Twin Butte Energy completes combination with Emerge Oil & Gas to create a sustainable model of income and production growth
Jan 9, 2012
CALGARY, Jan. 9, 2012 /CNW/ - Twin Butte Energy Ltd. (TSX: TBE) ("Twin Butte" or the "Company") is pleased to announce that the business combination between Twin Butte and Emerge Oil & Gas Inc. ("Emerge") pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement") was completed today. Pursuant to the Arrangement, Twin Butte issued approximately 54.1 million common shares ("Twin Butte Shares") to acquire all the issued and outstanding common shares of Emerge. After giving effect to the Arrangement, approximately 189.6 million Twin Butte Shares are outstanding (on a non-diluted basis). Immediately upon completion of the Arrangement, Twin Butte and Emerge amalgamated under the Business Corporations Act (Alberta), continuing as Twin Butte Energy Ltd.
In connection with the completion of the Arrangement, Tom Greschner, the former Chairman, President and CEO of Emerge, was appointed a director of Twin Butte.
The Board of Directors of Twin Butte has approved an initial annualized dividend of $0.18 per share. Dividends for the first quarter have been declared and will be $0.015 per share payable as per schedule below to shareholders of record. This dividend qualifies, and unless otherwise indicated all future dividends will qualify, as an "eligible dividend" for purposes of the Income Tax Act (Canada) and corresponding provincial legislation.
|Ex-dividend date||Record date||Payment date||Payment per share|
|January 27, 2012||January 31, 2012||February 15, 2012||$0.015|
|February 27, 2012||February 29, 2012||March 15, 2012||$0.015*|
|March 28, 2012||March 30, 2012||April 16, 2012||$0.015*|
*Dividends are at the discretion of the Board of Directors and subject to change
Based on Twin Butte's closing share price on January 9, 2012 of $2.48, this would provide a 7.2 percent yield.
Post-Arrangement the attributes of Twin Butte include:
- An enterprise value in excess of $600 million (based on the current trading price of the Twin Butte Shares and estimated current net debt);
- A strong balance sheet with approximately $146 million in net debt, relative to a new credit facility of $205 million. Twin Butte will continue to pursue non-core asset sales to focus operations and improve the quality of its asset base, maintain cost control and further strengthen the balance sheet;
- Tax pools of approximately $560 million;
- Current production of approximately 13,450 boe/d (79% oil and NGLs, and 21% natural gas);
- Proved Reserves of 30.0 mmboe and Proved plus Probable Reserves of 51.1 mmboe based on the combination of Twin Butte's and Emerge's independent reserve reports disclosed in their respective annual information forms for the year ended December 31, 2010;
- A Proved plus Probable reserve life index ("RLI"), in excess of 10 years, leading to a low annualized decline rate of 27% ;
- A low risk, high rate of return portfolio of over 500 heavy oil drilling locations in areas that have historically seen low recovery factors to date providing significant upside potential for long term reserve appreciation. This inventory based on current pricing, generates a recycle ratio of 4.5 times;
- Undeveloped lands in excess of 250,000 net acres; and
- Current hedge position of approximately 40 percent of projected 2012 oil volumes hedged at approximately $C83 Western Canadian Select (equivalent to $C99 WTI less $16 differential) and another 12 percent hedged at approximately $C99 WTI. The Company's also has 70 percent of its projected 2012 natural gas volumes hedged at approximately $4.21 per GJ;
Operations Update and Guidance:
Twin Butte's capital program for 2012 has been set at $66 million and includes the drilling of approximately 125 gross (87 net) heavy oil wells as well as an extensive workover and recompletion program focused in the Company's core heavy oil fairway in the greater Lloydminster area.
The size and scope of Twin Butte's heavy oil operations and opportunities at greater Lloydminster is significant currently accounting for approximately 9,300 bbls per day. Twin Butte as a significant operator in the area will have a competitive advantage when it comes to procurement of equipment and services as well as acquisition opportunities.
Core properties in the area are Frog Lake, Silverdale, Primate and Earlie. With the extensive drill ready identifiable inventory of over 500 net locations these properties will see extensive heavy oil development drilling programs in 2012 and 2013. As well, the evaluation and possible pilot testing of enhanced oil recovery thru thermal, waterflood and polymer applications will be pursued.
Based on a $95 WTI; $3.00/GJ and an 18 percent differential from light to heavy bbls, the Company anticipates 2012 cash flow will exceed $100 million. Twin Butte believes that reinvesting approximately 66 percent of its cash flow will provide targeted production per share growth rates of 3 to 5 percent. This combined with the annualized dividend of $0.18 per share or $34 million in aggregate is anticipated to provide attractive total returns to investors by providing both sustainable income (via dividends) and moderate internal production growth. The all-in payout ratio of under 100 percent is anticipated to leave some excess cash for continued balance sheet strengthening.
The Company's near term strategy is very much focused on proving the predictability and sustainability of the model through organic growth. With a combined stable, predictable base decline of approximately 27 percent and forecast capital efficiency of approximately $16,000 per producing boe per day, Twin Butte believes, its cash flow and dividend will be sustainable for the foreseeable future. The strong capital efficiency is driven by the Company's extensive low risk, high rate of return heavy oil drilling inventory and its ability to high grade this large inventory of drilling locations.
In addition, the Company will focus on acquiring stable, low decline, assets with reasonable netbacks. With a significant supply of oil and gas assets on the market, Twin Butte believes this portion of the strategy could prove very successful especially considering the experience and background of Twin Butte management. As a larger, dividend paying company, Twin Butte believes it is well positioned to compete for such acquisitions. Management believes that oil and gas companies that can build a sustainable model of income and production growth represent attractive investments as they provide strong and stable total returns for investors.
Twin Butte will continue to pursue non-core asset sales to focus operations and improve the quality of its asset base, maintain cost control and further strengthen the balance sheet. The Company's large undeveloped land base of in excess of approximately 250,000 net acres and its approximately 280 net natural gas drilling locations are also anticipated to provide swap/farm out and other rationalization or monetization opportunities.
GMP Securities L.P. acted as financial advisor and National Bank Financial Inc. as strategic advisor to Twin Butte on the transaction while Peters & Co. Limited. acted as financial advisor to Emerge on the transaction.
About Twin Butte:
Twin Butte Energy Ltd. is a dividend paying value oriented intermediate producer with a significant low risk, high rate of return drilling inventory focused on large original oil and gas in place play types. With a stable low decline production base, Twin Butte is well positioned to provide shareholders with a sustainable dividend with 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 document contains, without limitation, forward-looking statements pertaining to the following: the timing, entitlement and amount of future dividend payments; expectations of management regarding the operating and financial metrics of the acquisition of Emerge, potential synergies resulting from the acquisition, cost savings as a result of the Arrangement, the revised business focus of the Company to a dividend paying company with moderate growth targets, typical decline characteristics, IRRs and payout basis for heavy oil wells, future allocation of capital to capital expenditure programs, financial and operational metrics required to sustain the dividend, future acquisition, disposition and farm-out strategies, production growth targets and the effect of the acquisition on Twin Butte's production, cash flow, reserves, undeveloped land position, RLI and tax pools. Included in this document are estimates of the combined company's 2012 cash flow which are based on the various assumptions as to production levels, commodity prices, capital expenditures, capital efficiency, drilling inventories and other assumptions disclosed in this document. To the extent such estimates constitute a financial outlook, they were approved by management of Twin Butte on January 9, 2012 and are included to provide readers with an understanding of the combined company's anticipated cash flow based on the capital expenditures and other assumptions described herein and readers are cautioned that the information may not be appropriate for other purposes.
With respect to forward-looking statements contained in this news release, Twin Butte has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas prices and differentials between light, medium and heavy oil prices; future oil and natural gas production levels; future exchange rates and interest rates; Twin Butte's ability to obtain equipment in a timely manner to carry out development activities; Twin Butte's ability to market its oil and natural gas successfully to current and new customers; the impact of increasing competition; Twin Butte's ability to obtain financing on acceptable terms; the ability of the Company to pay a sustained dividend at the rates described herein and on the basis as described herein, or at all; the timing of receipt of regulatory approvals, the performance of existing wells; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the ability of Twin Butte to execute and realize the benefits of future acquisition, disposition and farm-out strategies and Twin Butte's ability to add production and reserves through development and exploitation activities. Although Twin Butte believes that the expectations reflected in the forward looking statements contained in this document, 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 document, 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: volatility in market prices for oil and natural gas; incorrect assessment of the value of the acquisition of Emerge; failure to realize the anticipated benefits and synergies of the acquisition of Emerge; failure to implement the revised business plan of the Company; failure to accurately estimate the availability of future credit lines; 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.
The reader is also cautioned that this news release contains the terms net debt, operating netback, recycle ratio and reserve life index or RLI, which are not a recognized measures under Canadian generally accepted accounting principles (GAAP). Management believes that these measures are useful supplemental measures. 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. Recycle ratio is operating netback per boe divided by finding, development and acquisition costs. RLI is calculated by dividing the applicable reserves at the effective date of the reserve reports using forecast prices and costs by the production rates based on the reserves at the applicable point in time. 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. Twin Butte's method of calculating these measures may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.
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