Twin Butte Energy to aquire private heavy oil producer Avalon Exploration
/NOT FOR DISTRIBUTION OR DISSEMINATION IN THE UNITED STATES./
CALGARY, June 25, 2012 /CNW/ - Twin Butte Energy Ltd. (TSX: TBE) ("Twin Butte" or the "Company") is pleased to announce that it has entered into an arrangement agreement providing for the acquisition by Twin Butte of all of the outstanding class A common shares of Avalon Exploration Ltd. ("Avalon") on the basis of 1.1 common shares of Twin Butte ("Twin Butte Share") for each outstanding Avalon Share (the "Acquisition"). Avalon is a private company with 100 percent of its production being heavy oil from properties located in the greater Lloydminster area. Based on the five day weighted average trading price of the Twin Butte Shares ended June 22, 2012 of $2.29, the exchange ratio for the Acquisition represents a deemed price of $2.52 per Avalon Share.
The deemed purchase price is approximately $88.9 million in value, comprised of the issuance of approximately 23.3 million Twin Butte Shares (at a deemed price of $2.29 per Twin Butte Share) and the assumption of approximately $35.6 million in net debt and estimated transaction costs.
At closing, Twin Butte anticipates it will have approximately 215.5 million shares outstanding.
Key attributes of the Acquisition are:
Current production of 1,920 bbls per day of conventional heavy oil
within Twin Butte's core Lloydminster heavy oil area, the majority of
which is operated and 100 percent working interest;
Undeveloped lands, in excess of 85,000 net acres in the Lloydminster
area which effectively doubles Twin Butte's undeveloped heavy oil lands
in the area. Most lands are 100 percent working interest. Twin Butte
has valued these lands based on recent offset activity at approximately
$26.5 million ($312/acre). Twin Butte will also receive a significant
seismic data base of 556 km of proprietary data and 2,271 km of trade
Proved Reserves of 3,286 mmboe and Proved plus Probable Reserves of
5,193 mmboe based on an independent reserve report for the year ended
December 31, 2011. The pre-tax present value of the Proved plus
Probable reserves (PV10) as at the report date was $136.3 million;
A low risk, high rate of return portfolio of over 85 development heavy
oil drilling locations in areas that have seen low recovery factors to
date as well as over 20 exploratory targets providing significant
upside potential for long term reserve appreciation; and
- Estimated annual G&A savings in excess of $2.3 million.
Strategic Benefits and Acquisition Summary
The Acquisition is accretive to Twin Butte on all key metrics:
Attractive transaction metrics (after deducting net undeveloped land
value of $26.5 million) of $32,506 per boe/d; $18.99 per Proven boe and
$12.02 per Proven plus Probable boe;
Increases Twin Butte's liquids production weighting from 82 to 84
- The operational and strategic fit in Twin Butte's Lloydminster heavy oil area is significant.
The Acquisition is consistent with Twin Butte's historic strategy of acquiring quality assets, with large resource potential within focus areas where Twin Butte has expertise.
The Acquisition materially increases the size and scope of heavy oil lands and opportunities for Twin Butte. The Avalon lands are contiguous to Twin Butte's and effectively double Twin Butte's net undeveloped land position in the Lloydminster heavy oil fairway from approximately 77,000 to 162,000 acres. The Acquisition further establishes Twin Butte as a significant operator in the area. Twin Butte management has a successful history operating and growing heavy oil production and has extensive operational experience within the Lloydminster heavy oil fairway which will ensure a seamless transition and ultimately generate numerous operational efficiencies. As a larger, stronger company, Twin Butte will use its financial flexibility to capitalize on its expanded low risk drilling inventory.
Twin Butte and Avalon believe that this strategic transaction offers an exceptional opportunity to create substantial value for their respective companies and shareholders. David Bredy, President and Chief Executive Officer of Avalon commented that "The transaction will provide Avalon shareholders, liquidity and the opportunity to participate in a much larger, well capitalized and hedged company. In addition, the Avalon shareholders will be able to participate in Twin Butte's monthly dividend stream. Avalon's assets are an excellent fit with Twin Butte and they will definitely benefit from Twin Butte's strong technical team and greater access to capital."
In addition, it is anticipated that the Company's credit facility will be increased to $240 million from the current $205 million upon closing.
Acquisition Terms and Conditions
The Acquisition is to be effected by way of a plan of arrangement under the Business Corporations Act (Alberta). Completion of the Acquisition, which is anticipated to occur in late August 2012, is subject to, among other things, the approval of at least 66⅔ percent of the Avalon shareholders voting on the arrangement, the approval of the Court of Queen's Bench of Alberta, the receipt of all necessary regulatory and stock exchange approvals, and certain closing conditions that are customary for a transaction of this nature.
The Boards of Directors of each of Twin Butte and Avalon have unanimously approved the Acquisition and Avalon's Board of Directors has resolved to recommend that its shareholders vote in favour of the Acquisition. Directors and officers of Avalon, who collectively hold approximately 25% of the outstanding Avalon Shares, have entered into support agreements with Twin Butte pursuant to which each has agreed to vote in favour of the Acquisition.
Avalon has agreed to not solicit or initiate any discussions regarding any other business combination or sale of material assets and has granted Twin Butte the right to match competing, unsolicited proposals. The arrangement agreement provides for a $3 million non-completion fee payable by Avalon and a mutual cost reimbursement fee of $350,000 payable by Twin Butte or Avalon, as the case may be, in certain circumstances if the Acquisition is not completed.
Complete details of the terms of the Acquisition are set out in the arrangement agreement, which will be filed by Twin Butte and will be available for viewing at www.sedar.com.
Jennings Capital Inc. is acting as financial advisor to Avalon and has provided on June 23, 2012 to the Board of Directors of Avalon with its opinion that subject to the review of final documentation, that the consideration to be received by the Avalon shareholders pursuant to the Acquisition is fair, from a financial point of view, to Avalon shareholders.
GMP Securities L.P. is acting as strategic advisor to Twin Butte.
About Twin Butte
Twin Butte is a value oriented intermediate producer with a significant low risk, high rate of return drilling inventory focused on large original oil in place conventional heavy oil exploitation. With a stable low decline production base, Twin Butte is well positioned to live within cash flow while providing shareholders a sustainable dividend and moderate per share production growth potential over both the short and long term. Twin Butte is committed to continually enhance its asset quality while focusing on the sustainability of its dividend. The common shares of Twin Butte are listed on the TSX under the symbol "TBE".
In the interest of providing Twin Butte's shareholders and potential investors with information regarding Twin Butte, including management's assessment of the future plans and operations of Twin Butte, certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance. In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. In particular, this news release contains, without limitation, forward-looking statements pertaining to the following: expectations of management regarding the proposed Acquisition, including the timing of completion of the Acquisition, operating and financial metrics of the Acquisition, potential synergies resulting from the Acquisition, cost savings as a result of the Acquisition, and the effect of the Acquisition on Twin Butte's production, reserves and undeveloped land position.
With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: the timing of receipt of regulatory and shareholder approvals; the ability of Twin Butte to execute and realize on the anticipated benefits of the Acquisition. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this news release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this news release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause Twin Butte's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the following: that the Acquisition may not close when planned or at all or on the terms and conditions set forth herein; the failure of Twin Butte and Avalon to obtain the necessary shareholder, Court, regulatory and other third party approvals required in order to proceed with the Acquisition; volatility in market prices for oil and natural gas; incorrect assessment of the value of the Acquisition; failure to realize the anticipated benefits and synergies of the Acquisition; the general economic conditions in Canada, the U.S. and globally; and the other factors described under "Risk Factors" in Twin Butte's most recently filed Annual Information Form available in Canada at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this news release speak only as of the date of this news release. Except as expressly required by applicable securities laws, Twin Butte does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Barrels of Oil Equivalent
Barrels of oil equivalent (boe) are calculated using the conversion factor of 6 Mcf (thousand cubic feet) of natural gas being equivalent to one barrel of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
This news release does not constitute an offer to sell or the solicitation of an offer to buy any securities within the United States. The securities to be offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, or any state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of such Act or other laws.For further information:
Twin Butte Energy Ltd.
President and Chief Executive Officer
Tel: (403) 215-2040
Fax: (403) 215-2055
R. Alan Steele
Vice President, Finance, Chief Financial Officer and Corporate Secretary
Tel: (403) 215-2692
Fax: (403) 215-2055