TriStar Oil & Gas Ltd.
TSX : TOG

TriStar Oil & Gas Ltd.

March 04, 2009 16:40 ET

TriStar Announces Southeast Saskatchewan Acquisitions, $250 Million Bought Deal Financing, 2008 Year End Reserves & Upward Revision to Guidance

CALGARY, ALBERTA--(Marketwire - March 4, 2009) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.

TriStar Oil & Gas Ltd. ("TriStar" or the "Company") (TSX:TOG) and Crescent Point Energy Trust ("Crescent Point") (TSX:CPG.UN) are pleased to announce that they have entered into an agreement (the "Agreement") with Talisman Energy Inc. ("Talisman") to acquire (the "Acquisition") all of Talisman's assets in southeast Saskatchewan and Montana (the "Assets") for consideration of approximately $720 million of cash effective April 1, 2009. The Assets include more than 8,500 boepd of high quality, high netback, long life crude oil and natural gas production in southeast Saskatchewan. The Assets include working interest reserves of 45.6 million boe proved plus probable and 31.7 million boe proved, independently evaluated effective March 31, 2009. A significant portion of the value is associated with the undeveloped land base in Saskatchewan of more than 395,000 net acres, which includes over 60 net sections within the Bakken play. Of this landbase more than 270,000 net undeveloped acres include ownership of the freehold mineral title.

TriStar is also pleased to announce that it has entered into an agreement, on a bought deal basis, with a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd., and including GMP Securities LP, FirstEnergy Capital Corp., BMO Capital Markets, CIBC World Markets Inc., Genuity Capital Markets, National Bank Financial Inc., Scotia Capital Inc., TD Securities Inc., and Tristone Capital Inc., for an offering of 31,250,000 subscription receipts at $8.00 per subscription receipt to raise gross proceeds of $250 million. The company will grant the underwriters an option to purchase from Treasury an additional 4,687,500 subscription receipts (equal to 15% of the number of subscription receipts sold pursuant to the offering) exercisable at the offering price for a period of 30 days from the closing date for additional gross proceeds off $37,500,000. Closing is expected to occur on or about March 24, 2009 and is subject to customary conditions and regulatory approvals. The net proceeds of the subscription receipt financing will be used to fund a portion of the purchase price payable by TriStar for its share of the Assets, with the balance funded from TriStar's existing credit facilities.

THE AGREEMENT

Under the terms of the Agreement, TriStar and Crescent Point will jointly acquire the Assets for consideration of approximately $720 million of cash. TriStar and Crescent Point have agreed that TriStar and Crescent Point will each acquire 50 percent of the working interests in the Assets for approximately $360 million. TriStar and Crescent Point have entered into a sharing agreement that outlines the obligations, indemnities and liabilities related to the Acquisition along with the joint operating plans for the Assets. TriStar and Crescent Point have further agreed between themselves that, upon completion of the Agreement, operatorship of the portion of the Assets currently operated by Talisman will be split equally between TriStar and Crescent Point.

The closing of the Acquisition is expected to occur on or before June 1, 2009 and is subject to regulatory and court approval and to other conditions typical of transactions of this nature. TriStar and Crescent Point have deposited, in aggregate, $72 million under the terms of the Agreement, which is refundable to TriStar and Crescent Point if the Acquisition does not close, except in the event of default by TriStar and Crescent Point.

TriStar and Crescent Point have also entered into an agreement with Shelter Bay Energy Inc. ("Shelter Bay"), under which TriStar and Crescent Point will sell to Shelter Bay a portion of the Bakken assets (the "Bakken Assets") acquired from Talisman. The Bakken Assets include production of approximately 500 boepd, reserves of 3.5 million boe proved plus probable and 2.5 million boe proved, effective March 31, 2009, and approximately 12 net sections of undeveloped Bakken land. Consideration to be received for the Bakken Assets is approximately $71 million, of which TriStar and Crescent Point will each receive approximately $35.5 million. The proceeds from the sale of the Bakken Assets to Shelter Bay are expected to reduce TriStar's net purchase price to $324.5 million from $360 million.

ACQUISITIONS SUMMARY

TriStar is acquiring high quality, high netback, light oil assets focused in the Company's southeast Saskatchewan core area. Production from TriStar's portion of the Assets, after the disposition to Shelter Bay, is approximately 4,000 boepd, including 700 boepd of Bakken production. The acquisition provides TriStar with the combination of legacy conventional light oil assets which have high netbacks and a low decline profile while also significantly adding to the Company's southeast Saskatchewan Bakken resource play. A large component of the land base being acquired are freehold mineral title lands meaning the land is owned rather than leased, thus, there are no expiries and no royalties paid on the associated production which results in superior economics when compared to lands encumbered with crown and freehold royalties.



Assets Acquired by TriStar
--------------------------

Current Production: 4,000 boepd comprised of 3,300 boepd
conventional (97% light oil) and
700 boepd Bakken production
Proved Producing Reserves: 9.8 mmboe
Total Proved Reserves: 14.6 mmboe
Proved plus Probable Reserves: 21.1 mmboe
Proved RLI: 10.0 years
Proved plus Probable RLI: 14.4 years
Undeveloped Land: 197,500 net acres of undeveloped Saskatchewan
land including 25 net sections which are
prospective for Bakken
Drilling Locations: 61 net Bakken locations (37 booked, 24
unbooked)
57 net Conventional locations (23 booked, 34
unbooked)
Bakken: 28 net sections of which only 3 net sections
are developed resulting in 25 net sections of
undeveloped Bakken land
Fee Lands: Ownership of freehold mineral rights on over
135,000 net acres of land, resulting in
overall royalties of less than 16 percent
Weyburn Unit: 2.2 percent working interest in the Weyburn
CO2 flood
Montana Bakken Assets: More than 80,000 net acres of exploratory
land in Montana
Low Operating Costs: Operating costs of $11.25 per boe

Note: reserves evaluated by GLJ Petroleum Consultants Ltd. ("GLJ"),
effective March 31, 2009.


Acquisition Metrics

A significant component of the value associated with the Assets is related to the undeveloped land value and the ownership of freehold mineral rights on 217 net sections of land. Assuming a value of $45 million for undeveloped land with no assigned drilling locations under NI 51-101, the acquisition metrics are as follows:

- Production:

-- $69,875 per producing boe based on 4,000 boepd

- Reserves:

-- $13.25 per proved plus probable boe

-- $19.14 per proved boe

Transaction Highlights

The acquisition provides the following financial and operational benefits to TriStar shareholders:

- Provides legacy conventional light oil properties with high netbacks and a low decline profile. TriStar believes there are significant production optimization and development opportunities on the acquired properties as the properties have seen little capital investment over the past five years.

- Proved producing reserves represent 67% of the total proved reserves while total proved reserves are 70% of proved plus probable reserves.

- Ownership of freehold mineral rights on over 135,000 net acres of land. Consequently, the netbacks associated with the acquisition are higher with overall royalties associated with the acquired properties less than 16 percent.

- Accretive to long term value measures including reserves and net asset value per share. TriStar management believes over the long-term, the acquisition will be significantly accretive on all measures.

- Doubles TriStar's southeast Saskatchewan land base and enhances the Company's dominant position in the Bakken light oil resource play. The acquired properties add 61 net low risk development Bakken drilling locations, over 65 percent of which are located on fee lands resulting in superior go forward drilling economics.

- Consistent with TriStar's philosophy of acquiring large original-oil-in-place assets with low recovery factors to date providing significant unbooked upside for shareholders.

Private Company Acquisition

On March 2, 2009, TriStar completed the acquisition of a private southeast Saskatchewan company through the issuance of approximately 2.5 million shares and payment of $8.6 million of cash, including the assumption of the private company's net debt. The acquisition included 550 barrels per day of light oil production and an operated production facility within TriStar's Bakken focus area with 2.0 mmBoe of associated proven plus probable reserves based on TriStar's internal reserves estimates. The private company lands also include 10 net sections of prospective Bakken lands upon which TriStar has identified 32 net additional drilling locations.

BOUGHT DEAL FINANCING

TriStar has entered into an agreement, on a bought deal basis, with a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd., and including GMP Securities LP, FirstEnergy Capital Corp., BMO Capital Markets, CIBC World Markets Inc., Genuity Capital Markets, National Bank Financial Inc., Scotia Capital Inc., TD Securities Inc., and Tristone Capital Inc. for an offering of 31,250,000 subscription receipts ("Subscription Receipts") at $8.00 per subscription receipt to raise gross proceeds of $250 million. The company will grant the underwriters an option to purchase from Treasury an additional 4,687,500 subscription receipts (equal to 15% of the number of subscription receipts sold pursuant to the offering) exercisable at the offering price for a period of 30 days from the closing date for additional gross proceeds off $37,500,000. Closing of the subscription receipt financing is expected to occur on or about March 24, 2009 and is subject to customary conditions and regulatory approvals, including the approval of the TSX. The net proceeds of the subscription receipt financing will be used to fund a portion of the purchase price payable by TriStar for its share of the Assets, with the balance funded from TriStar's existing credit facilities.

The Subscription Receipts will be issued pursuant to a short form prospectus filed by TriStar in each of the provinces of Canada, other than Quebec. Subscription Receipts will also be offered for sale to Qualified Institutional Buyers in the United States pursuant to the registration exemptions provided by Rule 144A of the Securities Act of 1933 and internationally as permitted.

The gross proceeds of the subscription receipt financing will be held in escrow pending the completion of the Acquisition. If the Acquisition is completed on or before June 1, 2009, the proceeds will be released to TriStar and each Subscription Receipt will be exchanged for one common share of TriStar for no additional consideration. If the Acquisition is not completed on or before August 1, 2009 or the Agreement is terminated at an earlier time, holders of Subscription Receipts will receive a cash payment equal to the offering price of the Subscription Receipts and any interest that was earned thereon during the term of the escrow.

FINANCIAL ADVISORS

Macquarie Capital Markets and BMO Capital Markets acted as financial advisors to TriStar and BMO Capital Markets and RBC Capital Markets acted as financial advisors to Crescent Point with respect to the transaction. FirstEnergy Capital Corp. acted as financial advisor to Talisman with respect to the transaction.

PRELIMINARY SUMMARY OF FOURTH QUARTER 2008 FINANCIAL & OPERATING RESULTS

TriStar anticipates releasing its fourth quarter and full-year 2009 financial results on March 9, 2009. To provide further clarity on the pro forma impacts of the Acquisitions and the bought deal financing, TriStar provides the following summary of anticipated unaudited financial results:

- Expects to achieve its eleventh consecutive quarter of production growth with a fourth quarter production average of 22,072 boepd and full-year 2008 average production of 20,601 boepd.

- Anticipate 2008 capital expenditures of approximately $961.5 million comprised of $393.4 million of exploration, development and land activities and $568.1 million of acquisitions, net of dispositions.

- Expects to exit 2008 with approximately $350 million of net debt. As at December 31, 2008, the Company had available a $450.0 million credit facility.

Drilling Results

During the fourth quarter of 2008, TriStar drilled a total of 72 (42.2 net) wells resulting in 72 (42.2 net) oil wells, for an overall success rate of 100 percent and bringing the 2008 success rate to 96 percent.



3-Months Ended December 31, 2008 Oil Gas D&A Other Total Net % Success
--------------------------------------------------------------------------

Southeast Saskatchewan Bakken 53 0 0 0 53 28.8 100

Southeast Saskatchewan Conventional 19 0 0 0 19 13.4 100

Alberta 0 0 0 0 0 0 0
--------------------------------------------------------------------------

Total 72 0 0 0 72 42.2 100
--------------------------------------------------------------------------


In 2008, TriStar drilled 251 (158.2 net) wells resulting in 231 (141.3 net) crude oil wells, 4 (4.0 net) natural gas wells and 7 (4.5 net) service wells for an overall success rate of 96 percent.



Year Ended December 31, 2008 Oil Gas D&A Other Total Net % Success
---------------------------------------------------------------------------

Southeast Saskatchewan Bakken 143 0 0 0 143 76.9 100

Southeast Saskatchewan Conventional 81 0 5 7 93 67.3 95

Alberta 7 4 4 0 15 14 73
---------------------------------------------------------------------------

Total 231 4 9 7 251 158.2 96
---------------------------------------------------------------------------


2008 YEAR END RESERVES

TriStar is pleased to provide its 2008 year end reserves information as evaluated by Sproule Associates Limited ("Sproule"), the independent reserves evaluator for all of TriStar's oil and natural gas properties. Sproule prepared the report (the "TriStar Sproule Report") in accordance with National Instrument 51-101 ("NI 51-101") effective December 31, 2008. As TriStar plans to announce its audited 2008 financial statements on or about March 9, 2009, certain financial estimates have been made herein to facilitate discussion of its 2008 capital program. Readers are advised that these financial estimates are subject to audit and may be revised as necessary.

2008 Highlights

- Company interest proved reserves increased 65 percent to 52.7 mmboe;

- Company interest proved plus probable reserves increased 65 percent to 84.5 mmboe;

- F&D costs, excluding FDC, of $15.63 per boe of proved plus probable reserves resulting in a recycle ratio of 3.1 times;

- Completed the acquisition (net of non core dispositions) of 15.6 mmboe of proved plus probable reserves in 2008, including the acquisitions of Kinwest Corporation, Bulldog Resources Inc. and Arista Energy Limited;

- Total FD&A costs, excluding FDC, of $23.58 per boe of proved plus probable reserves resulting in a recycle ratio of 2.0 times; and

- The before tax net present value (10 percent discount rate) of TriStar's reserves grew to $1.8 billion, a 77 percent increase over year-end 2007.

TriStar 2008 Reserves Information

The TriStar Sproule Report report evaluated 100 percent of TriStar's oil, natural gas, and natural gas liquids ("NGL") reserves as at December 31, 2008. The tables below disclose in the aggregate TriStar's gross and net proved and proved plus probable reserves and before tax net present value ("NPV") of future net revenue attributable to such reserves as estimated in the TriStar Sproule Report. These estimates were calculated using forecast prices and costs.

"Forecast prices and costs" means future prices and costs used by Sproule in the TriStar Sproule Report that are generally accepted as being a reasonable outlook of the future, or, fixed or currently determinable future prices or costs to which the Company is bound.

"Working Interest" reserves represent those reserves that are referred to as "Gross" reserves by the Canadian Securities Administrators ("CSA") in NI 51-101, which are the Company's working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the Company.

"Total Net" reserves represent those reserves that are referred to as "Net" reserves by the CSA in NI 51-101, which are the Company's working interest (operating or non-operating) share after deduction of royalty obligations plus the Company's royalty interests in reserves.

The before tax net present value of future net revenue attributable to TriStar's reserves is stated without provision for interest costs and general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income, future capital expenditures, and well abandonment costs for only those wells assigned reserves by Sproule. It should not be assumed that the undiscounted or discounted before tax net present value of future net revenue attributable to TriStar's reserves estimated by Sproule represent the fair market value of those reserves. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to effects of aggregations. The recovery and reserve estimates of TriStar's oil, natural gas, and NGL reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein.



Summary of Reserves and Values
------------------------------

Proved Total Total Proved
Producing Proved Total Probable plus Probable
----------------------------------------------------------------------------

Light/Medium Oil (mbbls)
Working Interest 21,496.3 36,978.3 23,157.5 60,135.8
Total Net 18,491.2 32,018.3 19,655.2 51,673.5

Natural Gas (mmcf)
Working Interest 45,745.5 76,872.6 42,886.1 119,758.8
Total Net 39,173.0 65,020.6 35,809.5 100,830.1

Natural Gas Liquids (mbbls)
Working Interest 1,502.2 2,868.8 1,432.3 4,301.1
Total Net 1,211.8 2,309.6 1,142.7 3,452.3

Oil Equivalent (mboe)
Working Interest 30,622.8 52,659.1 31,737.6 84,396.7
Total Net 26,231.8 45,164.7 26,766.1 71,930.8

Note: Working Interest reserves do not include additional royalty interest
reserves of the Company (82.6 mboe Total Proved & 124.9 mboe Total
Proved plus Probable).


Before Tax Net Present Value ($000s)
------------------------------------------------------------------------
Discounted @
0% $1,187.2 $1,889.9 $1503.2 $3,393.2
5% $938.3 $1,439.1 $908.0 $2,347.1
10% $783.5 $1,156.3 $622.1 $1,778.4
15% $678.2 $963.7 $459.4 $1,423.1

------------------------------------------------------------------------
------------------------------------------------------------------------


The above summary of reserves and values was based on the following price and cost assumptions:



Summary of Pricing and Inflation Rate Assumptions (Forecast Prices and
Costs) Sproule (December 31, 2008)
----------------------------------------------------------------------

Cromer Natural
Edmonton Medium Gas
WTI Par Price 29.3 AECO Spot
Cushing 40 degrees degrees Price Inflation Exchange
Oklahoma API API ($Cdn/ Rate Rate
Year ($US/bbl) ($Cdn/bbl) ($Cdn/bbl) mmbtu) (%/year) ($US/$Cdn)
----------------------------------------------------------------------------

2009 53.73 65.35 58.16 6.82 2.0 0.80
2010 63.41 72.78 66.23 7.56 2.0 0.85
2011 69.53 79.95 72.76 7.84 2.0 0.85
2012 79.59 86.57 79.65 8.38 2.0 0.90
2013 92.01 94.97 87.38 9.20 2.0 0.95
2014 93.85 96.89 89.14 9.41 2.0 0.95
2015 95.72 98.85 90.94 9.62 2.0 0.95
2016 97.64 100.84 92.78 9.83 2.0 0.95
2017 99.59 102.88 94.65 10.05 2.0 0.95
2018 101.58 104.96 96.56 10.27 2.0 0.95
2019 103.61 107.08 98.51 10.50 2.0 0.95
Thereafter +2%/year +2%/year +2%/year +2%/year +2%/year
----------------------------------------------------------------------------

The efficiency of TriStar's 2008 capital program is summarized as follows:

Reserves
Additions FD&A
--------- ---------------
Proved Proved
Excluding Future Development Capital Total plus Total plus
Costs Expenditures Proved Probable Proved Probable
---------------------------- ------------ --------------- ---------------
$mm mmboe mmboe $/boe $/boe

Exploration & Development $393.4 17.5 25.2 $22.52 $15.63

Acquisitions, Net of
Dispositions $568.1 10.9 15.6 $52.09 $36.41
----------------------------------------------------------------------------

Total $961.5 28.4 40.8 $33.88 $23.58

Capital Reserve
Expenditures Additions FD&A
----------------- --------------- ---------------

Proved Proved Proved
Including Future Total plus Total plus Total plus
Development Costs Proved Probable Proved Probable Proved Probable
------------------------- ----------------- --------------- ---------------
$mm $mm mmboe mmboe $/boe $/boe

Exploration & Development $551.3 $605.5 17.5 25.2 $31.56 $24.05

Acquisitions, Net of
Dispositions $645.3 $671.8 10.9 15.6 $59.16 $43.05
---------------------------------------------------------------------------

Total $1,196.6 $1,277.3 28.4 40.8 $42.17 $31.32


PRO FORMA OVERVIEW

Upon completion of the Acquisition which is scheduled to close on June 1, 2009 and the southeast Saskatchewan private company acquisition which closed on March 2, 2009, TriStar estimates it will have the following corporate characteristics:



High Quality Assets: Top decile netbacks, 90 percent operated, light oil
and natural gas reserves and production focused
in four core operating areas
Long Life Reserves: greater than 107 mmboe (P+P); RLI over 11.5 years
High Quality Production: 2009 exit rate of greater than 25,000 boepd
greater than 85% light oil)
Significant Upside Potential: greater than 1,500 development drilling
locations
greater than 900,000 net acres of undeveloped
land
Significant Bakken Upside: greater than 650 development drilling
locations (430 not booked in current reserve
report) 195 net sections of prospective Bakken
acreage


As a result of significantly reduced realized commodity prices and continued economic uncertainty, TriStar continues to closely monitor its capital spending program. Management continues to be disciplined in its philosophy to spend approximately cash flow on exploration and development projects. As current realized commodity prices have been significantly lower than originally budgeted, management believes it is prudent to defer some capital projects in 2009 to ensure the company is spending within operating cash flow and protecting its strong balance sheet.

TriStar is very well positioned, and management's focus is to maintain flexibility to position the company to take advantage of opportunities that will present themselves during this volatile market. TriStar is currently planning a capital program of $200 million for 2009, however, management will continually review the commodity price environment through each quarter of 2009 with the expectation that TriStar's ultimate 2009 capital expenditure budget will be approximately equivalent to cash flow. It is expected that Southeast Saskatchewan will be allocated approximately 90% of the 2009 capital program as the company continues to focus its efforts on its light oil projects, particularly the Bakken unconventional resource play.

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

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements. More particularly, this press release contains statements concerning the anticipated dates for the closing of the Acquisition and the Subscription Receipt financing and the anticipated accretive impact of the Acquisition on TriStar.


The forward-looking statements contained in this document are based on certain key expectations and assumptions made by TriStar, including: (i) with respect to the anticipated closing dates of the Acquisition and the Subscription Receipt financing, expectations and assumptions concerning the obtaining of the necessary regulatory approvals and the satisfaction of applicable conditions and (ii) with respect to the anticipated accretive impact of the Acquisition on TriStar, expectations and assumptions concerning the success of future drilling and development activities, the performance of existing wells, the performance of new wells and prevailing commodity prices.

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 failure to obtain necessary regulatory approvals or satisfy the conditions to closing the Acquisition and Subscription Receipt financing, 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. Certain of these risks are set out in more detail in TriStar's Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.

The forward-looking statements contained in this document 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 BOE

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.

THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Contact Information

  • TriStar Oil & Gas Ltd.
    Brett Herman
    President and C.E.O.
    (403) 268-7800
    (403) 218-6075 (FAX)
    or
    TriStar Oil & Gas Ltd.
    Jason J. Zabinsky
    Vice President, Finance and C.F.O.
    (403) 268-7800
    (403) 218-6075 (FAX)