/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY
CONSTITUTE A VIOLATION OF U.S. SECURITIES LAWS./
TSXV: DCK
CALGARY, Oct. 21, 2014 /CNW/ - Donnycreek Energy Inc.
("Donnycreek" or the "Company") (TSX-V: DCK) reports
that it has entered into an arm's length definitive arrangement
agreement (the "Arrangement Agreement") with Contact
Exploration Inc. ("Contact") whereby Contact and Donnycreek
will merge (the "Merger") to form a new, amalgamated
corporation to be named "Kicking Horse Energy Inc." ("Kicking
Horse"). The Merger will consolidate the companies' interests
in the Deep Basin including their working interests ("WI")
in their Kakwa (East), Alberta
property (the "Kakwa Property").
Donnycreek holds a 50% WI in 16.75 gross sections at the Kakwa
Property. Contact is the 25% WI operator of the Kakwa Property.
Based on current WI production, Kicking Horse will have
approximately 3,000 BOE/d of Montney production from the Kakwa Property
(52% natural gas, 48% condensate and other natural gas
liquids).
The Merger also includes Donnycreek's operated working interest
in 380 gross sections of petroleum and natural gas rights at Wapiti
(75% WI) and West Kakwa (Chicken) (40% WI) as well as 2 gross
sections (24% WI) and 2 gross sections (64% WI) contiguous to the
Kakwa Property; and Contact's 100% working interest in 11
additional gross sections at West Kakwa; 27 gross sections at Chime
and 23 gross sections at Pinto.
Contact has also announced today that it has entered into a
$20 million bought deal equity
financing of 54,100,000 common shares of Contact ("Contact
Shares") at a price of $0.37 per
Contact Share on a private placement basis, to fund ongoing
development and exploration at the Kakwa Property (the
"Contact Financing").
MERGER
The Merger will be undertaken by way of a plan of arrangement
under the Business Corporations Act (Alberta) ("ABCA"). Pursuant to
the Merger, Contact and Donnycreek will amalgamate to form Kicking
Horse on the basis of 0.075 of a common share of Kicking Horse
(each, a "Kicking Horse Share") being issued in exchange for
each outstanding Contact Share and 0.600 of a Kicking Horse Share
being issued in exchange for each outstanding common share of
Donnycreek (the "Donnycreek Shares"). The Merger will
represent an exchange ratio of 8.0 Contact Shares for each
Donnycreek Share, being a value of $2.96 for each Donnycreek Share, based on the
issue price of Contact Shares in the Contact Financing, of
$0.37 per share. Immediately
following the closing of the Contact Financing and Merger
(collectively, the "Transactions"), the former Donnycreek
shareholders will hold approximately 58% of the outstanding Kicking
Horse Shares and the former Contact shareholders (including
subscribers under the Contact Financing) will hold approximately
42% of the outstanding Kicking Horse Shares.
Upon completion of the Transactions, there will be approximately
60.6 million Kicking Horse Shares outstanding (without giving
effect to the possible exercise of the underwriters' option granted
in connection with the Contact Financing) and the Kicking Horse
Shares will (subject to receipt of the final approval of the TSX
Venture Exchange (the "TSXV")) be listed on the
TSXV.
Kicking Horse will be managed by Steve
Harding as President and CEO, Raymond Sully as COO, Chad Kalmakoff as VP Finance and CFO,
Mark Hadley as VP Exploration and
Paul Poohkay as Production
Manager. The Board of Directors of Kicking Horse will
initially consist of 7 members, being Ken
Bowie, Bob Hodgins,
Bruce Allford, Steve Harding and three directors to be
determined by Donnycreek and agreed to by Contact.
The Merger is anticipated to close in mid to late December 2014. Closing of the Merger is subject
to, among other conditions, the approval by holders of at least
662/3% of the shares (and by a majority of
holders of the minority of shares, if applicable) voted at each of
the parties' respective securityholder meetings, the approval of
the Alberta Court of Queen's
Bench, the receipt of all necessary regulatory and stock exchange
approvals and satisfaction of certain other closing conditions that
are customary for a transaction of this nature. Closing of the
Merger is not conditional on the closing of the Contact
Financing.
It is anticipated that separate Contact and Donnycreek
securityholder meetings will be held in December 2014 following the mailing of a joint
information circular regarding the Merger in November 2014 to securityholders of each
company. Each party has agreed to pay a non-completion fee of
$10 million in certain circumstances
as set forth in the Arrangement Agreement, and upon the termination
of the Arrangement Agreement.
The Board of Directors of Donnycreek has unanimously approved
the Arrangement Agreement, determined that the Merger is in the
best interests of Donnycreek and, based on the fairness opinion
provided by RBC Dominion Securities Inc., determined that the
consideration to be received by Donnycreek shareholders pursuant to
the Merger is fair from a financial point of view and has
unanimously resolved to recommend that Donnycreek securityholders
vote in favour of the Merger.
The Board of Directors of Contact has unanimously approved the
Arrangement Agreement, determined that the Merger is in the best
interests of Contact and, based on the fairness opinion provided by
Canaccord Genuity Corp., determined that the consideration to be
received by Contact securityholders pursuant to the Merger is fair
from a financial point of view and has unanimously resolved to
recommend that Contact securityholders vote in favour of the
Merger.
The directors and officers of Contact and Donnycreek, holding
approximately 3% and 11% of the outstanding Contact Shares and
Donnycreek Shares, respectively, have entered into support
agreements pursuant to which each has agreed to vote their
securities in favour of the Merger.
STRATEGIC RATIONALE
The key benefits to Donnycreek shareholders pro forma the Merger
are as follows:
- Based on an exchange ratio of 8.0 Contact Shares to each
Donnycreek Share and the issue price of Contact Shares issuable
pursuant to the Contact Financing of $0.37 per share, the Kicking Horse Shares
issuable to the holders of Donnycreek Shares under the Arrangement
represents a 56% premium to the closing price of the Donnycreek
Shares on October 20, 2014 of
$1.90 per share.
- Maintain upside exposure to the current asset base for
Donnycreek shareholders through their 58% (assuming closing of the
Contact Financing) pro-forma ownership in the consolidated and
capitalized entity.
- Creates a growth orientated junior oil and gas company with a
strong balance sheet and substantial land holdings in the liquids
rich Montney play providing
increased scale and trading liquidity to enhance relevance and
attractiveness for institutional investors.
- Consolidates ownership in the Deep Basin, including a 75% WI in
the high netback Kakwa Property.
- Improves corporate efficiencies and provides additional cash
flow that can be used to explore and develop acreage outside of the
Kakwa Property, in exploration areas at Wapiti, West Kakwa, Pinto
and Chime.
- Exposure to emerging east coast LNG markets through Contact's
ownership in New Brunswick assets
and Contact's equity ownership in Pieridae Energy Ltd.
Complete details of the terms of the Merger are set out in the
Arrangement Agreement, which will be filed by each of the parties
and will be available for viewing under each company's respective
profile at www.sedar.com.
CONTACT FINANCING AND CREDIT FACILITY
Contact has entered into an agreement with a syndicate of
underwriters (the "Underwriters"), pursuant to which the
Underwriters have agreed to carry out a private placement, on an
underwritten, bought-deal basis, of 54,100,000 Contact Shares at a
price of $0.37 per Contact Share (the
"Offering Price") for gross proceeds of approximately
$20 million. The net proceeds from
the sale of the Contact Shares will be used to fund ongoing
development and exploration at the Kakwa Property. Subject to
regulatory approval, the Underwriters will also be granted an
Underwriters' option (the "Option"), to purchase up to an
additional 15% of the Contact Shares (representing 8,115,000
Contact Shares) offered at the Offering Price, which Option will be
exercisable in whole or part at the sole discretion of the
Underwriters at any time up to 48 hours prior to the closing date
of the Contact Financing.
Completion of the Contact Financing is subject to certain
conditions including the receipt of all necessary regulatory
approvals, including the approval of the TSXV. Closing of the
Contact Financing is expected to occur on November 13, 2014.
Based on a proposal received from its current lender, Contact
anticipates that Kicking Horse will have approximately $45 million available on a credit facility at
closing of the Transactions.
FINANCIAL ADVISORS AND FAIRNESS OPINIONS
RBC Dominion Securities Inc. has provided the Board of Directors
of Donnycreek with its verbal opinion that, as of the date hereof
and subject to the assumptions, qualifications and limitations on
which the opinion is based, that the consideration received under
the Merger is fair, from a financial point of view to the holders
of Donnycreek Shares.
Canaccord Genuity Corp. is acting as exclusive financial advisor
to Contact respecting the Merger and has provided the Board of
Directors of Contact with its verbal opinion that, as of the date
hereof and subject to the assumptions, qualifications and
limitations contained therein and subject to its review of the
final form of the documentation effecting the Merger, the
consideration to be received by holders of Contact Shares and the
holders of options to purchase Contact Shares pursuant to the
Merger is fair, from a financial point of view to the holders of
Contact Shares and the holders of options to purchase Contact
Shares.
Further information relating to Donnycreek is also available on
its website at www.donnycreekenergy.com.
ADVISORY ON FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements and
information ("forward-looking statements") within the
meaning of applicable securities laws and is based on the
expectations, estimates and projections of management of Donnycreek
as of the date of this news release, unless otherwise stated. The
use of any of the words "expect", "anticipate", "continue",
"estimate", "objective", "ongoing", "may", "will", "project",
"should", "believe", "plans", "intends" and similar expressions are
intended to identify forward-looking statements. More
particularly and without limitation, this news release contains
forward-looking statements concerning: anticipated benefits of the
Merger to the securityholders of Donnycreek, the timing and
anticipated receipt of required regulatory, court and
securityholder approvals for the Transactions; the ability of
Donnycreek to satisfy the other conditions to, and to complete, the
Merger; the anticipated timing of the joint information circular
regarding the Merger and the holding of the securityholder meetings
of each of Contact and Donnycreek, the anticipated closing date of
the Contact Financing and the anticipated use of proceeds of the
Contact Financing, the anticipated name of the company to be formed
following the Merger, the anticipated management team and Board of
Directors of Kicking Horse; the anticipated share capital of
Kicking Horse, including the percentage of Kicking Horse Shares
held by former Contact shareholders and Donnycreek shareholders and
the anticipated credit facility of Kicking Horse following
completion of the Merger. Such forward-looking statements are
provided for the purpose of providing information about
management's current expectations and plans relating to the future.
Investors are cautioned that reliance on such information may not
be appropriate for other purposes, such as making investment
decisions.
In respect of the forward-looking statements concerning the
anticipated benefits and completion of the proposed Merger and the
anticipated timing for completion of the Merger, Donnycreek has
provided such in reliance on certain assumptions that it believes
are reasonable at this time, including assumptions as to the time
required to prepare and mail securityholder meeting materials,
including the required information circular; the ability of each of
Contact and Donnycreek to receive, in a timely manner, the
necessary regulatory, court, securityholder, stock exchange and
other third party approvals, the ability of each of Contact and
Donnycreek to satisfy, in a timely manner, the other conditions to
the closing of the Merger; and expectations and assumptions
concerning, among other things: commodity prices and interest and
foreign exchange rates; planned synergies, capital efficiencies and
cost-savings; applicable tax laws; future production rates; the
sufficiency of budgeted capital expenditures in carrying out
planned activities; and the availability and cost of labour and
services.
The anticipated dates provided may change for a number of
reasons, including unforeseen delays in preparing meeting
materials, inability to secure necessary securityholder,
regulatory, court or other third party approvals in the time
assumed or the need for additional time to satisfy the other
conditions to the completion of the Merger. Accordingly,
readers should not place undue reliance on the forward-looking
statements contained in this news release. In respect of the
forward-looking statements, Donnycreek has provided such in
reliance on certain assumptions that it believes are reasonable at
this time, including assumptions in respect of: prevailing
commodity prices, margins and exchange rates; that each of
Donnycreek's and Contact's future results of operations will be
consistent with past performance and management expectations in
relation thereto; the continued availability of capital at
attractive prices to fund future capital requirements relating to
existing assets and projects, including but not limited to future
capital expenditures relating to expansion, upgrades and
maintenance shutdowns; the success of growth projects; future
operating costs; that counterparties to material agreements will
continue to perform in a timely manner; that there are no
unforeseen events preventing the performance of contracts; and that
there are no unforeseen material construction or other costs
related to current growth projects or current operations.
Since forward-looking statements addresses future events and
conditions, such information by its very nature involves inherent
risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of
factors and risks. These include, but are not limited to the
risks associated with the industries in which each of Contact and
Donnycreek operates in general such as: operational risks; delays
or changes in plans with respect to growth projects or capital
expenditures; costs and expenses; health, safety and environmental
risks; commodity price, interest rate and exchange rate
fluctuations; environmental risks; competition; failure to realize
the anticipated benefits of the Merger and to successfully
integrate each of Contact and Donnycreek; ability to access
sufficient capital from internal and external sources; and changes
in legislation, including but not limited to tax laws and
environmental regulations. Risks and uncertainties inherent
in the nature of the Merger include the failure of each of Contact
and Donnycreek to obtain necessary securityholder, regulatory,
court and other third party approvals, or to otherwise satisfy the
conditions to the Merger, in a timely manner, or at all.
Failure to so obtain such approvals, or the failure of each of
Contact and Donnycreek to otherwise satisfy the conditions to the
Merger, may result in the Merger not being completed on the
proposed terms, or at all.
Readers are cautioned that the foregoing list of factors is not
exhaustive. Additional information regarding some of these risks,
expectations or assumptions and other factors may be found in the
Company's Annual Information Form for the year ended July 31, 2013 and the Company's Management's
Discussion and Analysis prepared for the year ended July 31, 2013. The reader is cautioned not
to place undue reliance on these forward-looking statements. The
forward-looking statements contained in this news release are made
as of the date hereof and Donnycreek undertakes no obligations to
update publicly or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, unless
so required by applicable securities laws.
BOEs are presented on the basis of one BOE for six Mcf of
natural gas. Disclosure provided herein in respect of BOEs
may be misleading, particularly if used in isolation. A BOE
conversion ratio of 6 Mcf:1 Bbl 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 ratio on a 6:1 basis may
be misleading as an indication of value.
NEITHER 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 NEWS RELEASE.
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.
SOURCE Donnycreek Energy Inc.
