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Canadian Oil Asset Deals Seen Hurt by Surprise Alberta Ruling

 

A sudden regulatory shift threatens to curb Canadian energy asset deals, just as producers and creditors look to unload properties two years into a crude market downturn.

 

The Alberta Energy Regulator made a surprise rule change Monday evening, requiring a more stringent solvency test for buyers of oil and natural gas assets. While the move is meant to ensure purchasers can cover well cleanup costs, some dealmakers say it will also hinder transactions.

 

“It’s going to create dampened activity on asset dispositions,” said Sonny Mottahed, managing partner and chief executive officer of Calgary-based Black Spruce Merchant Capital Corp. “People are caught off guard and they’re very surprised.”

 

The rule change — meant to be an interim measure — is in response to an Alberta court decision last month. That ruling, which the regulator is appealing, let the receiver of bankrupt oil company Redwater Energy Corp. walk away from some assets it deemed unprofitable, plus the related clean-up responsibilities. The case triggered a broader discussion over how environmental liabilities should rank among debts of an insolvent producer, as more default on their loans with U.S. crude still about 50 percent below its mid-2014 peak.

 

An ‘Inconvenience’

 

“We recognize that it’s going to inconvenience some stakeholders but they’re interim measures and we want to ensure the continued protection of Albertans and also confidence in the regulatory system,” Ryan Bartlett, a spokesman for the Alberta Energy Regulator, said in a phone interview. “We are working with the government of Alberta on a way to come up with a long-term regulatory solution to these issues.”

 

The main change from the regulator is the doubling of the liability management ratio for asset buyers. The rating is a reflection of the extent to which a company’s assets cover its liabilities related to well cleanup. Purchasers are now required to have ratings of 2.0 or higher, up from a minimum of 1.0 previously. About 72 percent of 788 licensees evaluated have ratios below the 2.0 threshold, according to the regulator’s online list.

 

Improve Rating

 

Among those with ratios below 2.0 and with a mandate to buy assets are Pine Cliff Energy Ltd., Northern Blizzard Resources Inc. and Spartan Energy Corp., Ryan Mooney, a director and energy specialist on Dundee Capital Markets’ sales team in Calgary, wrote Tuesday in a note.

 

Phil Hodge, chief executive officer of Calgary-based Pine Cliff, agreed in a phone interview that the company, which has been acquiring assets for more than four years, may be impeded under the new rule. More concerning though is the potential broader impact on the industry, Hodge said. With low oil prices, the company is more focused on improving its balance sheet than making purchases, he said.

 

Chief executive officers of Spartan and Northern Blizzard didn’t immediately return messages seeking comment.

 

Buyers can improve their rating by taking a number of steps, including posting a security, addressing existing abandonment obligations or selling assets, according to the regulator’s bulletin.

 

‘Chilling Announcement’

 

The move was a “chilling announcement on the first day of summer,” Carolyn Wright, a partner at law firm Burnet, Duckworth & Palmer LLP in Calgary, wrote in a note on Tuesday, calling the development sudden and dramatic. “It is expected to have a chilling effect on the rise in transaction activity in a province struggling to get back on its feet following a two-year long rut in commodity prices.

The Alberta regulator’s change, which doesn’t affect corporate takeovers, is meant to prevent asset deals in which the buyer risks adding to the so called orphan-well backlog. When bankrupt producers are unable to cover the costs of repairing lands where they pumped oil and gas, the Orphan Well Association, an industry group, becomes responsible for dealing with them at the expense of other companies.

But the regulatory shift may actually push more of the responsibility onto the Orphan Well Association, if struggling producers can’t find buyers for their assets and end up insolvent, said Pine Cliff’s Hodge.

 

Black Spruce’s Mottahed said he doesn’t expect the rule change will kill transactions altogether, but it could lead to more corporate takeovers or different kinds of financing arrangements, he said.

 

“People are left scratching their heads as to what’s going to be the outcome of this,” he said. “It’s certainly on the surface going to create less liquidity on the asset basis.”

http://www.bloomberg.com/news/articles/2016-06-22/canadian-oil-asset-deals-seen-hurt-by-surprise-alberta-ruling

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Gran Tierra Energy Inc. and Petroamerica Oil Corp. Announce Closing of Petroamerica Oil Corp. Acquisition

All dollar amounts are in United States (“U.S.”) dollars unless otherwise indicated.

CALGARY, ALBERTA–(Marketwired – Jan. 13, 2016) - Gran Tierra Energy Inc. (“Gran Tierra”) (TSX:GTE) (NYSE:GTE) and Petroamerica Oil Corp. (“Petroamerica”) (TSX VENTURE:PTA) are pleased to announce today that Gran Tierra has completed the acquisition of all of the issued and outstanding common shares of Petroamerica (“Petroamerica Shares”) (being 108,888,215 Petroamerica Shares) by way of plan of arrangement under the provisions of the Business Corporations Act (Alberta) (the “Acquisition”). Under the terms of the Acquisition, shareholders of Petroamerica exchanged each of their Petroamerica Shares for: (a) cash in the amount of C$1.33; (b) 0.4 of a share of common stock of Gran Tierra (“Gran Tierra Shares”); or (c) a combination thereof. Gran Tierra paid an aggregate of approximately $69.8 million (C$99.4 million) and issued an aggregate of 13,656,719 Gran Tierra Shares to the shareholders of Petroamerica, and assumed Petroamerica’s working capital surplus of approximately $26.0 million after accounting for severance and transaction costs, in connection with the Acquisition.

The Acquisition is a first step in Gran Tierra’s strategy to grow and diversify its portfolio throughout the productive basins in Colombia. In addition, the compliment of assets will strengthen Gran Tierra’s position in the developing N Sand exploration trend in the Putumayo Basin of Colombia. Petroamerica’s undeveloped land holdings and exploration and development portfolio are complementary to Gran Tierra’s own exploration portfolio, strong cash flow, reserves base and balance sheet strength. Gran Tierra believes that the combined entity will be uniquely positioned as a high-growth, well-capitalized, Colombia focused oil and gas producer with a dominant position in the Putumayo Basin, and a growing presence in the Llanos Basin of Colombia.

Registered shareholders of Petroamerica who have not already done so should submit their certificates representing Petroamerica Shares to Computershare Investor Services Inc., the depositary appointed by Gran Tierra in relation to the Acquisition. Certificates should be submitted together with the applicable letters of transmittal in accordance with the instructions set out therein in order to receive the cash consideration. Letters of transmittal were previously sent to shareholders of Petroamerica and additional copies may be obtained by contacting Computershare Investor Services Inc. by telephone at 1-800-564-6253 or by email at corporateactions@computershare.com.

ADVISORS

FirstEnergy Capital Corp. and Peters & Co. Limited acted as financial advisors to Gran Tierra on the Acquisition.

Black Spruce Merchant Capital Corp. acted as sole financial advisor to Petroamerica on the Acquisition.

DISCLAIMER

This press release contains opinions, forecasts, projections, and other statements about future events or results that constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and financial outlook and forward looking information within the meaning of applicable Canadian securities laws (collectively, “forward-looking statements”). Such forward-looking statements include, but are not limited to, statements about the particulars and prospects of the combined entity going forward.

The forward-looking statements contained in this press release reflect several material factors and expectations and assumptions of Gran Tierra including, without limitation, assumptions relating to the performance of the Petroamerica assets, that Gran Tierra will continue to conduct its operations in a manner consistent with its current expectations, pricing and cost estimates (including with respect to commodity pricing and exchange rates), rig availability, the effects of drilling down-dip, the effects of waterflood and multi-stage fracture stimulation operations, the extent and effect of delivery disruptions, and the general continuance of current or, where applicable, assumed operational, regulatory and industry conditions including in areas of potential expansion, and the ability of Gran Tierra to execute its current business and operational plans in the manner currently planned. Gran Tierra believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct.

Among the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements in this press release are: risks relating to Gran Tierra’s ability to realize the anticipated benefits from the Acquisition; Gran Tierra’s operations are located in South America, and unexpected problems can arise due to guerilla activity; technical difficulties and operational difficulties may arise which impact the production, transport or sale of our products; geographic, political and weather conditions can impact the production, transport or sale of our products; the risk that current global economic and credit conditions may impact oil prices and oil consumption more than Gran Tierra currently predicts; the risk that unexpected delays and difficulties in developing currently owned properties may occur; the failure of exploratory drilling to result in commercial wells; unexpected delays due to the limited availability of drilling equipment and personnel; the risk that oil prices could continue to fall, or current global economic and credit market conditions may impact oil prices and oil consumption more than Gran Tierra currently predicts, which could cause Gran Tierra to further modify its strategy and capital spending program; and the risk factors detailed from time to time in Gran Tierra’s periodic reports filed with the Securities and Exchange Commission, including, without limitation, under the caption ” Risk Factors” in Gran Tierra’s Annual Report on Form 10-K filed March 2, 2015, and its Quarterly Report on Form 10-Q filed November 3, 2015. These filings are available on the Web site maintained by the Securities and Exchange Commission at http://www.sec.gov and on SEDAR at www.sedar.com. Although the current capital spending program and long term strategy of Gran Tierra is based upon the current expectations of the management of Gran Tierra, should any one of a number of issues arise, Gran Tierra may find it necessary to alter its business strategy and/or capital spending program and there can be no assurance as at the date of this press release as to how those funds may be reallocated or strategy changed.

All forward-looking statements are made as of the date of this press release and the fact that this press release remains available does not constitute a representation by Gran Tierra that Gran Tierra believes these forward-looking statements continue to be true as of any subsequent date. Actual results may vary materially from the expected results expressed in forward-looking statements. Gran Tierra disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities laws. Gran Tierra’s forward-looking statements are expressly qualified in their entirety by this cautionary statement.

 

Contact Information

  • Gran Tierra Energy Inc.
    200, 150 – 13th Avenue S.W.
    Calgary, Alberta T2R 0V2Gran Tierra Energy Inc.
    Gary Guidry
    Chief Executive Officer
    +1.403.767.6500

    Gran Tierra Energy Inc.
    Ryan Ellson
    Chief Financial Officer
    +1.403.767.6501

    Gran Tierra Energy Inc.
    Chris Metcalfe
    Director Investor Relations
    +1.403.698.7946
    www.grantierra.com

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Condor Petroleum to Acquire Marsa Energy

CALGARY, ALBERTA–(Marketwired – Jan. 7, 2016) - Condor Petroleum Inc. (TSX:CPI) (Condor) and Marsa Energy Inc. (TSX VENTURE:MEP) (Marsa) are pleased to announce that they have entered into an agreement (the Arrangement Agreement) that provides for the acquisition of Marsa by Condor, to create a well-capitalized company with significant exploration and development assets. The acquisition will be effected by way of a plan of arrangement (the Arrangement) under the Business Corporations Act (Alberta).

Pursuant to the Arrangement Agreement, all of the issued and outstanding common shares of Marsa (Marsa Shares) will be exchanged for common shares of Condor (Condor Shares) based on an exchange ratio of 1.84326 Condor Shares for each Marsa Share held. Based on Condor and Marsa’s respective 20-day volume-weighted average trading prices, this represents a 53.7% premium to Marsa’s 20-day volume-weighted average trading price. Former holders of Marsa Shares (Marsa Shareholders) will hold 20% of the total issued and outstanding Condor Shares immediately following completion of the Arrangement.

Strategic Rationale:

“This acquisition is compelling for Condor, delivering significant strategic, financial and operational benefits by providing near term sustainable cash flow and additional long-term growth potential for the Company and shareholders alike. Leveraging off Condor’s strong balance sheet to bring Marsa’s Poyraz Ridge discovery to market and combining the highly prolific prospect inventories should add significant shareholder value over the coming years.” commented Don Streu, President and CEO of Condor.

Marsa has an excellent portfolio of Turkish production licenses with significant growth potential. This transaction will result in a stronger company with the increased ability to develop Marsa’s assets, including the Poyraz Ridge field. As a result, Marsa Shareholders will be better positioned for future growth and increased upside.” commented Blair Anderson, President and CEO of Marsa.

Key Attributes of Marsa:

  • Marsa holds a 100% working interest in and operates four production licenses located in the Gallipoli Peninsula (European part) of the Republic of Turkey. Turkey has a top quartile stable fiscal regime with a flat 12.5% royalty rate, 20% corporate income tax rate, no government back-in rights and very strong gas demand and pricing.
  • Marsa’s Poyraz Ridge production license contains gas reserves (working interest, before royalties) of 9.8 bcf of 1P, 21.2 bcf of 2P and 35.8 bcf of 3P as of December 31, 20141.
  • A 10 mmcf per day gas plant, gathering system and pipeline interconnect are planned to be in place for first gas sales as early as Q2 2017.
  • Approximately US$25 million is forecast to bring the Poyraz gas to market and a substantial portion of this capital is planned to be financed through a reserve based lending facility.

Pro Forma outlook:

  • Enhanced Reserve Base – Marsa’s 3.7 mmboe of 2P reserves and 6.3 mmboe of 3P reserves increases Condor’s 2P and 3P pro forma reserves to 5.4 mmboe and 9.4 mmboe respectively (working interest, before royalties)1.
  • Material Near Term Catalysts – Cash flow from Poyraz Ridge is expected to commence as early as Q2 2017. Further delineation exploration drilling in Turkey to identify incremental reserves and continued development drilling at the Shoba oil field in Kazakhstan will commence in 2016. Additional gas discoveries on other production licenses held in Turkey, including the Destan field discovered in 2011, will be tied into the Poyraz infrastructure to enhance near term production volumes.
  • Increased Prospect Inventory – The transaction adds a number of exciting exploration prospects, leads and new plays with significant resource exposure to support future reserves and production growth. This diverse exploration portfolio benefits from modern seismic data, offsetting analogues and recent learnings to generate potentially high impact prospects.
  • Provides Access to Debt Capital Markets – Condor’s balance sheet strength is expected to assist in securing a US$20 million reserve-based credit facility that Marsa has been negotiating with international lenders to fund development of the Poyraz Ridge gas field.
  • Preserves Balance Sheet Strength – The Arrangement, structured as a share-for-share transaction, preserves Condor’s currently estimated $47 million of working capital to ensure the pro forma company’s projects are fully funded.
1 Reserves disclosure contained in this news release reflect the separate reserves reports of Sproule International Limited for Condor as of December 31, 2014 and of DeGolyer and MacNaughton for Marsa as of December 31, 2014 which contain different price and cost assumptions. Both reserves reports were prepared in accordance with National Instrument 51-101 – Standards for Disclosure of Oil and Gas Activities (NI 51-101) by independent qualified reserves evaluators.

The Arrangement:

Completion of the Arrangement is subject to the satisfaction of a number of conditions, including the receipt of requisite shareholder, court, regulatory and stock exchange approvals, and satisfaction of certain other closing conditions that are customary for a transaction of this nature. The Arrangement requires approval by not less than (i) two thirds of the votes cast by Marsa Shareholders, voting in person or by proxy, at a special meeting expected to be held on or about February 24, 2016 (the Marsa Meeting) and (ii) if required, a majority of the votes cast by Marsa Shareholders present in person or represented by proxy at the Marsa Meeting, after excluding the votes as required by Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions. The Arrangement also requires the approval of the Court of Queen’s Bench of Alberta.

Condor intends to hold its Special Meeting on or about February 24, 2016 (the Condor Meeting) to approve the issuance of Condor Shares under the Arrangement. Subject to the completion of the Arrangement, Condor also intends to undertake a 10-to-1 share consolidation, subject to approval of the Condor Shareholders at the Condor Meeting.

Under the terms of the Arrangement Agreement, Marsa has agreed that it will not solicit or initiate any inquiries or discussions regarding any other business combination or sale of assets unless approved by Condor. Marsa has also granted Condor 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 Arrangement Agreement, a copy of which will be filed by each of Condor and Marsa on SEDAR and will be available for viewing under their respective profiles on www.sedar.com.

The Arrangement is intended to be structured as a tax deferred rollover for Marsa Shareholders. The mailing of a joint information circular to the Marsa Shareholders and Condor Shareholders in connection with the Marsa Meeting and the Condor Meeting is expected to occur in late January 2016. The closing of the Arrangement is expected to occur on or about February 25, 2016 provided that all shareholder, Court, stock exchange and regulatory approvals are obtained and all conditions precedent to the completion of the Arrangement are satisfied or, if permitted, waived.

Upon completion of the Arrangement, it is expected that J. Scott Price, current Chairman of Marsa, will be appointed to the Condor board of directors (the Condor Board).

Board Recommendations:

The Condor Board has determined that the Arrangement is in the best interests of Condor and has unanimously approved the Arrangement and entering into the Arrangement Agreement and has resolved to recommend that Condor Shareholders vote in favour of the resolution allowing for the issuance of Condor Shares under the Arrangement. Condor directors, officers and certain insiders, representing approximately 40% of the Condor Shares, have each agreed to vote in favour of the Arrangement at the Condor Meeting. Dundee Capital Markets acted as strategic advisor to Condor in connection with the Arrangement.

Black Spruce Merchant Capital Corp. (Black Spruce) is acting as exclusive financial advisor to Marsa in connection with the Arrangement and has provided the board of directors of Marsa (the Marsa Board) with its verbal opinion that, as of the date hereof, subject to receipt and review of the final documentation related to such opinion and the Arrangement, and certain assumptions, limitations and qualifications, the consideration to be received by the Marsa Shareholders is fair, from a financial point of view, to the Marsa Shareholders.

The Marsa Board has unanimously approved the Arrangement Agreement and, based on a number of factors, including the fairness opinion provided by Black Spruce, determined that the Arrangement is in the best interests of Marsa, is fair to Marsa Shareholders, and has resolved to recommend that Marsa Shareholders vote in favour of the Arrangement. Marsa directors and officers, representing approximately 30.2% of the Marsa Shares, have each agreed to vote in favour of the Arrangement at the Marsa Meeting.

About Condor:

Condor is a Canadian based oil and gas company with a 100% interest in the exploration rights to the 3,777 square kilometer Zharkamys West 1 Territory located in Kazakhstan’s Pre‐Caspian basin. Condor is listed on the TSX under the symbol “CPI”.

About Marsa:

Marsa is an international energy company engaged in the acquisition, exploration, development and production of oil and natural gas and has a 100% working interest in four contiguous production licenses covering approximately 171 square kilometers located on the Gallipoli Peninsula in the Republic of Turkey. Marsa is headquartered in Calgary, Alberta, Canada and is publicly traded on the TSX Venture under the symbol “MEP”.

Advisory on Reserves information

This news release includes information pertaining to the independent Evaluation of the P&NG Reserves of Condor in the Zharkamys West 1 Territory, Kazakhstan as of December 31, 2014 prepared by Sproule International Limited and the independent Appraisal Report as of December 31, 2014 on the Reserves attributable to the Poyraz Ridge Field in the Thrace Basin, Turkey for Marsa prepared by DeGolyer and MacNaughton which were prepared by qualified reserves evaluators in accordance with NI 51-101.

Statements relating to reserves are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated. The reserve estimates described herein are estimates only. The actual reserves may be greater or less than those calculated. Estimates with respect to reserves that may be developed and produced in the future are often based upon volumetric calculations, probabilistic methods and analogy to similar types of reserves, rather than upon actual production history. Estimates based on these methods generally are less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be material, in the estimated reserves.

BOE Presentation. References herein to “boe” mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy 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 at 6 Mcf:1 bbl may be misleading as an indication of value.

Advisory on Forward-Looking Statements

All statements other than statements of historical fact may be forward-looking statements. Such statements are generally identifiable by the terminology used, such as “seek”, “anticipate”, “believe”, “intend”, “expect”, “plan”, “estimate”, “continue”, “project”, “predict”, “budget”, “outlook”, “may”, “will”, “should”, “could”, “would” or other similar wording. Forward-looking statements in this news release includes but is not limited to the ability and timing of: executing the Plan of Arrangement, satisfying the various conditions, obtaining the required approvals and completing the acquisition of Marsa by Condor; attaining sustainable cash flows, adding growth potential, bringing projects to market and adding shareholder value; obtaining the reserve-based credit facility under favourable terms, the amount of the facility and the use of proceeds thereon; realizing the forecasted gas prices; developing the gas reserves and delivering first gas; funding future development and exploration activities and the cost of such activities; accessing gas sales markets; making further gas discoveries and developing these discoveries; tying any future gas discoveries into the Poyraz Ridge field infrastructure; identifying incremental reserves; obtaining necessary permits, approvals and licenses and contracts to conduct exploration, development and production activities; further development activities at Shoba; conducting the Marsa shareholder meeting and receiving Marsa shareholder approval; conducting the Condor meeting and receiving Condor shareholder approval; satisfying other closing conditions; obtaining Condor shareholder approval for the share consolidation; preparing and mailing the joint information circular; appointing J. Scott Price to the Condor Board; obtaining the final Black Spruce fairness opinion; and the estimated working capital. Forward-looking statements involve the use of certain assumptions that may not materialize or that may not be accurate and are subject to known and unknown risks and uncertainties and other factors, which may cause actual results or events to differ materially from those expressed or implied by such information. Condor and Marsa operations are also subject to certain other risks and uncertainties inherent with oil and gas operations and additional information on these and other factors that could affect respective operations and financial results.

These factors are discussed in greater detail in each respective Condor and Marsa Annual Information Form which may be accessed through each company’s profile on the SEDAR website (www.sedar.com). Condor and Marsa believe that the expectations reflected in these forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Condor and Marsa do not undertake any obligation to update or to revise any of the forward looking information, except as required by applicable law.

Abbreviations:

bcf billion cubic feet
mmcf million cubic feet
mmboe million barrels of oil equivalent
1P Proved reserves
2P Proved plus Probable Reserves
3P Proved plus Probable plus Possible Reserves
  

Contact Information

  • Condor Petroleum Inc.
    Don Streu, President & Chief Executive Officer
    Sandy Quilty, Vice President Finance &
    Chief Financial Officer
    403-201-9694

    Marsa Energy Inc.
    Blair Anderson, President & Chief Executive Officer
    banderson@marsaenergy.com
    403-930-6202

    Ricardo Montes, Vice President Finance
    & Chief Financial Officer
    rmontes@marsaenergy.com
    403-930-6206

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Gran Tierra Energy Inc. and Petroamerica Oil Corp. Announce Agreement for Gran Tierra to Acquire All of Petroamerica’s Issued and Outstanding Shares

November 12, 2015 23:59 ET

All dollar amounts are in United States (“U.S.”) dollars unless otherwise indicated.

CALGARY, ALBERTA–(Marketwired – Nov. 12, 2015) - Gran Tierra Energy Inc. (“Gran Tierra” or the “Company”) (TSX:GTE) (NYSE:GTE) and Petroamerica Oil Corp. (“Petroamerica”) (TSX VENTURE:PTA), both international oil and gas companies operating in Colombia, are pleased to announce that they have entered into an arrangement agreement dated November 12, 2015 (the “Arrangement Agreement”) whereby Gran Tierra has agreed to acquire all of the issued and outstanding common shares of Petroamerica by way of a statutory plan of arrangement under the Business Corporations Act (Alberta) (the “Acquisition”).

Under the terms of the Arrangement Agreement, Petroamerica shareholders will receive, at their election, either 0.40 of a Gran Tierra common share or C$1.33 in cash for each Petroamerica share, subject to a maximum of 70 percent of the consideration payable in cash. If Petroamerica shareholders elect to accept all share consideration, Gran Tierra expects to issue 43.6 million common shares. Gran Tierra will also be assuming the net positive working capital of Petroamerica, estimated at $25 million as at October 31, 2015, after accounting for severance and transaction costs, and including previously restricted cash which Gran Tierra expects to replace with letters of credit. Based on a 5-day volume weighted average trading price of C$3.32 per Gran Tierra common share on the facilities of the TSX, the transaction value including working capital and accounting for severance and transaction costs is $84 million.

Gran Tierra believes that the acquisition of Petroamerica is highly strategic and will strengthen its position as the premier operator and land holder in the Putumayo Basin. Petroamerica’s undeveloped land holdings and exploration and development portfolio are highly complementary to Gran Tierra’s own exploration portfolio, strong cash flow, reserves base and balance sheet strength. With expected base pro forma production of 28,000 to 30,000 boe/d in 2016, Gran Tierra believes that the combined entity will be uniquely positioned as a high growth, well-capitalized, Colombia focused oil and gas producer with a dominant position in the Putumayo basin and a growing presence in the Llanos basin. In addition, Gran Tierra has the financial capacity to pursue additional exploration and development projects within Petroamerica’s asset portfolio. The successful completion of the Acquisition is expected to be accretive to Gran Tierra’s net asset value per share. Gran Tierra will remain debt free with pro forma working capital of $135 million to $210 million, depending on the form of consideration elected by Petroamerica shareholders.

“This transaction is the first step of our corporate strategy to expand and diversify Gran Tierra’s oil and gas growth portfolio in Colombia,” commented Gary Guidry, Gran Tierra’s President and CEO, “and we are very excited to put our cash flow and balance sheet to work on the high quality Petroamerica assets.”

Ralph Gillcrist, Petroamerica’s President and CEO commented, “This transaction ensures that the high quality assets of Petroamerica will be fully developed and the combination with Gran Tierra will create one of the best-positioned companies in the prolific Putumayo and Llanos basins of Colombia. For Petroamerica’s shareholders, the resulting pro forma company will bring improved liquidity, increased diversity and scale, an outstanding near-term opportunity set and most importantly, the financial capability and balance sheet strength to maximize value of Petroamerica’s portfolio.”

ACQUISITION HIGHLIGHTS

  • Acquisition of before royalty, 4.5 million barrels of Proven and 8.1 million barrels Proven + Probable working interest reserves, based on an NI 51-101 compliant report prepared by GLJ Petroleum Consultants Ltd., as at December 31, 2014;
  • Approximately 3,000 boe/d of working interest production, composed of approximately 60% Llanos basin production and 40% Putumayo basin production;
  • Approximately 2.2 million gross acres in Colombia (0.8 million net acres), including approximately 0.5 million gross acres (0.3 million net acres) adjacent to or near the Company’s current acreage in the Putumayo basin, which management believes is prospective for the emerging N Sands exploration fairway;
  • Enhances near term exploration drilling inventory;
  • Significant opportunity to realize synergistic cost savings through a reduction in general & administrative expenses and tax planning opportunities;

KEY ATTRIBUTES OF THE ACQUISITION

Working Interest Production (October 2015 Average): 3,000 boe/d
Proved Reserves: (1)(4) 4.5 mmboe
Proved + Probable Reserves: (1)(4) 8.1 mmboe
Proved + Probable + Possible Reserves: (1) 13.1 mmboe
Net Working Interest Acres, October 2015: (2) 0.8 million acres
Tax Pools, October 2015: $156 million
Estimated Operating Netback, October 2015:(3) $18 – $20/boe
Estimated Annual Operating Cash Flow, 2016:(3) $20 – $22 million
(1) Based on NI 51-101 independent report prepared by GLJ Petroleum Consultants, as of December 31, 2014. Working interest basis.
(2) Approximately 0.3 million net acres of land located in the N Sands fairway in the Putumayo.
(3) Operating Netback and Operating Cash Flow – these are financial measures that do not have standardized meanings under generally accepted accounting principles in the United States of America (“GAAP”). Please refer to Disclaimer in this press release for more information about these non-GAAP measures. Brent Pricing of $50/bbl was estimated for the Estimated Annual Operating Cash Flow.
(4) Excluding working interest Proven and Proven + Probable reserves of 3.1 million barrels and 6.4 million barrels, respectively, as evaluated Petrotech Engineering Ltd., NI 51-101 compliant, effective December 31, 2014. These mostly heavy oil reserves will be re-evaluated as oil prices recover.

ACQUISITION METRICS

Based on an estimated purchase price (net of working capital) of $84 million, the acquisition metrics are as follows:

Working Interest Production: $28,000 per flowing boe
Proved Reserves :(1)(3) $18.71 per boe
Proved + Probable Reserves:(1)(3) $10.40 per boe
Proved + Probable + Possible Reserves:(1) $6.43 per boe
Cash Flow Multiple:(2) 3.8 – 4.2 times
Recycle Ratio: (4) 1.8 times
(1) Based on NI 51-101 independent report prepared by GLJ Petroleum Consultants Ltd., as of December 31, 2014. Working Interest basis.
(2) Based on the estimated operating cash flow shown above.
(3) Excluding working interest Proven and Proven + Probable reserves of 3.1 million barrels and 6.4 million barrels, respectively, as evaluated Petrotech Engineering Ltd., NI 51-101 compliant, effective December 31, 2014. These heavy oil reserves will be re-evaluated as oil prices recover.
(4) Recycle Ratio is calculated by dividing the operating netback provided above, by the Proved + Probable Reserve metric provided above.

LAND HOLDINGS

The Acquisition increases Gran Tierra’s position in its core area of Putumayo, including significant additional acreage in the emerging N Sands exploration play.

Diagram 1: Pro Forma Land Position in the Putumayo Basin

http://media3.marketwire.com/docs/1032851.jpg

Table 1: Petroamerica Land Acreage in Colombia.

PTA Lands Block Basin Gross Acreage W.I. W.I. Acreage
Balay Llanos 4,497 15% 675
El Eden Llanos 99,633 40% 39,853
El Porton (Explor.) Llanos 99,283 100% 99,283
Curiara (El Porton) Llanos 10,722 25% 2,681
LLA-10 Llanos 189,536 50% 94,768
LLA-19 Llanos 97,954 50% 48,977
Los Maracas Llanos 5,000 50% 2,500
Los Ocarros Expl. Llanos 52,135 50% 26,068
CPO-7 Llanos 627,735 20% 125,547
CPO-13 Llanos 466,898 20% 93,380
Suroriente Putumayo 90,263 16% 14,292
Alea 1848A Putumayo 75,764 50% 37,882
Alea 1947C Putumayo 58,068 50% 28,744
PUT-7 Putumayo 130,186 50% 65,093
PUT-2 Putumayo 96,666 100% 96,666
PUT-31 Putumayo 34,826 35% 12,189
Tinigua Putumayo 105,466 40% 42,186
TOTAL PTA Lands 2,244,632 37% 830,783

STRATEGIC RATIONALE

This Acquisition is consistent with the Company’s strategy to efficiently grow its current exploration, development and production opportunity base within Colombia, while diversifying into the prolific Llanos and Magdalena Valley geologic basins. In the Company’s view it is paying a fair value for the existing reserves and production established by Petroamerica, while at the same time enhancing the combined growth portfolio for both Gran Tierra and Petroamerica shareholders.

“The Acquisition is aligned with our strategy of consolidating efforts in our core area of the Putumayo basin where we have a solid land position and a strong operating team. Pro forma for the Acquisition, Gran Tierra will be a well-capitalized company with a well developed production base, free cash flow and a significant growth portfolio providing optionality to allocate capital between three major oil and gas producing basins in Colombia,” said Gary Guidry, President and CEO of Gran Tierra. “This Acquisition improves the long-term sustainability of our business model not only through diversification and per share growth, but also through the addition of high quality assets with significant growth potential. The low-cost, high-return assets add yet another layer of top-quartile locations to our expansive drilling inventory.” On a per share basis, the Acquisition is expected to be immediately accretive to Gran Tierra’s net asset value per share.

Petroamerica has identified numerous prospects in its exploration portfolio, several of which we intend to drill in 2016. With Gran Tierra’s strong balance sheet and forecasted free cash flow generation in 2016, we expect to have the necessary funding to drill the identified prospects. “The Acquisition is beneficial to Gran Tierra as it provides the potential to strategically shift its exploration investment commitments from frontier to more proven hydrocarbon producing basins with established infrastructure and production sales”, commented Mr. Guidry.

“Depending on commodity prices and the amount of capital we choose to spend, we believe the Petroamerica assets can contribute approximately 3,000 to 5,000 boe/d of production in 2016, over and above our organic growth plans,” said Guidry.

The Acquisition continues to consolidate Gran Tierra’s Putumayo core area, which is expected to generate efficiencies and synergies in the Company’s consolidated operations and capital program in the area. Although Gran Tierra’s strategy is to control capital allocation and operating efficiencies through operatorship, the Company can also add significant value as an active joint venture partner. In addition to the new operated Petroamerica assets, Gran Tierra will look to capitalize on the opportunity to transfer its horizontal drilling, completions and waterflood expertise to the non-operated fields.

Gran Tierra maintains a robust balance sheet and is in a strong financial position. The Company expects to fund the cash portion of the purchase price, if any, with existing cash-on-hand. Upon completion of the Acquisition, Gran Tierra will have no debt outstanding and an undrawn US$200 million bank line.

“Our balance sheet and financial strength allow us to execute on our growth strategy in a low oil price environment,” said Guidry. “We are acquiring significant additional N Sands resource potential in the Putumayo, while at the same time increasing our footprint in the Llanos basin where we see significant opportunity. Petroamerica’s exciting exploration lands are a tremendous fit with Gran Tierra’s current land base and are expected to enhance our long-term growth strategy.”

BOARD OF DIRECTORS APPROVALS AND RECOMMENDATIONS

Petroamerica established a special committee of its board of directors that was tasked to explore various transaction alternatives available to Petroamerica, including transactions similar in nature to the Acquisition. Upon receiving an offer from Gran Tierra that was unanimously recommended to the board of directors by the special committee, the board of directors amended the mandate of the special committee to negotiate the Acquistion. The special committee, determining that the Acquisition was in the best interest of Petroamerica’s shareholders, unanimously recommended the Acquisition to its board of directors. Upon recommendation of the special committee, the board of directors of Petroamerica, with the exception of one director who recused himself for potential conflict reasons but who unequivocally supports the transaction, has unanimously recommended approval of the Acquisition and has determined that the Acquisition is in the best interests of Petroamerica shareholders. In addition, Petroamerica’s sole financial advisor, Black Spruce Merchant Capital Corp., has provided the board of directors of Petroamerica with a verbal opinion that the consideration to be received by Petroamerica shareholders pursuant to the Acquisition is fair, from a financial point of view. Officers, directors and shareholders that collectively hold approximately 10.13% of the issued and outstanding Petroamerica shares have entered into voting support agreements and have agreed to vote their 11,032,858 securities in favour of the Acquisition.

The Acquisition is subject to Petroamerica shareholder approval as well as customary regulatory, stock exchange, court and other approvals. The Acquisition provides for, among other things, a non-solicitation covenant on the part of Petroamerica, subject to customary “fiduciary out” provisions that entitle Petroamerica to consider and accept a superior proposal and gives Gran Tierra the right to match any superior proposal. The Arrangement Agreement provides for a mutual non-completion fee of US$5.0 million, payable in certain circumstances, including if Petroamerica enters into an agreement with respect to a superior proposal or if the board of directors of Petroamerica withdraws or modifies its recommendation with respect to the Acquisition. The Acquisition is expected to close on or about January 29, 2016.

Full details of the Acquisition will be included in an information circular of Petroamerica to be mailed to Petroamerica shareholders in accordance with applicable securities laws. A copy of the aforementioned information circular and related documents will be filed under Petroamerica’s issuer profile on SEDAR at www.sedar.com at the applicable time.

GUIDANCE

Gran Tierra continues to execute its business plan of creating sustainable value-added growth in reserves, production and cash flow through management’s integrated strategy of acquiring, exploring, developing and enhancing high-quality assets in Colombia.

With an underlying base decline rate of 12 to15 percent per year at Costayaco and Moqueta, the Company has flexibility to allocate capital to the attractive Petroamerica exploration and development Assets. Gran Tierra will provide detailed 2016 budget and forecast guidance in December 2015.

ADVISORS

FirstEnergy Capital Corp. and Peters & Co. Limited acted as financial advisors to Gran Tierra on the Acquisition.

Black Spruce Merchant Capital Corp. acted as sole financial advisor to Petroamerica on the Acquisition.

FOR MORE INFORMATION ON GRAN TIERRA ENERGY INC., PLEASE GO TO:
www.grantierra.com

FOR MORE INFORMATION ON PETROAMERICA OIL CORP., PLEASE GO TO:
www.petroamericaoil.com

DISCLAIMER

This press release contains opinions, forecasts, projections, and other statements about future events or results that constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and financial outlook and forward looking information within the meaning of applicable Canadian securities laws (collectively, “forward-looking statements”). Such forward-looking statements include, but are not limited to, statements about: future projected or target production and the growth of production including the product mix of such production and expectations respecting production growth, 2016 forecasted production; our ability to grow in both the near and long term and the funding of our growth opportunities; our possible creation of new core areas; estimated reserves growth and estimated barrels of oil equivalent gross working interest in 2015 and 2016; our prospects and leads; estimated cash flow from operations; the plans, objectives, expectations and intentions of the company regarding production, exploration and exploration upside, development; Gran Tierra’s 2015 and 2016 capital program including the changes thereto along with the expected costs and the allocation of the capital program; Gran Tierra’s financial position and the future development of the company’s business. Statements respecting reserves and resources are forward-looking statements as they involve the implied assessment, based on estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.

The forward-looking statements contained in this press release reflect several material factors and expectations and assumptions of Gran Tierra including, without limitation, assumptions relating to the performance of the Petroamerica assets, log evaluations, the accuracy of reserves estimates, that Gran Tierra will continue to conduct its operations in a manner consistent with its current expectations, the accuracy of testing and production results and seismic data, pricing and cost estimates (including with respect to commodity pricing and exchange rates), rig availability, the effects of drilling down-dip, the effects of waterflood and multi-stage fracture stimulation operations, the extent and effect of delivery disruptions, and the general continuance of current or, where applicable, assumed operational, regulatory and industry conditions including in areas of potential expansion, and the ability of Gran Tierra to execute its current business and operational plans in the manner currently planned. Gran Tierra believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct.

Among the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements in this press release are: risks relating to Gran Tierra’s ability to realize the anticipated benefits from the Acquisition; Gran Tierra’s operations are located in South America, and unexpected problems can arise due to guerilla activity; technical difficulties and operational difficulties may arise which impact the production, transport or sale of our products; geographic, political and weather conditions can impact the production, transport or sale of our products; the risk that current global economic and credit conditions may impact oil prices and oil consumption more than Gran Tierra currently predicts; the risk that unexpected delays and difficulties in developing currently owned properties may occur; the failure of exploratory drilling to result in commercial wells; unexpected delays due to the limited availability of drilling equipment and personnel; the risk that oil prices could continue to fall, or current global economic and credit market conditions may impact oil prices and oil consumption more than Gran Tierra currently predicts, which could cause Gran Tierra to further modify its strategy and capital spending program; and the risk factors detailed from time to time in Gran Tierra’s periodic reports filed with the Securities and Exchange Commission, including, without limitation, under the caption ” Risk Factors” in Gran Tierra’s Annual Report on Form 10-K filed March 2, 2015, and its Quarterly Report on Form 10-Q filed November 3, 2015.. These filings are available on the Web site maintained by the Securities and Exchange Commission at http://www.sec.gov and on SEDAR at www.sedar.com. Although the current capital spending program and long term strategy of Gran Tierra is based upon the current expectations of the management of Gran Tierra, should any one of a number of issues arise, Gran Tierra may find it necessary to alter its business strategy and/or capital spending program and there can be no assurance as at the date of this press release as to how those funds may be reallocated or strategy changed.

All forward-looking statements are made as of the date of this press release and the fact that this press release remains available does not constitute a representation by Gran Tierra that Gran Tierra believes these forward-looking statements continue to be true as of any subsequent date. Actual results may vary materially from the expected results expressed in forward-looking statements. Gran Tierra disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities laws. Gran Tierra’s forward-looking statements are expressly qualified in their entirety by this cautionary statement.

Operating netback and operating cash flow as presented are calculated as oil and gas sales net of royalties and operating expenses. Management believes that netback is a useful supplemental measure for management and investors to analyze operating performance and provide an indication of the results generated by our principal business activities prior to the consideration of other income and expenses.

BOE’s may be misleading particularly if used in isolation. A BOE conversion ratio of 6 thousand cubic feet of gas to 1 barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of oil as compared with natural gas is significantly different from the energy equivalent of six to one, utilizing a BOE conversion ratio of 6Mcf:1bbl would be misleading as an indication of value. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties due to the effects of aggregation. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

DISCLOSURE OF RESERVE INFORMATION

All estimates of proved, probable and possible reserves and related future net revenue disclosed in this news release have been prepared in accordance with NI 51-101. Estimates of reserves and future net revenue made in accordance with NI 51-101 will differ from corresponding estimates prepared in accordance with applicable SEC rules and disclosure requirements of the U.S. Financial Accounting Standards Board (“FASB”), and those differences may be material. NI 51-101, for example, requires disclosure of reserves and related future net revenue estimates based on forecast prices and costs, whereas SEC and FASB standards require that reserves and related future net revenue be estimated using average prices for the previous 12 months. In addition, NI 51-101 permits the presentation of reserves estimates on a “company gross” basis, representing the Company’s working interest share before deduction of royalties, whereas SEC and FASB standards require the presentation of net reserve estimates after the deduction of royalties and similar payments. There are also differences in the technical reserves estimation standards applicable under NI 51-101 and, pursuant thereto, the Canadian Oil and Gas Evaluation Handbook, and those applicable under SEC and FASB requirements.

In addition to being a reporting issuer in certain Canadian jurisdictions, Gran Tierra is a registrant with the SEC and subject to domestic issuer reporting requirements under U.S. federal securities law, including with respect to the disclosure of reserves and other oil and gas information in accordance with U.S. federal securities law and applicable SEC rules and regulations (collectively, “SEC requirements”). Disclosure of such information in accordance with SEC requirements is included in the Company’s Annual Report on Form 10-K and in other reports and materials filed with or furnished to the SEC and, as applicable, Canadian securities regulatory authorities. The SEC permits oil and gas companies that are subject to domestic issuer reporting requirements under U.S. federal securities law, in their filings with the SEC, to disclose only estimated proved, probable and possible reserves that meet the SEC’s definitions of such terms. Gran Tierra has disclosed estimated proved, probable and possible reserves in its filings with the SEC. In addition, Gran Tierra prepares its financial statements in accordance with United States generally accepted accounting principles, which require that the notes to its annual financial statements include supplementary disclosure in respect of the Company’s oil and gas activities, including estimates of its proved oil and gas reserves and a standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities. This supplementary financial statement disclosure is presented in accordance with FASB requirements, which align with corresponding SEC requirements concerning reserves estimation and reporting.

Contact Information

  • Gran Tierra Energy Inc.
    Gary Guidry
    Chief Executive Officer
    Tel: +1.403.767.6500

    Gran Tierra Energy Inc.
    Ryan Ellson
    Chief Financial Officer
    Tel: +1.403.767.6501

    Gran Tierra Energy Inc.
    Chris Metcalfe
    Director Investor Relations
    Tel: +1.403.698.7946

    Petroamerica Oil Corp.
    Ralph Gillcrist
    President and CEO

    Petroamerica Oil Corp.
    Colin Wagner
    CFO

    Petroamerica Oil Corp.
    Tel Calgary, Canada: +1-403-237-8300
    Email: investorrelations@pta-oil.com

 

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Obama to rule on Keystone during term

By: Tonya Becker

Posted:19:26, Nov 8, 2015 

White House spokesman Josh Earnest said Obama had sought to “shield this process from politics”, but the president’s many delays have only injected more politics and posturing into the national debate.

Girling said during the conference call that while that process – which could take up to a year to complete – there was little reason for the State Department to move ahead.

The Project: The 1,179-mile (1,900-km) Keystone XL pipeline would move 830,000 barrels per day of oil sands crude from Hardisty, Alberta, across the USA border to Steele City, Nebraska, where it would connect with a previously approved line.

Experts on both sides of the border say there are both climate and political implications to TransCanada’s request for the State Department to pause its review of the pipeline permit.

If granted by the US State Department, the delay would nearly certainly hand the decision for the long-delayed project to a future president rather than Barack Obama, a Democrat.

In the seven years that Keystone XL has been under review by the State Department, political support for the project has waxed and waned. Supporters maintain it will create jobs and reduce US reliance on Middle Eastern oil.

League of Conservation Voters Senior Vice President of Government Affairs Tiernan Sittenfeld said, “This is nothing more than another desperate and cynical attempt by TransCanada to build their dirty pipeline someday if they get a climate denier in the White House in 2017″. But she did indicate that State may be inclined to reject TransCanada and finish the review.

The Keystone XL pipeline project was first proposed more than six years ago, but has languished, awaiting a permit required by the federal government because it would cross an global boundary.

Facing pressure to act, former Gov. Dave Heineman convened a special legislative session in late 2011 to pass new pipeline regulations.

Harper had been urging the United States to approve the 1900-kilometre pipeline. “It’s absolutely front and centre of any producer’s mind when they commit to a multi-billion dollar project”, said Sonny Mottahed, chief executive officer of boutique investment bank Black Spruce Merchant Capital, adding more projects could scrapped because of the Keystone XL delay.

This afternoon the White House weighed in and President Obama still has the ability to kill the project, and apparently plans to make a decision before leaving office. The GOP presidential field is unanimous in its support for Keystone, while Obama has downplayed its benefits and emphasized environmental risks, setting up a high bar for approval. The company also has lost its most important domestic ally in the Keystone effort, Conservative Stephen Harper, who was ousted last month as Canada’s prime minister.

But the $8 billion pipeline, which would enable crude oil from Canada’s oil sands to reach refineries and ports in the United States, isn’t dead yet.

Asked whether he feared Obama would reject Keystone XL, Girling said bluntly: “No”. And TransCanada would be racing against the clock: Without sufficient pipelines in place, the low oil price is already squeezing oil sands production and forcing companies out of the game.

Since Monday’s announcement by TransCanada, environmental groups and others are now pressing the Obama administration to outright reject that pipeline rather than agree to a suspension.

TransCanada Corp TRP.TO TRP.N, Canada’s second-largest pipeline company, reported a better-than-expected quarterly profit, helped by higher earnings from its Keystone systems.

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Keystone delay heralds long-term pain for Canadian oil producers

By Nia Williams

CALGARY, Alberta Nov 3 (Reuters) – A further delay or outright rejection of the TransCanada Corp Keystone XL project risks a looming capacity crunch on Western Canada’s pipeline network, causing more pain for producers already struggling with weak global crude prices.

In the latest twist in the seven-year Keystone XL saga, TransCanada on Monday asked the U.S. State Department to pause its review of the permit, a move seen pre-empting a possible rejection by U.S. President Barack Obama.

On Tuesday the White House said Obama wants to make a call on the project by the end of his presidency.

An outright rejection would be a death knell for the pipeline intended to ship 830,000 barrels per day of oil sands crude to Nebraska and the U.S. Gulf Coast. Even if the requested seven- to 12-month pause is granted, and permits are received, the pipeline looks unlikely to start before 2019 at the earliest.

By then Western Canadian supply, including the portion of U.S. Bakken crude transported on Canada’s pipeline network, will likely have risen to 4.5 million to 5 million barrels per day, according to the Canadian Association of Petroleum Producers.

Current takeaway capacity on the system is just over 4 million bpd and planned expansions by Enbridge Inc to its Mainline system will bump that up to around 4.4 million bpd, leaving rail to fill the gap.

Meanwhile, other export pipeline proposals including TransCanada’s Energy East and Enbridge’s Northern Gateway look no closer to getting approved.

The looming crunch would look a lot worse if not for the global crude price collapse, which has slowed oil sands and Bakken crude growth. Even so, it clouds the outlook for oil sands producers, which have some of the highest production costs globally as well as land-locked crude.

“There’s less of a pinch point because of the reduced production growth but there’s still the need for additional pipeline,” said Judith Dwarkin, chief energy economist at ITG Investment Research.

As well as market access issues, investors face weak oil prices, high project breakeven costs, and royalty rate and climate change policy reviews from the Alberta government.

Last week Royal Dutch Shell Plc cancelled its 80,000-bpd Carmon Creek oil sands project, citing lack of infrastructure to move Canadian crude to market, as did Statoil in 2014 when postponing its 40,000-bpd Corner project.

“Market access is a serious concern. It’s absolutely front and centre of any producer’s mind when they commit to a multi-billion dollar project,” said Sonny Mottahed, chief executive officer of boutique investment bank Black Spruce Merchant Capital, adding more projects could scrapped because of the Keystone XL delay.

In recent years pipeline bottlenecks in Alberta, the largest source of U.S. crude imports, have at times blown the discount on Canadian heavy crude out to more than $40 a barrel. With U.S. crude languishing around $45 a barrel, many producers cannot afford another capacity crunch.

“We would certainly like to see better market access because there are pricing impacts on constraints to reaching markets,” said Brad Bellows, a spokesman with oil sands producer MEG Energy.

The delay validates moves by producers like Imperial Oil Ltd and Cenovus Energy, who invested in their own crude-by-rail terminals.

However rail is roughly $5 per barrel more costly than pipeline and takes a larger chunk out of producer profits.

“As you can see from third-quarter earnings many companies are losing money on production so that $5 becomes crucial,” said ARC Financial analyst Jackie Forrest.

(Editing by Lisa Shumaker)

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Terra Energy Closes Sale of Non-Core Assets

CALGARY, ALBERTA–(Marketwired – Sept. 29, 2015) - Terra Energy Corp. (“Terra” or the “Company”) (TSX:TT) is pleased to announce that the Company has closed the previously announced sale of certain of the Company’s non-core, P&NG assets in the Boundary Lake and Worsley areas of the Province of Alberta for $10.615 million. Net proceeds from the sale transaction will be used to strengthen the Company’s balance sheet, reduce total debt and improve on operational efficiencies and production.

Assets sold include 42 net wells (57 gross) with current production of approximately 500 boe/day (comprised of 38% oil/liquids and 62% gas), and undeveloped land of 23,104 net acres (24,355 gross acres). Total Proved plus Probable reserves assigned by GLJ Petroleum Consultants Ltd. as at December 31, 2014 was approximately 1,245 mboe.

Black Spruce Merchant Capital acted as exclusive advisor to the Special Committee of Independent Directors of Terra in connection with the sale transaction.

The Company will, as previously announced, continue to review and evaluate possible opportunities to further enhance shareholder value including the sale of additional oil and gas properties, entering into strategic alliances, mergers, restructuring or recapitalization of the Company.

Brian Yaworski, Chairman of the Board of Directors of Terra and Chairman of the Special Committee of Independent Directors of Terra, indicated that “Terra will continue to solicit proposals to deleverage and enhance shareholder value. Together with Black Spruce Merchant Capital, the Special Committee of Independent Directors of Terra is continuing to pursue and evaluate a variety of strategic transactions including the sale of additional oil and gas properties, joint venture opportunities as well as entering into strategic alliances, mergers, restructuring or a recapitalization of the Company.”

Corporate Information

Terra is a junior oil and gas company engaged in the exploration for, and the development and production of, natural gas and oil in Western Canada. Terra’s common shares trade on the Toronto Stock Exchange under the symbol “TT”.

Information Regarding Disclosure in Oil and Gas Reserves

A boe conversion ratio of six thousand cubic feet per barrel (6mcf/bbl) of natural gas to barrels of oil equivalence is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency for the individual products at the wellhead. Such disclosure of boe’s may be misleading, particularly if used in isolation. Additionally, given the value ratio based on the current price of crude oil compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion ratio of 6:1 may be misleading as an indication of value.

In accordance with Canadian practice, production volumes are reported on a company gross basis, before deduction of Crown and other royalties, unless otherwise stated. Unless otherwise specified, all reserve volumes in this media release and all information derived there from are based on “company interest reserves” using forecast prices and costs. “Company interest reserves” consist of “company gross reserves” (as defined in National Instrument 51-101 (“NI 51-101″)) plus Terra’s royalty interests in reserves. “Company interest reserves” are not a measure defined in NI 51-101 and does not have a standardized meaning under NI 51-101. Accordingly our Company interest reserves may not be comparable to reserves presented or disclosed by other issuers. Our oil and gas reserves statement for the year ended December 31, 2014, which includes complete disclosure of our oil and gas reserves and other oil and gas information in accordance with NI 51-101, is contained within our Annual Information Form which is available on our SEDAR profile at www.sedar.com. In relation to the disclosure of estimates in the operations update discussion, such estimates for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effects of aggregation.

Reader Advisory

All amounts in Canadian dollars unless otherwise specified.

Forward-Looking Statements

This media release may contain certain statements which constitute forward-looking statements or information (“forward-looking statements”), including the use of proceeds of transaction and the review and evaluation of opportunities to enhance shareholder value. Although Terra believes that the expectations reflected in our forward-looking statements are reasonable, our forward-looking statements have been based on expectations, factors and assumptions concerning future events which may prove to be inaccurate. As such, readers are cautioned not to place undue reliance on the forward-looking statements, as no assurance can be provided as to future results, levels of activity or achievements. The risks, uncertainties, material assumptions and other factors that could affect actual results are discussed in our Annual Information Form and other documents available at www.sedar.com. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and, except as required by applicable law, Terra does not undertake any obligation to publicly update or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

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Encana Leads Big Spenders Becoming Stressed Sellers in Oil Rout

by  

August 26, 2015 — 10:01 PM MDT

  • Louisiana land sale was North America’s largest in 2015
  • More sales seen by high-debt producers with banks pressuring
The energy industry’s biggest acquirers when the oil market was hot are turning into pressured sellers in the worst crude slump since the 1980s.

Encana Corp., after making about $9.9 billion of oil and natural gas purchases in 2014, announced North America’s most sizable energy land sale this year, with a deal Tuesday to unload its Louisiana assets for $850 million to lower debt. Repsol SA, Whiting Petroleum Corp., Surge Energy Inc. and Linn Energy LLC, all active acquirers on the continent last year, are also among sellers in 2015.

The tables have turned for acquisitive producers now grappling with climbing debt loads as oil prices that are hovering near a six-year low curb cash flow. While selling producing properties allows executives to reduce leverage, it comes at the expense of output and revenue.

 “These are almost forced transactions,” said Sonny Mottahed, managing partner and chief executive officer of Black Spruce Merchant Capital Corp., a Calgary-based bank. Some big spenders borrowed money to do deals, and lenders are now calling for reduced leverage with the bleak outlook for oil, he said. “It’s getting more pressing the more time goes by.’’

Crown Jewels

Deals done to reduce debt are different than the normal reorganization of lands that companies undertake in good times and some are already being forced to part with “crown jewel” assets to keep creditors at bay, Mottahed said.

The sales by some of last year’s buyers are notable given oil and gas deals by producers have plunged with the crude crash, amounting to just $12 billion for North America in the first half of the year. That’s a drop of 78 percent from the same period in 2014 and the lowest start to a year since the first half of 2009, according to data compiled by Bloomberg.

Encana, the largest buyer of North American energy assets in 2014 after Repsol, avoided selling any of its flagship oil properties by parting with land in the Haynesville shale area that produces gas, which the Calgary-based company is shifting away from.

Debt Levels

Analysts had expected sales with Encana’s debt levels exceeding peers. The deal is poised to lower the company’s net debt to 3.2 times cash flow in 2016, from a previous estimate of 3.7, according to BMO Nesbitt Burns. That compares with an average multiple of 2.5 for rivals next year.

The Louisiana sale was “a clear win for Encana” and should give investors confidence it could also sell its Piceance, Denver Julesburg and San Juan properties in the U.S.,Randy Ollenberger, an analyst at BMO in Calgary, wrote Tuesday in a note. The stock gained 3.5 percent the day of the announcement.

Encana has plunged 48 percent this year, almost double the 24 percent drop for the Standard & Poor’s/TSX Energy Index.

The company doesn’t need to sell assets to act on its strategy, Jay Averill, a spokesman, said by e-mail. Encana bought about as much as it sold in 2014 without adding significant leverage, and selling more to pay down debt now is prudent, he said.

Repsol Deals

Repsol, which spent $13 billion acquiring Canadian producer Talisman Energy Inc. in 2014, is also considering divesting assets in Venezuela, Alaska, Bolivia and the Gulf of Mexico to lower debt, people familiar with the plan said in July.

The Spanish company said it would sell $1 billion of non-oil assets when it announced the Talisman acquisition last December, Kristian Rix, a spokesman, said in a phone interview. He declined to provide further details on potential deals.

Whiting, Surge and Linn have together announced about $900 million of asset sales in 2015.

Trigger Sales

Companies with high debt may trigger more asset sales if oil prices don’t improve, Ajay Khurana, co-head of energy investment banking for the Americas at Jefferies LLC, said in a phone interview.

“You can see companies capitulate and say, ‘I need to sell assets in this
environment to reduce leverage,’” Khurana said. “If the market stays where it is and the commercial banks are more punitive than people hope, you could see more transactions occur.’’

Baytex Energy Corp. may sell assets to reduce its debt load after a big acquisition last year, Mottahed said. The Canadian crude producer spent
about $1.7 billion in cash and took on debt to acquire Aurora Oil & Gas Ltd.

Baytex has no plans for additional divestitures after selling assets last year in North Dakota, Wyoming, Saskatchewan and British Columbia following the Aurora purchase,Brian Ector, a company spokesman, said in an e-mail. The company believes that the suspension of its dividend, reduction of the 2015 budget and moves to reduce costs, all announced last week, are enough to get it through the price rout, Ector said.

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With crude dipping below U$40 a barrel, reserve writedowns likely in store

CALGARY – Another wave of ugly news is looming for oil producers already battered by weak oil prices.

BY LAUREN KRUGEL, THE CANADIAN PRESS AUGUST 26, 2015

Every year, companies hire outside evaluators to tally up their reserves — a calculation of how much resource in the ground can be recovered technically and economically.

With U.S. benchmark crude dipping below US$40 a barrel for the first time since early 2009, the economics are looking especially dicey these days. Oil that might have been viable to produce at stronger prices may not be anymore.

Reserve reductions have tangible financial consequences. A company may have to take a charge against its financial results. And for many producers, it makes borrowing money from banks problematic.

“It all sort of feeds itself in an ugly vicious cycle,” said Sonny Mottahed, CEO of Black Spruce Merchant Capital.

Keith Braaten, president and CEO of GLJ Petroleum Consultants in Calgary, said his firm is going to be busy doing up annual reserve evaluations for clients throughout the fall, wrapping up preliminary reports around the end of the year.

Companies normally disclose the reserve figures along with their annual reports early the following year.

“I think a lot of companies took a bit of a haircut last year-end because prices were low then,” said Braaten. In late 2014, crude had already begun its precipitous decline to around the US$60 a barrel mark from mid-year highs above US$107 a barrel.

“I am expecting to see more of a haircut this year because we are seeing prices weakening further than they were and staying low for longer than we expected.”

The oilsands are expected to feel the brunt of it because one single project represents a large amount of oil, he said.

“So when they become uneconomic and they’re cancelled indefinitely and those reserves fall off the books, they are massive volumes.”

By contrast, a producer may have dozens of wells in an oil deposit like Alberta’s Cardium play, for instance. Depending on their location, some of those wells might be susceptible to a reserve writedown, while others may remain in good shape economically. Therefore, the impact to those producers wouldn’t be as severe as in the oilsands.

Black Spruce’s Mottahed said there’s a question as to whether companies’ share prices are reflecting the possibility of reserve cuts.

“Is it priced in? Or is it really going to be a light-bulb moment?”

Mottahed said he suspects it’s the former, though there may be some surprises.

“I think most people already are anticipating what that’s going to look like and that it’s going to be relatively ugly.”

 

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Canadian dollar edges higher, but oil falls

Oil below $40 US a barrel is reverberating through the oilpatch and the economy

CBC News Posted: Aug 26, 2015 11:45 AM ET Last Updated: Aug 26, 2015 4:27 PM ET

The Canadian dollar recovered to just above 75 cents on Wednesday amid continued stock market volatility.

The loonie was at 75.05 US cents at the close, up slightly from 74.96 at yesterday’s close.

But the trend for oil was not so positive as traders digested news about high stocks of gasoline and other petroleum products in the U.S.

West Texas Intermediate oil contract was down 46 cents at $38.85 US a barrel, continuing its sojourn below the psychologically important $40 level.

Brent crude, the most important international contract, edged up to $43.49 US a barrel.

Jitters about the slowing Chinese economy continued to hurt oil, asChinese stock markets were hit by waves of selling today.

If China’s economy is slowing, that means it will likely buy less crude oil in the coming year.

The loonie has been beaten down by the stock market turmoil and the prospect of less demand for Canadian resources from China. But going forward the main risk is the trend in interest rates.

Some analysts say it is less likely the U.S. Fed will raise rates in September because of the market meltdown. The Bank of Canada has made two rate cuts this year, helping to pressure the Canadian currency, but if the Fed doesn’t move, that could bring some relief for the Canadian dollar.

Low oil hurts oilpatch

The international glut of oil has brought oil prices lower for the past seven weeks. Output by the Organization of Petroleum Exporting Countries is at record levels and rumours that the oil cartel might hold an emergency meeting to cut back output have been refuted by Saudi Arabia.

Meanwhile, the U.S. Energy Information Agency reported that crude oil inventories decreased by 5.5 million barrels last week, but oil in storage remains at levels not seen in 80 years. At the same time, stocks of gasoline and other distillates are growing.

Some analysts said the latest decline in crude stocks might have been an aberration driven by a brief dip in imports. Most are bracing for a sustained rise in stocks in coming months as U.S. refiners shut for seasonal work.

“We had a draw, but the market needs to see weeks of that to be convinced,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Conn.

The impact of low oil is reverberating through Canada’s oilpatch as Canadian companies make plans for 2016.

Reserve reductions

Every year, companies hire outside evaluators to tally up their reserves — a calculation of how much resource in the ground can be recovered technically and economically. This year, much of the oil they might have in reserve may not be viable to produce at current prices.

That may mean a raft of reserve reductions that companies may have to write down in their financial results later this year. That in turn could lead to less investment over the coming year, which will hurt Canada’s economy.

“It all sort of feeds itself in an ugly vicious cycle,” said Sonny Mottahed, CEO of Black Spruce Merchant Capital.

Elsewhere, there are reports the Saudi government may be faced with a deficit for the first time in years and may have to make budget cuts because of low oil prices.

 

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