Enercapita Energy Ltd. Successfully Completes Acquisition of 2,750 Boe/d in Core NW Alberta Operating Area and Announces Credit Facility Expansion

CALGARY, ALBERTA – Enercapita Energy Trust (the “Trust”) is pleased to announce that Enercapita Energy Ltd. (the “Company” and together with the Trust and Enercapita Energy LP, “Enercapita”) has successfully closed an acquisition (the “Worsley Acquisition”) of 2,750 boe/d of low decline, predictable, low cost, operated, predominantly light oil and liquids production. The purchase price for the Worsley Acquisition was $100 million, prior to customary closing adjustments, which purchase price was comprised of $90 million in cash and $10 million of Enercapita units. The Worsley Acquisition is accretive to Enercapita on per share metrics and is transformational from a strategic perspective, increasing our corporate production to over 6,700 boe/d, while enhancing our oil weighting, corporate netbacks, geographic focus, free cash flow and overall financial strength.

The assets acquired pursuant to the Worsley Acquisition (the “Assets”) are comprised of multiple geological zones with significant oil and gas in place and low recovery factors.  The Company believes that the Assets have substantive upside including an inventory of low cost opportunities to increase production and reduce costs through optimization and exploitation, significant secondary recovery opportunity through water flood optimization and numerous low risk infill drilling locations. The Worsley Acquisition continues the successful execution of our business plan to acquire proven high-quality assets while remaining financially disciplined.

Enercapita believes that it is the strong financial platform of Enercapita that allowed the Company to complete the Worsley Acquisition in an environment where competitors have restraints on access to capital.  Our philosophy of remaining in a strong financial position has provided the Company with what we believe to be a significant competitive advantage, furthering our strategy of consolidating low decline, predictable, low cost, operated light oil assets.

The Worsley Acquisition was funded with cash on hand, additional equity contributions and bank debt. The Company has significant liquidity with a committed bank line of $100 million and a target to have less than 1.0 times debt to cash flow by the end of 2017.  We remain focused on our strategy of maintaining minimal debt levels and adhering to a disciplined hedging program to protect our cash flows and provide yield stability.  This approach has been fundamental to our business plan and has protected our cash flow and balance sheet, while positioning the Company to be opportunistic in adding high quality assets in a continued depressed commodity price environment.

Key Attributes of the Worsley Acquisition

  • 2,750 boe/d current production (70% liquids; 37 degree API)
  • Strategic consolidation with the Company’s Boundary Lake/Worsley core area to increase production to over 4,500 boe/d in the area while providing numerous operating synergies
  • Over 500 MMbbls original oil in place (3% recovered to date) with potential recovery factor of 20-30% with full waterflood implementation
  • High netback production of >$20 / bbl at USD$50 WTI (5)
  • Stable, low risk, low decline production generating substantial free cash flow with minimal future capital requirements (5)
  • Large land base with over 150 drilling locations across multi-horizon delineated producing geological zones
  • 100% ownership of infrastructure including gas plant, oil battery, water handling facility and gathering pipelines providing significant synergies with the Company’s existing operations in the area

Summary of Reserves and Acquisition Metrics:

Total Consideration (1)                                                      $100.0 million

Current Production                                                           2,750 boe/d (70% oil/NGLs)

Proven Reserves (2)                                                         20.4 MMboe

Proven NPV10 (2) (3)                                                           $341 million

Proved plus Probable Reserves (2)                                  38.9 MMboe

Proved plus Probable NPV10 (2)(3)                                  $537 million

Proved plus Probable Reserve Life Index (2)                   38.8 years

Cash Flow Netback (4) (5)                                                 $20.89/boe

 

The Acquisition metrics are as follows:

Current Production (4) $36,364/boe/d
Proven Reserves (2) $4.90/boe
Proved Plus Probable Reserves (2) $2.57/boe
Annualized Cash Flow (4) (5) $21.0 million/year

Notes:

  1. Subject to normal closing adjustments for transactions of this nature.
  2. Based on an independent reserve report dated effective December 31, 2016, prepared in accordance with NI 51-101 and the COGE Handbook.
  3. Before tax net present value based on 10 percent discount rate and December 31, 2016 price forecast of an independent reserve evaluator.
  4. Based on current production of 2,750 boe/d.
  5. Based on USD$50/bbl WTI, $2.40/mcf, and a Canadian/US dollar exchange rate of $0.80.

Credit Facility Expansion

As a result of the Company’s continued operational success and acquisition strategy, the Company’s borrowing base on its credit facilities was increased from $25 million to $100 million.  The secured credit facilities include a $20 million operating credit facility from National Bank of Canada and an $80 million revolving operating credit facility from a syndicate of three lenders, with a maturity date of June 30, 2019.

Our commitment to balance sheet strength remains paramount. With our low decline asset base and high netback production, we expect further debt repayments through the Company’s organic free cash flow generation.

Outlook

Enercapita has had an excellent start to the first half of 2017 as we successfully focused on organic growth initiatives.  Oil prices started strong at the beginning of 2017 then receded in the second quarter as strong supply growth in the United States mitigated the recovery.  During this time frame, the capital markets for public oil and gas companies remained cautious which Enercapita believes restricted many companies from pursuing acquisition strategies.  This combination of lower commodity prices and less competition created the opportunity for Enercapita to successfully complete the Worsley Acquisition.

Concurrent with the Worsley Acquisition, the Company has hedged 47 percent of forecast 2018 after royalty production.  Based on our preliminary budget forecasts for 2018, 6,700 boe/d of production, USD$50/bbl WTI, $2.40/mcf, and a Canadian/US dollar exchange rate of $0.80, our 2018 net operating income is forecasted to be $38.2 million providing a highly resilient forecasted 2.1x preferred unit interest coverage.   The 2018 cash flow is expected to be well protected from downside commodity prices while having exposure to higher cash flows if commodity prices strengthen.

Our approach at Enercapita is unchanged.  We remain fiscally disciplined.  We steadfastly protect our balance sheet.  We remain keenly focused on accretive transactions as we continue to aggregate a portfolio of high quality, long life, low decline producing assets as we focus on our mandate of maximizing free cash flow.

Advisor

National Bank Financial Inc. acted as exclusive financial advisor to Enercapita with respect to the Worsley Acquisition. National Bank of Canada acted as lead arranger, sole bookrunner and administrative agent with respect to the syndicated credit facilities.

About Enercapita

The Trust is an energy fund focused on the growth of long life, low decline, low cost, low risk energy assets through the exploitation and optimization of existing production.  The Trust is an RRSP eligible investment vehicle that streams the cash flow from its production directly to its investors on a priority basis.

http://www.enercapita.com/

READER ADVISORY

Forward-Looking Statements. Certain information included in this news release constitutes forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “project”, “forecast” or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information in this news release may include, but is not limited to, statements about our corporate strategy, future acquisition opportunities, future production levels, characteristics of the Assets, netbacks and cash flows, net debt, production, future waterflood, hedging, recovery factors, capital requirements, net operating income, preferred unit interest coverage, and future commodity prices and exchange rates. Statements relating to “reserves” are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

The forward-looking statements contained in this news release are based on certain key expectations and assumptions made by Enercapita, including expectations and assumptions concerning the success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the availability and performance of facilities and pipelines, the geological characteristics of Enercapita’s properties, the successful application of drilling, completion and seismic technology, prevailing weather and break-up conditions and access to our drilling locations, commodity prices, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the availability of capital, labour and services, our ability to complete planned capital expenditures within budgeted cost estimates, the ability to market our oil and gas successfully, our ability to integrate assets and employees acquired through acquisitions, the creditworthiness of industry partners and our ability to acquire additional assets.

 Although Enercapita believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Enercapita can give no assurance that they will prove to be correct. Since forward-looking statements 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, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), incorrect assessment of the value of acquisitions, failure to realize the benefits of acquisitions, constraint in the availability of services, commodity price and exchange rate fluctuations, changes in legislation (including but not limited to tax laws, royalty regimes and environmental legislation), adverse weather or break-up conditions and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Production forecasts are directly impacted by commodity prices and the actual timing of our capital expenditures. Actual results may vary materially from forecasts due to changes in interest rates, oil differentials, exchange rates and the timing of expenditures and production additions.

The forward-looking information contained in this news release is made as of the date hereof and Enercapita undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward-looking information contained in this news release is expressly qualified by this cautionary statement.

This news release contains future-oriented financial information and financial outlook information (collectively, “FOFI”) about Enercapita’s prospective results of operations, cash flow, free cash flow, netbacks, net operating income and net debt, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs and the assumption outlined in the Non-IFRS measures section below. FOFI contained in this news release was made as of the date of this news release and was provided for the purpose of providing further information about Enercapita’s anticipated future business operations. Enercapita disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this news release should not be used for purposes other than for which it is disclosed herein.

Non-IFRS Measures. This news release provides certain financial measures that do not have a standardized meaning prescribed by IFRS. These non-IFRS financial measures may not be comparable to similar measures presented by other issuers. Cash flow, free cash flow, netback, net debt and net operating income are not recognized measures under IFRS. Management believes that in addition to net income (loss), cash flow, free cash flow, netback, net debt and net operating income are useful supplemental measures that demonstrate the Company’s ability to generate the cash necessary to repay debt or fund future capital investment. Investors are cautioned, however, that these measures should not be construed as an alternative to net income (loss) determined in accordance with IFRS as an indication of the Company’s performance. The Company’s method of calculating these measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. Cash flow is calculated by adjusting net income (loss) for other income, unrealized gains or losses, accretion expense, stock-based compensation, exploration and evaluation expenses, deferred income taxes, impairment and depletion and depreciation. Free cash flow is calculated as cash flow less planned capital expenditures. Netback is a per barrel of oil equivalent measure calculated as net operating income divided by barrels of oil equivalent. Net debt is calculated as bank debt plus trade and other liabilities plus finance lease obligations less current assets.  Net operating income is calculated based on oil and gas revenue less royalties and operating and transportation expenses. 

OIL AND GAS ADVISORIES

BOE Disclosure. The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet of natural gas to barrels of oil equivalence 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 conversions disclosed herein are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.

Reserves Disclosure. All reserve references in this news release are to gross reserves as at the effective date of the applicable evaluation. Gross reserves are the Company’s total working interest reserves before the deduction of any royalties and including any royalty interests of the Company. The recovery and reserve estimates of the Company’s crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein.

Original Oil in Place. Original Oil in Place (OOIP) is the equivalent to Discovered Petroleum Initially in Place (DPIIP) for the purposes of this news release. DPIIP is defined as quantity of hydrocarbons that are estimated to be in place within a known accumulation. There is no certainty that it will be commercially viable to produce any portion of the resources. A recovery project cannot be defined for this volume of DPIIP at this time, and as such it cannot be further sub-categorized.

Drilling Locations. This news release discloses drilling inventory in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations are derived from the applicable engineering evaluation and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on our 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. Of the 150+ net drilling locations identified as being acquired by the Company pursuant to the Worsley Acquisition, 57 are proved locations, 74 are probable locations and the remainder are unbooked locations. Unbooked locations have been identified by management as an estimation of our multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that we will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations on which we actually drill wells will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been de-risked by drilling existing wells in relative close proximity to such unbooked drilling locations, other unbooked drilling locations are farther away from existing wells where management 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.

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