CALGARY, ALBERTA--(Marketwire - Aug. 7,
2007) - NAL Oil & Gas Trust (TSX:NAE.UN) has entered into an
agreement to buy all the issued and outstanding shares of Seneca Energy
Canada Inc. (Seneca) for a purchase price of $246.6 million, subject to
closing adjustments. The acquisition is expected to close on August 31,
2007 adjusted to July 1, 2007. The acquisition of Seneca will add 10.3
million barrels of oil equivalent (boe) proved plus probable reserves
and 4,600 barrels of oil equivalent production per day (boe/d). It will
also add significant undeveloped land and growth opportunities to the
Trust. As a result of the acquired production being 85 percent natural
gas, NAL will become equally weighted between liquids and natural gas.
The acquisition of Seneca is to be financed by a combination of new
equity, convertible subordinated debentures and bank debt. Subsequent to
the purchase, NAL will retain $125 million of committed, undrawn lines
of credit to support future opportunities.
Andrew Wiswell, President and CEO of NAL indicated that "NAL's
highest priority has been to add to our future opportunity base and
increase our exposure to upside potential. The purchase of Seneca
complements our strong production base by adding opportunities that
provide significant potential for consistent growth in production and
reserves over the next few years, while adding some high impact
prospects. This acquisition builds on our strong first half performance,
and represents the start of our repositioning to create an attractive,
sustainable entity post 2010."
STRATEGIC CONSIDERATIONS
The transaction represents an excellent strategic fit with NAL:
- Accretive to cash flow and production - The acquisition is
expected to be accretive to NAL in 2008 on cash flow and production per
unit. Based on NAL's financing mix and forward strip commodity prices,
2008 cash flow per unit is eight to 10 percent accretive and production
per unit increases by 10 percent.
- Attractive size - At $246.6 million or about 25 percent of NAL's
current market capitalization, Seneca is large enough to make an impact
but manageable in terms of the Trust's ability to finance the
acquisition, to fund the capital for opportunities and to integrate the
operations into NAL's organization.
- Adds gas-focused opportunities - The transaction adds areas with
significant natural gas prospects, and balances NAL's current production
mix between crude oil/natural gas liquids and natural gas. We believe
that the current environment represents an opportune time to acquire
assets with a gas weighting, and positions NAL to benefit from improving
natural gas prices.
- Growing production - Seneca's current production of 4,600 boe/d is
expected to grow to 5,500 boe/d in 2008. Current volume is
approximately balanced between East Alberta, where its properties are
synergistic with NAL's existing operations, and a new, high growth
potential area in Northeast B.C. The third key area is in West Central
Alberta where current production is relatively low but has significant
growth potential, and adds to NAL's existing production of 1,200 boe/d
in the area.
- Operated properties - Seneca has an average working interest of
greater than 80 percent in its properties in East Alberta, and operates
89 percent of its production in the area. Industry leading, deep gas
operator Talisman Energy operates its Northeast B.C. properties.
Although Seneca's total production is 52 percent non-operated, combined
NAL / Seneca production will still exceed 80 percent operated. Talisman
operated blocks in Northeast B.C. and Lake Erie will represent
three-quarters of the non-operated portion of NAL's portfolio.
- Increased undeveloped land base - Seneca's large base of
undeveloped land in Alberta and B.C. (157,276 net acres) represents an
important asset that will provide opportunities for ongoing growth.
These high quality lands and seismic are conservatively valued at $30
million using current market data and appropriate discounts for
expiries. NAL expects that the prospects and opportunities on Seneca's
existing lands provide the opportunity to double the existing reserve
base at attractive development costs over the next few years. The
transaction increases NAL's Western Canadian undeveloped land base by
118 percent.
- Partnering with industry leading gas operator - Seneca's high
impact position in Northeast B.C. is operated by Talisman Energy, an
experienced operator with long-term capability in the Monkman area. This
area is highly strategic for Talisman and will likely remain a key area
of focus. NAL and Talisman are also partners in developing and
producing natural gas in Lake Erie, where the two parties enjoy a
constructive and participative working relationship.
- Low operating costs - Seneca's competitive per unit operating
costs per boe are similar to NAL's, maintaining the Trust's better than
industry average per unit operating costs going forward.
- Growing tax pools - NAL is assuming approximately $127 million of
tax pools, adding to its existing pools of nearly $500 million at
year-end 2006.
- Positive synergies - NAL expects to capture operational and cost synergies through the combination of the two entities.
ACQUISITION HIGHLIGHTS
The acquisition is natural gas oriented, reflecting NAL's confidence
in the long-term fundamentals of natural gas market. Seneca's
production in July 2007 was approximately 4,600 boe/d, consisting of
percent natural gas and 15 percent crude oil and natural gas liquids.
Its production is concentrated in East Central Alberta and Northeast
B.C., with 140 boe/d of oil production in Saskatchewan.
Seneca July 2007 Production
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Oil & NGL Natural Gas BOE
(bbls/d) (mcf/d)
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Alberta 502 11,311 2,387 52%
B.C. 0 12,465 2,078 45%
Saskatchewan 140 0 140 3%
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642 23,776 4,605
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As to reserves, NAL's independent engineering consultants - McDaniel
& Associates Consultants Ltd. - recognized 10.3 million boe (proved
plus probable), which will be added to the reserve base of the combined
entity. Based on their evaluation and a projected production rate 4,400
boe/d for the remainder of the year, the proved plus probable reserve
life index associated with these properties is 6.4 years, excluding
recognition of future opportunities. No reserves have been attributed to
any of the undeveloped land or the three significant wells that are now
drilling, one in West Central Alberta and two in Northeast B.C. In the
McDaniel's report, proved reserves make up 70 percent of the total, and
93 percent of the proved reserves are classified as proved producing.
These numbers are consistent with NAL's existing reserves
classifications.
Seneca's Reserves as Evaluated by McDaniel & Associates - July 1, 2007
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Crude Oil NGL Natural Gas BOE
(Mbbl) (Mbbl) (MMcf) (Mboe)
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Proved Producing 1,181 139 32,517 6,740
Proved Non-producing 2 11 1,959 339
Proved Undeveloped 0 0 950 158
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Total Proved 1,183 150 35,426 7,237
Probable 451 58 15,596 3,108
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Total Proved plus Probable 1,634 208 51,022 10,345
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(x) Compliant with National Instrument 51-101
Where applicable, natural gas has been converted to barrels of oil
equivalent ("boe") based on a ratio of six thoughsand cubic feet of
natural gas to one barrel of oil. The boe rate is based on an energy
equivalent conversion method primarily applicable at the burner tip and
does not represent a value equivalent at the wellhead. Use of boe in
isolation may be misleading.
Included in Seneca's assets are 157,277 acres of undeveloped land.
Approximately 80 percent of that acreage is in Alberta, 18 percent in
B.C. and the balance in Saskatchewan. For context, NAL had 206,000 net
acres of undeveloped land at year-end 2006, consisting of 89,416 in
Alberta, 43,499 in Saskatchewan and 73,000 in Lake Erie, Ontario. This
acquisition will more than double the Trust's inventory of undeveloped
acreage in Western Canada.
Western Canada Land Holdings (Net Undeveloped Acres)
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NAL Seneca Pro Forma Change
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Alberta 89,416 125,721 215,137 141%
B.C. 0 28,106 28,106 n/m
Saskatchewan 43,499 3,449 46,948 8%
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Total 132,915 157,276 290,191 118%
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Operating Area Overview - East Central Alberta
(A map of the Operating Area Overview - East Central Alberta is available at:
http://www.ccnmatthews.com/docs/nal807_map1.pdf)
The Watts, Aerial, Connorsville, Stanmore and Sunnynook areas
collectively make up Seneca's core East Alberta area. East Alberta
consists of 132 wells producing 2,160 boe/d, and 52,512 net acres of
undeveloped land directly south of NAL's Brent/Hanna properties. It is
geologically and operationally similar to our existing acreage. There
are a significant number of low risk, low cost recompletion
opportunities in the area, and a combined 108 untapped zones were
identified by the vendor and NAL staff. These will be completed over
time as the wellbores become available, but some near-term production
will also be realized as commingling opportunities are identified and
the more prospective zones for recompletions are possibly twinned. Some
five new wells have been identified for this area where NAL's geological
team sees opportunity to extend some of our successful geological
concepts over the new lands that have been proven in the Brent / Hanna
area. The vendor identified several dozen Second White Specks (SWS)
drilling locations that will be re-evaluated when gas prices improve. No
reserves are booked and no value is attributed to this future
opportunity.
This core property amounts to almost 50% of Seneca's current
production, offers a reserve life of seven years - similar to our
Brent/Hanna area - adds low risk opportunities and is a natural fit to
our existing operations. NAL believes there will be operational
synergies due to the proximity of these properties to NAL's Brent /
Hanna area. Combined with NAL's interests, this area will represent
approximately 3,800 boe/d of the Trust's pro forma production.
Operating Area Overview - West Central Alberta
(A map of the Operating Area Overview - West Central Alberta is available at:
http://www.ccnmatthews.com/docs/nal807_map2.pdf)
West Alberta contains almost all of the Seneca exploratory prospects
in Alberta. Although current production in this area is modest at 230
boe/d, the prospectivity is high with 73,060 net acres of undeveloped
land in the vicinity. In total, some six to eight ready-to-drill
prospects have been identified over these lands with plans to drill
these prospects over the next two years.
The Pedley/Lambert and Groat areas fit closely to NAL's existing
Pine Creek lands and operations. Seneca has a 19 percent working
interest in the Peppers 16-16-52 -23 W5M new pool wildcat, spudded by
Fairborne Energy Trust on July 1, 2007. Tie-in and production of the
recently drilled Lambert 6-28-52-22 W5M, also at 19 percent working
interest, is expected before year-end 2007. Two near-term prospects also
exist in the Groat area, in partnership with a private junior company
with whom NAL has partnered in the past. There are also oil targets in
the Bonanza area of the Peace River Arch where Seneca retains a 57
percent working interest. NAL considers the prospects in this area to be
well-developed, drill-ready plays with medium risk and a high
probability of adding future reserves and production. We have good
working relationships with the operators of these plays and NAL has
in-house technical knowledge of the geology to provide value-added
input.
Operating Area Overview - Northeast British Columbia
(A map of the Operating Area Overview - Northeast British Columbia is available at:
http://www.ccnmatthews.com/docs/nal807_map3.pdf)
The unique opportunity in this package is a 20 percent working
interest position in Talisman's Monkman/Sukunka play. This is a deep,
sour, complex Paleozoic gas play below the well-developed Triassic
production in the area. At approximately 5,000 meters vertical depth,
these horizontal wells have extended drilling and cycle times. Through
drilling and seismic obligations, Seneca has earned 133,115 gross acres
(26,623 net) and has three producing wells providing a working interest
share of sales gas of 2,080 boe/d or approximately 45 percent of its
total production. These interests include a share in the B-60-E well
that has produced at rates up to 80 mmcf/d gross raw since November
2004, with a gross cumulative production of 49 billion cubic feet.
Seneca has a 20 percent interest in the outpost well A-26-E that was
spudded on February 11, 2007 and carries an 8.54 percent interest in the
outpost B-44-B well spudded on May 7, 2007.
Going forward, NAL's anticipates one new producing well per annum in this area from 2008 through to 2011.
With such high productivity wells, the reserve life index for this
area is close to five years, which lowers Seneca's corporate RLI to 6.4
years (proved plus probable). No reserves are booked for wells not yet
producing, so significant new reserve bookings and production increases
are expected going forward.
Operating Area Overview - Saskatchewan
Seneca's exposure in Saskatchewan consists of a 34.8 percent,
operated working interest in the Success North Roseray Unit. The unit
features low operating costs and a shallow decline rate. Multiple infill
locations on the updip edge of the field have been identified with 3D
seismic control. In addition, NAL believes that there is some
opportunity for improved waterflood management and performance. Current
production is145 boe/d of medium gravity crude oil with the Unit
expected to generate good, long-life cash flow.
Purchase Price Metrics
The purchase price of $246.6 million includes $30 million in value
attributed to land and seismic. The resulting value attributed to the
reserves and production is $216.6 million, representing $20.94 per boe
for the McDaniel & Associates Consultants Ltd. booked reserves
(proved plus probable) and $49,220 per flowing barrel based on
production of 4,400 boe/d in the second half of 2007, which is expected
to grow to 5,500 boe/d in 2008.
Price ($000) 246,600
Less land and seismic ($000) 30,000
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216,600
Reserves (Proved + Probable) $ 20.94/boe
Production - 2007 $ 49,220/boed
Production - 2008 Estimate $ 39,380/boed
Effective Date July 1, 2007
NAL's last major acquisition was the purchase of Addison Energy in
early 2005. Jonathan Lexier, Chief Operating Officer of NAL remarked
that, "We have reviewed many acquisition opportunities over the past two
years but we are very selective. We chose to stay on the sidelines last
year when transaction metrics were extremely high. More recently we
have evaluated numerous asset sale packages as well as a number of
public and private junior producers. We believe that the Seneca asset
base represents one of the best quality opportunity sets that we have
evaluated since buying Addison Energy in early 2005. Our operating teams
were really excited about the assets and the opportunity to get after
the growth potential across Seneca's asset base. There is the potential
to double Seneca's current booked reserves within the next five years."
Financing
The Trust is financing the purchase of Seneca with a combination of
the issue of Subscription receipts , a new convertible subordinated
debenture which terms out a portion our debt and creates room in our
bank lines, and additional bank debt. To that end, the Trust has entered
into an agreement with a syndicate of underwriters co-led by RBC
Capital Markets and BMO Capital Markets and also including CIBC World
Markets, Scotia Capital, TD Securities, Canaccord Capital, National Bank
Financial, Raymond James, and Peters & Co. to sell, on a bought
deal basis, 10,246,000 subscription receipts at $12.20 per subscription
receipt for gross proceeds of $125,001,200 and $100 million principal
amount of convertible extendible unsecured subordinated debentures.
NAL has granted the underwriters an option to purchase up to an
additional 1,536,900 subscription receipts at the same offering price
for a period of 30 days following closing of the offering. Closing of
the offering, which is subject to customary regulatory approvals, is
expected to occur on August 28, 2007.
Each subscription receipt represents the right to receive one trust
unit of NAL on the closing of the acquisition. The proceeds from the
offering of subscription receipts will be deposited in escrow pending
closing of the acquisition. If the acquisition closes on or before
October 1, 2007, the net proceeds will be released to NAL and used to
pay part of the purchase price of the acquisition. If the acquisition
closes by October 1, 2007, holders of the subscription receipts will
receive a payment equivalent to the amount of any cash distributions
declared to unitholders for which record dates occur between the closing
of the offering and the closing of the acquisition. If the acquisition
fails to close by October 1, 2007, or the acquisition is terminated at
any earlier time, NAL will return to holders of subscription receipts
the issue price and their pro rata entitlement to interest thereon.
The debentures will have a face value of $1,000 per debenture, a
coupon of 6.75 percent, a final maturity date, if extended, of August
31, 2012 and will be convertible into trust units of NAL at a price of
$14.00 per trust unit. The initial maturity date of the debentures will
be October 1, 2007, with an automatic extension to August 31, 2012 upon
the closing of the acquisition. If the acquisition does not close on or
before October 1, 2007, or if the acquisition is terminated at any
earlier time, the debentures will mature on the initial maturity date.
The debentures will pay interest semi-annually on February 28 and August
31, with the initial interest payment on February 28, 2008,
representing accrued interest from closing of the offering to February
28, 2008.
NAL will not assume any Seneca debt in this corporate transaction.
However, based on the addition of Seneca's assets, NAL anticipates that
its banking syndicate will increase its lines of credit by $75 million
to $400 million. With $140 million in undrawn credit capacity, NAL will
be well positioned to withstand fluctuations in commodity prices and to
act on further acquisition opportunities.
The subscription receipts and convertible debentures issued in
conjunction with this acquisition use less than half of NAL's 2007
capacity of $560 million to acquire assets under the 'safe harbour'
provisions of the federal government's new tax fairness policy with
respect to income trusts. Over the longer term, NAL had a market
capitalization of $1.4 billion on October 31, 2006 prior to
implementation of the new policy, so the Trust still has the remaining
capacity to issue up to $1.2 billion worth of equity prior to January 1,
2011.
The Offering is subject to certain conditions including required
regulatory approvals. The subscription receipts and convertible
debentures will be offered in all provinces of Canada by way of a short
term prospectus and in the U.S. on a private placement basis pursuant to
exemptions from registration requirements.
Hedging
Seneca has no current hedge positions outstanding relating to its
production. NAL employs risk management practices to assist in managing
cash flow and supporting capital programs and distributions. NAL's
management is authorized to hedge up to 50 percent of its annual
production. Normally these programs are scaled in over time using a
combination of swaps and collars. NAL intends to incorporate Seneca's
volumes into its overall hedging program and may hedge a higher
percentage of its volume as a result of the acquisition.
STRATEGIC PARTNER
NAL's strategic partner, Manulife Financial Corporation, is
interested in adding more oil and gas holdings to its current 16,000 -
17,000 boe/d production base, and investing in new opportunities in the
sector. Manulife was prepared to participate equally in the purchase of
the shares of Seneca, but agreed to defer to the Trust in this corporate
transaction without any subsequent asset sale as in the Addison Energy
transaction.
UPDATED 2007 GUIDANCE AND PRELIMINARY OUTLOOK FOR 2008
With the acquisition of Seneca taking place at mid-year, the full
impact of the transaction will not be reflected in our annualized
guidance until 2008. Moreover, three significant wells that are
currently drilling should be evaluated prior to year-end 2007. Although a
significant portion of the incremental capital for 2007 will be
attributed to these three wells, certain capital will be allocated to
low risk recompletions and tie-ins, contributing additional volumes
through year-end, and production is expected to average approximately
4,400 boe/d for the remainder of 2007.
NAL is providing updated guidance for 2007 and preliminary guidance
for 2008, but cautions that these estimates are subject to change as the
Trust consolidates and continues to evaluate its newly acquired assets.
Full 2008 guidance will be available in January 2008 following approval
of the Trust's budget by our Board of Directors in late December 2007.
Preliminary Pro Forma Combined Guidance
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2007 2008
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Production (boe/d) 20,500 - 20,800(1) 23,500 - 24,500
Operating Costs ($/boe) 8.90 - 9.10 9.00 - 9.20
Capital Spending ($MM) 115 - 120 115 - 120
General & Admin ($/boe) 1.75 - 1.90(2) 1.75 - 1.90(2)
DRIP Participation 17% 17%
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(1) Assumes Seneca production from September 1, 2007.
(2) Excluding special retention bonus and unit based compensation.
CONFERENCE CALL AND WEBCAST
NAL will conduct a conference call for analysts and investors on
Tuesday, August 7, 2007 at 3.00 PM MDT (5.00 PM EDT). To participate
please call 1 (416) 340-2219 or 1 (866) 226-1793. A recording of the
call will be available until August 14, 2007 by calling 1 (416) 695-5800
or 1 (800) 408-3053 and entering pass code 3231288#. The call will also
be webcast at
http://events.onlinebroadcasting.com/nal/080707/index.php.
ABOUT NAL
NAL Oil & Gas Trust is an open-end investment trust that
generates distributions through the acquisition, development, production
and marketing of oil, natural gas and natural gas liquids. The Trust
owns high quality assets in Alberta, Saskatchewan and Ontario. Trust
units trade on the Toronto Stock Exchange under the symbol "NAE.UN".
FORWARD LOOKING INFORMATION AND READER ADVISORY
This disclosure contains certain forward-looking statements that
involve substantial known and unknown risks and uncertainties, many of
which are beyond NAL's control, including: the impact of general
economic conditions in Canada and in the United States, industry
conditions, changes in laws and regulations including the adoption of
new environmental laws and regulations and changes in how they are
interpreted and enforced, increased competition, the lack of
availability of qualified operating or management personnel,
fluctuations in commodity prices, foreign exchange or interest rates,
stock market volatility and fluctuations in market valuations of
companies with respect to announced transactions and the final
valuations thereof, and the ability to obtain required approvals from
regulatory authorities. NAL's actual results, performance or achievement
could differ materially from those expressed in, or implied by, these
forward-looking statements and, accordingly, no assurances can be given
that any of the events anticipated by the forward-looking statements
will transpire or occur, or if any of them do so, what benefits,
including the amount of proceeds, that NAL will derive therefrom.
This press release shall not constitute an offer to sell or the
solicitation of an offer to buy any securities nor shall there be any
sale of securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful. The securities offered have not been and
will not be registered under the United States Securities Act and may
not be offered or sold in the United States except in transactions
exempt from such registration.
Contact Information:
NAL Oil & Gas Trust
Gordon Currie
Manager, Investor Relations
(403) 294-3620 or Toll Free: 1-888-223-8792
(403) 515-3407 (FAX)
Email: investor.relations@nal.ca