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Calgary, Alberta – September 13, 2023 – Lycos Energy Inc. (“Lycos” or the “Company“) (TSXV: LCX) is pleased to announce that it has entered into a definitive agreement (the “Acquisition Agreement“) today to acquire Durham Creek Exploration Ltd. (“DCEL“), a privately-held, arm’s length, heavy oil producer, by way of a plan of arrangement for total consideration, prior to adjustments, of $22.5 million (the “Acquisition“), consisting of $12.5 million in cash and 2.8 million common shares of Lycos (“Lycos Shares”) at a deemed price of $3.55 per Lycos Share.
The Acquisition will be funded through a $25 million bought deal equity financing (the “Offering“).
Acquisition Highlights
- 35,382 net acres (55.93 net sections) of land suitable for multi-lateral development proximally located to the Company’s recent acquisition of Wyatt Resources Ltd. (“Wyatt”)
- With DCEL and the recently announced Wyatt acquisition, Lycos has increased its corporate land holdings by 31% to 147,956 net acres.
- The Company has identified over 70 net Mannville heavy oil multi-lateral drilling locations on DCEL lands dramatically increasing the current development portfolio to 210 locations
- Increases Tier 1 Mannville inventory (Rex, Waseca, GP and Cummings) by 77% to 55 total net locations. Tier 1 locations have an expected payout period of less than 6 months and an NPV-10% of $5.5 million(1).
- Increases Tier 2 Mannville inventory (Rex, Waseca, GP and Cummings) by 49% to 140.6 total net locations. Tier 2 locations have an expected payout period of under 12 months and an NPV-10% of $3.4 million(1).
(1) Payout and NPV-10% assumptions are based on pricing assumptions of; US$75/bbl WTI; (US$15) WCS differential; and $0.741 CAD/USD, operating expenses of $15.48/boe, royalty rate of 11.4% and capital expenditures of $1.6 million.
- Acquired production is expected to average ~180 boe/d (99% crude oil) at close from a multi-lateral well drilled at Lindbergh
- DCEL’s first well targeting the Waseca formation achieved an IP30 of 183 boe/d.
- The initial drilling results from this well support the Company’s expectation that it will be able to deploys its’ multi-lateral/fishbone drilling technique to further develop the acquired lands.
- Acquired land base to be developed using Lycos’ fishbone well designs
- Lycos has achieved an IP30 of 235 boe/d and an IP26 of 355 boe/d on its most recent two Swimming Rex wells using a half fishbone design and a substantially redesigned drilling fluid system.
- The Company believes this approach materially enhances deliverability and will be used to develop the DCEL’s inventory.
Summary of the Acquisition
Pursuant to the terms of the Acquisition Agreement, the Company will acquire DCEL for total consideration, prior to adjustments, of $22.5 million, consisting of $12.5 million in cash and 2.8 million Lycos Shares at a deemed price of $3.55 per Lycos Share.
Concurrent with the execution of the Acquisition Agreement, shareholders of DCEL representing approximately 83% of the outstanding common shares of DCEL executed written resolutions irrevocably approving the Acquisition. The Acquisition Agreement provides for, among other things, a non-solicitation covenant on the part of DCEL. A copy of the Acquisition Agreement will be filed on Lycos’ SEDAR+ profile at www.sedarplus.ca.
The Acquisition is expected to close on or before October 16, 2023, subject to the completion of the Offering and certain customary conditions and approvals, including the approval of the Court of King’s Bench of Alberta and the TSX Venture Exchange (the “TSXV“).
All of the Lycos Shares issued to the insiders of DCEL, representing approximately 81% of the outstanding shares of DCEL, will be subject hold periods and released as to one third on each of the dates that is three, six and nine months following the closing of the Acquisition.
Pro Forma Guidance for 2023
- Pro-forma the Acquisition, Lycos is expected to increase its 2023 capital spending program to $57 million with the drilling of an additional 2 to 3 wells targeting DCEL’s acreage in Q4/23.
- 2023 production guidance remains unchanged with additional drilling not expected to have a material impact on the Company’s 2023 average production.
- Despite the additional spending, Lycos is expected to maintain a clean balance sheet and significant liquidity, with Nil forecasted net debt at year-end 2023 and $35 million available under its existing credit facilities.(2)
(2) See “Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures“.
Equity Financing
Lycos has entered into an agreement (the “Underwriting Agreement“) with a syndicate of underwriters led by National Bank Financial Inc. (the “Underwriters“), pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought-deal basis, 7.0 million Lycos Shares at a price of $3.55 per Lycos Share for gross proceeds of $25 million. The Underwriters will have an option to purchase up to an additional 15% of the Lycos Shares issued under the Offering at a price of $3.55 per Lycos Share to cover over-allotments exercisable in whole or in part at any time until 30 days after the closing of the Offering.
The Lycos Shares issued pursuant to the Offering will be distributed by way of a short form prospectus in all provinces of Canada (excluding Québec) and may also be placed privately in the United States to Qualified Institutional Buyers (as defined under Rule 144A under the United States Securities Act of 1933, as amended (the “U.S. Securities Act“)) pursuant to an exemption under Rule 144A, and may be distributed outside Canada and the United States on a basis which does not require the qualification or registration of any of the Company’s securities under domestic or foreign securities laws.
The Offering is expected to close immediately prior to the completion of the Acquisition and is conditional on all conditions precedent to the completion of the Acquisition (other than the payment of the purchase price) having been satisfied or waived in accordance with the terms of the Acquisition Agreement and the Underwriting Agreement, and is subject to customary closing conditions, including the receipt of all necessary regulatory approvals, including the approval of the TSXV. Closing of the Offering is expected to occur on or before October 16, 2023.
There are 40,404,140 Lycos Shares issued and outstanding as of the date hereof. Following the completion of the Acquisition and the Offering (prior to giving effect to the over-allotment), there will be 50,265,041 Lycos Shares issued and outstanding.
Advisors
National Bank Financial Inc. is acting as exclusive financial advisor to Lycos with respect to the Acquisition.
Stikeman Elliott LLP is acting as legal counsel to Lycos with respect to the Acquisition and the Offering.
Burnet, Duckworth & Palmer LLP is acting as legal counsel to DCEL with respect to the Acquisition and as legal counsel to the Underwriters in respect of the Offering.
About Lycos
Lycos is an oil-focused, exploration, development and production company based in Calgary, Alberta, operating high-quality, heavy-oil, development assets in the Lloydminster, Greater Lloydminster area and Gull Lake, Saskatchewan.
Additional Information
For further information, please contact:
| Dave Burton
President and Chief Executive Officer T: (403) 616-3327 |
Lindsay Goos
Vice President, Finance and Chief Financial Officer T: (403) 542-3183 |
Reader Advisories
This press release is not an offer of the securities for sale in the United States. The securities offered have not been, and will not be, registered under the U.S. Securities Act or any U.S. state securities laws and may not be offered or sold in the United States absent registration or an available exemption from the registration requirement of the U.S. Securities Act and applicable U.S. state securities laws. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful.
Forward-Looking and Cautionary Statements
Certain statements contained within this press release constitute forward-looking statements within the meaning of applicable Canadian securities legislation. All statements other than statements of historical fact may be forward-looking statements. Forward- looking statements are often, but not always, identified by the use of words such as “anticipate”, “budget”, “plan”, “endeavor”, “continue”, “estimate”, “evaluate”, “expect”, “forecast”, “monitor”, “may”, “will”, “can”, “able”, “potential”, “target”, “intend”, “consider”, “focus”, “identify”, “use”, “utilize”, “manage”, “maintain”, “remain”, “result”, “cultivate”, “could”, “should”, “believe” and similar expressions. Lycos believes that the expectations reflected in such forward-looking statements are reasonable as of the date hereof, but no assurance can be given that such expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Without limitation, this press release contains forward-looking statements pertaining to: Lycos’ business strategy, objectives, strength and focus; the completion of the Acquisition, including anticipated funding and timing thereof; the completion of the Offering and the terms, timing and use of proceeds therefrom; satisfaction or waiver of the closing conditions to the Acquisition and the Offering; receipt of required legal, court and regulatory approvals for the completion of the Acquisition and the Offering; the anticipated benefits of the Acquisition and the recently completed acquisition of Wyatt, including the impact of the Acquisition and the Wyatt acquisition on the Company’s operations, inventory and opportunities, financial condition, access to capital and overall strategy; anticipated pro forma capital program and operational results for the remainder of 2023 including, but not limited to, estimated or anticipated growth, production levels, capital expenditures, drilling plans and locations; expectations regarding commodity prices; the performance characteristics of the Company’s oil and natural gas properties; the ability of the Company to achieve drilling success consistent with management’s expectations, including through the use of proprietary fishbone well designs; and the source of funding for the Company’s activities including development costs. Statements relating to production, recovery, replacement, costs and valuation are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the oil exists in the quantities predicted or estimated and that the oil can be profitably produced in the future.
The forward-looking statements and information are based on certain key expectations and assumptions made by Lycos, including expectations and assumptions concerning the business plan of Lycos; the receipt of all approvals and satisfaction of all conditions to the completion of the Acquisition and the Offering; the timing of and success of future drilling, development and completion activities; the geological characteristics of Lycos’ properties; prevailing commodity prices, price volatility, price differentials and the actual prices received for the Company’s products; the availability and performance of drilling rigs, facilities, pipelines and other oilfield services; the timing of past operations and activities in the planned areas of focus; the drilling, completion and tie-in of wells being completed as planned; the performance of new and existing wells; the application of existing drilling and fracturing techniques; prevailing weather and break-up conditions; royalty regimes and exchange rates; the application of regulatory and licensing requirements; the continued availability of capital and skilled personnel; the ability to maintain or grow its credit facility; the accuracy of Lycos’ geological interpretation of its drilling and land opportunities, including the ability of seismic activity to enhance such interpretation; and Lycos’ ability to execute its plans and strategies.
Although Lycos believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Lycos can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed. These risks and uncertainties include, but are not limited to, counterparty risk to closing the Acquisition and the Offering; unforeseen difficulties in integrating the assets to be acquired pursuant to the Acquisition into Lycos’ operations; incorrect assessments of the value of benefits to be obtained from acquisitions and exploration and development programs (including the Acquisition); fluctuations in commodity prices, changes in industry regulations and political landscape both domestically and abroad, wars (including Russia’s military actions in Ukraine), hostilities, civil insurrections, foreign exchange or interest rates, increased operating and capital costs due to inflationary pressures (actual and anticipated), volatility in the stock market and financial system, impacts of pandemics, the retention of key management and employees, risks with respect to unplanned third-party pipeline outages and risks relating to the Alberta wildfires, including in respect of safety, asset integrity and shutting in production. Ongoing military actions between Russia and Ukraine have the potential to threaten the supply of oil and gas from the region. The long-term impacts of the actions between these nations remains uncertain. Please refer to the annual information form for the year ended December 31, 2022, and management’s discussion and analysis for the period ended June 30, 2023 (the “MD&A“) for additional risk factors relating to Lycos, which can be accessed either on the Company’s website at www.lycosenergy.com or under the Company’s SEDAR+ profile at www.sedarplus.ca. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof, and to not use such forward-looking information for anything other than its intended purpose. Lycos undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
Future Oriented Financial Information
This press release contains future oriented financial information and financial outlook information (collectively, “FOFI”) about Lycos’ prospective results of operations and production, organic growth and acquisitions, NPV-10%, balance sheet strength, liquidity, operating costs, payout of wells, 2023 outlook and guidance, including capital, development and acquisition expenditures in 2023 and components thereof, including pro forma the completion of the Acquisition and the Offering, 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 document was approved by management as of the date of this document and was provided for the purpose of providing further information about Lycos’ proposed business activities in 2023. Lycos and its management believe that FOFI has been prepared on a reasonable basis, reflecting management’s best estimates and judgments, and represent, to the best of management’s knowledge and opinion, the Company’s expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future activities or results. Lycos disclaims any intention or obligation to update or revise any FOFI contained in this document, 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 document 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 measures included in Lycos’ guidance. The Company’s actual results may differ materially from these estimates.
Disclosure of Oil and Gas Information
Unit Cost Calculation. The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6 Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
Product Types. Throughout this press release, “crude oil” or “oil” refers to heavy crude oil product types as defined in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.
Short Term Results. References in this press release to peak rates, IP26, IP30 and other short-term production rates are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long-term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production of Lycos.
Drilling Locations. The drilling locations disclosed in this press release are unbooked locations. Unbooked locations are internal estimates based on the Company’s assumptions as to the number of wells that can be drilled per section based on industry practice and internal review. Unbooked locations do not have attributed reserves or resources. Unbooked locations have been identified by management as an estimation of Company’s multi-year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that the Company will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves, resources or production. The drilling locations considered for future development will ultimately depend upon the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results, additional reservoir information that is obtained and other factors. While certain of the unbooked drilling locations have been derisked by the drilling of existing wells in relative close proximity to such unbooked drilling locations, other unbooked drilling locations are farther away from existing wells where management has less information about the characteristics of the reservoir and therefore there is more uncertainty whether wells will be drilled in such locations and if drilled there is more uncertainty that such wells will result in additional oil and gas reserves, resources or production.
Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
This press release includes various specified financial measures, including non-IFRS financial measures, non-IFRS financial ratios and capital management measures as further described herein. These measures do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS“) and, therefore, may not be comparable with the calculation of similar measures by other companies.
“Adjusted Working Capital (Net Debt)” is calculated as current assets less current liabilities, excluding the current portion of decommissioning liabilities and financial derivative receivable. Adjusted working capital (Net Debt) is a capital management measure which management uses to assess the Company’s liquidity. See the MD&A for a detailed calculation and reconciliation of Adjusted Working Capital (Net Debt) to the most directly comparable measure presented in accordance with IFRS.
“Exit Adjusted Working Capital (Net Debt)” is calculated by taking the forecasted December 2023 current assets less current liabilities, excluding the current portion of decommissioning liabilities and financial derivative receivable. Exit adjusted working capital (Net Debt) is a capital management measure which management uses to assess the Company’s liquidity.
Please refer to the MD&A for additional information relating to specified financial measures including non-IFRS financial measures, non-IFRS financial ratios and capital management measures. The MD&A can be accessed either on the Company’s website or under the Company’s profile on www.sedarplus.ca.
Abbreviations
bbl barrels of oil
bbl/d barrels of oil per day boe barrels of oil equivalent
boe/d barrels of oil equivalent per day
IP26 initial 26-days of production
IP30 initial 30-days of production
Mbbl thousand barrels of oil
Mboe thousand barrels of oil equivalent MMbbl million barrels of oil
MMboe million barrels of oil equivalent MMcf million cubic feet
NPV-10%net present value (net of capex) of net income discounted at 10%
All dollar figures included herein are presented in Canadian dollars, unless otherwise noted.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
