Lycos Energy Inc. ("
Lycos" or the
"
Company") (TSXV: LCX) is pleased to announce that
it has entered into a definitive agreement (the
"
Acquisition Agreement") today to
acquire Durham Creek Exploration Ltd. ("
DCEL"), a
privately-held, arm's length, heavy oil producer, by way of a plan
of arrangement for total consideration, prior to adjustments, of
$22.5 million (the "
Acquisition"), consisting of
$12.5 million in cash and 2.8 million common shares of
Lycos (“
Lycos Shares”) at a deemed price of $3.55
per Lycos Share.
The Acquisition will be funded through a
$25 million bought deal equity financing (the
"Offering").
Acquisition Highlights
- 35,382 net
acres (55.93 net sections) of land suitable for multi-lateral
development proximally located to the Company's recent acquisition
of Wyatt Resources Ltd. ("Wyatt")
- With DCEL and the
recently announced Wyatt acquisition, Lycos has increased its
corporate land holdings by 31% to 147,956 net acres.
- The Company
has identified over 70 net Mannville heavy oil multi-lateral
drilling locations on DCEL lands dramatically increasing the
current development portfolio to 210 locations
- Increases Tier 1
Mannville inventory (Rex, Waseca, GP and Cummings) by 77% to 55
total net locations. Tier 1 locations have an expected payout
period of less than 6 months and an NPV-10% of $5.5
million(1).
-
Increases Tier 2 Mannville inventory (Rex, Waseca, GP and Cummings)
by 49% to 140.6 total net locations. Tier 2 locations have an
expected payout period of under 12 months and an NPV-10% of $3.4
million(1).
(1) Payout and NPV-10% assumptions are based on
pricing assumptions of; US$75/bbl WTI; (US$15) WCS differential;
and $0.741 CAD/USD, operating expenses of $15.48/boe, royalty rate
of 11.4% and capital expenditures of $1.6 million.
- Acquired
production is expected to average ~180 boe/d (99% crude oil) at
close from a multi-lateral well drilled at Lindbergh
- DCEL's first well
targeting the Waseca formation achieved an IP30 of 183 boe/d.
- The initial
drilling results from this well support the Company's expectation
that it will be able to deploys its’ multi-lateral/fishbone
drilling technique to further develop the acquired lands.
- Acquired
land base to be developed using Lycos' fishbone well
designs
- Lycos has achieved
an IP30 of 235 boe/d and an IP26 of 355 boe/d on its most recent
two Swimming Rex wells using a half fishbone design and a
substantially redesigned drilling fluid system.
- The Company
believes this approach materially enhances deliverability and will
be used to develop the DCEL's inventory.
Summary of the Acquisition
Pursuant to the terms of the Acquisition
Agreement, the Company will acquire DCEL for total consideration,
prior to adjustments, of $22.5 million, consisting of $12.5 million
in cash and 2.8 million Lycos Shares at a deemed price of
$3.55 per Lycos Share.
Concurrent with the execution of the Acquisition
Agreement, shareholders of DCEL representing approximately 83% of
the outstanding common shares of DCEL executed written resolutions
irrevocably approving the Acquisition. The Acquisition Agreement
provides for, among other things, a non-solicitation covenant on
the part of DCEL. A copy of the Acquisition Agreement will be filed
on Lycos' SEDAR+ profile at www.sedarplus.ca.
The Acquisition is expected to close on or
before October 16, 2023, subject to the completion of the Offering
and certain customary conditions and approvals, including the
approval of the Court of King's Bench of Alberta and the TSX
Venture Exchange (the "TSXV").
All of the Lycos Shares issued to the insiders
of DCEL, representing approximately 81% of the outstanding shares
of DCEL, will be subject hold periods and released as to one third
on each of the dates that is three, six and nine months following
the closing of the Acquisition.
Pro Forma
Guidance for
2023
- Pro-forma the
Acquisition, Lycos is expected to increase its 2023 capital
spending program to $57 million with the drilling of an additional
2 to 3 wells targeting DCEL's acreage in Q4/23.
- 2023 production
guidance remains unchanged with additional drilling not expected to
have a material impact on the Company's 2023 average
production.
- Despite the
additional spending, Lycos is expected to maintain a clean balance
sheet and significant liquidity, with Nil forecasted net debt at
year-end 2023 and $35 million available under its existing credit
facilities.(2)
(2) See "Non-IFRS Measures, Non-IFRS Financial
Ratios and Capital Management Measures".
Equity
Financing
Lycos has entered into an agreement (the
"Underwriting Agreement") with a syndicate of
underwriters led by National Bank Financial Inc. (the
"Underwriters"), pursuant to which the
Underwriters have agreed to purchase for resale to the public, on a
bought-deal basis, 7.0 million Lycos Shares at a price of $3.55 per
Lycos Share for gross proceeds of $25 million. The Underwriters
will have an option to purchase up to an additional 15% of the
Lycos Shares issued under the Offering at a price of $3.55 per
Lycos Share to cover over-allotments exercisable in whole or in
part at any time until 30 days after the closing of the
Offering.
The Lycos Shares issued pursuant to the Offering
will be distributed by way of a short form prospectus in all
provinces of Canada (excluding Québec) and may also be placed
privately in the United States to Qualified Institutional Buyers
(as defined under Rule 144A under the United States Securities Act
of 1933, as amended (the "U.S.
Securities Act")) pursuant to an
exemption under Rule 144A, and may be distributed outside Canada
and the United States on a basis which does not require the
qualification or registration of any of the Company's securities
under domestic or foreign securities laws.
The Offering is expected to close immediately
prior to the completion of the Acquisition and is conditional on
all conditions precedent to the completion of the Acquisition
(other than the payment of the purchase price) having been
satisfied or waived in accordance with the terms of the Acquisition
Agreement and the Underwriting Agreement, and is subject to
customary closing conditions, including the receipt of all
necessary regulatory approvals, including the approval of the TSXV.
Closing of the Offering is expected to occur on or before October
16, 2023.
There are 40,404,140 Lycos Shares issued and
outstanding as of the date hereof. Following the completion of the
Acquisition and the Offering (prior to giving effect to the
over-allotment), there will be 50,265,041 Lycos Shares issued and
outstanding.
Advisors
National Bank Financial Inc. is acting as
exclusive financial advisor to Lycos with respect to the
Acquisition.
Stikeman Elliott LLP is acting as legal counsel
to Lycos with respect to the Acquisition and the Offering.
Burnet, Duckworth & Palmer LLP is acting as
legal counsel to DCEL with respect to the Acquisition and as legal
counsel to the Underwriters in respect of the Offering.
About LycosLycos
is an oil-focused, exploration, development and production company
based in Calgary, Alberta, operating high-quality, heavy-oil,
development assets in the Lloydminster, Greater Lloydminster area
and Gull Lake, Saskatchewan.
Additional
Information
For further information, please contact:
Dave
BurtonPresident and Chief Executive Officer T:
(403) 616-3327E: dburton@lycosenergy.com |
Lindsay GoosVice President,
Finance and Chief Financial Officer T: (403) 542-3183E:
lgoos@lycosenergy.com |
Reader
Advisories
This press release is not an offer of
the securities for sale in the United States. The securities
offered have not been, and will
not be, registered under the U.S.
Securities Act or any U.S. state securities laws
and may not be offered or sold in the United States absent
registration or an available exemption from the registration
requirement of the U.S. Securities Act and applicable U.S. state
securities laws. 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
these securities,
in any
jurisdiction in
which such
offer, solicitation
or sale would
be unlawful.
Forward-Looking
and Cautionary
Statements
Certain statements contained within this press
release constitute forward-looking statements within the meaning of
applicable Canadian securities legislation. All statements other
than statements of historical fact may be forward-looking
statements. Forward- looking statements are often, but not always,
identified by the use of words such as "anticipate", "budget",
"plan", "endeavor", "continue", "estimate", "evaluate", "expect",
"forecast", "monitor", "may", "will", "can", "able", "potential",
"target", "intend", "consider", "focus", "identify", "use",
"utilize", "manage", "maintain", "remain", "result", "cultivate",
"could", "should", "believe" and similar expressions. Lycos
believes that the expectations reflected in such forward-looking
statements are reasonable as of the date hereof, but no assurance
can be given that such expectations will prove to be correct and
such forward-looking statements should not be unduly relied upon.
Without limitation, this press release contains forward-looking
statements pertaining to: Lycos' business strategy, objectives,
strength and focus; the completion of the Acquisition, including
anticipated funding and timing thereof; the completion of the
Offering and the terms, timing and use of proceeds therefrom;
satisfaction or waiver of the closing conditions to the Acquisition
and the Offering; receipt of required legal, court and regulatory
approvals for the completion of the Acquisition and the Offering;
the anticipated benefits of the Acquisition and the recently
completed acquisition of Wyatt, including the impact of the
Acquisition and the Wyatt acquisition on the Company's operations,
inventory and opportunities, financial condition, access to capital
and overall strategy; anticipated pro forma capital program and
operational results for the remainder of 2023 including, but not
limited to, estimated or anticipated growth, production levels,
capital expenditures, drilling plans and locations; expectations
regarding commodity prices; the performance characteristics of the
Company's oil and natural gas properties; the ability of the
Company to achieve drilling success consistent with management's
expectations, including through the use of proprietary fishbone
well designs; and the source of funding for the Company's
activities including development costs. Statements relating to
production, recovery, replacement, costs and valuation are also
deemed to be forward-looking statements, as they involve the
implied assessment, based on certain estimates and assumptions,
that the oil exists in the quantities predicted or estimated and
that the oil can be profitably produced in the future.
The forward-looking statements and information
are based on certain key expectations and assumptions made by
Lycos, including expectations and assumptions concerning the
business plan of Lycos; the receipt of all approvals and
satisfaction of all conditions to the completion of the Acquisition
and the Offering; the timing of and success of future drilling,
development and completion activities; the geological
characteristics of Lycos' properties; prevailing commodity prices,
price volatility, price differentials and the actual prices
received for the Company's products; the availability and
performance of drilling rigs, facilities, pipelines and other
oilfield services; the timing of past operations and activities in
the planned areas of focus; the drilling, completion and tie-in of
wells being completed as planned; the performance of new and
existing wells; the application of existing drilling and fracturing
techniques; prevailing weather and break-up conditions; royalty
regimes and exchange rates; the application of regulatory and
licensing requirements; the continued availability of capital and
skilled personnel; the ability to maintain or grow its credit
facility; the accuracy of Lycos' geological interpretation of its
drilling and land opportunities, including the ability of seismic
activity to enhance such interpretation; and Lycos' ability to
execute its plans and strategies.
Although Lycos believes that the expectations
and assumptions on which such forward-looking statements and
information are based are reasonable, undue reliance should not be
placed on the forward-looking statements and information because
Lycos can give no assurance that they will prove to be correct. By
its nature, such forward-looking information is subject to various
risks and uncertainties, which could cause the actual results and
expectations to differ materially from the anticipated results or
expectations expressed. These risks and uncertainties include, but
are not limited to, counterparty risk to closing the Acquisition
and the Offering; unforeseen difficulties in integrating the assets
to be acquired pursuant to the Acquisition into Lycos' operations;
incorrect assessments of the value of benefits to be obtained from
acquisitions and exploration and development programs (including
the Acquisition); fluctuations in commodity prices, changes in
industry regulations and political landscape both domestically and
abroad, wars (including Russia's military actions in Ukraine),
hostilities, civil insurrections, foreign exchange or interest
rates, increased operating and capital costs due to inflationary
pressures (actual and anticipated), volatility in the stock market
and financial system, impacts of pandemics, the retention of key
management and employees, risks with respect to unplanned
third-party pipeline outages and risks relating to the Alberta
wildfires, including in respect of safety, asset integrity and
shutting in production. Ongoing military actions between Russia and
Ukraine have the potential to threaten the supply of oil and gas
from the region. The long-term impacts of the actions between these
nations remains uncertain. Please refer to the annual information
form for the year ended December 31, 2022, and management's
discussion and analysis for the period ended June 30, 2023 (the
"MD&A") for additional risk factors relating
to Lycos, which can be accessed either on the Company's website at
www.lycosenergy.com or under the Company's SEDAR+ profile at
www.sedarplus.ca. Readers are cautioned not to place undue reliance
on this forward-looking information, which is given as of the date
hereof, and to not use such forward-looking information for
anything other than its intended purpose. Lycos undertakes no
obligation to update publicly or revise any forward-looking
information, whether as a result of new information, future events
or otherwise, except as required by law.
Future
Oriented Financial
Information
This press release contains future oriented
financial information and financial outlook information
(collectively, "FOFI") about Lycos' prospective results of
operations and production, organic growth and acquisitions,
NPV-10%, balance sheet strength, liquidity, operating costs, payout
of wells, 2023 outlook and guidance, including capital, development
and acquisition expenditures in 2023 and components thereof,
including pro forma the completion of the Acquisition and the
Offering, all of which are subject to the same assumptions, risk
factors, limitations, and qualifications as set forth in the above
paragraphs. FOFI contained in this document was approved by
management as of the date of this document and was provided for the
purpose of providing further information about Lycos' proposed
business activities in 2023. Lycos and its management believe that
FOFI has been prepared on a reasonable basis, reflecting
management's best estimates and judgments, and represent, to the
best of management's knowledge and opinion, the Company's expected
course of action. However, because this information is highly
subjective, it should not be relied on as necessarily indicative of
future activities or results. Lycos disclaims any intention or
obligation to update or revise any FOFI contained in this document,
whether as a result of new information, future events or otherwise,
unless required pursuant to applicable law. Readers are cautioned
that the FOFI contained in this document should not be used for
purposes other than for which it is disclosed herein. Changes in
forecast commodity prices, differences in the timing of capital
expenditures, and variances in average production estimates can
have a significant impact on the key performance measures included
in Lycos' guidance. The Company's actual results may differ
materially from these estimates.
Disclosure of
Oil and Gas
Information
Unit Cost Calculation. The term
barrels of oil equivalent ("boe") may be misleading, particularly
if used in isolation. A boe conversion ratio of six thousand cubic
feet per barrel (6 Mcf/bbl) of natural gas to barrels of oil
equivalence is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead. All boe conversions in the
report are derived from converting gas to oil in the ratio mix of
six thousand cubic feet of gas to one barrel of oil.
Product Types.
Throughout this press release, "crude oil" or "oil" refers to heavy
crude oil product types as defined in National Instrument 51-101 –
Standards of Disclosure for Oil and Gas Activities.
Short Term Results. References
in this press release to peak rates, IP26, IP30 and other
short-term production rates are useful in confirming the presence
of hydrocarbons, however such rates are not determinative of the
rates at which such wells will commence production and decline
thereafter and are not indicative of long-term performance or of
ultimate recovery. While encouraging, readers are cautioned not to
place reliance on such rates in calculating the aggregate
production of Lycos.
Drilling Locations. The
drilling locations disclosed in this press release are unbooked
locations. Unbooked locations are internal estimates based on the
Company's assumptions as to the number of wells that can be drilled
per section based on industry practice and internal review.
Unbooked locations do not have attributed reserves or resources.
Unbooked locations have been identified by management as an
estimation of Company's multi-year drilling activities based on
evaluation of applicable geologic, seismic, engineering, production
and reserves information. There is no certainty that the Company
will drill all unbooked drilling locations and if drilled there is
no certainty that such locations will result in additional oil and
gas reserves, resources or production. The drilling locations
considered for future development will ultimately depend upon the
availability of capital, regulatory approvals, seasonal
restrictions, oil and natural gas prices, costs, actual drilling
results, additional reservoir information that is obtained and
other factors. While certain of the unbooked drilling locations
have been derisked by the drilling of existing wells in relative
close proximity to such unbooked drilling locations, other unbooked
drilling locations are farther away from existing wells where
management has less information about the characteristics of the
reservoir and therefore there is more uncertainty whether wells
will be drilled in such locations and if drilled there is more
uncertainty that such wells will result in additional oil and gas
reserves, resources or production.
Non-IFRS
Measures, Non-IFRS
Financial Ratios
and Capital
Management Measures
This press release includes various specified
financial measures, including non-IFRS financial measures, non-IFRS
financial ratios and capital management measures as further
described herein. These measures do not have a standardized meaning
prescribed by International Financial Reporting Standards
("IFRS") and, therefore, may not be comparable
with the calculation of similar measures by other companies.
"Adjusted
Working Capital (Net Debt)" is calculated as current
assets less current liabilities, excluding the current portion of
decommissioning liabilities and financial derivative receivable.
Adjusted working capital (Net Debt) is a capital management measure
which management uses to assess the Company's liquidity. See the
MD&A for a detailed calculation and reconciliation of Adjusted
Working Capital (Net Debt) to the most directly comparable measure
presented in accordance with IFRS.
"Exit Adjusted
Working Capital
(Net Debt)" is calculated by
taking the forecasted December 2023 current assets less current
liabilities, excluding the current portion of decommissioning
liabilities and financial derivative receivable. Exit adjusted
working capital (Net Debt) is a capital management measure which
management uses to assess the Company's liquidity.
Please refer to the MD&A for additional
information relating to specified financial measures including
non-IFRS financial measures, non-IFRS financial ratios and capital
management measures. The MD&A can be accessed either on the
Company's website or under the Company's profile on
www.sedarplus.ca.
Abbreviations
|
bbl |
barrels of oil |
|
bbl/d |
barrels of oil per day |
|
boe |
barrels of oil equivalent |
|
boe/d |
barrels of oil equivalent per day |
|
IP26 |
initial 26-days of production |
|
IP30 |
initial 30-days of production |
|
Mbbl |
thousand barrels of oil |
|
Mboe |
thousand barrels of oil equivalent |
|
MMbbl |
million barrels of oil |
|
MMboe |
million barrels of oil equivalent |
|
MMcf |
million cubic feet |
|
NPV-10% |
net present value (net of capex) of net income discounted at
10% |
All dollar figures included herein are presented in Canadian
dollars, unless otherwise noted.
Neither the TSX Venture Exchange nor its Regulation
Services Provider (as that term is defined in the policies of the
TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this release.
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