September 13, 2024 – Prairie Provident Resources Inc. ("Prairie
Provident" or the "Company") (TSX:PPR) announces an agreement to
extend the maturity of its senior secured credit facility (the
"First Lien Loan") to March 31, 2026 and enhance its flexibility
with modified covenants. The Company also announces a $13.2 million
rights offering (the "Rights Offering") supported by participation
commitments of $12 million, comprised of $11.6 million from its
largest shareholder, PCEP Canadian Holdco, LLC ("PCEP"), and
$400,000 from directors and management, as well as complementary
amendments to its outstanding second lien notes.
Net proceeds from the Rights Offering are
expected to fund a capital program focused on drilling at least two
wells in the Basal Quartz formation before the end of 2024,
workovers to enhance the productivity of existing wells and general
corporate purposes. A portion of the net proceeds will be directed
towards settlement of a US$2.3 million advance under the Company's
second lien note facility received in May 2024, by way of a $3.13
million setoff (being the Canadian dollar equivalent of the
advance) against the subscription price payable by PCEP under the
Rights Offering.
Prairie Provident expects that these
transactions will improve financial flexibility and significantly
increase the capital available to execute its strategy to optimize
its producing assets as well as develop its land base. The Company
plans to use the forecasted cash flow from incremental production
from the initial Basal Quartz drilling program to fund additional
Basal Quartz wells in 2025 as it continues to expand its
participation in this emerging play. Prairie Provident has 167,869
net acres in its Michichi core area with approximately 40 Basal
Quartz potential drilling opportunities targeting light/medium oil.
The Company is excited by the results achieved from offsetting
industry activity.
Loan Amendments
The amendments to the First Lien Loan (the
"First Lien Amendments") include:
- extension of
the maturity date to March 31, 2026, subject to acceleration if (i)
PCEP's basic subscription commitment under the Rights Offering for
$10.0 million is not completed by September 30, 2024 or (ii) the
Company does not raise at least $12.0 million in total equity
capital (which amount includes PCEP's $10.0 million basic
subscription commitment) by October 31, 2024, with these two
requirements intended to be satisfied by the $10.0 million basic
subscription commitment of PCEP under the Rights Offering, $400,000
in aggregate subscription commitments by directors and management,
and a $1.6 million standby commitment for the Rights Offering from
PCEP, all as more particularly described below;
- deferral of a
portion of cash interest obligations on amounts owed under the
First Lien Loan, through capitalization as additional principal of
all accrued interest amounts through December 31, 2024; and
- adjustment of
financial covenants, to replace existing covenants with new
measures and thresholds that align with the Company's current
expectations for the remaining term to maturity.
Amendments have also been agreed with respect to
the Company's outstanding second lien notes (the "Second Lien
Amendments"), to extend the maturity date to September 30, 2026 and
amend the covenants for consistency with the amended covenants
under the First Lien Loan.
The First Lien Amendments and Second Lien
Amendments are subject to receipt of necessary approvals of the
TSX.
Rights Offering
Pursuant to the Rights Offering, each holder of
record of Prairie Provident common shares at the close of business
on September 24, 2024 (the "Record Date") will receive one
subscription right (a "Right") for each common share held. Each
Right will entitle the holder to subscribe for 0.739474 of a common
share, at a subscription price (the "Subscription Price") of $0.025
per whole common share (the "Basic Subscription Privilege"). Rights
are exercisable for whole common shares only, and holders will
therefore need to exercise 1.352313 Rights to purchase one
additional common share under the Basic Subscription Privilege. Up
to 529,579,000 common shares are issuable under the Rights Offering
for an aggregate Subscription Price, if fully subscribed, of
$13,239,475.
The Subscription Price per share represents a
29% discount to the 5-day volume weighted average trading price of
the common shares on the Toronto Stock Exchange (the "TSX") for the
last 5 trading days, and is consistent with TSX requirements that
securities offered in a rights offering be priced at a minimum 25%
discount to the market price.
The Rights Offering is expected to expire at
5:00 p.m. (Mountain time) (the "Expiry Time") on October 28, 2024
(the "Expiry Date"). Any Rights not exercised at or before the
Expiry Time on the Expiry Date will be void and will have no value.
The Rights are expected to be listed for trading on the Toronto
Stock Exchange ("TSX") under the trading symbol "PPR.RT",
commencing on September 24, 2024, and remain posted for trading
until 12:00 p.m. (Eastern time) on the Expiry Date.
In accordance with applicable securities
regulations, eligible holders of Rights who fully exercise their
Rights with respect to the Basic Subscription Privilege will also
be entitled to subscribe for additional common shares, at the
Subscription Price, that are not validly subscribed for under the
Basic Subscription Privilege (the "Additional Subscription
Privilege"), subject to certain limitations set out in the rights
offering notice and circular of the Company for the Rights Offering
(the "Rights Offering Documents"), including a pro rata allocation
if more additional shares are subscribed for under the Additional
Subscription Privilege than are available.
Completion of the Rights Offering is conditional
upon the satisfaction of certain conditions, including receipt of
all necessary approvals of the TSX.
Full details of the Rights Offering are
contained in the Rights Offering Documents, which will be filed on
SEDAR+ under the Company's issuer profile at www.sedarplus.ca on or
before September 16, 2024.
Immediately before the Rights Offering, the
Company has 716,155,736 common shares outstanding. Upon closing of
the Rights Offering, if all Rights are exercised in full, there
will be 1,245,734,736 common shares outstanding.
Committed Participation
The Company's largest shareholder, PCEP, has
agreed to subscribe for its pro rata share (approximately 75.5%) of
the Rights Offering, amounting to 400,000,000 common shares for an
aggregate Subscription Price of $10.0 million (partially payable by
way of a $3.13 million setoff in respect of a US$2.3 million
advance under the Company's second lien note facility received in
May 2024), and directors and management have agreed to subscribe
for an aggregate of 16,000,000 common shares under the Rights
Offering for an aggregate of Subscription Price of $400,000 (the
"D&O Commitments").
PCEP has agreed to exercise its Rights with
respect to the Basic Subscription Privilege as soon as practicable
and in any event not later than September 30, 2024
(approximately four weeks before the Expiry Date), and the Company
intends to close the subscription immediately thereafter.
Subscriptions under the D&O Commitments are required to be
submitted and funded by September 30, 2024, and will be
closed on conclusion of the Rights Offering.
In addition, PCEP has also provided a $1.6
million standby commitment for the Rights Offering, to purchase up
to 64,000,000 additional common shares, less the total number of
common shares acquired under the Rights Offering on the exercise of
Rights by holders other than PCEP and directors and management
pursuant to the D&O Commitments (the "Standby Commitment").
Fulfillment of the Standby Commitment, together
with PCEP's exercise of its Basic Subscription Privilege and the
D&O Commitments, will result in the aggregate Subscription
Price for all Common Shares being at least $12.0 million, as
required under the First Lien Amendments.
If no Rights are exercised other than by PCEP
with respect to its Basic Subscription Privilege and by directors
and management pursuant to the D&O Commitments, and the Standby
Commitment is fully performed by PCEP, then upon completion of the
Rights Offering, PCEP will hold approximately 84.0%, and directors
and management will in aggregate hold approximately 2.6%, of the
common shares outstanding on completion of the Rights Offering.
TSX Approvals and Financial Hardship
Exemption
Completion of the Rights Offering, the First
Lien Amendments and the Second Lien Amendments are subject to and
conditional upon receipt of all necessary approvals of the TSX.
Pursuant to TSX rules, the First Lien Amendments and Second Lien
Amendments, taken together, would ordinarily require approval of
the Company's disinterested shareholders under section 501(c) of
the TSX Company Manual, on the basis that: (i) the lenders under
the First Lien Loan and holders of the second lien notes are deemed
to be "insiders" of the Company for purposes of the TSX Company
Manual as being affiliates of PCEP; and (ii) the absolute quantum
of interest amounts that will be paid or capitalized, as the case
may be, over the extended term of the First Lien Loan
(approximately $9.9 million) and second lien notes (approximately
$1.6 million), plus a $1.5 million amendment fee payable in respect
of the First Lien Amendments, when aggregated with interest on the
First Lien Loan (approximately $3.7 million) and second lien notes
(approximately $0.5 million) during the prior 6-month period, is
collectively greater than 10% of the Company's current market
capitalization of approximately $25 million.
The Company has applied to the TSX pursuant to
the 'financial hardship' provisions of section 604(e) of the TSX
Company Manual for an exemption from any such shareholder approval
requirement, on the basis that the Company is, as consequence of
the looming maturity of the First Lien Loan, in serious financial
difficulty, as it does not have the capital resources to repay the
amounts owing thereunder by the current maturity date of September
20, 2024. Absent an extension, as contemplated by the First Lien
Amendments, the lenders under the First Lien Loan would thereupon
have the right to demand immediate repayment of all amounts due
under the First Lien Loan and exercise creditors' remedies against
the Company, which would threaten its ability to continue
operations and have a significant adverse effect on the Company and
its stakeholders. The Company had
explored prospects for refinancing the First Lien Loan but did not
identify any practicable alternatives that would offer improved
terms. Accordingly, an extension of the existing debt on terms that
are commercially reasonable in the circumstances, as contemplated
by the First Lien Amendments, is the favored outcome.
The Company's reliance on the 'financial
hardship' exemption also applies to the fixing of the Subscription
Price for the Rights Offering before disclosure of the First Lien
Amendments and Second Lien Amendments. The Rights Offering, First
Lien Amendments and Second Lien Amendments are inter-related
transactions and cross-conditional, each dependent on completion of
the others.
Prairie Provident expects that, as a consequence
of its 'financial hardship' exemption application, the TSX will
place the Company under a remedial delisting review, which is
normal practice when a listed issuer seeks to rely on this
exemption. Although the Company believes that it will be in
compliance with all continued listing requirements of the TSX upon
conclusion of a delisting review, no assurance can be provided as
to the outcome of that review and, therefore, on Prairie
Provident's continued qualification for listing on the TSX.
Similarly, there is no certainty that the TSX will approve the
Rights Offering, or accept the Company's application to rely on the
'financial hardship' exemption with respect to the First Lien
Amendments.
A committee of the Prairie Provident board of
directors comprised of Matthew Shyba, an independent director who
is unrelated to the lenders under First Lien Loan and free from any
interest in the First Lien Amendments, and similarly unrelated to
PCEP and the holders of the second lien notes and disinterested
with respect to the Rights Offering and Second Lien Amendments,
reviewed the transaction terms and, in the circumstances,
recommended that the Company make application to the TSX under the
'financial hardship' provisions. Upon review and consideration of
the committee recommendation, the board of directors unanimously
determined that Prairie Provident is in serious financial
difficulty, and that the First Lien Amendments, together with the
Rights Offering and Second Lien Amendments, are reasonable in the
circumstances and designed to improve the Company's financial
situation.
Insofar as the lenders under the First Lien Loan
and the holders of the Company's second lien notes are or may be
affiliates of PCEP, which is a control person of Prairie Provident
under applicable securities laws, each such lender and holder is
itself a "related party" of the Company within the meaning of
Multilateral Instrument 61-101 – Protection of Minority
Security Holders in Special Transactions ("MI 61-101") and,
accordingly, the First Lien Amendments and Second Lien Amendments
would each constitute a "related party transaction" for the Company
under MI 61-101. The amendments are, though, related party
transactions of a type that are not subject to the formal valuation
requirements of MI 61-101, and are exempt from the minority
shareholder approval requirements of MI 61-101, pursuant to
section 5.7(f) thereof, on the basis of being on reasonable
commercial terms that are not less advantageous to Prairie
Provident than if the loan or credit facility were obtained from a
person dealing at arm's length with the Company, and not involving
borrowings that are convertible, directly or indirectly, into
equity or voting securities of Prairie Provident or any of its
subsidiaries or otherwise participating in nature, or repayable as
to principal or interest, directly or indirectly, in equity or
voting securities of Prairie Provident or any of its subsidiaries.
The Company will not be filing a material change report in respect
of the First Lien Amendments and Second Lien Amendments at least 21
days before closing of the amendments, as the amendments must be
made effective before September 20, 2024, when the First Lien Loan
would otherwise have matured and been
payable. Further information required
by MI 61-101 will be set forth in the Company's material change
report to be filed on SEDAR+ under the Company's issuer profile at
www.sedarplus.ca if and as required by MI 61-101.
ABOUT PRAIRIE PROVIDENT
Prairie Provident is a Calgary-based company
engaged in the exploration and development of oil and natural gas
properties in Alberta, including a position in the emerging Basal
Quartz trend in the Michichi area of Central Alberta.
For further information, please contact:
Ryan Rawlyk, President and CEOPhone: (403)
292-8180Email: info@ppr.ca
Forward-Looking Information
Certain of the statements contained herein may
constitute "forward-looking statements" or "forward-looking
information" within the meaning of applicable securities laws
(collectively "forward-looking statements"). Words such as "may",
"will", "should", "could", "would", "intends", "expects",
"anticipates", "assumes", "increase", "reduce", "accelerate",
"growing", "condition", "completion", "vision", "project",
"future", "strategy", "proposition", "ongoing" and other similar
words and expressions may be used to identify the forward-looking
statements contained herein. These statements reflect management's
current beliefs and are based on information currently available to
management. Forward-looking statements contained herein include,
without limitation: expected gross proceeds under the Rights
Offering; intended use of proceeds from the Rights Offering;
anticipated benefits of the Rights Offering, including, but not
limited to, accelerating the Company's strategic execution,
improving financial flexibility and the Basal Quartz drilling
program; anticipated shareholder participation in the Rights
Offering; expectations with respect to the completion of the PCEP
basic subscription and completion of any standby commitment of
PCEP; expectations with respect to the completion of any basic
subscriptions from directors or management and completion of any
standby agreement entered into by directors or management;
compliance with the TSX listing requirements and the results of any
TSX delisting review; the anticipated number of Rights to be issued
under the Rights Offering and number of Common Shares that will be
outstanding following completion of the Rights Offering and
expectations with respect to the closing of the Rights Offering,
including timing thereof.
Forward-looking statements involve significant
risk and uncertainties. A number of factors could cause actual
results to differ materially from the results discussed in the
forward-looking statements including, but not limited to, the risks
associated with oil and gas exploration, development, exploitation,
production, processing, marketing and transportation, loss of
markets, volatility of commodity prices, currency fluctuations,
imprecision of resources estimates, environmental risks,
competition from other producers, incorrect assessment of the value
of acquisitions, failure to realize the anticipated benefits of
acquisitions, delays resulting from or inability to obtain required
regulatory approvals including from the TSX, and ability to access
sufficient capital from internal and external sources. These and
other risk factors are discussed in more detail under "Risk
Factors" and elsewhere in Prairie Provident's Annual Information
Form for the year ended December 31, 2023 and under "Risk Factors"
in the Circular, copies of which are available on the Company's
profile on SEDAR+ at www.sedarplus.ca. Additional risk factors
include, but are not limited to: the Rights Offering may not be
completed, or may not be completed on the terms and timeline as
currently expected, including with respect to the Standby
Commitment.
Forward-looking statements are based on a number
of factors and assumptions which have been used to develop such
forward-looking statements, but which may prove to be incorrect.
Although Prairie Provident believes that the expectations reflected
in such forward-looking statements are reasonable, undue reliance
should not be placed on forward-looking statements because Prairie
Provident can give no assurance that such expectations will prove
to be correct. In addition to other factors and assumptions which
may be identified in this document, assumptions have been made
regarding, among other things: the impact of increasing
competition; the general stability of the economic and political
environment in which Prairie Provident operates; the ability of
Prairie Provident to obtain and retain qualified staff, equipment
and services in a timely and cost efficient manner; the ability of
the operator of the projects which Prairie Provident has an
interest in to operate the field in a safe, efficient and effective
manner; the ability of Prairie Provident to obtain financing on
acceptable terms; the ability to replace and expand oil and natural
gas resources through acquisition, development and exploration; the
timing and costs of pipeline, storage and facility construction and
expansion and the ability of Prairie Provident to secure adequate
product transportation; future oil and natural gas prices;
currency, exchange and interest rates; the regulatory framework
regarding royalties, taxes and environmental matters in the
jurisdictions in which Prairie Provident operates; timing and
amount of capital expenditures; future sources of funding;
production levels; weather conditions; success of exploration and
development activities; access to gathering, processing and
pipeline systems; advancing technologies; and the ability of
Prairie Provident to successfully market its oil and natural gas
products.
Readers are cautioned that the foregoing list of
assumptions and risk factors is not exhaustive. Additional
information on these and other factors that could affect Prairie
Provident's operations and financial results are included in
reports on file with Canadian securities regulatory authorities and
may be accessed through the SEDAR+ website (www.sedarplus.ca), and
at Prairie Provident's website (www.ppr.ca).
Although the forward-looking statements
contained herein are based upon what management believes to be
reasonable assumptions, management cannot assure that actual
results will be consistent with these forward-looking statements.
Investors should not place undue reliance on forward-looking
statements. These forward-looking statements are made as of the
date hereof and Prairie Provident assumes no obligation to update
or review them to reflect new events or circumstances except as
required by applicable securities laws.
Forward-looking statements contained herein
concerning the oil and gas industry and Prairie Provident's general
expectations concerning this industry are based on estimates
prepared by management using data from publicly available industry
sources as well as from reserve reports, market research and
industry analysis and on assumptions based on data and knowledge of
this industry which Prairie Provident believes to be reasonable.
However, this data is inherently imprecise, although generally
indicative of relative market positions, market shares and
performance characteristics. While Prairie Provident is not aware
of any misstatements regarding any industry data presented herein,
the industry involves risks and uncertainties and is subject to
change based on various factors.
Neither TSX nor its Regulation Services Provider
(as that term is defined in policies of the TSX) accepts
responsibility for the adequacy or accuracy of this release.
Oil and Gas Reader Advisories
Potential Drilling Opportunities. This news
release refers to potential drilling opportunities. References in
this news release to potential drilling opportunities are
references to locations for which there are no attributed reserves
or resources, but which the Company internally estimates can be
drilled based on current land holdings, industry practice regarding
well density, and internal review of geologic, geophysical,
seismic, engineering, production and resource information. There is
no certainty that the Company will drill any particular locations,
or that drilling activity on any locations will result in
additional reserves, resources or production. Locations on which
Prairie Provident in fact drills wells will ultimately depend upon
the availability of capital, regulatory approvals, seasonal
restrictions, commodity prices, costs, actual drilling results,
additional reservoir information and other factors. There is a
higher level of risk associated with locations that are potential
drilling opportunities and not booked locations. Prairie Provident
generally has less information about reservoir characteristics
associated with locations that are potential drilling opportunities
and, accordingly, there is greater uncertainty whether wells will
ultimately be drilled in such locations and, if drilled, whether
they will result in additional reserves, resources or
production.
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