CALGARY, ALBERTA--
Kensington Energy Ltd. ("Kensington" or the "Corporation") (Toronto Stock Exchange: "KNN") is pleased to announce that it has entered into an acquisition agreement whereby Kensington will, subject to requisite regulatory approval and certain other conditions, offer to purchase all of the issued and outstanding shares of a private Alberta based oil and gas company (the "Private Company") for a total consideration of $24.8 million including the assumption of $2.0 million of net debt. The aggregate purchase price for the shares of the Private Company will be $22.8 million, payable in a combination of cash and Class A common shares of Kensington ("Kensington Shares"). Shareholders of the Private Company can elect to receive cash, Kensington Shares or a combination thereof, subject to the payment of an aggregate maximum of $7.5 million in cash. Kensington intends to finance the cash component of the acquisition from cash on hand and available bank lines of credit.
The agreement has the unanimous support of the board of directors of each of Kensington and the Private Company. Certain shareholders including the management and directors of the Private Company, holding approximately 64% of the issued and outstanding common shares, have entered into lock-up agreements pursuant to which they have agreed to tender to the offer. FirstEnergy Capital Corp. acted as financial advisor to the Private Company. Kensington and the Private Company have agreed to the payment of a non-completion fee in the amount of $250,000 if the transaction is not completed under certain circumstances. The acquisition is expected to close on or before March 31, 2004.
The transaction is opportunity rich and establishes an excellent growth platform for Kensington in a focused, natural gas weighted asset base located in West Central Alberta. The acquisition is accretive to Kensington on a reserve, production and cash flow per share basis. Kensington is planning a significant exploration and development drilling program in West Central Alberta during 2004, including upwards of 10 locations on these lands, with the potential to realize continued increases in reserves and production before year end.
The following are highlights of the transaction:
- Multi-zone drilling opportunities targeting liquids rich natural gas;
- Over 90% of production and infrastructure are operated;
- Over 20 development and exploration drilling locations identified on newly acquired proprietary 3D seismic data;
- Over 11,000 net acres of undeveloped land focused in West Central Alberta, plus 200 square km of 3D seismic and 50 km of 2D seismic;
- Crown land available for core area expansion;
- Current production of approximately 550 boe per day, weighted 85% to natural gas;
- Additional 300 boe per day available from low risk development opportunities; and
- Approximately 1.8 million boe of established and 1.1 million boe of proven reserves as of March 1, 2004 (based on independent engineering report effective October 1, 2003 and updated for cumulative production to the end of February 2004).
After giving effect to the value of land and seismic, the metrics of the acquisition are as follows:
- Cash flow multiple of 3.8 times based on $5.2 million estimated annual cash flow;
- Production of 550 boe per day resulting in $36,000 per daily producing boe;
- Reserve costs of $10.87 per established boe and $17.77 per proven boe; and
- Reserve life index of 9.0 years for established reserves and 5.5 years for proven reserves.
Based on the total acquisition price, including the value of the land and seismic, the metrics of the acquisition are as follows:
- Cash flow multiple of 4.8 times based on $5.2 million estimated annual cash flow;
- Production of 550 boe per day resulting in $45,000 per daily producing boe;
- Reserve costs of $13.62 per established boe and $22.27 per proven boe; and
- Reserve life index of 9.0 years for established reserves and 5.5 years for proven reserves.
If the maximum cash amount is elected by shareholders of the Private Company, Kensington expects to have net debt of approximately $8 million, with approximately 59.6 million shares outstanding, post closing of the transaction. Based on forecast assumptions, and before the consideration of any subsequent acquisitions or divestitures, Kensington's estimated 2004 cash flow is anticipated to increase to approximately $15 million from the inclusion of approximately nine months of cash flow from the Private Company. The Corporation's approved bank line of credit is anticipated to increase to approximately $14 million following the completion of the transaction. Kensington plans to increase its planned 2004 capital expenditures from $20 million to $26 million as a result of increased drilling opportunities associated with the acquisition. Kensington additionally contemplates that, with the completion of this transaction, it will undertake a review of certain non-core assets in its portfolio.
Including behind pipe production capability resulting from Kensington's first quarter drilling program which are not yet on stream, Kensington expects its pro forma combined production capability to be approximately 2,000 boe per day post closing of the acquisition. These production volumes are expected to come on stream during the second quarter of 2004 subject to the completion of facility tie-in work.
With a strong financial position, a significant inventory of high quality drilling prospects, increased activity on its key exploration trends and an expanded 2004 capital budget, Kensington is well positioned to realize continued increases in reserves, production and cash flow going forward.
This press release contains certain forward looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond Kensington's control, including: the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Kensington's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that Kensington will derive therefrom.
FOR FURTHER INFORMATION PLEASE CONTACT:
Kensington Energy Ltd. 1700, 540 - 5 Avenue S.W. Calgary, AB T2P 0M2 or Donald S. Wood President and Chief Executive Officer (403) 517-8621 (403) 517-8625 (FAX) or Scott T. Bonli Vice President Finance and CFO (403) 517-8633 (403) 517-8625 (FAX)
THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.
