CALGARY, March 7, 2014 /CNW/ - ROOSTER ENERGY LTD. (the
"Company" or "Rooster") (www.roosterenergyltd.com) (TSXV: COQ)
announced today that it has entered into: (i) a membership interest
contribution agreement (the "Cochon Agreement") dated
March 7, 2014 with the members of
Cochon Properties, LLC ("Cochon") to acquire 100% of the
membership interests in Cochon for consideration of US$30 million (the "Cochon Acquisition");
and (ii) a membership interest contribution agreement (the "Well
Services Agreement" and, together with the Cochon Agreement,
the "Agreements") dated March 7,
2014 with Morrison Energy Group, LLC, ("MEG") to
acquire 100% of the membership interest in Morrison Well Services,
LLC ("Well Services") for consideration of US$95 million (the "Well Services
Acquisition" and, together with the Cochon Acquisition, the
"Transaction").
Pursuant to the Transaction, as further
described below, Rooster will acquire Cochon, which owns oil and
gas leases covering three shallow water, offshore Gulf of Mexico oil and gas fields, and Wells
Services, the primary business of which is the plugging and
abandonment of wells with 15 rigless plug and abandonment
units.
Robert P. Murphy,
President and Chief Executive Officer of Rooster, commented "we
continue to see the shallow waters of the Gulf of Mexico as a key U.S. producing basin
with extensive reserves remaining in identified reservoirs and vast
exploratory potential beneath the shadows of the established
fields. The acquisition of Cochon along with Well Services
enables Rooster to continue its strategy of near infrastructure
exploration and development with the ability to dismantle the
infrastructure in a timely and efficient manner. Well
Services, an established leader for well abandonment services in
the Gulf, will be a key enabler for Rooster to continue its near
infrastructure strategy while providing the same safe and efficient
plug and abandonment services for existing and new clients in the
Gulf of Mexico and beyond."
Chester F. Morrison,
Jr., Chairman of Rooster's board of directors, commented
that "the directors of Rooster support the proposed transactions
and believe they provide a strategic advantage for Rooster to
continue amalgamating fundamentally low risk reserve opportunities
and solving the decommissioning challenges inherent with these
shallow water fields. Combining these two assets into Rooster will
improve Rooster's capital structure, expand critical mass and also
allow access to the public capital markets that will fuel future
growth. The Transaction provides a win-win solution benefiting
Rooster's shareholders, employees, and all clients as we continue
to grow the Company in both the oil and gas and service areas of
business."
Transaction
Pursuant to the Transaction, Rooster will
purchase Well Services for US$95
million and Cochon for US$30
million, for aggregate consideration of US$125 million (the "Purchase Price"),
subject to adjustments for working capital. The Purchase Price will
be comprised of US$115 million in
common shares of Rooster (the "Rooster Common Shares"), of
which US$85 million will be in
respect of Well Services and the remaining US$30 million will be in respect of Cochon, and
US$10 million in cash, all in respect
of Well Services. Pursuant to the Transaction, Well Services and
Cochon will each become a wholly owned subsidiary of Rooster.
Subject to receipt of all required approvals, the Transaction is
expected to close in the second quarter of 2014.
The number of Rooster Common Shares issued to
satisfy the Rooster Common Share portion of the Purchase Price will
equal that number obtained by dividing US$115 million dollars by the average daily
closing price for the Rooster Common Shares for the twenty (20)
consecutive trading days ending on and including the date that is
ten (10) business days prior to the special shareholder meeting to
approve the Transaction (the "Meeting"), provided that for
the purposes of the exchange ratio the closing price of such
Rooster Common Shares shall be subject to a floor price of
CDN$0.40 and a cap of CDN$0.70.
Cochon is a Louisiana limited liability company and Wells
Services is a Delaware limited
liability company which was recently formed by MEG to acquire all
of the business and assets of the well services division of Chet
Morrison Contractors, LLC ("CMC"), a wholly owned subsidiary
of MEG. 90% of the membership interest in Cochon is owned by
Chester F. Morrison, Jr. and Well
Services is wholly owned and controlled, indirectly, by Mr.
Morrison. Mr. Morrison is the Chairman of Rooster's board of
directors and the holder of approximately 62% of the votes attached
to Rooster's issued and outstanding voting securities.
Cochon
Cochon owns oil and gas leases covering the
Eugene Island Block 18 Field, Vermilion Block 67 Field and West
Delta Block 44/45 Field, which are operated and producing oil and
gas fields, all located in the shallow waters of the
Gulf of Mexico. Cochon currently
produces approximately 1,100 barrels of oil equivalent per day (27%
oil) on a combined basis from the fields. Estimated proved reserves
for the Eugene Island Block 18 Field were 355 thousand barrels of
oil, 20 thousand barrels of natural gas liquids and 1 billion cubic
feet of natural gas, or 544 thousand barrels of oil equivalent.
Estimated proved reserves for the Vermilion Block 67 Field were 41
thousand barrels of oil and 8.9 billion cubic feet of natural gas,
or 1.5 million barrels of oil equivalent. Estimated proved reserves
for the West Delta Block 44/45 Field were 325 thousand barrels of
oil and 1.7 billion cubic feet of natural gas, or 601 thousand
barrels of oil equivalent. Pursuant to the Reserve Reports (as
defined below), the net present value of future net revenue of the
proved reserves (discounted at 10%) for the Eugene Island Block 18,
Vermilion Block 67 and West Delta Block 44/45 Fields was
US$15,391,000, US$12,955,136 and US$3,891,313, respectively. The proved reserve
estimates were generated by Ryder Scott Company, for the Eugene
Island Block 18 Field and Robert W. Eggert,
Jr. PE, for the Vermilion Block 67 and West Delta Block
44/45 Fields, each of which is an independent qualified reserves
evaluator, with reports dated January 8,
2014 and February 24, 2014,
respectively (the "Reserve Reports"). The Reserve Report
prepared by Ryder Scott Company is effective as of October 31, 2013 and the Reserve Report prepared
by Robert W. Eggert, Jr. PE is
effective as of December 31, 2013,
each of which was prepared in accordance with the Canadian Oil and
Gas Evaluation Handbook. The total proved reserves for Cochon
aggregated from the Reserve Reports are 721 thousand barrels of
oil, 20 thousand barrels of natural gas liquids and 11.6 billion
cubic feet of natural gas, or 2.6 million barrels of oil
equivalent. The total net present value of future net revenue of
the proved reserves aggregated from the Reserves Reports
(discounted at 10%) is US$32.2 million
dollars.
Notice to Reader
The estimates of net present value of future net
revenue do not necessarily represent the fair market value of
Cochon's reserves. Readers are cautioned that the aggregate
estimates above reflect different price estimates and different
effective dates of the respective Reserve Reports from which such
estimates are derived. 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.
Well Services
The business of the well services division of
CMC, which will be transferred to Wells Services before closing, is
that of a Gulf of Mexico well
abandonment service provider. The products offered includes
the performance of all phases of well intervention services,
including inland, offshore and subsea plug and abandonment,
decommissioning and complete field abandonment, conductor and
structural removal and abrasive cutting capabilities. The Well
Services Acquisition will bring 15 rigless well abandonment units
and the full complement of approximately 160 skilled technicians
and engineering staff that has successfully grown the business of
Well Services into one of the largest plugging and abandonment
companies operating in the Gulf of
Mexico. The business of Well Services has experienced
24% annual growth over the last three years and had a significant
backlog of more than $100 million
remaining at September 30, 2013.
Related Party Transaction and Rooster
Shareholder Meeting
Rooster intends to call the Meeting of the
holders of Rooster shares (the "Rooster Shareholders") for
the purpose of approving the Transaction. Rooster anticipates that
the Meeting will be held in the second quarter of 2014 and is
currently preparing a management information circular respecting
the Meeting and the Transaction to be mailed to the Rooster
Shareholders in advance of the Meeting.
Chester F. Morrison,
Jr., the majority shareholder of Rooster and Chairman of
Rooster's board of directors, holds 90% of the membership interest
in Cochon and wholly owns and controls, indirectly, Wells Services.
Accordingly, the Transaction constitutes a related party
transaction for the purposes of Multilateral Instrument 61-101 -
Protection of Minority Security Holders in Special
Transactions ("MI 61-101") and must receive minority
approval (as such term is defined in MI 61-101) of the Rooster
Shareholders. The majority required to pass the resolution
approving the Transaction will be not less than 50% of the votes
cast by the Rooster Shareholders represented in person or by proxy
at the Meeting, excluding votes attributable to those shares of
Rooster owned or controlled, directly or indirectly, by Mr.
Morrison. K2 Principal Fund, L.P. ("K2"), owner of
approximately 21% of the outstanding Rooster Common Shares, has
entered into a support agreement to vote all of its shares in favor
of the Transaction. The Rooster Common Shares held by K2
represent more than 51% of the votes attached to the minority of
Rooster shares entitled to vote on the Transaction.
As a result of the Transaction, the percentage
of Rooster Common Shares, on a fully diluted basis, owned or
controlled, directly or indirectly, by Mr. Morrison is expected to
increase from 62% to approximately 85% to 90%.
The Rooster Common Shares are listed on the TSX
Venture Exchange (the "TSXV") and are not listed on any
specified market (as such term is used in MI 61-101). As a result,
Rooster is not required to obtain a formal valuation (as defined in
MI 61-101) in connection with the Transaction
Conditions to Completion of the Transaction
The Transaction constitutes a reviewable
transaction under Policy 5.3 of the TSXV and, accordingly, is
subject to acceptance by the TSXV. The Transaction is also subject
to certain other conditions set out in the Agreements, including:
(i) that Rooster shall be satisfied that all of the requirements to
closing each of the Well Services Acquisition and Cochon
Acquisition shall have been satisfied; (ii) minority approval by
the Rooster Shareholders of the Transaction; (iii) receipt by
Rooster of a fairness opinion relating to the Transaction; and (iv)
certain other customary closing conditions for a transaction of
this nature.
Trading of the Rooster Common Shares on the TSXV
has been halted pending receipt and review of the applicable
documentation by the TSXV.
ABOUT ROOSTER ENERGY, LTD.
The Company is a Houston, Texas, based independent oil and
natural gas exploration & production company focused on the
development of resources in the shallow waters of the Gulf of Mexico. At September 30, 2013, our primary assets consist of
interests in 20 producing oil and/or natural gas wells and 16
federal lease blocks. The Company is the operator of the
majority of its properties and daily oil and gas production.
Caution
Completion of the Transaction is subject to a
number of conditions, including TSXV acceptance and approval of the
Rooster Shareholders. The Transaction cannot close until the
required Rooster Shareholder approval is obtained. There can be no
assurance that the Transaction will be completed as proposed or at
all.
Investors are cautioned that, except as
disclosed in the circular of Rooster to be prepared in connection
with the Transaction, any information released or received with
respect to the Transaction may not be accurate or complete and
should not be relied upon. Trading in the securities of Rooster
should be considered highly speculative.
The TSXV has in no way passed upon the merits
of the Transaction and has neither approved nor disapproved the
contents of this press release.
Forward Looking Information and
Statements
Certain statements and information in this
press release are forward-looking statements, including statements
made with respect to: the Transaction; the completion of the
Transaction; the anticipated dates for the holding of the Meeting
and the mailing of the management information circular respecting
the Meeting; the benefits of the Transaction; the future operating
plans and prospects of Rooster; the ability of Rooster to obtain
future debt or equity financing on terms acceptable to Rooster, if
at all; and other matters. Information relating to reserves and
resources is deemed to be forward-looking information as it
involves the implied assessment, based on certain estimates and
assumptions, that the reserves described exist in the quantities
predicted or estimated and can be profitably produced in the
future.
The forward-looking statements contained in
this document are based on certain key expectations and assumptions
made by Rooster that are subject to inherent risks and
uncertainties and other factors that may cause the actual results,
performance or achievements to differ materially from the
anticipated results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include
expectations and assumptions concerning timing of receipt of the
required regulatory approvals, the satisfaction of other conditions
to the completion of the Transaction, the parties' ability to close
the Transaction and within the currently anticipated timeline;
risks associated with the oil and gas industry (e.g. operational
risks in exploration, development and production, delays or changes
in plans, risks associated with the uncertainty of reserve
estimates or reservoir performance, health and safety risks and the
uncertainty of estimates and projections of production, costs and
expenses), commodity prices and exchange rates.
Although Rooster 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 Rooster can give
no assurance that they will prove to be correct. The Transaction
may not be completed on the terms described or at all.
Rooster's forward-looking statements are
qualified in their entirely by these cautionary statements. The
forward-looking statements contained in this document are made as
of the date hereof and Rooster undertakes no obligation to update
publically 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 law.
Note Regarding BOEs
The term barrel of oil equivalent
("BOE") may be misleading, particularly if used in
isolation. A boe conversion ratio for gas of 6 thousand cubic feet
of natural gas ("Mcf"):1 BOE is based on an energy
equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead.
Given that the value ratio based on the current price of crude oil
as compared to natural gas is significantly different from the
energy equivalency conversion ratio of 6 Mcf:1 BOE, utilizing a
conversion on a 6 Mcf:1 BOE basis is misleading as an indication of
value.
NEITHER THE TSX VENTURE EXCHANGE NOR ITS
REGULATION SERVICE PROVIDER (AS THAT TERM IS DEFINED IN THE
POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR
THE ADEQUACY OR ACCURACY OF THE RELEASE.
SOURCE ROOSTER ENERGY LTD.