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Acquireco will be led by
Auriga was identified as an initial platform with a very concentrated portfolio of high quality assets and growth opportunities limited to date by a lack of capital and low commodity prices. The primary asset is the condensate rich Kaybob South Beaverhill Lake Gas Unit No. 1 ("Kaybob"), which is material in size, geologically well-defined and has proven performance from significant prior development across the Kaybob structure. Kaybob has significant infrastructure in place to optimize free cash flow over the next five years. With significant technical analysis and appraisal drilling, Kaybob provides a material portfolio asset for Acquireco in the near term.
To capitalize on Auriga's high quality portfolio of assets, Acquireco will be completing a
"We are excited to be investing in Acquireco with
Terms of the Acquisition
Under the terms of the Acquisition Agreement, each shareholder of Auriga will receive 0.3 of an Acquireco common share and 0.0979 of an SRC common share for each Auriga Share held. On Closing, SRC will own 70% of Acquireco and the existing shareholders of Auriga will own 30% of Acquireco. A total of 13,853,097 SRC common shares will be issued to Auriga shareholders in connection with the Acquisition.
The Closing, which is expected to occur by the end of October, is subject to required regulatory approvals, including the approval of TSX in connection with the issuance of SRC common shares, and the satisfaction of customary conditions contained in the Acquisition Agreement, including the agreement of at least 90% of the holders of Auriga Shares to the Acquisition (either by entering into the Acquisition Agreement or tendering their Auriga Shares to Acquireco). Pursuant to the Acquisition Agreement, a shareholder holding 80.3% of the issued and outstanding Auriga Shares has agreed to sell all of its Auriga Shares to Acquireco. In addition, holders of an additional 12.7% of the issued and outstanding Auriga Shares have entered into agreements to tender their Auriga Shares to Acquireco and to support the Acquisition.
As part of the Private Placement that Acquireco will be completing upon Closing, SRC will purchase up to
Assets ------ - 81.8% working interest in 25,600 gross acres of land (20,941 net) in Kaybob. - 4.6% working interest in SemCAMS Kaybob Amalgamated (KA) Plant (the "KA Plant"), providing a significant reduction in operating cost structure. - Mainly 100% working interest in 8,786 gross acres (6,150 net) in Redwater Property (Township 55 and Ranges 20 and 21W4). - 100% working interest in 1,920 gross acres (1,920 net) in the Bigstone area (includes Township 60 and 61, Ranges 21 and 22 W5). Reserves -------- Sproule Associates Limited ("Sproule"), an independent qualified reserves evaluator, assigned the following reserves to Auriga effective December 31, 2008 (using escalating prices as at December 31, 2008) and incorporating NI 51-101 and COGE Handbook reserve definitions as follows: Proved Proved Developed Total plus Producing Proved Probable Company Gross Reserves Light/Medium Oil (MBBLs) 807.8 1,141.0 2,018 Natural Gas (MMCF) 24,676.4 40,240.7 63,879.3 Natural Gas Liquids (MBBLs) 2,012.1 3,455.0 5,421.2 Combined (MBOE) 6,932.6 11,302.8 18,085.7 Following Closing and the Private Placement, the reserves will be re-evaluated under NI 51-101 guidelines removing capital constraints incorporated into the Sproule December 31, 2008 review. Production ---------- - Current production is 51.1% natural gas, 30.8% natural gas liquids and 18.1% light/medium oil. - Average production of 2,572 boe/d for the first seven months of 2009 (results include May production of only 1,113 boe/d due to KA Plant shutdown and an economic deferral of 400 boe/d at Bigstone). - Approximately 400 boe/d of natural gas production is currently shut in at Bigstone (this production was shut in on May 31, 2009 for economic reasons and is expected to resume production January 1, 2010 with no capital costs). - Current production is divided by area as follows: 73% (Kaybob), 25% (Redwater) and 2% (Minors). Financial --------- - Net debt of approximately $65 million. It is expected that funds from the Private Placement will be used to pay out the current credit facility. - For the six months ending June 30, 2009, Auriga had cash flow from operating activities of $11.0 million and interest expense of $2.2 million. Cash flow from operating activities included $4 million in realized gains from hedging activities. - Approximately 558 bbl/d of oil hedges in place for 2009 (average floor of US$64 and an average ceiling of US$79.70) and 540 bbl/d in place for 2010 (average floor of US$75 and an average ceiling of US $95). - Approximately 4,732 mcf/d of natural gas hedged for 2009 (average floor of $6.74 and an average ceiling of $8.30), 4,340 mcf/d for 2010 average floor of $6.30 and an average ceiling of $8.35) and 6,200 mcf/d for the first six months of 2011 (average floor of $5.43 and an average ceiling of $6.77). - Tax pools of $140.2 million as at December 31, 2008.
Management of Acquireco
TD Securities Inc. acted as sole financial advisor to management of Acquireco on the Acquisition. Ivy Capital Partners Ltd. and Scotia Waterous acted as advisors to Auriga.
About Sprott Resource Corp.
SRC is a Canadian based company, the primary purpose of which is to invest, directly and indirectly, in natural resources. Through acquisitions, joint ventures and other investments, SRC seeks to provide its shareholders with exposure to the natural resource sector for the purposes of capital appreciation and real wealth preservation. SRC is well positioned to draw upon the considerable experience and expertise of both its Board of Directors and Sprott Consulting Limited Partnership ("SCLP"), of which Sprott Inc. is the sole limited partner. Pursuant to a management services agreement between SCLP and SRC, SCLP provides day-to-day business management for SRC as well as other management and administrative services.
Forward Looking Statements
This press release contains forward-looking statements. More particularly, this press release contains statements concerning the anticipated dates for the closing of the disclosed transactions and the anticipated impact of the transactions on SRC and Acquireco. Some of the forward-looking statements can be identified by words such as "expects", "anticipates", "should", "believes", "plans", "will" and similar expressions.
The forward-looking statements contained in this document are based on certain key expectations and assumptions made by SRC and Acquireco, including: (i) with respect to the anticipated closing dates of the transactions, expectations and assumptions concerning timing of receipt of required shareholder, regulatory approvals and third party consents and the satisfaction of other conditions to the completion of the transactions and (ii) with respect to the anticipated impact of the transaction on SRC and Acquireco, expectations and assumptions concerning the success of future drilling and development activities, the performance of existing wells, the performance of new wells and prevailing commodity prices.
Although SRC and Acquireco believe 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 SRC and Acquireco 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, the failure to obtain necessary shareholder or regulatory approvals or satisfy the conditions to closing the transactions, risks associated with the oil and gas industry in general (e.g., 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 production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in SRC's Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.
The forward-looking statements contained in this document are made as of the date hereof and neither SRC nor Acquireco undertake any 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.
Where amounts are expressed on a barrel of oil equivalent ("BOE") basis, natural gas volumes have been converted to oil equivalence at six thousand cubic feet per barrel. The term BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel is based on an energy equivalency 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 U.S. Securities Act of 1933, as amended, and may not be offered or sold in the
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