Pine Cliff Energy Ltd. is acquiring all the issued and outstanding common shares of privately held oil and natural gas producer Certus Oil & Gas Inc. for a cash purchase price of $72 million (CAD 100.0 million).
The transaction will be funded through a combination of available cash and a new secured term debt facility, Pine Cliff said in a news release Tuesday. The board of both Pine Cliff and Certus have unanimously approved the acquisition, which is expected to close by the end of 2023, subject to certain customary conditions and regulatory approvals.
The acquisition will expand Pine Cliff’s core operations into the Caroline area of Western-Central Alberta, adding production of approximately 5,300 barrels of oil equivalent per day. the company said in the release. The estimated production of the assets as of September is composed of approximately 51 percent conventional natural gas, 26 percent natural gas liquids (NGLs), and 23 percent light and medium crude oil and condensate, with an annual decline rate estimated at 16 percent. The acquisition is also expected to add an initially identified 31 gross, or 15.4 net, deep basin liquids-rich natural gas and oil development locations “that are expected to compete for capital in Pine Cliff’s annual spending program for the next several years”, the company noted.
Further, the acquisition will strengthen Pine Cliff’s operating netback through increased exposure to crude oil and NGL production. The company estimates that based on September average production, the Certus assets are expected to generate a net operating income of approximately $27.67 million (CAD 38.4 million) in 2024 at strip pricing. Pine Cliff said its pro forma base production decline rate is expected to remain less than 10 percent, ranking among the lowest for publicly traded Canadian upstream oil and gas companies.
According to the company website, Certus operates conventional light oil-producing properties with its operations focused in the Sylvan Lake and Caroline areas of Central Alberta. The area is dominated by oil production from the Leduc reef trend and includes significant production from the overlying Duvernay, Nisku, Pekisko, Shunda, Nordegg, Rock Creek, Ellerslie, Glauconitic, Viking, Second White Specks, Cardium, Belly River, and Edmonton Sands reservoirs.
Certus’ operations area is located within a short drive of nearly all oilfield service providers’ bases in central Alberta, resulting in lower costs and more operational flexibility. In addition, all well sites are accessible year-round and fully connected to the Certus-controlled pipeline gathering system, oil batteries, and gas plant, according to the website.
Pine Cliff said the acquisition is consistent with its strategy of “acquiring strategic, low decline assets through an ongoing commitment to providing reliable returns to its shareholders”. Funding the acquisition without equity will result in accretion to per share metrics and “is expected to increase the free funds flow generated by the company at current commodity prices”, it added.
Pine Cliff has entered into a non-binding term sheet for a three-year term debt facility provided by an undisclosed private institutional investor. The company expects to enter into a binding commitment with the lender with the closing of the offer. The term debt facility will be subject to interest of Canadian Prime Rate plus 3.65 percent and includes scheduled amortization with options for prepayment after twelve months, Pine Cliff said, adding that it will maintain its current demand operating loan of $5.76 million (CAD 8.0 million) with a Canadian chartered bank as part of its normal course of business.
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