Sprott Resource Corp.� Announces Agreement to Acquire Outstanding
Shares of Auriga Energy Inc.
TORONTO, September 28, 2009 (TSX:SCP) � Sprott Resource Corp. (�SRC�) is pleased to announce that it has
entered into an agreement (the �Acquisition Agreement�) to purchase, through a
newly formed subsidiary (�Acquireco�), all of the issued and outstanding common
shares of Auriga Energy Inc. (�Auriga�) a private oil and gas company operating
in Alberta (the �Acquisition�) by way of an exempt take-over bid. Acquireco has
also completed a private placement by purchasing a total of 7,954,545 common
shares in the capital of Auriga (�Auriga Shares�) at a price of $0.44 per share
for aggregate proceeds of $3.5 million.�
Acquireco will be led by
Gary Guidry, who most recently served as CEO of Tanganyika Oil Company Ltd.
(�Tanganyika�), which under Gary�s leadership between May 2005 and December
2008, grew production to approximately 25,000 bbl/d with share price increasing
from 6.50 to 31.50 C$/share at the time of its sale to Sinopec International
Petroleum Exploration and Production Corporation (�Sinopec�) in December 2008
for over $2.0 billion.� The Acquireco
management team intends not only to move quickly to capture the value in
Auriga, but also to aggressively pursue new business development opportunities.
International
development projects where Acquireco management has an exceptional performance record
will be an area of particular emphasis.
Auriga was identified as an initial platform with a very concentrated
portfolio of high quality assets and growth opportunities limited to date by a
lack of capital and low commodity prices. The primary asset is the condensate
rich Kaybob South Beaverhill Lake Gas Unit No.1 (�Kaybob�), which is material
in size, geologically well-defined and has proven performance from significant
prior development across the Kaybob structure.�
Kaybob has significant infrastructure in place to optimize free cash
flow over the next five years.� With
significant technical analysis and appraisal drilling, Kaybob provides a
material portfolio asset for Acquireco in the near term.
To capitalize on Auriga�s
high quality portfolio of assets, Acquireco will be completing a $61.5 million
private placement (the �Private Placement�) immediately following the closing
of the Acquisition (the �Closing�). �With the injection of new capital we expect
to be able to quickly capitalize on the development opportunities within
Auriga�s portfolio,� said Gary Guidry, President and CEO of Acquireco.� �We believe that Auriga has the potential to
develop significant additional natural gas production through low risk drilling
at the condensate rich Kaybob.� We are
also very pleased that SRC shares our vision of building a larger oil and gas
company.�
�We are excited to be
investing in Acquireco with Gary Guidry and the other members of the management
team and look forward to working with them on building a successful company,�
said Kevin Bambrough, President and CEO of SRC.�
�Acquiring
and recapitalizing long life, low cost, condensate rich natural gas reserves at
a good valuation during a period of depressed natural gas prices fits perfectly
with our business plan.�
Terms of the
Acquisition
Under the terms of the Acquisition Agreement, each shareholder of Auriga
will receive 0.3 of an Acquireco common share and 0.0979 of an SRC common share
for each Auriga Share held.� On Closing,
SRC will own 70% of Acquireco and the existing shareholders of Auriga will own
30% of Acquireco.� A total of 13,853,097
SRC common shares will be issued to Auriga shareholders in connection with the
Acquisition.�
The Closing, which is
expected to occur by the end of October, is subject to required regulatory
approvals, including the approval of TSX in connection with the issuance of SRC
common shares, and the satisfaction of customary conditions contained in the
Acquisition Agreement, including the agreement of at least 90% of the holders
of Auriga Shares to the Acquisition (either by entering into the Acquisition
Agreement or tendering their Auriga Shares to Acquireco). Pursuant to the
Acquisition Agreement, a shareholder holding 80.3%
of the issued and outstanding Auriga Shares has agreed to sell all of its
Auriga Shares to AcquireCo. In addition, holders of an additional 12.7% of the issued and outstanding Auriga Shares
have entered into agreements to tender their Auriga Shares to Acquireco and to
support the Acquisition.
As part of the Private
Placement that Acquireco will be completing upon Closing, SRC will purchase up
to $56.5 million of Acquireco common shares and Gary Guidry, the new management
team of Acquireco and certain associated persons will collectively purchase up
to $5 million of Acquireco common shares.�
Following
the completion of the Private Placement, SRC will own approximately 81.4% of
the Acquireco Shares, assuming no other Acquireco shareholders elect to
participate in the Private Placement.
About Auriga
Assets
- 81.8%
working interest in 25,600 gross acres of land (20,941 net) in
Kaybob.�
- 4.6% working interest in
SemCAMS Kaybob Amalgamated (KA) Plant (the �KA Plant�), providing a
significant reduction in operating cost structure.
- Mainly 100% working interest in
8,786 gross acres (6,150 net) in Redwater Property (Township 55 and Ranges
20 and 21W4).�
- 100% working interest in 1,920
gross acres (1,920 net) in the Bigstone area (includes Township 60 and 61,
Ranges 21 and 22 W5).�
Reserves
Sproule Associates Limited
(�Sproule�), an independent qualified reserves evaluator, assigned the
following reserves to Auriga effective December 31, 2008 (using escalating
prices as at December 31, 2008) and incorporating NI 51-101 and COGE Handbook
reserve definitions as follows:
|
Proved
Developed Producing
|
Total
Proved
|
Proved
plus Probable
|
Company
Gross Reserves
|
|
|
|
Light/Medium
Oil (MBBLs)
|
807.8
|
1,141.0
|
2,018
|
Natural
Gas (MMCF)
|
24,676.4
|
40,240.7
|
63,879.3
|
Natural
Gas Liquids (MBBLs)
|
2,012.1
|
3,455.0
|
5,421.2
|
Combined
(MBOE)
|
6,932.6
|
11,302.8
|
18,085.7
|
Following Closing and the
Private Placement, the reserves will be re-evaluated under NI 51-101 guidelines
removing capital constraints incorporated into the Sproule December 31, 2008
review.
Production
- Current production is 51.1%
natural gas, 30.8% natural gas liquids and 18.1% light/medium oil.
- Average production of 2,572
boe/d for the first seven months of 2009 (results include May production
of only 1,113 boe/d due to KA Plant shutdown and an economic deferral of
400 boe/d at Bigstone).
- Approximately 400 boe/d of
natural gas production is currently shut in at Bigstone (this production
was shut in on May 31, 2009 for economic reasons and is expected to resume
production January 1, 2010 with no capital costs).
- Current production is divided
by area as follows: 73% (Kaybob), 25% (Redwater) and 2% (Minors).
Financial
- Net debt of approximately $65
million.� It is expected that funds
from the Private Placement will be used to pay out the current credit
facility.�
- For the six months ending June
30, 2009, Auriga had cash flow from operating activities of $11.0 million
and interest expense of $2.2 million.�
Cash flow from operating activities included $4 million in realized
gains from hedging activities.
- Approximately 558 bbl/d of oil
hedges in place for 2009 (average floor of US$64 and an average ceiling of
US$79.70) and 540 bbl/d in place for 2010 (average floor of US$75 and an
average ceiling of US$95).�
- Approximately 4,732 mcf/d of
natural gas hedged for 2009 (average floor of $6.74 and an average ceiling
of $8.30), 4,340 mcf/d for 2010 (average floor of $6.30 and an average
ceiling of $8.35) and 6,200 mcf/d for the first six months of 2011
(average floor of $5.43 and an average ceiling of $6.77).
- Tax pools of $140.2 million as
at December 31, 2008.
Management of
Acquireco
Gary Guidry has been
appointed as President and CEO of Acquireco. Most recently, Mr. Guidry was the
CEO of Tanganyika, which was sold to Sinopec last year for over $2 billion.
During his 3-year tenure at Tanganyika,
Gary successfully oversaw and led the
implementation of enhanced oil recovery techniques in Syrian heavy oil
properties growing production to approximately 25,000 bbl/d. Prior to Tanganyika,
Gary was CEO of
Calpine Natural Gas Trust which was merged with Viking Energy Trust in 2005. Gary
has extensive global experience, managing projects in Nigeria,
Yemen, Colombia,
Argentina, Venezuela,
Ecuador, Oman
and Syria.� Joining Mr. Guidry are Douglas Allen, Trevor
Peters and John Ladd. Suzanne West, President and CEO of Auriga, will continue with Acquireco
leading the North American business.
Financial Advisors
TD Securities Inc. acted as sole financial advisor to management of
Acquireco on the Acquisition.� Ivy
Capital Partners Ltd. and Scotia Waterous acted as advisors to Auriga.
About Sprott
Resource Corp.
SRC is a Canadian based company, the primary purpose of which is to
invest, directly and indirectly, in natural resources. Through acquisitions,
joint ventures and other investments, SRC seeks to provide its shareholders
with exposure to the natural resource sector for the purposes of capital
appreciation and real wealth preservation. SRC is well positioned to draw upon
the considerable experience and expertise of both its Board of Directors and
Sprott Consulting Limited Partnership (�SCLP�), of which Sprott Inc. is the
sole limited partner. Pursuant to a management services agreement between SCLP
and SRC, SCLP provides day-to-day business management for SRC as well as other
management and administrative services.
Forward
Looking Statements
This press release contains
forward-looking statements. More particularly, this press release contains
statements concerning the anticipated dates for the closing of the disclosed
transactions and the anticipated impact of the transactions on SRC and
Acquireco.� Some of the forward-looking
statements can be identified by words such as �expects�, �anticipates�,
�should�, �believes�, �plans�, �will� and similar expressions.
The forward-looking statements contained in this document are based on
certain key expectations and assumptions made by SRC and Acquireco, including:
(i) with respect to the anticipated closing dates of the transactions,
expectations and assumptions concerning timing of receipt of required
shareholder, regulatory approvals and third party consents and the satisfaction
of other conditions to the completion of the transactions and (ii) with respect
to the anticipated impact of the transaction on SRC and Acquireco, expectations
and assumptions concerning the success of future drilling and development
activities, the performance of existing wells, the performance of new wells and
prevailing commodity prices.
Although SRC and Acquireco believe that the expectations and assumptions
on which the forward-looking statements are based are reasonable, undue
reliance should not be placed on the forward-looking statements because SRC and
Acquireco can give no assurance that they will prove to be correct. Since
forward-looking statements address future events and conditions, by their very
nature they involve inherent risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors
and risks. These include, but are not limited to, the failure to obtain
necessary shareholder or regulatory approvals or satisfy the conditions to
closing the transactions, risks associated with the oil and gas industry in
general (e.g., operational risks in development, exploration and production;
delays or changes in plans with respect to exploration or development projects
or capital expenditures; the uncertainty of reserve estimates; the uncertainty
of estimates and projections relating to production, costs and expenses, and
health, safety and environmental risks), commodity price and exchange rate
fluctuations and uncertainties resulting from potential delays or changes in
plans with respect to exploration or development projects or capital
expenditures. Certain of these risks are set out in more detail in SRC's Annual
Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.
The forward-looking statements contained in this document are made as of
the date hereof and neither SRC nor Acquireco undertake any 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.
Measurements
Where amounts are expressed
on a barrel of oil equivalent (�BOE�) basis, natural gas volumes have been
converted to oil equivalence at six thousand cubic feet per barrel.� The term BOE may be misleading, particularly
if used in isolation.� A BOE conversion
ratio of six thousand cubic feet per barrel is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not represent
a value equivalency at the wellhead.
Warning
The securities offered have not been and will
not be registered under the U.S. Securities Act of 1933, as amended, and may
not be offered or sold in the United
States absent registration or applicable
exemption from the registration requirements. This press release shall
not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of the securities in any jurisdiction in which such
offer, solicitation or sale would be unlawful.
For further information, please contact:
Kevin Bambrough
President and CEO
Tel: (416) 977-7333
Fax: (416) 977-9555