Yoho Resources Announces Strategic Transaction to Create A Well Capitalized Duvernay Focused Company
January 23 2014 - 7:46AM
Marketwired Canada
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Yoho Resources Inc. ("Yoho" or the "Company") (TSX VENTURE:YO) announces that it
has entered into an asset purchase and sale agreement (the "Agreement") for the
divestiture (the "Transaction") of its Montney acreage in the Nig area of
Northeast British Columbia (the "Nig Assets") to Storm Resources Ltd. (the
"Purchaser") for total consideration of approximately $87.7 million.
Pursuant to the terms of the Agreement, Storm has agreed to acquire the Nig
Assets for total consideration of approximately $87.7 million, subject to
customary adjustments, comprised of 13,629,442 common shares in the capital of
Storm (the "Storm Shares") with a deemed value at $4.23, the closing price for
Storm's common shares on the TSX Venture Exchange on January 22, 2014 and $30
million in cash (the "Cash Consideration"). Closing of the Transaction is
anticipated to occur on or about January 31, 2014 and is subject to customary
conditions for an asset divestiture of this nature.
Yoho anticipates that it will distribute the Storm Shares to the shareholders of
Yoho pursuant to a plan of arrangement to be carried out in accordance with the
provisions of the Business Corporations Act (Alberta) (the "Arrangement")
whereby Yoho shareholders are expected to receive an entitlement of
approximately 0.27011 of a Storm Share for every one currently outstanding Yoho
basic share. Yoho expects that the Cash Consideration, net of closing
adjustments, will be utilized to eliminate Yoho's current bank indebtedness and
to funding further exploration and development drilling activities on Yoho's
Duvernay acreage in the Kaybob area of west central Alberta and at Inga, British
Columbia. It is anticipated that approval of the Arrangement by Yoho's
shareholders will be sought in March 2014 at Yoho's annual and special meeting
of shareholders. Further details on the proposed Arrangement will be announced
at a later date.
Strategic Rationale
The Transaction will provide Yoho with further flexibility to fund its planned
exploration and development activities on its Duvernay acreage where Yoho and
other industry participants have experienced highly successful drilling results
to date. Yoho will also be allocating increased capital to the Inga area of
British Columbia.
Further, by receiving Storm Shares through the Arrangement, Yoho shareholders
will continue to participate in the growth potential and future value creation
of the Nig (referred to by Storm as Umbach) play. Yoho shareholders will have a
broader exposure to the play through their ownership in Storm, given Storm's
significant position at Nig and their ability to deliver multi-year growth in
production and reserves. Storm is a natural gas and oil resource play focused
company listed on the TSX Venture Exchange with operations in Umbach (Nig) and
Horn River Basin areas of north eastern British Columbia, and in the Grande
Prairie area of north western Alberta. Storm currently owns approximately 79,000
net acres of Montney rights in the Nig area of British Columbia, which acreage
is contiguous to the Yoho Nig Assets.
FirstEnergy Capital Corp. acted as financial advisor to Yoho with respect to the
Transaction.
Yoho Post Transaction
Although the Transaction will result in a short-term reduction in Yoho's
production volumes, production levels are expected to be restored to original
budget levels by Q1 fiscal 2015 through the reallocation of capital (from Yoho's
original capital plan) to the Kaybob Duvernay and Inga properties. Budgeted
production volumes are expected to reach 3,200 - 3,300 boe per day by the end of
calendar 2014. Average production for fiscal 2014 is expected to be lower at
2,100 - 2,200 boe per day versus the original budget of 2,700 - 2,800 boe per
day. Cash flow for fiscal 2014 is now estimated at $16.5 - $17.0 million, down
from the pre-Transaction budgeted cash flow of $18.0 - $19.0 million. In the
updated fiscal 2014 budget, the Company is expecting increased average netbacks
on a per boe basis as incremental production for fiscal 2014 is expected to
include an increased amount of natural gas liquids. Fiscal Q4 2014 (July to
September 2014) cash flow is estimated at approximately $6.0 million, as
compared to the original budget Q4 2014 cash flow of $6.0 million. Post closing
of the Transaction, at the end of fiscal 2014 (September 30, 2014), Yoho expects
its bank debt to be dramatically lower, at approximately $28.0 million (1.2
times Q4 annualized cash flow) from the original budgeted debt of $41.0 - $43.0
million (2.2 times originally budget Q4 annualized cash flow).
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Updated Fiscal 2014 Original Fiscal 2014
Budget Budget
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Capital Expenditures $40.0 - $42.0 Million $31.0 - $32.0 Million
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Netback per Boe $26.00 $24.00
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Average Fiscal 2014 Production 2,100 - 2,200 Boe per 2,750 - 2,800 Boe per
day day
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Cash Flow Fiscal 2014 $16.5 - $17.0 Million $18.0 - $19.0 Million
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Ending Estimate Bank Debt $28.0 million $41.0 - $43.0 million
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The Company's lender is currently conducting a borrowing base review
post-Transaction. No amounts are expected to be drawn on the credit facility
immediately following closing, leaving the revised full amount available to be
drawn by Yoho going forward.
Key attributes of the Nig Assets
The Nig Assets which are the subject of the Transaction have the following key
attributes:
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Average Daily Production (three months ended September 30, 2013):
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Oil and Liquids (bbls per day) 67
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Natural Gas (Mmcf per day) 1,750
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Total (boe per day) 360
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Oil and Liquids % 19
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Reserves(1)
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Proved (Mboe) 2,698
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Proved and Probable (Mboe) 27,163
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Reserve Values(2)(3)
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Proved ($MM) 19,022
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Proved and Probable ($MM) 146,453
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Future Development Capital Proved ($MM Undiscounted) (1) 19,431
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Future Development Capital Proved and Probable ($MM Undiscounted)
(1) 202,409
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Gross / Net Land (acres) 20,445
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Notes:
(1) Based on the Company's independent reserve evaluation prepared by
GLJ Petroleum Consultants Ltd. ("GLJ") dated November 15, 2013 and
effective September 30, 2013 (the "GLJ Report").
(2) Reserve values are the before tax present values of cash flow at a
10% discount rate as per the GLJ Report and do not necessarily
represent fair market value.
(3) As at September 30, 2013.
Operations and Revised Fiscal 2014 Budget
Yoho's updated plans for fiscal 2014 at Kaybob include the drilling of 4 (1.5
net) wells at Kaybob and to complete installation of a compressor on the Tony
Creek block. In addition, 2 (2.0 net) wells are planned to be drilled in at
Inga, British Columbia during fiscal 2014. To date in fiscal 2014, Yoho
participated in the drilling of one Duvernay (0.5 net) well at Kaybob with an
additional well (33.33% working interest) currently drilling. The first well was
drilled to the planned horizontal length with good gas shows during the
drilling. After the drilling of the well, operational issues were encountered
while running production casing as part of the process to begin completion
operations. Operations on this well are currently suspended as the operator
reviews various options, ranging from remediation of the existing wellbore to
the re-drilling of the well. Yoho's cost to date for the drilling of the well is
approximately $2.5 million; however, the well operator is currently negotiating
the recovery of all of these costs from the service company involved in the
production casing issues. In Q1 of fiscal 2014, Yoho also drilled and cased (not
completed) one 100% well in the Nig area which will be included in the
Transaction with Storm.
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.
READER ADVISORY
This press release contains forward-looking statements as to Yoho's internal
projections, forecasts, expectations or beliefs relating to future events or
future performance, including: production and reserve estimates, capital
expenditure plans, and future operations including the number of wells to be
drilled and timing thereof, results from future operations and forecast
operating metrics including netbacks and cash flow estimates, the effect of the
Transaction on continuing operations, anticipated debt amounts post-Transaction,
future available credit facilities, liquidity and financial capacity,
anticipated timing for the completion of the Arrangement, including the timing
of the proposed shareholder meeting to approve the same. In some cases,
forward-looking statements can be identified by terminology such as "may",
"will", "should", "expects", "projects", "plans", "anticipates" and similar
expressions. These statements represent the expectations or beliefs of
management of Yoho concerning, among other things, future capital expenditures
and future operating results and various components thereof or the economic
performance of Yoho. The projections, estimates and beliefs contained in such
forward-looking statements are based on management's assumptions relating to the
production performance of Yoho's assets, the cost and competition for services
throughout the oil and gas industry, the results of exploration and development
activities during fiscal 2014 and 2015, the market price for oil and gas,
expectations regarding the availability of capital, estimates as to the size of
reserves and resources, and the continuation of the current regulatory and tax
regime in Canada, and necessarily involve known and unknown risks and
uncertainties inherent in exploration and development activities, geological,
technical, drilling and processing problems and other risks and uncertainties,
including the business risks discussed in management's discussion and analysis
and the annual information form of Yoho, which may cause actual performance and
financial results in future periods to differ materially from any projections of
future performance or results expressed or implied by such forward-looking
statements. Accordingly, readers are cautioned that events or circumstances
could cause results to differ materially from those predicted. Yoho does not
undertake to update any forward looking information in this document whether as
to new information, future events or otherwise except as required by securities
rules and regulations.
This press release also contains forward-looking statements and information
concerning the anticipated completion of the Transaction, the anticipated
distribution of Storm Shares to Yoho shareholders and the amount thereof and the
anticipated timing for completion of these matters. Yoho has provided these
anticipated times in reliance on certain assumptions that it believes is
reasonable at this time, including assumptions as to the time required to
prepare meeting materials for the shareholder meeting relating to the proposed
share distribution, the timing of receipt of the necessary regulatory approvals
and the satisfaction of and time necessary to satisfy the conditions to the
closing of the Transaction and the Arrangement, including all necessary court,
stock exchange, lender and other third party approvals and consents. These dates
may change for a number of reasons, including unforeseen delays in preparing
meeting materials, inability to secure necessary regulatory approvals in the
time assumed or the need for additional time to satisfy the conditions to the
completion of the Transaction and the Arrangement. In addition, there are no
assurances the Transaction and the Arrangement will be completed. In the event
the Transaction is not completed, the share distribution will not be completed.
Accordingly, readers should not place undue reliance on the forward-looking
statements and information contained in this press release concerning these
times. Readers are cautioned that the foregoing list of factors is not
exhaustive. Additional information on these and other factors that could affect
Yoho's operations or financial results are included in reports on file with
applicable securities regulatory authorities and may be accessed through the
SEDAR website (www.sedar.com), or Yoho's website (www.yohoresources.ca).
The forward-looking statements and information contained in this press release
are made as of the date hereof and Yoho undertakes no obligation to update
publicly or revise any forward-looking statements or information, whether as a
result of new information, future events or otherwise, unless so required by
applicable securities laws.
This press release, in particular the information in respect of anticipated cash
flows, may contain Future Oriented Financial Information ("FOFI") within the
meaning of applicable Canadian securities laws. The FOFI has been prepared by
management of Yoho to provide an outlook of Yoho's anticipated activities and
results post Transaction. The FOFI has been prepared based on a number of
assumptions including the assumptions discussed under the heading "Reader
Advisory" and assumptions with respect to production rates, drilling results,
and commodity prices. The actual results of operations of the Yoho and the
resulting financial results may vary from the amounts set forth herein, and such
variation may be material. Yoho and its management believe that the FOFI has
been prepared on a reasonable basis, reflecting management's best estimates and
judgments.
Barrel of oil equivalents or boes may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Given the value ratio based
on the current price of crude oil as compared to natural gas is significantly
different from the energy equivalency of 6 Mcf: 1 bbl, utilizing a conversion
ratio of 6 Mcf: 1 bbl may be a misleading indication of value. The estimates of
reserves and future net revenue for individual properties may not reflect the
same confidence level as the estimates of reserves and future net revenue for
all properties of Yoho due to the effects of aggregation. The net present value
of future net revenue of reserves does not represent the fair market value
thereof.
Selected Definitions
The following terms used in this press release have the meanings set forth below:
"bbl" means barrel
"boe" means barrel of oil equivalent of natural gas and crude oil on the
basis of 1 boe for six thousand cubic feet of natural gas (this conversion
factor is and industry accepted norm and is not based on either energy
content or current prices)
"Mbbl" means thousand barrels
"Mboe" means 1,000 barrels of oil equivalent
"Mcf" means one thousand cubic feet
"Mmcf" means one million cubic feet
"MMbtu" means million British Thermal Units
"$MM" means millions of dollars
The common shares of Yoho have not 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 in the United States or to
any U.S. person except in certain transactions exempt from the registration
requirements of the U.S. Securities Act and applicable state securities laws.
FOR FURTHER INFORMATION PLEASE CONTACT:
Yoho Resources Inc.
Brian McLachlan
President & Chief Executive Officer
(403) 537-1771 x103
Yoho Resources Inc.
Wendy Woolsey
Vice-President Finance & Chief Financial Officer
(403) 537-1771 x102
www.yohoresources.ca