Equal Energy Concludes Strategic Review Process: Announces New
Dividend and Sale of Royalty Assets
CALGARY, Alberta, Nov. 27, 2012 /PRNewswire/ - Equal Energy Ltd.
(TSX: EQU) (NYSE: EQU) announced several important initiatives
today stemming from its recently-concluded strategic review
process.
Highlights include:
- An agreement to sell Equal's remaining royalties and fee title
lands in Western Canada to
Keystone Royalty Corp. for $11.4
million in cash.
- Initiation of a USD$0.20 per
share annual dividend, starting on January
1, 2013.
- A review of the composition of the board of directors and
senior management team.
- A review of compensation policies.
- A major reduction in debt as a result of recent asset
sales.
- A focus on the liquids rich, natural gas Hunton property in
Central Oklahoma.
- Consideration of significant future acquisitions.
Equal also released details of its 2013
operating and capital budget, including a modest, year-over-year
increase in liquids rich, natural gas production from the
Central Oklahoma assets, an
estimated cash flow of $33 million,
and a $36 million capital budget.
"Our shareholders and other stakeholders have
spoken, and we have listened", Don
Klapko, Equal's President said. "The strategic review and
the plan we are announcing today greatly strengthen our company. We
believe the new dividend is well within our financial resources.
Our balance sheet is strong with approximately $150 million of cash and borrowing capacity
combined."
Mr. Klapko added: "We are now in a position to
consider significant accretive acquisitions providing additional
growth opportunities. Furthermore, continued recovery in natural
gas and natural gas liquids pricing provides significant additional
upside."
Sale of Royalty Assets:
Under an agreement with Keystone Royalty Corp.,
Equal will sell its royalties and fee title lands in Western Canada for $11.4 million in cash. Equal has also agreed to
assign residual resource income tax pools to Keystone under the
provisions of the Canadian Income Tax Act for $0.75 million in cash. The effective date of the
agreement is October 1, 2012 and
closing is scheduled for December 13,
2012. The date of the assignment of the income tax pools has
not been determined.
Equal will add the proceeds from the sale of the
royalties and fee title lands to cash reserves, resulting in an
estimated $22 million in cash at
year-end 2012. Net debt at year-end 2012 will total approximately
$23 million, including outstanding
convertible debentures. Equal's credit facility has been adjusted
to $125 million secured against the
borrowing base of its Central
Oklahoma assets. The royalties and fee title lands were
Equal's last remaining Canadian assets and the company is currently
winding down its Canadian operations.
Conclusion of Strategic Review:
The strategic review process that began on
May 3, 2012 is now complete.
Dan Botterill, Equal's chairman,
said: "We are pleased to have brought the review to a successful
conclusion. We are confident that the measures now being put in
place herald an even brighter future for Equal."
Mr. Botterill added that, as part of the
process, the board will review its own make-up, the composition of
the executive management team, and the company's compensation
policies.
The strategic review has resulted in the sale of the following
assets:
- Northern Oklahoma
- Halkirk, Alliance, Wainwright, Clair and major abandonment
liabilities
- Lochend Cardium
- Canadian royalties and fee title lands
The strategic review and subsequent actions have brought
substantial benefits to Equal. Among them:
- Proceeds from the asset sales total $129.5 million, averaging over $48,000 per boe/d of production and $19.00 per boe of proven plus probable
reserves.
- A major reduction in corporate net debt from $149 million at the onset of the review to an
estimated $23 million at the end of
2012 including a cash balance of $22
million. Equal's debt-to-cash flow ratio is in the top 10%
of our current competitor peer group.
- The Central Oklahoma asset
base has growth potential from drilling in addition to significant
upside associated with a recovery in natural gas and natural gas
liquids pricing. Equal has retained approximately 75% of the
production and 80% of its reserves that existed at the onset of the
strategic review.
- The cash reserves combined with an undrawn bank credit facility
of $125 million allow the company to
consider additional strategic growth strategies including
acquisitions.
- A single asset base that creates focus and clarity for
management and shareholders. Equal is now an exploration and
production company operating solely in Central Oklahoma, which will allow management
to focus on growth and cost efficiency. General and administrative
costs will be reduced significantly.
- A reduction in asset retirement obligation from $31 million to $10 million.
The graph below (see link near the end of this
release) compares the shareholder return on a $100 investment in Equal common shares to the
return in the S&P/TSX and the S&P/TSX Energy Index from the
start of the strategic review process on May
3, 2012 to November 20,
2012.
"Investors have clearly recognized that the strategic review
would yield tangible and positive results", Mr. Botterill said.
"The measures that we are announcing today fully justify that
confidence."
Scotiabank and Desjardins Capital Markets acted
as advisors on the strategic review process.
2013 Budget:
The board has approved the company's 2013 operating and capital
budget, as follows:
- Average production of approximately 7,900 boe/d (6,400 boe/d
net of royalties). Production is comprised of 52% natural
gas; 46% NGL; 2% oil.
- Cash flow estimated at $33
million based on the following assumptions:
- Nymex Natural Gas: USD$3.90/mmbtu
(Equal realization 87% of Nymex)
- Propane at Conway Kansas:
USD$0.90/gallon (Equal NGL
realization 89% of Conway Propane)
- WTI Oil: USD$90.00/bbl (Equal
realization 96% of WTI)
- Debt/Cash Flow: 0.7x
- Capital spending of $36 million
($30 million for drilling and related
infrastructure; $6 million for land
and maintenance capital)
- Drilling is expected to start in early 2013 with a rig running
continuously through 2013 for a total of 10 Twin Cities Central
Dolomite horizontal liquids rich natural gas wells drilled by the
end of 2013.
- Royalties and production taxes: 23%; Operating costs:
$5.85/boe ($7.25/boe net of royalties); G&A:
$2.65/boe ($3.25/boe net of royalties)
- The sensitivities on 2013 cash flow for variation in commodity
prices are as follows:
- USD$0.50/mmbtu Nymex =
$0.8 million change in cash flow (57%
of projected natural gas production is hedged at an average of
USD$3.71/mmbtu)
- USD$0.10/gallon NGL prices =
$3.7 million change in cash flow
- USD$5.00/bbl WTI = $0.2 million change in cash flow
Future Plans:
As recommended by Equal's strategic advisors and
management, and approved by the board of directors, Equal will move
forward as an exploration and production company. Equal will also
implement a USD$0.20 per share annual
dividend, beginning on January 1,
2013 and payable at the end of each calendar quarter.
Although the board of directors gave serious considerations to
other corporate structures, such as a U.S. MLP and a Canadian
trust, expert advice on current market and commodity price
conditions deemed them not to be prudent steps for Equal at this
time.
Equal's remaining asset is its Central Oklahoma
Hunton play with current production of approximately 7,800 boe/d of
liquids-rich natural gas in an area with a strong history of
drilling success. Equal has an established inventory of
future drilling locations and a staff of experienced people
managing these assets.
About Equal Energy:
Equal Energy is an oil and gas exploration and
production company based in Calgary,
Alberta, with its United
States operations office located in Oklahoma City, Oklahoma. Equal's shares and
convertible debentures are listed on the Toronto Stock Exchange
under the symbols (EQU, EQU.DB.B), and shares are listed on the New
York Stock Exchange under the symbol (EQU). Equal's oil and gas
assets are centered on the Hunton liquids-rich natural gas property
in Central Oklahoma.
Forward-Looking Statements
Certain information in this press release
constitutes forward-looking statements under applicable securities
law including the timing or uncertainty of the sale of Equal's
royalties and fee title lands, assignment of tax pools, the
repayment of the bank facility, the 2013 budget projections, the
timing of the commencement of drilling and the payment of future
dividends. Any statements that are contained in this press release
that are not statements of historical fact may be deemed to be
forward-looking statements. Forward-looking statements are often
identified by terms such as "may," "should," "anticipate,"
"expects," "seeks" and similar expressions.
Forward-looking statements necessarily
involve known and unknown risks, such as risks associated with
closing the sale of the royalties and fee title lands, assignment
of tax pools and subsequent payment, oil and gas production;
marketing and transportation; loss of markets; volatility of
commodity prices; currency and interest rate fluctuations;
imprecision of reserve and future production estimates;
environmental risks; competition; incorrect assessment of the value
of acquisitions; failure to realize the anticipated benefits of
dispositions; inability to access sufficient capital from internal
and external sources; changes in legislation, including but not
limited to income tax, environmental laws and regulatory matters.
Readers are cautioned that the foregoing list of factors is not
exhaustive.
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
placed will occur. Such information, although considered reasonable
by management at the time of preparation, may prove to be incorrect
and actual results may differ materially from those anticipated
forward-looking statements contained in this press release are
expressly qualified by this cautionary statement.
Additional information on these and other
factors that could affect Equal's operations or financial results
are included in Equal's reports on file with Canadian and U.S.
securities regulatory authorities and may be accessed through the
SEDAR website (www.sedar.com), the SEC's website (www.sec.gov),
Equal's website (www.equalenergy.ca) or by contacting Equal.
Furthermore, the forward looking statements contained in this news
release are made as of the date of this news release, and Equal
does not undertake any obligation to update publicly or to revise
any of the included forward-looking statements, whether as a result
of new information, future events or otherwise, except as expressly
required by securities law.
Conversion: Natural gas volumes recorded in
thousand cubic feet ("mcf") are converted to barrels of oil
equivalent ("boe") using the ratio of six (6) mcf to one (1) barrel
of oil ("bbl"). Boe's may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an
energy equivalent conversion method primarily applicable at the
burner tip and does not represent a value equivalent at the
wellhead. All dollar values are in Canadian dollars unless
otherwise stated.
SOURCE Equal Energy Ltd.
PDF available at:
http://stream1.newswire.ca/media/2012/11/27/20121127_C4142_DOC_EN_21306.pdf