NOT FOR DISTRIBUTON TO U.S. NEWS SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
Tamarack Valley Energy Ltd. ("Tamarack" or the "Company") (TSX VENTURE:TVE) and
Sure Energy Inc. (TSX:SHR) ("Sure Energy") are pleased to announce that they
have entered into an agreement (the "Arrangement Agreement") whereby Tamarack
will acquire all of the issued and outstanding shares of Sure Energy (the
"Transaction"). Sure Energy is a public company that has built a significant,
Viking focused, land base and development well inventory in the Redwater area of
Alberta. Pursuant to the Transaction, Sure Energy shareholders shall receive
0.1050 of a Tamarack common share (a "Tamarack Share") for each Sure Energy
common share (a "Sure Energy Share") held. In aggregate, Tamarack will issue
6,360,966 Tamarack Shares to existing Sure Energy shareholders and assume net
debt, as at July 31, 2013, of $32.0 million for total consideration of $50.3
million, based on the Offering price (outlined below) and including Sure Energy
transaction costs of $2.5 million. The Transaction will be effected by way of a
plan of arrangement ("Plan of Arrangement") under the Business Corporations Act
(Alberta). The board of directors of Sure Energy have unanimously approved the
Transaction and Shareholders representing 37.9% of the issued and outstanding
Sure Energy Shares, including the management and board of directors of Sure
Energy, have entered into agreements with Tamarack pursuant to which they have
agreed to vote their shares in favour of the Transaction.
In addition to the Transaction, Tamarack is pleased to announce that it has
entered into a major farm-in and option agreement dated effective August 1, 2013
(the "Farm-In Agreement") with an industry major to earn 70% working interest in
up to 113 net sections of highly prospective Cardium lands directly offsetting
proven ongoing development projects in the greater Pembina area. With 183 gross
(128 net) Cardium locations identified on the farm-in lands, the Farm-In
Agreement increases Tamarack's Cardium inventory by approximately 350%. The
Farm-in Agreement is an efficient low cost means of managing risk and securing a
scalable multiyear economic development project which will improve the operating
cost structure through access to the Farmor's existing infrastructure and
favorable processing fees.
Concurrent with the Transaction, Sure Energy has entered into a bought deal
private placement offering of subscription receipts of Sure Energy
("Subscription Receipts") for aggregate gross proceeds of $25.0 million with a
syndicate of underwriters (the "Underwriters"), led by Dundee Capital Markets
(the "Offering"). Upon satisfaction of certain conditions, including
satisfaction or waiver of all conditions to the completion of the Plan of
Arrangement, each Subscription Receipt shall, without any further action or
payment on the part of the holder thereof and pursuant to the Plan of
Arrangement, automatically be converted into one Sure Energy Share which will
then be immediately exchanged for Tamarack Shares on the basis of 0.1050
Tamarack Shares for each Sure Energy Share held. Pursuant to the Offering
96,200,000 Subscription Receipts will be sold by the Underwriters at a price of
$0.260 per Subscription Receipt which, upon completion of the Plan of
Arrangement, will result in the issuance of 10,101,000 Tamarack Shares at an
equivalent price of $2.476 per Tamarack Share. The net proceeds of the Offering
will be used to fund 2013 and 2014 capital expenditures, post-closing of the
Transaction, and general corporate purposes.
SURE ENERGY TRANSACTION SUMMARY
Tamarack and Sure Energy shareholders will benefit from the combination of
complementary Redwater Viking acreage, Tamarack's proven operations efficiencies
and further synergies, including scalability of drill programs to help continue
to drive down Viking well capital costs. Through the doubling Tamarack's land
position in the Redwater Viking, Tamarack will hold 200 net locations which
equates to a 7.7 year drilling inventory based on its projected 12 month forward
drilling program.
Transaction Characteristics:
- Total Transaction Value(1) $50.3 million
- Production(2) 938 boe/d (47% Oil + NGLs)
- Proved Reserves(3) 2,325 Mboe
- Proved Plus Probable Reserves(3) 4,246 Mboe
- Proved Plus Probable RLI(4) 14.6 years
- Corporate Operating Netback(5) $25.55/boe
- Redwater Operating Netback(5) $58.27/boe
- Drilling Locations(6) 159 locations
Net of undeveloped land at an estimated value of $7.3 million, using $100
per acre, the associated Transaction metrics are as follows:
- Production $45,800/boe
- Proved Reserves $18.46/boe
- Proved Plus Probable Reserves $10.11/boe
- Proved Plus Probable Reserves Recycle Ratio 2.5x
1. Including net debt of $32 million as at July 31, 2013 and transaction
costs for Sure Energy of $2.5 million
2. Production based on Q2'13
3. Gross Reserves are Tamarack internal estimates prepared effective August
2013 by a member of management who is a qualified reserve evaluator in
accordance with National Instrument 51-101. Gross Reserves means the
Sure Energy's working interest reserves before the calculation of
royalties, and before the consideration of the company's royalty
interests
4. Based on production of 938 boe/d
5. Based on Q2'13 realized pricing, calculated by subtracting royalties and
operating costs from revenue
6. Based on Tamarack internal estimates
CARDIUM FARM-IN
Tamarack has entered into a Farm-In Agreement effective August 1, 2013 with an
industry major to access 177 gross sections (113 net) of Cardium lands in the
greater Pembina area. Tamarack has committed to drill a minimum of 20 net wells
(approximately 31 gross) over the term of the Farm-In Agreement, which expires
as at December 31, 2016. Tamarack will earn 70% of the Farmor's working interest
upon drilling and completion of a test well, in the section of lands in which
such well is drilled and Farmor will share in the equipping and tie-in of the
well. Tamarack has been afforded the ability to propose and drill joint wells on
earned lands while in the earning phase of the Farm-In Agreement and the Farmor
will have the right to participate or to farmout its residual interest subject
to a non-convertible gross overriding royalty. A portion of the farmout lands
(approximately 22 net sections) is subject to a right of first refusal to the
Farmor's partners.
The transaction has several key benefits to Tamarack:
-- The farm-in expands Tamarack's inventory of low risk (85% chance of
success) development opportunities by approximately 350% to 165
locations within the Cardium fairway
-- Minimizes upfront entrance costs and moves to half cycle economics
through sizeable acreage position
-- Established infrastructure access and favorable processing fee
arrangements
-- Ability to high grade acreage and initial earning locations by drilling
wells directly offsetting existing horizontal Cardium development
-- Flexibility to accelerate development drilling while continuing to
satisfy the staged earning requirements
-- As operator, Tamarack designed the timing of the capital commitments to
be able to be funded through existing cash flow
STRATEGIC RATIONALE
The Transaction and Farm-In agreement materially enhances Tamarack's position
within its existing light oil core areas establishing Tamarack as a top tier
sustainable growth company. The combination of low cost, capital efficient
Viking oil exploitation at Redwater and high impact Cardium oil development
positions Tamarack for approximately 29% growth in production in 2014 from
current pro forma production. With greater critical mass and a concentrated land
base within its proven core area, Tamarack will continue to focus on reducing
well costs and enhancing economics through a larger drilling program.
Post Transaction Highlights:
- Production(1) 3,828boe/d (56% Oil + NGLs)
- Operating Netback(1) $35.90 / boe
- Undeveloped Land 229,130 acres
- Low risk drilling inventory(2) 365 well locations
- P+P Reserves(3) 15,431 mboe
1. Production based on Q2'13, calculated by subtracting royalties and
operating costs from revenue
2. Based on Tamarack internal estimates
3. Gross Reserves are Tamarack internal estimates prepared effective August
2013 by a member of management who is a qualified reserve evaluator in
accordance with National Instrument 51-101. Gross Reserves means Sure
Energy's working interest reserves before the calculation of royalties,
and before the consideration of the company's royalty interests
PRO FORMA 2013 AND 2014 GUIDANCE
Proceeds from the Offering will allow Tamarack to increase its 2013 drilling
program and, as a result, Tamarack is please to update its corporate guidance
for 2013:
-- Average production 3,150 to 3,250 boe/d (up from previous 2,900 to 3,000
boe/d)
-- Exit production 4,200 to 4,300 boe/d (up from previous 3,100 to 3,200
boe/d)
-- Capital expenditure program increase to $53 to $55 million from $33 to
$38 million
-- Cash flow $38 million
-- Forecasted year-end debt to estimated Q4/13 annualized cash flow of 1.7
times
In conjunction with the Transaction and the Cardium Farm-In Agreement,
Tamarack's Board of Directors have approved a $62 to $65 million capital budget
for 2014, designed to focus on Cardium horizontal development and Viking oil
development. The Company expects to drill approximately 8.4 net Cardium 1-mile
horizontals and 26.0 net Viking oil wells. The capital program will be fully
funded with forecasted cash flow from operations and pro forma working capital
available at closing. The Company expects to have available credit facilities of
approximately $100 million on a pro forma basis, post-closing the Transaction.
The 2014 capital program is based on an average WTI price of $90/bbl Canadian
with a $9 Edmonton Par / WTI differential and an average AECO price of $3.25/GJ.
The current guidance will allow Tamarack to grow on an absolute and per share
basis, highlights include:
-- 2014 estimate average production rate of 4,950 to 5,050 boe/d (60%
liquids)
-- 2014 estimate exit production rate of between 5,300 to 5,400 boe/d (60%
liquids)
-- Anticipated cash flow of $51 to $52 million, based on the above
commodity price assumptions
-- Estimated 2014 year end debt to annualized Q4/14 cash flow from
operation of 1.6 times
PLAN OF ARRANGEMENT
Pursuant to the Arrangement Agreement, Tamarack and Sure Energy have agreed that
the Transaction will be conducted by way of a plan of arrangement under the
Business Corporations Act (Alberta). Tamarack will issue a total of 16,461,966
Tamarack Shares and assume Sure Energy net debt, as at July 31, 2013, of $32.0
million, in exchange for all of the issued and outstanding shares of Sure Energy
as well as the Sure Energy Shares issued pursuant to the Offering, subject to
the terms and conditions of the Arrangement Agreement. All dilutive instruments
of Sure Energy will vest and be exercised, surrendered or terminated; dilutive
instruments carry a range of exercise prices from $0.39 and $1.80.
Under the terms of the Arrangement Agreement, Sure Energy has agreed that it
will not solicit or initiate any inquiries or discussions regarding any other
business combination or sale of assets, subject to the fiduciary duty of the
Sure Energy board of directors in the event that an unsolicited superior
proposal is received by Sure Energy. Sure Energy has granted Tamarack a five
business day right to match any superior proposal. Both Tamarack and Sure Energy
have agreed to pay a non-completion fee of $2.0 million to the other in certain
circumstances as set forth in the Arrangement Agreement.
The board of directors of Sure Energy have unanimously approved the Transaction
and recommend that shareholders of Sure Energy vote their shares in favour of
the Transaction. Shareholders representing 37.9% of the issued and outstanding
Sure Energy Shares, including the management and board of directors of Sure
Energy, have entered into agreements with Tamarack pursuant to which they have
agreed to vote their shares in favour of the Transaction.
The Transaction is subject to the approval of the Alberta Court of Queen's bench
under the Business Corporations Act (Alberta), the receipt of all necessary
regulatory and stock exchange approvals, the requisite approval of the
shareholders of Sure Energy, completion of the Offering and satisfaction of
certain other closing conditions that are customary for a transaction of this
nature. It is anticipated that a Sure Energy shareholder meeting will be held in
early to mid-October following the mailing of an information circular regarding
the Transaction in early to mid-September to shareholders of Sure Energy.
Closing of the Transaction is expected to occur in mid-October.
FINANCING
In connection with the Transaction, Sure Energy has entered into an agreement,
on a bought deal private placement basis, with a syndicate of Underwriters led
by Dundee Capital Markets, and including GMP Securities L.P.., National Bank
Financial Inc., AltaCorp Capital Inc., Paradigm Capital Inc., Peters & Co.
Limited, RBC Capital Markets and Acumen Capital Finance Partners Limited,
whereby the Underwriters have agreed to purchase for resale 96,200,000
Subscription Receipts at a price of $0.260 per Subscription Receipt for gross
proceeds of $25 million. The net proceeds of the Offering will be used to fund
2013 and 2014 capital expenditures and general corporate purposes.
The gross proceeds from the sale of the Subscription Receipts will be held in
escrow and will be released from escrow if certain conditions are satisfied by
October 18, 2013, including satisfaction or waiver of all conditions to the
completion of the Plan of Arrangement. The Subscription Receipts will be subject
to a four month hold period, however, upon release of the escrowed funds and
pursuant to the Plan of Arrangement, each Subscription Receipt will be converted
into one Sure Energy Share which will then be immediately exchanged for Tamarack
Shares on the basis of 0.1050 Tamarack Shares for each Sure Energy Share held.
Therefore, upon completion of the Plan of Arrangement, Tamarack Shares issued to
holders of Subscription Receipts will be generally freely tradeable.
Closing of the Offering is expected to occur on or about September 15, 2013 and
is subject to customary conditions and regulatory approvals. Completion of the
Plan of Arrangement is expected to occur on or about October 9, 2013, at which
time it is anticipated that Subscription Receipts will be converted to Sure
Energy Shares and subsequently exchanged for 10,101,000 Tamarack Shares pursuant
to the Plan of Arrangement at an equivalent price of $2.476 per Tamarack Share.
If the Transaction is not completed on or before October 18, 2013, or the
Arrangement Agreement is terminated at an earlier time, then the purchase price
for the Subscription Receipts shall be returned to subscribers, together with a
pro rata portion of the interest accrued thereon, if any.
FINANCIAL ADVISORS
Dundee Capital Markets is acting as exclusive financial advisor to Tamarack and
GMP Securities L.P. is acting as financial advisor to Sure Energy with respect
to the Transaction. GMP Securities L.P. has provided the Board of Directors of
Sure Energy with its verbal opinion that, as at the date hereof, and subject to
review of final documentation, that the consideration to be received by Sure
Energy pursuant to the terms of the Arrangement Agreement is fair, from a
financial point of view, to Sure Energy shareholders.
About Tamarack Valley Energy Ltd.
Tamarack is an oil and gas company involved in the identification, evaluation
and operation of resource plays in the Western Canadian sedimentary basin. The
Company uses a rigorous, proven modeling process to carefully manage risk and
identify growth opportunities. Tamarack's diversified suite of oil-focused
assets provides exposure to the high impact Cardium light oil resource plays in
Lochend, Garrington/Harmattan and Buck Lake in Alberta, low cost Viking light
oil resource plays in Redwater, Foley Lake and Westlock in Alberta and highly
economic heavy oil opportunities southeast of Lloydminster in Saskatchewan.
Unit Cost Calculation and Other Terminology
For the purpose of calculating unit costs, natural gas volumes have been
converted to a barrel of oil equivalent ("boe") using six thousand cubic feet
equal to one barrel unless otherwise stated. A boe conversion ratio of 6:1 is
based upon an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead. This
conversion conforms with Canadian Securities Regulators National Instrument
51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Boe's
may be misleading, particularly if used in isolation. Finding and Development
costs and netbacks have been calculated in the required manner under NI 51-101.
The aggregate of the exploration and development costs incurred in the most
recent financial year and the change during that year in estimated future
development costs generally will not reflect total finding and development costs
related to reserves additions for that year.
Forward-Looking Information
This press release contains certain forward-looking information (collectively
referred to herein as "forward-looking statements") within the meaning of
applicable Canadian securities laws. Forward-looking statements are often, but
not always, identified by the use of words such as "anticipate", "believe",
"plan", "potential", "intend", "objective", "continuous", "ongoing",
"encouraging", "estimate", "expect", "may", "will", "project", "should", or
similar words suggesting future outcomes. More particularly, this press release
contains statements concerning management's assessment of future plans and
operations, timing of matters related to the approval of the Plan of Arrangement
and implementation thereof, the Offering and implementation thereof and the
Farm-In Agreement. The forward-looking statements contained in this document are
based on certain key expectations and assumptions made by Tamarack relating to
timing of matters related to the approval of the Plan of Arrangement and
implementation thereof, the Offering, implementation thereof and the Farm-In
Agreement and operational plans. Although management considers these assumptions
to be reasonable based on information currently available to it, undue reliance
should not be placed on the forward-looking statements because Tamarack can give
no assurances that they may prove to be correct. By their very nature,
forward-looking statements are subject to certain risks and uncertainties (both
general and specific) that could cause actual events or outcomes to differ
materially from those anticipated or implied by such forward-looking statements.
These risks and uncertainties include, but are not limited to: risks associated
with the oil and gas industry (e.g. operational risks in development,
exploration and production; delays or changes in plans with respect to
exploration or development projects or capital expenditures); commodity prices;
the uncertainty of estimates and projections relating to production, cash
generation, costs and expenses; health, safety, litigation and environmental
risks; and access to capital. Due to the nature of the oil and natural gas
industry, drilling plans and operational activities may be delayed or modified
to react to market conditions, results of past operations, regulatory approvals
or availability of services causing results to be delayed and early results on
particular wells are not necessarily indicative of longer term results or that
wells will ultimately perform on the type curves assumed. Please refer to
Tamarack's revised Annual Information Form ("AIF") dated March 27, 2013 for
additional risk factors relating to Tamarack. The AIF is available for viewing
under the Company's profile on www.sedar.com.
There are risks also inherent in the nature of the proposed Plan of Arrangement,
including failure to realize anticipated production increases and anticipated
cost savings and other synergies; risks regarding the integration of Tamarack
and Sure Energy; incorrect assessment of the value of Tamarack and/or Sure
Energy; and failure to obtain the required shareholder, court, regulatory and
other third party approvals. This press release also contains forward-looking
information concerning the anticipated completion of the Plan of Arrangement and
the anticipated timing thereof. Tamarack and Sure Energy have provided these
anticipated times in reliance on certain assumptions that it believes are
reasonable, including assumptions as to the time required to prepare Sure Energy
meeting materials for mailing, the timing of receipt of the necessary regulatory
and court approvals and the satisfaction of and time necessary to satisfy the
conditions to the closing of the Plan of Arrangement. These dates may change for
a number of reasons, including unforeseen delays in preparing meeting materials,
inability to secure necessary regulatory or court approvals in the time assumed
or the need for additional time to satisfy the conditions to the completion of
the Plan of Arrangement. In addition, there are no assurances the Plan of
Arrangement will be completed. As a consequence, actual results may differ
materially from those anticipated in the forward-looking statements and readers
should not place undue reliance on the forward-looking information contained in
this press release.
Forward-looking statements in this news release include statements regarding the
timing and completion of the Offering and the conversion of the Subscription
Receipts into common shares of Sure Energy and subsequently be exchanged for
common shares of Tamarack. The completion and timing of the Offering, is based
on a number of assumptions, including, that all approvals for the Offering will
be received and no material adverse change will occur in Sure Energy 's
operations nor will there be any of the events that would trigger termination
rights under the agreement with the underwriters.
Forward-looking statements in this news release include statements regarding the
timing and completion of the Farm-In Agreement. The completion and timing of the
Farm-In Agreement, is based on a number of assumptions, including, that all
approvals, if necessary, for the Farm-In Agreement will be received and no
material adverse change will occur in the major company's operations nor will
there be any of the events that would trigger termination rights under the
proposed agreement.
The forward-looking statements contained in this press release are made as of
the date hereof and the Company does not undertake any obligation to update
publicly or to revise any of the included forward-looking statements, except as
required by applicable law. The forward-looking statements contained herein are
expressly qualified by this cautionary statement.
This press release shall not constitute an offer to sell or the solicitation of
an offer to buy securities in the United States, nor shall there be any sale of
the securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful. The Sure Energy Subscription Receipts, Sure Energy Shares and
Tamarack Shares to be offered have not been, and will not be, registered under
the U.S. Securities Act of 1933, as amended and may not be offered or sold in
the United States absent registration or an applicable exemption from the
registration requirements.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term
is defined in the policies of the TSX Venture Exchange) accepts responsibility
for the adequacy or accuracy of this release.
FOR FURTHER INFORMATION PLEASE CONTACT:
Tamarack Valley Energy Ltd.
Brian Schmidt
President & CEO
(403) 263-4440
Tamarack Valley Energy Ltd.
Ron Hozjan
VP Finance & CFO
(403) 263-4440
Tamarack Valley Energy Ltd.
Bow Valley Square 4
3100, 250 - 6th Avenue SW, Calgary, AB T2P 3H7
(403) 263-4440
(403) 263-5551 (FAX)
Sure Energy Inc.
Jeff Boyce
CEO & Director
(403) 410-3100
Sure Energy Inc.
Chris Baker
President
(403) 410-3100
Sure Energy Inc.
Lance Wirth
CFO
(403) 410-3100
Sure Energy Inc.
1100, 606 - 4th Avenue SW
Calgary, AB T2P 1T1
(403) 410-3100
(403) 410-3111 (FAX)