Rubellite will: (i) acquire all of Perpetual's
Pursuant to the Plan of Arrangement, Perpetual shareholders will receive Rubellite Shares and arrangement warrants (the "Arrangement Warrants") of Rubellite. The Arrangement Warrants effectively provide for a "rights offering" whereby all shareholders of Perpetual will have an equal opportunity to purchase Rubellite Shares. Rubellite will raise
Rubellite has closed a
In connection with the Acquisition, Rubellite has entered into an agreement with Freehold Royalties Ltd. whereby it has sold a 3% to 5% gross overriding royalty on certain lands at
Perpetual is also pleased to announce it has entered into a debt settlement arrangement with its second lien lender to settle all outstanding obligations under its term loan, which will eliminate all but
"We are very excited about the creation of Rubellite Energy" said President and CEO
"The Transactions we are announcing today are a win-win-win for all of Perpetual's stakeholders. Perpetual receives a substantial amount of cash that it will use to restructure its balance sheet and provide the liquidity for operating subsidiaries in the Perpetual group to invest capital to capture value at
Strategic Rationale
Over the past number of years, Perpetual has been subject to limited liquidity and imminent debt maturities which have hampered its ability to fund the capital required to further expand and develop its
At the close of the Transactions, Perpetual's liquidity will be sufficient to keep pace with its joint venture partner and fund its share of drilling programs at
The Transactions provide for Perpetual and its shareholders to participate directly and indirectly through Rubellite in the value creation opportunities inherent in the Clearwater Assets. This is achieved through the initial capitalization Rubellite Shares received by Perpetual shareholders along with the right to participate in the Arrangement Warrant Financing, and through Perpetual's five-year option to purchase four million Rubellite Shares at
In addition, Perpetual will manage Rubellite cost-effectively through a Management Services Agreement (the "MSA"), sharing people, office and information technology related general and administrative costs on a relative production split basis. Unique professional fees and expenses, such as public company and legal costs, will be borne separately by each of Perpetual and Rubellite. The MSA provides for optimization of Perpetual's technical, administrative and management capacity which, in conjunction with interest cost savings, serves to establish a more sustainable cost structure.
Rubellite will initially be exclusively focused on
Drilling activity is planned in three core development areas in the second half of 2021 with two (1.0 net) eight-leg multi-lateral wells recently rig released on
Rubellite also plans to continue exploration activities to pursue additional prospective land and de-risk existing acreage, including the delineation of exploratory lands that have been secured in the West Dawson and Cadotte areas.
Rubellite will not have any staff and will be managed by Perpetual through the MSA and as such, will not have the start-up costs of a new multi-disciplinary operating company. Upon completion of the Plan of Arrangement, Rubellite will have a Board of Directors comprised of a majority of independent directors, each of whom will be unique from Perpetual's board, establishing a strong governance model and clear shareholder and management alignment.
Rubellite is expected to begin operations with zero debt and positive working capital of approximately
Perpetual Second Lien Term Loan Repayment and Credit Facility
Perpetual has reached an agreement with
As part of the Second Lien Loan Settlement, AIMCo has committed to fully exercise the Arrangement Warrants it will receive under the Plan of Arrangement associated with its approximately 4.1% equity ownership of Perpetual. In addition, AIMCo has agreed to subscribe for
Perpetual has entered into an agreement with its syndicate of lenders to extend its revolving bank debt facility ("First Lien Credit Facility") upon closing of the Financings. The First Lien Credit Facility will have a borrowing limit of
With the sale of the Clearwater Assets to Rubellite, Perpetual will receive cash proceeds of approximately
Perpetual will divest approximately 6% of its current production and 8% of its proved plus probable reserves. However, Perpetual's production will grow as a result of the Company's increased ability to participate as to its 50% interest in the
With improved liquidity and reduced debt, Perpetual's business plan will continue to be focused on growing production, reserves, cash flow and value through exploration and development and the application of innovative technologies. The Company's strategic priorities for the remainder of 2021 remain to:
- Optimize the value of
Edson ; -
Maximize adjusted funds flow and the value of
Mannville ; - Stabilize the balance sheet, improve liquidity and reduce debt; and
- Advance technology-driven diversifying new ventures.
Transaction Details
Plan of Arrangement
Under the terms of the Plan of Arrangement, Perpetual shareholders will receive one Rubellite Share for every 46 common shares of Perpetual held, and for every Rubellite Share received, Perpetual shareholders, under the Plan of Arrangement, will receive 12 Arrangement Warrants. Each Arrangement Warrant will entitle the holder to subscribe for one Rubellite Share at a price of
Perpetual estimates that there will be approximately 1,346,094 Rubellite Shares issued to Perpetual shareholders. In addition, Perpetual will receive 680,485 Rubellite Shares as part of the initial capitalization of Rubellite, which will be delivered to AIMCo as part of the Second Lien Loan Settlement. Only the 1,346,094 Rubellite Shares issued to Perpetual shareholders will receive Arrangement Warrants. At the close of the Plan of Arrangement, there will be an estimated: (i) 2,026,579 Rubellite Shares outstanding; (ii) 16,153,132 Arrangement Warrants outstanding; (iii) 15,000,000 Subscription Receipts outstanding; (iv) a minimum of 5,225,000 to a maximum of 10,000,000 Rubellite Shares to be issued through the Non-Brokered Placement; and (v) Rubellite Share Purchase Options owned by Perpetual providing the option to purchase 4,000,000 Rubellite Shares exercisable at
In addition, in connection with the Plan of Arrangement, Perpetual will consolidate its shares at a number between 500 and 1,000 to 1 ("the Ratio") and subsequently will split its shares at the same Ratio. The Ratio will be determined and press released prior to the meeting of Shareholders currently expected to be in late August. Shareholders of Perpetual who own a number of shares less than the Ratio will have their shares acquired by Perpetual for cash, based on the volume weighted average trading price of the Perpetual common shares on the
Arrangement Warrant Financing
Rubellite will apply to have the Rubellite Shares and the Arrangement Warrants listed on the TSX. Listing such securities on the TSX is subject to the approval of the TSX and Rubellite satisfying the TSX's listing conditions. The Arrangement Warrants are expected to trade for approximately two to three weeks prior to expiry assuming TSX listing approval is obtained from the TSX. Holders of the Arrangement Warrants may sell or exercise their Arrangement Warrants, or let them expire. Holders of the Arrangement Warrants may also oversubscribe for additional Arrangement Warrants that remain unexercised, subject to pro ration.
Perpetual and Rubellite have entered into a Standby Purchase Agreement with a corporation controlled by
Subscription Receipt Financing
Pursuant to the terms of an agency agreement entered into by
If the Escrow Release Conditions are not satisfied on or before
Non-Brokered Private Placement
In addition, Rubellite will complete the Non-Brokered Placement for a minimum of
In aggregate, the Financings will raise a minimum of approximately
An Information Circular outlining the transaction details is expected to be mailed to shareholders of Perpetual in advance of a special meeting of Perpetual shareholders to consider the Plan of Arrangement. Completion of the Plan of Arrangement is subject to the requisite approval of the Perpetual shareholders voting at a special meeting scheduled to be held during the last week of August. The Financings are expected to close in mid-September, being two to three weeks after shareholder approval and final Court approval of the Plan of Arrangement. Completion of the proposed Transactions are conditional on, among other things, shareholder approval, closing of the Financings and customary regulatory and Court approvals.
Perpetual Board of Director Recommendation
The Board of Directors of Perpetual, with the unanimous recommendation of Perpetual's Special Committee of independent Board members, has unanimously approved the Transactions. Based in part on the financial advice provided by
Advisors
Webcast
Perpetual will be hosting a Webcast to discuss the transactions on
Webcast Link: https://78449.themediaframe.com/dataconf/productusers/ppe/mediaframe/46036/indexl.html
Participant Dial-In: 877-407-9221 / 201-689-8597 (dial in only necessary if not attending via the webcast link)
Related presentation materials will be available on Perpetual's website at www.perpetualenergyinc.com. A replay will be made available on the Company's website following the webcast.
ADDITIONAL INFORMATION
About Perpetual
Perpetual is an oil and natural gas exploration, production and marketing company headquartered in
Forward-Looking Information
Certain information in this news release may constitute forward-looking information or statements (together "forward-looking information") under applicable securities laws. The forward-looking information includes, without limitation, statements with respect to: the anticipated benefits of the Transactions to Perpetual's shareholders, including the expected ability of the Company to fund its future drilling and development programs and an expected resumption of growth in shareholder value; the planned acquisition by Rubellite of the Clearwater Assets and the consideration and timing related thereto; the characteristics and plans in respect of the Clearwater Assets; the expected terms and conditions and timing with respect to Rubellite's Revolving Credit Facility; the anticipated terms of the extension of Perpetual's revolving bank debt facility and the timing thereof; anticipated terms and steps of the Plan of Arrangement including the consideration to be received by Perpetual shareholders and the timing thereof, the anticipated Ratio and the number of Rubellite Shares and Arrangement Warrants expected to be issued in connection with the Plan of Arrangement; the anticipated terms of the Arrangement Warrants and the expected proceeds with respect to the exercise of such Arrangement Warrants; Rubellite's intention to complete the Non-Brokered Private Placement and the anticipated proceeds and timing thereof; the expected source of funding for Rubellite's operational costs related to drilling commitments in connection with the Figure Lake GORR Financing; the anticipated net cash proceeds from the sale of the Clearwater Assets and the Company's intended use thereof; the anticipated financial position of the Company at the close of the Transactions; expectations respecting Rubellite's future exploration, development and drilling activities; expectations with respect to the Company's management of Rubellite under the MSA; expected composition of the Rubellite Board of Directors; the expected initial working capital of Rubellite; the expected exercise by AIMCo of its Arrangement Warrants and AIMCO's anticipated subscription for
Statements relating to "reserves" and "resources" are also deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves or resources described exist in the quantities predicted or estimated and that the reserves or resources can be profitably produced in the future. Actual reserves may be greater than or less than the estimates provided herein. The estimated future net revenue from the production of the disclosed oil, natural gas liquids and natural gas reserves does not represent the fair market value of these reserves.
Forward-looking information is based on current expectations, estimates and projections that involve a number of known and unknown risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Perpetual and described in the forward-looking information contained in this news release. In particular and without limitation of the foregoing, material factors or assumptions on which the forward-looking information in this news release is based include: the successful completion of each of the Transactions, including obtaining necessary shareholder, Court and regulatory approvals, as applicable, and satisfying all other conditions to completion within expected timelines; completion of the Plan of Arrangement on the expected terms; anticipated benefits to Perpetual's shareholders; the ability of Perpetual to continue as a going concern in the event the Transactions are not completed; the ability of Rubellite to successfully operate the Clearwater Assets; forecast commodity prices and other pricing assumptions; forecast production volumes based on business and market conditions; foreign exchange rates; near-term pricing and continued volatility of the market; Rubellite's and Perpetual's capacity and continued operations; estimates of quantities of crude oil from properties and other sources not currently classified as proved; accounting estimates and judgments; future use and development of technology and associated expected future results; the ability to obtain regulatory approvals; the successful and timely implementation of capital projects; ability to general sufficient cash flow to meet current and future obligations; estimated abandonment and reclamation costs, including associated levies and regulations applicable thereto; Rubellite's ability to operate under the management of Perpetual pursuant to the MSA; the ability of Rubellite and Perpetual to obtain and retain qualified staff and equipment in a timely and cost-efficient manner, as applicable; the successful listing of the Rubellite Shares and Arrangement Warrants on the TSX; the retention of key properties; forecast inflation and other assumptions inherent in Perpetual's current guidance and estimates; the continuance of existing tax, royalty, and regulatory regimes; the accuracy of the estimates of reserves volumes; ability to access and implement technology necessary to efficiently and effectively operate assets; and the ongoing and future impact of the coronavirus on commodity prices and the global economy, among others.
Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described herein and under "Risk Factors" in Perpetual's Annual Information Form and MD&A for the year ended
Reserves Data
There are numerous uncertainties inherent in estimating quantities of crude oil, natural gas and natural gas liquids reserves and the future cash flows attributed to such reserves. The reserve information set forth above are estimates only. In general, estimates of economically recoverable crude oil, natural gas and natural gas liquids reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially. For those reasons, estimates of the economically recoverable crude oil, natural gas liquids and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues associated with reserves prepared by different engineers, or by the same engineers at different times, may vary. The Company's actual production, revenues, taxes and development and operating expenditures with respect to its reserves will vary from estimates thereof and such variations could be material.
Certain Abbreviations
The following abbreviations used in this news release have the meanings set forth below:
bbls barrels
bbl/d barrels per day
MMbbls million barrels
Oil and Gas Metrics
This news release contains certain oil and gas metrics which do not have standardized meanings or standard methods of calculation and therefore such measures may not be comparable to similar measures used by other companies and should not be used to make comparisons. Such metrics have been included in this document to provide readers with additional measures to evaluate the Company's performance; however, such measures are not reliable indicators of the Company's future performance and future performance may not compare to the Company's performance in previous periods and therefore such metrics should not be unduly relied upon.
Estimates of Drilling Locations
Unbooked drilling locations are the internal estimates of Perpetual based on the Clearwater Assets prospective acreage and an assumption 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 (including contingent and prospective). Unbooked locations have been identified by Perpetual's management as an estimation of Rubellite's multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that Rubellite will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and natural gas reserves, resources or production. The drilling locations on which Rubellite will actually drill wells, including the number and timing thereof is ultimately dependent upon the availability of funding, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While a certain number of the unbooked drilling locations have been de-risked by Perpetual by drilling existing wells in relative close proximity to such unbooked drilling locations, the majority of other unbooked drilling locations are farther away from existing wells where management of Perpetual 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.
SOURCE
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