IPC to acquire Blackpearl Resources Inc. in strategic business combination
October 10, 2018
International Petroleum Corp. (“IPC”) (TSX, Nasdaq Stockholm: IPCO) and BlackPearl Resources Inc. (“BlackPearl”) (TSX: PXX, Nasdaq Stockholm: PXXS) are pleased to announce that they have entered into an agreement under which IPC will acquire all of the shares of BlackPearl based upon a share exchange ratio of 0.22 shares of IPC for each BlackPearl share (the “Transaction”). Based upon a volume weighted average price (VWAP) of the IPC Shares for the last thirty days, this represents an acquisition price of CAD 1.85 per BlackPearl share representing a premium of 42% to the closing price of the BlackPearl Shares on October 9, 2018 or a premium of 49% to the VWAP of the BlackPearl Shares for the last thirty days. The acquisition remains subject to shareholder approvals of both IPC and BlackPearl and certain regulatory approvals, with completion expected in December 2018.
Mike Nicholson, Chief Executive Officer of IPC comments: “With the completion of this transformational acquisition, IPC will more than double its total 2P reserves, with an increased oil weighting up from 42% to 74%. Total 2P reserves and contingent resources of IPC increase close to six times. IPC’s 2P reserves life is increased by seven years and daily average net production is expected to increase by more than 50% in the years ahead compared to IPC today. We also welcome the addition of a high calibre team of BlackPearl management and operational professionals with a long track record of value creation, to complement the existing IPC team.”
John Festival, Chief Executive Officer of BlackPearl comments: “This transaction will be very beneficial to the BlackPearl shareholders, who will gain an immediate material increase in value from the offered premium as well as exposure to the free cash flow of IPC’s diversified asset base while retaining the upside exposure to BlackPearl’s quality resource base. The combined company will have the financial strength to potentially accelerate development of BlackPearl’s exciting growth projects. I am very pleased to be joining the Board of Directors of IPC and look forward to adding strategic input to IPC going forward.”
Lukas H. Lundin, Chairman of IPC comments: “I am very excited about the future of IPC as the leading oil and gas growth company in the Lundin Group. IPC’s strategy is to maximize the value of the current asset base and, at the same time, seek to use its financial strength to acquire strategic oil and gas assets. This is exactly the right time in the resource cycle to be pursuing this strategy. The acquisition by IPC of BlackPearl takes the resource base above 1 billion barrels and is another big step in delivering that strategy. The Lundin family is fully committed to remain as a major shareholder of IPC into the future.”
Summary of the Combination: IPC Post-Transaction
|Equity Value (1)||USD 1.01 billion|
|Net Debt (2, 3)||USD 348 million|
|Enterprise Value||USD 1.36 billion|
|Common Shares Outstanding||approximately 164 million|
|First Half 2018 Production|
|Production (3)||44,500 barrels of oil equivalent per day (boepd)|
|Oil and NGLs||61%|
|Reserves and Resources (4)|
|Proved and Probable (2P) Reserves||291.5 million barrels of oil equivalent (MMboe)|
|Reserves life index||17.6 years|
|Contingent Resources (Best Estimate)||852.9 MMboe|
|Net Asset Value (5)|
|2P Core NAV||USD 2.43 billion|
|% discount to 2P Core NAV||58%|
|First Half 2018 Operating Cash Flow||USD 178 million|
|2018 Capital Expenditure Guidance||USD 120 million|
(1) Based on the closing price of the IPC Shares of October 9, 2018, converted to USD at current exchange rates.
(2) Non-IFRS Measure. Net debt as at June 30, 2018. See “Non-IFRS Measures” below.
(3) Combined production based on the average production for the first six months of 2018 of approximately 33,900 boepd for IPC and approximately 10,600 boepd for BlackPearl.
(4) See “Disclosure of Oil and Gas Information” below. Reserve estimates, contingent resource estimates, prospective resource estimates and estimates of future net revenue in respect of IPC’s oil and gas assets in France, Malaysia and the Netherlands are effective as of December 31, 2017 and were prepared by IPC and audited by ERC Equipoise Ltd. (ERCE), an independent qualified reserves auditor, in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (NI 51-101) and the Canadian Oil and Gas Evaluation Handbook (the COGE Handbook), and using McDaniel’s January 1, 2018 price forecasts as referred to below. Reserves estimates, contingent resource estimates and estimates of future net revenue in respect of IPC’s oil and gas assets in Canada are effective as of January 5, 2018, being the completion date for the acquisition of these assets by IPC, and were evaluated by McDaniel & Associates Consultants Ltd. (McDaniel), an independent qualified reserves evaluator, in accordance with NI 51-101 and the COGE Handbook, and using McDaniel’s January 1, 2018 price forecasts. The volumes are reported and aggregated by IPC in this press release as being as at December 31, 2017. Reserves estimates, contingent resource estimates and estimates of future net revenue in respect of BlackPearl’s oil and gas assets were evaluated by Sproule Associates Limited (Sproule) in a report prepared by Sproule dated January 18, 2018 evaluating the oil and gas reserves attributable to BlackPearl’s properties as at December 31, 2017 and the contingent resource reports prepared by Sproule dated January 17, 2018 for the Blackrod, Onion Lake and Mooney properties as at December 31, 2017. Reserves life index is based on the 2P Reserves as at December 31, 2017 and estimated average combined production for 2018 based on the mid-point guidance of IPC and BlackPearl, being 45,250 boepd.
(5) Net present value (NPV) of future net revenue is after tax, discounted at 8% and based upon the McDaniel’s January 1, 2018 price forecasts in respect of the IPC assets and Sproule’s January 1, 2018 price forecasts in respect of the BlackPearl assets. 2P Core net asset value (NAV) is calculated as NPV less net debt as at January 1, 2018. The percent discount to 2P Core NAV is the discount of the Equity Value relative to the 2P Core NAV.
(6) Non-IFRS measure. See “Non-IFRS Measures” below.
IPC and BlackPearl have entered into an agreement (the “Arrangement Agreement”) to effect the Transaction by way of a plan of arrangement of BlackPearl under the Canada Business Corporations Act. The Transaction will result in holders of common shares of BlackPearl (“BlackPearl Shares”) receiving, directly or indirectly, 0.22 common shares of IPC (“IPC Shares”) for each BlackPearl Share owned. The exchange ratio represents an acquisition price of CAD 1.85 per BlackPearl Share based on a thirty day VWAP of the IPC Shares prior to the date of Arrangement Agreement. This represents a premium of 42% to the closing price of the BlackPearl Shares on October 9, 2018 or a premium of 49% to the VWAP of the BlackPearl Shares for the last thirty days. Under the Arrangement Agreement, no fractional IPC Shares will be issued and any fractional entitlements to IPC Shares will be rounded.
Under the Arrangement Agreement, IPC will issue approximately 76 million IPC Shares to the holders of BlackPearl Shares on a fully diluted basis, resulting in IPC having approximately 164 million IPC Shares outstanding at completion of the Transaction. Entities related to the Lundin family will continue to be the largest shareholder of IPC with approximately 24% of the then outstanding IPC Shares.
The board of directors of IPC (the “IPC Board”) and the board of directors of BlackPearl (the “BlackPearl Board”) have unanimously approved the Transaction, following the recommendations made by special committees of independent directors of the respective Boards. The Transaction is subject to approval by the shareholders of both companies, the Court of Queen’s Bench of Alberta, stock exchange approvals and approvals by certain regulatory and other authorities (including that a prospectus in Sweden prepared by IPC is approved and registered by the Swedish Financial Supervisory Authority (the “SFSA”)), and is subject to the satisfaction or waiver of other customary closing conditions. The Transaction is anticipated to close in December 2018.
On completion of the Transaction, Chris Hogue, current Vice President Operations of BlackPearl, will become the Senior Vice-President, Canada for IPC. Ed Sobel, current Vice President Exploration of BlackPearl, will become the Vice President, Exploration of IPC. Chris and Ed will be based in Calgary, Alberta. John Festival, a Director and the Chief Executive Officer of BlackPearl, will join the IPC Board following completion of the Transaction. No other changes are proposed to the IPC Board or senior management in connection with the Transaction.
The Transaction is consistent with IPC management’s strategy for IPC to be a leading independent oil and gas company focused on production of high quality assets in stable jurisdictions around the world and generating long term value for all its stakeholders.
Stable Long-Term Production: IPC will have forecast average combined production of approximately 45,250 boepd for 2018, based on the mid-point guidance of IPC and BlackPearl, across a diverse set of oil and gas assets in Canada (Alberta and Saskatchewan), Malaysia, France and The Netherlands. Production will be comprised of approximately 61% liquids (21% light oil and condensate, 40% heavy oil) and 39% natural gas. By geography, production will be weighted approximately 78% from Canada, 15% from Malaysia and 7% from France and The Netherlands.
Strong Reserves and Resources: IPC will have combined gross 2P reserves as at December 31, 2017 of 291.5 MMboe and best estimate contingent resources as at December 31, 2017 of 852.9 MMboe. IPC’s reserves life index will be approximately 17.6 years on a 2P basis
Organic Growth Opportunities: IPC will have a deep inventory of high quality drilling prospects and identified future development projects, with the potential to generate positive returns and deliver organic production and reserves growth.
Strong Balance Sheet: IPC will have strong financial liquidity from the cash flows generated by its operations throughout the world, as well as continued access to unutilized amounts under credit facilities to accelerate investment in the combined company’s growth projects.
Ability to Optimize Capital Allocation: IPC will have a diverse portfolio of assets in Canada, Malaysia and Europe, allowing it to high grade investment opportunities from the enlarged portfolio and achieve attractive returns for shareholders.
Strong Management and Board: IPC plans to continue with its existing Board and management, complemented by the addition of BlackPearl management representatives both at the IPC Board level and in local and senior management. The two combined organizations have substantial local knowledge and operating capabilities.
Increased Scale and Expanded Investor Base: IPC is expected to have a market capitalization of approximately USD 1 billion on closing of the Transaction, allowing IPC to access a greater universe of institutional and retail investors on both the Toronto Stock Exchange and the Nasdaq Stockholm. IPC’s current dual stock exchange listing and its significant access to a European investor base, combined with BlackPearl’s North American investors, could benefit all shareholders in the combined IPC going forward in terms of improved liquidity and market attention.
IPC and BlackPearl Asset Summary
IPC will acquire the Canadian asset base of BlackPearl to combine with IPC’s existing Canadian and international assets. These assets include the following:
Onion Lake –Saskatchewan, Canada
BlackPearl’s Onion Lake property is made up of a 12,000 boepd heavy oil thermal project with reserve life of over 20 years. BlackPearl owns 100% of the thermal project and is the operator. In addition, BlackPearl, with its working interest partner, the Onion Lake Cree Nation, produce 2,000 boepd of conventional heavy oil.
The first 6,000 boepd phase of the Onion Lake thermal project commenced commercial production in 2015. The second 6,000 boepd phase commenced steam injection during the first quarter of 2018 and reached name-plate capacity of 12,000 boepd in late September. Total cost of the expansion was CAD 175 million, which is just under CAD 30,000 per flowing barrel, a top tier industry metric. During the second quarter of 2018, BlackPearl also started construction of the first sustaining well pad and related facilities for the first phase which is expected to be completed by the end of the year.
During the third quarter of 2018, BlackPearl began work on a facility optimization program of the first phase steam facilities. This optimization work is expected to allow an increase in thermal production by up to an additional 2,000 boepd and is expected to cost approximately CAD 15 million, representing an industry leading development capital of CAD 7,500 per flowing barrel. This program is expected to be completed in the first half of 2019 and BlackPearl anticipates it will take approximately nine to twelve months after completion to reach the increased production target.
Suffield Area – Alberta, Canada
IPC acquired its interest in the Suffield Area oil and gas assets in January 2018. These assets are situated in southeast Alberta and are operated by IPC. The oil assets are 100% working interest and gas assets are 99.6% working interest.
The Suffield Area oil and 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 southeast Alberta. These producing fields have future development potential from a combination of low risk development drilling, well stimulation and enhanced oil recovery (EOR) opportunities, which had not been undertaken for a number of years due to the previous owner’s capital allocation priorities.
Bertam Field – Malaysia
IPC’s production and reserves in Malaysia come from the Bertam oil field located offshore Peninsular Malaysia. The Bertam field has been on production since April 2015. IPC is the operator of Block PM307 with a 75% working interest, with Petronas Carigali Sdn Bhd holding the remaining 25%. Production from IPC’s oil and gas assets in Malaysia is light, high quality oil. A number of future infill drilling locations and near field exploration targets have been identified.
Paris Basin and Aquitaine Basin – France
IPC’s oil and gas assets in France are comprised of two main operating basins, the Paris Basin, which is operated by IPC, and the Aquitaine Basin, which is operated by Vermilion Energy. Both basins are characterized by a high number of wells with low production decline rates. Production from IPC’s oil and gas assets in in France is light, high quality oil. IPC is maturing the development of its two biggest fields in the Paris Basin: the Vert La Gravelle field as well as the western flank of the Villeperdue field.
Blackrod SAGD Project – Alberta, Canada
BlackPearl has received regulatory approval for an 80,000 boepd SAGD (steam-assisted-gravity-drainage) oil sands project at Blackrod. The delineated resource contains over 600 million boe of best estimate contingent resource which represents over a 20 year reserve life index at 80,000 boepd. For the last 5 years, BlackPearl has operated a successful SAGD pilot at Blackrod which has validated both commercial production rates and a corresponding steam oil ratio.
Recommendations of the BlackPearl Board and the IPC Board
Based on the unanimous recommendation from a special committee comprised of independent directors of BlackPearl (the “BlackPearl Special Committee”), the BlackPearl Board has unanimously approved the Transaction, determined that the Transaction is in the best interests of BlackPearl and the holders of BlackPearl Shares, and has recommended that the holders of BlackPearl Shares vote in favour of the Transaction. GMP FirstEnergy has provided the BlackPearl Special Committee with its verbal opinion that, subject to its review of the final form of documents effecting the Transaction, the consideration to be received by holders of BlackPearl Shares pursuant to the terms of the Arrangement Agreement is fair, from a financial point of view, to BlackPearl shareholders.
All of the directors and officers of BlackPearl, as well as entities related to the Lundin family and Burgundy Asset Management Ltd., together representing approximately 40% of the total BlackPearl Shares, have entered into agreements with IPC pursuant to which they have agreed to vote their BlackPearl Shares in favour of the Transaction.
Based on the unanimous recommendation from a special committee comprised of independent directors of IPC (the “IPC Special Committee”), the IPC Board has unanimously approved the Transaction, determined that the Transaction is in the best interests of IPC, and has recommended that the holders of IPC Shares vote in favour of the issuance of IPC Shares pursuant to the Transaction. Paradigm Capital Inc. (“Paradigm Capital”) has provided the IPC Special Committee with its written opinion that the exchange ratio pursuant to the Arrangement Agreement is fair, from a financial point of view, to IPC and to the holders of IPC Shares.
All of the directors and officers of IPC as well as an entity related to the Lundin family, together representing approximately 34% of the total IPC Shares, have entered into agreements with BlackPearl pursuant to which they have agreed to vote their IPC Shares in favour of the issuance of IPC Shares in connection with the Transaction.
All of the directors and officers of IPC and all of the officers of BlackPearl, as well as the entities related to the Lundin family, have further agreed not to dispose of any IPC Shares which they currently own or which will be acquired in exchange for BlackPearl Shares in the Transaction (other than BlackPearl Shares acquired under BlackPearl’s equity incentive plans), for a period of six months following completion of the Transaction.
Additional Transaction Details
The Transaction requires approval by at least 66⅔% of the votes cast by holders of BlackPearl Shares present in person or represented by proxy at a special meeting of holders of BlackPearl Shares to be called to consider the Transaction and a majority of the votes cast by holders of BlackPearl Shares after excluding the votes cast by those persons whose votes may not be included pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.
The issuance of the IPC Shares pursuant to the Transaction requires approval by more than 50% of the votes cast by holders of IPC Shares represented in person or by proxy at a special meeting of holders of IPC Shares to be called to consider the issuance of IPC Shares pursuant to the Transaction, as required by the rules of the Toronto Stock Exchange. The Transaction also requires approval by the SFSA of IPC’s prospectus in Sweden.
The Arrangement Agreement contemplates that IPC and BlackPearl shareholders will hold their respective shareholder meetings in December 2018. It is expected that a joint management information circular will be sent to the shareholders of each of IPC and BlackPearl in November 2018. Closing of the Transaction is expected to occur in December 2018.
The Arrangement Agreement provides for a non-solicitation covenant by BlackPearl, subject to the fiduciary duty obligations of the BlackPearl Board, and the right of IPC to match any superior proposal received by BlackPearl. The Arrangement Agreement provides for a non-completion fee of CAD 20 million in the event the Transaction is not completed or is terminated by BlackPearl in certain circumstances.
The Arrangement Agreement provides that completion of the Transaction is subject to certain conditions, including the receipt of all required regulatory approvals, final consents from the external lenders of IPC and BlackPearl, the approval of the Toronto Stock Exchange of the listing of the IPC Shares to be issued in connection with the Transaction and the approval of the SFSA of the Swedish prospectus (as described above), the approval of the shareholders of IPC and BlackPearl (as described above), the approval of the Court of Queen’s Bench of Alberta and approval under the Competition Act (Canada).
Paradigm Capital provided a fairness opinion to the IPC Special Committee with respect to the Transaction. Blake, Cassels & Graydon LLP is acting as IPC’s Canadian legal advisor and Gernandt & Danielsson Advokatbyrå KB is acting as IPC’s Swedish legal advisor.
GMP FirstEnergy is acting as financial advisor to BlackPearl and provided the BlackPearl Special Committee with a fairness opinion with respect to the Transaction. National Bank Financial and AltaCorp Capital are acting as strategic advisors to BlackPearl. Bennett Jones LLP is acting as BlackPearl’s legal advisor.
Conference Call: Wednesday October 10, 2018 at 4:00 p.m. CET, 10:00 a.m. EDT, 8:00 a.m. MDT
A conference call will be held today, Wednesday October 10, 2018, starting at 4:00 p.m. CET, 10:00 a.m. EDT, 8:00 a.m. MDT. Mike Nicholson, CEO of IPC, Christophe Nerguararian, CFO of IPC, and John Festival, CEO of BlackPearl, will discuss the Transaction.
Dial in numbers for participants are:
Canada/US: +1 855 269 2605
UK: +44 20 3194 0550
Sweden: +46 85 199 93 55
A presentation related to the Transaction will be available in connection with the conference call on IPC’s website at www.international-petroleum.com and BlackPearl’s website at www.blackpearlresources.ca.
10.10.2018, 204.48 KB