say bye bye to West EnergyCompany News Alert
Daylight Resources Trust Announces Agreement to Acquire West EnergyLtd. (ccnm)
CALGARY, ALBERTA--(Marketwire - March 5, 2010) - Daylight Resources Trust("Daylight" or the "Trust") (TSX:DAY.UN) and West Energy Ltd. (TSX:WTL) arepleased to announce that they have entered into an arrangement agreement (the"Arrangement Agreement") pursuant to which, subject to the approval of the Westshareholders, Daylight shall acquire all of the outstanding common shares ofWest by way of a plan of arrangement (the "Arrangement"). The transaction isvalued at approximately $570 million, including currently estimated net debt andtransaction costs of $135 million. Consideration for the transaction iscomprised of $115 million of cash, with the remainder to be paid in Daylighttrust unit equivalents. Based on the expected fully diluted shares outstandingof West at the closing of the Arrangement, each West shareholder will receive,at their election: (a) $5.50 in cash, or (b) 0.465 of a Daylight trust unitequivalent, or (c) a combination thereof for each West share held. The finalconsideration received by each West shareholder is subject to proration suchthat $115 million in cash will be paid to West shareholders in aggregate. Basedon the 10-day weighted average price of Daylight trust units ending March 4,2010, and cash to be paid, West shareholders will receive an aggregate $5.30 pershare, a premium of 25% to West's 10-day weighted average price of $4.24 pershare ending March 4, 2010. The Arrangement is expected to close in mid-to-lateMay 2010, after Daylight's proposed conversion to a corporation.
TRANSACTION RATIONALE
Daylight's acquisition of West continues its strategy of pursuingtransactions where near-term cash flow strength is supported by long-termdevelopment potential to provide growth opportunities for our equity holders.The acquired assets are highly complementary to Daylight's existing Pembinaoperations and expand our position in the Pembina region of central Alberta.
The highlight of the transaction is the addition of West's Cardiumopportunity to Daylight's existing large Cardium position in the Pembinafairway. Over 90% of West's assets are located in the Pembina region of centralAlberta where West has accumulated over 40 net sections of highly prospectiveCardium oil rights.
-- Pro Forma Cardium rights in the Pembina area increase to over 140 net
sections.
-- West's lands are concentrated on the east side of the major Pembina
Cardium pool, in close proximity to the initial successful Cardium
horizontal drilling in the Pembina area.
-- Daylight estimates an unrisked drilling inventory of 80 to 160
horizontal Cardium light oil locations on West's lands at Pembina.
-- West has drilled 13 (10.1 net) horizontal Cardium light oil wells to
date with the first 7 (5.1 net) wells delivering an average 30-day
initial production rate of 200 barrels of oil equivalent ("boe") per
day.
-- Daylight plans to continue with an aggressive drilling program in
Pembina for horizontal Cardium development to take full advantage of the
current Alberta royalty incentives and currently has 4 rigs operating in
Pembina executing our horizontal Cardium drilling program.
West has substantial light oil assets in addition to its Cardiumhorizontal opportunities, in particular two light oil pools at Pembina, whichhave large original oil in place ("OOIP") with the potential to improve recoveryfactors.
-- The Belly River oil pool (in which West has an approximate 80% working
interest) has a low decline rate, over 400 million barrels of OOIP and a
recovery to date of approx. 18%. Several operators to the east have been
experimenting with the same horizontal multi-frac technology used in the
Cardium to develop similar Belly River oil pools. Daylight has been
investigating the applicability of these technologies as well as
enhanced recovery to increase production and reserves from this asset.
-- The second pool is the Pembina Keystone Cardium Unit #3, where West has
a 59% working interest in this large OOIP asset with a low recovery
factor.
There are also significant synergies in combining the two company's existingNisku light oil facilities and gathering systems. By combining the operatinginfrastructure of the two companies, Daylight sees potential to substantiallyreduce operating costs.
The transaction further supports Daylight's goal of maintaining a balancedportfolio between oil and natural gas, increasing the Trust's leverage to oil toapproximately 45%. This also enhances the strategic balance between oil and gasin our resource play drilling inventory.
The combination of Daylight and West's assets and operations is expected tooffer a number of benefits to West's shareholders through their participation inthe pro forma Daylight.
-- West's shareholders will be able to participate in Daylight's extensive
inventory of low geological risk and repeatable resource play drilling
opportunities. These include multi-zone natural gas in the Deep Basin,
high liquids natural gas in West Central Alberta and additional Cardium
light oil in Pembina.
-- Daylight will have one of the largest Cardium positions in the Pembina
fairway with over 140 net sections of prospective lands with 300 to 600
horizontal locations.
-- Daylight also has Cardium potential opportunity outside of the Pembina
fairway at Pine Creek.
-- Daylight's solid balance sheet and portfolio diversity also provides the
flexibility to expand drilling programs in key plays depending on
relative commodity price strength and project economics.
-- West's shareholders will also receive monthly dividends expected to be
paid by Daylight upon closing of the transaction.
Anthony Lambert, President and CEO of Daylight stated, "With the addition ofWest's high quality assets, this transaction solidifies Daylight's position asone of the leading players in the Pembina Cardium horizontal oildevelopment."
Ken McCagherty, President and CEO of West stated, "Our combination withDaylight enables West's shareholders to take advantage of substantial synergiesin the combined Pembina area and to benefit from Daylight's extensive inventoryof high quality oil and gas resource play opportunities in other areas of theWestern Canadian Sedimentary Basin."
SIGNIFICANT TRANSACTION HIGHLIGHTS
Transaction Metrics
-- Utilizing current production and attributing an estimated value for land
of approximately $110 million, the production acquisition cost is
approximately $79,300/boe per day, which compares favorably to other oil
weighted transactions executed through 2009 and year-to-date 2010.
-- The Proved plus Probable ("2P") reserve acquisition cost is $23.84/boe
(based on West's reported reserves at 2009 year-end) offering an
acquisition recycle ratio of 1.6 times on West's current corporate
operating netbacks.
Operational Impact
-- The transaction supports Daylight's goal of maintaining a balanced
portfolio between oil and natural gas, increasing Daylight's leverage to
oil and NGL production from 40% to 45%.
-- Current production from West's assets is approximately 5,800 boe/d (81%
oil & NGLs), an increase from their February 2010 published production
due to the successful tie-in of several Pembina wells.
-- Reserve additions of 19.3 mmboe of "2P" reserves (84% oil and NGLs),
based on West's independent third party reserve evaluation dated
December 31, 2009. These reserves represent an increase of 16% over
Daylight's reported 2009 year-end reserves. Only 19% of the 2P reserves
are associated with the Nisku light oil properties. Daylight and West
use the same independent third party engineering firm.
-- West currently holds over 100,000 net acres of undeveloped land,
including 40 net sections of Cardium rights in the Pembina fairway and
significant 2D and 3D seismic data.
-- Daylight's equity holders and West's shareholders benefit from the
combination of the Trust's significant inventory of low geological risk
repeatable resource play type assets and West's complementary high
netback light oil and extensive Cardium drilling inventory. Including
the lands acquired from West, Daylight now estimates an unrisked
drilling inventory of 300 - 600 horizontal Cardium light oil locations
within the Pembina fairway.
-- The acquired production volumes offer attractive operating netbacks at
$38.26/boe using our commodity price estimates of US$80.00/bbl WTI oil
and $5.25/mcf AECO natural gas, delivering a 7% pro forma increase to
the Trust's netback.
-- Daylight will provide additional guidance with respect to the Trust's
production and capital spending plans upon successful completion of the
transaction.
Corporate Conversion
-- Daylight is proceeding with plans to propose a conversion to a dividend
paying corporation in May 2010 with the Trust's extensive inventory
expected to continue to provide investors with capital growth while also
offering a monthly income component for an attractive total return.
-- The combination of Daylight's and West's year-end 2009 tax pools are
approximately $1.7 billion. These tax pools create high value for our
equity holders as they have the potential to defer taxation well into
the future following Daylight's conversion to a corporation.
West Transaction Details
The completion of the Arrangement is subject to customary TSX, court andregulatory approvals, as well as the approval of at least 66 2/3 percent of thevotes cast by the West shareholders present, in person or by proxy, at the Westshareholders' meeting. It is expected that the West shareholders' meeting tovote on the Arrangement and closing will occur in mid-to-late May 2010. Aninformation circular is expected to be mailed to shareholders of West in earlyApril 2010. The Arrangement is scheduled to close after Daylight's plannedconversion to a corporation expected to occur in early May 2010.
Board Approval
The Board of Directors of Daylight and West have unanimously approved theexecution of the Arrangement Agreement. West's Board of Directors has determinedthat the proposed Arrangement is fair to West shareholders, is in the bestinterests of West shareholders and has unanimously recommended that Westshareholders vote in favor of the Arrangement. The West Board of Directors,Officers and senior management, who own approximately 7.1 percent of theoutstanding West shares, have agreed to vote their West shares in favor of theproposed Arrangement.
West has agreed that it will not solicit or initiate any discussionsconcerning any other business combination. West has agreed to pay anon-completion fee of $25 million to Daylight in certain circumstances. Inaddition, Daylight has the right to match any competing proposal for West in theevent such a proposal is made.
Advisors
GMP Securities L.P. ("GMP") is acting as exclusive financial advisor toDaylight with respect to this transaction.
CIBC World Markets Inc. ("CIBC") is acting as exclusive financial advisor toWest with respect to this transaction. CIBC has advised the Board of Directorsof West that, subject to the review of definitive legal agreements, it is of theopinion, as of the date hereof, that the consideration to be received by Westshareholders pursuant to the proposed Arrangement is fair from a financial pointof view to West shareholders.
Advisory Regarding Forward-Looking Information and Statements
This press release contains forward-looking statements and forward-lookinginformation within the meaning of applicable securities laws. The use of any ofthe words "expect", "anticipate", "continue", "estimate", "objective","ongoing", "may", "will", "project", "should", "believe", "plans", "intends" andsimilar expressions are intended to identify forward-looking statements orinformation. More particularly and without limitation, this press releasecontains forward looking statements and information concerning: the combinedentities' petroleum and natural gas production, reserves and resources(including original oil in place), undeveloped land holdings, drillinginventory, reserve life index, business strategy, future development and growthopportunities, prospects and asset base; the anticipated benefits from thetransaction including improved operating efficiencies, field optimizations andcost reductions; enhanced liquidity and increased investor attention and futurecash flows, distributions; value and debt levels; capital programs; future taxpools and positions; treatment under tax laws; and oil and natural gas prices.