Canamax Energy Ltd.
TSX VENTURE : CAC

Canamax Energy Ltd.

June 01, 2015 09:28 ET

Canamax Announces Strategic Montney Oil Focused Acquisition Further Consolidating Its Greater Grimshaw Area

CALGARY, ALBERTA--(Marketwired - June 1, 2015) -

NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA OR DISTRIBUTION TO ANY UNITED STATES NEWSWIRE SERVICES

Canamax Energy Ltd. ("Canamax" or the "Company") (TSX VENTURE:CAC) is pleased to announce that it has entered into a binding purchase and sale agreement with an intermediate oil and gas company to acquire certain assets in Alberta (the "Acquisition") for cash consideration of $24.0 million, subject to customary closing adjustments. The Acquisition is expected to close on or before July 31, 2015. The assets to be acquired consist primarily of two producing properties located in northwest Alberta within the Company's Greater Grimshaw area (previously referenced as the Company's Flood area). The Acquisition is expected to add low decline production of approximately 750 boe/d (54% oil & NGL) at the closing date and includes 110 (64 net) sections of land. The Grande Prairie and Grimshaw properties each have contiguous, substantially 100%-owned acreage and facilities with significant development potential for Montney oil. Canamax has initially identified approximately 50 Montney oil horizontal drilling locations on these two new properties, which include 11 drilling locations already booked as part of the December 31, 2014 independent reserve report on the assets to be acquired. The Acquisition will be funded through a combination of equity and debt financing.

Acquisition

The Grimshaw and Grande Prairie assets (the "Greater Grimshaw Assets") provide a strategic fit with Canamax's existing core property at Flood. The Grimshaw property is directly south of Flood and encompasses 17, 100% owned sections with a gathering system and centralized battery facilities in place and production from the same Montney fairway as the Flood property. As part of the Acquisition, Canamax will acquire approximately 25 square kilometers of proprietary 3D seismic over the prospective portions of Grimshaw.

The Grande Prairie assets to be acquired are just north of the city of Grande Prairie and encompass approximately 20 net sections (at 90% average working interest). The production, facilities and prospective sections in this area have a 100% ownership interest. Production from Grande Prairie consists of oil, natural gas and NGL's from the Montney and Dunvegan formations.

At Canamax's existing Flood property, the Company currently has 59 net sections of primarily contiguous 100% owned acreage with 100% ownership of the area facilities and producing wells. Current production at Flood is approximately 350 boe/d (85% oil) and the Company plans to drill 6 vertical Montney wells in the area during Q3 2015. An additional 140 potential drilling locations (vertical and horizontal wells) have been identified in the upper and lower Montney reservoirs on the Flood property.

Canamax estimates that on closing of the Acquisition, the Company should have aggregate production of approximately 1,800 boe/d (which includes 150 boe/d of currently shut-in production at Canamax's Brazeau River property). With full ownership of the pipeline infrastructure and emulsion handling/disposal facilities in the Greater Grimshaw areas (that are currently owned or are to be acquired by the Company), Canamax should be well positioned to further build out and exploit this highly prospective region.

The Acquisition of the Greater Grimshaw Assets is summarized as follows:

Total purchase price (1) $24.0 million
Actual production - Q1 2015 727 boe/d
Estimated production (at closing date) (2) 750 boe/d (54% oil and NGL's)
Estimated annual decline rate on base production 12%
Land 70,500 (41,200 net) acres
Proved developed producing reserves (3) 1.6 MMboe (65% oil and NGL)
Proved reserves (3) 1.9 MMboe (70% oil and NGL)
Proved plus probable reserves (3) 4.3 MMboe (55% oil and NGL)
Proved plus probable reserve life index (3) 15.5 years
Proved developed producing reserves - NPV10 (3),(4) $25.8 million
Proved reserves - NPV10 (3),(4) $27.9 million
Proved plus probable reserves - NPV10 (3),(4) $40.9 million

The associated metrics based on the $24.0 million Acquisition cost are as follows:

Estimated production (at closing) $32,000 per flowing boe/d
Proved reserves $12.70/boe (5)
Proved plus probable reserves $5.62/boe (5)

Notes:

  1. Subject to certain closing adjustments.
  2. Estimated production at closing date, includes Q1 2015 production rates reduced to incorporate production declines, plus the activation of previously shut-in production.
  3. The reserves information provided is based on a reserves evaluation prepared by Insite Petroleum Consultants ("Insite"), an independent qualified reserves evaluator, as at December 31, 2014 for the properties to be acquired in accordance with the standards contained in the COGE Handbook and National Instrument 51-101. That reserves information used a price forecast schedule prepared by Insite and effective as at December 31, 2014.
  4. NPV10 means net present value of future net revenue discounted at 10% before income tax. It should not be assumed that the NPV10 reserve values represent the fair market values of the reserves.
  5. The acquisition cost per boe for proved reserves and proved plus probable reserves excludes the related future development costs estimated at December 31, 2014.

On a combined basis, after the closing of the Acquisition, Canamax anticipates that its corporate profile will be as follows:

Estimated production (at closing date) (1) 1,800 boe/d (54% oil and NGL's)
Land 165,000 (111,000 net) acres
Proved developed producing reserves (2) 3.2 MMboe (61% oil and NGL)
Proved reserves (2) 5.1 MMboe (67% oil and NGL)
Proved plus probable reserves (2) 9.6 MMboe (62% oil and NGL)
Proved developed producing reserves - NPV10 (2),(3) $52.2 million
Proved reserves - NPV10 (2),(3) $66.2 million
Proved plus probable reserves - NPV10 (2),(3) $107.9 million

Notes:

  1. The aggregate estimated production includes 150 boe/d of currently shut-in Canamax production at Brazeau River.
  2. Based on the Canamax reserves information as at December 31, 2014 that has been previously disclosed (where the supporting reserves information was prepared by an independent qualified reserves evaluator, GLJ Petroleum Consultants Ltd. ("GLJ"), in accordance with the standards contained in the COGE Handbook and National Instrument 51-101) plus the Acquisition reserves information as at December 31, 2014 as outlined above. The Canamax reserves information used a price forecast schedule prepared by GLJ effective as at December 31, 2014. The Acquisition reserves were evaluated by Insite using a price schedule prepared by Insite and effective as at December 31, 2014. Readers should be cautioned that the price forecasts of each of GLJ and Insite are different and as a result, the values reflected in these rows utilize different price estimates.
  3. NPV10 means net present value of future net revenue discounted at 10% before income tax. It should not be assumed that the NPV10 reserve values represent the fair market values of the reserves.

"This acquisition further consolidates our position as a leading Montney oil producer in the Greater Grimshaw area" commented Brad Gabel, the Company's President and CEO. "The contiguous land base at Greater Grimshaw, combined with 100% ownership interests in the key acreage and facilities in those areas should provide Canamax with significant running room to develop these assets and accelerate the Company's growth rate."

The Acquisition is subject to customary closing conditions, Canamax obtaining sufficient external funding, and the receipt of the approval of the TSX Venture Exchange.

Financial Advisor

GMP Securities L.P. acted as exclusive financial advisor to Canamax with respect to the Acquisition.

Financing

To assist in funding the Acquisition, Canamax has entered into an agreement, on a commercially reasonable efforts agency basis, with a syndicate of investment dealers co-led by GMP Securities L.P. and Clarus Securities Inc. for a private placement financing of subscription receipts of the Company (the "Subscription Receipts") at $0.60 per Subscription Receipt for minimum gross proceeds of $15 million (the "Financing"). The Company has granted the Agents an option to increase the size of the Financing by up to 15% for maximum gross proceeds of $17.25 million. All net proceeds from the Financing will be allocated to the Acquisition. The Financing is expected to close on or about June 30, 2015.

The Subscription Receipts will be issued pursuant to a subscription receipt agreement. Each Subscription Receipt will entitle the holder to receive one common share in the capital of the Company (a "Common Share"), without any further action or payment on the part of the holder, upon receipt of all approvals required to complete the Acquisition and all conditions to the closing of the Acquisition, other than the payment of the purchase price therefor, (the "Escrow Release Conditions") being satisfied and the earlier of: (i) four months and a day following the closing of the Financing; and (ii) the date upon which a receipt is issued in respect of a final prospectus qualifying the issuance of the Common Shares underlying the Subscription Receipts.

The Company has agreed to use commercially reasonable efforts to obtain such receipt no later than 30 days following the closing of the Acquisition. The proceeds raised from the Financing shall be held in escrow pending the satisfaction of the Escrow Release Conditions. If the Acquisition is not completed by the Company on or before August 1, 2015, then the gross proceeds from the Subscription Receipts will be returned to subscribers, together with their pro-rata portion of any accrued interest less any applicable withholding taxes.

As a backstop for the funding required for the Acquisition, Canamax has established a standby bridge loan facility with an arms-length lender which provides lending capability of up to $20.0 million, if required. The standby bridge facility with the arms-length lender required an upfront fee of 5.25% on $20.0 million (payable as to 1% in cash and 4.25% in common shares). Canamax made the common share payment by issuing the lender 1.532 million common shares pursuant to a prospectus exemption in accordance with the terms of the credit agreement governing the standby facility. Such shares will be subject to a four-month hold period. If Canamax draws on the facility to fund a portion of the Acquisition, an additional fee of 4.25% of the funds drawn will be payable to the lender in the form of common shares. Drawn funds on the bridge facility will carry a maximum term of 14 months and carry an annual interest rate of 9.5% for the first 12 months and 12% per annum thereafter. There will be no early payout penalty as long as the drawn amounts are outstanding for at least 3 months. Prior to any funding being available from this facility, Canamax must raise a minimum of $10 million in equity financing.

The Financing is subject to the receipt of necessary regulatory approvals including approval by the TSX Venture Exchange and the satisfaction of certain other conditions.

About Canamax

Canamax is a Montney oil focused junior oil and gas company with its core assets located in the Greater Grimshaw area of Northwestern Alberta.

Caution Respecting BOE

The term barrels of oil equivalent ("BOE") may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 Bbl and an Mcfe conversion ratio of 1 Bbl:6 Mcf are based on an approximate energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Since the value ratio based on the current price of crude oil compared to natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion based on a 6:1 ratio is misleading as an indication of value.

Forward-Looking and Other Cautionary Statements

Certain information included in this press 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", "should", "will" 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, timing for completion of the Acquisition and the Financing, how the Acquisition will be funded, expectations with respect to the Acquisition, the characteristics and attributes of the assets to be acquired pursuant to the Acquisition, the effect of the Acquisition on the Company and the benefits to the Company, drilling and building plans, ability to exploit the Greater Grimshaw area, future production, decline rates, price forecasts, and the speed of the Company's growth rate.

The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Canamax, which include, but are not limited to, the timing for completion of the Acquisition and the Financing, receiving all approvals in a timely manner, characteristics of the Acquisition assets, decline rates, and production. Although Canamax management considers these expectations and assumptions to be reasonable based on information currently available to it, undue reliance should not be placed on the forward-looking statements because Canamax can give no assurances that they may prove to be correct. Readers are cautioned that the foregoing list is not exhaustive of all expectations and assumptions which have been used.

Forward-looking statements necessarily involve known and unknown risks and uncertainties, including, without limitation, Canamax's ability to achieve financial and other benefits resulting from the successful completion of the Acquisition; the risks associated with oil and gas production; marketing and transportation; loss of markets; volatility of commodity prices; currency and interest rate fluctuations; imprecision of reserve estimates; environmental risks; competition; incorrect assessment of the value of acquisitions; failure to realize the anticipated benefits of acquisitions; inability to access sufficient capital from internal and external sources; changes in legislation, including but not limited to income tax, environmental laws and regulatory matters. Readers are cautioned that the foregoing list of factors is not exhaustive. In addition, the Acquisition and Financing are subject to certain conditions. Failure to satisfy any of these conditions may result in the Acquisition or Financing not being completed. In addition, statements relating to "reserves" are by their nature forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future. The recovery and reserves estimates provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Please refer to Canamax's Annual Information Form ("AIF") dated April 8, 2015 for additional risk factors relating to Canamax. The AIF is available for viewing under the Company's profile on www.sedar.com.

The forward looking statements contained in this news release are made as of the date of this news release, and Canamax does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by securities law.

This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein. The securities have not been 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 within the United States or to United States Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Canamax Energy Ltd.
    Brad Gabel
    President & CEO
    (587) 349-5186

    Canamax Energy Ltd.
    Chris Martin, CA
    Vice President, Finance & CFO
    (587) 349-5186
    www.canamaxenergy.ca