Parex Resources Inc.
TSX VENTURE : PXT

Parex Resources Inc.

April 20, 2011 15:42 ET

Parex Resources Announces Accretive Acquisition of Llanos Basin Blocks, Bought Deal Financing and Provides Increased 2011 Guidance

CALGARY, ALBERTA--(Marketwire - April 20, 2011) - Parex Resources Inc. ("Parex" or the "Company") (TSX VENTURE:PXT), an oil focused exploration and production company with operations in Colombia and Trinidad, is pleased to announce it has entered into a definitive agreement to acquire a company which will hold the 50 percent interest Parex does not already own in four Llanos Basin blocks in Colombia, including Block LLA-16 and the Kona discovery, for total consideration of US$255 million (the "Acquisition") (CDN$245 million(1)), subject to customary adjustments. The Acquisition will be funded through a bought deal public offering of CDN$165.2 million of subscription receipts and CDN$85.0 million of extendible convertible unsecured subordinated debentures (as further described below). The Acquisition is expected to be highly accretive to Parex on a per share basis to operating income, reserves and production. The Acquisition is expected to close no later than June 29, 2011 and will be effective January 1, 2011.

Strategic Rationale and Acquisition Highlights

Upon completion of the Acquisition, Parex will have increased its working interest from 50 percent to 100 percent and will be operator of each of the four Llanos Basin blocks. The Acquisition is underpinned by the Kona multi-zone light oil discovery and a significant inventory of exploration prospects. The Acquisition comprises the following:

BlockPre-Acquisition OperatorWorking InterestNet AcresWorking Interest Production(2) (bopd)(3)
(net)
Acquisition Proved + Probable (2P) Reserves(4) (mmbbl)(5)
(net)
Acquisition Proved + Probable + Possible (3P) Reserves4(mmbbl)
(net)
LLA-16Parex50%78,7721,1605.29.6
LLA-20Parex50%72,1050Exploration acreage
LLA-29Vendor50%34,9430Exploration acreage
LLA-30Vendor50%58,6360Exploration acreage
(1) At USD/CAD rate of 0.96
(2) Estimated average production for first quarter 2011 before royalties.
(3) Barrels of oil per day ("bopd").
(4)Independent reserve evaluation of Colombian Kona discovery as prepared for Parex by GLJ Petroleum Consultants Ltd. effective March 31, 2011 (the "GLJ Report"). The GLJ Report was prepared in accordance with the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities.
(5) Millions of barrels ("mmbbl").

In 2011, Parex expects to drill six appraisal/development wells on Block LLA-16 at the Kona discovery, of which two wells have been drilled and cased to date, with the goal of supporting the Company's exit rate guidance.

The Acquisition assets are expected have the following benefits to Parex:

  • Increases working interest of all four blocks to 100 percent;
  • The Company becomes operator of all four blocks;
  • Provides near-term, 3-D seismic defined, 100 percent working interest exploration drilling catalysts;
  • Doubles operating income;
  • Doubles forecast 2011 exit production rate; and
  • Doubles light crude oil reserves on a proved, probable and possible basis.

Parex currently has 77.0 million basic shares outstanding and following the closing of the Offering (as discussed herein) and the Acquisition (and prior to the exercise of the over-allotment option) will have 100.6 million basic shares outstanding. The Acquisition is expected to be approximately 50 percent accretive to operating income, reserves and production on a per share basis. Assuming the conversion of the entire principal amount of the extendible convertible unsecured subordinated debentures issued in the Offering into common shares of Parex, the Acquisition is expected to be approximately 40 percent accretive to operating income, reserves and production on a per share basis.

Additionally, the Acquisition will require minimal integration and is expected to provide the Company the opportunity to increase the benefits currently being realized as a result of favourable initial royalty rates of nine percent and high operating netbacks.

Based on a total consideration of US$255 million, the expected Acquisition metrics per barrel, before adjustment for the value of the undeveloped land being acquired, are as follows:

US$/barrels of oilFuture Development Capital(6)
Excluded
Future Development Capital
Included
Proved plus probable reserves$49.42$54.11
Proved plus probable plus possible reserves$26.48$30.08
(6) The GLJ Report included future development capital of US$24.2 million for proved plus probable reserves and US$34.6 million for proved plus probable plus possible reserves.

Reserve Definitions

"Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.

"Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.

"Possible" reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10 percent probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible serves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.

Financing

Parex has entered into an agreement, on a bought deal basis, with a syndicate of underwriters co-led by FirstEnergy Capital Corp. and Scotia Capital Inc., as joint bookrunners, and including Haywood Securities Inc., CIBC World Markets Inc., Peters & Co. Limited, Raymond James Ltd., RBC Capital Markets and TD Securities Inc. (the "Underwriters") pursuant to which the Underwriters have agreed to purchase for resale to the public, 23.6 million subscription receipts of Parex (the "Subscription Receipts") at a price of $7.00 per Subscription Receipt for gross proceeds of CDN$165.2 million and CDN$85.0 million aggregate principal amount of 5.25% extendible convertible unsecured subordinated debentures of Parex (the "Debentures") for total combined gross proceeds of CDN$250.2 million (together the "Offering"). Parex has also granted the Underwriters an over-allotment option, exercisable in whole or in part, for a period commencing at closing of the Offering and ending 30 days following closing of the Offering, to purchase an additional 3.54 million Subscription Receipts at the same Offering price which, if exercised, would increase the total gross proceeds to Parex from the sale of the Subscription Receipts and Debentures to CDN$275.0 million. Closing of the Offering is expected to occur on or about May 17, 2011 and is subject to customary conditions and regulatory approvals, including the approval of the TSX Venture Exchange (the "TSX-V").

The net proceeds of the Offering will be used to fund the cash purchase price payable by Parex or a subsidiary pursuant to the Acquisition, with any additional amounts required to close the Acquisition being funded from Parex' existing working capital. The Acquisition is expected to close no later than June 29, 2011 and is subject to customary transaction closing adjustments and the satisfaction of customary closing conditions and approvals.

The proceeds from the sale of Subscription Receipts will be held by a trustee, as escrow agent, and invested in short-term obligations of, or guaranteed by, the Government of Canada (and other approved investments). If the Acquisition closes on or before July 15, 2011 (the "Acquisition Deadline"), the proceeds will be released to Parex and each Subscription Receipt will automatically be exchanged for one common share of Parex ("Common Shares") without any further action on part of the holder and without payment of additional consideration. If the Acquisition does not close by the Acquisition Deadline, is terminated at any earlier time or Parex advises the Underwriters or announces to the public that it is not proceeding with the Acquisition at an earlier time, holders of Subscription Receipts will receive their full purchase price of the Subscription Receipts, together with their pro rata portion of interest earned thereon during the term of the escrow.

The Debentures will have an initial maturity date of July 15, 2011 ("Initial Maturity Date") and provided the Acquisition has closed by the Acquisition Deadline, the Initial Maturity Date will automatically be extended to June 30, 2016.

The Debentures have a face value of $1,000 per debenture, a coupon of 5.25 percent, a maturity date of June 30, 2016 (assuming the terms of the Debentures is extended), and, at any time following closing of the Acquisition, will be convertible into Common Shares at the option of the holder at a conversion price of CDN$10.15 per Common Share, representing a conversion premium of 45 percent to the offering price of the Subscription Receipts. The Debentures will pay interest semi-annually in arrears on June 30 and December 31 of each year, commencing on December 31, 2011. The Debentures will not be redeemable by Parex on or before July 1, 2014 other than in limited circumstances in connection with a change of control of Parex. On and after July 1, 2014 and prior to June 30, 2016, the Debentures may be redeemed by the Company, in whole or in part from time to time, on not more than 60 days and not less than 40 days prior notice, at a redemption price equal to the principal amount plus accrued and unpaid interest, if any, up to but excluding the date set for redemption, provided that the weighted average trading price of the Common Shares on the TSX-V for the 20 consecutive trading days ending five trading days prior to the date on which notice of redemption is provided is not less than 125 percent of the conversion price. In the event that a holder of Debentures exercises their conversion right following a notice of redemption by the Company, such holder shall be entitled to receive accrued and unpaid interest, in addition to the applicable number of Common Shares to be received on conversion, for the period from the latest interest payment date to the date of conversion.

The Debentures will be direct, unsecured obligations of Parex, subordinated to other indebtedness of the Company for borrowed money and ranking equally with all other existing and future unsecured subordinated indebtedness.

The Subscription Receipts and Debentures will be issued pursuant to a short form prospectus to be filed by Parex in each of the provinces of Canada and will also be offered for sale internationally pursuant to applicable registration or prospectus exemptions as permitted.

Revised 2011 Guidance

Assuming the successful completion of the Acquisition, Parex expects to exit 2011 with production in excess of 14,000 bopd. With successful completion of the Acquisition, Parex' proforma Colombian capital budget for the remainder of 2011 is expected to grow by approximately US$30-$35 million, expected to be funded from existing working capital and funds flow from operations. Excluding the Acquisition purchase price and adjustments, the proforma forecast capital expenditures and forecast exit rate production are:

2011 Forecast Capital
US $millions
2011 Forecast Exit Rate
bopd
Parex Guidance Pre-Acquisition April 15, 201195-105>7,000
Proforma Guidance125-140>14,000

Corporate Overview

Parex, through its direct and indirect subsidiaries, is engaged in oil and natural gas exploration, development and production in South America and the Caribbean region. Parex is conducting exploration activities on its 595,000 acre holdings in the Llanos Basin of Colombia and 223,500 acre holdings onshore Trinidad. Parex is headquartered in Calgary, Canada.

The securities offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, or any state securities law and may not be offered or sold in the United States absent registration or applicable exemption from those registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Advisory on Forward Looking Statements

Certain information regarding Parex set forth in this document contains forward-looking statements that involve substantial known and unknown risks and uncertainties. The use of any of the words "plan", "expect", "prospective", "project", "intend", "believe", "should", "anticipate", "estimate" or other similar words, or statements that certain events or conditions "may" or "will" occur are intended to identify forward-looking statements. Such statements represent Parex's internal projections, estimates or beliefs concerning, among other things, future growth, results of operations, production, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, plans for and results of drilling activity, environmental matters, business prospects and opportunities. These statements are only predictions and actual events or results may differ materially. Although the Company's management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause Parex's actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Parex.

In particular, forward-looking statements contained in this document include, but are not limited to, statements concerning the Offering and the Acquisition, including the timing of closing of the Offering and the Acquisition; the Subscription Receipts and Debentures to be issued pursuant to the Offering; regulatory and other approvals required for the Offering and the Acquisition; the use of proceeds from the Offering; the performance characteristics of the Company's oil properties, including the interests to be acquired in the Acquisition; the financial metrics of the Acquisition; the financial and operational benefits to the Company of the Acquisition; that the Acquisition will be accretive to Parex on several financial measures; financial and operational prospects, outlook and guidance; results of drilling and testing; results of operations; drilling plans; activities to be undertaken in various areas; capital plans in Colombia and exit rate production; timing of drilling and completion; and planned capital expenditures and the timing thereof. In addition, statements relating to "reserves" are by their nature forward-looking statements, 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 reserve estimates of Parex' reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered.

These forward-looking statements are subject to numerous risks and uncertainties, including but not limited to, the impact of general economic conditions in Canada, Colombia and Trinidad & Tobago; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced, in Canada, Colombia and Trinidad & Tobago; competition; lack of availability of qualified personnel; the results of exploration and development drilling and related activities; obtaining required approvals of regulatory authorities, in Canada, Colombia and Trinidad & Tobago; risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities; volatility in market prices for oil; fluctuations in foreign exchange or interest rates; environmental risks; changes in income tax laws or changes in tax laws and incentive programs relating to the oil industry; ability to access sufficient capital from internal and external sources; risk that the board of directors of Parex determines that it would be in the best interests of Parex to deploy the proceeds of the Offering for some other purpose; failure to receive all required regulatory and other approvals for the Offering or the Acquisition; and other factors, many of which are beyond the control of the Company. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could effect Parex's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

Although the forward-looking statements contained in this document are based upon assumptions which Management believes to be reasonable, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. With respect to forward-looking statements contained in this document, Parex has made assumptions regarding: receipt of regulatory and other approvals for the Offering and the Acquisition; current commodity prices and royalty regimes; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; the price of oil; the impact of increasing competition; conditions in general economic and financial markets; availability of drilling and related equipment; effects of regulation by governmental agencies; royalty rates, future operating costs, and other matters. Management has included the above summary of assumptions and risks related to forward-looking information provided in this document in order to provide shareholders with a more complete perspective on Parex's current and future operations, the Acquisition and the Offering and such information may not be appropriate for other purposes. Parex's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits Parex will derive there from. These forward-looking statements are made as of the date of this document and Parex disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

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

Contact Information

  • Parex Resources Inc.
    Michael Kruchten
    Manager, Investor Relations
    (403) 517-1733
    (403) 265-8216

    Parex Resources Inc.
    Kenneth G. Pinsky
    Vice President, Finance and Chief Financial Officer
    (403) 517-1729
    (403) 265-8216