IPC announces strategic acquisition to more than triple production and reserves
September 25, 2017
Agreement signed to acquire Suffield and Alderson oil and gas assets in Alberta, Canada
International Petroleum Corporation (“IPC” or the “Corporation”) (TSX, Nasdaq First North: IPCO) is pleased to announce that a wholly-owned subsidiary of IPC has entered into an agreement with Cenovus Energy Inc. (“Cenovus”) to acquire all of Cenovus’ interests in the conventional oil and natural gas assets in the Suffield and Alderson areas of southern Alberta, Canada (the “Acquisition”). The purchase consideration for the Acquisition is CAD 512 million(1), subject to closing adjustments and to certain additional contingent consideration, and is expected to be fully funded by IPC through debt financing. All amounts are in Canadian dollars unless otherwise noted.
Mike Nicholson, CEO comments: “We are very excited to enter into this transformational acquisition of high quality operated assets only five months after the launch of IPC. The Suffield and Alderson assets have been operated safely and efficiently by Cenovus and we are pleased to have reached this agreement to acquire these conventional producing assets as Cenovus focuses on its oil sands and Deep Basin assets. This acquisition fits perfectly with IPC’s strategy of leveraging our existing producing asset base as a platform for value accretive acquisitions of long-life, low-decline producing assets in stable jurisdictions with upside development potential.”
The Suffield and Alderson oil and natural gas assets are held over a large, contiguous land position of 800,000 net acres of shallow natural gas rights and 100,000 net acres of oil rights in southern Alberta. IPC has agreed to acquire 100% operatorship (98.8% working interest) in the oil and natural gas assets which are forecast to produce an average of approximately 6,900 barrels of oil per day (bopd) and approximately 102 million standard cubic feet of natural gas per day during 2017, for a total average of approximately 24,000 barrels of oil equivalent per day (boepd). These producing fields have low production costs and significant future development potential from a combination of low risk development drilling, well stimulation and enhanced oil recovery (EOR) opportunities, which have not been undertaken for a number of years due to Cenovus’ capital allocation priorities.
In conjunction with the Acquisition, IPC has received commitments from BMO Capital Markets for new credit facilities of CAD 325 million in respect of the Suffield and Alderson assets and for an increased reserve-based lending facility of USD 200 million in respect to IPC’s existing international assets.
The Acquisition remains subject to regulatory approvals and is expected to be completed in the fourth quarter of 2017. IPC has also agreed to certain contingent purchase price payments to Cenovus, which may become payable based on increased average oil and natural gas prices during 2018 and 2019. Under the terms of the agreement, IPC will make payments to Cenovus for each month in which the average daily price of West Texas Intermediate (WTI) is above USD 55 per barrel (bbl) or natural gas prices at the Henry Hub are above USD 3.50 per million British thermal units (MMBtu). These payments are capped for each commodity, with a maximum combined payment of CAD 36 million in aggregate.
The Acquisition is consistent with IPC management’s strategy for the Corporation to be a leading independent oil and gas company focused on production of high quality assets in stable jurisdictions around the world.
· Stable low-decline production and positive cash flow in a favourable fiscal regime: The Acquisition represents the entry of IPC into Canada and consists of stable long-life oil and natural gas production:
– 2017 average forecast production of approximately 24,000 boepd
– Proved plus probable (2P) gross reserve to production life index (RLI) of 11.4 years(2)(3) which is accretive to IPC’s RLI of 8.1 years as at 31 December 2016
– Net operating income of CAD 96 million for 2016 (CAD 319 million in 2014 when commodity prices were higher, demonstrating strong leverage to commodity price upside)
– The effective tax rate is favourable with a forecast rate at approximately 23%
· Gross 2P reserves as at January 1, 2018 of 99.6 million barrels of oil equivalent (mmboe) and best estimate contingent resources of 46.1 mmboe. (2)(3)
– 26.5Mboe gross 2P reserves of oil and liquids, and 73.1 mmboe (or 438 billion standard cubic feet) gross 2P reserves of natural gas
· Attractive Acquisition Metrics:
– CAD 4.80 per boe of gross 2P reserves (2)(3); USD 4.00 per boe of gross 2P reserves (based on an exchange rate of CAD 1.20 to USD 1.00)
– CAD 21,300 per boepd of estimated 2017 production(2)
· Low cost operations:
– Forecast 2017 production costs of less than CAD 10.00 per boe
· Pro forma IPC group leverage (net debt to EBITDA) is expected to remain below 2.5 times at 2017 year end. (4)
· Control over HSE, development and investment: The Acquisition provides IPC with operatorship and control of the operations and production with almost 100% working interest.