Kelt Exploration has entered into an agreement with Artek Exploration Ltd. (“Artek”), pursuant to which Kelt will acquire all of the issued and outstanding common shares of Artek on the basis of 0.34 of a Kelt common share for each Artek common share. The acquisition will be effected by way of a statutory plan of arrangement (the “Arrangement”).
Based on the volume - weighted average trading price of the Kelt common shares for the five trading days ended
February 20, 2015 of $8.10 on the Toronto Stock Exchange (“TSX”), the deemed acquisition price is approximately $307 million, comprised of the issuance of approximately 26.9 million Kelt common shares and the assumption of an estimated $89.5 million of net debt as of
February 20, 2015, which includes estimated associated transaction costs of approximately $5.6 million.
Using the five - day volume -weighted average trading price of the Kelt common shares ending February 20, 2015 of $8.10 and based on the
share exchange ratio of 0.34, the implied purchase price
per Artek common share is $2.76, which represents a 61% premium to the volume-weighted average trading price of the Artek common shares for the five trading days ending February20, 2015.
The Arrangement is expected to provide Artek shareholders with enhanced liquidity and ownership in a larger growth oriented oil and gas exploration and production company,with a strong record of growth and value creation.
Completion of the Arrangement, which is anticipated to occur on or
A round April 16, 2015, is subject to, among other things, the approval of at least 66?% of votes cast by Artek shareholders voting at a special meeting of shareholders to be held on or around April 16, 2015, the approval of the Court of Queen’s Bench of Alberta,receipt of all necessary regulatory and stock exchange approvals and certain closing conditions that are customary for a transaction of this nature.
The Board of Directors of Artek has unanimously approved the
Arrangement and, based in part on a fairness opinion from
Artek’s financial advisor, determined that the Arrangement is in the best
interests of Artek and the holders of its common shares, and is fair to
Artek’s shareholders. Based on the recommendation of the independent committee of the Board of Directors of Artek, the Artek Board of Directors has also resolved to recommend that Artek shareholders vote their common shares in favour of the Arrangement. All of the directors and officers of Artek representing an aggregate of 21.9% of the issued and outstanding Artek common shares, have entered into support agreements pursuant to which they have agreed to vote their Artek common shares in favour of the Arrangement.
Artek has agreed not to solicit or initiate any discussion regarding any other business combination or sale of material assets.
Artek has also granted Kelt a right to match any superior proposal and has agreed to pay a termination fee of $ 8.5 million to Kelt in certain events, including if Artek recommends, approves or enters into an agreement with respect to a superior proposal.
Acquisition Highlights The acquisition of Artek consolidates the majority of
Kelt’s land acreage in its Inga -Fireweed - Stoddart, British Columbia core area to 100% and is consistent with the Company’s strategy to operate and control all of its major core exploration and development prospects.
In addition, Kelt’s acquisition of Artek will result in 100% ownership by Kelt in key infrastructure including compression facilities and pipelines in the area. The net present value of Artek’s Inga – Fireweed - Stoddart reserves at December 31, 2014 represented approximately 90% of Artek’s total corporate reserves value.
Key attributes of Kelt’s Acquisition of Artek include:
• The Artek acquisition will be accretive to existing Kelt shareholders on a reserves per share, production per share , funds from operations per share
and net asset value per share basis;
•
Artek’s reserves at December 31, 2014 consist of 24.0 million BOE of proved reserves and 46.4 million BOE of proved plus probable reserves;
•
Acquisition cost, including future development capital costs and estimated associated transaction costs, is $20.46 per BOE for proved reserves and $
12.89 per BOE for proved plus probable reserves;
•
Artek’s January 2015 production is estimated to be approximately 5,400 BOE per day ;and
•
Artek’s l and holdings at December 31, 2014 were 262,254 net acres of which 202,967 net acres were undeveloped.
Opportunities in the current Business Environment The oil and gas industry around the world continues to operate in a challenging commodity price environment as a result of the recent precipitous decline in global crude oil prices. Due to market instability and volatile commodity prices, many oil and gas companies have reduced their 2015 capital spending plans.
Ultimately, lower capital investment in oil and gas drilling can be expected to balance the supply and demand ratio. Kelt believes that the current business environment creates opportunities to add value at a reasonable cost and at the same time to strengthen the Company’s portfolio of future drilling opportunities. As a result, the Company will continue to operate a prudentcapital spending program, and at the same time focus on further working interest consolidation opportunities in its existing properties, on other tuck-in property acquisition opportunities and on continued accumulation of land. Kelt remains optimistic about the long- term outlook for oil and gas commodity prices.
