CALGARY, ALBERTA--(Marketwired - July 25, 2013) -
NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES
Argent Energy Trust ("Argent" or the "Trust") (TSX:AET.UN) is pleased to announce a bought deal equity offering for gross proceeds of approximately C$75 million, provide an operational update, announce the acquisition of certain oil producing assets and provide increased production guidance.
The Trust is pleased to announce that it has entered into an agreement with a syndicate of underwriters co-led by Scotiabank, CIBC and RBC Capital Markets, pursuant to which it will issue 7,360,000 trust units ("Trust Units") at a price of C$10.20 per Trust Unit on a bought deal basis for gross proceeds of approximately C$75 million (the "Offering").
The underwriters have also been granted an over-allotment option, exercisable for a period of 30 days from closing of the Offering, to purchase up to 1,104,000 additional Trust Units at a price of C$10.20 per Trust Unit. If the over-allotment option is fully exercised, gross proceeds from the Offering will be approximately C$86 million.
Net proceeds from the Offering will be used to reduce outstanding indebtedness under the Trust's existing credit facility (the "Credit Facility") which indebtedness is expected to be incurred to purchase certain oil producing properties for approximately US$45 million (net of closing adjustments) and the Eagle Ford Deep Rights for US$30 million, as further described below under the heading "Acquisition and New Core Area" and "Purchase of Deep Rights ORRI". After the closing of the Acquisition, the Deep Rights purchase and the Offering, the Trust will be approximately US$6 million drawn on its Credit Facility of US$115 million. The Trust values a strong balance sheet and the maximum financial flexibility to avail itself of future opportunities.
The Offering is expected to close on August 15, 2013 and is subject to certain conditions, including approval of the Toronto Stock Exchange and Canadian provincial securities regulatory authorities.
In the second quarter of 2013, Argent produced approximately 5,000 barrels of oil equivalent per day ("boe/d"). Current base production, based on field estimates, is just over 5,800 boe/d (74% oil & NGLs) and the Trust's 30-day average production is approximately 5,340 boe/d (73% oil & NGLs). In addition, the Trust received increasing production payment revenues in the second quarter equivalent to 180 boe/d at current commodity prices, a three-fold increase from the first quarter, exceeding the Trust's expectations.
The currently anticipated growth in base production in the third quarter of 2013 is above the Trust's previous expectations, and demonstrates the realized benefits of the strategic transition to an accelerated Eagle Ford program, together with more stable production from wells that are now tied in to the electricity grid. In addition, Argent has successfully drilled its first Fayette County Eagle Ford well (the "Cherry Heirs 2H") on the heels of its three successful Gonzales County Eagle Ford wells. The Cherry Heirs 2H well is producing in line with the early production of our Gonzales County Eagle Ford wells. The Trust has additionally brought on a number of new Buda wells to increase and balance its oil production profile. Argent has also made the decision to move to higher density Eagle Ford development (80-acre spacing) in Gonzales County with a program to sequentially pad drill and simultaneously complete two wells (Hrncir 3H and 4H) with alternating staged fracs (known as a 'zipper frac'). The Trust is now drilling the horizontal lateral of its second well (the Hrncir 4H) of its first well pair of three well pairs planned. Production from the Hrncir 3H and 4H well pair is expected to commence in early September 2013.
Acquisition and New Core Area
Argent Energy (US) Holdings Inc., a wholly-owned subsidiary of the Trust, has entered into a binding agreement with an effective date of June 1, 2013, (the "Purchase and Sale Agreement") to acquire producing petroleum properties in Kansas and Colorado (the "Acquired Assets") from a private company, with an expected closing in early August 2013 for a purchase price of approximately US$45 million, (net of closing adjustments) (the "Acquisition"). The Purchase and Sale Agreement contains customary due diligence conditions for acquisitions of this nature in the United States. Argent will initially borrow funds under its Credit Facility to fully fund the Acquisition. The Acquired Assets are principally oil properties estimated to cover approximately 35,000 net acres of land. Working interest oil production from the Acquired Assets in June 2013 was approximately 450 barrels per day, which Argent expects to maintain through the remainder of 2013 and into 2014 with minimal operational activity or capital investment.
This Acquisition is accretive on cash flow per unit, payout ratio and sustainability ratio, provides geographic diversification, adds immediate incremental oil production and reserves to the overall asset base of Argent, and establishes a new, low decline, core area for the Trust.
Increased Production Guidance
As a result of the Trust's ongoing operational success and the Acquisition, Argent is increasing its average annual production guidance to a range of 5,700 boe/d to 5,800 boe/d (previously 5,500 boe/d to 5,600 boe/d) and increasing its projected 2013 exit production rate to approximately 6,800 boe/d (previously 6,300 boe/d).
Purchase of Deep Rights ORRI
The Trust has a call option to purchase the Eagle Ford Shale "Deep Rights" for US$30 million. The call option was granted to Argent in connection with the acquisition of certain oil and gas assets from Denali Oil & Gas in connection with the Trust's initial public offering in August 2012. The Trust expects to call this option and deliver the purchase price of US$30 million on August 10, 2013. This transaction will also be funded initially through borrowings under the Credit Facility.
About Argent Energy Trust
Argent is a mutual fund trust under the Income Tax Act (Canada). Argent's objective is to create stable, consistent returns for investors through the acquisition and development of oil and natural gas reserves and production with low risk exploitation potential, located primarily in the United States. Material information pertaining to Argent Energy Trust may be found on www.sedar.com or www.argentenergytrust.com.
The Trust Units and 6.00% convertible unsecured subordinated debentures of the Trust are traded on the Toronto Stock Exchange under the symbols AET.UN and AET.DB, respectively.
Forward Looking Statements
This press release includes forward-looking information within the meaning of applicable Canadian and United States securities legislation. All statements, other than statements of historical facts, that address activities, circumstances, events, outcomes and other matters that Argent budgets, forecasts, plans, projects, estimates, expects, believes, assumes or anticipates (and other similar expressions) will, should or may occur in the future, are considered forward-looking information. In particular, forward-looking information contained in this press release includes, but is not limited to, information and statements concerning the Offering, the Acquisition, the purchase of the Deep Rights and the Credit Facility, including the funding for the Acquisition and the Deep Rights; that the Acquisition, the purchase of the Deep Rights and the Offering will close as expected; the Trust Units to be issued pursuant to the Offering; regulatory and other approvals required for the Offering; the use of proceeds from the Offering; the amount of borrowings under the Credit Facility following the closing of the Acquisition, the Deep Rights purchase and the Offering, the performance and production characteristics of the Acquired Assets; that the Acquired Assets will be able to generate long term, sustainable cash flows; the key metrics of the Acquisition; the financial and operational benefits of the Acquisition to the Trust.
The forward-looking information provided in this press release is based on management's current beliefs, expectations and assumptions, based on currently available information as to the outcome and timing of future events. Argent cautions that its future oil, natural gas and natural gas liquids production, revenues, cash flows, liquidity, plans for future operations, expenses, outlook for oil and natural gas prices, timing and amount of future capital expenditures, and other forward-looking information is subject to all of the risks and uncertainties normally incident to the exploration for and development and production and sale of oil and gas.
These risks include, but are not limited to, oil and natural gas price volatility, Argent's access to cash flows and other sources of liquidity to fund its capital expenditures, its level of indebtedness, its ability to replace production, the impact of the current financial climate on Argent's anticipated business and financial condition, a lack of availability of or increases in costs of goods and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating future oil and gas production or reserves, economic conditions and other risks as described in documents and reports that Argent files with the securities commissions or similar authorities in applicable Canadian jurisdictions on the System for Electronic Document Analysis and Retrieval (SEDAR). Any of these factors could cause Argent's actual results and plans to differ materially from those contained in the forward-looking information.
Forward-looking information is subject to a number of risks and uncertainties, including those mentioned above, that could cause actual results to differ materially from the expectations set forth in the forward-looking information. Forward-looking information is not a guarantee of future performance or an assurance that our current assumptions and projections are valid. All forward-looking information speaks only as of the date of this press release, and Argent assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking information, except as required by law. You should not place undue reliance on forward-looking information. You are encouraged to closely consider the additional disclosures and risk factors contained in Argent's periodic filings on SEDAR that discuss in further detail the factors that could cause future results to be different than contemplated in this press release.
Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six Mcf to one bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and do not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency conversion ratio of six to one, utilizing a boe conversion ratio of six Mcf to one bbl may be misleading as an indication of value.
Non-IFRS Financial Measures
Statements in this press release make reference to the terms "payout ratio", and "sustainability ratio" which are non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Investors should be cautioned that these measures should not be construed as an alternative to net income calculated in accordance with IFRS. Management believes that "payout ratio" and "sustainability ratio" provide useful information to investors and management since these terms reflect the quality of production, the level of profitability, the ability to drive growth through the funding of future capital expenditures and the sustainability of, distributions to unitholders. The Trust calculates its payout ratio by dividing the cash distributions the Trust pays to its unitholders in accordance with the Trust's distribution policies by funds flow from operations. Sustainability ratio is calculated by dividing the sum of cash distributions and capital expenditures by funds flow from operations. Funds flow (i.e., cash flow) from operations is calculated before changes in non-cash working capital.