Pursuant to the Transaction, Headwater will acquire a 100% working interest in approximately 2,800 barrels per day of medium oil production and 270 net sections of
The total consideration to be paid to Cenovus for the Transaction consists of:
Cenovus will retain a gross overriding royalty on the lands allowing them to benefit from execution strength of the Headwater team in the development of the
Strategic Rationale
The Transaction solidifies Headwater's strategy to become a premier publicly traded oil and gas producer focused on asset quality, corporate level returns and sustainability while maintaining a pristine balance sheet.
Relevance
The Transaction establishes Headwater as the only pure play public company with material interests in the
Returns
In the context of current strip commodity pricing, the Headwater five-year business plan is expected to deliver 20-30% annualized debt adjusted funds flow growth with the potential to generate significant free cash flow.
Resiliency & Exploration Upside
The acquired development inventory on the core lands is highly economic on strip pricing. Our five-year business plan, under our current capital structure, is projected to have negligible to no leverage without any further capital injections.
Headwater plans to continue Cenovus' efforts to de-risk the approximate 250 sections of exploration acreage. The 6 historical exploration wells drilled by Cenovus have established 4 potential development areas, which Headwater intends to follow-up on using a methodical delineation approach. Exploration success is not built into the above debt adjusted funds flow growth estimate.
ESG
The Transaction, in addition to Headwater's existing business, combine to create sound building blocks for Headwater to be an industry environmental, social and governance leader. The assets acquired have a minimal undiscounted uninflated asset retirement obligation of
RESPONSE TO COVID-19
Headwater continues to prioritize the health and safety of the Company's employees, contractors, partners, service providers and the communities in which we operate. The Company remains committed to protecting the wellbeing of all stakeholders and following the guidance of public health officials, while maintaining safe operations and business continuity.
Contact:
Tel: (587) 391-3680
Forward Looking Statements Advisory
This press release of the Company contains forward-looking statements and forward-looking information (collectively, 'forward-looking statements'). More particularly, this press release contains forward-looking statements concerning: the terms of the Transaction including the consideration to be paid, the closing date and the nominees of Cenovus to be appointed to the board of Headwater; the performance characteristics of the oil and natural gas properties (the 'Assets') to be acquired pursuant to the Transaction including, the reserves attributable, estimated
The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by management of Headwater ('Headwater Management') including but not limited to the receipt of all regulatory and other approvals required for the Transaction; general economic conditions; availability of required equipment and services; assumptions of future commodity prices (including premiums); the outcome of the
In addition, Headwater cautions that current global economic uncertainty with respect to the spread of COVID-19 may have a significant negative effect on Headwater. While the precise impact of COVID-19 on Headwater remains unknown, the rapid spread of the virus may have a material adverse effect on global economic activity, and can result in volatility and disruption to global supply chains, operations, mobility of people and financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to Headwater.
Additional information on these and other factors that could affect Headwater's operations and financial results are included in its Annual Information Form for the year ended
This press release contains financial outlook and future oriented financial information (together, 'FOFI') about Headwater and the Assets, including, 2021 capital expenditures, 2021 funds flow from operations, 2021 exit working capital and 2021 forecast operating netback, each of which are made as of
Unless explicitly noted otherwise, forward-looking statements contained in this press release are made as of the date hereof and Headwater Management does not undertake any obligation to update 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.
All information in respect of past and current performance characteristics of the Assets has been provided by Cenovus to Headwater Management, or GLJ, its independent reserves evaluator. All forward looking statements in respect of the Assets are based on management of Headwater's reasonable expectations and assumes the completion of the Transaction.
NON-IFRS MEASURES: This document contains the terms 'annualized debt adjusted funds flow growth', 'free cash flow', 'funds flow from operations', 'adjusted funds flow (used in) from operations', 'field netback', 'operating netback' and 'adjusted funds flow netback', which do not have standardized meanings prescribed by International Financial Reporting Standards ('IFRS') and therefore may not be comparable with the calculation of similar measures by other companies. Headwater Management believes that 'annualized debt adjusted funds flow growth' is a useful measure to compare transaction metrics on an unlevered basis and is calculated as annualized funds flow from operations before interest expense measured as the compounded growth over a 5-year period. Management uses funds flow from operations, adjusted funds flow (used in) from operations and free cash flow to analyze operating performance, leverage, and liquidity. Funds flow from operations is calculated as cash flow provided by (used in) operating activities before changes in non-cash working capital. Adjusted funds flow from operations is calculated as cash flow provided by (used in) operating activities before changes in non-cash working capital and adding back transaction costs. Free cash flow is defined as funds flow from operations after capital expenditures. Cash flow is the equivalent to funds flow from operations. Management believes 'field netback', 'operating netback' and 'adjusted funds flow netback' are useful supplemental measures to consider the profitability of the Company's operations on a per unit basis and have been calculated in respect of field netback by taking the amount of sales received after royalties and production, in respect of operating netback by taking the amount of sales received after royalties, production and realized gains (losses) on financial derivatives, and in respect of adjusted funds flow netback by taking the amount of sales received after royalties, production, realized gains (losses) on financial derivatives, general and administrative costs, interest income and other (excluding accretion on decommissioning liabilities) and decommissioning liabilities settled. Additional information relating to certain of these non-IFRS measures, including the reconciliation between adjusted funds flow from operations and cash flow from operating activities, can be found in the MD&A.
BARRELS OF OIL AND CUBIC FEET OF NATURAL GAS EQUIVALENT: The term 'boe' (or barrels of oil equivalent) and 'mcfe' (or thousand cubic feet of natural gas equivalent) may be misleading, particularly if used in isolation. A boe and mcfe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 Mcf: 1 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. Additionally, 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 of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an indication of value.
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