CALGARY, Alberta, April 28, 2021 (GLOBE NEWSWIRE) — Distinction Energy Corp. (“Distinction” or the “Company”) is pleased to announce that it has closed, together with Kiwetinohk Resources Corp. (“Kiwetinohk”), the previously announced $335 million acquisition (including $15 million in potential contingent payments based on future commodity prices) of certain interests in the Simonette area of northwest Alberta (the “Acquisition”).
Acquisition Details
The Acquisition consists of certain multi-zone, oil and liquids-rich natural gas producing assets in the Simonette area of northwest Alberta, including associated infrastructure and additional assets in the Willesden Green, Ferrier and other areas of Alberta. As of the fourth quarter of 2020, the assets were producing approximately 10,000 barrels of oil equivalent per day, weighted 43% to NGLs.
An independent reserves report on the Acquisition properties effective as of December 31, 2020 was prepared by McDaniel & Associates Consultants Ltd. (“McDaniel”), an independent qualified reserves evaluator, in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook, in which 50% of the volumes and values represent the net working interest to Distinction of Proved Developed Producing Reserves of 13 MMboe (NPV10 $160 million), Proved Reserves of 30 MMboe (NPV10 $309 million) and 71 MMboe (NPV10 $548 million) on a Proved Plus Probable basis.
The purchase price was shared equally between the Company and Kiwetinohk, with each acquiring a 50% interest in the assets. Distinction’s portion of the Acquisition was financed with cash on hand and a new $127.5 million credit facility from a syndicate of lenders, which will be approximately 50% drawn to fund closing, including ATB Financial (as agent), Bank of Montreal and National Bank of Canada (the “New Credit Facility”). The New Credit Facility amends and restates the Company’s existing credit facility in its entirety and includes, among other amendments, the addition of a syndicated facility, the removal of the accordion feature and an extension of the maturity date to May 31, 2022.
ATB Capital Markets acted as financial advisor to Distinction on the Acquisition. McDaniel acted as a strategic advisor to Kiwetinohk on the Acquisition.
Related Transactions and Changes to the Board of Directors
In connection with the closing of the Acquisition, and pursuant to a settlement agreement (the “Settlement Agreement”) entered into on February 17, 2021, among Luminus Energy IE Designated Activity Company (“Luminus Energy”), 1266580 B.C. Ltd. (an affiliate of Luminus Energy) (“Luminus B.C.”), Kiwetinohk, the Company and Distinction Energy Partnership (“DEP”):
- Messrs. P. Eric Gallie and Shawn Singh resigned from the board of directors of the Company (the “Board”) and were replaced with Messrs. Glenn Koach and Steven Sinclair;
- Glenn Koach is the co-founder and principal of Concise Capital with over 35 years of experience in managing short-term, high-yield funds. As a corporate board director, Mr. Koach has guided several companies through difficult financial situations including, turn-arounds, workouts and bankruptcies. In addition, Mr. Koach is an experienced corporate executive holding key positions with both public and private companies, including serving as: CEO of Group Long Distance. Mr. Koach began his career as Senior Tax Specialist for Peat, Marwick, Mitchell & Co. and was a CPA. Mr. Koach holds a Bachelor of Science in Economics with a major in Finance and Accounting from the Wharton School at the University of Pennsylvania; and
- Steven Sinclair is a corporate director who has over 35 years of senior operating and financial management experience with a number of publicly traded and private companies. Mr. Sinclair retired from his position of Senior Vice President and Chief Financial Officer of ARC Resources Ltd. in 2014 and currently is a Director and Chair of the Audit Committee of TransGlobe Energy Corporation and also a Director and Audit Committee chair of a Calgary headquartered private oil and gas company. Mr. Sinclair received his Bachelor of Commerce degree from the University of Calgary in 1978 and his Chartered Accountant’s designation in 1981.
- Luminus B.C., Kiwetinohk and the Company entered into a participation agreement termination agreement, terminating the participation agreement entered into by such parties on October 16, 2020 in respect of the area of mutual interest described therein (the “AMI”).
- Kiwetinohk, the Company and DEP entered into a further amended and restated management services agreement providing for the following amendments:
- the timing of when fees are paid to Kiwetinohk (in its capacity as manager) in respect of management assistance services was amended from commencing on the receipt of conditional approval for the listing and posting for trading of the Company’s Class A common shares (the “Common Shares”) on the Toronto Stock Exchange, the TSX Venture Exchange or other comparable stock exchange or trading system (“Recognized Exchange”) as is approved by the Board (the “Listing”) to the date of the amended and restated management services agreement; and
- the term of the amended and restated management services agreement was increased to a period of five years from the date of the amended and restated management services agreement, subject to earlier termination in certain circumstances and the Company’s ability to terminate such agreement was removed.
- Luminus Energy, Kiwetinohk and the Company entered into a further amended and restated investor agreement providing for the following amendments:
- Luminus Energy is now entitled to select one director nominee to serve on the Board, who is initially Tim Schneider, and Kiwetinohk is now entitled to select two director nominees, who are initially Kevin Brown and Pat Carlson, and Luminus Energy and Kiwetinohk shall agree upon two independent directors, who are Messrs. Glenn Koach and Steven Sinclair, to serve in that capacity until the next meeting of the shareholders of the Company at which directors of the Company are to be elected. After the next meeting of the shareholders of the Company at which directors of the Company are to be elected, the Board shall be reconstituted to be comprised of eight (8) members consisting of three directors nominees of Kiwetinohk, who shall initially be Kevin Brown, Pat Carlson, and Leland Corbett, two director nominees of Luminus Energy, who shall initially be Tim Schneider and Peter Eric Gallie, and three independent directors selected by Luminus Energy and Kiwetinohk, which director nomination entitlements may be reduced if Kiwetinohk or Luminus Energy holds less than 20% of the then issued and outstanding Common Shares;
- the Board has established a listing committee for the purposes of pursuing and completing the Listing on a Recognized Exchange by the later of September 30, 2021 or the date unanimously determined by the listing committee (or failing unanimity, as determined by the Board) (the “Listing Committee”);
- the officers of the Company shall be those proposed by Kiwetinohk’s director nominees;
- certain consent rights of Luminus Energy over fundamental actions of the Company have been removed such that the Company will only require the prior consent of Luminus Energy with respect to changing the composition of or the powers delegated to the Listing Committee, issuing additional securities or incurring any indebtedness other than indebtedness to be drawn down under the New Credit Facility; and
- the provisions relating to the AMI, the restrictions on non-arm’s length transactions, and the reimbursement of certain expenses of Kiwetinohk, have been removed.
- Luminus B.C. received an aggregate net $10 million payment from the Company (as to $5.75 million) and Kiwetinohk in connection with closing the transactions contemplated in the Settlement Agreement.
The summary of the provisions of the further amended and restated management services agreement and the further amended and restated investor agreement described above does not purport to be complete and is qualified in its entirety by reference to the provisions of such agreements, copies of which will be filed with the securities regulatory authorities in Canada and be available on Distinction’s SEDAR profile at www.sedar.com.
Early Warning Disclosure
The following disclosure is provided pursuant to National Instrument 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues (“NI 62-103”) in connection with the filing of amended Early Warning Reports regarding the amendment and restatement of the investor agreement described above:
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Luminus Energy: The amendment and restatement of the investor agreement reflects a material change to the disclosure in section 6 of the early warning report of Luminus Energy filed on October 16, 2020, as amended January 15, 2021 (the “Original Luminus Report”). Accordingly, pursuant to NI 62-103, Luminus Energy, of Rocktwist House, Block 1, Western Business Park, Shannon, Co. Clare V14 FW97, Ireland, reconfirms its early warning disclosure in the Company’s press release dated October 16, 2020, as amended January 15, 2021, as follows (with capitalized terms below having the same meaning given to them in such press releases): Luminus Energy acquired an aggregate of 2,601,167 Common Shares from the treasury of the Company pursuant to the Company’s recapitalization and financing transaction (the “Restructuring Transaction”) implemented as a plan of compromise and arrangement under the Companies’ Creditors Arrangement Act (Canada) and the Canada Business Corporations Act on October 16, 2020, representing approximately 42.7% of the issued and outstanding Common Shares (on an undiluted basis). Immediately prior to implementation of the Restructuring Transaction, Luminus Energy owned nil Common Shares and 33,204,500 warrants to purchase common shares (“Existing Warrants”), and indirectly owned 14,065,138 (57%) common shares (“Existing Shares”) of the Company through its indirect subsidiary, Luminus Delphi Holdings II Ltd. Upon implementation of the Restructuring Transaction, all 14,065,138 Existing Shares indirectly owned by Luminus Energy and all 33,204,500 Existing Warrants owned by Luminus Energy were cancelled for no consideration and without any return of capital. Luminus Energy acquired the Common Shares for investment purposes. Luminus Energy may acquire or dispose of additional securities of the Company in the future through the market, privately, or otherwise, as circumstances or market conditions warrant. A copy of the Early Warning Report reflecting the amendment to section 6 of the Original Luminus Report can be obtained on the Company’s SEDAR profile at www.sedar.com or from Luminus Energy c/o 1700 Broadway, 26th Floor, New York, NY, 10019 or phone: Shawn Singh at (212) 424-2889 or e-mail [email protected].
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Kiwetinohk: The amendment and restatement of the investor agreement described above reflects a material change to the disclosure related thereto in the early warning report of Kiwetinohk filed on October 16, 2020, as amended on January 15, 2021 (the “Original Kiwetinohk Report”). Kiwetinohk, of 250 – 2 Street S.W., Suite 1900, Calgary, Alberta, T2P 0C1, initially acquired 1,522,181 Common Shares (the “Initial Acquired Common Shares”) from the treasury of the Company, representing 25% of the issued and outstanding Common Shares (on a non-diluted basis) as of the date of issuance, together with 3,348,799 purchase warrants to acquire Common Shares (the “Warrants”), which Warrants are collectively exercisable into such number of Common Shares as will result in Kiwetinohk holding 50%+1 of the Common Shares (on a fully diluted basis excluding any Common Shares issuable upon the exercise of any stock options to purchase Common Shares (“Options”)) as of the date of issuance (being 4,870,980 Common Shares assuming 9,741,959 issued and outstanding Common Shares (on a fully diluted basis excluding any Common Shares issuable upon the exercise of any Options and Special Warrants) and 304,436 Options outstanding at such time) upon satisfaction of certain conditions in the future and payment of an aggregate exercise price of $37,500,000, equal to $11.20 per Common Share (subject to certain adjustments in accordance with the terms of the Warrants) pursuant to the Restructuring Transaction. If any Options are exercised after the initial exercise date of the Warrants, the number of Warrants will be deemed increased on a 1:1 basis by the number of Options so exercised and the Warrants deemed issued shall also be exercisable for Common Shares at an exercise price of $11.20. The Initial Acquired Common Shares and Warrants were acquired for an aggregate purchase price of $22,916,670. On January 15, 2021, Kiwetinohk exercised the Warrants and pursuant thereto acquired 3,348,799 Common Shares (the “Additional Acquired Common Shares”) for an aggregate exercise price of $37,500,000 (prior to a working capital adjustment of $2,500,000 paid by Kiwetinohk to the Company) amounting to $11.20 per Additional Acquired Common Share. Prior to the completion of the Restructuring Transaction, Kiwetinohk did not own any securities of the Company. Immediately prior to the acquisition of the Additional Acquired Common Shares, Kiwetinohk owned 1,522,181 Common Shares representing 25% of the issued and outstanding Common Shares (on a non-diluted basis). Upon acquiring the Additional Acquired Common Shares, Kiwetinohk owned 4,870,980 Common Shares representing 51.61% of the issued and outstanding Common Shares (on a non-diluted basis or 50% +1 on a fully diluted basis excluding Common Shares issuable upon exercise of the Options). The acquisition of the Initial Acquired Common Shares and the Warrants by Kiwetinohk pursuant to the Restructuring Transaction and the acquisition of the Additional Acquired Common Shares pursuant to the exercise of the Warrants were each made for investment purposes. Kiwetinohk has a long-term view of the investments and subject to applicable law, Kiwetinohk may from time to time acquire additional securities of the Company or redeem, convert, exercise or otherwise dispose of the Initial Acquired Common Shares or the Additional Acquired Common Shares, in each case, including (without limitation) on the open market or through private dispositions in the future depending on market conditions, the terms of any such securities, reformulation of plans and/or other relevant factors. Kiwetinohk is an oil and gas company organized under the laws of the Province of Alberta with its head office located at: Suite 1900, 250 – 2nd Street SW, Calgary, Alberta T2P 0C1. A copy of the Early Warning Report reflecting the noted amendments to the Original Kiwetinohk Report with additional information in respect of the foregoing matters will be filed and made available on the Company’s SEDAR profile at www.sedar.com. To obtain a copy of such Early Warning Report, you may also contact Jakub Brogowski, Chief Financial Officer of Kiwetinohk at (587) 392-4416.
About Distinction Energy Corp.
Distinction Energy Corp. is a leading junior oil and gas company focused on liquids-rich natural gas produced primarily from the Montney formation. The Company achieved very attractive drilling results last year through the further development of its high quality Montney property, uniquely positioned in the Bigstone region of northwest Alberta. Distinction is headquartered in Calgary, Alberta.
FOR FURTHER INFORMATION PLEASE CONTACT:
DISTINCTION ENERGY CORP.
2300 – 333 – 7th Avenue S.W.
Calgary, Alberta
T2P 2Z1
Telephone: (587) 392-4424 Facsimile: (587) 392-4425
Email: [email protected] Website: www.distinctionenergy.ca
PATRICK CARLSON
President & CEO
(403) 819-5090
Forward Looking Information
This press release includes certain statements that may be deemed “forward-looking statements”. The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “would”, “project”, “should”, “believe” and similar expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, the anticipated amount drawn under the New Credit Facility and statements related to “reserves” as they involve the implied assessment, based on certain estimates and assumptions, including that the reserves described can be profitably produced in the future. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. All forward-looking statements are made as of the date of this press release and the fact that this press release remains available does not constitute a representation by the Company that the Company believes these forward-looking statements continue to be true as of any subsequent date. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. Actual results could differ materially from those currently anticipated due to a number of factors and risks including various risk factors discussed in the Company’s disclosure documents which can be found under the Company’s profile on www.sedar.com.
Disclosure of Oil and Gas Information
The use of the boe unit of measurement may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf of natural gas to 1 barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of oil as compared with natural gas is significantly different from the energy equivalent of six to one, utilizing a BOE conversion ratio of 6 Mcf: 1 bbl would be misleading as an indication of value. Distinction’s reported production is a mix of shale gas and natural gas liquids.
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. Proved developed producing 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. “MMboe” means million barrel of oil equivalent. “NPV10” means net present value discounted at 10%.
Estimates of net present value of future net revenue contained herein do not necessarily represent fair market value of reserves. Estimates of reserves, and future net revenue for individual properties may not reflect the same level of confidence as estimates of reserves and future net revenue for all properties, due to the effect of aggregation.
There is no assurance that the forecast price and cost assumptions applied by McDaniel in evaluating the reserves and future net revenue will be attained and variances could be material. There are numerous uncertainties inherent in estimating quantities of oil, natural gas and NGL reserves and cash flows to be derived therefrom, including many factors beyond Distinction’s control. Actual reserves, production and cash flows will vary from the estimates contained in the McDaniel report, and such variations could be material. In general, estimates of economically recoverable oil and natural gas reserves 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 reserve recovery, timing and amount of capital expenditures, marketability of oil and gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary from actual results. For those reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues expected therefrom prepared by different engineers, or by the same engineers at different times, may vary. Distinction’s actual production, revenues, taxes and development and operating expenditures with respect to its reserves will vary from estimates thereof and such variations could be material. It should not be assumed that the estimates of future net revenue presented in this press release represent the fair market value of the reserves. The reserve and associated cash flow information set forth in the McDaniel report are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided therein.
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