Enhanced Financial Flexibility
The Company has successfully secured a C$150 million equity commitment at C$3.65 per share from an affiliate of its largest shareholder, Riverstone Holdings LLC ("Riverstone"). This equity will be used to further develop the Company's large high-quality Montney resource base.
On July 10, 2017 the Company issued US$160 million (C$208 million) of 9% senior notes due 2022. The senior notes are unsecured and have an early redemption feature commencing 18 months from the date of issuance. The debt investors include funds sub-advised by GSO Capital Partners and advised by FS Investments, funds and accounts under management by BlackRock Advisors LLC., and funds and accounts under management by Kayne Anderson Capital. A portion of the proceeds were used to redeem the Company's existing C$85 million 11% secured second lien term loan and to repay borrowings under the Company's credit facility. The remaining proceeds will be used for general corporate purposes. Credit Suisse acted as sole placement agent for the debt issuance.
The equity commitment, the new senior notes, and the Company's C$175 million syndicated credit facility considerably strengthen the Company's balance sheet, providing increased financial flexibility for the Company to continue an active drilling program in pursuit of significant organic growth.
Expanding Growth Opportunities through Acquisitions and the Drill Bit
Over the last 14 months, the Company has complemented its asset base through the successful completion of nine asset acquisitions and/or asset exchanges (the "Acquisitions"). The acquired assets expand the Company's existing large, contiguous asset base. The Acquisitions comprise approximately 50,000 net acres of primarily undeveloped land with minimal production volumes but meaningful associated reserves and up to 450 additional drilling locations. The reserves were acquired at an attractive metric of C$2.34/boe of proved plus probable ("2P") reserves, contributing to a threefold year-over-year increase in the Company's pro forma 2P reserves to 268 MMboe as at December 31, 2016. The Company's land base now totals over 200,000 net acres of contiguous Montney rights, and its internally identified inventory has increased to nearly 3,000 well locations within the Montney and Duvernay formations.
As a result of CIOC's operational success to date, the Acquisitions, and a stronger financial position, the Company has increased its 2017 annual average production target to 20,000 – 22,000 boe/d, which is a 55 - 60% increase from 2016. In addition, a third-party midstream plant through which the Company processes the majority of its gas is currently undergoing an expansion to 180 MMcf/d of processing capacity.
"We are encouraged by our operational results, positioning CIOC to be a leading Montney light oil producer," said Scott Sobie, President and CEO of the Company. "The expansive and profitable nature of this unconventional resource play provided us an opportunity to position the balance sheet to continue with a reasonable program in spite of a challenging market environment. The continued support from Riverstone re-affirms the strength of our relationship along with their high level of confidence in the value of our assets."
CIOC is also pleased to announce the appointment of Robert Waters as Senior Vice President and Chief Financial Officer effective February 2017.
Mr. Waters has over 30 years of oil and gas industry experience, including 19 years as a CFO at companies such as Enerplus, Pengrowth and OMERS Energy. Mr. Waters brings extensive experience with equity and debt capital markets in both Canada and the U.S., as well as strategic planning, A&D, and support functions such as Information Systems, HR and investor relations. He is a Chartered Accountant with a BBA and MBA from York University School of Business.
Proposed Name Change to Hammerhead Resources
The Company believes it has outlived its current name and intends to propose a name change to "Hammerhead Resources Inc." at its next shareholder meeting. Hammerhead Resources is inspired by the shape of a river system in one of our prolific areas commonly known as the hammerhead. This rebranding improves the alignment between the Company's identity and its assets, while eliminating any potential confusion around its geographic focus.
CIOC is a growth-oriented private company with a large, contiguous land base in the heart of two of the most prolific resource plays in North America, with over 200,000 net acres in each of the Montney and Duvernay formations. The Company's development has been focused on the Upper/Middle Montney, where delineation activity has proven the repeatability of the laterally continuous light oil-rich fairway. The Company's first horizontal Duvernay well has performed at the top decile of Duvernay liquids producers in the area, establishing the play extension of the prolific Kaybob fairway to the west. The Company's key financial partners include Riverstone Holdings LLC and 1901 Partners (formerly ZBI Ventures).
About Riverstone Holdings LLC
Riverstone is an energy and power-focused private investment firm founded in 2000 by David M. Leuschen and Pierre F. Lapeyre, Jr. with over US$36 billion of capital raised. Riverstone conducts buyout and growth capital investments in the E&P, midstream, oilfield services, power, and renewable sectors of the energy industry. With offices in New York, London, Houston, and Mexico City, Riverstone has committed over US$35 billion to more than 130 investments in North America, South America, Europe, Africa, Asia, and Australia.
Forward Looking Statements
Certain statements contained in this press release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation, including, but not limited to, management's assessment of future plans, operations and strategies; the anticipated use of proceeds from the equity investment and term debt offerings; the Company's belief that with the equity commitment, the term debt and its credit facility, that it has increased financial flexibility to continue an active drilling program in pursuit of significant organic growth; potential drilling locations; the focus of the Company's operations; the Company's drilling, completion and evaluation plans; the Company's strategy for its business and assets; anticipated annual production for 2017; the Company's proposed name change to Hammerhead Resources and the expected timing thereof; and other matters related to the foregoing. Statements relating to "reserves" are by their nature forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future. The recovery and reserve estimates of the Company's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered.
Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target" and similar words suggesting future events or future performance or may be identified by reference to a future date. Accordingly, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. With respect to forward-looking statements contained in this press release, the Company has made assumptions regarding, among other things: availability of future acquisition opportunities; future capital expenditure levels; future oil and natural gas prices; future oil and natural gas production levels; future exchange rates and interest rates; ability to obtain equipment and services in a timely manner to carry out development activities; ability to market oil and natural gas successfully to current and new customers; the impact of increasing competition; the ability to obtain financing on acceptable terms; the general stability of the economic and political environments in which the Company operates; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; that the Company will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that the Company's conduct and results of operations will be consistent with its expectations; that the Company will have the ability to develop its oil and gas properties in the manner currently contemplated; the estimates of the Company's reserves and contingent resource volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all material respects; and that the Company will have the ability to add production and reserves through development and exploitation activities. Although the Company believes that the expectations reflected in the forward-looking statements contained in this press release, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the foregoing list is not exhaustive of all assumptions which have been considered.
Readers are cautioned not to place undue reliance on forward-looking statements included in this press release, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause the Company's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the ability of management to execute its business plan; general economic and business conditions; the risks of the oil and natural gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas and market demand; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; risk that the board of directors of the Company determines to use the proceeds from the equity commitment and term debt in a manner different from that set forth herein; failure to receive all of the proceeds from the equity commitment; risks and uncertainties involving geology of oil and natural gas deposits; the Company's ability to enter into or renew leases; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to production (including decline rates), costs and expenses; failure to complete the expansion of the gas facility; fluctuations in oil and natural gas prices, foreign currency exchange rates and interest rates; health, safety and environmental risks; risks associated with unexpected potential future law suits and regulatory actions against the Company; uncertainties as to the availability and cost of financing; and risks related to the potential name change, including that the board of directors determines not to proceed with the name change and/or that the name change is not approved by shareholders. Readers are cautioned that the foregoing list is not exhaustive of all possible risks and uncertainties.
The forward-looking statements contained in this press release speak only as of the date of this press release. Except as expressly required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
All references to dollar amounts are Canadian dollars, unless otherwise indicated.
"BOEs" may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 mcf: 1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
All drilling or potential drilling locations referenced in this press release were prepared internally by management of CIOC based on the Company's prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry practice and internal review including evaluation of applicable geologic, seismic, and engineering, production reserves and resource information. These locations do not have attributed reserves or resources (including contingent and prospective) and are therefore unbooked locations. There is no certainty that the Company will drill all such unbooked locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations on which the Company will actually drill wells, including the number and timing thereof is ultimately dependent upon the availability of funding, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by drilling existing wells in relative close proximity to such unbooked drilling locations, the majority of other unbooked drilling locations are farther away from existing wells where Management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.
The estimates of CIOC's 2016 reserves set forth in this press release have been prepared by McDaniel & Associates Consultants ("McDaniel") as of December 31, 2016 with a preparation date of February 24, 2017 in accordance with National Instrument 51‐101 and the Canadian Oil and Gas Evaluations Handbook and using McDaniel's forecast prices and costs as at January 1, 2017. Such estimates reflect CIOC's pro forma proved plus probable reserves as at December 31, 2016, including acquisitions completed in 2017.
SOURCE Canadian International Oil Corp.
Proposed logo for CIOC rebranding to Hammerhead Resources, pending shareholder approval (CNW Group/Canadian International Oil Corp.)
For further information: Scott W. Sobie, President and Chief Executive Officer, (403) 930-0560