Perpetual Energy Inc. Announces Swap of West Edson Property for 6.75 Million Tourmaline Shares with Market Value of $256.5 Million
CALGARY, March 12, 2015 /PRNewswire/ - (TSX:PMT) - Perpetual Energy Inc. ("Perpetual", the "Corporation" or the "Company") is pleased to announce the signing of a definitive agreement with Tourmaline Oil Corp. ("Tourmaline") to swap its joint interest share in its West Edson asset in West Central Alberta in exchange for 6.75 million TOU common shares ("TOU Shares") having a current market value of approximately $256.5 million based on today's closing price of the TOU Shares on the Toronto Stock Exchange. The transaction includes all joint interest lands Perpetual holds with Tourmaline in West Edson, together with the associated wells and infrastructure (the 'West Edson Property'). Closing is expected to occur on or around April 1, 2015 and is subject to customary closing conditions, including receipt of approval under the Competition Act. Following a thorough independent review process with external financial and legal advisors, the transaction was unanimously approved by an independent committee of the Board of Directors of Perpetual comprised of all of the six independent directors of the Corporation. Upon closing, the TOU Shares will be subject to a minimum statutory hold period of four months in accordance with applicable securities laws.
Based on the Company's third party engineering report prepared by McDaniel and Associates Consultants Ltd. ("McDaniel"), as at December 31, 2014, the disposition includes 7.2 MMboe of recognized proved and probable developed natural gas and natural gas liquids reserves as well as 16.8 MMboe of proved and probable undeveloped reserves. Also included in the transaction are 9,600 net acres of undeveloped lands not currently assigned reserves at year-end 2014. Perpetual's current production from the West Edson Property is approximately 5,750 boe/d.
The Company intends to retain the TOU Shares and systematically manage its obligations, including the redemption of its outstanding convertible debentures (PMT.DB.E) which mature on December 31, 2015. Further, the TOU Shares will be utilized as required to fund the Company's development plans at East Edson as appropriate in the current commodity price environment and provide additional financial flexibility for Perpetual to capture and evaluate other high impact growth opportunities.
The transaction positions Perpetual to capture the upside of the West Edson Property through ownership of the TOU Shares and also provides Perpetual shareholders with the value creation potential inherent in Tourmaline's extensive land and drilling opportunity inventory and strong balance sheet in this period of low commodity prices. At the same time, it materially strengthens Perpetual's present financial situation, augmenting the Company's potential to optimize the shareholder value inherent in its existing diversified portfolio of assets. The TOU Shares also provide greater flexibility to capture and evaluate other new high impact opportunities and pursue strategic initiatives.
Furthermore, the increased liquidity of the TOU Shares relative to the West Edson Property positions Perpetual to manage downside risks associated with the current uncertain and volatile commodity price environment. As only 20 percent of the Company's West Edson Property reserves were proved developed reserves at year-end 2014, Perpetual expects the transaction will enhance Perpetual's borrowing base when re-determined as part of the semi-annual review scheduled to occur on or before April 30, 2015. Considering the TOU Shares as an offset to outstanding debt, this transaction drives material positive progress on one of the Company's 2015 strategic priorities, to reduce debt and manage downside risk, bolstering Perpetual's financial flexibility and optionality to manage its future credit facility, convertible debenture and senior note obligations.
As the market value of the TOU Shares approximates the net present value of the proved and probable reserves assigned to the West Edson Property, discounted at 10 percent, as assessed by McDaniel at year- end 2014, using McDaniel future commodity price assumptions, the Company estimates that the transaction is neutral on a net asset value basis.
Based on the current forward market for natural gas and NGL prices, Perpetual estimates the swap of the West Edson Property for TOU Shares will reduce 2015 estimated funds flow by an estimated $15 to $20 million. At the same time, Perpetual will eliminate future 2015 capital spending of approximately $15 million that would have been invested to maintain production from the West Edson Property at current levels.
Forward-Looking Information
Certain information regarding Perpetual in this news release including management's assessment of future plans and operations may constitute forward-looking statements under applicable securities laws. The forward-looking information includes, without limitation, statements regarding the expected timing for the closing of the sale of its interest in the West Edson Property and the anticipated use, value and benefits of the TOU Shares received in exchange thereof including the expected impact on the Corporation's financial position and benefits for Perpetual's shareholders; the expected current retention of the TOU Shares and the resulting positive impact on the Corporation's borrowing base under it credit facility upon redetermination of the credit facility; the impact of the transaction on the Corporation's net asset value; the ability of the Corporation to reduce debt and manage downside risk in the current uncertain and volatile commodity price environment; prospective drilling and operational activities and capital expenditures at East and West Edson; forecast production and production type; forecast and realized commodity prices; expected funding, allocation and timing of capital expenditures; projected use of funds flow and anticipated funds flow; planned drilling and development and the results thereof; expected dispositions, anticipated proceeds therefrom and the use of proceeds therefrom; and commodity prices. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this press release, which assumptions are based on management analysis of historical trends, experience, current conditions, and expected future developments pertaining to Perpetual and the industry in which it operates as well as certain assumptions regarding the matters outlined above. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Perpetual and described in the forward looking information contained in this press release. Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described under "Risk Factors" in Perpetual's Annual Information Form and MD&A for the year ended December 31, 2014 and those included in other reports on file with Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and at Perpetual's website (www.perpetualenergyinc.com). Readers are cautioned that the foregoing list of risk factors is not exhaustive. Forward-looking information is based on the estimates and opinions of Perpetual's management at the time the information is released and Perpetual disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise, other than as expressly required by applicable securities laws.
Also included in this press release are estimates of the effect on Perpetual's 2015 funds flow of the swap of the West Edson Property for TOU shares including estimated average production of 5,750 boe/d for 2015, capital expenditures, and other assumptions for 2015. To the extent any such estimate constitutes a financial outlook, it was approved by management and the Board of Directors of Perpetual on March 12, 2015 and is included to provide readers with an understanding of Perpetual's anticipated funds flows based on the capital expenditure and other assumptions described herein and readers are catutioned that the information may not be appropriate for other purposes.
Volume Conversions
Barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. In accordance with National Instrument 51-101 ("NI 51-101"), a conversion ratio for natural gas of 6 Mcf:1 bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, utilizing a conversion on a 6 Mcf:1 bbl basis may be misleading as an indicator of value as the value ratio between natural gas and crude oil, based on the current prices of natural gas and crude oil, differ significantly from the energy equivalency of 6 Mcf:1 bbl.
Webcast
Perpetual will be participating in the FirstEnergy East Coast Energy Conference on Friday, March 13, 2015. The Company presentation will be webcast at 10:35 a.m., Eastern Time. Interested parties are invited to take part in the webcast at http://jetslides.tv/lobby/1091.
About Perpetual
Perpetual Energy Inc. is a Canadian energy company with a spectrum of resource-style opportunities spanning heavy oil, NGL and bitumen along with a large base of shallow gas assets. Perpetual's shares and convertible debentures are listed on the Toronto Stock Exchange under the symbol "PMT" and "PMT.DB.E", respectively. Further information with respect to Perpetual can be found at its website at www.perpetualenergyinc.com.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
SOURCE Perpetual Energy Inc.
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