Blackbird Energy to acquire Pennant for shares
2014-02-18 12:29 ET - News Release
See News Release (C-BBI) Blackbird Energy Inc
Mr. Garth Braun of Blackbird reports
BLACKBIRD ENERGY AND PENNANT ENERGY ANNOUNCE ARRANGEMENT AGREEMENT AND PROPOSED BUSINESS COMBINATION
Blackbird Energy Inc. and Pennant Energy Inc. have entered into an arrangement agreement dated Feb. 17, 2014, whereby Blackbird will acquire all of the outstanding shares of Pennant from the shareholders of Pennant in exchange for shares of Blackbird on the basis of one Pennant share for 0.42857 corresponding share of Blackbird. The transaction is structured as a plan of arrangement pursuant to the Business Corporations Act (British Columbia), and is expected to result in Pennant becoming a wholly owned subsidiary of Blackbird and Blackbird continuing to trade on the TSX Venture Exchange under the trading symbol BBI. The consolidated entity is expected to carry on business as an oil- and liquids-focused emerging producer.
The transaction is intended to provide Pennant shareholders with the synergies and increased value of combining the Bigstone Montney and Mantario interests, and the opportunity to participate in a growth-oriented emerging oil and liquids producer. In addition, the transaction is intended to advance Blackbird's stated business plan of growth through acquisitions, with a management team that has had success growing and selling emerging producers. Upon closing of the transaction, Blackbird is expected to have assets in both Alberta and Saskatchewan, which management believes will provide opportunities for drilling and leveraging capital efficiencies including, on a consolidated basis, a 50-per-cent working interest in the Bigstone Montney project in Alberta, a 100-per-cent interest in the Mantario project in the Mantario area of west-central Saskatchewan, a 100-per-cent interest in 21 sections in greater Karr, Alta., and over 33 sections at Flaxcombe and Alsask, Sask. Completion of the transaction is also expected to add approximately 60 barrels of oil equivalent per day of liquids-rich gas and oil production for Blackbird. Blackbird intends to continue to grow through appropriate acquisitions that are accretive on a per share basis.
Following the closing, Blackbird will continue to be led by its existing management team and board of directors. The Blackbird management team is led by Garth Braun as president and chief executive officer, Darrell Denney as chief operating officer, Ron Schmitz as chief financial officer, Joshua Mann as vice-president, business development, and Ralph Allen as vice-president, exploration.
Transaction summary
Pursuant to the arrangement agreement, Blackbird has agreed to acquire all of the issued and outstanding shares of Pennant from the Pennant shareholders in exchange for corresponding shares of Blackbird in accordance with the exchange ratio of 0.42857 common share of Blackbird for each common share of Pennant. In other words, Pennant shareholders will receive three Blackbird shares for every seven Pennant shares. The outstanding stock options, warrants and convertible debentures of Pennant will be adjusted, all according to their respective terms.
"This high-quality acquisition will be a stepping stone as Blackbird begins the transition into a junior producer. We believe that the assets of the combined company will garner increased attention and will allow it to begin to unlock hidden value," said Garth Braun, president and chief executive officer of Blackbird.
The closing is subject to a number of conditions, including the receipt of requisite shareholder, court and regulatory approvals, and satisfaction of certain other closing conditions that are customary for a transaction of this nature. The arrangement will need to be approved by not less than 66-2/3 per cent of the votes cast by Pennant shareholders, voting in person or by proxy, at a special meeting expected to be held on or about April 4, 2014. Registered shareholders of Pennant may exercise rights of dissent in connection with the transaction in accordance with the arrangement agreement and sections 237 to 247 of the act. It is a condition to closing that dissent rights shall not have been exercised with respect to more than 5 per cent of the issued and outstanding Pennant shares. The arrangement also requires the approval of the Supreme Court of British Columbia and the TSX Venture Exchange.
Upon closing, the former shareholders of Pennant are expected to hold approximately 15.66 per cent of the issued and outstanding common shares of Blackbird on an undiluted basis, and approximately 14.65 per cent of the issued and outstanding common shares of Blackbird on a fully diluted basis assuming all of the outstanding Pennant stock options, warrants and convertible debentures are exercised for corresponding securities of Blackbird, and that all of the outstanding stock options and warrants of Blackbird are also exercised.
Under the terms of the arrangement agreement, Pennant has agreed that it will not solicit or initiate any inquiries or discussions regarding any other business combination or sale of assets. Pennant has granted Blackbird the right to match any superior proposals. The arrangement agreement also provides for a reciprocal non-completion fee of $250,000. For more information on the arrangement and the arrangement agreement, please refer to the full text of the arrangement agreement, a copy of which will be filed by each of Blackbird and Pennant on SEDAR and will be available for viewing under their respective profiles on SEDAR.
The Pennant board has unanimously approved the arrangement agreement and, based on a number of factors, determined that the arrangement is in the best interests of Pennant, and unanimously resolved to recommend that Pennant shareholders vote in favour of the arrangement.
The Blackbird board of directors has also unanimously approved the arrangement agreement and, based on a number of factors, determined that the arrangement is in the best interests of Blackbird.
The mailing of an information circular to the Pennant shareholders regarding the Pennant meeting is expected to occur in mid-March, 2014, and the Pennant meeting is expected to occur on or about April 4, 2014. The closing is expected to occur within 10 days after the Pennant meeting, provided that all shareholder, court and regulatory approvals are obtained and that all other conditions to closing have been satisfied.
Transaction metrics
Pursuant to the transaction, Blackbird will acquire non-operated oil and liquid-rich gas assets located in northwest and central Alberta, which management of Blackbird believes are of merit. The transaction has the following characteristics.
Total transaction price (including net debt)(1): $2.64-million
Production: 60 boe/d
Proved plus probable reserves (2): 805 million barrels of oil equivalent
Assumed net debt: $513,497
Notes
(1) Assuming that 68,259,456 Pennant shares will be acquired at a deemed price of three cents per Pennant share and that net Pennant debt of $513,497 will be assumed by Blackbird, and inclusive of estimated transaction costs of $75,000.
(2) Company gross reserves being Pennant's working interest share before deduction of royalties and without including any royalty interests of Pennant. The proved reserves are 151 million boe and the probable reserves are 653 million boe. Based on the independent reserve report dated effective June 30, 2013, prepared by GLJ Petroleum Consultants in accordance with NI 51-101 and the COGE handbook.
The transaction is accretive to Blackbird on a per share basis on all key metrics. Using the three-cent implied price per pennant share, the transaction metrics are as follows (net of undeveloped land value).
Production: $42,436 per boe/d Proved plus probable reserves: $3.16 per barrel
Strategic rationale for the transaction
The transaction is intended to advance Blackbird's business plan of growth through carefully targeted acquisitions, and to provide Pennant shareholders with the synergies of and increased value of combining the Bigstone Montney and Mantario interests, and an opportunity to participate in a growth oriented emerging producer with a management team that has had success growing and selling emerging producers.
Management and the board of directors of each of Blackbird and Pennant believe that the transaction will provide significant benefits to both sets of shareholders and will have the following key characteristics:
- The pro forma company will be geared to increase production through further acquisitions and drilling opportunities;
- Pennant's assets are complementary to Blackbird's existing portfolio -- the pro forma company will control a 100-per-cent working interest at Mantario and 50 per cent at Bigstone;
- Blackbird believes that there is significant unrealized value in the assets of the pro forma company;
- The pro forma company is expected to benefit from an experienced board of directors and technically focused management team with a proven record of value creation in both public and private companies;
- The combined company will have significantly more cash flow per share and production per share than each of Blackbird and Pennant alone;
- The integration of the operations of Blackbird and Pennant is intended to allow the combined company to realize improvements in operating costs and corporate overhead costs, which are expected to result in improved netbacks and cash flow.
Key attributes of pro forma Blackbird
Management and the board of directors of each of Blackbird and Pennant believe that the pro forma Blackbird will have the following key attributes following completion of the transaction:
- A high-quality, west-central Saskatchewan and northwest-Alberta-focused asset base with strong netbacks and lower decline rates, providing the pro forma company with a sturdy platform of predictable cash flow as it makes its transition to a junior producer;
- High working interest properties which management believes have unrealized value;
- Over 25 net sections of Montney land with current production of greater than 60 boe/d;
- Current corporate production of over 160 boe/d;
- Low decline assets;
- Low general and administrative expenses allowing for funds to be deployed into value drivers such as drilling and accretive acquisitions;
- 1.683 million boe of proved plus probable reserves with significant upside.(1)
Notes
(1) Company gross reserves being the pro forma company's working interest share before deduction of royalties and without including any royalty interests of Pennant. Based on the report, in accordance with NI 51-101 and the COGE handbook.