Petroamerica Signs Agreement with Suroco Energy Inc. to Acquire all of Suroco's Issued and Outstanding Common Shares
CALGARY, April 28, 2014 /CNW/ - Petroamerica Oil Corp. ("Petroamerica") (TSX-V:PTA) is pleased to announce that it has entered into an arrangement agreement (the "Arrangement Agreement") with Suroco Energy Inc. ("Suroco") (TSX-V:SRN) whereby Petroamerica has agreed to acquire all of the issued and outstanding common shares of Suroco (the "Suroco Shares") by way of a statutory plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement"). Pursuant to the terms of the Arrangement Agreement, holders of Suroco Shares ("Suroco Shareholders") will receive 1.7627 common shares of Petroamerica ("Petroamerica Shares") for each Suroco Share held (the "Exchange Ratio"). (Note: all financial amounts are reported in United States Dollars unless otherwise indicated.)
Based on Petroamerica's most recent closing price of CDN$0.325 per share on April 25, 2014, the Exchange Ratio reflects a value of CDN$0.573 per Suroco Share, representing a 36.4% premium over Suroco's closing price on April 22, 2014 of CDN$0.42 and a 66.6% premium over Suroco's 10-day volume weighted average trading price. The Arrangement is expected to close on or around June 30, 2014, provided all required Suroco Shareholder, court, stock exchange and regulatory approvals are obtained.
"This transaction provides the diversification and scale we have been searching for in Colombia and offers shareholders exposure to a potentially prolific new play trend developing in the Putumayo Basin. The size of the combined company and its production, reserves and cash flow are anticipated to facilitate easier access to capital and open up additional growth opportunities." says Jeff Boyce, Executive Chairman of Petroamerica.
- Growth and Diversification – Significant first step towards expanding and diversifying Petroamerica's portfolio by acquiring four blocks focused in the Putumayo Basin, one of the most productive basins in Colombia
- Considerable Resource Upside – Suroco's acreage provides significant exposure to the prolific N Sand oil play developing in the Putumayo Basin which is proved up in neighbouring Ecuador
- Added Bench Strength – Suroco's technical team has a proven ability to identify N Sand play concepts and prospects and is actively negotiating additional farm-ins and licensing opportunities in the region
- Bolsters High Netback Oil Focus – Suroco's production is 100% medium oil weighted and averaged 2,461 barrels of oil per day ("bopd") (net before royalty) for the month of March 2014
- Enhances Reserves – Suroco's 3.1 million barrels ("MMbbl") of proved and probable ("2P") reserves working interest (before royalty) builds upon Petroamerica's reserve base and significantly extends Petroamerica's reserve life index
- Unbooked Reserves – Ability to add unbooked reserves in the near term with low risk appraisal and development drilling of Suroco's recent Quinde West discovery
- Operatorship – Suroco qualified as a restricted operator in the 2010 bid round
KEY ATTRIBUTES OF THE COMBINED COMPANY:
- Interests in nine E&P contracts focused on high netback light and medium oil exploration and production in the Llanos and Putumayo Basins in Colombia
- Exposure to the prolific N Sand oil play in the Putumayo Basin, which is expected to fuel the future growth of the company
- Production will increase 38% to approximately 8,967 barrels of oil equivalent per day (net before royalty) (March 2014 average)
- 2P reserves will increase 63% to 8.0 million barrels of oil equivalent net before royalty with before-tax net present value (discounted at 10%) of $284 million
- Combined 2014 expected cash flow from operations of approximately $116 million funds the combined capital expenditure program of approximately $85 million, resulting in free cash flow of approximately $30 million
- 2014 drilling program consisting of 12 additional wells this year; 6 targeting high impact exploration and 6 lower risk appraisal and development wells, providing a number of near term catalysts
- A substantial inventory of exploration prospects and leads to be worked up for future drilling to support future production growth
- A strong balance sheet - it is anticipated that the combined company will have a cash balance of approximately $62 million at closing, providing opportunity to grow and consolidate in the region
- Total debt of only $31.5 million
- A market capitalization of approximately CDN$270 million based on Petroamerica's trading price of April 25, 2014 (assumes approximately 832 million Petroamerica shares outstanding upon completion of the Arrangement)
- Suroco qualified as a restricted operator, and the combined company intends to apply to become an unrestricted operator
CONFERENCE CALL AND WEBCAST INFORMATION
Petroamerica will host a conference call and webcast to discuss this transaction on Tuesday, April 29, 2014 beginning at 9:00 am Mountain Time. The telephone number for the conference call is 866-906-1113 or 857-288-2559 (International). To participate in the webcast you must register at http://wsw.com/webcast/cc/pta.v.
Under the terms of the Arrangement, each Suroco Shareholder will receive consideration of 1.7627 Petroamerica Shares per Suroco Share.
It is anticipated that Petroamerica will issue an aggregate of 237 million Petroamerica Shares to Suroco Shareholders in connection with the Arrangement. On closing, Petroamerica intends to repay Suroco's credit facility, of which not more than $21.5 million was drawn as at March 31, 2014. It is anticipated that Petroamerica will have a cash balance of approximately $62 million, total debt of $31.5 million and approximately 832 million basic Petroamerica Shares outstanding upon completion of the Arrangement.
Pursuant to the Arrangement Agreement, all of Suroco's outstanding options will be exercised in accordance with their terms, paid out in cash based on the "in-the-money" amount or otherwise terminated prior to the closing of the Arrangement. In addition, under the terms of the Arrangement Agreement, all holders of Suroco warrants and contingent value rights will be entitled to receive Petroamerica Shares, adjusted for the Exchange Ratio, in lieu of the number of Suroco Shares otherwise issuable upon the exercise thereof.
Completion of the Arrangement is subject to customary closing conditions, including requisite Suroco Shareholder, court, government and regulatory approvals. The Arrangement will need to be approved by not less than two-thirds of the votes cast by Suroco Shareholders, and by a majority of votes cast by Suroco Shareholders after excluding the votes cast by shareholders who are excluded shareholders under applicable securities requirements, in person or by proxy at the annual and special meeting (the "Suroco Meeting") of Suroco Shareholders to be held on or about June 25, 2014. The Arrangement also requires approval of the TSX Venture Exchange, and of the Court of Queen's Bench of Alberta.
The Arrangement Agreement provides for, among other things, a non-solicitation obligation on the part of Suroco, with a customary "fiduciary out" provision that entitles Suroco to consider and accept a superior proposal, and a right in favour of Petroamerica to match any superior proposal. If the Arrangement Agreement is terminated in certain circumstances, including if Suroco enters into an agreement with respect to a superior proposal or if the board of directors of Suroco withdraws or modifies its recommendation with respect to the proposed Arrangement, Petroamerica is entitled to a termination payment in cash of CDN$4 million. Suroco is also entitled to a reciprocal termination payment in cash of CDN$4 million in certain circumstances. Upon completion of the Arrangement one additional director to be agreed upon between Suroco and Petroamerica is expected to join the Petroamerica board, subject to TSX Venture Exchange approval. A complete copy of the Arrangement Agreement will be available under the respective issuer profiles of Petroamerica and Suroco on SEDAR at www.sedar.com.
The Suroco board of directors has unanimously approved the Arrangement Agreement and, based on the verbal fairness opinion of its financial advisor, Peters & Co. Limited, determined that the consideration to be received by the Suroco Shareholders pursuant to the Arrangement is fair, from a financial point of view, to Suroco Shareholders, determined that the Arrangement is in the best interests of Suroco, and resolved to unanimously recommend that Suroco Shareholders vote their Suroco Shares in favour of the Arrangement. The directors and senior officers of Suroco and one Suroco Shareholder holding greater than 10% of the outstanding Suroco Shares, who collectively hold 19.18% of the issued and outstanding Suroco Shares, have entered into support agreements to vote their Suroco Shares in favour of the Arrangement at the Suroco Meeting.
The Petroamerica board of directors has unanimously approved the Arrangement Agreement. Black Spruce Merchant Capital Corp. is acting as sole financial advisor to Petroamerica with respect to the Arrangement. GMP Securities L.P. and Canaccord Genuity Corp. are acting as strategic advisors to the Arrangement. GMP Securities L.P. has provided a verbal fairness opinion with respect to the Arrangement to the board of directors of Petroamerica. Approval of holders of Petroamerica shares is not required to complete the Arrangement.
Full details of the Arrangement will be included in an information circular of Suroco to be mailed to Suroco Shareholders in accordance with applicable securities laws. A copy of the aforementioned information circular and related documents will be filed under Suroco's issuer profile on SEDAR at www.sedar.com at the applicable time.
For a complete description of Suroco's assets, business and financial matters, please visit their website at www.suroco.com, and review their publicly disclosed information available on Suroco's issuer profile at www.sedar.com.
Forward Looking Statements:
This news release includes information that constitutes "forward-looking information" or "forward-looking statements". More particularly, this news release contains statements concerning expectations regarding the timing and successful completion of the Arrangement, cash flow, business strategy, priorities and plans, expected production, the evaluation of certain prospects in which Petroamerica will hold an interest following the completion of the Arrangement, estimated number of drilling locations, expected capital program (including its allocation), production growth, reserves growth, the receipt of and the timing of receipt of environmental licenses, the ability of Petroamerica to sell its crude volume and other statements, expectations, beliefs, goals, objectives assumptions and information about possible future events, conditions, results of operations or performance. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, estimates, forecasts, projections and other forward-looking statements will not occur, which may cause actual performance and 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. Business priorities disclosed herein are objectives only and their achievement cannot be guaranteed. Indicative capital estimates for 2014, which are provided herein, are subject to change.
Material risk factors include, but are not limited to: the inability to obtain regulatory approval for any operational activities, inability to get all necessary approvals for completion of the Arrangement, the risks of the oil and gas industry in general, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable shortages of equipment and/or labour; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; fluctuations in oil and gas prices, foreign currency exchange rates and interest rates, and reliance on industry partners and other factors, many of which are beyond the control of Petroamerica. You can find an additional discussion of those assumptions, risks and uncertainties in Petroamerica's Canadian securities filings.
Neither Petroamerica nor any of its subsidiaries nor any of its officers, directors or employees guarantees that the assumptions underlying such forward-looking statements are free from errors nor do any of the foregoing accept any responsibility for the future accuracy of the opinions expressed in this document or the actual occurrence of the forecasted developments.
Readers should also note that even if the drilling program as proposed by Petroamerica is successful, there are many factors that could result in production levels being less than anticipated or targeted, including without limitation, greater than anticipated declines in existing production due to poor reservoir performance, mechanical failures or inability to access production facilities, among other factors.
Statements relating to "reserves" are deemed to be forward-looking statements or information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitable in the future. There are numerous uncertainties inherent in estimating quantities of proved reserves, including many factors beyond the control of Petroamerica. The reserve data included herein represents estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary considerably from actual results. All such estimates are to some degree speculative and classifications of reserves are only attempts to define the degree of speculation involved.
The assumptions relating to reserves and resources are contained in the reports of GLJ Petroleum Consultants Ltd. for Petroamerica and Suroco each dated effective December 31, 2013.
The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed Arrangement and has neither approved nor disapproved the contents of this press release. 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.
Use of 'boe'
Throughout this press release, the calculation of barrels of oil equivalent ("boe") is at a conversion rate of 6,000 cubic feet ("cf") of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6,000 cf: 1 barrel is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.
SOURCE Petroamerica Oil Corp.For further information: Nelson Navarrete, President and CEO; Colin Wagner, CFO; Ralph Gillcrist, COO, Executive Vice President; Tel Bogota, Colombia: +57-1-744-0644; Tel Calgary, Canada: +1-403-237-8300; Email: email@example.com, Web Page: www.PetroamericaOilCorp.com