Caracal Energy Inc. (LSE:CRCL)
("Caracal") and TransGlobe Energy Corporation (TSX:TGL)(NASDAQ:TGA)
("TransGlobe") announced today that they have entered into an agreement
(the "Arrangement Agreement") to merge the two companies by way of an
exchange of shares pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement").
Rationale for the Proposed Business Combination
The Arrangement would create one of the largest independent Africa
focused oil producers, poised for strong growth in oil production and
reserves from development and high impact exploration in Chad and
Egypt. Based on March 14, 2014 closing prices, the merged company would
have a combined market capitalization of approximately US$1.8 billion1 and:
- Material Onshore Oil Production - Pro forma current oil production of 25,100 bbl/d (company working interest) and 2P reserve base of 135 MMbbl (company working interest) from majority operated assets in Chad and Egypt and additional non-operated interests in Yemen
- Near Term Production Growth - Average 2014E production target of 31,000-34,000 bbl/d (company working interest); ongoing appraisal and development program
- Catalyst Rich Exploration Program - Campaign of 30-42 high impact exploration wells in Chad by 2016, targeting 70+ per cent of a total 833 MMbbl of gross risked mean prospective resources and low risk step out exploration in the Egyptian Eastern Desert
- Strong Regional Position - Enhanced scale provides a platform for future organic and acquisition growth in Africa, building on core operated positions in Chad and Egypt, with ready access to key infrastructure and export markets
- Improved Financial Position - Combined business plan remains fully funded, with a pro forma cash position of US$302 million and no net debt as at December 31, 2013, and a growing cash flow profile
"This transaction will clearly benefit both companies and their
shareholders, as the enhanced scale will expedite production growth and
increase cash flow," said Gary Guidry, Caracal's President & Chief
Executive Officer. "At its core, this transaction is about greater
value creation for all shareholders of the merged company. Through the
combination of complementary asset bases, we will create a solid
regional platform for compounding reserves and production growth."
Added Ross Clarkson, TransGlobe's President & Chief Executive Officer,
"Consistent with our onshore, operated, oil strategy, the combination
will provide shareholders with significant organic production and reserves growth, while providing
increased country diversification. Specifically, we're pursuing
additional upside of over four billion barrels of gross mean unrisked
prospective resource, aggressively targeted with a fully funded
drilling program. And as one of the largest independent oil producers
in Africa, we will be well positioned for future value-enhancing
growth."
The merged company will benefit from an experienced Board of Directors,
with Robert Hodgins as independent non-executive Chairman. Other
independent board members include Carol Bell, John Bentley, Peter Dey,
Ronald Royal, and Brooke Wade. It is proposed that two directors from
TransGlobe, Ross Clarkson and Lloyd Herrick, will join the Caracal
Board.
After completion of the transaction the combined assets and employees
will operate under the Caracal name and will be led by Caracal's CEO
Gary Guidry and a combination of Caracal's and TransGlobe's current executive teams.
In connection with the Arrangement, Caracal is required to seek a
listing for the merged company on the Toronto Stock Exchange ("TSX").
Terms of the proposed transaction
Exchange Ratio
Pursuant to the Arrangement, each TransGlobe shareholder will receive
1.23 new common shares of Caracal ("New Caracal Shares") in exchange
for each TransGlobe common share ("TransGlobe Share") held. After
completion of the Arrangement the merged company will have
approximately 238,503,645 shares issued and outstanding prior to
adjusting for conversion of Caracal's outstanding convertible
debentures. After taking into consideration the conversion of the
convertible debentures it is expected that current Caracal shareholders
would hold approximately 65.6 per cent and former TransGlobe
shareholders would hold approximately 34.4 per cent of the issued
shares of the merged company 2
Treatment of TransGlobe Debentures
Upon completion of the transaction, TransGlobe's 6.0% convertible
unsecured subordinated debentures with an aggregate principal amount of
CAD$97,750,000 (the "TransGlobe Debentures") will continue to be
obligations of TransGlobe, as a wholly-owned subsidiary of Caracal. The
conversion price of the TransGlobe Debentures will be adjusted pursuant
to the terms of the trust indenture governing the TransGlobe Debentures
based on the exchange ratio under the Arrangement. After completion of
the Arrangement, conversion rights will be into Caracal shares.
Following closing of the transaction, in accordance with its terms,
Caracal intends to make an offer for the TransGlobe Debentures at Par
plus accrued and unpaid interest (the amount of interest will depend on
the time of any repurchase). The repurchase offer will be made within
30 days of closing of the proposed transaction. Should a holder of the
TransGlobe Debentures elect not to accept the repurchase offer, the
debentures will mature as originally set out in their respective
indentures. Holders who convert their TransGlobe Debentures following
completion of the Arrangement will receive common shares of Caracal.
Dividends
In light of the significant capital programs for development and
exploration for the combined company, neither Caracal nor TransGlobe
will pay dividends in the interim period prior to closing. However, the
Board of the combined company will consider dividends in the future as
a part of normal course business.
Further details of the transaction
Caracal's CEO Mr. Guidry has recused himself from the process of
considering the Arrangement because he served as a director of
TransGlobe from October 2009 until March 11, 2014, when he resigned.
Mr. Guidry owns the following TransGlobe securities: 40,000 TransGlobe
shares, CAD$100,000 in TransGlobe convertible debentures and options to
acquire 160,500 TransGlobe shares. Mr. Guidry's TransGlobe share
ownership amounts to approximately 0.05 per cent of the 74.7 million
TransGlobe shares outstanding. Mr. Guidry's ownership of Caracal
shares, including beneficial ownership, amounts to 1,674,173 shares or
approximately 1.14 per cent of the 146.7 million current basic Caracal
shares outstanding.
The Boards of Directors of Caracal (other than Mr. Guidry, who has
recused himself for the reason mentioned above) and TransGlobe have
each unanimously approved the Arrangement Agreement and have concluded
that the Arrangement is in the best interests of Caracal and
TransGlobe, respectively. The Board of Directors of Caracal has
received fairness opinions from RBC Capital Markets and Canaccord
Genuity Corp. with respect to the Arrangement. The Board of Directors
of TransGlobe has received a fairness opinion from Scotiabank with
respect to the Arrangement.
The Boards of Directors of each of Caracal (other than Mr. Guidry, who
has recused himself for the reason mentioned above) and TransGlobe
intend to unanimously recommend to their respective shareholders that
they vote their shares in favor of the Arrangement in the information
circulars to be prepared and mailed by Caracal and TransGlobe in
connection with the Arrangement.
In addition, each of the Directors and Executive Officers of Caracal and
TransGlobe have agreed to vote their shares in favor of the
Arrangement. In aggregate this represents 3,338,903 Caracal shares, or
approximately 2.28 per cent of the 146.7 million current basic Caracal
shares outstanding, and 3,092,054 TransGlobe shares or approximately
4.14 per cent of the 74.7 million current basic TransGlobe shares
outstanding.
The proposed transaction will be implemented by way of a court-approved
plan of arrangement and will require the approval of at least 662/3 per cent of holders of TransGlobe shares represented in person or by
proxy at a special meeting of TransGlobe shareholders (the "TransGlobe
Meeting") to be called to consider the Arrangement. If required, the
approval will consist of a "majority of the minority" of the holders of
TransGlobe shares, being a majority of the votes cast by shareholders
excluding shareholders whose votes may not be included pursuant to
Canadian Multilateral Instrument 61- 101 Protection of Minority Securityholders in Special Transactions. The exclusion, if required, would apply only to Mr. Guidry, by virtue
of his role as a director of TransGlobe from October 2009 until March
11, 2014.
It is expected that the Arrangement will be exempt from the registration
requirements of the U.S. Securities Act of 1933, as amended, pursuant
to the court approval exemption afforded by section 3(a)(10) under that
Act. The proposed transaction is also subject to obtaining the approval
of a majority of the votes cast by the holders of Caracal shares at a
special meeting of Caracal shareholders (the "Caracal Meeting") to be
called to consider the Arrangement and the issuance of New Caracal
Shares in connection with the proposed transaction.
The Arrangement Agreement provides that each party is subject to
non-solicitation provisions and provides that the board of directors of
each party may, under certain circumstances, terminate the agreement in
favour of an unsolicited superior proposal, subject to payment of a
termination fee of US$9.25 million to the other party and subject to a
right in favour of Caracal to match the superior proposal. In addition,
each party has agreed to pay a termination fee of US$9.25 million to
the other party in certain circumstances.
Trading, Listings And Regulatory Approvals
Subsequent to the completion of the Arrangement, the TransGlobe shares
will cease trading and be delisted from the TSX and the NASDAQ. Under
the Arrangement, Caracal is required to apply to the TSX to list
Caracal shares, including the New Caracal Shares, on the TSX. It is a
condition to the completion of the Arrangement that such a listing
shall have been approved, subject only to routine filings.
The Arrangement is classified as a reverse takeover for Caracal under
the Listing Rules of the United Kingdom Listing Authority ("UKLA").
Consequently, Caracal will be required to re-apply for and, on
completion of the Arrangement, satisfy the relevant requirements for
listing on the premium segment of the Official List of the UKLA.
Advisors
For Caracal, RBC Capital Markets is acting as financial advisor. Each of
RBC Capital Markets and Canaccord Genuity Corp. provided a fairness
opinion to Caracal's Board. FirstEnergy Capital Corp. is acting as a
strategic advisor. Stikeman Elliott LLP is the legal advisor.
For TransGlobe, Scotiabank is acting as financial advisor and has
provided a fairness opinion to TransGlobe's Board. Blake Cassels &
Graydon LLP is the legal advisor.
Information Circulars
Further information regarding the proposed transaction will be contained
in information circulars that Caracal and TransGlobe will prepare, file
and mail in due course to their respective shareholders in connection
with the Caracal Meeting and TransGlobe Meeting. Prior to the closing
of the transaction, Caracal will also publish a prospectus in
connection with the issue of the New Caracal Shares and the required
re-application for listing of such shares on the Official List and to
trading on the London Stock Exchange's ("LSE") main market for premium
listed securities ("Prospectus").
It is expected that the TransGlobe Meeting and the Caracal Meeting will
take place in June 2014, with closing expected to occur as soon as
possible thereafter subject to regulatory approval. All Caracal and
TransGlobe shareholders are urged to read the relevant information
circular once it becomes available, as it will contain additional
important information concerning the proposed transaction and the
Arrangement.
A copy of the Arrangement Agreement will be filed on Caracal's and
TransGlobe's SEDAR profiles and will be available for viewing at
www.sedar.com.
Investor conference call and presentation details
TransGlobe and Caracal will host a joint conference call and webcast to
discuss the Arrangement on March 17, 2014:
Time: 7:00 a.m. Calgary Time (Mountain Time) (9:00 a.m. Eastern Time)
Dial-in: 416-340-8530 or toll free at 1- 800-766-6630
http://www.gowebcasting.com/5234
Dial-in: 416-340-8530 or toll free at 1- 800-766-6630
http://www.gowebcasting.com/5234
Shortly after the conclusion of the call, a replay will be available by
dialing (905) 694-9451 or toll-free at 1-800-408-3053. The pass code is
5119337#. The replay will expire at 23:59 p.m. (Eastern Time) on March
23, 2014. Thereafter, a copy of the call can be accessed through a link
on TransGlobe's Web site at www.trans-globe.com and at Caracal's website at www.caracalenergy.com.
A joint presentation has been prepared to accompany the conference call.
The presentation is also available for review on the Caracal and
TransGlobe websites.
Exchange Rates
For reference purposes only, the following exchange rates were
prevailing on March 13, 2014 as per the Bank of England Daily Spot
Exchange Rates against GBP (being the latest practicable date prior to
publication of this announcement):
£1.00 = CAD $1.8445
£1.00 = US$1.6677
US$1.00 = CAD$1.1060
£1.00 = US$1.6677
US$1.00 = CAD$1.1060
All amounts in this announcement expressed in the above currencies have,
unless otherwise stated, been calculated using the above exchange
rates.
About Caracal
Caracal Energy Inc. is an international exploration and development
company focused on oil and gas exploration, development and production
activities in the Republic of Chad, Africa. In 2011, Caracal entered
into three production sharing contracts ("PSCs") with the government of
the Republic of Chad. These PSCs provide exclusive rights to explore
and develop reserves and resources over a combined area of 26,103 km2 in southern Chad. The PSCs cover two world-class oil basins with oil
discoveries, and numerous exploration prospects. The Caracal common
shares trade on the LSE under the symbol CRCL.
About TransGlobe
TransGlobe is a Calgary-based, growth-oriented oil and gas exploration
and development company focused on the Middle East and North Africa
region with production operations in the Arab Republic of Egypt and the
Republic of Yemen. TransGlobe's common shares trade on the TSX under
the symbol TGL and on the NASDAQ Exchange under the symbol TGA.
TransGlobe's Convertible Debentures trade on the TSX under the symbol
TGL.DB. In TransGlobe's audited financial statements for the financial
year ended December 31, 2013, TransGlobe reported gross assets of
US$675.8 million and profits before tax of US$143.9 million.
Cautionary Statements
This announcement contains forward-looking statements and
forward-looking information within the meaning of applicable securities
laws and are based on the expectations, estimates and projections of
management of the parties as of the date of this news release unless
otherwise stated. The use of any of the words "expect", "anticipate",
"continue", "estimate", "objective", "ongoing", "may", "will",
"project", "should", "believe", "plans", "intends" and similar
expressions are intended to identify forward-looking statements or
information. More particularly and without limitation, this
announcement contains forward-looking statements and information
concerning: the anticipated benefits of the Arrangement to TransGlobe
and its securityholders and to Caracal and its securityholders,
including anticipated synergies; the timing and anticipated receipt of
required regulatory, court and securityholder approvals for the
transaction; the ability of TransGlobe and Caracal to satisfy the other
conditions to, and to complete, the Arrangement; the anticipated timing
of the mailing of the information circulars regarding the Arrangement,
the holding of the TransGlobe Meeting and the Caracal Meeting and the
closing of the Arrangement and the listing of Caracal's shares on the
TSX or the Official List.
In respect of the forward-looking statements and information concerning
the anticipated benefits and completion of the proposed Arrangement,
the anticipated timing for completion of the Arrangement and the
listing of Caracal's shares on the TSX or the Official List, Caracal
and TransGlobe have provided such in reliance on certain assumptions
that they believe are reasonable at this time, including assumptions as
to the time required to prepare and mail securityholder meeting
materials, including the required information circulars and Prospectus;
the ability of the parties to receive, in a timely manner, the
necessary regulatory, court, securityholder, stock exchange and other
third party approvals, including but not limited to the receipt of
applicable regulatory approvals; the ability of the parties to satisfy,
in a timely manner, the other conditions to the closing of the
Arrangement; and expectations and assumptions concerning, among other
things: customer demand for the merged company's services; commodity
prices and interest and foreign exchange rates; planned synergies,
capital efficiencies and cost-savings; applicable tax laws; future
production rates; the sufficiency of budgeted capital expenditures in
carrying out planned activities; and the availability and cost of
labour and services.
The anticipated dates provided may change for a
number of reasons, including unforeseen delays in preparing meeting
materials, inability to secure necessary securityholder, regulatory,
court or other third party approvals in the time assumed or the need
for additional time to satisfy the other conditions to the completion
of the Arrangement. Information relating to reserves and resources is
deemed to be forward-looking information, as it involves the implied
assessment, based on certain estimates and assumptions, that the
reserves and resources described exist in the quantities predicted or
estimated, and can be profitably produced in the future.
Accordingly, readers should not place undue reliance on forward-looking
information which by its nature is based on current expectations
regarding future events that involve a number of assumptions, inherent
risks and uncertainties, which could cause actual results to differ
materially from those anticipated. Forward-looking information is not
based on historical facts but rather on current expectations and
assumptions regarding, among other things, the timing and scope of
certain of Caracal and TransGlobe's operations and the timing and level
of production from their properties, plans for and results of drilling
activity and testing programmes, future capital and other expenditures
(including the amount, nature and sources of funding thereof),
continued political stability, and timely receipt of any necessary
government or regulatory approvals. Although the expectations and
assumptions reflected in such forward-looking information are believed
to be reasonable, they may prove to be incorrect. Forward-looking
information involves significant known and unknown risks and
uncertainties.
A number of factors could cause actual results to differ
materially from those anticipated by Caracal or TransGlobe including,
but not limited to, the merged company's ability to integrate
efficiently new businesses following the successful completion of the
transaction; the merged company's ability to achieve the anticipated
financial and other benefits resulting from the successful completion
of the transaction, risks associated with the oil and gas industry
(e.g. operational risks in exploration and production; inherent
uncertainties in interpreting geological data; changes in plans with
respect to exploration or capital expenditures; interruptions in
operations together with any associated insurance proceedings;
reductions in production capacity, the uncertainty of estimates and
projections in relation to costs and expenses and health, safety and
environmental risks), the risk of commodity price and foreign exchange
rate fluctuations, the uncertainty associated with negotiating with
foreign governments, risk associated with international activity,
including the risk of political instability, the risk of adverse
economic market conditions, the actual results of marketing activities
and the risk of regulatory changes. Forward-looking information cannot
be relied upon as a guide to future performance. Well-test results are
not necessarily indicative of long-term performance or ultimate
recovery.
Risks and uncertainties inherent in the nature of the Arrangement
include the failure of TransGlobe or Caracal to obtain necessary
security holder, regulatory, court and other third party approvals, or
to otherwise satisfy the conditions to the Arrangement, in a timely
manner, or at all. Failure to so obtain such approvals, or the failure
of TransGlobe or Caracal to otherwise satisfy the conditions to the
Arrangement, may result in the Arrangement not being completed on the
proposed terms, or at all. In addition, the failure of one party to
comply with the terms of the Arrangement Agreement may result in that
party being required to pay a non-completion or other fee to the other
party, the result of which could have a material adverse effect on the
paying party's financial position and results of operations and its
ability to fund growth prospects and current operations.
Readers are cautioned that the foregoing list of factors is not
exhaustive. Additional information on other factors that could affect
the operations or financial results of the parties, and the combined
company, are included in reports on file with applicable securities
regulatory authorities, including but not limited to; TransGlobe's
Annual Information Form for the year ended December 31, 2013 which may
be accessed on TransGlobe's SEDAR profile, and Caracal's Final Short
Form Prospectus dated October 24, 2013 on Caracal's SEDAR profile at www.sedar.com.
The forward-looking statements and information contained in this
announcement are made as of the date hereof and the parties undertake
no obligation to update, review or revise such forward-looking
information contained in this announcement to reflect any change in its
expectations or any change in events, conditions or circumstances on
which such information is based unless required to do so by applicable
law.
Reserves Disclosure
Terms related to reserves and resources classifications referred to in
this announcement are based on definitions and guidelines in the
Canadian Oil and Gas Evaluation Handbook ("COGE") which are as follows.
"Proved reserves" are those reserves that can be estimated with a high
degree of certainty to be recoverable. It is likely that the actual
remaining quantities recovered will exceed the estimated proved
reserves.
"Probable reserves" are those additional reserves that are less certain
to be recovered than proved reserves. It is equally likely that the
actual remaining quantities recovered will be greater or less than the
sum of the estimated proved plus probable reserves.
The qualitative certainty levels referred to in the definitions above
are applicable to individual reserves entities (which refers to the
lowest level at which reserves calculations are performed) and to
reported reserves (which refers to the highest-level sum of individual
entity estimates for which reserves estimates are presented). Reported
reserves should target the following levels of certainty under a
specific set of economic conditions:
- at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated proved reserves. This category of reserves can also be denoted as 1P;
- at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable reserves. This category of reserves can also be denoted as 2P; and
- at least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable plus possible reserves. This category of reserves can also be denoted as 3P.
Additional clarification of certainty levels associated with reserves
estimates and the effect of aggregation is provided in the COGE
Handbook. The estimates of reserves and future net revenue for
individual properties may not reflect the same confidence level as
estimates of reserves and future net revenue for all properties, due to
the effects of aggregation.
"Prospective resources" are those quantities of petroleum estimated, as
of a given date, to be potentially recoverable from undiscovered
accumulations by application of future development projects.
Prospective resources have both an associated chance of discovery
(geological chance of success) and a chance of development (economic,
regulatory, market, facility, corporate commitment or political risks).
The chance of commerciality is the product of these two risk
components. The prospective resource estimates referred to herein have
not been risked for either the chance of discovery or the chance of
development.
There is no certainty that any portion of the prospective resources will
be discovered. If a discovery is made, there is no certainty that it
will be developed or, if it is developed, there is no certainty as to
the timing of such development or that it will be commercially viable
to produce any portion of the prospective resources.
Figures related to Caracal's reserves and resources are derived from a
report prepared by McDaniel & Associates Consultants Ltd. ("McDaniel"),
an independent qualified reserves evaluator, evaluating the prospective
resources of Caracal effective as of June 30, 2013 (the "McDaniel
Resource Report") and a report prepared by McDaniel evaluating the
reserves of Caracal effective as of December 31, 2013 (the "McDaniel
Reserve Report"). A description of the uncertainties and significant
positive and negative factors associated with the estimates of
resources in respect of the June 30, 2013 McDaniel Report is contained
in Caracal's July 25, 2013 material change report. Copies of these
documents are available on the internet under Caracal's profile at www.sedar.com.
Figures related to TransGlobe's reserves and resources are derived from
a report prepared by DeGolyer & MacNaughton Canada Limited
("DeGolyer"), an independent qualified reserves evaluator, evaluating
the prospective reserves and resources of TransGlobe effective as of
December 31, 2013 (the "DeGolyer Report") with a report date of January
15, 2014. A description of the uncertainties and significant positive
and negative factors associated with the estimates of resources in
respect of the DeGolyer Report is contained in TransGlobe's Annual
Information Form dated March 13, 2014 for the year ended December 31,
2013. Copies of these documents are available on the internet under
TransGlobe's profile at www.sedar.com.
_______________________
1 Calculated on basic shares outstanding as of March 14, 2014 including shares assuming full conversion of Caracal outstanding convertible debentures into 28.6mm shares. Exchange rates based on posted Bank of England Daily Spot Exchange Rates against GBP as at March 13, 2014.
2 Calculated on basic shares outstanding as of March 14, 2014 including shares assuming full conversion of Caracal outstanding convertible debentures into 28.6 million shares. Exchange rates based on posted Bank of England Daily Spot Exchange Rates against GBP as at March 13, 2014.
1 Calculated on basic shares outstanding as of March 14, 2014 including shares assuming full conversion of Caracal outstanding convertible debentures into 28.6mm shares. Exchange rates based on posted Bank of England Daily Spot Exchange Rates against GBP as at March 13, 2014.
2 Calculated on basic shares outstanding as of March 14, 2014 including shares assuming full conversion of Caracal outstanding convertible debentures into 28.6 million shares. Exchange rates based on posted Bank of England Daily Spot Exchange Rates against GBP as at March 13, 2014.
SOURCE: Caracal Energy Inc.
For further information:
For further information about Caracal:
Caracal Energy Inc.
Gary Guidry, President and Chief Executive Officer
Trevor Peters, Chief Financial Officer
+1 403-724-7200
For North American Media Inquiries
Longview Communications
Alan Bayless
Joel Shaffer
+1 604-694-6035
+1 416-649-8006
Gary Guidry, President and Chief Executive Officer
Trevor Peters, Chief Financial Officer
+1 403-724-7200
For North American Media Inquiries
Longview Communications
Alan Bayless
Joel Shaffer
+1 604-694-6035
+1 416-649-8006
For further information about TransGlobe:
Steve Langmaid
Investor Relations
(403) 444-4787
investor.relations@trans-globe.com
www.trans-globe.com
Investor Relations
(403) 444-4787
investor.relations@trans-globe.com
www.trans-globe.com
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