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The Company will issue a further news release in respect of the Arrangement Agreement and matters in connection therewith upon entering into such Arrangement Agreement.
The Option Agreement
The officers and board of directors of Toscana (the “Toscana Board“) reviewed, evaluated and negotiated the Option Agreement and the form of Arrangement Agreement on behalf of Toscana. In addition, Sayer Energy Advisors provided its verbal opinion on March 29, 2020 to the Toscana Board (subject to the standard assumptions, qualifications and limitations) that, as of the date of such opinion, the consideration to be received by holders of the Toscana Shares pursuant to the terms of the Arrangement is fair, from a financial point of view (the “Fairness Opinion“).
After considering various factors and receipt of the Fairness Opinion, and assuming that i3 Energy exercises its option as provided for under the Option Agreement, the Toscana Board (i) has unanimously determined that the Arrangement Agreement is in the best interests of Toscana and is fair to the holders of Toscana Shares; and (ii) recommends that, as of the date hereof, the holders of Toscana Shares vote in favour of the Arrangement.
Subject to the exercise by i3 Energy of the option provided for under the Option Agreement, the Arrangement will be subject to the approval by two-thirds of the votes cast by holders of Toscana Shares present in person or by proxy at an annual and special shareholders meeting called to consider, among other things, the Arrangement. All of the directors and officers of Toscana have signed voting support agreements with i3 Energy pursuant to which they have agreed to vote their Toscana Shares in favour of the Arrangement, subject to the provisions thereof.
In addition to shareholder approval, closing of the Arrangement will also be subject to approval by the Court of Queen’s Bench of Alberta, the receipt of applicable regulatory approvals and satisfaction of certain other closing conditions customary in transactions of this nature.
Senior Bank Debt and Subordinated Note Purchase
Concurrent with Toscana entering into the Option Agreement with i3 Energy, i3 Energy and the Company have negotiated i3 Energy’s purchase of the rights and interests in Toscana’s C$24.8 million senior bank debt and C$3.2 million subordinated note. Subsequent to i3 Energy’s purchase of the Company’s senior bank debt and subordinated note, i3 Energy has agreed that any such interest associated with the purchased debt instruments shall not accrue or be payable during the period from March 30, 2020 up to and until June 30, 2020.
Subsequent to Approval of the Arrangement
Assuming the option is exercised and the Arrangement is completed in accordance with the terms of the Arrangement Agreement including receipt of all necessary shareholder, regulatory and court approvals, the Company will become a wholly-owned subsidiary of i3 Energy that will continue pursuing operations in Canada, advancing certain initiatives which include executing a merger and acquisition driven growth strategy to build a large, low capital intensity, long-life production base in Canada. At present, Toscana’s portfolio contains several low-decline enhanced oil recovery properties. Its asset portfolio is further complimented with 45.9 net sections in the Marten Hills and Nipisi areas of Central Alberta which sits atop the lower cretaceous Clearwater formation, a conventional oil play producing 13° to 23° API crude oil. i3 Energy has shown strong interest in both the exploitation/enhancement of the Company’s existing producing properties including its Clearwater property.
About i3 Energy
i3 Energy (AIM:i3e) is a UK North Sea oil and gas exploration and development company listed on the Alternative Investment Market (AIM) of the London Stock Exchange. Its core assets are the Serenity and Liberator oil discoveries, which it owns on a 100% operated basis, located in Blocks 13/23c and 13/23d of the Outer Moray Firth. In 2019, i3 Energy raised £50 million (C$87.5 million) in equity and debt, and executed a 3-well drilling campaign on a 100% basis that resulted in the discovery of the Serenity oil field via the 13/23c-10 exploration well. i3 Energy is working to conduct further appraisal of the Serenity field during the course of 2020.
Toscana’s Financial and Operating Results for the Fourth Quarter and Year Ended December 31, 2019
Financial and operating results:
This news release summarizes information contained in the Audited Consolidated Financial Statements and Management’s Discussion and Analysis (“MD&A”) for the three months and year ended December 31, 2019. This news release should not be considered a substitute for reading the full disclosure documents, which will be made available under the Corporation’s profile on SEDAR at www.sedar.com and on the Corporation’s website at www.toscanaenergy.ca.
|Three months ended||Year ended|
|December 31||December 31|
|Average daily production (boe/d)||997||1,745||(43%)||1,065||1,650||(35%)|
|Average prices received ($/boe)||43.77||23.51||86%||42.68||28.56||49%|
|Petroleum and natural gas revenue, net of royalty expense ($) (1)||3,740,392||3,263,464||15%||15,185,235||15,147,313||-%|
|Netback ($) (2)||1,363,663||(233,206)||>100%||5,469,689||2,105,648||>100%|
|Netback per boe ($/boe) (2)||14.86||(1.45)||>100%||14.07||3.50||>100%|
|Adjusted Funds flow from (used-in) operations ($) (2)||315,942||(2,725,439)||>100%||940,254||(3,687,258)||>100%|
- Includes royalty revenue
- Non-IFRS measures
Significant declines and abnormal volatility in crude oil prices and global economic uncertainty have occurred as a result of the COVID-19 pandemic and a corresponding geo-political oil price war. The scale and duration of these developments remain uncertain but could impact the Company’s future net earnings, cash flow and financial condition. The Corporation is currently evaluating its oil properties and anticipates the shut-in of low netback oil wells. It is the Company’s and Management’s policy/protocol that firstly and foremost the safety and wellbeing of its employees and stakeholders is its principle concern. The company has undergone steps to effect social distancing for its office and field staff and is efficiently continuing its business in the current environment. For further information, please see the Risk Factors section of the Company’s Annual Information Form, dated March 30, 2020.
Management uses “netback”, “Adjusted funds flow from operations”, to analyze operating performance and to determine the Corporation’s ability to fund future capital investment. These terms, as presented, do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and therefore may not be comparable with the calculation of similar measures for other entities. Readers are cautioned regarding the reliability of such measures.
Netback typically equals (a) petroleum and natural gas revenue (including royalty revenues), net of royalty expense (b) realized gains and losses on risk management contracts and (c) less operating costs, net of processing income and is generally calculated on a per boe basis. As a non-IFRS measure, operating netback is an indicator of the financial performance of the Corporation. The Corporation uses such term as an indicator of financial performance because such term is commonly utilized by investors to evaluate companies in the energy sector. The Management of the Corporation believes that operating netback is a useful supplemental measure as it provides investors with information on operating margins per barrel of oil equivalent for such periods.
Management calculates Adjusted funds flow from operations as net earnings (loss) plus the addition of non-cash items (depletion, depreciation, accretion, share-based compensation, gains or losses on the sale of property and equipment and unrealized gains or losses on risk management contracts, gain on dentures amendments, etc.) and settlement of decommissioning liabilities.
As a non-IFRS measure, these measures are an indicator of the financial performance as it demonstrates the Corporation’s ability to generate the cash necessary to fund future capital investments and to repay debt. The Corporation uses such term as an indicator of financial performance because such term is commonly utilized by investors to evaluate companies in the energy sector. The Corporation believes that these measures are a useful supplemental measure as it provides investors with information of what cash is available in such periods.
Certain statements contained in this press release constitute forward-looking statements or forward-looking information under applicable securities legislation. Forward-looking statements or information typically contain statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, or similar words suggesting future outcomes or statements regarding an outlook.
Specific forward-looking statements in this press release include, but are not limited to: statements regarding the Option Agreement, the exercise of rights thereunder and the timing in respect thereof; the Arrangement, including completion of the Arrangement; and approval of the Arrangement and the implementation thereof. Such information reflects Toscana’s current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation: the impact of any changes in the laws and regulations in the jurisdictions in which Toscana operates.
Although Toscana believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements or information because Toscana can give no assurance that such expectations will prove to be correct. The forward-looking statements and information are based on Toscana’s current expectations, estimates and projections, and are subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, among others: the risk that the Option Agreement may not be exercised on a timely basis, if at all; the risk that if the Option Agreement is exercised, the Arrangement may not be completed on a timely basis, if at all, or that the conditions to the consummation of the Arrangement may not be satisfied; the risk that the Arrangement may involve unexpected costs, liabilities or delays; the possible occurrence of an event, change or other circumstance that could result in termination of the Arrangement; risks relating to the failure to obtain necessary shareholder and court approval; the risk that necessary approvals from the Toronto Stock Exchange in respect of the listing of the i3 Energy Shares may not be received in a timely fashion, if at all; general business and economic conditions, including, without limitation, interest rates, general levels of economic activity, fluctuations in the market prices of securities, participation by other investors in the financial markets, economic uncertainty, national and international political circumstances, public health crises (such as the recent global outbreak of a novel coronavirus, COVID-19) and events outside of the control of Toscana and i3 Energy; the overall performance of the stock market(s); actions of competitors and partners; and the regulatory environment. The foregoing is not exhaustive and other risks are detailed from time to time in other continuous disclosure filings of Toscana. Should one or more of the uncertainties or risks materialize, or should assumptions underlying the forward-looking statements or information prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. These forward-looking statements contained herein are made as of the date of this press release and in each, case are expressly qualified by this cautionary statement. Toscana does not intend to nor does it assume any obligation to update publicly or revise any of the forward-looking statements, whether as a result of new information, subsequent events or otherwise, except as required by applicable laws. Toscana cautions readers not to place undue reliance on these statements.
About Toscana Energy Income Corporation
Toscana Energy Income Corporation is a conventional oil and gas producer with the mandate to acquire high quality, long life oil and gas assets.
For further information, please contact:
Ryan Heath, Chief Executive Officer
Tel: (403) 355-0455
Fax: (403) 444-0090
SOURCE: Toscana Energy Income Corporation