Surge Announces Upward Revision to 2014 Guidance, and 11
Percent Increase in Dividend
CALGARY, March 31, 2014 /CNW/ - Surge Energy Inc. (TSX:
SGY) ("Surge" or the "Company") and Longview Oil Corp. (TSX: LNV)
("Longview") are pleased to announce today that they have entered
into an arrangement agreement, pursuant to which Surge has agreed
to acquire all of the issued and outstanding common shares of
Longview by way of a plan of arrangement transaction. The proposed
transaction results in the formation of an elite, intermediate,
light and medium oil focused, dividend paying, growth company. The
combined asset base will be strategically focused in the Williston
Basin and Central Alberta with
significant complimentary reserves, production, land and
operations. The proposed transaction is accretive to Surge on all
metrics, and adds concentrated reserves, production, land, and
operations that are contiguous with Surge's existing core
areas.
Pursuant to the arrangement agreement, Surge has
agreed to acquire all of the Longview common shares at an exchange
ratio of 0.975 of a Surge common share for each Longview common
share. The exchange ratio implies a value of $5.99 per Longview share based on the closing
price of Surge common shares of $6.14
on the Toronto Stock Exchange ("TSX") on March 31, 2014, and a premium of approximately 35
percent to the closing price of Longview common shares on the TSX
on February 7, 2014, the last trading
day before Longview announced the receipt of a nonbinding
proposal. In addition, Surge will assume approximately
$155 million of Longview net debt
(including transaction costs) to be outstanding upon completion of
the proposed transaction. Accordingly, the proposed transaction
implies a value of approximately $429
million for Longview (including Surge's previously announced
acquisition of 9.3 million Longview common shares, representing
19.8 percent of the shares outstanding, at $4.45 per share).
Assuming the successful completion of the
proposed transaction:
1) |
Surge's projected 2014 production exit rate is now expected to
increase to more than 21,000 boe/d (84 percent oil); and |
|
|
2) |
Surge will increase its annual dividend 11 percent to $0.60 per
share ($0.050 per share per month) from $0.54 per share per annum
($0.045 per share per month) currently. |
The above increase in guidance and dividend, as
well as the significant operational overlap between the two
companies, will benefit both Surge and Longview shareholders.
After taking into account the exchange ratio, the dividend increase
represents an increase of 22 percent in the annual dividend for
Longview shareholders.
STRATEGIC RATIONALE
The proposed transaction is consistent with
Surge's defined business model of acquiring elite, operated, light
and medium gravity crude oil reservoirs with large original oil in
place ("OOIP1"). On this basis, Surge estimates
Longview's net OOIP is greater than 375 million barrels.
Consequently, post-closing Surge will have over 1.8 billion barrels
of light and medium gravity OOIP under the Company's ownership and
management.
Longview's assets fit seamlessly into Surge's
core areas, including: the Midale Marly, light oil play trend in
SE Saskatchewan; the Sparky medium
gravity oil play trend in Central
Alberta; and within Surge's Central Alberta core area, where Longview has
several large OOIP pools categorized by high netbacks and low
decline production.
_________________________
1 Original Oil in Place (OOIP) is the equivalent to
Total Petroleum Initially In Place (TPIIP) for the purposes of this
press release. TPIIP is defined as that quantity of petroleum that
is estimated to exist originally in naturally occurring
accumulations. It includes that quantity of petroleum that is
estimated, as of a given date, to be contained in known
accumulations, prior to production, plus those estimated quantities
in accumulations yet to be discovered. There is no certainty that
any portion of the undiscovered resources will be discovered. There
is no certainty that it will be commercially viable to produce any
portion of the resources. A recovery project cannot be defined for
this volume of TPIIP at this time, and as such it cannot be further
sub-categorized. |
Paul Colborne,
President and CEO of Surge, stated: "We believe that this
transaction is an exciting opportunity for BOTH Surge and Longview
shareholders. Shareholders in the combined company will participate
in one of the elite, light and medium oil, dividend paying, growth
companies in Canada, and receive a
significant dividend increase, while benefitting from Surge's peer
group leading "all-in" sustainability ratio, and an excellent
balance sheet."
Steven Sharpe,
Chairman and Interim CEO of Longview, said: "We believe this
transaction provides Longview shareholders with the opportunity to
crystallize a meaningful premium, and the opportunity to
participate in the exciting potential of the combined company going
forward."
SUMMARY OF TRANSACTION
The proposed transaction is expected to close in
June, 2014. Completion of the proposed transaction is subject to
the approval of at least 66 2/3 percent of the Longview
shareholders voting at a special meeting and the approval of the
majority of the minority of Longview shareholders after excluding
the votes cast in respect of the Longview common shares held by
Surge. The special meeting of Longview shareholders called to
approve the proposed transaction is expected to be held in
June 2014. Completion of the
proposed transaction is also subject to, among other things, the
receipt of court approval and other customary closing
conditions.
The Board of Directors of Longview has
unanimously approved the proposed transaction and, based in part on
a fairness opinion from BMO Capital Markets, Longview's financial
advisor, determined that the proposed transaction is in the best
interests of Longview and is fair to Longview shareholders. The
Longview Board of Directors has also resolved to recommend that
Longview shareholders vote their Longview common shares in favor of
the proposed transaction. All of the directors and officers of
Longview, holding Longview common shares, have entered into lockup
agreements pursuant to which they have agreed to vote their
Longview common shares in favour of the proposed transaction.
Longview has agreed not to solicit or initiate
any discussions regarding any other acquisition proposals or sale
of material assets. Longview has also granted Surge a 72 hour right
to match any superior proposal, and has agreed to pay a termination
fee of $7.7 million to Surge in
certain circumstances, including if Longview recommends, approves
or enters into an agreement with respect to a superior
proposal.
In accordance with the arrangement agreement,
Longview shareholders will receive 0.975 of a Surge common share
for each Longview Share issued
outstanding, and Surge will also assume an estimated $155 million of Longview debt (including
transaction costs) upon completion of the proposed transaction.
Based upon the exchange ratio discussed above, it is anticipated
that Surge will issue approximately 37.8 million common shares of
Surge to Longview shareholders. Taking into account Surge's
previously announced acquisition of 9.3 million Longview common
shares, representing 19.8 percent of the common shares outstanding,
at $4.45 per share, the weighted
average acquisition price per Longview common share paid by Surge
would be $5.69 based on the closing
price of Surge common shares of $6.14
on the TSX on March 31, 2014.
Surge and Longview have agreed that a current
director of Longview will be appointed to the Board of Directors of
Surge on closing of the proposed transaction.
OUTLOOK AND INCREASED GUIDANCE IN 2014
This proposed transaction is exciting for both
Longview and Surge shareholders.
Proforma the proposed transaction, Longview
shareholders will be able to participate in one of the highest
quality, light and medium gravity crude oil, dividend paying,
growth companies in Canada (with
highly liquid daily trading volumes), and to receive a planned 22
percent increase in their dividend, while benefitting from Surge's
peer group low, "all-in" payout ratio, of less than 89 percent.
Surge shareholders will benefit from an
accretive transaction on all metrics, an excellent asset fit (as
described above), and an 11 percent increase in Surge's annual
dividend to $0.60 per share, while
maintaining Surge's attractive balance sheet - with an estimated
Q4/14 debt to annualized cash flow ratio of 1.45 times (based on
strip pricing).
Assuming the successful completion of the
proposed transaction, Surge's projected 2014 production exit rate
is now expected to increase to more than 21,000 boepd (84 percent
crude oil).
In 2014 Surge will continue to focus growth
capital towards elite, large OOIP, light and medium gravity, crude
oil reservoirs. Management's primary goals for Surge include
achieving 3-5 percent organic annual per share growth in reserves,
production, and cash flow, maintaining a sustainable dividend,
continued debt reduction from the Company's low payout ratio,
together with the pursuit of high quality, accretive
acquisitions.
Management of Surge will continue to maintain
balance sheet flexibility with an effective risk management
program, and to pursue the Company's extensive waterflood program.
By the end of 2014, Surge now anticipates that over 75 percent of
the Company's producing assets will be under waterflood. The
implementation of these waterflood projects is an integral part of
Surge's strategy of increasing oil recovery factors throughout the
Company's deep crude oil portfolio, lowering corporate decline
rates and maximizing shareholder value. The Company will also
pursue continued, year over year increases in recovery factors from
these high quality assets through low risk development activities,
including in-fill and step out development drilling.
ADVISORS
Macquarie Capital Markets Canada Ltd. is acting as exclusive
financial advisor to Surge with respect to the proposed
transaction. McCarthy Tétrault LLP is acting as legal advisor to
Surge with respect to the proposed transaction.
Scotiabank, GMP Securities L.P. and National Bank Financial are
acting as strategic advisors to Surge with respect to the proposed
transaction.
BMO Capital Markets is acting as financial advisor, and Burnet,
Duckworth & Palmer LLP is acting as legal advisor to Longview
with respect to the proposed transaction.
ABOUT SURGE
Surge is an oil-weighted production and
development company with high quality, large OOIP, crude oil
reservoirs. Management is focused on delivering to its
shareholders solid per share organic growth, sustainable monthly
dividends, and further growth through accretive acquisitions of
additional elite oil reservoirs. For further information
visit our website at www.surgeenergy.ca.
ABOUT LONGVIEW
Longview is actively engaged in the business of oil and gas
exploration, development, acquisition and production in the
provinces of Alberta and
Saskatchewan. For further
information visit our website online at www.longviewoil.com.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking
statements. More particularly, this press release includes,
without limitation, forward-looking statements concerning: (i) the
anticipated terms and timing for closing of the proposed
transaction; (ii) expectations and assumptions concerning timing of
receipt of required regulatory approvals and the satisfaction of
other conditions to the completion of the proposed transaction;
(iii) estimated 2014 exit production rate of Surge; (iv) increase
in dividend of Surge; (v) realization of anticipated benefits of
the proposed transaction; (vi) characteristics with respect to the
properties associated with Longview; (vii) timing of the special
meeting of Longview shareholders; (viii) estimated Q4 2014 debt to
annualized cash flow ratio of Surge; (ix) Surge's strategy with
respect to its waterflood program; and * Surge's growth strategy
and anticipated growth plans for 2014 and beyond.
The forward-looking statements contained in this
press release are based on certain key expectations and assumptions
made by Surge, including, but not limited to, expectations and
assumptions that the proposed transaction will close on the terms
and the time expected, all regulatory approvals and other
conditions will be received or satisfied for closing the proposed
transaction, concerning the success of future drilling, development
and completion activities, the performance of existing wells, the
performance of new wells, the viability of waterflood projects, the
availability and performance of facilities and pipelines, the
geological characteristics of Surge's properties, the successful
application of drilling, completion and seismic technology,
prevailing weather conditions, commodity prices, royalty regimes
and exchange rates, the application of regulatory and licensing
requirements and the availability of capital, labour and services.
Although Surge believes 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 Surge 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, that the conditions
for the proposed transaction will not be satisfied or close on the
terms expected, Surge will not achieve the anticipated benefits of
the proposed acquisition, 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 Surge'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
press release are made as of the date hereof and Surge undertakes
no obligation to update publicly or revise any forward-looking
statements or information, whether as a result of new information,
future events or otherwise, unless so required by applicable
securities laws.
Note: Boe means barrel of oil equivalent on the
basis of 1 boe to 6,000 cubic feet of natural gas. Boe may be
misleading, particularly if used in isolation. A boe
conversion ratio of 1 boe for 6,000 cubic feet of natural gas is
based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value
equivalency at the wellhead. Boe/d means barrel of oil
equivalent per day.
Neither the TSX nor its Regulation Services
Provider (as that term is defined in the policies of the TSX)
accepts responsibility for the adequacy or accuracy of this
release.
SOURCE Surge Energy Inc.