Tamarack Valley Energy Ltd. ("Tamarack" or the "Company") is pleased to announce that it has entered into a definitive agreement (the "Agreement") to acquire Crestwynd Exploration Ltd. ("Crestwynd"), a privately held pure play Clearwater oil producer, for total consideration of $184.7 million (the "Acquisition"). The consideration consists of: (i) $92.6 million in cash, subject to adjustment; and (ii) the issuance of 26,298,396 common shares of Tamarack ("Tamarack Shares") at a deemed price of $3.50 per Tamarack Share.
Tamarack's syndicate has provided an extension of the Company's existing $600 million revolving credit facility to December 2023 and transitioned the facility to a sustainability linked lending facility ("SLL Facility"). In conjunction with the Acquisition, National Bank Financial as syndicate lead, has provided commitments for a separate and additional $100 million credit facility.
Brian Schmidt (Aakaikkitstaki), Tamarack's President and CEO highlighted: "The Acquisition further establishes Tamarack as a leading operator in the highly economic Clearwater oil play. Acquiring high quality assets with significant free funds flow(1) where we can leverage our operational and technical expertise is a core principle of Tamarack's returns focused strategy. In addition, Tamarack's transition to the SLL Facility demonstrates our commitment to responsible development."
Clearwater Acquisition Highlights
Strategic sustainable, high quality Clearwater assets
Forecast 2022 production of ~4,500 boe/d(2) is expected to deliver $90 million of operating netback
Low annual sustaining capital of $30 to $35 million required to hold production levels flat on the acquired assets(3)
209 (153.7 net) future drilling locations(4), across only 50% of the 99,360 net acres acquired which supports maintaining current production levels for seven years
Additional unbooked future exploration upside potential across the balance of the acquired acreage
Consolidates Tamarack's existing Southern Clearwater working interest to 95% and solidifies its dominant position as the largest operator in the area
Attractive environmental & ESG profile
Minimal asset retirement obligation (ARO) and limited freshwater requirements
Tamarack plans to implement gas conservation infrastructure within the current Southern Clearwater development plan
Increased exposure to the Clearwater, one of the most economic plays in North America
Pro forma the Acquisition, Tamarack will control 445 net sections of Clearwater land across the Nipisi, West Marten Hills and Southern Clearwater areas
Pro forma the Acquisition, over 650 net future drilling locations(4) and expected average 2022 Clearwater production of ~12,000 boe/d(5)
Accretive to Tamarack shareholders
The purchase price implies a multiple of 2.1x annualized operating field netback(1,3)
Accretive on a per share basis to forecast 2022 adjusted funds flow(1,3) by 7% and free funds flow(1) of 9% on strip prices(3)
Maintains our strong sustaining free funds flow breakeven(1), including the base dividend, of ~$US35/bbl WTI on an unhedged basis
Pro forma leverage neutral 2022 year-end net debt to trailing annual adjusted funds flow(1,3) of <0.6x
Further enhancing the five year plan & return of capital framework
Increases debt adjusted free funds flow(1,3) per share by more than 5% throughout Tamarack's five-year plan at crude oil prices of US$55/bbl WTI
Enhances our long-term return of capital framework given the accretion to debt adjusted free funds flow per share
Tamarack plans on releasing its 2022 guidance in early January 2022. This will incorporate the pro forma outlook for the Acquisition.
Contemporaneous with the execution of the Agreement, certain shareholders of Crestwynd representing approximately 80% of the outstanding common shares of Crestwynd executed voting support agreements in connection with Acquisition. The Agreement provides for, among other things, a non-solicitation covenant on the part of Crestwynd, a right to match in favour of Tamarack and a break fee in the amount of $10.0 million payable to Tamarack in certain circumstances. A copy of the Agreement will be filed on Tamarack's SEDAR profile at www.sedar.com.
The Acquisition is expected to close on or about February 15, 2022 subject to certain customary conditions and regulatory and other approvals, including the approval of the Toronto Stock Exchange (the "TSX") and the Commissioner of Competition pursuant to the Competition Act (Canada).
At closing, Tamarack will enter into hold period agreements with each of the directors, officers and insiders of Crestwynd who will, prior to the completion of the Acquisition, collectively hold or exercise control over approximately 73% of the issued and outstanding common shares of Crestwynd. Pursuant to the hold period agreements, each shareholder will agree not to sell or trade the Tamarack Shares received pursuant to the Acquisition, except as follows: (i) ½ shall be eligible for disposition on the date that is three months after closing of the Acquisition; (ii) the remaining ½ of such of such Tamarack Shares shall be eligible for disposition on the date that is six months after closing of the Acquisition; and (iii) all sales of Tamarack Shares within 12 months after closing of the Acquisition must be effected via block trades facilitated by Tamarack.
Tamarack has transitioned its existing $600 million revolving bank facility to an SLL Facility that incorporates sustainability-linked incentive pricing terms. Through the SLL Facility, three of Tamarack's long-term goals have been identified as key performance indicators (KPIs) and structured into sustainability performance targets (SPTs) that will decrease Tamarack's cost of borrowing by up to 5 basis points if the SPTs are achieved or increase the cost in the event SPTs are missed. The SPTs include:
GHG Emissions Intensity: 40% reduction in Scope 1 and 2 emissions by 2025 over the 2020 baseline, with a significant decrease in 2021 and more ratable 5% decreases through 2022 to 2025. This SPT exceeds the previous set target due to 2021 acquisitions and positive progress in emissions reductions to date.
Decommissioning Management: committed annual capital investment in abandonment, remediation and reclamation activities at 150% of the Alberta Energy Regulator inventory reduction voluntary closure program targets. This target is equivalent to ~4.33% of inactive liabilities in 2021 with a 5% annual escalation.
Indigenous Workforce Participation: target workforce representation of 6% or greater by 2025 with annual milestones and minimum of two additions each year.
National Bank Financial Markets is acting as sustainability structuring agent, sole bookrunner and co-lead arranger with respect to the SLL Facility, with Royal Bank of Canada and CIBC acting as co-lead arrangers and syndicate support from ATB Financial, Federation des Caisses Desdjardins, Canadian Western Bank and Business Development Bank of Canada.
Peters & Co. Limited and RBC Capital Markets are acting as financial advisors to Tamarack with respect to the Acquisition.
CIBC Capital Markets and Stifel FirstEnergy are acting as strategic advisors to Tamarack with respect to the Acquisition.
Stikeman Elliott LLP is acting as legal counsel to Tamarack with respect to the Acquisition and the SLL Facility.
National Bank Financial Inc. is acting as exclusive financial advisor to Crestwynd.
Burnet, Duckworth & Palmer LLP is acting as legal counsel to Crestwynd.