CALGARY, ALBERTA--(Marketwired - April 9, 2014) -
NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR DISSEMINATION IN THE UNITED STATES
Long Run Exploration Ltd. ("Long Run" or the "Company") (LRE.TO) is pleased to announce that it has entered into an agreement with an Alberta-based, intermediate oil and gas producer (the "Vendor") to purchase certain strategic liquids-rich natural gas assets (the "Acquisition Assets") focused on the Cardium in the Deep Basin area of Alberta. Total consideration, after closing adjustments, for the acquisition is expected to be approximately $225 million based on an April 1, 2014 effective date. The consideration includes Long Run's disposition of approximately 400 BOE/d of heavy oil at Lloydminster to the Vendor.
The acquisition adds approximately 7,000 BOE/d (25% oil and NGLs) of concentrated, long life liquids-rich natural gas production, and provides Long Run an additional core area that will expand our drilling inventory to support future growth.
The Acquisition Assets will be funded with a concurrent $120 million bought deal equity financing of subscription receipts with the balance of the purchase price funded by the Company's credit facilities. Long Run anticipates the credit facilities increasing $100 million to approximately $575 million on closing of the acquisition.
Closing of the acquisition is subject to customary conditions and is expected to occur on or about May 30, 2014.
STRATEGIC RATIONALE
The acquisition provides Long Run with a sizable, additional core area in close proximity to its existing Peace River and Redwater core areas, providing operational synergies, while adding drilling inventory of greater than 220 net, high quality, low capital-efficiency liquids-rich natural gas and light oil opportunities. The Acquired Assets are largely operated with average working interest of 70% and include area facilities and associated infrastructure to facilitate future development and to reduce operating costs.
Pro forma the acquisition and the Offering (as defined herein), Long Run will have current production of 33,800 BOE/d (51% oil and liquids), is anticipated to have a total sustainability ratio of 89% in 2015 and a strong balance sheet with net debt to funds flow of 1.4x in 2015. The strength of Long Run's long term sustainability allows Long Run to prudently increase its annual dividend approximately 5% to $0.42 per share from $0.402, as described in more detail below.
Key benefits to Long Run shareholders pro forma the acquisition, the Offering and with consideration of preliminary 2015 guidance are as follows:
- Total sustainability of 89% in 2015 resulting in significant excess free funds flow of $36 million ($0.24/share)
- Significant accretion on a fully diluted per share basis to 2015 free funds flow per share of 33% and 2015 production per share of 6%
- Proved reserves increase 54% (27% per share), proved plus probable reserves increase 61% (33% per share) and net asset value based on BT NPV10 increases to $8.50 per share (6% per share)
- Improves Long Run's proved plus probable reserve life index ("RLI") by greater than 25% to 12.8 years based on the current production of the Acquisition Assets
- Increases drilling inventory by approximately 25% or more than 220 net drilling locations, including 50 light oil Cardium locations at Pine Creek, bringing Long Run's total net drilling inventory to over 1,000 locations
- Reduces the corporate base production decline from approximately 31% to approximately 29.5%
- 2015 sustainability ratio stays below 100% down to AECO at $2.70/Mcf
SUMMARY OF THE ACQUISITION
The acquisition provides the following operational characteristics:
| Purchase price, net of expected closing adjustments and concurrent disposition |
$225 million |
| Current production |
7,000 BOE/d (25% oil and NGLs) |
| Proved reserves (1)(5) |
34.1 MMBOE (29% oil and NGLs) |
| Proved BT NPV10 (4)(5) |
$230 million |
| Proved plus probable reserves (1)(5) |
60.5 MMBOE (29% oil and NGLs) |
| Proved plus probable BT NPV10 (4) |
$403 million |
| Proved RLI (1)(2) |
13.4 years |
| Proved plus probable RLI (1)(2) |
23.7 years |
| Operating Netback (3) |
$22/BOE |
|
|
The acquisition metrics are as follows:
| Acquisition price / Current Production |
$32,140/BOE/D |
| Acquisition price / Run rate funds flow(6) |
4.0x |
| Proved reserves (including FDC) |
$14.09/BOE |
| Proved plus probable reserves (including FDC) |
$10.32/BOE |
| Acquisition / Proved BT NPV10% |
1.0x |
| Acquisition / Proved plus probable NPV10% |
0.6x |
| Proved plus probable Recycle Ratio (Including FDC) |
2.1x |
The Acquisition Assets are located primarily in the Deep Basin area of western Alberta, with low risk development focused in the Greater Wapiti area (Kakwa, Elmworth and Wapiti) and Central Pine Creek with further exploration upside in the North Pine Creek and Edson areas. The Acquisition Assets consist of large, contiguous land blocks totaling over 250,000 net acres, providing Long Run with a compelling combination of current, low decline production and a large future drilling inventory of over 220 multi-zone liquids rich natural gas opportunities primarily in the Cardium and with incremental upside in the Montney, Wilrich, Belly River, and Viking formations.
In the Greater Wapiti area, the Acquisition Assets are currently producing 5,100 BOE/d (28% oil and NGLs) and includes over 90,000 net acres with 140 net undeveloped locations. A planned facility expansion at Kakwa is set to come on-line in 2015 allowing for growth in the area with guaranteed plant access and capacity. Long Run has high-graded the drilling inventory with a focus on high rate of return locations which generally have liquids yields in excess of 70 bbls/MMcf.
At Pine Creek, the Acquisition Assets are producing 750 BOE/d (18% oil and NGLs) and include over 64,000 net acres (60% undeveloped) of high working interest, contiguous lands prospective for Cardium light oil development. Wells drilled at on-stream capital costs of $3.4 million generate 12-month payouts through an operating netback in excess of $45/BOE.
Additionally, Long Run is acquiring certain Alberta properties with production totaling 1,150 BOE/d.
DIVIDEND INCREASE
Long Run takes a disciplined approach to its ongoing dividend policy with a focus on providing investors with a sustainable yield. After giving effect to the improved sustainability that results from the acquisition and the Offering, Long Run's Board of Directors has approved a 5% increase to its monthly dividend from $0.0335 per share to $0.035 ($0.42 per share annualized), conditional upon completion of the acquisition and the Offering. Based on the anticipated closing date of the acquisition of May 30, 2014, the dividend increase is expected to start with Long Run's June 2014 dividend payable July 2014. Long Run continues to provide investors with a compelling combination of attractive yield and a disciplined, conservative and sustainable dividend-growth model with a total 2014 pro forma sustainability ratio of 92%, reducing to 89% in 2015.
INCREASED 2014 GUIDANCE AND PRELIMINARY 2015 GUIDANCE
After giving effect to the acquisition, Offering and dividend increase, Long Run has increased its 2014 guidance and provides preliminary 2015 guidance as outlined below. Post-acquisition, Long Run will review and update its 2015 development plan based on a detailed review of the Acquisition Assets, the economics of Long Run's plays, prevailing commodity prices, and strategic priorities.
| Guidance(7) |
2014
Pre-Acquisition |
2014 12-month
Pro Forma(a)(b) |
2015
Preliminary |
| Production average |
26,300 BOE/d |
32,150 BOE/d |
34,500 BOE/d |
| Average production per share |
0.075 BOE/d |
0.078 BOE/d |
0.083 BOE/d |
| % oil and NGLs |
56% |
50% |
52% |
| Funds flow(8) |
$275 million |
$318 million |
$360 million |
| Funds flow per share(8) |
$2.19 |
$2.12 |
$2.38 |
| Development capital |
$210 million |
$230 million |
$260 million |
| Dividend |
$52 million |
$64 million |
$64 million |
| Dividend per share (annual) |
$0.402 |
$0.42 |
$0.42 |
| Free funds flow(8) |
$13 million |
$24 million |
$36 million |
| Free funds flow per share(8) |
$0.10 |
$0.16 |
$0.24 |
| Exit net debt to funds flow(8) |
1.6x |
1.7x |
1.4x |
| Total sustainability ratio |
95% |
92% |
89% |
- 2014 12-month pro forma assumes the acquisition and the Offering were completed January 1, 2014 and thus that Long Run owns the Acquisition Assets for the 12 months ended December 31, 2014. Closing date of the acquisition is scheduled for May 30, 2014.
- Long Run's estimated actual 2014 results, which include Long Run's 12-month estimated results plus the Acquisition Assets May 30, 2014 post-closing results for 7-months, are as follows: Production of 29,200 BOE/d; Net capital expenditures of $450 million; Funds flow of $295 million
OFFERING
In connection with the acquisition, Long Run has entered into an agreement with a syndicate of underwriters co-led by National Bank Financial Inc. and Macquarie Capital Markets Canada Ltd. and including Scotia Capital Inc., Canaccord Genuity Corp., CIBC World Markets, Clarus Securities Inc., Cormark Securities Inc. and FirstEnergy Capital Corp. (collectively, the "Underwriters"), pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 23,530,000 subscription receipts ("Subscription Receipts") of Long Run at a price of $5.10 per Subscription Receipt for gross proceeds of approximately $120 million (the "Offering"). The gross proceeds from the sale of Subscription Receipts will be held in escrow pending the completion of the acquisition. If all outstanding conditions to the completion of the acquisition (other than funding) are met, including receipt of all necessary approvals for the Offering and the acquisition having been obtained on or before May 30, 2014, the net proceeds from the sale of the Subscription Receipts will be released from escrow to Long Run and each Subscription Receipt will be exchanged for one common share of Long Run for no additional consideration. If the acquisition is not completed on or before May 30, 2014, then the purchase price for the Subscription Receipts will be returned to subscribers, together with a pro rata portion of interest earned on the escrowed funds.
The Subscription Receipts will be distributed by way of a short form prospectus in all provinces of Canada except Quebec and Prince Edward Island and in the United States, the United Kingdom and certain other jurisdictions as the Company and the Underwriters may agree on a private placement basis. Completion of the acquisition and the Offering is subject to certain conditions including the receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. Closing of the Offering is expected to occur on April 30, 2014 and the acquisition is expected to close on or about May 30, 2014.
This press release is not an offer of the securities for sale in the United States. The securities have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.