CALGARY, AB, Feb. 11, 2022 /CNW/ - Cathedral Energy Services
Ltd. (TSX: CET) ("Cathedral" or the "Company") today announced the
closing of its acquisition of the operating assets of Discovery
Downhole Services ("Discovery") for a purchase price of CAD
$20.8 million (the "Transaction").
Discovery is a privately-held, U.S.-based, high-performance mud
motor technology rental business with operations in North Dakota, Texas, and Wyoming.
"Our acquisition of the Discovery assets adds valuable and
strategic operations at a time when industry fundamentals are
pointing to improving conditions. We are excited to welcome
the Discovery personnel, customers, and suppliers to the Cathedral
team," said Tom Connors, Cathedral's
President and CEO. "This acquisition also increases our US market
share and adds a high-quality customer base of oil and gas
producers and directional drilling companies active in all the
major U.S. land basins. We believe that the cash flow
generated from this Transaction could enable us to pay back our
investment in 2 – 2.5 years and significantly expands the cash flow
profile of our US business. The technology rental model is
evolving as a critical service in the directional drilling
business, particularly in the U.S. market. Our collective capacity
positions us to meet the growing demand for high-performance mud
motors and provide 'best-in-breed' motor and
measurement-while-drilling technology to a broader customer base.
Additionally, in the face of ongoing global supply chain issues, we
believe this access to critical motor technology provides the
Company a competitive advantage and the opportunity to expand this
service offering to the Canadian market."
Cathedral has retained key Discovery personnel under employment
and consulting contracts to ensure a seamless customer service
experience, successful integration and long-term alignment with
Cathedral's strategy.
Cathedral is focused on growing its operations, driving improved
efficiency, and increasing cash flow generation. This acquisition
aligns with Cathedral's goals and follows two successful
acquisitions completed in Canada
in the third quarter of last year. Cathedral remains disciplined in
its approach to acquisitions, only pursuing opportunities that
provide strategic growth in select areas, that add value on a
per-share basis and maintain a conservative balance sheet.
"Current industry conditions and valuations continue to support
acquisitions and we are actively pursuing additional accretive
opportunities in both Canada and
the U.S.," Connors said. "In addition to the attractive acquisition
market, we expect to drive increased expansion across our business
in the coming quarters through continued organic growth and
leading-edge technology deployment."
The Transaction was funded by:
- the issuance of 5,254,112 common shares of Cathedral (the
"Acquisition Shares") to Discovery;
- a non-brokered private placement of 14,659,000 common shares of
Cathedral ("Private Placement Shares") at a price of $0.44 per share for gross proceeds of
$6.4 million (the "Private
Placement"); and
- $11.7 million cash financed by a
term loan from Cathedral's existing primary bank lender ATB (the
"Term Loan") as part of the Company's amended and restated credit
agreement (the "Credit Agreement") entered into by the Company and
ATB concurrently with the closing of the Transaction.
- Cathedral will pay customary fees and expenses at prevailing
market rates to ATB as a condition of the Term Loan and the Credit
Agreement.
The Acquisition Shares and Private Placement Shares will be
subject to a four-month statutory hold period under applicable
Canadian securities laws, in addition to such other restrictions as
may apply under applicable securities laws of jurisdictions outside
of Canada. The Acquisition Shares will be subject to
contractual restrictions on resale as follows: 25% are restricted
until February 10, 2023; a further
25% of are restricted until August 10,
2023; and a further 50% are restricted until February 10, 2024, subject to certain
exceptions.
The Term Loan will be amortized over five years at a variable
interest rate consistent with the Company's existing credit
facility interest rates with required monthly payments of principal
and interest. Cathedral will be subject to a quarterly fixed
charge coverage ratio as defined in the Credit Agreement which
shall not be less than 1.25. The consolidated interest coverage
ratio will no longer be tested. The Credit Agreement also
includes the granting of a security interest over the assets
acquired in the Transaction. At closing of the Transaction,
Cathedral is in compliance with the terms and conditions of the
Term Loan and Credit Agreement.
LEGAL
The Purchase Price disclosed is based on a deemed price per
share of $0.50 for the Acquisition
Shares issued, based on the closing price of the common shares on
the Toronto Stock Exchange on February 10,
2022.
This news release does not constitute an offer to sell or a
solicitation of an offer to sell any of securities in the United States. The securities have not
been and will not be registered under the United States Securities
Act of 1933, as amended (the "U.S. Securities Act") or any state
securities laws and may not be offered or sold within the United States or to, for the account or
benefit of, U.S. Persons (as such term is defined in Regulation S
under the U.S. Securities Act) unless registered under the U.S.
Securities Act and applicable state securities laws or an exemption
from such registration is available. This news release shall not
constitute an offer to sell or the solicitation of an offer to buy,
nor shall there be any sale of these securities, in any
jurisdiction in which such offer, solicitation or sale would be
unlawful.
Insiders of the Company subscribed for 4,771,000 (32.55%) of the
Private Placement Shares, including 1,465,000 (9.99%) Private
Placement Shares by directors and executive officers of the
Company. The insider participation in the Private Placement is
deemed to be a "related party transaction" as defined under
Multilateral Instrument 61-101 - Protection of Minority Security
Holders in Special Transactions ("MI 61-101"). The Company is
relying on the exemptions from the formal valuation requirement and
the minority shareholder approval requirement under sections 5.5(a)
and 5.7(1)(a) of MI 61-101, on the basis that neither the fair
market value of the subject matter of nor the consideration for the
Private Placement, insofar as it involves the investing insiders,
exceeds 25 percent of the Company's market capitalization. The
Company did not file a material change report more than 21 days
before the closing date of the Private Placement because the
details of the insider participation were not settled until shortly
prior to closing and the Company wished to close on an expedited
basis for commercial reasons.
ABOUT CATHEDRAL
Cathedral Energy Services Ltd., based in Calgary, Alberta is incorporated under the
Business Corporations Act (Alberta) and operates in the U.S. under
Cathedral Energy Services Inc. Cathedral is publicly-traded on the
Toronto Stock Exchange under the symbol "CET". Cathedral is a
trusted partner to North American energy companies requiring high
performance directional drilling services. We work in partnership
with our customers to tailor our equipment and expertise to meet
their specific geographical and technical needs. Our experience,
technologies and responsive personnel enable our customers to
achieve higher efficiencies and lower project costs. For more
information, visit www.cathedralenergyservices.com
FORWARD-LOOKING INFORMATION
This press release contains statements and information that may
constitute "forward-looking information" within the meaning of
applicable securities legislation, including statements identified
by the use of words such as "will", "expects", "positions",
"believe", "potential" and similar words, including negatives
thereof, or other similar expressions concerning matters that are
not historical facts. Forward-looking information in this news
release includes, but is not limited to, statements regarding:
industry fundamentals pointing to improving conditions in North
American energy markets; the growing demand for high-performance
mud motors and measurement-while-drilling technology, including
potential Canadian demand, and Cathedral's ability to meet such
demand; anticipated successful integration of the Discovery assets
and personnel; and Cathedral's business plans and strategies for
growth. Such forward-looking information is based on various
assumptions that may prove to be incorrect, including, but not
limited to, assumptions with respect to: the benefits from the
Transaction; the integration of the Discovery business into
Cathedral's business; conditions in the oil and gas market; the
ability of the Company to successfully implement its strategic
plans and initiatives and whether such strategic plans and
initiatives will yield the expected benefits. Although the Company
believes that such assumptions are reasonable, the Company can give
no assurance that such forward-looking statements will prove to be
correct or that any of the events anticipated by such
forward-looking statements will occur, or if any of them do so,
what benefits the Company will derive there from. Actual results
could differ materially due to a number of factors and risks
including, but not limited to: the risk that Cathedral will not be
able to integrate the Discovery business as anticipated or at all;
the risk that the Discovery business will not yield operational or
financial benefits as anticipated or at all; the risk that demand
for Cathedral's services will not be as anticipated; conditions in
the oil and gas and financial markets in Canada and the
United States; the risk that Cathedral will not be able to
identify and/or close on additional accretive opportunities in
Canada and/or the U.S.; the
ability of management to execute and fund its business strategy;
and the impact of general economic conditions in Canada and the
United States. Additional information regarding risks and
uncertainties of the Company's business are contained under the
heading "Risk Factors" in the Company's annual information form for
the financial year ended December 31,
2020 and the Company's other public filings which are
available under the Company's profile on SEDAR at www.sedar.com.
The forward-looking information included in this news release is
made as of the date of this news release and the Company does not
undertake an obligation to publicly update such forward-looking
information to reflect new information, future events or otherwise,
except as required by applicable law.
This press release also contains financial outlook information
("FOFI") about prospective results of operations and cash flows,
which are subject to the same assumptions, risk factors,
limitations, and qualifications as set forth in the above
paragraphs. FOFI contained in this press release was made as
of the date of this press release to provide information about
management's current expectations and plans relating to the
future. Readers are cautioned that such information may not
appropriate for any other purpose. Cathedral disclaims any
intention or obligation to update or revise any FOFI contained in
this press release, whether as a result of new information, future
events or otherwise, except as required by applicable
law.
SOURCE Cathedral Energy Services Ltd.