Spartan Exploration Ltd. (TSX:SPE) (“Spartan”) is pleased to announce today that it has entered into an arrangement agreement (the “Arrangement Agreement”) whereby a public senior oil and gas company (the “Acquirer”) will acquire all of the issued and outstanding common shares of Spartan in a transaction valued at approximately $229 million (the “Arrangement”). Under the terms of the Arrangement, Spartan shareholders will receive, for each common share of Spartan (“Spartan Share”), $4.00 cash and one (1) share (“ExploreCo Share”) in a new, separate junior exploration and production company (“ExploreCo”), which will be staffed with certain members of Spartan’s existing management team. ExploreCo will have approximately 850 boe/d of oil weighted production anchored by a 97.34% working interest in the Pembina Keystone Cardium Unit No. 2 and Spartan’s southwest and southeast Saskatchewan assets (see “ExploreCo” below).
Assuming a net asset value of $1.50 per Spartan Share for the ExploreCo assets, the total transaction value represents an approximate value of $5.50 per Spartan Share. Through ExploreCo, shareholders will have an opportunity to share in an opportunity rich asset base that management has assembled (only a portion of which is current Spartan assets) that holds significant upside potential through development drilling (see “ExploreCo” below).
Spartan’s management has continuously reviewed options available to Spartan to ensure that shareholder value is being maximized. The success of the Spartan team in effectively investing capital has resulted in significant growth in crude oil production, reserves and cash flow since its inception. Through the sale of Spartan to the Acquirer, and placing certain growth assets into ExploreCo, Spartan shareholders will benefit from an immediate and significant return on their Spartan investment combined with continued participation in the growth and future potential of the ExploreCo.
The management team of ExploreCo will be led by Richard F. McHardy, as the President and Chief Executive Officer of ExploreCo, and will include the existing senior management team of Spartan (the “Management Team”). The Management Team has been fundamental to Spartan’s growth since inception by leading Spartan’s efforts in the exploitation and acquisition of its high quality oil and gas assets and will continue to be a key component of ExploreCo’s future success.
Based on these and other factors, the Board of Directors of Spartan has unanimously approved the Arrangement Agreement and has resolved to recommend that Spartan shareholders vote in favour of the Arrangement.
CIBC World Markets Inc. (“CIBC”) has acted as financial advisor to Spartan with respect to the Arrangement and Clarus Securities Inc. and GMP Securities L.P. have acted as Spartan’s strategic advisors. CIBC has provided the Board of Directors of Spartan with an opinion that, subject to review of final documentation, the consideration to be received by the Spartan shareholders under the Arrangement is fair, from a financial point of view, to the Spartan shareholders.
The Arrangement Agreement provides that Spartan will pay the Acquirer a non-completion fee of $8.0 million in certain circumstances. The Arrangement Agreement also provides for customary non-solicitation covenants, including that Spartan has the right to respond to superior proposals and that the Acquirer has the right to match any such proposal.
The Arrangement Agreement has the support of Spartan’s management and directors who collectively own approximately 31 percent of Spartan’s fully diluted shares. All of such persons have indicated they intend to vote in favour of the Arrangement. It is expected that an information circular will be sent to Spartan’s shareholders by May 1, 2011 with a shareholder meeting scheduled to occur prior to May 31, 2011. The closing of the Arrangement is subject to the receipt by the Acquirer and Spartan of all Court, stock exchange and other regulatory approvals, receipt of the requisite shareholder approvals of Spartan, no material adverse change having occurred in Spartan and a number of other matters customary in transactions of this nature.
Interim Acquisition
Spartan also announces today that it has signed an agreement with an intermediate oil and gas producer to acquire certain assets in the Pembina area of Alberta for aggregate consideration, subject to normal adjustments, of $36.5 million. The purchase price will be funded by Spartan’s existing credit facilities. The assets consist of approximately 250 boe/d, and include a 29.45% interest in the Pembina Keystone Cardium Unit No. 2 and approximately 15 net sections of undeveloped land that is prospective for Cardium oil. Certain of these assets, including approximately 200 boe/d, the 29.45% interest in the Pembina Keystone Cardium Unit No. 2 and 3.3 net sections of undeveloped land relating to the acquisition will be transferred to ExploreCo as part of the Arrangement. In addition, ExploreCo will assume $20 million of Spartan’s debt as part of the Arrangement and issue Spartan $5,000,000 of ExploreCo Shares.
ExploreCo
As part of the Arrangement, Spartan shareholders will receive shares in ExploreCo, a new junior exploration and production company to be led by the existing management team of Spartan. The Board of Directors of ExploreCo will consist of certain members of Spartan’s current Board of Directors. ExploreCo will continue with Spartan’s approach to growth by acquiring, exploiting and exploring for light oil reserves in Western Canada, particularly in the Pembina area. The primary assets to be transferred to the new entity consist of a 97.34% interest in the Pembina Keystone Cardium Unit No. 2, a 25.26% interest in the Pembina Keystone Cardium Unit No. 1, 26 (22 net) sections of undeveloped land is southwest Saskatchewan and 98 (71 net) sections of undeveloped land in southeast Saskatchewan. Following the completion of the Arrangement, ExploreCo will have approximately 850 boe/d of long life, oil weighted production and 4,256.8 mboe of proved plus probable reserves as evaluated by Sproule Associates Limited and GLJ Petroleum Consultants Ltd. effective December 31, 2010. Approximately 65% of the production and reserves that will be contributed to ExploreCo relate to assets that were not part of Spartan prior to the proposed Arrangement and asset acquisition. In connection with the assets to be acquired by ExploreCo pursuant to the Arrangement, Spartan has identified an aggregate of 212 (183.4 net) drilling locations on the ExploreCo lands, with the vast majority of these locations currently unbooked. ExploreCo will assume $20 million of Spartan’s debt as part of the Arrangement (see Interim Acquisition, above).
Contemporaneous with the completion of the Arrangement, ExploreCo will complete a private placement of securities of ExploreCo at an issuance price equal to the net asset value per ExploreCo Share of the ExploreCo assets, to raise up to $15 million (the “Private Placement”). Particulars of the Private Placement will be provided by Spartan in a subsequent news release. Proceeds from the Private Placement will be used to fund ExploreCo’s activities over the next year. The ExploreCo net asset value is presently estimated to be $1.50 per ExploreCo Share and will be finalized immediately prior to closing of the Arrangement after the independent evaluations in respect of the ExploreCo assets have been finalized and the Board of Directors has received advice from its financial advisors in relation to the net asset value of the ExploreCo assets.
READER ADVISORY
This press release contains forward-looking statements as to Spartan’s and ExploreCo’s internal projections, expectations or beliefs relating to future events or future performance, including for ExploreCo, future financing, asset ownership and operating plans as set forth under the heading “ExploreCo”. In some cases, forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “expects”, “projects”, “plans”, “anticipates” and similar expressions. These statements represent the expectations or beliefs of management of Spartan concerning, among other things, future capital expenditures and future operating results and various components thereof or the economic performance of Spartan and ExploreCo. The projections, estimates and beliefs contained in such forward-looking statements are based on management’s assumptions relating to the production performance of ExploreCo’s oil and gas assets, including the assets to be acquired through Spartan, the cost and competition for services throughout the oil and gas industry in 2011, the results of exploration and development activities during 2011, the market price for oil and gas, expectations regarding the availability of capital, estimates as to the size of reserves and resources, and the continuation of the current regulatory and tax regime in Canada, and necessarily involve known and unknown risks and uncertainties inherent in exploration and development activities, geological, technical, drilling and processing problems and other risks and uncertainties, including the business risks discussed in management’s discussion and analysis and the annual information form of Spartan, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted. Spartan and ExploreCo do not individually or jointly undertake to update any forward looking information in this document whether as to new information, future events or otherwise except as required by securities rules and regulations.
Note: Barrels of oil equivalent (BOEs) may be misleading, particularly if used in isolation. In accordance with NI 51-101, a BOE conversion ratio for natural gas of 6 Mcf:1bbl has been used, which 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 common shares of Spartan and ExploreCo have not and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold in the United States or to any U.S. person except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.
Read more: http://www.digitaljournal.com/pr/265867#ixzz1IIHphBfH
