CALGARY, ALBERTA--(Marketwired - Dec. 8, 2016) - Spartan Energy Corp. ("Spartan" or the "Company") (TSX:SPE) is pleased to announce the closing of its previously announced strategic light oil acquisition in southeast Saskatchewan from ARC Resources Ltd. (the "Acquisition"). The Acquisition includes high quality, low decline, operated production and a large land base which is highly complementary to Spartan's existing operations in southeast Saskatchewan.
In addition, the Company is pleased to announce that its Board of Directors has approved a $145 million capital budget for 2017 that is anticipated to deliver annual average production per share growth of 11%. The 2017 budget is expected to be fully funded by internally generated cash flow.
The purchase price for the Acquisition was $700 million, prior to closing adjustments (the "Purchase Price"). The Purchase Price was partially funded through a bought deal financing of 95,852,500 subscription receipts of the Company ("Subscription Receipts") at a price of $3.00 per Subscription Receipt (the "Prospectus Offering") and a private placement of 85,000,000 Subscription Receipts to certain institutional investors at a price of $3.00 per Subscription Receipt (the "Private Placement").
In accordance with their terms, each Subscription Receipt was exchanged for one common share of the Company (an "Underlying Share") upon closing of the Acquisition and the aggregate gross proceeds of $542.6 million from the Prospectus Offering and the Private Placement were released from escrow. Holders of Subscription Receipts are not required to take any action in order to receive the Underlying Shares.
The Acquisition results in Spartan becoming one of the largest light oil producing companies in southeast Saskatchewan and furthers Spartan's strategy of developing an asset base that is capable of delivering repeatable, low risk growth while generating free cash flow in a variety of commodity price environments. With the closing of the Acquisition, Spartan is now producing over 20,000 boe/d (93% oil and liquids). The acquired assets are characterized by a low base decline of approximately 12% and include a large suite of opportunities including over 400 drilling locations, recompletions and waterflood expansion across an extensive landbase spanning the conventional Mississippian fairway. The assets also include working interest ownership in two world class CO2 enhanced oil recovery ("EOR") projects, as well as ownership in strategic infrastructure across the asset base that supports both current and future volumes.
The Acquisition is accretive on all key operational and financial measures and the low decline assets provide additional production stability, enhancing our ability to grow production and cash flow per share.
Peters & Co. Limited and TD Securities Inc. acted as financial advisors to Spartan in respect of the Acquisition.
2016 - Year in Review
The following paragraph is a quote from our February 24, 2016 news release.
The environment is ripe for acquisitions. There are times in the oil and gas business when drilling generates better returns than acquisitions and there are times when acquisitions generate better returns than drilling. Spartan remained disciplined in respect of acquisitions in 2015 as asset quality proved elusive and vendor expectations did not align with current valuations. However, we believe that this prolonged period of severely challenged crude oil prices will create unique opportunities for growth through acquisition in 2016. We believe Spartan is well positioned to profit from this environment due to the strength of our balance sheet and our attractive cost of capital.
At the time we made that statement, we were convinced that 2016 was shaping up to be a year of unprecedented opportunity and during the course of the year we acted upon that conviction. Spartan closed five separate acquisitions during 2016, all for complementary light oil assets in our southeast Saskatchewan core area. Although 2016 was a year in which many companies struggled to maintain production, Spartan was able to add significant per share value through our acquisition program. We increased our exit production per share by 13% from 2015 to 2016, while maintaining the strength of our balance sheet, improving the quality of our asset base and materially lowering our corporate decline rate.
In total, Spartan acquired almost 11,000 boe/d of production, 223,000 net acres of land in southeast Saskatchewan and 718 net drilling locations in the Frobisher, Midale, Tilston and Ratcliffe light oil plays. We also added approximately 32.5 mmboe of proved developed producing ("PDP") reserves, 42.3 mmboe of total proved ("TP") reserves and 63.6 mmboe of proved plus probable ("P+P") reserves through the five acquisitions. While the quantum of the increase in reserves was itself material, the 2016 acquisitions also significantly improved the makeup of our reserve base as PDP reserves now represent 45% of our total reserve base, an increase of 29% over Spartan's December 31, 2015 reserves.
2017 Capital Budget
Our corporate strategy has remained unchanged since the inception of Spartan in late 2013. Our business plan revolves around measured, sustainable growth and prudent balance sheet management. We have been consistent in the communication of our strategy to shareholders, and the execution of that strategy forms the foundation of our 2017 capital budget.
For 2017, Spartan's Board of Directors has approved a 2017 capital budget of $145 million. The 2017 capital program includes the drilling of 125.8 net development oil wells and is anticipated to deliver annual average production of 21,080 boe/d compared to estimated 2016 average production of approximately 11,700 boe/d, an increase of 80% (11% per share). 2017 exit production is forecast to be 23,000 boe/d. We plan to allocate $114 million of our capital program towards drilling, completion, equipping and tie-in of new wells, $13 million for CO2 and maintenance costs associated with our recently acquired EOR projects and $18 million on facilities, workovers environmental and other costs.
Based upon a WTI price assumption of US$50.00, we expect to generate free cash flow of approximately $42 million in 2017. It is expected that up to $15 million of this free cash flow will be allocated during the year to discretionary projects such as the acquisition of additional land and seismic data and the initiation and expansion of waterflood projects across our extensive asset base.
Spartan's 2017 drilling program will be primarily focused on high rate of return, low risk open-hole Mississippian wells in southeast Saskatchewan. We plan on spending approximately $60 million or 53% of our drilling budget to drill 81 net open-hole wells. These wells are highly economic at a variety of commodity prices, with our internal type curve well delivering a half cycle rate of return of 121% - 205% and paying out in 8-12 months (GLJ Q1 pricing with return and payout ranges based on whether well is drilled on Crown or freehold acreage).
Continued exploitation and delineation of the frac Midale play at Alameda and Pinto also figures prominently in our 2017 capital program. Spartan plans to allocate approximately $27 million or 24% of our $114 million drilling budget to drill 17.8 net wells targeting the frac Midale play in southeast Saskatchewan. Our internal type curve well delivers a half cycle rate of return of 75% - 106% and pays out in 13 - 17 months (type well at Alameda using GLJ Q1 pricing with return and payout ranges based on whether well is drilled on Crown or freehold acreage).
Finally, we expect to spend the remaining $27 million or 24% of our drilling budget to drill 10 net wells targeting Ratcliffe light oil at our recently acquired Oungre property, 3 net wells targeting the Torquay/Three Forks unconventional light oil play and 14 net light oil Viking wells in west central Saskatchewan.
Increase to Credit Facilities
The Company is also pleased to announce that, in connection with the closing of the Acquisition, its extendible revolving credit facilities (the "Credit Facilities") have been amended to increase the borrowing base to $350 million from $150 million. After giving effect to the increase in the borrowing base, the Credit Facilities are comprised of: (i) an extendible revolving syndicated term credit facility of $320 million (increased from $130 million); and (ii) an extendible revolving working capital credit facility of $30 million (increased from $20 million). The Credit Facilities were drawn from to pay the balance of the Purchase Price.