newsFind Energy to sell southeast Saskatchewan properties
Find Energy Ltd (TSX:FE)
Shares Issued 33,542,110
Last Close 5/31/2005 $4.09
Tuesday May 31 2005 - News Release
Mr. William Davis reports
FIND ENERGY TO DIVEST OF SOUTHEAST SASKATCHEWAN PROPERTIES, CONFIRMS $50 MILLION CREDIT FACILITY AND ANNOUNCES NORMAL COURSE ISSUER BID
Find Energy Ltd. has entered into an agreement to sell all of its properties in southeast Saskatchewan, effective June 1, 2005. The $28.5-million transaction is expected to close prior to June 30, 2005, subject to standard conditions and obtaining regulatory and other approvals required by law.
The company has also entered into a revolving operating loan facility of $50-million, providing for borrowing at its banker's prime rate of interest. The borrowing base under the credit facility takes into account the sale of southeast Saskatchewan properties.
Find has received approval from the Toronto Stock Exchange to purchase shares in the company under the conditions of a normal course issuer bid. The normal course issuer bid will allow Find to purchase and cancel up to 2,422,346 common shares in the company through the facilities of the TSX over the next 12 months.
Highlights:
* Production from the southeast Saskatchewan properties to be divested currently averages 580 barrels of oil equivalent per day, or approximately 16 per cent of Find's production of 3,700 barrels of oil equivalent per day.
* The sale generates a value equal to 21 per cent of Find's market capitalization, based on the May 31, 2005, closing price of $4.09 per share.
* The sale price of $28.5-million amounts to approximately $49,150 per daily flowing barrel of oil equivalent, $21.83 per barrels of oil equivalent of proved producing reserves and $11.40 per barrels of oil equivalent of proved-plus-probable reserves.
* The divestiture will reduce the company's estimated average unit operating cost by 70 cents per barrels of oil equivalent or 8 per cent.
* The divestiture will provide funds to conduct Find's $60-million 2005 capital program. The program includes the planned drilling of 60 (39.9 net) wells and is primarily directed toward the Pembina area of Alberta.
* After the sale, Find will have no bank debt.
* Find has secured a $50-million revolving operating loan facility at its banker's prime rate of interest.
* The normal course issuer bid allows Find to purchase up to 2,422,346 common shares on the TSX over the next 12 months and cancel them. If all such common shares were purchased Find's issued and outstanding shares would be reduced by 7.2 per cent, increasing performance-per-share metrics.
Southeast Saskatchewan property divestiture
In September, 2004, the company sold certain smaller properties in southeast Saskatchewan for $3-million, which together with the proposed sale, will result in total proceeds from dispositions in this area of $31.5-million.
The company currently produces 580 barrels of oil equivalent per day from the properties to be sold, resulting in a price of approximately $49,150 per daily flowing barrel of oil equivalent.
The properties have estimated proved producing reserves of 1,305,000 barrels of oil equivalent, resulting in a sales price of $21.83 per barrel of oil equivalent proved producing. Proved undeveloped and proved non-producing reserves are estimated at 560,000 barrels of oil equivalent yielding a price of $15.28 per barrel of oil equivalent proved. Proved-plus-probable reserves are estimated at 2,501,000 barrels of oil equivalent, resulting in a sales price of $11.40 per barrel of oil equivalent proved plus probable.
Thirty-three per cent of the proved-plus-probable reserves, 531,000 barrels of oil equivalent of proved and 305,000 barrels of oil equivalent of probable, are attributable to wells yet to be drilled. These reserves require further capital to be brought on stream and would not provide further net reserve additions.
In addition, the sale is expected to improve Find's average unit operating cost, which was $8.63 per barrel of oil equivalent in the first three months of 2005. Operating costs on the divested properties averaged more than $10 per barrel of oil equivalent.
Find operates only 47 per cent of the southeast Saskatchewan assets and holds an average working interest of 38 per cent. The divestiture will ease the company's administrative burden, allowing more effort to be directed to its growth in natural gas and light oil production in the Pembina area of Alberta, where it operates all its lands and holds an average working interest of approximately 65 per cent.
At Pembina, Find has drilled 18 (11.7 net) wells, accessing a total of seven productive zones. Twelve (7.7 net) of these wells currently account for approximately 1,250 barrels of oil equivalent in daily production, consisting of 5.1 million cubic feet per day of natural gas and 400 barrels per day of oil and natural gas liquids. Find plans to drill 39 (25.9 net) additional wells before the end of 2005 and to construct a 30-million-cubic-foot-per-day gas plant to come on stream in spring 2006.
Credit facility
Effective May 27, 2005, Find has entered into an agreement with ATB Financial to increase its borrowing capacity to $50-million. Prior to this, Find operated with a $30-million revolving credit facility.
Find's new credit facility will allow it to borrow on a demand loan basis at its banker's prime rate of interest. The borrowing base under the credit facility takes into account the divestiture of the southeast Saskatchewan properties. Following the sale of the southeast Saskatchewan properties, Find's loan balance under the credit facility is anticipated to be nil.
The $50-million revolving operating loan facility will provide funds for general corporate purposes including the purchase of land, drilling and completion of wells, and pipeline tie-ins and well-site facilities. This includes construction of the planned gas plant at Pembina, or to support the acquisition of additional properties or other entities.
Normal course issuer bid
The TSX has accepted Find's notice to make a normal course issuer bid to purchase from time to time, as it considers advisable, up to 2,422,346 of its 33,608,776 currently issued and outstanding common shares (being no greater than 10 per cent of the public float) on the open market through the TSX's facilities. The price that Find will pay for any shares purchased by it will be the prevailing market price of such shares on the TSX at the time of such purchase. Common shares acquired under the normal course bid will be cancelled.
The normal course bid will commence on June 2, 2005, and will terminate on June 1, 2006, or such earlier time as the normal course bid is completed or terminated at the option of Find.
Find believes that the acquisition of its common shares represents an appropriate use of funds. The purchase of common shares will increase the proportionate interest of, and be advantageous to, all remaining shareholders. In addition, the purchases by Find may increase liquidity to Find's shareholders wishing to sell their common shares.
Summary
Find's divestiture of its southeast Saskatchewan properties, together with the new $50-million credit facility, will provide the company with sufficient funds to complete its $60-million 2005 capital program, as well as financial flexibility to pursue new projects or potential strategic acquisitions. The increased financial strength will also assist Find in the conduct of its normal course bid.
Cash flow from operations and cash flow netbacks are not recognized measures under generally accepted accounting principles (GAAP). Management believes that in addition to net income, cash flow from operations and cash flow netbacks are useful supplemental measures as they demonstrate Find's ability to generate the cash necessary to repay debt or finance future growth through capital investment. Investors are cautioned, however, that these measures should not be construed as an alternative to net income determined in accordance with GAAP as an indication of Find's performance. Find's method of calculating these measures may differ from other that of companies, and accordingly, they may not be comparable with measures used by other companies. For these purposes, Find defines cash flow from operations as cash provided by operations before changes in non-cash operating working capital and defines cash flow netbacks as revenue less royalties and operating expenses.
Find has adopted the standard of 6,000 cubic feet of natural gas being equivalent to one barrel of oil when converting natural gas to barrels of oil equivalent. This practice may be misleading, particularly if used in isolation. A 6:1 conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the wellhead.
© 2005 Canj