DeeThree Exploration Ltd. ("DeeThree" or the "Company") (TSX:DTX) is pleased to announce that it has entered into a definitive purchase and sale agreement (the "Agreement") with Fairborne Energy Ltd. and Fairborne Pivotal Production Partnership (the "Vendor") pursuant to which DeeThree will, subject to certain conditions, acquire producing oil and natural gas assets (the "Assets") for cash consideration of $125 million (the "Acquisition"), subject to customary closing adjustments. The Acquisition is expected to close on or about March 22, 2011 with an effective date of January 1, 2011. The closing of the Acquisition is subject to certain conditions and the receipt of all required regulatory approvals, including the approval of the Toronto Stock Exchange.
DeeThree will finance the Acquisition through a combination of the net proceeds of a $100 million 'bought deal' short form prospectus subscription receipt offering and its existing working capital. In addition, the 'bought deal' prospectus offering will also include the issuance of common shares on a "flow-through" basis under the Income Tax Act (Canada) for additional proceeds of $15 million. A description of the prospectus offering is provided below under "Financing".
Summary of the Acquisition
Through the Acquisition, DeeThree is acquiring approximately 1,830 boe/d (2010 exit production) of primarily high working interest, operated oil, natural gas and natural gas liquids production and reserves principally situated in Brazeau, West Pembina and the Peace River Arch area of northern Alberta.
The Assets have the following material attributes.
Low-decline production of approximately 1,830 boe/d of which 40% is light crude oil and natural gas liquids;
High working interest, operated light oil resource style play with production from the Belly River formation over a contiguous land base in the Brazeau area with associated facilities and infrastructure ownership;
Various oil and gas producing assets in the Peace River Arch consisting of stable diversified production from the Montney, Charlie Lake, Bluesky, Spirit River Group and Doe Creek formations with ownership in associated facilities and infrastructure including a gas processing plant;
Proved plus Probable Reserves – 5.416 mmboe 1;
Reserve life index of 8.1 years on proved plus probable reserves as of December 31, 2009 and based on current production;
Undeveloped land of approximately 32,000 net acres which DeeThree estimates to have a value of approximately $7 million;
Numerous identified low-risk vertical and horizontal drilling locations on the acquired lands.
1 The aforementioned reserves information is based on an independent engineering evaluation report prepared by GLJ Petroleum Consultants Ltd. effective December 31, 2009.
Transaction Metrics
DeeThree will significantly increase its oil and natural gas liquids weighting upon completion of the Acquisition to approximately 40% of proved plus probable reserves. Based on the $125 million purchase price, net of $7 million of undeveloped land value, the key transaction metrics are:
- $64,480 per boe/d of production;
- $21.78 per proved plus probable boe of reserves; and
- The acquisition is accretive to DeeThree on all key metrics.
Strategic Rationale
DeeThree believes there are numerous anticipated benefits and upside potential associated with the Acquisition, as described below:
The Brazeau property which forms part of the Assets complements the Company's emerging Alberta Bakken light oil play providing an additional "high-quality" resource play with several operational synergies;
Internal reserve estimates indicate considerable upside associated with the Assets beyond current reserves bookings, particularly in a light oil resource play at Brazeau where the Company estimates significant unrecovered reserves;
The Assets will provide the Company with a more balanced and diverse production base resulting in 2011 pro forma exit of approximately 50% crude oil and NGLs;
With the combination of increased cash flow from the acquired Assets along with the anticipated increase to the Company's credit facility, the Company can comfortably fund its aggressive program to explore and develop the Alberta Bakken;
DeeThree is seeking and is confident that it will obtain an increase of $30 million to its existing revolving credit facility to a total of $40 million. The new credit facility is subject to credit approval and satisfaction of conditions that are typical of transactions of this nature, including the closing of the Acquisition. The planned incremental borrowing capacity associated with the Assets will help DeeThree retain its strong balance sheet and financial flexibility;
The Peace River Arch component of the asset package provides DeeThree with access to a production and land base in which the Company's technical team has extensive past experience and success in exploring and developing.
Financing
DeeThree has concurrently entered into an agreement with a syndicate of underwriters co-led by Macquarie Capital Markets Canada Ltd. and Casimir Capital Ltd. pursuant to which DeeThree will issue 23,300,000 subscription receipts ("Subscription Receipts") at a price of $4.30 per Subscription Receipt, by way of a 'bought deal' short form prospectus offering for gross proceeds of $100,190,000 and 3,000,000 common shares ("Flow-Through Shares") issued on a "flow-through" basis under the Income Tax Act (Canada) at the price of $5.15 per share for gross proceeds of $15,450,000, representing aggregate gross proceeds of $115,640,000. In addition, DeeThree has granted the underwriters a 15% an over-allotment option (the "Option") to purchase, on the same terms, up to an additional 3,495,000 Subscription Receipts for additional gross proceeds of up to $15,028,500 if the Option is exercised in full. This Option is exercisable, in whole or in part, by the underwriters at any time up to 30 days following the closing of the offering to cover the Underwriters' over-allotments, if any. The maximum gross proceeds raised under the offering will be $130,668,500 should this Option be exercised in full. Closing of the offering is anticipated to occur on or before March 11, 2011, and is subject to the receipt of applicable regulatory approvals, including approval of the TSX.
The proceeds of the Subscription Receipt offering will be used to partially fund the Acquisition and the proceeds of the Flow-Through Share offering will be used to fund DeeThree's ongoing exploration activities on its newly acquired properties and also its Lethbridge properties.
Upon completion of this Acquisition, DeeThree's 2011 capital expenditure program is anticipated to be increased from the previously announced $32 million to $41 million including the planned drilling of seven Bakken locations and an additional seven light oil horizontal locations on the anticipated acquired Property. With the additional cash flow from the acquired property and the anticipated increase in the Company's credit facility, DeeThree is well positioned to fund its 2011 capital expenditure program.
Bakken Update
In late 2010, the Company spud its first vertical Bakken stratigraphic test well on its Lethbridge property. The well was successfully drilled to the planned vertical depth with the target section cored and retrieved. After reviewing encouraging results from the core data, DeeThree proceeded with a horizontal leg. As of today's date, DeeThree has successfully drilled its planned horizontal leg and with continued positive results, installed a 15-stage frac assembly. The well is currently awaiting fracture stimulation operations.
The Company has two more licensed stratigraphic vertical wells that will be cored; testing additional land blocks and is currently in various stages of acquiring several multi-well pad sites. In total DeeThree plans to drill another seven Bakken locations on its Lethbridge property throughout 2011 with one rig being utilized consistently throughout the year with the possibility of engaging a second rig depending on results.
DeeThree's Advisors
Macquarie Capital Markets Canada Ltd. acted as financial advisor and Casimir Capital Ltd. acted as strategic advisor to DeeThree with respect to the Acquisition.
For further information, please contact Martin Cheyne, President and Chief Executive Officer of DeeThree Exploration Ltd., by telephone at (403) 263-9130.
Reader Advisory
Forward-Looking Statements. Certain information included in this press release constitutes forward-looking information under applicable securities legislation. Such forward-looking information is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. Forward-looking information typically contains statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "project" or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information in this press release may include, but is not limited to, information with respect to: operational decisions and the timing thereof, development and exploration plans and the timing thereof; future production level; timing for completion of the Acquisition and the Prospectus financing and the anticipated benefits resulting from the transactions described in this press release. Forward-looking information is based on a number of factors and assumptions which have been used to develop such information but which may prove to be incorrect.
Although DeeThree believes that the expectations reflected in such forward-looking information is reasonable, undue reliance should not be placed on forward-looking information because DeeThree can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding and are implicit in, among other things: field production rates and decline rates; the ability of DeeThree to complete the Acquisition and the other transactions described in this press release and, once completed, to realize the anticipated benefits of the Acquisition and other transactions; the timely receipt of any required regulatory approvals; the ability of DeeThree to obtain qualified staff, equipment and services in a timely and cost efficient manner to develop its business; DeeThree's ability to operate the properties in a safe, efficient and effective manner; the ability of DeeThree to obtain financing on acceptable terms; the ability to replace and expand oil and natural gas reserves through acquisition, development of exploration; the timing and costs of pipeline, storage and facility construction and expansion; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters; and the ability of DeeThree to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used. DeeThree undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change, unless required by law.
Forward-looking information is based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by DeeThree and described in the forward-looking information. The material risk factors affecting DeeThree and its business are contained in DeeThree's Annual Information Form which is available under DeeThree's issuer profile on SEDAR at
www.sedar.com.
The reader is cautioned not to place undue reliance on this forward-looking information.
BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
The securities offered have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or applicable exemption from the registration requirement. This media release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there by any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
