NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A
VIOLATION OF U.S. SECURITIES LAWS.
Storm Resources Ltd. ("Storm") (TSX VENTURE:SRX) and Bellamont Exploration Ltd.
("Bellamont") (TSX VENTURE:BMX.A) are pleased to announce they have entered into
an arrangement agreement (the "Arrangement Agreement") with respect to a
combination of both companies (the "Transaction"). Under the terms of the
Arrangement Agreement, Bellamont shareholders will receive, at their election,
for each common share of Bellamont ("Bellamont Share") held: (i) $0.56 cash; or
(ii) 0.1445 of a Storm Share; or (iii) a combination of cash and Storm Shares.
The cash amount payable to Bellamont shareholders is subject to a maximum
aggregate amount of $20.0 million. Storm will also assume the net debt of
Bellamont which is estimated to be $40.0 million at December 31, 2011, including
employee severance costs and costs associated with the Transaction. Including
net debt of $40.0 million, the total value of the Transaction is $122.6 million,
using Storm's 20 day volume weighted average share price of $3.75 and assuming
maximum cash is elected which results in the issuance of 16.7 million Storm
shares.
The Transaction will be funded in part through a $25.0 million private placement
of common shares of Storm ("Storm Shares") at a price of $3.40 per Storm Share
(the "Financing").
After completion of the Transaction and the Financing, Storm expects to have a
total of approximately 62.2 million Storm Shares outstanding, assuming Bellamont
shareholders elect the maximum amount of cash available under the Transaction,
and also after giving effect to Storm's recently completed acquisition of Storm
Gas Resource Corp.
The executive management group of Storm, led by Mr. Brian Lavergne as President
and Chief Executive Officer, will manage the combined enterprise. The board of
directors of Storm will be unchanged after completion of the Transaction.
SUMMARY OF THE TRANSACTION
Storm is acquiring operated, high working interest assets located in the Grande
Prairie area of north western Alberta with current production of approximately
2,200 Boe per day (52% natural gas and 48% crude oil and natural gas liquids).
Additional information regarding the Transaction:
-- Total Transaction cost (including net debt) is $122.6 million;
-- Net Transaction cost after deducting net debt is $82.6 million;
-- Proved reserves of Bellamont at December 31, 2010(1)(2)(3) total 6,405
Mboe (42% light oil and NGLs);
-- Proved plus probable reserves of Bellamont at December 31, 2010(1)(2)(3)
total 11,523 Mboe (40% light oil and NGLs);
-- Annualized cash flow(4) from the Bellamont assets estimated to be $23.0
million;
-- Operating netback(4) $28.70/Boe;
-- Net debt at December 31, 2011 is estimated to be $40.0 million (includes
Transaction costs plus employee severance);
-- Undeveloped land value of $7.35 million (internally estimated by Storm);
-- Annual production decline is relatively shallow at 20% to 25% (decline
is less than 10% on older wells that came on production before January
2010, approximately half of current production); and
-- Approximately 200 net Boe per day is currently shut in due to mechanical
issues (pipeline break at Saddle Hills, liquids rich Montney gas well at
Grande Prairie awaiting installation of compression).
A reserves evaluation of Bellamont's assets is expected to be completed by
April, 2012.
(1) Based on Gross Company Interest Reserves, which means working interest
reserves before the calculation of royalties, and before the consideration of
the company's royalty interest. Reserves are from the reserve evaluation
prepared for Bellamont by GLJ Petroleum Consultants Ltd. effective December 31,
2010.
(2) During 2011, Bellamont's Sinclair and Pembina properties were sold, which
had associated proved reserves of 267 MBoe and proved plus probable reserves of
518 Mboe on December 31, 2010.
(3) Proved and proved plus probable reserves do not reflect estimated production
of 889 Mboe during 2011.
(4) Based on current production of 2,200 Boe/d, Cdn $99.88/Bbl Edmonton Par,
C$2.97/GJ AECO, operating costs of $13.50/Boe, transportation cost of $1.50/Boe,
and an average royalty rate of 18%.
RATIONALE FOR THE TRANSACTION
The Transaction benefits both Bellamont and Storm shareholders with the combined
company having annualized cash flow of $30 to $35 million per year at closing
and a more diversified, resource oriented asset base. Near-term growth will
primarily come from exploitation of Bellamont's Montney light oil pool at
Grimshaw and from delineating Storm's liquids rich natural gas resource in the
Montney formation at Umbach. Bellamont shareholders retain exposure to upside
associated with the Grimshaw Montney light oil pool and gain asset
diversification into much larger resource opportunities at Umbach (liquids rich
Montney gas) and in the Horn River Basin (Muskwa and Otter Park shale gas).
Storm shareholders benefit from the higher netbacks, cash flow, and relatively
shallow decline associated with Bellamont's asset base which will result in
increased production growth as well as acceleration of resource delineation at
Umbach.
Steve Moran, President and Chief Executive Officer of Bellamont comments, "The
Transaction will provide Bellamont shareholders the opportunity to participate
in a larger, well capitalized company. The Storm management team has an enviable
track record of value creation. The assets and operating philosophies of the two
companies are very complementary in nature, with a concentration of high quality
resource based opportunities."
At Grimshaw, there remains significant upside associated with further exploiting
and delineating Bellamont's large Montney light oil pool. Bellamont has a 100%
working interest in 17 sections of land at Grimshaw. Storm management estimates
that Discovered Petroleum-Initially-in-Place ("DPIIP") in the Montney pool
ranges from 19 million barrels of oil to more than 35 million barrels of oil.
Estimated DPIIP is based on an areal extent of 2.0 to 4.5 sections, net pay of
8.5 metres, average porosity of 17% and average oil saturation of 44%. In the
second half of 2012, Storm plans to drill five horizontal wells which will
include up to two step-out horizontals with logged vertical pilot holes.
Bellamont recently drilled a vertical well which encountered a new pool to the
west. This vertical well is expected to begin producing in the first quarter of
2012 and, this summer, a horizontal with a logged vertical pilot hole is
expected to be drilled offsetting the discovery well. Storm will continue to
advance Bellamont's plans to initiate a waterflood in the pool which could
materially increase oil recovery and reserves at minimal cost. In the third
quarter of 2011, the operating netback at Grimshaw was $45.50 per Boe with new
horizontal wells benefiting from a 5% royalty rate under Alberta's New Well
Royalty Rate program.
Production declines for the combined asset base can be offset by investing
approximately 60% of annualized cash flow which will be done primarily by
drilling horizontal wells at Grimshaw and at Umbach. This assumes commodity
prices in 2012 average $2.97 per GJ at AECO and $99.88 per barrel of oil for
Edmonton Par. The remaining 40% of annualized cash flow is available for
re-investment in high potential opportunities, which includes further
advancement of Storm's liquids rich Montney gas resource at Umbach in north
eastern British Columbia.
OPERATING GUIDANCE
Pro forma
Storm Bellamont Combined
----------------------------------------------------------------------------
Current daily production
- natural gas (Mcf) 5,500 6,900 12,400
- crude oil and NGLs (Bbl) 195 1,050 1,245
- Total Boe per day 1,110 2,200 3,310
- Oil and liquids % 18% 48% 38%
----------------------------------------------------------------------------
Estimated field netback at $2.97/GJ
AECO, Cdn $99.88/Bbl Edmonton Par(1) $21.60 $29.80 $27.05
----------------------------------------------------------------------------
Undeveloped land - net acres 228,000 78,000 306,000
----------------------------------------------------------------------------
$65.0
Indicated bank line million
----------------------------------------------------------------------------
$10.00 to
$12.00 per
2012 average operating costs(2) Boe
----------------------------------------------------------------------------
2012 average royalty rate(2) 13%
----------------------------------------------------------------------------
$34.0
2012 operations capital(2) million
----------------------------------------------------------------------------
$3.50 per
2012 cash G&A(2) Boe
----------------------------------------------------------------------------
3,600 to
4,000 Boe
per day
2012 exit or fourth quarter average (40% oil +
production NGLs)
----------------------------------------------------------------------------
(1) Using Storm and Bellamont Q1 to Q3 2011 % royalty rate, operating costs and
transportation costs.
(2) Assumes transaction with Bellamont closes prior to April 1, 2012.
The 2012 capital budget of $34.0 million includes $2.0 million for land/seismic,
$5.0 million for facilities and $27.0 million for drilling and completions. This
includes one vertical well (1.0 net) at Umbach, two horizontal wells (1.2 net)
at Umbach, completing a standing horizontal well (0.6 net) at Umbach, two
vertical infill wells (2.0 net) at Mica and five horizontal wells (5.0 net) at
Grimshaw. The budget of $5.0 million for facilities includes initiating the
waterflood at Mica and modifications at three existing facilities in the Grande
Prairie area.
In the near term (to the end of Q3 2012), Storm will be focused on:
-- Reducing production declines in the Grande Prairie area by restoring
production associated with recent mechanical failures and through
optimization of downhole pumps, field compression and facilities to
reduce well downtime.
-- Implementing operating cost reductions in the Grande Prairie area that
have been identified by Storm and Bellamont which total more than $2.0
million per year. Gas wells with minimal liquids production and high
third party processing fees will be shut in, which will reduce
production by 180 Boe/d, operating costs by $1.3 million per year and
cash flow by $250,000 per year (based on Q3 2011 financial results).
Modification of three facilities will reduce trucking and processing
costs by $0.7 million to $1.0 million per year (six to nine month
payout).
-- Advancing exploitation of the Montney light oil pool at Grimshaw with
infill horizontals as well as step-out horizontals with logged vertical
pilot holes to help determine the areal extent of the pool. In order to
try to improve production rates, the horizontal wellbores will be
drilled higher in the formation and the spacing between fracture
stimulations will be reduced.
-- Further delineating the liquids rich Montney gas resource at Umbach by
completing the fourth horizontal well (0.6 net) on the northern lands,
drilling and completing two to three additional horizontal wells (1.2 to
1.8 net) on the northern lands and drilling a vertical delineation well
(1.0 net) on the southern lands.
Storm estimates that net debt at closing of the Transaction will be $39.0
million which will be less than 1.5 times annualized cash flow from the merged
Storm and Bellamont asset bases using commodity prices of $2.97/GJ AECO and Cdn
$99.88/bbl Edmonton Par.
THE TRANSACTION
Storm and Bellamont have entered into the Arrangement Agreement pursuant to
which each party has agreed that the Transaction will be undertaken by means of
a plan of arrangement (the "Arrangement") under the Business Corporations Act
(Alberta). Under the terms of the Arrangement, Bellamont shareholders will
receive, at their election, for each Bellamont Share held: (i) $0.56 cash; or
(ii) 0.1445 of a Storm Share; or (iii) a combination of cash and Storm Shares.
The cash amount payable to Bellamont shareholders is subject to a maximum
aggregate amount of $20.0 million. Assuming election of the maximum cash amount
of $20.0 million, Storm will issue 16.7 million common shares to Bellamont
shareholders. The Arrangement contemplates that Bellamont will hold a meeting of
its shareholders on or prior to March 15, 2012 (the "Bellamont Meeting") to
permit shareholders to vote on the Arrangement.
The board of directors of Bellamont eligible to vote unanimously supports the
Transaction, has determined that the Transaction is in the best interest of
Bellamont and recommends that the shareholders of Bellamont vote in favour of
the Transaction. Certain Bellamont shareholders, including all senior officers
and directors, who collectively hold approximately 10% of the issued and
outstanding voting shares of Bellamont, have agreed to vote their shares in
favour of the Transaction at the Bellamont Meeting.
The Arrangement Agreement includes non-solicitation covenants (subject to the
fiduciary obligations of the board of directors of Bellamont and the right of
Storm to match any Superior Proposal, as defined in the Arrangement). The
Arrangement, among other things, provides for non-completion fees of $3.0
million payable by Storm and Bellamont in the event the Transaction is not
completed or is terminated by either party in certain circumstances. The
Arrangement Agreement provides that completion of the Transaction is subject to
certain conditions, including the receipt of all required regulatory approvals
(including the approval of the TSX Venture Exchange), the approval of the
shareholders of Bellamont (including, if applicable, the approval of the
majority of the minority) and the approval of the Court of Queen's Bench of
Alberta. The Transaction is anticipated to close in March 2012.
THE FINANCING
Storm will issue 7.4 million Storm Shares pursuant to a private placement which
will be priced at $3.40 per Storm Share for gross proceeds of $25.0 million.
Management and directors are subscribing for $8.5 million of the total
Financing. The proceeds of the Financing will be used to fund the cash component
of the Transaction payable by Storm pursuant to the Arrangement and for general
corporate purposes. A cash commission of up to 5% of proceeds from the Financing
may be payable in connection with certain subscriptions under the Financing.
Completion of the Financing is subject to certain conditions, including the
receipt of all necessary shareholder and regulatory approvals, including the
approval of the TSX Venture Exchange. Closing of the Financing is expected to
occur on or about February 10, 2012.
FINANCIAL ADVISORS
FirstEnergy Capital Corp. is acting as exclusive financial advisor to Bellamont
with respect to the Transaction and has provided the Board of Directors of
Bellamont with its opinion that, subject to its review of the final form of
documents effecting the Arrangement, the consideration to be received by
Bellamont shareholders is fair, from a financial point of view.
READER ADVISORIES
Boe Presentation - For the purpose of calculating unit revenues and costs,
natural gas is converted to a barrel of oil equivalent ("Boe") using six
thousand cubic feet ("Mcf") of natural gas equal to one barrel of oil unless
otherwise stated. Boe may be misleading, particularly if used in isolation. A
Boe conversion ratio of six Mcf to one barrel ("Bbl") 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 measurements and
conversions in this report are derived by converting natural gas to oil in the
ratio of six thousand cubic feet of gas to one barrel of oil. Mboe means 1,000
Boe.
Non-GAAP Measurements - This document contains the terms "cash flow", "funds
from operations" and "operating netbacks", which do not have a standardized
meaning prescribed by Canadian GAAP and therefore may not be comparable with the
calculation of similar measures by other companies. Storm uses cash flow, funds
from operations and operating netbacks to analyze financial and operating
performance. Storm believes these benchmarks are key measures of profitability
and overall sustainability for Storm. They are widely used by analysts,
investors and also by the Company's bankers and each of these terms is commonly
used in the oil and gas industry. Cash flow and operating netbacks are not
intended to represent operating profits nor should they be viewed as an
alternative to cash flow provided by operating activities, net earnings or other
measures of financial performance calculated in accordance with GAAP. Cash flows
are calculated as cash flows from operating activities less changes in non-cash
working capital. Operating netbacks are determined by deducting royalties,
production expenses and transportation, selling expenses and hedging gains or
losses (where relevant) from oil and gas revenue. Storm calculates cash flow per
share using the same method and shares outstanding that are used in the
determination of earnings per share.
Forward-Looking Information - This press release contains forward-looking
statements and forward-looking information within the meaning of applicable
securities laws. The use of any of the words "expect", "anticipate", "continue",
"estimate", "objective", "ongoing", "may", "will", "project", "should",
"believe", "plans", "intends" and similar expressions are intended to identify
forward-looking information or statements. More particularly and without
limitation, this press release contains forward looking statements and
information concerning the combined company's exploration and development
activities, secondary recovery, production declines, working capital and bank
facility, production, reserves, debt, royalties, operating costs, capital
expenditures, general and administration expenses, cash flow, undeveloped land
holdings and anticipated benefits from the Transaction. The forward-looking
statements and information are based on certain key expectations and assumptions
made by Storm and Bellamont, including expectations and assumptions concerning
prevailing commodity prices and exchange rates, applicable royalty rates and tax
laws; future well production rates and reserve volumes; the timing of receipt of
regulatory and shareholder approvals, the performance of existing wells; the
success obtained in drilling new wells; and the sufficiency of budgeted capital
expenditures in carrying out planned activities; and the availability and cost
of labour and services.
Although Storm and Bellamont believe 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 Storm and Bellamont can give no assurance that they will
prove to be correct. Since forward-looking statements and information 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 risks associated with the oil and gas industry in general such
as 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 reserves, production, costs and expenses; health,
safety and environmental risks; commodity price and exchange rate fluctuations;
marketing and transportation; loss of markets; environmental risks; competition;
incorrect assessment of the value of acquisitions; failure to realize the
anticipated benefits of acquisitions; ability to access sufficient capital from
internal and external sources; failure to obtain required regulatory and other
approvals; and changes in legislation, including but not limited to tax laws,
royalties and environmental regulations. There are risks also inherent in the
nature of the proposed Transaction, including failure to realize anticipated
synergies or cost savings; risks regarding the integration of the two entities;
incorrect assessments of the values of the other entity; and failure to obtain
the required shareholder, court, regulatory and other third party approvals.
This press release also contains forward-looking statements and information
concerning the anticipated completion of the proposed Transaction and the
anticipated timing for completion of the Transaction. Storm and Bellamont have
provided these anticipated times in reliance on certain assumptions that they
believe are reasonable at this time, including assumptions as to the timing of
receipt of the necessary regulatory and court approvals and the time necessary
to satisfy the conditions to the closing of the Transaction. These dates may
change for a number of reasons, including unforeseen delays in preparing meeting
materials, inability to secure necessary regulatory or court approvals in the
time assumed or the need for additional time to satisfy the conditions to the
completion of the Transaction. Accordingly, readers should not place undue
reliance on the forward-looking statements and information contained in this
press release concerning these times. Readers are cautioned that the foregoing
list of factors is not exhaustive. Additional information on these and other
factors that could affect Storm's or the combined company's operations or
financial results are included in reports on file with applicable securities
regulatory authorities and may be accessed through the SEDAR website
(www.sedar.com) and at Storm's website (www.stormresourcesltd.com). The
forward-looking statements and information contained in this press release are
made as of the date hereof and Storm and Bellamont undertake 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.
Discovered-Petroleum-Initially-in-Place ("DPIIP") is defined in the Canadian Oil
and Gas Evaluation Handbook ("COGEH") as the quantity of hydrocarbons that are
estimated to be in place within a known accumulation. DPIIP is divided into
recoverable and unrecoverable portions, with the estimated future recoverable
portion classified as reserves and contingent resources. There is no certainty
that it will be economically viable or technically feasible to produce any
portion of this DPIIP except for those portions identified as proved or probable
reserves. A recovery project cannot be defined for this volume of DPIIP at this
time, and as such it cannot be further sub-categorized.
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