Peyto Exploration & Development Corp. has agreed to acquire Repsol Canada Energy Partnership, which owns the Canadian upstream oil and gas business of Repsol Exploracion SAU, including all related intermediate facilities and infrastructure located primarily in the deep basin, for a cash consideration of $468 million . (636 million CAD).
The acquisition is expected to close in mid-October, subject to customary closing conditions, including receipt of necessary regulatory approvals, Peyto said in a news release Wednesday. Peyto said it would finance the acquisition through an extension of the company’s existing revolving credit facility, a new two-year term loan and the net proceeds of a $125 million equity offering.
The assets will add approximately 23,000 barrels of oil equivalent per day (boepd), or about 75 percent natural gas production and 25 percent natural gas liquids (NGL) production, with a rate of of decrease in the estimated annual base production of 12 percent. They will also expand Peyto’s deep basin land position by adding 455,000 net acres to the larger Edson acreage, which directly overlap the company’s existing geologic plays, infrastructure and land, Peyto said.
The acquisition includes five operating natural gas plants with a combined net natural gas processing capacity of approximately 400 million cubic feet per day, approximately 1,367 miles (2,200 kilometers) of operated pipelines and a cogeneration power plant of 12 megawatts. The assets also include the Edson gas plant and the Central Foothills gas gathering system with its 217.5 miles (350 kilometers) of large-diameter pipeline infrastructure that extends in both directions from the plant, according to the statement.
Peyto added that the assets have not been drilled in recent years and are at a point of development where the company was on its adjacent lands ten years ago. Peyto said it has internally identified more than 800 crude locations that provide several years of high-quality drilling inventory that could produce 100,000 boepd from the assets.
In a report dated June 1, GLJ Ltd. evaluated 100 percent of the producing reserves associated with the assets and has also scheduled a total of 297 proven and probable gross drilling locations. Peyto said the drill location forecast is “by no means a complete assessment” of total drilling opportunities. According to the report, the assets’ developed proven producing reserves are estimated at 89.9 million barrels of oil equivalent (MMboe), 21.6 million tank barrels (MMstb) of oil and NGL and 409, 4 million cubic feet (Bcf) of gas. Meanwhile, the report estimated total most probable proved reserves at 306.7 Mbp, 49.3 Mbp of oil and NGL and 1,544 Bcf of gas.
“This acquisition marks a very important milestone for Peyto. We have coveted this land for many years and this asset ticks all the boxes for us,” said Peyto President and CEO Jean-Paul Lachance. “Peyto has a history of being very selective when it comes to acquisitions, but also very successful in capturing value. Repsol’s assets fit perfectly with Peyto’s existing Deep Basin acreage and offer a significant number of prime undeveloped locations that will immediately compete for capital within our portfolio. We have identified many opportunities to leverage our low-cost operating experience in these assets, which we expect to deliver annual cost savings significant. Taken together, at current prices and under our proposed development plan, the combined assets are expected to generate sufficient cumulative free cash flows over the next three years to support sustainable long-term returns for shareholders in the form of reducing debt and increasing dividends”.
In connection with the acquisition, Peyto has entered into a debt commitment letter, with the Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada acting as underwriters, to provide aggregate debt commitments of 1.3 billion dollars, which is expected to be composed. of a $1 billion revolving credit facility to replace its existing $800 million revolving credit facility and a new two-year, $300 million amortizing term loan, the statement said.
Peyto has also agreed with a syndicate of underwriters led by BMO Capital Markets, CIBC Capital Markets and National Bank Financial for the issuance of 10,510,000 subscription receipts on a purchase and sale basis, at an issue price of 11, $90 per subscription receipt for total gross revenue of approximately $125 million. The gross proceeds of the equity offering will be held in escrow and used by Peyto to fund a portion of the purchase price of the acquisition. Each subscription receipt will entitle the holder to receive, without payment of additional consideration and additional shares, one common share of Peyto upon the closing of the acquisition, according to the statement.
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