Spyglass to sell 50% of Dixonville Montney C for $100M- Spyglass to sell 50% of Dixonville Montney C for $100M
Ticker Symbol: C:SGL
Spyglass to sell 50% of Dixonville Montney C for $100M
Spyglass Resources Corp (C:SGL)
Shares Issued 128,076,720
Last Close 12/16/2014 $0.36
Tuesday December 16 2014 - News Release
Mr. Dan O'Byrne reports
SPYGLASS RESOURCES CORP. ANNOUNCES $100-MILLION ASSET SALE, 2015 BUDGET, SUSPENSION OF THE DIVIDEND, UPDATE ON CORPORATE STRATEGY AND REVISION OF CREDIT FACILITY
Spyglass Resources Corp. will sell for $100-million a 50-per-cent working interest in its Dixonville Montney C oil property, has released its 2015 capital budget, has suspended its dividend and intends to commence a normal course issuer bid. These initiatives allow the Company to manage through challenging market conditions and reduce leverage, while positioning the Company to develop our organic growth opportunities.
Dixonville Asset Sale
Spyglass has signed a purchase and sale agreement with a wholly owned subsidiary of Eagle Energy Trust ("Eagle") for a non-operated 50 percent working interest in the Dixonville Montney "C" oil pool for cash consideration of $100 million prior to normal closing adjustments. The sale is expected to close prior to the effective date of January 1, 2015. The proceeds will be used to reduce bank debt and will reduce annual interest expense by approximately $5 million.
Based on the McDaniel & Associates Consultants Ltd. December 31, 2013 reserve report, the property (at 100% working interest) was assigned proved developed producing reserves of 15.1 MMboe, total proved reserves of 15.4 MMboe and proved plus probable reserves of 21.1 MMboe.
To date, Spyglass has restarted approximately 2,500 bopd of production with full capability expected to be reached early in the first quarter of 2015. At year-end the Dixonville Montney "C" oil field is expected to be producing approximately 2,600 bopd. The sale represents production metrics of $80,000 per flowing barrel.
Dixonville is an elite, low decline oil producing asset under full waterflood with strong free cash flow. Retaining a 50 percent working interest in the property allows the Company to reduce debt while retaining a portion of the cash flow to fund the capital program. Spyglass will retain operatorship of the field.
Dividend
In response to lower crude oil prices and consistent with management's goal to improve financial flexibility, the Company is suspending dividend payments to conserve cash.
Normal Course Issuer Bid
Spyglass has submitted to the Toronto Stock Exchange for approval a notice of intention to make an Issuer Bid. Under the Issuer Bid, the Company will have the ability to purchase for cancellation up to a maximum of approximately 12.4 million shares of Spyglass' 128.1 million common shares. The Company intends to make the Issuer Bid because, at certain times, the purchase and cancellation of the shares may represent an appropriate use of funds and be in the best interests of the Company and its continuing shareholders.
2015 Budget
Management anticipates the capital program will total approximately $26 million, reflecting the cash flow impact of the current price environment. The 2015 capital program is focused on southern Alberta and will lay the groundwork for future organic growth in the area. Drilling is focused on offsetting locations to both Spyglass' and other industry producer's successful 2014 wells. Over the long term the development of the Company's southern Alberta properties is intended to improve netbacks and grow production. Capital activity is expected to be weighted towards the first and third quarters of 2015 and will be rigorously evaluated throughout the year in the context of commodity prices.
Spyglass is extremely encouraged by the continued success of the horizontal wells drilled in southern Alberta targeting Glauconite and Pekisko/Banff oil on the Company's lands in the Matziwin and Cessford areas. At Cessford, successful Spyglass and industry drilling in the area, combined with a proprietary 3D seismic program completed in the fourth quarter, have helped to further define the play.
A 100 percent working interest Cessford step-out well has provided a new oil pool discovery targeting the Banff formation. This step-out area has similar characteristics to Matziwin where Spyglass had success in 2014, enabling the Company to build on past accomplishments in a new area with significant running room including over 30 identified locations. The initial well, drilled in 2014 demonstrated encouraging IP30 rates of approximately 175 boe/d.
Management anticipates that the planned level of development activity coupled with the Company's 21 percent base decline rate is expected to result in 2015 average production of approximately 10,000 boe/d.
The Company will continue to pursue asset dispositions throughout 2015 to further reduce debt, fund organic growth opportunities and focus operations.
Credit Facility
The Company expects to finalize a revised borrowing base under its existing credit agreement of $200 million. This borrowing base is both cost effective and allows the Company to execute on its 2015 capital program.
Following the closing of the Dixonville transaction, bank debt is approximately $182 million and net debt is estimated at $195 million.
Strategic Path Forward
Crucial to our path forward is the generation and execution of meaningful organic growth. Once the Company has clearly demonstrated the viability and size of the internal growth opportunities and further improves financial flexibility, the Company aims to achieve a business model built on cash flow and production per share growth. The key milestones in the Company's transition include:
- Execute additional non-core dispositions to further reduce leverage, targeting a debt to cash flow ratio that is competitive with our peers
- Focus on development of organic growth opportunities with significant potential upside and strong economics
- Improve corporate netbacks by controlling costs and changing the asset mix
The sale of a 50% working interest in the Dixonville Montney "C" oil asset is consistent with the strategic path forward highlighted by asset sales, cost reductions and a dividend suspension, all executed to improve financial flexibility.
Conference Call Details
Spyglass will host a conference call scheduled for Wednesday, December 17, 2014 at 11 a.m. MT (1 p.m. ET) for interested investors, analysts, brokers and media representatives.
The conference call dial-in numbers for Canada and the U.S. are 1-888-231-8191 or 647-427-7450. A recording of the conference call will be available for replay until January 14, 2015. To access the replay, please dial either 1-855-859-2056 or 403-451-9481 and enter the password 55749675. Following the call an audio archive will be available on the website at www.spyglassresources.com under Investors, Presentation & Events.
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