TORONTO, ONTARIO–(Marketwired – Nov. 30, 2015) –
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
PhosCan Chemical Corp. (TSX:FOS) (“PhosCan”) is pleased to announce that it has entered into an arrangement agreement (the “Arrangement Agreement”) with Petrus Resources Ltd. (“Petrus”), Petrus Acquisition Corp. (“New Petrus”) and a wholly-owned subsidiary of PhosCan (“SpinCo”) whereby New Petrus will acquire all of the outstanding shares of PhosCan by way of a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Alberta) (the “ABCA”).
Pursuant to the Arrangement Agreement, PhosCan will spin-off its wholly-owned Martison phosphate project (the “Martison Project”) and all of its other assets, with the exception of approximately $51 million of cash and cash equivalents, and all of its liabilities to SpinCo and the existing shareholders of PhosCan will retain ownership through the distribution of all the shares SpinCo. PhosCan shares will subsequently be exchanged for common shares of New Petrus (“New Petrus Shares”), on the basis of 0.0452672 New Petrus Shares for each PhosCan share. New Petrus will concurrently acquire all of the issued and outstanding common shares of Petrus (“Petrus Shares”) on the basis of 0.25 New Petrus Shares for each Petrus Share, reflecting a notional 4 to 1 consolidation of the Petrus Shares (the “Consolidation”).
Based on the implied price of $7.40 per New Petrus Share being paid in the Private Placement described below (after taking into consideration the Consolidation), PhosCan shareholders will receive New Petrus Shares with an implied value of $0.3350 per PhosCan share, representing a 27% premium to the 5-day volume weighted average price for the period ending November 27, 2015. In addition, PhosCan shareholders will retain full ownership of SpinCo.
Stephen Case, President and Chief Executive Officer of PhosCan, stated: “After patiently waiting for the right opportunity to invest PhosCan’s excess cash, the Arrangement allows PhosCan shareholders to capitalize on a cyclical low in the oil and gas sector through an intermediate size oil and gas producer with a strong team and track record of value creation. The Arrangement, along with the Private Placement, will provide New Petrus with approximately $81 million in additional financial capability to take advantage of the current market.”
Selected Conditions to the Arrangement
Closing of the Arrangement is conditional upon, among other things, Petrus completing an equity financing of not less than $30 million. In conjunction with the Arrangement, Petrus and New Petrus have entered into a bought deal letter agreement with a syndicate of underwriters led by FirstEnergy Capital Corp. and GMP Securities L.P. (the “Co-lead Underwriters”) for a bought deal private placement of 16,217,000 subscription receipts of New Petrus (“Subscription Receipts”) at an issue price of $1.85 per Subscription Receipt (the “Private Placement”), which implies a $7.40 share price for the New Petrus Shares after taking the Consolidation into consideration, for aggregate gross proceeds of approximately $30 million. Wingren B.V. (“NGP”), a subsidiary of Natural Gas Partners and Petrus’ current largest shareholder together with management and the directors of Petrus have committed subject to certain conditions, to subscribe for approximately 8.7 million Subscription Receipts under the Private Placement for aggregate gross proceeds of approximately $16.1 million. Closing of the Private Placement is expected to occur on or about December 22, 2015 and is subject to customary conditions and regulatory approvals.
The gross proceeds from the Private Placement will be held in escrow pending the receipt by the escrow agent of a notice from Petrus and New Petrus, acknowledged by the Co-Lead Underwriters, that all conditions precedent to the completion of the Arrangement have been satisfied or waived.
Stephen White, current Chair of the PhosCan Special Committee and a member of the PhosCan Board of Directors, will be appointed to the New Petrus Board of Directors.
It is expected that separate meetings of the PhosCan shareholders and the Petrus shareholders will be held in late January 2016 to vote on the Arrangement. To be approved, the Arrangement must be approved by not less than two-thirds of the total votes cast in person or by proxy by (i) PhosCan shareholders, and (ii) Petrus shareholders. All of the directors and officers of PhosCan, as well as certain other shareholders of PhosCan, have entered into support agreements pursuant to which they have agreed to vote in favour of the Arrangement at PhosCan’s shareholder meeting. In aggregate, holders of approximately 40% of the outstanding common shares of PhosCan have agreed to vote in favour of the Arrangement. Certain Petrus shareholders, including all officers and directors, who collectively beneficially own or exercise control and direction over approximately 38% of the issued and outstanding Petrus Shares, have agreed to vote in favour of the Arrangement.
The Arrangement Agreement contains customary covenants by both PhosCan and Petrus not to solicit offers for competing transactions, a right to match any superior proposal, as well as a reciprocal termination fee of $1.8 million payable upon the termination of the Arrangement Agreement in certain circumstances.
The completion of the Arrangement is subject to satisfaction of certain customary conditions, including but not limited to, PhosCan and Petrus shareholder approval, court and regulatory approvals, including approval of the Toronto Stock Exchange to list the New Petrus Shares, the receipt of third party approvals and consents, and completion of the Private Placement.
Copies of the Arrangement Agreement, support agreements, management information circular and certain related documents will be filed with securities regulators and will be available on SEDAR at www.sedar.com.
New Petrus Following the Arrangement
Assuming the issuance of 16,217,000 Subscription Receipts pursuant to the Private Placement, after taking into account the Consolidation and assuming that all outstanding Petrus Shares and PhosCan Shares are exchanged for New Petrus Shares pursuant to the Arrangement, upon completion of the Arrangement New Petrus will have an additional $81 million in financing ($51 million of cash and cash equivalents in PhosCan and $30 million in gross proceeds from the Private Placement) and there will be approximately 46,094,276 New Petrus Shares outstanding, which would be held as follows:
|Group||# of New Petrus Shares||% of New Petrus Shares|
|Existing Petrus Shareholders||35,148,150||76.25%|
|Existing PhosCan Shareholders||6,891,876||14.95%|
|Private Placement Subscribers||4,054,250||8.80%|
Some of the key attributes of New Petrus are as follows:
• The net proceeds from the Arrangement and the Private Placement will be used to pay down corporate debt, fund the ongoing exploration and development program and for general corporate purposes.
• Petrus has an amended syndicated reserve based credit facility of $160 million as of the date hereof.
• Management of Petrus will continue in their same positions as officers of New Petrus. The board of directors of New Petrus will include the current directors of Petrus, a nominee of PhosCan being Stephen White, and an additional nominee of Wingren BV, a subsidiary of Natural Gas Partners.
• Production in the third quarter of 2015 averaged 8,668 boe per day (38% oil and liquids). Since mid-January, a portion of the Company’s sales volume (affecting three of the four operating areas) has been restricted due to transportation curtailments on TransCanada Pipelines Limited (“TCPL”) infrastructure. During the third quarter, approximately 1,300 boe per day was curtailed by these third party transportation restrictions.
• Petrus has financial commodity derivative contracts in place for 57% and 26% of its forecast total production volume for 2016 and 2017, respectively, the details of which are set out in Petrus’ Q3 financial statements, which are available on Petrus’ website at: www.petrusresources.com.
• In 2016, development capital will be focused on the Ferrier area, where Petrus has identified 165 gross (104 net) drilling locations which are economic at current strip pricing.
• Petrus completed construction of an operated gas processing facility in the Ferrier area of Alberta in November 2015. The facility is capable of processing 25 mmcf per day and is directly connected to a TCPL sales pipeline. The facility is capable of NGL refrigeration and liquids recovery in order to reduce reliance on third parties for processing and is expected to significantly reduce operating costs and improve operational control.
Fairness Opinions and Board Determinations
Cormark Securities Inc. has acted as financial advisor to PhosCan in connection with the Arrangement, and has provided a verbal opinion to PhosCan’s Board of Directors that, as at the date of the Arrangement Agreement and subject to review of final documentation, the consideration to be received by PhosCan shareholders pursuant to the Arrangement is fair, from a financial point of view, to PhosCan shareholders. A written fairness opinion from Cormark and addressed to PhosCan’s Board of Directors will be included in the management information circular to be circulated to PhosCan shareholders in connection with the Arrangement. Each of the PhosCan Special Committee and the PhosCan Board of Directors has unanimously determined that the Arrangement is in the best interest of PhosCan and its shareholders. The PhosCan Board of Directors has unanimously approved the Arrangement and the entering into of the Arrangement Agreement and unanimously recommends that PhosCan shareholders vote in favour of the Arrangement.
GMP Securities L.P. has provided the Petrus Board of Directors with its verbal opinion that, as of the date of the Arrangement Agreement and subject to assumptions, limitations and qualifications contained in the opinion and review of final documentation, the consideration to be received by Petrus shareholders pursuant to the Arrangement is fair, from an financial point of view, to Petrus Shareholders. The Petrus Board of Directors has unanimously determined that the Arrangement is in the best interests of Petrus and the Petrus shareholders, has unanimously approved the Arrangement and the entering into of the Arrangement Agreement and unanimously recommends that Petrus shareholders vote in favour of the Arrangement.
In addition to the Martison Project, SpinCo will retain approximately $0.8 million of cash and cash equivalents as well as a 71.6 acre parcel of land located in the City of Brandon, Manitoba as well as all of PhosCan’s liabilities. SpinCo will continue to seek ways to maximize shareholder value from the Martison Project. SpinCo intends to make an application to list its common shares on the Canadian Securities Exchange.
Petrus is a Canadian oil and gas company focused on property exploitation and strategic acquisitions in Alberta. Petrus has established a sustainable platform of low decline, low operating cost assets with a multi-year inventory of repeatable, low risk, economic drilling locations. Petrus has an experienced management team and board of directors. Additional information concerning Petrus can be found at: www.petrusresources.com.
PhosCan owns a 100% interest in the Martison Project and currently has cash, short term investments and marketable securities of approximately $53 million.
Cautionary Note Regarding Forward-Looking Statements
Certain information contained in this news release, including any information relating to the Arrangement Agreement and completion of the Arrangement involving PhosCan and Petrus and the Private Placement and any other statements regarding PhosCan’ and Petrus’ future expectations, beliefs, goals or prospects, constitute forward-looking information within the meaning of applicable securities legislation (collectively, “forward-looking statements”). All statements in this news release that are not statements of historical fact (including statements containing the words “expects”, “does not expect”, “plans”, “anticipates”, “does not anticipate”, “believes”, “intends”, “estimates”, “estimates”, “projects”, “potential”, “scheduled”, “forecast”, “budget” and similar expressions) should be considered forward-looking statements. All such forward-looking statements are subject to important risk factors and uncertainties, many of which are beyond PhosCan’s and Petrus’ ability to control or predict. A number of important factors could cause actual results or events to differ materially from those indicated or implied by such forward-looking statements, including without limitation: the parties’ ability to complete the Arrangement, including the receipt of shareholder approvals, court approval or the regulatory approvals required for the Arrangement may not be obtained on the terms expected or on the anticipated schedule; the parties’ ability to meet expectations regarding the timing, completion and accounting and tax treatments of the Arrangement; the volatility of the international marketplace; and other risk factors as described in PhosCan’s most recent annual information form and annual and quarterly financial reports and as described in Petrus’ publicly available information.
PhosCan assumes no obligation to update the information in this communication, except as otherwise required by law. Additional information identifying risks and uncertainties is contained in PhosCan’s filings with the various provincial securities commissions which are available online at www.sedar.com. Forward-looking statements are provided for the purpose of providing information about the current expectations, beliefs and plans of the managements of PhosCan and Petrus relating to the future. Readers are cautioned that such statements may not be appropriate for other purposes. Readers are also cautioned not to place undue reliance on these forward-looking statements, that speak only as of the date hereof.
This press release discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations are derived from an independent reserve report prepared by Sproule Associates Limited evaluating the crude oil, natural gas liquids and natural gas and future net production revenues attributable to the properties of Petrus in the Ferrier area (the “Sproule Report”) and account for drilling locations that have associated proved and/or probable reserves, as applicable. Unbooked locations are internal estimates based on Petrus’ prospective acreage and an assumption 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. Of the 165 gross (103.6 net) drilling locations identified herein 100 gross (54.4 net) are proved locations, 18 gross (6.9 net) are probable locations and 47 gross (42.3 net) are unbooked locations. Unbooked locations have been identified by management as an estimation of our multi‐year drilling activities based on evaluation of applicable geologic, seismic, engineering, production and reserves information. There is no certainty that Petrus will drill all unbooked drilling locations and if drilled there is no certainty that such locations will result in additional oil and gas reserves or production. The drilling locations on which we actually drill wells 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 drilling existing wells in relative close proximity to such unbooked drilling locations, some of 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 or production.
This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States of America. The securities have not been and will not be registered under the United States Securities Act of 1933 (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons (as defined in the U.S. Securities Act) unless registered under the U.S. Securities Act and applicable state securities laws, or an exemption from such registration is available.
President and Chief Executive Officer