CALGARY, April 16, 2018 /PRNewswire/ - Vermilion Energy
Inc. ("Vermilion", the "Company", "We" or "Our") (TSX, NYSE: VET)
is pleased to announce that we have entered into an arrangement
agreement (the "Arrangement") to acquire Spartan Energy Corp.
("Spartan"), a publicly traded southeast Saskatchewan oil and gas producer, with annual
production of approximately 23,000 boe/d (91% oil). Total
consideration for Spartan is approximately $1.40 billion, comprised of $1.23 billion in Vermilion shares plus the
assumption of approximately $175
million in debt.
Under the terms of the Arrangement, Vermilion has agreed to
acquire all of the common shares of Spartan issued and outstanding
at the effective time of the Arrangement (the "Acquisition").
Spartan shareholders will receive 0.1476 of a Vermilion share for
each Spartan common share. Based on Vermilion's closing price of
$44.04 on April 13, 2018, the exchange ratio translates to
$6.50 per Spartan common share,
representing a 5% premium to Spartan's closing price. All of the
officers and directors of Spartan have entered into voting support
agreements and agreed to vote their Spartan shares in favour of the
Arrangement. The Arrangement includes a reciprocal break fee
of $40 million.
The Board of Directors of Vermilion and Spartan have unanimously
approved the Arrangement and recommended that Spartan shareholders
vote in favour of the Arrangement. The Arrangement remains subject
to customary closing conditions, including receipt of applicable
court, Spartan shareholder, TSX and NYSE, and other regulatory
approvals, and is expected to close on or about June 15, 2018.
STRATEGIC RATIONALE
Vermilion focuses on high-netback producing areas with
favourable fiscal and regulatory regimes. We entered
southeast Saskatchewan with the
acquisition of Elkhorn Resources in 2014, and have since
continuously evaluated opportunities to expand our position in this
area. We added approximately 30 sections of land to our southeast
Saskatchewan core area through the
end of 2017, and further augmented our asset base with the
acquisition of a private southeast Saskatchewan oil producer in early
2018. The acquisition of Spartan is a value-adding investment
which meets our disciplined M&A criteria. The Acquisition
significantly increases our position in southeast Saskatchewan, and aligns with our sustainable
growth-and-income model by appending high-netback, low decline
assets with free cash flow and strong capital efficiencies on
future development.
Making no deduction for undeveloped land value, transaction
metrics equate to $12.33 per boe of
proved plus probable ("2P") reserves (based on Spartan's reserve
report(1)), and $60,900 per flowing
barrel of production. Based on April 13,
2018 WTI strip pricing of US$65.19/bbl, the operating netback for the
acquired assets is estimated at approximately $38.42 (2) per boe. Using a 2P finding,
development and acquisition cost of $19.48 per boe (including future development
capital) based on the Acquisition consideration and Spartan's
reserve report, the acquired assets are expected to deliver a 2P
operating recycle ratio of 2.0 times (including the Acquisition
cost).
Using the same strip pricing assumption, the total Acquisition
cost (including assumed debt) is approximately 4.7 times estimated
annualized 2018 fund flows from operations ("FFO"), after deducting
incremental interest expense. Pro-forma including the Acquisition,
our year end 2018 net debt-to-FFO ratio is forecast to be 1.7 times
based on current strip pricing, as compared to 2.0 times prior to
the Acquisition.
The Acquisition is accretive on a fully-diluted per share basis
for all pertinent metrics including production, fund flows from
operations(2), and reserves:
We believe that this business combination will significantly
benefit both Vermilion's existing shareholders and Spartan's
shareholders. The acquired assets' netback, base decline, and
capital efficiency characteristics give them the capability to grow
while generating significant free cash flow, and are therefore
well-suited to our growth-and-income capital markets model. In
addition, we believe that both shareholder groups will benefit from
increased scale in both our operations and in the capital
markets. We look forward to integrating Spartan employees into
our organization, and believe our combined enterprise will have the
operating, technical and financial capability to maximize the value
of these southeast Saskatchewan
assets.
SPARTAN ASSET SUMMARY
The Spartan assets are comprised of high-netback, light oil
producing properties covering approximately 480,000 net acres of
land (80% average working interest), including 400,000 net acres in
southeast Saskatchewan with
multi-zone potential. In addition, the Acquisition includes
approximately 80,000 net acres of land in other areas of
Saskatchewan, Alberta and Manitoba. Production from the
assets is projected to be approximately 23,000 boe/d (91% oil)
during 2018. The Acquisition also includes ownership and control of
producing infrastructure that are synergistic with our existing
assets, as well as significant 2D and 3D seismic data.
Total proved ("1P") and 2P reserves attributed to the assets at
December 31, 2017 are 73
mmboe(1) (92% crude oil and natural gas liquids) and
113.5 mmboe(1) (92% crude oil and natural gas liquids),
respectively, based on an independent evaluation by Sproule
Associates Limited. Vermilion has internally evaluated Spartan's
reserves, and we expect to have the capability to book similar
volumes of reserves. We have identified over 1,000 development
locations targeting the Ratcliffe, Midale, Frobisher/Alida, Bakken, and Three Forks/Torquay formations. Most of the future
drilling targets are inexpensive open-hole completions not
requiring hydraulic fracturing, generating rapid payouts. There are
also a large number of identified drilling locations in the
hydraulically-fractured Midale
play. In addition, there are significant waterflood
development opportunities in the Ratcliffe and Midale zones. The assets demonstrate a current
base decline rate of approximately 23% for the first year, and
decreasing thereafter. Under the current commodity strip, we
expect the assets to generate cash flow in excess of capital
requirements for continued growth plus the incremental gross
dividends associated with the new shares issued.
2018 GUIDANCE AND REDUCED DRIP DISCOUNT
As a result of the Acquisition, and based on an expected
June 15, 2018 closing date, we are
revising our 2018 production guidance to a range of 86,000 to
90,000 boe/d (from 75,000 to 77,500 boe/d previously). In addition,
we are increasing our 2018 capital budget to $430 million (from $325
million previously) to reflect additional capital activity
associated with the acquired assets. Upon closing of the
Acquisition, we also intend to eliminate the 2% discount associated
with our Dividend Reinvestment Plan, beginning with the
June 2018 dividend payable on
July 16, 2018.
CONFERENCE CALL AND AUDIO WEBCAST DETAILS
Vermilion will discuss the Acquisition in a conference call on
Monday, April 16, 2018 at
9:00 am MT (11:00 am ET). To participate, call 1-888-231-8191
(Canada and US Toll Free) or
1-647-427-7450 (International and Toronto
Area). The conference call will be available on replay until
Monday, April 30, 2018 at
9:59 PM MST by calling 1-855-859-2056
and using conference ID number 2054718.
To listen to the audio webcast, click
https://event.on24.com/wcc/r/1658611/C20057B8D39D2389E5BC8BFBC09ACE58
or visit Vermilion's website at
http://www.vermilionenergy.com/invest-with-us/events--presentations.cfm.
An investor presentation providing an overview of this acquisition
can also be found on our website at
http://www.vermilionenergy.com/invest-with-us/events--presentations.cfm.
About Vermilion
Vermilion is an international energy producer that seeks to
create value through the acquisition, exploration, development and
optimization of producing properties in North America, Europe and Australia. Our business model emphasizes
organic production growth augmented with value-adding acquisitions,
along with providing reliable and increasing dividends to
investors. Vermilion is targeting growth in production
primarily through the exploitation of light oil and liquids-rich
natural gas conventional resource plays in Canada and the
United States, the exploration and development of high
impact natural gas opportunities in the
Netherlands and Germany,
and through oil drilling and workover programs in France and Australia. Vermilion currently holds an 18.5%
working interest in the Corrib gas field in Ireland. Vermilion
pays a monthly dividend of Canadian $0.23 per share, which provides a current yield
of approximately 6.0%.
Vermilion's priorities are health and safety, the environment,
and profitability, in that order. Nothing is more important to
us than the safety of the public and those who work with us, and
the protection of our natural surroundings. We have been
recognized as a top decile performer amongst Canadian publicly
listed companies in governance practices, as a Climate Leadership
level (A-) performer by the CDP, and a Best Workplace in the Great
Place to Work® Institute's annual rankings in Canada, France and the Netherlands. In addition,
Vermilion emphasizes strategic community investment in each of our
operating areas.
Employees and directors hold approximately 6.5% of our fully
diluted shares, are committed to consistently delivering superior
rewards for all stakeholders, and have delivered over 20 years of
market outperformance. Vermilion trades on the Toronto Stock
Exchange and the New York Stock Exchange under the symbol VET.
Natural gas volumes
have been converted on the basis of six thousand cubic feet ("mcf")
of natural gas to one barrel equivalent of oil. Barrels of oil
equivalent (boe) may be misleading, particularly if used in
isolation. A boe conversion ratio of six thousand cubic feet
to one barrel of oil is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
|
(1)
|
Estimated total
proved and proved plus probable reserves attributable to the
Spartan assets as evaluated by Sproule Associates Limited in a
report dated February 20, 2018 with an effective date of December
31, 2017, in accordance with National Instrument 51-101 – Standards
for Disclosure for Oil and Gas Activities of the Canadian
Securities Administrators, using the Sproule December 31, 2017
price forecast.
|
(2)
|
Non-GAAP Financial
Measures: Netbacks, fund flows from operations, and free cash flow
are non-GAAP (as defined herein) or additional GAAP financial
measures that do not have standardized meanings prescribed by
International Financial Reporting Standards ("IFRS" or,
alternatively, "GAAP") and therefore may not be comparable with the
calculations of similar measures for other entities. "Netbacks" are
per boe and per mcf measures used in operational and capital
allocation decisions. "Fund flows from operations" represents cash
flows from operating activities before changes in non-cash
operating working capital and asset retirement obligations settled.
Management considers fund flows from operations and fund flows from
operations per share to be key measures as they demonstrate
Vermilion's ability to generate the cash necessary to pay
dividends, repay debt, fund asset retirement obligations and make
capital investments. Management believes that by excluding the
temporary impact of changes in non-cash operating working capital,
fund flows from operations provides a useful measure of Vermilion's
ability to generate cash that is not subject to short-term
movements in non-cash operating working capital. For relevant
operating netback related disclosures please refer to the
reconciliation in management's discussion and analysis contained in
Vermilion's 2017 Annual Report for the year ended December 31, 2017
available on SEDAR or at the company's website
(www.vermilionenergy.com).
|
DISCLAIMER
Certain statements included or incorporated by reference in this
press release may constitute forward-looking statements under
applicable securities legislation. Forward-looking statements or
information typically contain statements with words such as
"anticipate", "believe", "expect", "plan", "intend", "estimate",
"propose", or similar words suggesting future outcomes or
statements regarding an outlook. Forward looking statements or
information in this press release may include, but are not limited
to:
- the anticipated closing date of the Acquisition;
- the actual amount of debt assumed upon closing of the
Acquisition;
- the actual number of Vermilion shares issued upon closing of
the Acquisition;
- the sources of existing production and future development
drilling opportunities;
- the annual decline rate of the Assets;
- the number and classification of future development drilling
opportunities;
- the pricing received for production, and resulting operating
and after-tax cash flow netbacks for the Assets;
- the estimate of annualized 2018 fund flows from
operations;
- the anticipated acquisition metrics;
- the expectation that fiscal and regulatory policies in
Saskatchewan remain supportive of
continued investment;
- exploration and development capital expenditure expectations
for 2018; and
- development plans and strategic objectives.
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. Such forward-looking statements or information
are based on a number of assumptions all or any of which may prove
to be incorrect. In addition to any other assumptions
identified in this document, assumptions have been made regarding,
among other things:
- satisfaction of all conditions to the proposed Acquisition and
receipt of all necessary approvals.
- the ability of Vermilion to obtain equipment, services and
supplies in a timely manner to carry out planned development
activities;
- the ability of Vermilion to market oil and natural gas
successfully to current and new customers;
- the timely receipt of required regulatory approvals;
- currency, exchange and interest rates;
- future oil and natural gas prices; and
- Management's expectations relating to the timing and results of
development activities.
Although Vermilion believes that the expectations reflected in
such forward-looking statements or information are reasonable,
undue reliance should not be placed on forward looking statements
because Vermilion can give no assurance that such expectations will
prove to be correct. Forward-looking statements or
information are based on current expectations, estimates and
projections that involve a number of risks and uncertainties which
could cause actual results to differ materially from those
anticipated by Vermilion and described in the forward looking
statements or information. These risks and uncertainties
include but are not limited to:
- the ability of management to execute its business plan or
realize anticipated synergies or cost savings from the
Acquisition;
- the risks of not obtaining court, Spartan shareholder,
regulatory and other approvals for the Acquisition;
- the risks of the oil and gas industry, both domestically and
internationally, such as operational risks in exploring for,
developing and producing crude oil and natural gas and market
demand;
- risks and uncertainties involving geology of oil and natural
gas deposits;
- risks inherent in Vermilion's marketing operations, including
credit risk;
- the uncertainty of reserves estimates and reserves life;
- the uncertainty of estimates and projections relating to
production, costs and expenses;
- potential delays or changes in plans with respect to proposed
acquisitions (including the Acquisition), exploration or
development projects or capital expenditures;
- Vermilion's ability to enter into or renew leases;
- fluctuations in oil and natural gas prices, foreign currency
exchange rates and interest rates;
- health, safety and environmental risks;
- uncertainties as to the availability and cost of
financing;
- the ability of Vermilion to add production and reserves through
development and exploration activities;
- general economic and business conditions;
- the possibility that government policies or laws may change or
governmental approvals may be delayed or withheld;
- uncertainty in amounts and timing of royalty payments;
- risks associated with existing and potential future law suits
and regulatory actions against Vermilion; and
- other risks and uncertainties described elsewhere in this
document or in Vermilion's other filings with Canadian securities
regulatory authorities.
The forward-looking statements or information contained in this
document are made as of the date hereof and Vermilion 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 required by applicable
securities laws.
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SOURCE Vermilion Energy Inc.