Parex Announces Strategic Acquisition of Verano to Consolidate its Working Interest in Southern Llanos Blocks LLA-32 and LLA-34
13 May 2014 - 9:33PM
Marketwired Canada
NOT FOR DISTRIBUTION OR FOR DISSEMINATION IN THE UNITED STATES
Parex Resources Inc. ("Parex" or the "Company") (TSX:PXT) and Verano Energy
Limited ("Verano") are pleased to announce that they have entered into an
agreement whereby Parex has agreed to purchase all of the issued and outstanding
common shares of Verano, a private oil company with operations in Colombia (the
"Transaction") for a total net consideration of CAD$198 million or CAD$1.25 per
Verano share, pursuant to a plan of arrangement (the "Arrangement") under the
Business Corporations Act (Alberta). The Transaction consolidates the Company's
core Southern Llanos area by acquiring additional working interests in Blocks
LLA-32, LLA-34, and in LLA-17, where significant exploration and appraisal
success has been demonstrated, and will result in Parex assuming operatorship of
Block LLA-32.
Under the terms of the Arrangement, Verano shareholders will receive CAD$76
million (33.3%) in cash and CAD$153 million (66.7%) in the form of Parex common
shares. Based on the 20-day weighted average trading price of Parex shares
ending May 9, 2014 of CAD$10.88, approximately 14.03 million Parex shares will
be issued to Verano shareholders pursuant to the terms of the Arrangement. Parex
will assume the working capital surplus of Verano, estimated to be CAD$30
million at closing and the remaining cash consideration will be funded by Parex
from its existing working capital and undrawn credit facilities, which totaled
approximately USD$158 million as at March 31, 2014.
Strategic Rationale
The Transaction will substantially grow current production and cash flow for
Parex while maintaining Parex' significant financial flexibility. Additionally,
the Transaction builds on the exploration and development success Parex has
demonstrated in the Southern Llanos, increases the Company's working interest in
key growth oriented existing blocks, and allows Parex to assume operatorship on
LLA-32 where significant exploration success has been realized in 2014 and
additional exploration remains. Parex' increased working interests before
royalties ("WI") in the acquired blocks are below:
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Block Parex WI Acquisition WI Post Acquisition WI
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LLA-17 40% 23% 63%
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LLA-32 30% 40% 70%
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LLA-34 45% 10% 55%
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In the first half of 2014, blocks LLA-32 and LLA-34 have experienced strong
exploration and appraisal results, with additional high impact drilling and
completion activity approved and planned by Parex for the second half of 2014 as
follows:
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Block Field/Well Status GLJ Report Dec. 31, 2013
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LLA-32
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Tested 3,555 bopd;
to produce with ESP
Kananaskis-1 on long-term test Not evaluated
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Cased - ready to
Calona-1 test Not evaluated
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Testing operations
Carmentea-1 underway Not evaluated
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Additional 3 development/appraisal
wells approved for 2014 n/a
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LLA-34
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Included in 2P; Included
Tua-6 Producing in 3P
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Cased - ready to Included in 2P; Included
Tigana-2 test in 3P
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Testing operations Excluded in 2P; Included
Tigana-3 underway in 3P
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Cased - ready to Excluded in 2P; Excluded
Tigana-Norte-1 test in 3P
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Tigana Drilling operations Excluded in 2P; Excluded
SurOeste-1 underway in 3P
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Additional 2 exploration & 7
development/appraisal wells approved
for 2014 n/a
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Parex expects the Block LLA-32 Kananaskis-1 discovery to commence light oil
production shortly. The Mirador Formation tested an average of 3,555 bopd of 30
degrees API oil over an 8 hour period under natural flowing conditions with a
final water-cut of 0.8% and a total of 1,186 barrels of oil was recovered. An
ESP in the Mirador has been installed. In addition the Une and two zones in the
Gacheta Formation tested gas and minor amounts of condensate. The Company
believes that the tested gas could be used as a field power source to reduce
operating expenses in the future, consistent with Parex' current operations in
its operated Las Maracas and Kona fields.
Acquisition Summary
The Acquisition has the following characteristics:
-- Production (current): 2,200 bopd
-- Production (expected at close): 4,000 bopd
-- Proved plus Probable Reserves (2P, Dec. 31, 2013)(1): 3.5 MMbbl
-- Proved plus Probable plus Possible Reserves (3P, Dec. 31, 2013)(1): 5.4
MMBbl
-- As previously announced Parex intends to release an updated
corporate reserve report effective June 30, 2014 of the combined
Parex and Verano companies.
-- Operating Netback(2 ): $60-$70 per bbl
1. Reserves are Gross Company Reserves as evaluated by GLJ Petroleum Consultants
Ltd. ("GLJ") as of December 31 2013. Gross Company Reserves are Verano's working
interest reserves before the deduction of royalties.
2. Based on expected average prices for Q3/Q4 2014 and historical Parex operated
production, transportation and royalty expenses.
Guidance Update
As previously announced Parex has projected its Q2 2014 production to be
19,000-19,500 bopd, prior to the Transaction. At the end of Q2 2014 after
assessing the initial production results of its current inventory of
non-producing wells, Parex expects to:
-- update and increase its full year production guidance;
-- revise and increase its full year capital program in line with year-to-
date exploration success, production growth, strong netbacks and
addition of new properties including additional working interest
acquired through the Transaction; and
-- release a mid-year independent reserve evaluation.
At the closing of the Transaction Parex will assume operatorship of Block LLA-32
and this will enable the Company to forecast more accurately the remaining 2014
capital expenditures, production expenses and production.
Plan of Arrangement
Pursuant to the agreement governing the Arrangement ("Arrangement Agreement"),
Parex and Verano have agreed that the Transaction will be completed by way of
plan of arrangement under the Business Corporations Act (Alberta).
The board of directors of Verano has unanimously approved the Arrangement and
the entering into of the Arrangement Agreement and recommended that Verano
shareholders vote in favour of the Arrangement. The board of directors of Verano
has received a verbal fairness opinion from TD Securities Inc. that the
consideration to be received by Verano shareholders pursuant to the Transaction
is fair, from a financial point of view, to the Verano shareholders. Holders of
greater than 20% of the shares of Verano have entered into agreements with Parex
pursuant to which they have agreed to vote their shares in favour of the
Transaction.
The Arrangement Agreement provides for non-solicitation covenants of Verano,
subject to the fiduciary obligations of the board of directors of Verano, and
the right of Parex to match any Superior Proposal (as defined in the Arrangement
Agreement) within three business days. The Arrangement Agreement also provides
for industry standard mutual non-completion fees in the event that the
Transaction is not completed or is terminated by either party in certain
circumstances.
The Arrangement Agreement provides that the completion of the Transaction is
subject to certain conditions, including the receipt of all required regulatory
approvals, including the approval of the TSX of the listing of the Parex shares
to be issued in the Transaction, the approval of the shareholders of Verano and
the approval of the Court of Queen's Bench of Alberta. A management information
circular and proxy statement outlining the details of the Arrangement Agreement
and the Transaction will be mailed by Verano to the holders of the Verano shares
in late May 2014 for a Verano shareholder meeting to be held in June 2014, at
which meeting Verano shareholders will vote on the Arrangement and related
matters. The Arrangement is expected to close in late June 2014.
Financial Advisors
FirstEnergy Capital Corp. acted as the financial advisor to Parex with respect
to the Transaction. TD Securities Inc. acted as the financial and strategic
advisor and KES VII Capital acted as the strategic advisor to Verano with
respect to the Transaction.
This news release does not constitute an offer to sell securities, nor is it a
solicitation of an offer to buy securities, in any jurisdiction.
Reserve Advisory
"Proved" reserves are those reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves.
"Probable" reserves are those additional reserves that are less certain to be
recovered than proved reserves. It is equally likely that the actual remaining
quantities recovered will be greater or less than the sum of the estimated
proved plus probable reserves.
"Possible" reserves are those additional reserves that are less certain to be
recovered than probable reserves. There is a 10 percent probability that the
quantities actually recovered will equal or exceed the sum of proved plus
probable plus possible reserves. It is unlikely that the actual remaining
quantities recovered will exceed the sum of the estimated proved plus probable
plus possible reserves.
The recovery and reserve estimates of crude oil reserves provided are estimates
only, and there is no guarantee that the estimated reserves will be recovered.
Actual crude oil reserves may be greater than or less than the estimates
provided.
The reserves information contained in this press release has been prepared in
accordance with National Instrument 51-101 ("NI 51-101"). Note in respect of
reserves stated herein on a company interest basis, that "company interest" is
not defined in NI 51-101 and accordingly reserves expressed herein on such basis
may not be comparable to estimates of "gross" reserves prepared in accordance
with NI 51-101 or to other issuers' estimates of company interest reserves.
Advisory on Forward Looking Statements
Certain information regarding Parex set forth in this document contains
forward-looking statements that involve substantial known and unknown risks and
uncertainties. The use of any of the words "plan", "expect", "prospective",
"project", "intend", "believe", "should", "anticipate", "estimate" or other
similar words, or statements that certain events or conditions "may" or "will"
occur are intended to identify forward-looking statements. Such statements
represent Parex' internal projections, estimates or beliefs concerning, among
other things, future growth, results of operations, production, future capital
and other expenditures (including the amount, nature and sources of funding
thereof), competitive advantages, plans for and results of drilling activity,
environmental matters, business prospects and opportunities. These statements
are only predictions and actual events or results may differ materially.
Although the Company's management believes that the expectations reflected in
the forward-looking statements are reasonable, it cannot guarantee future
results, levels of activity, performance or achievement since such expectations
are inherently subject to significant business, economic, competitive, political
and social uncertainties and contingencies. Many factors could cause Parex'
actual results to differ materially from those expressed or implied in any
forward-looking statements made by, or on behalf of, Parex.
In particular, forward-looking statements contained in this document include,
but are not limited to, statements with respect to the effects of the
Arrangement on Parex and its business, including expected increases in
production and cash flow, increases in working interests in certain blocks in
Colombia and the expected assumption of operatorship of Block LLA-32; the
consideration to be issued in the Arrangement by Parex and the manner by which
the cash consideration will be funded by Parex; the nature of the drilling and
completion activity planned by Parex for the second half of 2014; the timing for
the Block LLA-32 Kananaskis-1 well to commence production; the use by Parex of
tested gas as a field power source; the matters set forth herein under the
heading "Guidance Update"; the performance characteristics of the Company's oil
properties; supply and demand for oil; financial and business prospects and
financial outlook; results of drilling and testing, results of operations;
drilling plans; activities to be undertaken in various areas; capital plans in
Colombia and exit rate production; timing of drilling and completion; and
planned capital expenditures and the timing thereof. In addition, statements
relating to "reserves" or "resources" are by their nature forward-looking
statements, as they involve the implied assessment, based on certain estimates
and assumptions that the resources and reserves described can be profitably
produced in the future. The recovery and reserve estimates of Parex' reserves
provided herein are estimates only and there is no guarantee that the estimated
reserves will be recovered.
These forward-looking statements are subject to numerous risks and
uncertainties, including but not limited to, the impact of general economic
conditions in Canada, Colombia and Trinidad & Tobago; industry conditions
including changes in laws and regulations including adoption of new
environmental laws and regulations, and changes in how they are interpreted and
enforced, in Canada, Colombia and Trinidad & Tobago; competition; lack of
availability of qualified personnel; the results of exploration and development
drilling and related activities; obtaining required approvals of regulatory
authorities, in Canada, Colombia and Trinidad & Tobago; risks associated with
negotiating with foreign governments as well as country risk associated with
conducting international activities; volatility in market prices for oil;
fluctuations in foreign exchange or interest rates; environmental risks; changes
in income tax laws or changes in tax laws and incentive programs relating to the
oil industry; ability to access sufficient capital from internal and external
sources; the risks that any estimate of potential net oil pay is not based upon
an estimate prepared or audited by an independent reserves evaluator; that there
is no certainty that any portion of the hydrocarbon resources will be
discovered, or if discovered that it will be commercially viable to produce any
portion thereof; and other factors, many of which are beyond the control of the
Company. Readers are cautioned that the foregoing list of factors is not
exhaustive. Additional information on these and other factors that could effect
Parex' operations and financial results are included in reports on file with
Canadian securities regulatory authorities and may be accessed through the SEDAR
website (www.sedar.com).
Although the forward-looking statements contained in this document are based
upon assumptions which Management believes to be reasonable, the Company cannot
assure investors that actual results will be consistent with these
forward-looking statements. With respect to forward-looking statements contained
in this document, Parex has made assumptions regarding: current commodity prices
and royalty regimes; availability of skilled labour; timing and amount of
capital expenditures; future exchange rates; the price of oil; the impact of
increasing competition; conditions in general economic and financial markets;
availability of drilling and related equipment; effects of regulation by
governmental agencies; receipt of all required approvals for the Transaction;
royalty rates, future operating costs, and other matters. Management has
included the above summary of assumptions and risks related to forward-looking
information provided in this document in order to provide shareholders with a
more complete perspective on Parex' current and future operations and such
information may not be appropriate for other purposes. Parex' actual results,
performance or achievement could differ materially from those expressed in, or
implied by, these forward-looking statements and, accordingly, no assurance can
be given that any of the events anticipated by the forward-looking statements
will transpire or occur, or if any of them do, what benefits Parex will derive.
These forward-looking statements are made as of the date of this document and
Parex disclaims any intent or obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or results or
otherwise, other than as required by applicable securities laws.
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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Parex Resources Inc.
Mike Kruchten
Vice-President Corporate Planning and Investor Relations
(403) 517-1733
Investor.relations@parexresources.com
Verano Energy Limited
Kristen Bibby
Vice President, Finance and Chief Financial Officer
(403) 984-4224
ir@veranoenergy.com
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