TriStar Oil & Gas Ltd.

TriStar Oil & Gas Ltd.

December 17, 2007 08:12 ET

TriStar Announces Acquisition of Private Southeast Saskatchewan Company; Announces Bought Deal Financing; Provides Upward Revision to 2008 Guidance

CALGARY, ALBERTA--(Marketwire - Dec. 17, 2007) -


TriStar Oil & Gas Ltd. ("TriStar" or the "Company") (TSX:TOG) is pleased to announce that it has entered into an arrangement agreement (the "Arrangement Agreement") with Arista Energy Limited (the "Private Company") pursuant to which TriStar will acquire all of the issued and outstanding common shares of the Private Company (the "Proposed Transaction") by way of a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement") for total consideration of $212 million in cash, including assumed net debt.

The Private Company's assets are focused in TriStar's core area of Southeast Saskatchewan and are comprised of more than 2,250 boepd of high quality light oil. More than 75 percent of the Private Company's production originates from Fertile, a large, light oil (36 degrees API) pool. The Private Company holds a 50 percent working interest in the majority of the Fertile pool. TriStar is acquiring the other 50 percent working interest in the Fertile pool through the recently announced acquisition of Bulldog Resources Inc. ("Bulldog") (the "Bulldog Acquisition").

TriStar believes that the Fertile pool contains more than 86 million barrels of original oil in place ("OOIP"), including 83 million barrels of OOIP on the common lands of the Private Company and Bulldog ("Combined Lands") and an additional three million barrels of OOIP on the Private Company's 100% working interest lands, bringing the total OOIP in the pool to 86 million barrels with less than two percent recovered to date.

The Proposed Transaction adds 6.8 mmboe of proved plus probable reserves to TriStar based on GLJ Petroleum Consultant Ltd.'s (Bulldog's independent engineer) evaluation of the Fertile pool on the Combined Lands and the remaining Private Company assets evaluated by its independent engineers, both reports effective September 30, 2007 (the "Combined Reports"). The Fertile pool (both on the Combined Lands and the Private Company's additional 100% acreage) represents 4.7 mmboe in the Combined Reports equating to an 11 percent recovery factor (inclusive of 1.3 mmboe produced to date from the pool). TriStar has identified 114 (59 net) development locations to be drilled in this pool, 84 (42.5 net) of which are not currently reflected in the Combined Reports. TriStar believes that the additional locations not included in the Combined Reports represent unrisked upside potential of 6.2 mmboe of reserves net to TriStar at an estimated capital cost of $42.5 million (implied finding and development cost of less than $7.00 per boe and a recycle ratio of greater than eight times based on Arista's top decile operating netbacks of greater than $58.00 for the three months ended September 30, 2007). The addition of this unbooked upside would result in an implied ultimate recovery factor for Fertile of approximately 27 percent. TriStar management believes that numerous analog pools in southeast Saskatchewan, similar in nature to Fertile, will ultimately reach recovery factors of up to 35 percent.

In addition, as part of the Proposed Transaction, TriStar gains exposure to 4 net sections of Bakken prone acreage. TriStar has identified 16 net Bakken drilling locations on the Private Company's acreage, which are not currently recognized in the Combined Reports. TriStar believes this represents potential upside of more than 1.3 mmboe of reserves, net to TriStar.

With the closing of the previously announced acquisition of Kinwest Corporation (the "Kinwest Transaction"), the Bulldog Acquisition and the Proposed Transaction (together the "Transactions"), TriStar will have exposure to 95 net sections of land on the southeast Saskatchewan Bakken light oil play representing more than 365 net Bakken drilling locations based on four wells per section. This land position and drilling inventory ranks TriStar as one of the top three participants in the emerging southeast Saskatchewan Bakken play.

The Private Company's remaining assets are all located in southeast Saskatchewan and include two exciting new pool discoveries, both offsetting TriStar's undeveloped land base.

Post the closing of the Transactions, TriStar will have greater than 10,000 boepd of long life, light oil production in its Southeast Saskatchewan core area including a 100 percent working interest at Fertile. In addition, TriStar will have more than 1,175 (650 net) future development drilling locations for both conventional and Bakken light oil representing potential future capital expenditures net to TriStar of over $900 million, providing an extensive production and opportunity base which will not be affected by the recently announced royalty changes in Alberta.

Brett Herman, President and Chief Executive Officer of TriStar commented, "The acquisition of Arista is a natural fit for TriStar and compliments our recently announced acquisition of Bulldog bringing our interest in Fertile to 100 percent. We continue to grow our light oil production base and aggressively expand our presence in southeast Saskatchewan where the economics of drilling continue to be very attractive."


The parameters relating to the Proposed Transaction are set forth as follows:

1. Purchase Price: approximately C$212 million (including assumed debt)

2. Large Oil in Place:

- TriStar believes the Fertile pool has greater than 86 million barrels of original oil in place on both the Combined Lands and the Private Company 100 percent lands; less than 2 percent recovered to date

- 6.8 mmboe (proven plus probable) reserves booked as at September 30, 2007 (4.7 mmboe booked to the Fertile property representing an 11 percent recovery factor)

- Potential ultimate recovery factor of greater than 27 percent representing unrisked upside of approximately 6.2 mmboe of reserves, net to TriStar

3. High Quality Production:

- greater than 2,250 boepd (operating netback of greater than $58.00 for the three months ended September 30, 2007)

4. Net Operating Income Multiple:

- 4.8 times (at US$75/bbl WTI and C$6.75/mcf AECO pricing)

5. Significant Drilling Upside Potential (not reflected in the Combined Reports):

- Fertile: 84 gross/42.5 net

- Bakken: 16 gross/16 net

- Other: 5 gross/5 net

6. Other Key Attributes

- Working interest top up at Fertile, providing operational flexibility of owning the pool 100%

- 4 net sections of Bakken prone acreage; more than 30,000 net acres of total undeveloped land

- Two exciting new light oil pool discoveries in southeast Saskatchewan


The Boards of Directors of both the Private Company and TriStar have unanimously approved the Proposed Transaction. The Private Company's Board has concluded that the Proposed Transaction is in the best interests of its shareholders, and has resolved to recommend that holders of Private Company Shares vote their shares in favour of the Proposed Transaction. The Board of Directors and management of the Private Company, representing 67 percent of the fully diluted shares outstanding, have entered into lock-up agreements to unconditionally vote their securities in favour of the Proposed Transaction. The Arrangement Agreement contains a mutual non-completion fee of $9 million, which is payable by the Private Company or TriStar to the other, as the case may be, in certain circumstances if the Arrangement is not completed.

Closing is expected to occur in February 2008, subject to regulatory approval, approval of the Private Company shareholders and certain other conditions.

FirstEnergy Capital Corp. ("FirstEnergy") is acting as the exclusive financial advisor to Private Company in respect of the Arrangement. FirstEnergy has advised the board of directors of the Private Company that they are of the opinion, as of the date hereof, that the consideration to be received by the Private Company shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Private Company shareholders.

Macquarie Capital Markets Canada Ltd. is acting as financial advisor, and GMP Securities L.P. is acting as strategic advisor to TriStar in connection with the Proposed Transaction.


Concurrent with the Proposed Transaction, TriStar has entered into a bought deal equity financing agreement with a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd. and including GMP Securities L.P., BMO Capital Markets, CIBC World Markets Inc., FirstEnergy Capital Corp., Tristone Capital Inc., Scotia Capital Inc., TD Securities Inc. and Westwind Partners Inc., to issue on a private placement basis, 14.4 million subscription receipts of TriStar at a price of $12.15 each for gross aggregate proceeds of $175 million (the "Offering"). Closing of the Offering is scheduled for January 11, 2008.

The proceeds of the offering of subscription receipts will be held in escrow pending TriStar's receipt of all necessary regulatory approvals and the completion of the Arrangement and the issue of the underlying TriStar Shares thereunder.

Upon these conditions being met, the proceeds of the offering of the subscription receipts will be released to TriStar and each subscription receipt will be exchanged for one free trading TriStar Share without additional payment. If closing of the Arrangement does not take place by 5:00 p.m. (Calgary time) on March, 17, 2008, the Arrangement is terminated at any earlier time, or TriStar or the Private Company has announced to the public that it does not intend to proceed with the Arrangement, holders of the subscription receipts will be entitled to a return of their full subscription price and their pro rata entitlement to the interest earned on the escrowed funds.

Subscription receipts issued pursuant to the private placement will be subject to a hold period from the date of closing of the Offering until the closing of the Arrangement. The Offering is subject to the receipt of all necessary regulatory and stock exchange approvals.


Upon completion of the Proposed Transaction and the Bulldog Acquisition, both of which are scheduled to close in February 2008, and the previously announced Kinwest Transaction, which is scheduled to close in January 2008, TriStar anticipates revising upward management's previously announced 2008 guidance. TriStar's previous guidance was to average 18,250 boepd with an exit rate of 19,250 boepd.

TriStar now anticipates 2008 average daily production of more than 20,250 boepd with a 2008 production exit rate of more than 21,750 boepd based on an anticipated revised capital expenditure budget of $220 million.

Upon the closing of the Proposed Transaction, the Bulldog Acquisition and the Kinwest Transaction, TriStar estimates it will have the following corporate characteristics:

High Quality Assets: Top-decile netback, greater than 85 percent
operated, light oil and natural gas reserves
and production focused in four core
operating areas

Long Life Reserves: greater than 63 mmboe (P+P); RLI of over 8.5

High Quality Production: Average Rate 2008 (E) greater than 20,250
boepd (greater than 75% light oil)
Exit Rate 2008 (E) greater than 21,750 boepd
(greater than 75% light oil)

Estimated Net Debt: less than $330MM; less than 1.3 times cash
(US$75 WTI, $6.75 AECO)

Shares Outstanding: 107.4 MM (B); 111.7 MM (FD)

Significant Upside Potential: greater than 1,500 development locations
greater than 780,000 net acres of
undeveloped land

In conjunction with the transaction, a put contract locking in a minimum price of US$80.00 per bbl has been entered into for 500 bbls per day for a period of March 1, 2008 to December 31, 2009 and a costless collar contract has been entered into for 500 bbls per day for a period January 1, 2008 to December 31, 2009 with a floor price of US$80.00 and a ceiling price of US$100.00.

TriStar Oil & Gas Ltd. is a Calgary based company active in the acquisition, exploration, development and production of crude oil and natural gas in Western Canada.

Warning about Forward-Looking Statements

This press release contains forward-looking statements. More particularly, this press release contains statements concerning the potential reserves, oil in place, netbacks, production and drilling locations associated with the announced acquisitions, TriStar's projected average annual and exit rates of production of oil and natural gas for 2008 and estimated net debt and cash flow following closing of the announced acquisitions.

The forward-looking statements are based on certain key expectations and assumptions made by TriStar, including expectations and assumptions concerning prevailing commodity prices and exchange rates, availability and cost of labour and services, the timing of receipt of regulatory approvals, the performance of existing wells, the success obtained in drilling new wells, the performance of new wells and the sufficiency of budgeted capital expenditures in carrying out TriStar's planned activities.

Although TriStar believes 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 TriStar 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 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. These risks are set out in more detail in TriStar's annual information form for the year ended December 31, 2006, which can be accessed at

The forward-looking statements contained in this press release are made as of the date hereof and TriStar undertakes no 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.

Meaning of Certain Terms

When used in this press release, boe means a barrel of oil equivalent on the basis of 1 boe to 6 thousand cubic feet of natural gas. Boepd means a barrel of oil equivalent per day.

Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6 thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The common shares offered 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 many not be offered or sold in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable states securities laws.


Contact Information

  • TriStar Oil & Gas Ltd.
    Brett Herman
    President & Chief Executive Officer
    (403) 268-7800
    (403) 218-6075 (FAX)
    TriStar Oil & Gas Ltd.
    Jason Zabinsky
    Vice President, Finance & Chief Financial Officer
    (403) 268-7800
    (403) 218-6075 (FAX)