Skope Energy Inc.

Skope Energy Inc.

October 01, 2010 13:08 ET

Skope Energy Closing of Acquisition and Equity Financing

CALGARY, ALBERTA--(Marketwire - Oct. 1, 2010) - Skope Energy Inc. ("Skope") is pleased to announce the closing of a series of major transactions, and the commencement of operations:

  • Closed a $128 million acquisition of shallow gas properties in Southeast Alberta and Southwest Saskatchewan.
  • Closed a $76 million private-placement.
  • Received a $75 million credit line from CIBC, a major Canadian chartered bank.

The acquisition is consistent with Skope's strategy to partner with leading operators and acquire low-risk, low decline, cash flow-generating assets, and to the extent cash flow exceeds capital required to maintain constant production, to use excess cash to pay dividends and for debt repayment.

Shallow Gas Acquisition

Skope has closed its first acquisition - an 80% working interest in a major natural gas resource asset in Southeast Alberta/Southwest Saskatchewan. These properties consist of low-decline, low-cost shallow gas assets with a long production history and a large contiguous land base. Spur Resources Ltd. ("Spur"), which holds the remaining 20% working interest in the assets, will operate the properties that include six natural gas facilities and an extensive pipeline infrastructure. Skope's share of the purchase price was $128 million, net of estimated adjustments and closing costs. The effective date is March 1, 2010.

Complementing the low decline asset base is a large inventory of close to 1,000 drilling and recompletion locations. In addition, Spur will be applying its expertise in horizontal monobore drilling and multi-stage fracturing, which could have widespread application to these properties. As well, the production infrastructure and low cost structure provide the basis for profitable operations even at low natural gas prices.

Skope's acquisition metrics are as follows:

Proved Reserves (effective February 28, 2010) 1  76.6 bcf (12.8 mmboe )
Proved Plus Probable Reserves 1  89.4 bcf (14.9 mmboe )
Current Working Interest Production (July 2010)  29.3 mmcf/d (4,884 boe/d )
Gross Land (Developed and Undeveloped)  753,298 acres  
Gross Undeveloped Land  289,665 acres  
Net Undeveloped Land 183,925 acres  
Producing Wells 2,055  
Drilling Locations 610  
Recompletions and Workovers  293  
Purchase Price/Flowing Barrel (Net of Est. Adjustments)  $26,300  
Purchase Price/BOE (Proved Plus Probable) $9.33  
Reserve Life Index 2 8.5  
Operating Costs/mcf $1.10  
Estimated Royalty Rate (Average Crown + Overrides) 12 %
   
Notes:  
(1) Reserves reported in this press release are based on an independent reserve report effective February 28, 2010 and are Skope's working interest share before deduction of royalties, plus Skope's royalty interests in reserves.  
(2) Skope's reserve life index for total proved plus probable reserves, based on July 2010 average daily production of 4,884 boe/d.  

Equity Financing

Skope has closed a $75.5 million private placement of special warrants at a price of $10.00 per special warrant to various institutional and retail investors in Canada and the United States. The private placement was led by GMP Securities L.P. and included CIBC World Markets Inc. and Wellington West Capital Markets Inc. Each special warrant is exercisable for one share of Skope (subject to adjustment in certain circumstances). Skope has also agreed to use its best efforts to file a prospectus qualifying the shares issuable upon exercise of the special warrants in certain provinces of Canada.

Line of Credit

Skope and CIBC have entered into a loan agreement whereby CIBC will provide Skope with a credit line of CAD$75 million. Skope has drawn $65 million of the line to partially fund the asset acquisition and for working capital.

Strategic Purchase

Skope has partnered with Spur and Range Royalty Limited Partnership ("Range") in this purchase. Spur, which has a 20% working interest in the acquired assets, will be the operator. Range has purchased a gross overriding royalty on the assets. Skope believes that the Spur team's technical expertise is ideally suited for the operation of shallow gas development and production. Spur's management consists of much of the technical and operational staff of Profico Energy Inc. and are proven leaders in shallow gas development.

Forward Looking Statements

This press release contains forward-looking statements relating to Skope's plans and other aspects of Skope's anticipated future operations, strategies, financial and operating results and business opportunities. Forward-looking statements typically use words such as "anticipate", "believe", "project", "expect", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future. Specifically, this press release contains forward-looking statements relating to Skope's drilling and completion plans; expectations regarding the application of horizontal monobore drilling and multi-stage fracturing; expectations regarding the infrastructure and cost structure associated with the assets acquired; and anticipated operating costs and royalty rates. In addition, statements relating to "reserves" are deemed to be 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.

These forward-looking statements are based on various assumptions including expectations regarding the performance of the acquired properties; the outlook for petroleum and natural gas prices; estimated amounts and timing of capital expenditures; the timing, location and extent of future drilling operations; anticipated timing and results of capital expenditures; estimates of future production; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; future exchange and interest rates; the ability to carry out development activities; the impact of increasing competition; the ability to market oil and natural gas successfully. While Skope considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties and other factors that contribute to the possibility that the predicted outcome will not occur, including, without limitation risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation; loss of markets; volatility of commodity prices; currency fluctuations; imprecision of reserve estimates; environmental risks; competition from other producers; inability to retain drilling rigs and other services; incorrect assessment of the value of acquisitions; failure to realize the anticipated benefits of acquisitions; general economic conditions in Canada, the U.S. and globally; and the ability to access sufficient capital from internal and external sources. Readers are cautioned that the foregoing list of factors is not exhaustive.

Although Skope believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements and you should not unduly rely on forward-looking statements. The forward-looking statements contained in this news release are made as of the date of this news release and the Company 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 may be required by applicable securities laws.

Cautionary Statement

The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A conversion ratio for gas of 6 mcf:1 boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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