Spitfire Energy Ltd. and Whitecap Resources Inc. Announce A Recapitalization
and Reorganization Transaction
TSX VENTURE: SEL
CALGARY, June 1 /CNW/ - Spitfire Energy Ltd. ("Spitfire" or the "Company") (TSX VENTURE:SEL) and Whitecap Resources Inc. ("Whitecap") are pleased to announce that they have entered into a reorganization and investment agreement dated June 1, 2010 (the "Agreement") for the recapitalization and reorganization of Spitfire. Whitecap, currently a private Alberta exploration and production company led by Grant Fagerheim, with oil focused operations in the Valhalla area of the Peace River Arch in Alberta will be combined with Spitfire's southwest Saskatchewan oil-weighted asset base. The Agreement provides for each shareholder of Whitecap receiving 8.33 shares of Spitfire in exchange for each share of Whitecap based on a negotiated price of $3.00 per Whitecap share and $0.36 per Spitfire share (the "Whitecap Acquisition"), up to a $7.75 million non-brokered private placement (the "Private Placement") and the appointment of Whitecap's management team, key employees and board of directors (the "New Management Group") (collectively, the "Transaction"). Completion of the Transaction is subject to the approval of the TSX Venture Exchange (the "TSXV") and various other conditions. The Whitecap Acquisition is an arm's length transaction.
Grant Fagerheim, President and CEO of Whitecap commented, "This Transaction provides a win-win opportunity for both sets of current shareholders as well as future shareholders. Whitecap's Valhalla pool in the Peace River Arch area and Spitfire's concentrated southwest Saskatchewan asset base represent a combination of oil assets. The Whitecap team is excited to build a growth oriented oil based entity."
Keith Chase, President and CEO of Spitfire commented, "Of the numerous opportunities and business combinations we evaluated, the Whitecap assets and team are by far the best. This is an asset driven process in our mind. Patience has allowed us to position ourselves with upside in reserves, production and cost of capital with a well known and respected team. The combination of our companies should provide current and future shareholders an exceptional opportunity to participate in oil focused growth".
Trading of Spitfire shares has been halted pending finalization of the terms of the Transaction. Spitfire has applied for and has been granted a sponsorship exemption pursuant to Section 3.1 of TSXV Policy 5.2 and trading of Spitfire shares is expected to resume at the open of markets on Wednesday June 2, 2010. The Transaction will constitute a reverse take-over transaction for the purposes of TSXV Policy 5.2. The Company will prepare and file a filing statement which shall provide information regarding the Company, Whitecap and the resulting issuer.
New Management Group
--------------------
The New Management Group will be appointed upon the completion of the Agreement and is the current management team and board of Whitecap.
The New Management Group will be led by Grant Fagerheim as President and Chief Executive Officer, Thanh Kang as Vice President Finance & Chief Financial Officer, David Mombourquette as Vice President Business Development, Daniel Christensen as Vice President Exploration, Darin Dunlop as Vice President Engineering, Joel Armstrong as Vice President Production & Operations and Gary Lebsack as Vice President Land. The new Board of Directors of Spitfire will be comprised of Grant B. Fagerheim, Robert G. Welty, Grant A. Zawalsky and Stephen C. Nikiforuk. The New Management Group has a solid track record of creating value in high-growth junior oil and gas companies. Mr. Fagerheim and Mr. Mombourquette were officers of Ketch Energy Ltd., Ketch Resources Ltd. and most recently Cadence Energy Inc. (formerly Kereco Energy Ltd.), all successful ventures where the team grew production on average from 1,500 boe/d to over 10,000 boe/d, completed over 10 acquisitions and drilled over 300 wells at an average success rate of 82%.
Corporate Strategy and Strategic Rationale
------------------------------------------
The reorganization and recapitalization of Spitfire by Whitecap combines two oil-weighted asset bases through Spitfire's southwest Saskatchewan position and Whitecap's properties in the Peace River Arch area of Alberta. The combined entity will have an existing attractive mix of low-risk conventional production, resource play upside and waterflood implementation opportunities. The New Management Group has a track record of growth through a combination of accretive acquisitions and expansion through the drill-bit. Through past ventures, the team has demonstrated the ability to identify, source, capture and integrate value adding opportunities, and plans to exploit, optimize and expand from the core anchor properties in the Peace River Arch area of Alberta and southwest Saskatchewan. The New Management Group sees opportunities for expansion from the combined current asset base and will focus on positioning the Company in high rate of return oil resource projects, while striving to increase per share growth in cash flow, production and reserves.
Key Attributes of Pro Forma Whitecap
------------------------------------
The combined entity will be positioned to be a growth oriented publicly listed oil and natural gas resource player in western Canada, with an excellent suite of long-life, oil-weighted assets, low debt positioning and will be guided by an experienced management team and seasoned board of directors with a successful track record in the public markets. Key attributes of the combined entity include:
- Current production of approximately 1,360 boe/d (comprised of 680
barrels per day of oil and NGLs and 4,080 thousand cubic feet per day
of natural gas);
- 7,032 Mboe of proved plus probable reserves (58% proved) effective
March 31, 2010 consisting of 3,714 Mbbl of oil, 17,038 MMcf of
natural gas and 479 Mbbl of NGLs with future growth potential through
resource play development and waterflood upside;
- Two core areas of operation in Alberta and Saskatchewan:
- Multi-zone Montney oil exposure at Valhalla with numerous
identified prospects and waterflood upside; and
- stable base of conventional oil and natural gas production in
southwest Saskatchewan with resource upside potential;
- A large undeveloped land base of approximately 31,000 net acres;
- 77 (30.8 net) near term well inventory, mostly developmental;
- 50% average working interest, with the majority of assets operated;
- Approximately 14 year reserve life index at current production
levels;
- estimated 2010 cash flow of $16.3 million (based on average
production of 1,400 boe/d, US$82.50/bbl WTI, CDN$4.40/GJ AECO and
$0.98 US$/CDN exchange rate);
- Pro forma shares outstanding of 222.6 million post Private Placement
and pre-consolidation;
- Net debt position of $15.2 million post Private Placement; and
- Tax pools in excess of $76 million.
Valhalla (West Central Alberta)
-------------------------------
Whitecap's Valhalla asset is a major Montney oil pool in the heart of the conventional Montney trend with booked reserves as well as additional non-booked incremental waterflood upside. Whitecap's Valhalla North assets are located in the Peace River Arch area of north-western Alberta. The Peace River Arch area of the Alberta basin was an active area of deposition providing a wealth of reservoir quality rock deposited throughout the geologic record.
Whitecap's main producing asset is the Triassic Montney "C" Oil Pool discovered in 1993. The pool has produced a total of 6.9 million barrels of oil to date. The Montney "C" pool is a sandstone at a drill depth of 2,100 meters and exhibits a fairly uniform sand distribution with conventional reservoir qualities; 8 to 10 meters in thickness, porosities range from 9 to 15% with permeability in the 1 to 10 md range.
Additionally there are a number of major producing oil and gas pools above the Triassic Montney formation that Whitecap has inventoried as development prospects.
The Valhalla pool is characterized by a long reserve life index, a stable reserve base with shallow declines, and well-established facilities including a working-interest ownership in a major area gas plant.
Key attributes include:
- 99% operated with average working interest of 40%;
- 62 gross sections of contiguous land with year-round access;
- Extensive operated pipeline infrastructure and facilities;
- Multi-zone oil and gas prone, with 12 prospective zones (4 oil, 8
gas); and
- Substantial waterflood upside with exceptional response to date.
Southwest Saskatchewan
----------------------
Spitfire's southwest Saskatchewan area is anchored by the operated Fosterton South Roseray pool and associated oil battery. The Fosterton pool is characterized by a long reserve life index and shallow declines and will continue to be developed with low risk infill and step-out drilling. Key attributes include:
- 84% working interest, 100% operated, including an oil battery and
water disposal system;
- Low risk infill drilling as well as high impact pool extension
opportunities;
- Target zone at only 1,000 meter depths provides low cost, high return
drilling opportunities;
- Very favourable royalty regime; and
- Year round access.
Private Placement
-----------------
Pursuant to the Private Placement, proposed new directors, officers, employees and consultants of Spitfire will subscribe for 16,000,000 units ("Units") of Spitfire at a price of $0.25 per Unit. Each Unit will be comprised of one common share of Spitfire ("Common Share") and one common share purchase warrant ("Warrant") entitling the holder to purchase one Common Share at a price of $0.25 for a period of five years. The Warrants will vest and become exercisable as to one-third upon the 20 day weighted average trading price of the Common Shares ("Market Price") equalling or exceeding $0.40, an additional one-third upon the Market Price equalling or exceeding $0.50 and a final one-third upon the Market Price equalling or exceeding $0.60.
Certain other business associates, service providers and subscribers as determined by Whitecap will invest in Spitfire by one or more private placements of up to 15,000,000 Common Shares at a price of $0.25 per Common Share.
Total aggregate proceeds from the Private Placement will be approximately $7.75 million. The Common Shares and Units (comprised of Common Shares and Warrants) issued pursuant to the Private Placement will be subject to a four month hold period in accordance with applicable securities laws. In addition, the Common Shares and Units issued under the Private Placement will be subject to a contractual escrow with 25% of such Common Shares and Units released upon receipt of the TSXV bulletin evidencing the final acceptance of the Transaction by the TSXV and 25% releasing each six months following such date.
The proceeds of the Private Placement will be used to pay down debt and for general corporate purposes.
Management
----------
Grant Fagerheim President & Mr. Fagerheim has 27 years of diverse
Chief Executive Officer experience in both the upstream and
downstream areas of the oil and gas
business and is currently the President
and Chief Executive Officer of
Whitecap. Prior to Whitecap, Mr.
Fagerheim held positions as President
and Chief Executive Officer of Cadence
Energy Inc. (Kereco Energy Ltd.), Ketch
Resources Ltd., and Ketch Energy Ltd.
Prior thereto held positions of Senior
Vice President, Chief Operating
Officer and Vice President Business
Development and Marketing of Northrock
Resources Ltd.
Thanh Kang Vice President, Mr. Kang has 10 years of financial and
Finance & Chief Financial management experience in the oil and
Officer gas industry and is currently Vice
President Finance and Chief Financial
Officer of Whitecap. Prior to Whitecap,
Mr. Kang held positions of Vice
President Finance and Chief Financial
Officer at Churchill Energy Inc.,
Senior Financial Analyst at Focus
Energy Trust and Manager, Assurance
and Business Advisory Services at
PricewaterhouseCoopers.
David Mombourquette Mr. Mombourquette has 24 years of
Vice President, Business engineering and evaluation experience
Development and is currently Vice President
Business Development of Whitecap. Prior
to Whitecap, Mr. Mombourquette held
positions of Vice President Business
Development at Cadence Energy Inc.
(Kereco Energy Ltd.), Co-ordinator of
Business Development, Ketch Resources
Ltd. and Senior Exploitation Engineer,
Business Development at Ketch Energy
Ltd. Prior thereto, Mr. Mombourquette
held engineering positions at various
companies including Interaction
Resources Ltd. and Norcen Energy
Resources Ltd.
Daniel Christensen Vice Mr. Christensen has 26 years of
President, Exploration exploration, prospect development and
management experience with senior
integrated and private E & D growth
companies and is currently Vice
President Exploration of Whitecap.
Prior to Whitecap, Mr. Christensen
held various positions of Vice
President Exploration at Capio
Petroleum Corporation Limited, Senior
Geological positions at Maxx
Petroleum Ltd., Storm Energy Inc.,
Hardy Oil and Gas Canada Limited,
Amerada Minerals and Dome Petroleum
Ltd.
Darin Dunlop Vice President, Mr. Dunlop has 21 years of domestic and
Engineering international diversified engineering
experience and is currently Vice
President Engineering of Whitecap
Resources Inc. Prior to Whitecap, Mr.
Dunlop held positions of Vice
President Engineering at Ridgeback
Exploration Ltd., Manager, Engineering
at Tiger Energy Ltd., Engineering
Manager at Genesis Exploration
Ltd./Vintage Petroleum Inc.,
International Reservoir Engineer at
Santos Petroleum Ltd. and held senior
engineering positions at Chevron Canada
Resources Ltd. and Wascana Energy Ltd.
Gary Lebsack Vice President, Mr. Lebsack has 11 years of oil and gas
Land negotiation and land management
experience and is currently Vice
President Land of Whitecap Resources
Inc. Prior to Whitecap, Mr. Lebsack
held positions of Vice President land
at Glamis Resources Ltd., Senior
Landman at StarPoint Energy Trust,
Landman at Burlington Resources Inc.,
and Landman at Northrock Resources Ltd.
Joel Armstrong Vice President, Mr. Armstrong has 24 years of
Production & Operations diversified engineering and operations
experience and is currently Vice
President, Production & Operations of
Whitecap Resources Inc. Prior to
Whitecap, Mr. Armstrong held positions
of Vice President Operations at
Ridgeback Exploration Ltd., Manager,
Operations at Blue Mountain Energy
Ltd., Manager, Operations at Star Oil
& Gas Ltd. and has held engineering and
operations positions at Kerr-McGee
Canada Ltd. and Suncor Inc.
Board of Directors
------------------
Grant B. Fagerheim Chairman President & Chief Executive Officer
of Whitecap Resources Inc.
Robert G. Welty Director Mr. Welty is an independent businessman
with significant oil and gas
experience. He has been the CEO of
several public oil and gas firms as
well as serving on the boards of many
public companies. He recently retired
from the board of Talisman.
Grant A. Zawalsky Director Mr. Zawalsky is a highly regarded legal
professional and is a Senior Partner at
Burnet, Duckworth & Palmer LLP and an
active board member with several public
and private companies.
Stephen C. Nikiforuk Director Mr. Nikiforuk has had significant oil
and gas experience and is currently
President, MyOwnCFO Inc. and was the
former Vice President, Finance and
Chief Financial Officer of Kereco
Energy Ltd., and Vice President
Finance and Controller of Ketch
Resources Ltd.
The New Management Group expects that the Company's name will be changed to "Whitecap Resources Inc." or such other name as may be determined by the New Management Group following closing, or following the next shareholders meeting, if shareholder approval is required to approve the name change.
Shareholder and Stock Exchange Approvals
----------------------------------------
Completion of the Transaction is subject to a number of conditions and approvals including, but not limited to, the approval of the TSXV. Under the policies of the TSXV, the Whitecap Acquisition, the replacement of the existing management with the New Management Group and the Private Placement is subject to the approval of the disinterested shareholders of Spitfire. The required disinterested shareholder approval may be obtained by Spitfire either by receipt of written consents by holders of more than 50 percent of the issued and outstanding voting shares of Spitfire (the "Written Consent") or by approval of a resolution at a special meeting of shareholders (the "Spitfire Meeting"). Pursuant to the Agreement, Spitfire has agreed to obtain the Written Consent on or before June 30, 2010, failing which Whitecap has the right to terminate the Agreement. In the event that the Written Consent is not obtained on or before June 30, 2010 and Whitecap determines to proceed with the Transaction, Spitfire has agreed to convene and hold the Spitfire Meeting on or before August 15, 2010.
Board of Directors Recommendation
---------------------------------
The Board of Directors of Spitfire has determined that the transactions contemplated by the Agreement are in the best interests of its shareholders, unanimously approved such transactions and recommends that the shareholders approve the Whitecap Acquisition, the change of management and the Private Placement by executing the Written Consent. Any shareholder of Spitfire wishing to obtain and execute the Written Consent should contact Spitfire as set out below. The Board of Directors and Officers of Spitfire and other shareholders, who, in the aggregate, control approximately 50.01% of the Common Shares, have entered into support agreements pursuant to which they have agreed, among other things, to approve the Whitecap Acquisition, the change of management and the Private Placement and execute the Written Consent, subject to the terms of the support agreements.
The Agreement
-------------
The Agreement contains a number of customary representations, warranties and conditions and provides for a mutual non-completion fee of $625,000 payable by Spitfire or Whitecap in certain circumstances. The complete Agreement will be accessible on Spitfire's SEDAR profile at www.sedar.com.
Financial Advisors
------------------
National Bank Financial Inc. is acting as exclusive financial advisor to Whitecap, and has provided the Board of Directors of Whitecap with its opinion that, subject to its review of the final form of documents effecting the Agreement, the consideration to be received by Whitecap shareholders is fair, from a financial point of view, to Whitecap shareholders. FirstEnergy Capital Corp, GMP Capital Inc., and Macquarie Capital Markets Canada Ltd. are acting as strategic advisors to Whitecap with respect to the Agreement.
Acumen Capital Partners Limited is acting as financial advisor to Spitfire, and has provided the board of directors of Spitfire with its opinion that the transactions contemplated by the Agreement are fair, from a financial point of view, to the shareholders of Spitfire.
About Spitfire Energy Ltd.
--------------------------
Spitfire is a junior oil and gas production company operating in western Canada. Spitfire's Common Shares trade on the TSX Venture Exchange under the symbol SEL.
About Whitecap Resources Inc.
-----------------------------
Whitecap is a Calgary-based private company focused on the exploration and production of oil and gas in Western Canada with its core operations located in the Peace River Arch area of Alberta. Whitecap is authorized to issue an unlimited number of common shares. There are currently 18,447,100 Whitecap shares outstanding. Whitecap has two shareholders that own over 10% of its issued and outstanding common shares (the "Whitecap Shares"). Deans Knight Capital Management Ltd. owns or controls 4,185,000 Whitecap Shares and Lockheed Martin Investment Management Company owns or controls 2,050,000 Whitecap Shares. The balance of the Whitecap Shares are held by approximately 70 shareholders. Directors and officers of Whitecap own or control 3,175,000 Whitecap Shares (approximately 17% of the issued and outstanding Whitecap Shares).
The following is a summary of certain selected financial information of Whitecap derived from its audited financial statements for the years ended December 31, 2009 and December 31, 2008:
-------------------------------------------------------------------------
2009(2) 2008(2)
-------------------------------------------------------------------------
Working Capital Deficit (Surplus)(1) ($265,000) $194,000
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Bank Debt $10,580,000 -
-------------------------------------------------------------------------
Property and Equipment $56,049,000 $64,000
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Sales Revenue $4,799,000 -
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Net Loss $1,223,000 $129,000
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1. Excludes bank debt and risk management contracts.
2. Whitecap acquired the Valhalla asset in September 2009. Prior to
September 2009, Whitecap did not have any petroleum and natural gas
properties.
The following is a summary of certain selected reserve information of Whitecap based upon based upon an evaluation by GLJ Petroleum Consultants Ltd. with an effective date of March 31, 2010:
Light and Natural Gas
Medium Oil Heavy Oil Natural Gas Liquids
-------------------------------------------------------
Reserves Category Gross (Mbbl) Gross (Mbbl) Gross (Mmcf) Gross (Mbbl)
-------------------------------------------------------------------------
Proved:
Developed
Producing 771 - 6,355 193
Developed
Non-Producing 452 - 1,254 39
Undeveloped - - - -
-------------------------------------------------------
Total Proved 1,223 - 7,609 232
Probable 604 - 7,358 237
-------------------------------------------------------
Total Proved Plus
Probable 1,827 - 14,967 469
-------------------------------------------------------
1. Gross reserves means Whitecap's "company gross reserves", which are
its working interest (operating or non-operating) share before
deduction of royalties and without including any royalty interests of
Whitecap.
Cautionary Statement
--------------------
The Transaction cannot close until the required disinterested shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.Investors are cautioned that, except as disclosed in the Filing Statement to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of the Company should be considered highly speculative.
Note Regarding Forward Looking Statements
-----------------------------------------
This document contains forward-looking statements. More particularly, this document contains statements concerning: the completion of the transactions contemplated by the Agreement, including the completion of the Whitecap Acquisition, the appointment of the New Management Group, completion of the Private Placement and the completion of the filing statement; the ownership in Spitfire of such directors and officers; the use of proceeds from the Private Placement; the future strategy and focus for the combined entity and the New Management Group; future acquisitions and exploitation, development, resource and growth opportunities; drilling projects; and net debt, undeveloped land, reserves, reserve life index, estimated cashflow and production of Spitfire, Whitecap and the combined entity. Statements relating to "reserves" or "resources" are deemed to be forward looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. Readers are cautioned that the foregoing list of factors should not be construed as exhaustive.
The forward-looking statements are based on certain key expectations and assumptions made by Spitfire or by the New Management Group, as applicable, including expectations and assumptions concerning: timing of receipt of required shareholder and regulatory approvals and third party consents and the satisfaction of other conditions to the completion of the transactions; prevailing commodity prices and exchange rates, applicable royalty rates and tax laws; future well production rates; reserves and resource volumes; the performance of existing wells; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; and the availability and cost of financing, labour and services; and future operating costs.
Although Spitfire and the New Management Group, as applicable, believe that the expectations and assumptions on which the forward-looking statements made by such party are based are reasonable, undue reliance should not be placed on the forward-looking statements because no assurance can be provided that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks that required shareholder, regulatory and third party approvals and consents are not obtained on terms satisfactory to the parties within the timelines provided for in the Agreement, or at all, and risks that other conditions to the completion of the transactions are not satisfied on the timelines set forth in the Agreement or at all; the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserves and resource estimates; the uncertainty of estimates and projections relating to reserves, resources, production, costs and expenses; health, safety and environmental risks; commodity price, interest rate and exchange rate fluctuations; lack of marketing and transportation; loss of markets; environmental risks; competition; ability to access sufficient capital from internal and external sources; changes in legislation, including but not limited to tax laws, royalties and environmental regulations, and actual production may be greater or less than estimated.
The forward-looking statements contained in this press release are made as of the date hereof and Spitfire undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
In this press release: (i) MMcf means million cubic feet; (ii) MMcf/d means million cubic feet per day; (iii) Mbbl means million barrels; (ivi) boe/d means boe per day; (v) Mboe means thousand boe; (vi) MMboe means million boe; and (vii) NGLs means natural gas liquids.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
For further information: Spitfire Energy Ltd., Keith Chase, President & CEO, (403) 205-3402, (403) 205-3403 (FAX); or Spitfire Energy Ltd., 1610, 311 - 6th Avenue SW, Calgary, AB, T2P 3TH; or Whitecap Resources Inc., Grant Fagerheim, President & CEO, (403) 266-0767, (403) 266-6975 (FAX); or Whitecap Resources Inc., 800, 521 - 3rd Avenue SW, Calgary, AB, T2P 3T3
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