ENP Newswire -
Release date- 13062014 -
Under the terms of the Arrangement each common share of Crocotta will be exchanged for 0.415 of a common share of Long Run, 1.0 common share of a new
It is also proposed that in conjunction with the Arrangement, certain officers, employees and directors will purchase up to 7.65 million units of ExploreCo ('ExploreCo Units') at
In addition, in conjunction with the Arrangement, Crocotta and ExploreCo have entered into a letter agreement with a syndicate of underwriters lead by
The gross proceeds raised under the Subscription Receipt Offering will be held in escrow pending satisfaction of certain escrow release conditions, including all of the conditions required to complete the Arrangement having being satisfied or waived. Additional details are provided under the heading 'Financings' below.
STRATEGIC RATIONALE FOR TRANSACTION
Crocotta has two major assets that are very diverse and believes that separating these two assets will ultimately result in maximizing value for all shareholders of Crocotta. The
The Dawson Sunrise Montney asset is an exciting exploration asset that has significantly less production (2,300 BOE/d) and less established infrastructure, but provides Crocotta shareholders with what Crocotta believes to be a significant potential upside based on recent drilling in the area. Crocotta believes that the benefits of separating the assets into two companies (
allowing shareholders to participate in a larger entity (Long Run) that pays a strong sustainable dividend with a low payout ratio;
reducing shareholders' risk and volatility on the Long Run portion given it is a balanced producer (approximately 50/50 Liquid to Gas ratio) with a diversified asset base and
exposing shareholders to a new pure play liquids rich
ExploreCo is anticipated to be a new junior exploration and production company led by
Crocotta recently drilled a
ExploreCo will hold a large land base in the
The Agreement contemplates that ExploreCo will assume approximately
ExploreCo has estimated that it will achieve a production rate of over 5,000 BOE/d by the end of 2015. ExploreCo estimates it will spend approximately
Assuming all private placements are fully subscribed for and all ExploreCo Arrangement Warrants are exercised, ExploreCo will have the following characteristics:
2,300 BOE/d (projected 5,000 BOE/d by exit 2015);
over 60 net sections (38,400 acres) of land in the highly prolific liquids rich
a development drilling inventory of over 80 locations (IP60 approximately 880 BOE/d) with potential to prove up an additional 200 locations and
155 million ExploreCo Shares outstanding.
Crocotta's board of directors and management view the Arrangement as an advantageous transaction for Crocotta shareholders. Through the Long Run transaction, existing Crocotta shareholders will benefit from the diversification of the Long Run asset base and liquidity in its shares as well as access to a monthly dividend stream (current average dividend yield of Long Run is approximately 7.6% per annum).
Additionally, Crocotta shareholders will retain ownership in ExploreCo following the completion of the Arrangement, which will own certain assets that Crocotta's management believe to contain significant upside and growth potential which can be accelerated through focused exploration and development in a well capitalized entity.
Consideration Received by Crocotta Shareholders:
1.0 ExploreCo Share (ExploreCo financing price)
0.415 common share of Long Run
Total Value (not including ExploreCo Arrangement Warrants)
The Arrangement is a culmination of over seven years of exploration and development over which the Company grew production from approximately 100 BOE/d to current production of approximately 9,800 BOE/d. Management views the Arrangement as an opportunity for Crocotta shareholders to realize value for a large portion of the Company's assets while retaining significant upside exposure associated with the
The Arrangement also allows ExploreCo management to immediately apply its expertise at creating value in a growth oriented, exploration focused entity following completion of the Arrangement. ExploreCo will be well capitalized at inception with a cash balance, no debt, and highly focused assets primarily located in northeast
ExploreCo has proposed, in addition to approximately 21.1 million ExploreCo Arrangement Warrants exercisable at
If all ExploreCo Arrangement Warrants are exercised, the Management Financing is fully subscribed and upon closing of the Subscription Receipt Offering (including full exercise of the Underwriters Option (as defined below)), ExploreCo would have a positive cash position of approximately
Description of Management Financing
The Management Financing is an offering of up to 7.65 million ExploreCo Units to certain officers, employees and directors. Each ExploreCo Unit is comprised of one ExploreCo Share and one ExploreCo Share purchase warrant (a 'Warrant'). The ExploreCo Units will be priced at
Description of Subscription Receipt Offering
In connection with the Arrangement, ExploreCo has entered into a letter agreement with a syndicate of underwriters led by
The gross proceeds from the sale of Subscription Receipts will be held in escrow pending certain escrow release conditions being met, which includes all outstanding conditions to the completion of the Arrangement being met or waived and receipt of all necessary approvals for the Subscription Receipt Offering and the Arrangement having been obtained on or before
Upon all escrow release conditions being met and the required notices being given to the escrow agent, the net proceeds from the Subscription Receipt Offering will be released to Exploreco and the holders of Subscription Receipts will receive, without any additional consideration, one ExploreCo Share for each Subscription Receipt held. If all of the escrow release conditions are not met on or before
In addition, the Underwriters have been granted an option (an 'Underwriters Option'), which may be exercised in whole or in part up until 48 hours prior the closing of the Subscription Receipt Offering, to purchase up to an additional 2.9 million Subscription Receipts at a price of
The Subscription Receipts will be distributed by way of private placement in all provinces of
Closing of the Subscription Receipt Offering is expected to occur in early mid
ExploreCo proposes to issue an aggregate of 7.5 million performance warrants to certain officers, directors and employees of ExploreCo as part of a compensation arrangement. The performance warrants will vest equally over 3 years and have a 5 year term. Each performance warrant will entitle the holder thereof to acquire one ExploreCo Share at an exercise price of
The total number of ExploreCo Shares issuable under the performance warrants would comprise 5% of the proforma shares outstanding of ExploreCo and would be part of the 10% maximum restriction on evergreen stock options imposed by the TSX.
BOARD OF DIRECTORS RECOMMENDATION AND FINANCIAL ADVISORS
The Board of Directors of Crocotta constituted a special committee (the 'Special Committee') comprised of independent directors to consider the Arrangement and the transactions contemplated by the Arrangement.
Based upon the recommendation of the Special Committee, the opinion of the financial advisors to the Special Committee and the opinion of the financial advisor to the Board of Directors of Crocotta, the Board of Directors of Crocotta has determined that the Arrangement is in the best interests of Crocotta and the Crocotta shareholders; (ii) determined that the consideration to be received by the Crocotta shareholders under the Arrangement is fair, from a financial point of view, to Crocotta Shareholders; (iii) approved the Agreement and the transactions contemplated thereby and (iv) resolved to recommend that the Crocotta shareholders vote in favour of the Arrangement, the Management Financing and the Subscription Receipt Offering.
The Agreement has the support of all of Crocotta's management and directors who collectively own approximately 13% of Crocotta's fully diluted shares. Directors, officers and entities owned or controlled by
It is expected that a management information circular and proxy statement detailing the Arrangement and the ExploreCo private placements, and containing a copy of the written fairness opinions will be mailed to Crocotta's shareholders in early mid
The closing of the Arrangement is subject to the receipt by Long Run and Crocotta of all Court, TSX and other regulatory approvals, receipt of the requisite shareholder approvals of Crocotta regarding the Arrangement and the ExploreCo private placements, approval by Long Run shareholders of the Long run share issuance under the Arrangement, no material adverse change having occurred in Crocotta and a number of other conditions customary in a transaction of the nature of the Arrangement.
The Agreement provides that Crocotta will pay Long Run a noncompletion fee of
Haywood is expected to provide a written fairness opinion relating to the ExploreCo consideration to be received by Crocotta shareholders under the Arrangement.
President and Chief Executive Officer
Tel: (403) 538 3736
Tel: (403) 538 3738
FORWARD LOOKING STATEMENTS
This press release contains forward looking statements and forward looking information within the meaning of applicable securities laws. The use of any of the words 'expect', 'anticipate', 'continue', 'estimate', 'may', 'will', 'should', 'believe', 'intends', 'forecast', 'plans', 'guidance' and similar expressions are intended to identify forward looking statements or information.
More particularly and without limitation, this document contains forward looking statements and information relating to the terms of the Arrangement and the ExploreCo private placements, the anticipated closing date of the Arrangement and the Subscription Receipt Offering, anticipated mailing date of the management information circular and proxy materials in connection with the Arrangement, ExploreCo's anticipated future rate of return on and the net value of the latest
The forward looking statements and information are based on certain key expectations and assumptions made by the Company and ExploreCo, including expectations and assumptions relating to the Company and ExploreCo being able to receive all required regulatory approvals to consummate the Arrangement and the two private placements, level of exercise of the ExploreCo Arrangement Warrants to be issued under the Arrangement, anticipated participation of officers, employees and directors in the management private placement, Crocotta receiving the requisite shareholder approvals of Crocotta and Long Run, prevailing commodity prices and exchange rates, applicable royalty rates and tax laws, future well production rates, the performance of existing wells, the success of drilling new wells, the availability of capital to undertake planned activities and the availability and cost of labour and services.
Although the Company and ExploreCo believes that the expectations reflected in such forward looking statements and information are reasonable, it can give no assurance that such expectations will prove to be correct. Since forward looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated due to a number of factors and risks.
These include, but are not limited to, the risks associated with the oil and gas industry in general such as 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 estimates and projections relating to production rates, costs and expenses, commodity price and exchange rate fluctuations, marketing and transportation, environmental risks, competition, the ability to access sufficient capital from internal and external sources and changes in tax, royalty and environmental legislation.
The forward looking statements and information contained in this document are made as of the date hereof for the purpose of providing the readers with the Company's expectations for the coming year. The forward looking statements and information may not be appropriate for other purposes. The Company undertakes no obligation to update publicly or revise any forward looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
The well flow tests disclosed in this press release are not necessarily indicative of longterm performance or ultimate recovery. Meaning of BOE: When used in this press release, BOE means a barrel of oil equivalent on the basis of 1 BOE to 6 thousand cubic feet of natural gas. BOE per day means a barrel of oil equivalent per day. BOE's may be misleading, particularly if used in isolation.
A BOE conversion ratio of 1 BOE for 6 thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Non GAAP Measures: The reader is also cautioned that this news release contains the terms funds flow, net debt and operating netback which are not a recognized measures under Canadian generally accepted accounting principles ('GAAP'). Management believes that these measures are useful supplemental measures. Management uses funds flow to analyze performance and considers it a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt.
Funds flow is a non GAAP measure and has been defined by the Company as net earnings plus noncash items (depletion and depreciation, asset impairments, share based compensation, noncash finance expenses, unrealized gains and losses on risk management contracts, and deferred income taxes) and excludes the change in noncash working capital related to operating activities and expenditures on decommissioning obligations. Net debt is calculated as current liabilities less current assets, excluding the current portion of future tax assets and derivative assets and liabilities.
Operating netback is calculated as revenue minus royalties, operating expenses and transportation expenses. Operating netback is specific to a point in time and therefore will be unique to the period stated. Readers are cautioned, however, that these measures should not be construed as an alternative to other terms determined in accordance with GAAP as a measure of performance. Crocotta's method of calculating these measures may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.
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