/NOT FOR DISTRIBUTION IN THE UNITED STATES OR DISSEMINATION THROUGH
UNITED STATES NEWSWIRE
SERVICES/
CALGARY,
AB, July 5, 2023 /CNW/ - Highwood Asset
Management Ltd. ("Highwood" or the "Company") (TSXV:
HAM) is pleased to announce that it has entered into arm's-length
agreements to acquire each of Castlegate Energy Ltd.
("Castlegate"), Boulder Energy Ltd. ("Boulder") and
Shale Petroleum Ltd. ("Shale") (collectively, the
"Acquisitions") for a net purchase price of approximately
$139 million.
The cash portion of the Acquisitions is anticipated to be funded
primarily through a "best efforts" marketed offering of
subscription receipts expected to raise aggregate gross proceeds
of approximately $35 million (the
"Offering") and a draw on a new $100
million reserve-based credit facility. Each subscription
receipt represents the right of the holder to receive, upon closing
of the Acquisitions, without payment of additional consideration,
one unit of the Company, comprised of one common share and one-half
of one common share purchase warrant.
Commenting on the Acquisitions, Joel
MacLeod, Executive Chairman of Highwood said "We are
extremely pleased with the opportunity to acquire high quality, low
ARO (asset retirement obligation) assets with significant depth of
inventory with sub 12-month payouts at a combined 2.2x EV to NTM
Field NOI (See "Acquisition Metrics") purchase multiple.
Further, we believe having a clean capital structure with a low
cost $100 million credit facility is
a significant advantage for Highwood as we look to grow Highwood to
30,000+ boe/d. With an estimated initial leverage of approximately
1.2x on 2024E Adjusted EBITDA (See "Strategic Benefits") and
spending approximately 60% of anticipated cash flow to grow
production over 25% while de-leveraging to approximately 0.9x by
year-end 2024, we feel Highwood will be in a strong position to
grow free cash flow per share over the next three to five years.
Alignment with our shareholders is critical and insiders expect to
increase our ownership over the next three to five years while
offering liquidity to shareholders. These acquisitions are expected
to provide a strong production and cash flow base as a platform for
further consolidation of conventional oil and gas assets in the
WCSB. The assets bring highly economic multi-lateral drilling
inventory with anticipated relatively quick Payback Periods, which
are expected to drive near-term growth while generating free cash
flow."
Completion of each of the Acquisitions is subject to customary
closing conditions, including receipt of requisite regulatory
approvals, and is conditional on closing of each of the other
Acquisitions. The Company expects to complete the Acquisitions in
the third quarter of 2023.
Acquisition Highlights:
- The Acquisitions bring a combined ~4,500 boe/d (approximately
75% oil and natural gas liquids ("NGLs")) of expected
average production over the 12-month period commencing July 1, 2023 ("Next Twelve Months" or
"NTM") with before tax Proved Developed Producing
("PDP") net present value discounted at a rate of 10%
("NPV 10") of $166
million1, NTM field net operating income ("NTM
Field NOI")2 of $64
million, and 97 net drilling locations to sustain the
acquired production for over 10 years3
- Highwood will focus on the utilization of multi-lateral well
development to drive approximately 25% anticipated production
growth to approximately 5,200 boe/d in 2024 on an expected capital
program of approximately $11 million
in the fourth quarter of 2023 and $40
million in 2024, while expecting to reduce Net Debt / 2024E
EBITDA to under 0.9x by year-end 20244
- Upon completion of the Acquisitions, Highwood will be
positioned as a growth focused oil-weighted producer with expected
insider ownership of more than 50%, where insiders remain committed
to supporting the Company's long-term growth trajectory and prudent
use of debt capital
- Highwood plans to grow its oil-weighted production to over
30,000 boe/d both organically and through the acquisition and
development of undervalued, low-risk opportunities that support
building a strong portfolio of cash flowing assets offering
development upside
- The Acquisitions support Highwood's strategy to become a
premier, publicly traded, oil-weighted producer, while leveraging
management's expertise in drilling and deploying multi-lateral well
technology with considerable inventory with Payback Periods of less
than 12 months4
Notes to Acquisition
Highlights:
|
(1)
|
Gross reserves
information as at January 1, 2023 and is derived from the
Acquisition Reserves Reports, in accordance with NI 51-101 and the
COGE Handbook. See "Boulder Transaction", "Castlegate
Transaction", and "Shale Transaction".
|
(2)
|
NTM field net
operating income (NTM Field NOI) is forecasted for the twelve-month
period commencing July 1, 2023 at an average production of 4,500
boe/d. Based on Management's projections (not forecasts set forth
in the Acquisition Reserves Reports) and applying the following
pricing assumptions: WTI: US$70.00/bbl; WCS Diff: US$14.00/bbl;
MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74 CAD/USD. See
"Non-GAAP and other Specified Financial
Measures".
|
(3)
|
See "Caution
Respecting Reserves Information" and "Non-GAAP and other
Specified Financial Measures".
|
(4)
|
Based on
Management's projections (not IQRE forecasts) and applying the
following pricing assumptions: WTI: US$70.00/bbl; WCS Diff:
US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74
CAD/USD. Management projections are used in place of IQRE
forecasts as Management believes it provides investors with
valuable information concerning the liquidity of the Company.
Cash flow figures assume completion of the Acquisitions on July
1, 2023 and illustrative hedges for total of 65% of net after
royalty Proved Developed Producing reserves production. See
"Caution Respecting Reserves Information" and "Non-GAAP and
other Specified Financial Measures".
|
Acquisition Metrics
The following table summarizes the expected operating and
financial performance of the assets anticipated to be acquired by
the Company pursuant to the Acquisitions for the Next Twelve
Months.
Total net
consideration(1)
|
$139 million
|
NTM average
production
|
4,500 boe/d
|
Net drilling
locations(2)
|
67 booked (30
unbooked)
|
Proved plus probable
reserves(3)
|
39.3 MMboe
|
NTM Field
NOI(4)
|
$64 million
|
NTM Adjusted
EBITDA(5)(6)
|
$59 million
|
EV
to NTM Field NOI(5)(6)(7)
|
2.2x
|
Total Proved
reserves
|
$6.08/boe(8)
|
Notes to the
Acquisition Metrics Table:
|
(1)
|
Purchase prices are
subject to adjustments. The purchase price for the Shale
Acquisition is net of approximately $2 million cash balance. The
purchase price for the Castlegate Acquisition is net of
approximately $3 million cash balance.
|
(2)
|
Includes booked and
unbooked locations; booked locations based on the Acquisition
Reserves Report for the respective Acquisitions (46 gross
locations (42 net) are proved locations, and 28 gross locations (25
net) are probable locations), unbooked locations estimated by
Management. See "Caution Respecting Reserves
Information".
|
(3)
|
Gross reserves
information as at January 1, 2023 is derived from the Acquisition
Reserves Reports, in accordance with NI 51-101 and the COGE
Handbook. See "Boulder Transaction", "Castlegate Transaction",
and "Shale Transaction".
|
(4)
|
Field net operating
income (Field NOI) is forecasted for the twelve-month period
commencing July 1, 2023 at an average production of 4,500 boe/d.
Based on Management's projections (not forecasts set forth in the
Acquisition Reserves Reports) and applying the following pricing
assumptions: WTI: US$70.00/bbl; WCS Diff: US$14.00/bbl; MSW Diff:
US$3.50/bbl; AECO: C$2.75/GJ; 0.74 CAD/USD. See "Non-GAAP and other
Specified Financial Measures". See "Caution Respecting Reserves
Information" and "Non-GAAP and other Specified Financial
Measures".
|
(5)
|
Based on
Management's projections (not forecasts set forth in the
Acquisition Reserves Reports) and applying the following pricing
assumptions: WTI: US$70.00/bbl; WCS Diff: US$14.00/bbl; MSW Diff:
US$3.50/bbl; AECO: C$2.75/GJ; 0.74 CAD/USD.
|
(6)
|
See "Non-GAAP and
other Specified Financial Measures".
|
(7)
|
Enterprise Value is
equal to the net purchase price for each of the respective
Acquisitions.
|
(8)
|
Calculated as the
net purchase price for the Acquisitions divided by total Proved
Reserves.
|
(9)
|
This forecasted
information requires assumptions from Management in order to derive
estimates of future cash flow related to production volumes,
commodity prices, amount of future development costs, and
production, royalty and transportation costs. See "Cautionary Note
Regarding Forward-Looking Information".
|
|
|
Forecast Guidance
The following table summarizes the Company's forecasted
operating and financial guidance for the 12-month period commencing
July 1, 2023 and full year 2024
assuming completion of the Acquisitions on July 1, 2023. See "Cautionary Note
Regarding Forward-Looking Information".
Operating and
Financial Metrics
|
Forecast
Guidance(1)(2)
|
NTM
|
2024
|
Production
|
4.7 Mboe/d
|
5.2 Mboe/d
|
Liquids
|
~76%
|
~78%
|
Adjusted
EBITDA(3)
|
$62 million
|
$72 million
|
CAPEX(3)
|
($38
million)
|
($40
million)
|
Free Cash
Flow(3)
|
$18 million
|
$23 million
|
|
|
|
Oil Weighted
Assets
|
|
|
Total Proved plus
Probable(4)
|
41.4
MMboe
|
|
2P Reserves Life Index
(RLI)(5)
|
~24 years
|
|
Inventory (Booked &
Unbooked), net(6)
|
135
locations
|
|
Notes to Forecast
Guidance Table:
|
(1)
|
Based on
Management's projections (not forecasts set forth in the 2022
Reserves Report and the Acquisition Reserves Reports) and applying
the following pricing assumptions: (i) actuals and strip pricing as
at June 23, 2023 through the second quarter of 2023; and (ii)
thereafter: WTI: US$70.00/bbl; WCS Diff: US$14.00/bbl; MSW Diff:
US$3.50/bbl; AECO: C$2.75/GJ; 0.74 CAD/USD. Management projections
are used in place of IQRE forecasts as Management believes it
provides investors with valuable information concerning the
liquidity of the Company.
|
(2)
|
Assumes completion
of the Acquisitions on July 1, 2023. Cash flow figures also
include illustrative hedges for total of 65% of expected Q4 2023
and 2024 net after royalty production associated with Proved
Developed Producing reserves. See "Cautionary Note Regarding
Forward-Looking Information".
|
(3)
|
See "Non-GAAP and
other Specified Financial Measures".
|
(4)
|
Gross reserves
information as at January 1, 2023 is derived from the 2022 Reserves
Report and the Acquisition Reserves Reports, in accordance with NI
51-101 and the COGE Handbook. See "Boulder Transaction",
"Castlegate Transaction", and "Shale
Transaction".
|
(5)
|
RLI is calculated by
Management as the amount of relevant reserves category divided by
total estimated NTM production and assumes completion of the
Acquisitions on July 1, 2023.
|
(6)
|
Includes booked and
unbooked locations; booked locations based on the 2022 Reserves
Report and the Acquisition Reserves Report for the respective
Acquisitions (50 gross locations (45 net) are proved locations, and
31 gross locations (27 net) are probable locations), unbooked
locations estimated by Management. See "Caution Respecting Reserves
Information".
|
Boulder Transaction
Highwood has entered into a share purchase agreement (the
"Boulder Agreement") to acquire all of the issued and
outstanding shares of Boulder, a privately held oil and gas
provider focused on light oil in Alberta, for aggregate consideration of
$98 million, subject to a working
capital adjustment (the "Brazeau Acquisition"). The
Brazeau Acquisition is expected to close in the third quarter
of 2023, subject to satisfaction of customary closing conditions
and receipt of regulatory approvals. The $98
million consideration consists of:
- the issuance of such number of Common Shares by the Company to
West Lake at the same price as the Offering that would equal the
lesser of: (i) $9 million; and (ii)
such number of Common Shares that would equal (but not exceed)
9.99% of the issued and outstanding Common Shares (on a
non-diluted basis) as at the closing date of the Acquisitions (the
"Brazeau Equity Consideration");
- the issuance of an unsecured subordinated promissory note by
the Company to West Lake (the "Boulder Note") in the
principal amount equal to $23 million
less (a) the dollar value of the Brazeau Equity Consideration; (b)
the dollar value, if any, by which the gross proceeds from the
Offering and the Private Placement (as defined below) exceed
$37.8 million (up to $3 million) (the "Equity Overage Amount");
and (c) the dollar value, if any, by which the gross proceeds from
the Offering and the Private Placement exceed $45 million (up to
$11 million) (the "Initial Principal Amount"); provided
that, the Initial Principal Amount shall never be less than $0. The
Boulder Note is expected to mature on July 1, 2025 and to provide
for payments, equal to 25% of the Initial Principal Amount,
commencing October 1, 2024 and thereafter on January 1, 2025,
April 1, 2025 and July 1, 2025, with the outstanding principal (if
any) due in full on maturity. The Boulder Note will pay interest
at 13% per annum payable quarterly on October 1, 2024, January 1,
2025, April 1, 2025 and July 1, 2025; all payments/repayments (of
both principal and interest) under the Boulder Note are
anticipated to be subject to certain terms and conditions under
the New Credit Agreement. If the gross proceeds of the Offering
and the Private Placement are less than $40.8 million, all
obligations under the Boulder Note will also be fully and
unconditionally personally guaranteed by Joel MacLeod, the
Executive Chairman of the Company, in an amount limited to $3
million less the Equity Overage Amount, plus costs and expenses of
enforcement plus interest; and
- an estimated cash payment of $75 million on the closing date of
the Acquisitions, such amount representing the aggregate purchase
price of $98 million, less the dollar value of each of the Brazeau
Equity Consideration (estimated to be $9 million) and the Boulder
Note (estimated to be $14 million).
Upon completion of the Brazeau Acquisition, Highwood will
acquire approximately 2,700 boe/d (~74% oil and NGLs) of low
decline, capital efficient production, which is expected to
generate Field Cash Flow of $34.91/boe resulting in NTM Field NOI
of $35 million, implying a 2.8x Enterprise Value
("EV")/Field NOI multiple.1
Based on the Brazeau Reserves Report (as herein defined), the
Brazeau Acquisition has a before-tax PDP NPV10 of $116 million, implying a 0.8x EV/PDP NPV10
multiple, and a before-tax Total Proved Plus Probable
("2P") NPV10 of $320 million,
implying a 0.3x EV/2P NPV10 multiple, with over 95,198 net acres of
land in the Brazeau area of Alberta (the "Brazeau
Assets").2 The focus of the Brazeau Assets is
concentrated in the light oil Belly River Formation. The Brazeau
Assets are located approximately 350 km northwest of Calgary. Highwood plans to utilize
multi-lateral wells to grow production on the asset where the
existing 12-09-48-14W5 multi-lateral well has produced over 140,000
bbls of oil over 15 months and had a Payback Period of
approximately eight months.
Concurrent with the execution of the share purchase agreement in
respect of the Brazeau Acquisition, the Company paid a $2.0
million deposit to the vendor. The deposit was financed by a
$2.8 million loan from 1080766
Alberta Ltd. (a corporation which Joel
MacLeod, Executive Chairman of the Company, has beneficial
ownership and control, and which currently owns approximately 67%
of the issued and outstanding Common Shares) ("1080766").
The loan is non-convertible, unsecured and non-interest bearing
and is due on demand. The loan is considered a "related party
transaction" (as defined under Multilateral Instrument 61-101
Protection of Minority Security Holders in Special Transactions
("MI 61-101")) and the Company relied upon the "Fair Market Value
Not More Than 25% of Market Capitalization" exemption from the
minority shareholder approval requirements under MI 61-101. Subject
to acceptance by the Toronto Venture Exchange ("TSX-V"),
this loan will be repaid from the proceeds of the Offering and is
intended to be later re-invested pursuant to the Private
Placement.
Notes to Boulder
Transaction
|
(1)
|
Based on
Management's projections (not IQRE forecasts) and applying the
following pricing assumptions: WTI: US$70.00/bbl; WCS Diff:
US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74
CAD/USD. Management projections are used in place of IQRE
forecasts as Management believes it provides investors with
valuable information concerning the liquidity of the Company.
See "Non-GAAP and other Specified Financial Measures" for
additional details. Enterprise Value is equal to the net
purchase price for the Boulder Acquisition.
|
(2)
|
Reserves information
is derived from the Brazeau Reserves Report, in accordance with NI
51-101 and the COGE Handbook. Enterprise Value is equal to the
purchase price for the Boulder Acquisition.
|
Castlegate Transaction
Highwood has entered into a share purchase
agreement (the "Castlegate Agreement"), to acquire
Castlegate, a privately held oil and gas producer focused on light
oil in Alberta, for aggregate cash
consideration of $36.7 million (the
"Castlegate Acquisition") (plus payment for $4.2 million of working capital), with Highwood
expecting to assume an estimated $7.2
million of working capital on closing of the Castlegate
Acquisition (assuming closing in the third quarter of 2023). All
consideration payable under the Castlegate Acquisition shall be
paid in full in cash on closing of the Castlegate
Acquisition.
The Castlegate Acquisition is expected to close
in the third quarter of 2023, subject to satisfaction of customary
closing conditions and receipt of regulatory approvals.
Upon completion of the Castlegate Acquisition,
Highwood estimates that it will acquire approximately 1,400 boe/d
(~85% oil and NGLs) of capital efficient production, which is
expected to generate Field Cash Flow of $54.66/boe resulting in NTM Field NOI of
$28 million, implying a 1.2x EV/
Field NOI multiple.1
Based on the Castlegate Reserves Report (as herein defined), the
Castlegate Acquisition has a before-tax PDP NPV10 of $40 million, implying a 0.8x EV/PDP NPV10
multiple, and a before-tax 2P NPV10 of $92
million, implying a 0.4x EV/2P NPV10 multiple, with over
10,660 net acres of land in the Wilson
Creek area of Alberta (the
"Castlegate Assets").2 Highwood looks to develop
the asset with both multi-lateral well technology and stage fracked
wells where the recent 102/06-04-43-05W5 well continues to produce
over 650 boe/d after being on production for over 50 days. The
focus of the Castlegate Assets is concentrated in the light oil
Belly River Formation. The Castlegate Assets are located
approximately 250 km northwest of Calgary.
Notes to Castlegate
Transaction
|
(1)
|
Based on
Management's projections (not IQRE forecasts) and applying the
following pricing assumptions: WTI: US$70.00/bbl; WCS Diff:
US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74
CAD/USD. Management projections are used in place of IQRE
forecasts as Management believes it provides investors with
valuable information concerning the liquidity of the Company.
See "Non-GAAP and other Specified Financial Measures" for
additional details. Enterprise Value is equal to the net
purchase price for the Castlegate Acquisition.
|
(2)
|
Gross reserves
information as at January 1, 2023 is derived from the Castlegate
Reserves Report, in accordance with NI 51-101 and the COGE
Handbook. Enterprise Value is equal to the purchase price for the
Castlegate Acquisition less approximately $3 million cash
balance.
|
Shale Transaction
Highwood has entered into a share purchase agreement (the
"Shale Agreement"), to acquire all of the issued and
outstanding shares of Shale, a privately held oil and gas provider
focused on Cardium liquids-rich natural gas in Alberta, for aggregate consideration of
$9 million, subject to a working
capital adjustment (the "Shale Acquisition"). The Shale
Acquisition is expected to close in the third quarter of 2023,
subject to satisfaction of customary closing conditions and receipt
of regulatory approvals.
Upon completion of the Shale Acquisition, Highwood will acquire
approximately 300 boe/d (~37% oil and NGLs) of moderate decline,
capital-efficient production, which is expected to generate NTM
Field NOI of $0.4 million, implying a
18.2x EV/Field NOI multiple.1,2 Based on the Shale
Reserves Report, the Shale Acquisition has a before-tax PDP NPV10
of $10 million, implying a 0.7x
EV/PDP NPV10 multiple1, and a before-tax 2P NPV10 of
$64 million, implying a
0.1x EV/2P NPV10 multiple1, with over 27,125 net
acres of land located in the Ricinus, Harmattan and Claresholm areas of Alberta (the "Shale
Assets").3 The focus of the Shale Assets is
concentrated on the liquids-rich natural gas Fractured Enhanced
Cardium Hale at Rincius (FECHAR). The Shale assets are located
approximately 150 km northwest of Calgary.
The $9 million consideration for
the Shale Acquisition will be paid by the issuance of Common Shares
issued at the 20-trading-day trailing volume weighted average price
("VWAP") on the TSX-V as determined on the last trading date
immediately prior to the execution of the Shale Agreement. The VWAP
for the period was approximately $7.05/share, resulting in approximately 1,277,030
Common Shares being issued from treasury.
Copies of the Boulder Agreement, Castlegate Agreement and Shale
Agreement will be available on SEDAR at www.sedar.com.
Notes to Shale
Transaction
|
(1)
|
The purchase price
for the Shale Acquisition is net of approximately $2 million cash
balance.
|
(2)
|
Based on
Management's projections (not IQRE forecasts) and applying the
following pricing assumptions: WTI: US$70.00/bbl; WCS Diff:
US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74
CAD/USD. Management projections are used in place of IQRE
forecasts as Management believes it provides investors with
valuable information concerning the liquidity of the Company.
See "Non-GAAP and other Specified Financial
Measures".
|
(3)
|
Gross reserves
information as at January 1, 2023 is derived from the Shale
Reserves Report, in accordance with NI 51-101 and the COGE
Handbook. Enterprise Value is equal to the net purchase price for
the Shale Acquisition less approximately $2 million cash
balance.
|
Strategic
Benefits(1)
- Significant free cash flow generation potential at a range
of commodity prices
-
- Low sustaining capital and capital efficiency drives free cash
flow conversion at strip pricing
- Self-funded growth plan on strip pricing with further upside
potential on rising oil prices
- High netback oil-weighted assets with low capital
efficiency
-
- Ability to hold production flat for over 10 years of high
confidence drilling inventory
- Post-Acquisitions: 72 booked (63 unbooked) net drilling
locations provide significant running room for development of
assets(2)
- Prudent use of leverage has a material impact to driving
outsized equity returns
-
- Acquiring assets near all-time low cash flow multiples
supported by traditional Canadian reserve-based credit
facility
- Initial leverage of approximately 1.2x is expected to be
reduced to approximately 0.9x by year-end 2024 while growing
production to over 5,000 boe/d(3)(4)(5)
- Downside protected with low WTI Sustaining FCF
Breakeven and commodity hedges
-
- Expected Corporate FCF Breakeven of approximately US$44/bbl, including interest and growth capital,
in 2024(4)(6)
- 65% net after royalty PDP production expected to insulate
Highwood from downside commodity environment
- Committed management team with track record of creating
value for shareholders
-
- Management expected to own approximately 35% of the Common
Shares post-Acquisitions
- Deep technical expertise, including multi-lateral development,
with approximately 75 years of combined experience
- Approximately $342 million of
tax pools (approximately $113 million
immediately deductible)(7)
-
- Tax Horizon of >3 years at US$70/bbl WTI
- Ability to increase pools with follow-on tuck in
acquisitions
Notes to Strategic
Benefits:
|
(1)
|
All forecasted
disclosure other than cash flows assumes completion of the
Acquisitions on July 1, 2023. Additionally this forecasted
information requires assumptions from Management in order to derive
estimates of future cash flow related to production volumes,
commodity prices, amount of future development costs, and
production, royalty and transportation costs. See "Cautionary Note
Regarding Forward-Looking Information".
|
(2)
|
Includes booked and
unbooked locations; booked locations based on the 2022 Reserves
Report and the Acquisition Reserves Report for the respective
Acquisitions (50 gross locations (45 net) are proved locations,
and 31 gross locations (27 net) are probable locations), unbooked
locations estimated by Management. Excludes 50 total net locations
from Shale. See "Caution Respecting Reserves
Information".
|
(3)
|
Based on
Management's projections (not IQRE forecasts) and applying the
following pricing assumptions: WTI: US$70.00/bbl; WCS Diff:
US$14.00/bbl; MSW Diff: US$3.50/bbl; AECO: C$2.75/GJ; 0.74
CAD/USD. Management projections are used in place of IQRE
forecasts as Management believes it provides investors with
valuable information concerning the liquidity of the
Company.
|
(4)
|
Cash flow figures
assume completion of the Acquisitions on July 1, 2023, and, in
each case, include illustrative hedges for total of 65% of net
after royalty Proved Developed Producing reserves
production.
|
(5)
|
Leverage calculated
as Net Debt / 2024E EBITDA. See "Non-GAAP and other Specified
Financial Measures".
|
(6)
|
Includes
illustrative hedges for total of 65% of net after royalty Proved
Developed Producing reserves production. See "Non-GAAP and other
Specified Financial Measures".
|
(7)
|
Tax pools as at
December 31, 2021; immediately deductible pools include Net
Operating Losses and Canadian Exploration Expenses.
|
(8)
|
Changes in forecast
commodity prices, differences in the timing of capital expenditures
and variances in average production estimates can have a
significant impact on the key performance metrics included in the
forward-looking information for the fourth quarter of 2023 and full
year 2023 and 2024. The Company's actual results may differ
materially from these estimates. See "Cautionary Note Regarding
Forward-Looking Information".
|
|
|
Transaction Financing
The cash consideration of the Acquisitions is anticipated to be
primarily funded through proceeds from:
- The Offering — a "best efforts" marketed offering of
Subscription Receipts with expected aggregate gross proceeds of
approximately $35 million
- New Credit Facilities — up to $100 million senior secured reserve-based credit
facilities, which will be drawn to a maximum of $75 million, as further described below
- Private Placement — up to $2.8
million private placement of Units (as defined herein) upon,
or substantially concurrent with, and conditional upon closing of
the Acquisitions as further described below
Marketed Equity
Financing
The Company announced today that it commenced a "best efforts"
marketed offering of approximately $35
million of Subscription Receipts led by RBC Dominion
Securities Inc. ("RBC"), Echelon Wealth Partners Inc.
("Echelon"), Raymond James Ltd. ("Raymond James" and, collectively with RBC
and Echelon, the "Co-Lead Agents") on behalf of a syndicate
of agents to be formed (collectively with the Co-Lead Agents, the
"Agents") for the issuance of approximately 5.8 million
Subscription Receipts, at an anticipated issue price of
$6.00 per Subscription Receipt.
Each subscription receipt ("Subscription Receipts")
represents the right of the holder to receive, upon closing of the
Acquisitions, without payment of additional consideration, one unit
of the Company ("Offered Unit"). Each Offered Unit is
comprised of one Common Share of the Company (each a "Unit
Share") and one-half of one common share purchase warrant (each
full warrant, a "Warrant") with each Warrant exercisable
into one Common Share (a "Warrant Share"). Each Warrant will
be exercisable to acquire one Common Share at an anticipated price
of $7.50 for a period of 36 months
from the issuance date of the Warrants.
The gross proceeds of the Offering, less the portion of the
agents' fee that is payable on the closing of the Offering, will be
held in escrow and intended to be used, in combination with the net
proceeds of the approximately $2.8
million Private Placement, to partially fund the cash
consideration payable in respect of the Acquisitions. If the
Acquisitions do not close as described above by September 8, 2023 or if any of the Acquisitions
are terminated at an earlier time, the gross proceeds of the
Offering and pro rata entitlement to interest earned or deemed to
be earned on the gross proceeds of the Offering calculated from the
closing of the Offering to but excluding the termination date, net
of any applicable withholding taxes, will be paid to holders of the
Subscription Receipts and the Subscription Receipts will be
cancelled.
1080766 intends to purchase an aggregate amount of up to $2.2
million of Subscription Receipts pursuant to the Offering. Such
purchase and sale is considered a "related party transaction" (as
defined under MI 61-101) and the Company intends to rely upon the
"Fair Market Value Not More Than 25% of Market Capitalization"
exemption from the formal valuation and minority shareholder
approval requirements, respectively, under MI 61-101.
The Offering is being made concurrently in the Provinces of
British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and New
Brunswick pursuant to a prospectus supplement to the
Company's amended and restated short form base shelf prospectus
dated May 19, 2023 for the Provinces
of British Columbia, Alberta, Saskatchewan and Ontario and the short form base shelf
prospectus dated May 19, 2023 for the
provinces of Manitoba and
New Brunswick (collectively, the
"Prospectus") and in the United
States on a private placement basis to "qualified
institutional buyers" pursuant to an exemption from the
registration requirements of the United States Securities Act of
1933, as amended (the "U.S. Securities Act").
The terms of the Offering will be determined in the course of
marketing, with the final terms to be determined at the time of
pricing. There can be no assurance as to whether or when the
Offering may be completed, or as to the actual size or terms of the
Offering. The closing of the Offering will be subject to market and
other customary conditions and the approval of, and the listing of
the Common Shares and Warrants on, the TSX-V.
The Company is seeking the approval of the TSX-V to list the
Subscription Receipts, as well as the Common Shares, the Warrants
and the Warrants Shares issuable thereunder, once issued, such
listing being subject to TSX-V approval.
In addition, the Company will grant to the Agents an option,
exercisable in whole or in part in the sole discretion of the
Agents at any time up to 30 days from and including the closing
date of the Offering, to offer to sell that number of additional
Subscription Receipts that is equal to 15% of the number of
Subscription Receipts sold under the Offering, on the same terms
and conditions as set forth above to cover over-allotments, if any,
and for market stabilization purposes.
Copies of the Prospectus, following filing of the prospectus
supplement, may be obtained on SEDAR at www.sedar.com and from RBC
Capital Markets, RBC Wellington Square, 8th Floor, 180 Wellington
St. W., Toronto, Ontario, M5J OC2
Attn: Distribution by telephone at 416-313-8180 or by email at
Distribution.RBCDS@rbccm.com. The Prospectus contains important
detailed information about the Company and the proposed Offering,
including the Subscription Receipts, Offered Units, Unit Shares and
Warrants to be issued thereunder. Prospective investors should read
the Prospectus and the other documents the Company has filed on
SEDAR at www.sedar.com before making an investment decision.
No securities regulatory authority has either approved or
disapproved of the contents of this news release. The Subscription
Receipts, Offered Units, Common Shares, Warrants and Warrant Shares
have not been and will not be registered under the U.S. Securities
Act of 1933, as amended, and may not be offered or sold in
the United States or to, or for
the account or benefit of, a U.S. person (as defined in the U.S.
Securities Act of 1933, as amended) except in transactions not
required to be registered under the U.S. Securities Act of 1933, as
amended. This news release does not constitute an offer to sell or
a solicitation of an offer to purchase any of the securities within
the United States.
Anticipated New Credit
Facilities
In connection with the Acquisitions, the Company received an
indicative term sheet from the Royal Bank of Canada which outlined new senior secured
extendible revolving credit facilities in the aggregate principal
amount of up to $100 million (the
"New Credit Facilities"), which are anticipated to replace
the Company's existing credit facilities. The New Credit Facilities
are anticipated to be comprised of extendible revolving credit
facilities consisting of a $10 million operating facility and an
up to $90 million syndicated loan facility. The New Credit
Facilities are anticipated to be provided for in a credit agreement
to be entered into in connection therewith (the "New Credit
Agreement").
The New Credit Facilities are anticipated to have a revolving
period of 364 days, extendible annually at the request of the
Company, subject to approval of the lenders thereunder. If not
extended, the New Credit Facilities are anticipated to
automatically convert to a term loan and all outstanding
obligations will be repayable one year after the expiry of the
revolving period. The borrowing base for the New Credit Facilities
is anticipated to be $100 million upon completion of all the
Acquisitions, and to be subject to semi-annual redeterminations,
based upon the Company's annual independent engineering report or
updates thereto. It is anticipated that the Company's borrowing
base will be determined and re-determined by the lenders under the
New Credit Agreement in connection with the New Credit Facilities
(to the extent provided) based on the Company's reserves,
commodity prices, applicable discount rate and other factors as
determined by the Company's lenders. It is anticipated that a
material decline in commodity prices could reduce the Company's
borrowing base, therefore reducing the funds available to the
Company under the New Credit Facilities (to the extent provided)
which could result in a portion, or all, of the Company's bank
indebtedness being required to be repaid. The New Credit
Facilities are anticipated to be secured by a first fixed and
floating charge over all the Company's assets. The New Credit
Facilities are anticipated to include operating restrictions on
the Company, including (among other things), limitations on
acquisitions, distributions, dividends and hedging
arrangements.
Upon, or substantially concurrently with, and conditional upon
closing of the Acquisitions, the full amount under the New Credit
Facilities is anticipated to become available under the New Credit
Agreement (subject to a maximum utilization rate of 75% at
closing, being $75 million).
Shale Shareholder Board Nomination
Right
In connection with the closing of the Shale Acquisition, HR
Exploration & Energy GMBH ("HR Exploration") will
receive approximately 943,742 Common Shares of the Company in
exchange for the purchase of the common shares of Shale held by HR
Exploration at the time of the Shale Acquisition. Additionally, in
connection with the Shale Acquisition, HR Exploration agreed to
purchase a minimum amount of $10
million of Subscription Receipts under the Offering,
pursuant to the terms and subject to the conditions set forth in a
strategic investment agreement entered into between the Company and
HR Exploration (the "Strategic Investment"). The
Strategic Investment is subject to a number of conditions,
including the approval of the TSX-V.
Pursuant to the Strategic Investment, the Company and HR
Exploration shall enter into a board nomination agreement
("HR Board Nomination Agreement") whereby HR
Exploration shall, for so long as it and its affiliates together
shall own or control or exercise discretion over, directly or
indirectly, not less than 10% of the issued and outstanding Common
Shares, be entitled to nominate for election or appointment to the
board of directors of the Company (the "Board"), as
applicable, the greater of: (i) one nominee and (ii) such number
of nominees that, when compared to the authorized number of
directors on the Board at such time, is closest to but not less
than proportional to the total number of Common Shares which HR
Exploration and its affiliates together own or exercise control or
direction over, directly or indirectly, relative to the total
number of Common Shares then issued and outstanding. The Company
shall use commercially reasonable efforts to ensure that the
nominee(s) of HR Exploration shall be elected or appointed to the
Board. The HR Board Nomination Agreement further provides HR
Exploration with participation rights for future offerings to
maintain its percentage ownership interest in the issued and
outstanding Common Shares up to a maximum of a percentage ownership
interest of 17% of the issued and outstanding Common Shares. HR
Exploration's board nominee has not been determined as at the time
of this news release. HR Exploration also has the right to appoint
an observer to the Board for so long as it is entitled to designate
a Board nominee for election or appointment under the HR Board
Nomination Agreement.
West Lake Board Nomination
Right
In connection with the closing of the Brazeau Acquisition
and the issuance of the Brazeau Equity Consideration, the Company
and vendor, West Lake Energy Corp. ("West Lake"), shall
enter into a board nomination agreement ("WL Board
Nomination Agreement") whereby West Lake shall, for so long as
it shall own or control, directly or indirectly, not less than 9%
of the issued and outstanding Common Shares, be entitled to
designate for election or appointment to the Board, as applicable,
one nominee. The Company shall use commercially reasonable efforts
to ensure that West Lake's nominee shall be elected to the Board.
West Lake's board nominee has not been determined as at the time of
this news release.
Private Placement
Upon, or substantially concurrent with, and conditional upon
closing of the Acquisitions, 1080766 intends to purchase an
aggregate amount of up to $2.8 million in units of the Company
(the "Private Placement Units") comprised of one Common
Share and one-half of one common share purchase warrant (the
"Private Placement"). The Private Placement Units are
intended to be issued on terms identical to the terms of the
Offered Units that are issuable pursuant to the terms of the
Subscription Receipts under the Offering.
Each of the Private Placement and the Guarantee are considered a
"related party transaction" (as defined under MI 61-101) and the
Company intends to rely upon the "Fair Market Value Not More Than
25% of Market Capitalization" exemption from the formal valuation
and minority shareholder approval requirements under MI 61-101 in
respect of each.
The Private Placement Units purchased pursuant to the Private
Placement (including the Common Shares and Warrants comprising such
Private Placement Units, and the Common Shares issuable upon the
exercise of such Warrants) will be subject to a statutory hold
period. The Private Placement is subject to a number of
conditions, including completion of definitive documentation and
the approval of the TSX-V.
1080766 has also committed to participate in the Offering for an
additional $2.2 million, bringing the
aggregate equity commitment from 1080766 under the proposed
transactions to $5 million.
Financial and Strategic
Advisors
RBC Capital Markets is acting as financial advisor to Highwood
on the Acquisitions and Echelon Capital Markets, Raymond James and ATB Capital Markets are acting
as strategic advisors to Highwood on the Acquisitions.
About Highwood Asset Management
Ltd.
Highwood Asset Management Ltd. (TSXV: HAM) is a growth
orientated oil and gas exploration and production company committed
to shareholder alignment with high insider ownership while creating
long-term value for its shareholders. The Company has an extensive
inventory of low-risk, oil development drilling locations focused
primarily on horizontal multi-lateral development of its
assets. Operating as a responsible corporate citizen is a key focus
to ensure we deliver on our environmental, social and governance
(ESG) commitments and goals. For more information, please visit the
Company's website at www.highwoodmgmt.com.
Further Information
For further information about the Company please
contact:
Joel MacLeod
Executive Chairman
587.393.0862
jmacleod@highwoodmgmt.com
Cautionary Note Regarding
Forward-Looking Information
This news release contains certain statements and
information, including forward-looking statements within the
meaning of the "safe harbor" provisions of applicable securities
laws, and which are collectively referred to herein as
"forward-looking statements". The forward-looking statements
contained in this news release are based on Highwood's current
expectations, estimates, projections and assumptions in light of
its experience and its perception of historical trends. When used
in this news release, the words "seek", "anticipate",
"plan", "continue", "estimate", "expect", "may", "will", "project",
"predict", "potential", "targeting", "intend", "could",
"might", "should", "believe" and similar expressions, as they
relate to Highwood or the proposed Acquisitions, are intended to
identify forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors that may cause
actual results or events to differ materially from those
anticipated in such forward-looking statements. Actual operational
and financial results may differ materially from Highwood's
expectations contained in the forward-looking statements as a
result of various factors, many of which are beyond the control of
the Company.
Undue reliance should not be placed on these forward-looking
statements, as there can be no assurance that the plans, intentions
or expectations upon which they are based will occur. By its
nature, forward-looking information involves numerous assumptions,
known and unknown risks and uncertainties, both general and
specific, that contribute to the possibility that the predictions,
forecasts, projections and other forward-looking statements will
not occur and may cause actual results or events to differ
materially from those anticipated in such forward-looking
statements. Forward-looking statements may include, but are not
limited to, statements with respect to:
- the completion of the Offering and timing and terms
thereof;
- the expected net proceeds from the Offering and the
Company's intended use thereof;
- completion of each of the Acquisitions and terms and timing
thereof;
- the expected financing sources for the
Acquisitions;
- expectations regarding future share ownership of Highwood by
insiders;
- anticipated benefits of each of the Acquisitions, including
anticipated acquisition metrics used in this news release;
- the listing of the Subscription Receipts, Unit
Shares, the Warrants and the Warrant Shares (including any
Subscription Receipts, Unit Shares and Warrant Shares issuable
pursuant to the exercise of the Over-Allotment Option, and the
Warrant Shares issuable upon the exercise of such Warrants) on the
TSX-V;
- the entering into of the New Credit Agreement and the
replacement of the Credit Facility with the New Credit
Facilities;
- the entering into of the Term Facility;
- the Company's expectations with respect to Highwood's
financial and operational results following completion of the
Acquisitions;
- the Company's anticipated growth to production of over
30,000 boe/d;
- the Company's estimates of the drilling locations inventory
and tax pools associated with the Acquisitions;
- the Company's expectations regarding capacity of
infrastructure associated with its business and the businesses of
Shale, Boulder and Castlegate;
- anticipated operational results for 2023 and 2024 and
beyond, including, but not limited to, estimated or anticipated
production levels, decline rates, capital expenditures and sources
of funding thereof, drilling plans and other information discussed
in this news release;
- anticipated financial results of the Company in 2023 and
2024 and beyond following completion of the Acquisitions, including
but not limited to, Adjusted EBITDA, free cash flow, field net
operating income, and net debt;
- the performance characteristics of the Company and the oil
and natural gas properties subject to the Acquisitions;
- the quantity of the Company's and the acquired businesses'
oil and natural gas reserves and anticipated future cash flows from
such reserves;
- the Company's expectations regarding commodity prices and
costs;
- the Company's expectations regarding supply and demand for
oil and natural gas;
- expectations regarding the Company's ability to raise
capital and to continually add to reserves through acquisitions and
development;
- completion of the Strategic Investment;
- completion of the Private Placement;
- the issuance by the Company of the Boulder Note and the
terms thereof;
- the Company's expectation regarding its ability to return of
capital to shareholders;
- treatment under governmental regulatory regimes and tax
laws;
- fluctuations in depletion, depreciation, and accretion
rates;
- expected changes in regulatory regimes in respect of royalty
curves and regulatory improvements and the effects of such changes;
and
- Highwood's business and acquisition strategy, the criteria
to be considered in connection therewith and the benefits to be
derived therefrom.
These forward-looking statements are not guarantees of future
performance and are subject to a number of known and unknown risks
and uncertainties that could cause actual events or results to
differ materially, including, but not limited to:
- inability to complete the Acquisitions;
- the conditions to completion of the Offering may not be
satisfied;
- timing and receipt of applicable regulatory approvals for
each of the Acquisitions, the Offering and the Private
Placement;
- failure to close the New Credit Facilities, or that the New
Credit Facilities will be completed on terms materially different
from the terms described in this news release;
- failure to close the Private Placement
- failure to realize the anticipated benefits of acquisitions,
including results and/or synergies of each of the proposed
Acquisitions;
- unexpected costs or liabilities related to each of the
Acquisitions;
- volatility in market prices for oil and natural
gas;
- operational risks and liabilities inherent in oil and
natural gas operations;
- uncertainties associated with estimating oil and natural gas
reserves;
- changes in royalty regimes;
- competition for, among other things, capital, acquisitions
of reserves, undeveloped lands and skilled personnel;
- incorrect assessments of the value of benefits to be
obtained from acquisitions and exploration and development
programs;
- unforeseen difficulties in integrating assets acquired
through acquisitions (including each of the Acquisitions) into the
Company's operations;
- that the Company's ability to maintain strong business
relationships with its suppliers, service providers and other third
parties will be maintained;
- geological, technical, drilling and processing
problems;
- fluctuations in foreign exchange or interest rates and stock
market volatility;
- liquidity;
- commodity price volatility and adverse general economic,
political and market conditions;
- the accuracy of oil and gas reserves estimates and estimated
production levels as they are affected by exploration and
development drilling and estimated decline rates;
- the uncertainties in regard to the timing of Highwood's
exploration and development program;
- fluctuations in the costs of borrowing;
- political or economic developments;
- uncertainty related to geopolitical conflict;
- ability to obtain regulatory approvals; and
- the results of litigation or regulatory proceedings that may
be brought against the Company;
- changes in income tax laws or changes in tax laws and
incentive programs relating to the oil and gas industry.
In addition, statements relating to "reserves" are deemed to
be forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions that the
reserves described can be profitably produced in the
future.
There are numerous uncertainties inherent in estimating
quantities of oil and natural gas and the future cash flows
attributed to such reserves. The reserves and associated cash flow
information set forth herein are estimates only. In general,
estimates of economically recoverable oil and natural gas and the
future net cash flows therefrom are based upon a number of variable
factors and assumptions, such as historical production from the
properties, production rates, ultimate reserves and resources
recovery, timing and amount of capital investments, marketability
of oil and natural gas, royalty rates, the assumed effects of
regulation by governmental agencies and future operating costs, all
of which may vary materially. For these reasons, estimates of the
economically recoverable oil and natural gas attributable to any
particular group of properties, classification of such reserves
based on risk of recovery and estimates of future net revenues
associated with reserves prepared by different evaluators, or by
the same evaluators at different times, may vary. The actual
production, revenues, taxes and development and operating
expenditures of the Company with respect to its reserves will vary
from estimates thereof and such variations could be material. This
news release contains future-oriented financial information and
financial outlook information (collectively, "FOFI") about
the Company's prospective Adjusted EBITDA, Free Cash Flow, Free
Cash Flow breakeven, Field Cash Flow and Field NOI, all of which
are subject to the same assumptions, risk factors, limitations, and
qualifications as set forth in the above paragraphs. FOFI contained
in this news release was made as of the date of this news release
and was provided for the purpose of describing the anticipated
effects of the Offering and each of the Acquisitions on the
Company's business operations. Highwood's actual results,
performance or achievement could differ materially from those
expressed in, or implied by, such FOFI. The Company disclaims any
intention or obligation to update or revise any FOFI contained in
this news release, whether as a result of new information, future
events or otherwise, unless required pursuant to applicable law.
Readers are cautioned that the FOFI contained in this Prospectus
Supplement should not be used for purposes other than for which it
is disclosed herein.
Changes in forecast commodity prices, differences in the
timing of capital expenditures and variances in average production
estimates can have a significant impact on the key performance
metrics included in the Company's guidance for the fourth quarter
of 2023 and full year 2024 contained in this news release. The
Company's actual results may differ materially from such
estimates.
With respect to forward-looking statements contained in this
news release, the Company has made assumptions regarding, among
other things: the timing of obtaining regulatory and third party
approvals, as well as the completion of the Offering and the
Acquisitions; the ability of the Company to achieve anticipated
benefits from the Acquisitions; that commodity prices will be
consistent with the current forecasts of its engineers; field
netbacks; the accuracy of reserves estimates; average production
rates; costs to drill, complete and tie-in wells; ultimate recovery
of reserves; that royalty regimes will not be subject to material
modification; that the Company will be able to obtain skilled
labour and other industry services at reasonable rates; the
performance of assets and equipment; that the timing and amount of
capital expenditures and the benefits therefrom will be consistent
with the Company's expectations; the impact of increasing
competition; that the conditions in general economic and financial
markets will not vary materially; that the Company will be able to
access capital, including debt, on acceptable terms (including, for
certainty, capital anticipated to be obtained pursuant to the New
Credit Facilities and the Private Placement); that drilling,
completion and other equipment will be available on acceptable
terms; that government regulations and laws will not change
materially; that royalty rates will not change in any material
respect; and that future operating costs will be consistent with
the Company's expectations.
Although Highwood believes the expectations and material
factors and assumptions reflected in these forward-looking
statements are reasonable as of the date hereof, there can be no
assurance that these expectations, factors and assumptions will
prove to be correct.
Readers are cautioned not to place undue reliance on such
forward-looking statements, as there can be no assurance that the
plans, intentions or expectations upon which they are based will
occur and the predictions, forecasts, projections and other
forward-looking statements may not occur, which may cause
Highwood's actual performance and financial results in future
periods to differ materially from any estimates or projections of
future performance or results expressed or implied by this news
release.
A more complete discussion of the risks and uncertainties
facing Highwood is disclosed in Highwood's continuous disclosure
filings with Canadian securities regulatory authorities at
www.sedar.com. All forward-looking information herein is
qualified in its entirety by this cautionary statement, and
Highwood disclaims any obligation to revise or update any such
forward-looking information or to publicly announce the result of
any revisions to any of the forward-looking information contained
herein to reflect future results, events, or developments, except
as required by law.
Caution Respecting Reserves
Information
Readers should see the "Selected Technical Terms" in the
Annual Information Form filed on April 28,
2023 for the definition of certain oil and gas
terms.
Disclosure in this news release of oil and gas
information is presented in accordance with generally accepted
industry practices in Canada and
National Instrument 51-101— Standards of Disclosure for Oil and Gas
Activities ("NI 51-101"). Specifically, other than as noted herein,
the oil and gas information regarding the potential Acquisitions
presented in this news release is based on: (i) in respect of
Boulder, the reserves report prepared by McDaniel & Associates
Consultants Ltd. and dated April 3,
2023 evaluating oil, natural gas liquids and natural gas
interests attributable to Boulder's properties at January 1, 2023 (the "Brazeau Reserves
Report"), (ii) in respect of Castlegate, the reserves report
prepared by GLJ Ltd. and dated May 24,
2023 evaluating Castlegate's oil, natural gas liquids and
natural gas interests at January 1,
2023 (the "Castlegate Reserves Report"), and (iii) in
respect of Shale, the reserves report prepared by GLJ Ltd. and
dated January 18, 2023 evaluating
Shale's oil and gas reserves in aggregate at January 1, 2023 (the "Shale Reserves
Report", and together with the Brazeau Report and the
Castlegate Report, the "Acquisition Reserves Reports").
Neither Highwood nor the Agents have engaged in any independent
verification of any of the Brazeau Reserves Report, the Castlegate
Reserves Report or the Shale Reserves Report, nor any of the
contents thereof. Other than as noted herein, the oil and gas
information regarding the Company presented in this news release is
based on the reserves report prepared by GLJ Ltd. evaluating the
crude oil, natural gas and natural gas liquids attributable to the
Company's properties at January 1,
2023 (the "2022 Reserves Report").
Reserves are classified according to the degree of certainty
associated with the estimates as follows:
"Proved reserves" or "1P" 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.
"Proved plus probable reserves" or "2P" is the total of
proved reserves and probable 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.
"Proved Developed Producing" or "PDP" reserves are those
reserves that are expected to be recovered from completion
intervals open at the time of the estimate. These reserves may be
currently producing or, if shut in, they must have previously been
on production, and the date of resumption of production must be
known with reasonable certainty.
This news release contains oil and gas metrics commonly used
in the oil and gas industry, including those set out below, which
do not have standardized meanings or standard methods of
calculation and may not be comparable to similar measures presented
by other companies. Such metrics have been included in this news
release to provide readers with an additional method to evaluate
the Company's performance. However, such measures are not reliable
indicators of the Company's future performance and should therefore
not be unduly relied upon or used to make comparisons to other
companies. Further, these metrics have not been independently
evaluated, audited or reviewed and are based on historical data,
extrapolations therefrom and management's professional judgement,
which involves a high degree of subjectivity. For these reasons,
actual metrics attributable to any particular group of properties
may differ from our estimates herein and the differences could be
significant.
"2P RLI" means proven and probable reserves life
index and is calculated as proven and probable reserves divided by
total estimated NTM production.
"NPV10" represents the anticipated net present value
of the future net revenue discounted at a rate of 10% associated
with the applicable reserves.
"Payback Period" is measured as the time from the
start of production to recovery of the capital investment.
"RLI" means reserves life index and is calculated
based on the amount for the relevant reserves category divided by
total estimated NTM production.
The net present value of future net revenues attributable to
reserves and resources included in this news release do not
represent the fair market value of such reserves and resources.
There is no assurance that the forecast prices and costs
assumptions will be attained, and variances could be material. The
recovery and reserve estimates of reserves and resources provided
in this news release are estimates only and there is no guarantee
that the estimated reserves or resources will be recovered. Actual
reserves and resources may be greater or less than the estimates
provided in this news release. The estimates of reserves and future
net revenue for individual properties in this news release may not
reflect the same confidence level as estimates of reserves and
future net revenue for all properties, due to the effects of
aggregation.
This news release discloses potential future drilling
locations in two categories: (a) booked locations; and (b) unbooked
locations. Booked locations are proposed drilling locations
identified in the Acquisition Reserves Reports that have proved
and/or probable reserves, as applicable, attributed to them in the
Acquisition Reserves Reports. Unbooked locations are internal
estimates based on prospective acreage and an assumption as to the
number of wells that can be drilled per section based on industry
practice and internal technical analysis review. Unbooked locations
have been identified by members of management who are qualified
reserves evaluators in accordance with NI 51-101 based on
evaluation of applicable geologic, seismic, engineering, production
and reserves information. Unbooked locations do not have proved or
probable reserves attributed to them in the Acquisition Reserves
Reports. Highwood's ability to drill and develop these locations
and the drilling locations on which Highwood actually drills wells
depends on a number of known and unknown risks and uncertainties.
As a result of these risks and uncertainties, there can be no
assurance that the potential future drilling locations identified
in this news release will ever be drilled or if Highwood will be
able to produce crude oil, natural gas and natural gas liquids from
these or any other potential drilling locations.
Basis of Barrels of Oil Equivalent – In this news
release, the abbreviation boe means a barrel of oil equivalent on
the basis of 1 boe to 6 Mcf of natural gas when converting natural
gas to boes. Boes may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 Mcf to 1 boe is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. Additionally, given the value ratio based on the current
price of crude oil as compared to natural gas is significantly
different from the energy equivalency of 6:1, utilizing a
conversion ratio at 6:1 may be misleading.
References to "liquids" in this news release refer to,
collectively, heavy crude oil, light crude oil and medium crude oil
combined, and natural gas liquids.
Non-GAAP and other Specified Financial Measures
This news release contains financial measures commonly used
in the oil and natural gas industry, including "Field Net
Operating Income" and "Adjusted EBITDA". These financial measures
do not have any standardized meaning under IFRS and therefore may
not be comparable to similar measures presented by other companies.
Readers are cautioned that these non-IFRS measure should not be
construed as an alternative to other measures of financial
performance calculated in accordance with IFRS. These non-IFRS
measures provides additional information that Management believes
is meaningful in describing the Company's operational performance,
liquidity and capacity to fund capital expenditures and other
activities. Management believes that the presentation of these
non-IFRS measures provide useful information to investors and
shareholders as the measures provide increased transparency and the
ability to better analyze performance against prior periods on a
comparable basis.
"Adjusted EBITDA" is calculated as cash flow from (used in)
operating activities, adding back changes in non-cash working
capital, decommissioning obligation expenditures, transaction
costs and interest expense. The Company considers Adjusted EBITDA
to be a key capital management measure as it is both used within
certain financial covenants anticipated to be prescribed under the
New Credit Facilities and demonstrates Highwood's standalone
profitability, operating and financial performance in terms of
cash flow generation, adjusting for interest related to its capital
structure. The most directly comparable GAAP measure is cash flow
from (used in) operating activities.
"Capital Expenditures" or "Capex" is comprised of property,
plant and equipment expenditures and exploration and evaluation
asset expenditures and excludes any corporate or property
acquisitions, respectively. Highwood uses capital expenditures to
monitor its capital investments relative to those budgeted by the
Company on an annual basis. Highwood's capital budget excludes
acquisition and disposition activities as well as the accounting
impact of any accrual changes or payments under certain lease
arrangements. The most directly comparable GAAP measure for capital
expenditures is cash flow used in investing activities. Capital
Expenditures is calculated as cash flow from (used in) investment
activities, adding back changes in non-cash working capital,
property acquisitions expenditures or property disposition
proceeds.
"Corporate FCF Breakeven" is calculated as the WTI price in
US dollars in which Free Cash Flow is approximately zero under the
currently contemplated development plan and interest. Other prices
are held constant at WCS differential: US$14.00/bbl; MSW differential: US$3.50/bbl; AECO: C$2.75/GJ; 0.74
CAD/USD. The Company believes that Corporate Free Cash Flow
breakeven can provide useful information to investors and
shareholders in understanding sensitivity to commodity pricing and
understanding at what the minimum WTI price in US dollars would be
to execute the Company's contemplated development plan.
"Enterprise Value" or "EV" is calculated by adding Market
Capitalization and Net Debt. Management uses enterprise value to
assess the valuation of the Company. There is no directly
comparable GAAP measure to EV as Market Capitalization is based on
current share pricing.
"Field Cash Flow" Field Cash Flow is used to assess the
profitability of the Company's operations on a unit basis. The most
directly comparable GAAP measure is cash flow from (used in)
operating activities. Field Cash Flow is calculated as cash flow
from (used in) operating activities, adding back decommissioning
obligation expenditures and any costs incurred at the corporate
level, divided by production. There are no general and
administrative expenses included in Field Cash Flow as those costs
are incurred at the corporate level.
"Field Net Operating Income" or "Field NOI" is used a
measure to calculate NOI at the field level. The most directly
comparable GAAP measure is cash flow from (used in) operating
activities. Field NOI is calculated as cash flow from (used in)
operating activities, adding back decommissioning obligation
expenditures and any costs incurred at the corporate level. There
are no general and administrative expenses included in Field Cash
Flow as those costs are incurred at the corporate level.
"Free Cash Flow" or "FCF" is used as an indicator of the
efficiency and liquidity of the Company's business, measuring its
funds after capital expenditures available to manage debt levels,
pursue acquisitions and assess the optionality to pay dividends
and/or return capital to shareholders though activities such as
share repurchases. The most directly comparable GAAP measure is
cash flow from (used in) operating activities. Free Cash Flow is
calculated as cash flow from (used in) operating activities, less
interest, office lease expenses, cash taxes and capital
expenditures.
"Market Capitalization" is calculated as the number of Common
Shares outstanding multiplied by the Offering Price and/or current
closing market price per Common Share. The Company believes that
Market Capitalization can provide useful information to investors
and shareholders in understanding the value of the Company.
"Net Debt" represents the carrying value of the Company's
debt instruments, including outstanding deferred acquisition
payments, net of Adjusted working capital. The Company uses Net
Debt as an alternative to total outstanding debt as Management
believes it provides a more accurate measure in assessing the
liquidity of the Company. The Company believes that Net Debt can
provide useful information to investors and shareholders in
understanding the overall liquidity of the Company.
"Net Debt / 2024E EBITDA" is calculated as net
debt at the ending period of each financial quarter divided by the
2024E Adjusted EBITDA. The Company believes that Net Debt / 2024E
Adjusted EBITDA is useful information to investors and
shareholders in understanding the time frame, in years, it would
take to eliminate Net Debt based on 2024E Adjusted EBITDA.
"NOI" is calculated as Net Income plus taxes, interest and
excluding gains (losses) on disposals. The most directly
comparable GAAP measure is Net Income. NOI provides a useful
measure of the profitability of the Company's regular
operations.
"Sustaining FCF Breakeven" is calculated as the WTI price in
US dollars in which Free Cash Flow is approximately zero while
holding production flat. Other prices are held constant at WCS
differential: US$14.00/bbl; MSW
differential: US$3.50/bbl; AECO: C$2.75/GJ; 0.74
CAD/USD. The Company believes that Sustaining FCF Breakeven
can provide useful information to investors and shareholders in
understanding sensitivity to commodity pricing and understanding at
what the minimum WTI price in US dollars would be to sustain
current production levels.
All dollar figures included herein are presented in Canadian
dollars, unless otherwise noted.
SOURCE Highwood Asset Management Ltd.