calculated in an identical manner to a similarly
titled measure of other companies where similar terminology is
used. Where such measure is used it should be given careful
consideration by the reader. Such measure has been described and
presented in this press release in order to provide shareholders
and potential investors with additional information regarding the
Corporation's liquidity and its ability to generate funds to
finance its operations.
Adjusted EBITDA is derived from net income (loss) before
interest expense, interest and other income, foreign exchange,
current and deferred income tax expense (recovery),
acquisition-related expenses, depletion and depreciation expense,
impairment expense, stock-based compensation expense, accretion
expense, unrealized gains or losses on financial instruments, gains
or losses on asset divestitures and the change in fair value of
marketable securities. Both managements of Manitok and Questfire
believe that in addition to net income (loss), Adjusted EBITDA is a
useful supplemental measure as it provides an indication of the
results generated by an issuer's principal business activities
prior to consideration of how these activities are financed and
taxed, how assets are depleted, depreciated, amortized and
impaired, the impact of foreign exchange, or how the results are
affected by the accounting standards associated with stock-based
compensation, unrealized gains or losses on financial instruments,
gains or losses on asset divestitures and the change in fair value
of marketable securities.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
SOURCE Manitok Energy Inc.