CALGARY, ALBERTA--(Marketwired - Apr 25, 2013) - Kulczyk Oil Ventures Inc. (WARSAW:KOV) ("KOV"), an international upstream oil and gas exploration and production company, is pleased to announce that it has entered into an agreement (the "Arrangement Agreement") with Winstar Resources Ltd. ("Winstar") pursuant to which KOV will acquire all of the issued and outstanding shares of Winstar (the "Acquisition").
The combination of Warsaw-listed KOV with Winstar will have 4,760 barrels of oil equivalent per day(1) ("boe/d") of production in Tunisia and Ukraine and an attractive exploration portfolio in Brunei and Romania.
Acquisition Highlights and Rationale
- Under the terms of the Acquisition, Winstar shareholders will be entitled to receive 7.555 shares of KOV or C$2.50 in cash, subject to a maximum of C$35 million in cash;
- The Acquisition values the entire issued and to be issued share capital of Winstar at approximately C$112 million2;
- As a condition of the Acquisition, KOV will apply to list its shares on the Toronto Stock Exchange ("TSX"), undertake a 10:1 share consolidation and be renamed Serinus Energy Inc.;
- The Company will continue to be listed on the Warsaw Stock Exchange ("WSE");
- Upon closing, Bruce Libin and Evgenij Iorich, current directors of Winstar, will join the KOV board as non-executive directors;
- The Acquisition represents a material increase in KOV's reserves and production, acquiring 11.2 million barrels of oil equivalent ("MMboe") of working interest 2P reserves and approximately 1,660 boe/d of current net production1;
- The Acquisition provides the ability for KOV to leverage its proven operational expertise to materially increase production, reserves and cash flow from Winstar's assets;
- The Acquisition is anticipated to result in a company with:
- 13 licences across five countries, with operatorship on all licences;
- 20.6 MMboe of working interest 2P reserves and approximately 4,760 boe/d of current net production1;
- Continuous development drilling in Ukraine and Tunisia targeting substantial increases in production; and
- High-impact exploration drilling in Brunei and Romania;
- The Winstar Board is recommending that Winstar shareholders vote in favour of the Acquisition and KOV has received support agreements from 54.2% of Winstar shareholders, including all of the directors and officers of Winstar, to vote in favour of the Acquisition at the Winstar shareholder meeting.
(1) First half April production of 1,660 boe/d from Winstar and approximately 3,100 boe/d from KOV
(2) Share Consideration (as defined below), based on the closing price of KOV of PLN1.28 on 24 April 2013 (approximately C$0.41 based on the Bank of Canada noon spot rate on the same date) and 36.0 million diluted Winstar shares
Analyst Conference Call and Presentation
An invitation only analyst conference call and presentation have been scheduled for Thursday, 25 April 2013 at 5:00pm (Warsaw) / 11:00am (Toronto), and the presentation will be made available on KOV's website at www.kulczykoil.com. Details for this call will be sent individually to analysts.
Non-analysts wishing to access the call may do so in a 'listen only' format via the telephone numbers below:
Those wishing to dial in from outside these jurisdictions should call the UK number.
Commenting on the Acquisition, Tim Elliott, President and Chief Executive Officer of KOV said:
"The combination of Winstar's and KOV's assets will result in a company with 2P reserves in excess of 20 MMboe and production of 4,760 boe/d with a clear path to materially increasing production in the near term. The acquisition will also allow KOV to leverage its proven operational expertise to rapidly, and materially, increase production, reserves and cash flow from Winstar's Tunisian assets for the benefit of both companies' shareholders. We thank everyone involved in this transaction and are looking forward to working with Winstar's staff going forward."
Commenting on the Acquisition, Bruce Libin, Chairman of Winstar said:
"After evaluating Winstar's strategic alternatives over the last months, including thorough consideration of our ability to create shareholder value as an independent entity, the Board concluded the proposed transaction with KOV is in the best interests of shareholders. We believe that KOV's business plan, highly experienced management team, proven track record of identifying and delivering value in upstream oil and gas assets and the combination of KOV's and Winstar's assets provides an attractive diversified portfolio with significant potential to enhance shareholder value. I look forward to being a shareholder and director of the new KOV."
Information With Respect to Winstar
Winstar is an independent oil and gas exploration, development and production company listed on the TSX. Winstar's principal area of operations is in Tunisia, where it holds operated interests in four onshore producing oil and gas fields and one re-development concession. In addition, Winstar has farmed in on the Satu Mare exploration block in Romania with an option to earn up to a 60% working interest.
In Tunisia, Winstar holds a 100% operated interest in the Chouech Essaida, Ech Chouech, Zinnia and Sanrhar concessions, and a 45% operated interest in the Sabria concession. As at 31 December 2012, Winstar reported working interest 2P reserves of 11.2 MMboe. Winstar's net production for the first half of April from its Tunisian assets was approximately 1,660 boe/d.
Winstar's asset base is detailed in the accompanying table:
|Country||Licence||Working Interest||Operator||Working Interest 2P Reserves (MMboe)||First Half April Net Production (boe/d)|
The Acquisition will take place through a Plan of Arrangement under the provisions of the Business Corporations Act (Alberta).
KOV and the Consortium (as defined below) will offer Winstar shareholders, in exchange for each Winstar share held, either:
- 7.555 shares of KOV (the "Share Consideration"); or
- C$2.50 in cash (the "Cash Consideration").
The Cash Consideration will be subject to a maximum of C$35 million in cash being paid to Winstar shareholders in aggregate and will be funded by a consortium of investors (the "Consortium") led by Kulczyk Investments S.A. ("KI"), the major shareholder of KOV.
The Plan of Arrangement will include a sequence of transactions in the following order:
- The Consortium will purchase shares from those Winstar shareholders who wish to tender their shares for the Cash Consideration;
- KOV will purchase shares from those Winstar shareholders who wish to tender their shares for the Share Consideration; and
- The Consortium will then tender their shares to KOV for the Share Consideration.
(3) Winstar may earn up to a 60% working interest upon funding 100% of 180 km2 of 3D seismic and two exploration wells by May 2015, with the gross cost estimated at US$8 million
Pursuant to the terms of the Acquisition, Winstar shares acquired by the Consortium for the Cash Consideration will be subsequently tendered for the Share Consideration which will be subject to a hold period of 180 days following closing of the Acquisition.
KOV will issue 272 million shares to Winstar shareholders and the Consortium4. In addition, it is a condition of the Arrangement Agreement that KI exercises its option to convert the existing US$12 million loan amount plus accrued interest into common shares of KOV on or prior to the effective date of the Acquisition in accordance with the provisions of the loan agreement. KOV has been informed by KI that it is KI's current intention to serve the conversion election notice on or about 8 May 2013. The loan amount will be converted into KOV shares at a price per share equal to the five day volume weighted average price of KOV shares on the WSE during the five trading days immediately prior to but excluding the date of the conversion election notice, therefore the exact number of KOV shares issuable to KI upon conversion of the convertible debenture is uncertain, as the final conversion price will only be determined in the future. The conversion election notice will state that the conversion of the loan amount into KOV shares is conditional upon the successful closing of the Acquisition.
Upon completion of the Acquisition, Winstar shareholders and optionholders will hold approximately 21%, and KOV shareholders will hold approximately 79%, of KOV's enlarged resultant issued share capital5.
TSX Listing, Share Consolidation and Name Change
Subsequent to the closing of the Acquisition, the shares of Winstar will cease trading and will be de-listed from the TSX. KOV will thereafter make an original listing application to the TSX to list the ordinary shares of KOV (including those issued in connection with the Acquisition) on the TSX. It is a condition to the completion of the Acquisition that the ordinary shares of KOV shall have been approved for listing on the TSX, subject only to the filing of documentation that cannot be filed prior to the effective date, such that the ordinary shares of KOV shall be listed and posted for trading on the TSX as soon as is reasonably practicable following the effective date in accordance with TSX policies.
Prior to the proposed listing on the TSX, KOV will seek to undertake a 10:1 share consolidation of the post-Acquisition shares outstanding and be renamed Serinus Energy Inc. KOV will call a meeting of its shareholders to consider and approve the share consolidation and name change, with such meeting expected to be held in mid-June 2013.
(4) Based on 36.0 million diluted Winstar shares
(5) Based on full take-up of the Cash Consideration. KOV shareholders include the Consortium. Includes approximately 32 million KOV shares, as an indicative number only, issuable upon the conversion of the KI convertible debenture
The Acquisition provides the following benefits for KOV and Winstar shareholders:
- KOV has a proven ability to apply modern technology to under-funded, legacy assets, leading to material increases in production, reserves and cash flow:
- Following the acquisition of a 70% interest in KUB-Gas LLC, KOV increased gross production in Ukraine from 5.0 million cubic feet equivalent per day ("MMcfe/d") in June 2010 to current production of 26.6 MMcfe/d, for net production to the 70% KOV interest of 18.6 MMcfe/d or approximately 3,100 boe/d, with additional future gas production behind pipe;
- KOV believes that Winstar's Tunisian assets provide similar low-risk development opportunities, and that similar technology and operational expertise can be used to materially increase production, reserves and cash flow from the assets;
- The Acquisition represents a significant increase in KOV's reserves and production:
- KOV is acquiring 11.2 MMboe of working interest 2P reserves and current net production of 1,660 boe/d1;
- The combined company will have working interest 2P reserves of 20.6 MMboe and current net production of approximately 4,760 boe/d1;
- The combined company has significant potential for production growth through the application of operational expertise and technology;
- The Acquisition provides low-risk development opportunities:
- KOV proposes to undertake a near-term development program in Tunisia of drilling new wells, work-overs, dual completions, frac stimulation and horizontal wells to drive production increases, similar to the development program undertaken following its acquisition of KUB-Gas LLC;
- Operatorship on all assets allows KOV to control the work program and timetable;
- Winstar's assets have attractive fiscal terms resulting in high per barrel netbacks:
- Tunisia has attractive fiscal terms, allowing Winstar to generate after tax field operating netbacks of ~US$75 per barrel;
- Adds oil production priced at Brent and exposure to Tunisian natural gas prices of ~US$15 per thousand cubic feet ("Mcf") compared to KOV's current Ukrainian natural gas which is priced at ~US$12/Mcf;
- The Acquisition is accretive on per barrel metrics:
- Acquiring high-netback barrels at US$9.4/boe of 2P reserves;
- Goal is to access 23.6 MMboe of working interest 3P reserves following near-term development program;
- The combined company is well funded to undertake an aggressive development program to unlock value in historically under-funded assets.
The strategic alternatives process announced by Winstar in July 2012 has concluded and the Winstar Board is recommending that Winstar shareholders vote in favour of the Acquisition.
All directors and senior officers of Winstar, certain investment funds administered by Yorktown Partners Group ("Yorktown"), the principals of Yorktown and Pala Assets Holdings Limited ("Pala"), collectively representing approximately 54.2% of the issued and outstanding shares of Winstar, have committed to vote all Winstar shares beneficially owned or controlled by them in favour of the Acquisition, subject to the terms and conditions of the support agreements entered into with KOV in support of the Acquisition.
All directors and senior officers of Winstar, Pala and the Yorktown principals, who collectively hold 27.9% of the issued and outstanding shares of Winstar, will elect to receive the Share Consideration.
The investment funds administered by Yorktown, which collectively hold approximately 26.3% of the issued and outstanding shares of Winstar, will elect to receive the Cash Consideration.
Additional Terms of the Arrangement Agreement
Pursuant to the Arrangement Agreement, Winstar will call a meeting of its shareholders to consider and approve the plan of arrangement implementing the Acquisition, such meeting is expected to be held in mid-June 2013. It is expected that the information circular relating to the Acquisition will be mailed to Winstar shareholders in May 2013 and that, subject to the satisfaction, or where relevant waiver, of all relevant conditions, the Arrangement will become effective and the Acquisition completed by the end of June 2013.
The Acquisition is subject to a number of customary conditions, including the receipt of approval by 66 2/3% of the votes cast by Winstar shareholders in person or by proxy at a special meeting of Winstar shareholders, receipt of approval by the Court of Queen's Bench of Alberta and receipt of stock exchange approvals.
Non-Solicitation Agreement and Termination Fees
The Arrangement Agreement includes customary non-solicitation covenants by Winstar and provides Winstar with the ability to respond to unsolicited proposals considered superior to the Acquisition in accordance with the terms of the Arrangement Agreement. In the event a superior proposal is accepted, Winstar will be required to pay a termination fee of C$4.5 million to KOV. KOV has the right to match a superior proposal. In the event KOV fails to satisfy its obligations under the Arrangement Agreement and complete the Acquisition, KOV will be required to pay a reverse termination fee of C$4.5 million to Winstar.
Macquarie Capital (Europe) Limited is acting as exclusive financial advisor to KOV in connection with the Acquisition.
KOV is an international upstream oil and gas exploration and production company with a diversified portfolio of projects in Ukraine, Brunei and Syria and with a risk profile ranging from exploration in Brunei and Syria to production and development in Ukraine. The common shares of the Company trade on the Warsaw Stock Exchange under trading symbol "KOV".
In Ukraine, KOV owns an effective 70% interest in KUB-Gas LLC. The assets of KUB-Gas LLC consist of 100% interests in five licences near to the City of Lugansk in the northeast part of Ukraine. Four of the licences are gas producing.
In Brunei, KOV owns a 90% working interest in a production sharing agreement which gives the Company the right to explore for and produce oil and natural gas from Block L, a 1,123 square kilometre area covering onshore and offshore areas in northern Brunei.
In Syria, KOV holds a participating interest of 50% in the Syria Block 9 production sharing contract which provides the right to explore for and, upon the satisfaction of certain conditions, to produce oil and gas from Block 9, a 10,032 square kilometre area in northwest Syria. The Company has an agreement to assign a 5% ownership interest to a third party which is subject to the approval of Syrian authorities, and which, if approved, would leave the Company with a remaining effective interest of 45% in Syria Block 9. KOV declared force majeure, with respect to its operations in Syria, in July 2012.
The main shareholder of the Company is Kulczyk Investments S.A., an international investment house founded by Polish businessman Dr. Jan Kulczyk.
Translation: This news release has been translated into Polish from the English original.
The reserves data for KOV and Winstar set forth in this press release is based upon the following reports which have been prepared by RPS Energy Canada Ltd. ("RPS"), an "independent qualified reserves evaluator" (as such term is defined in National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101")) in accordance with NI 51-101 and the COGE Handbook:
(i) the reserve report dated March 11, 2013 with an effective date of December 31, 2012 prepared by RPS for Winstar, which evaluates the crude oil, natural gas and natural gas liquids reserves of Winstar and its subsidiaries; and
(ii) the reserve report dated March 20, 2013 with an effective date of December 31, 2012 prepared by RPS for KOV, which evaluates the crude oil, natural gas and natural gas liquids reserves and resources of KOV and its subsidiaries.
There are numerous uncertainties inherent in estimating quantities of reserves. The reserve information set out in this press release 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 herein.
Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. There is a 90% probability that the quantities actually recovered will equal or exceed the estimated proved reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. There is a 50% probability that the quantities actually recovered will equal or exceed the estimated proved plus probable reserves. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. Each of the reserve categories may be divided into developed and undeveloped. All reserves disclosed in this press release have been classified as developed.
Production information is commonly reported in units of barrel of oil equivalent ("boe" or "BOE") or in units of natural gas equivalent ("Mcfe"). However, BOEs or Mcfes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 bbl, or an Mcfe conversion ratio of 1 bbl:6 Mcf, is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Forward-looking Statements Regarding Acquisition
This press release contains certain statements relating to KOV that are based on the expectations of KOV, as well as assumptions made by, and information currently available to, KOV, which may constitute forward-looking information under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that KOV anticipates or expects may, or will occur in the future (in whole or in part) should be considered forward-looking information. In some cases, forward-looking information can be identified by terms such as "forecast", "future", "may", "will", "expect", "anticipate", "believe", "potential", "enable", "plan", "continue", "contemplate", "pro-forma", or other comparable terminology. In particular, this press release makes reference to the timing and completion of the Acquisition, the issuance of common shares of KOV on the completion of the Acquisition, the expected completion of the Acquisition, including the ability of the Company to satisfy all necessary conditions to the closing of the Acquisition, the anticipated benefits of the Acquisition, reserve volumes associated with the properties to be acquired by KOV, expected production from the properties to be acquired pursuant to the Acquisition, timing of exploration and production activities, the number of shares held by the former shareholders of Winstar upon completion of the Acquisition and the timing of the Winstar and KOV shareholder meetings. Readers are cautioned that there is no assurance that the transactions referenced herein will proceed. Certain conditions must be met before the Acquisition can be completed.
Such conditions include the receipt of all necessary regulatory approvals, including the Tunisian Approval (as such term is defined in the Arrangement Agreement), the approval of the listing of the shares of KOV on the TSX (subject only to the filing of documentation that cannot be filed prior to the effective date), such that the shares of KOV shall be listed and posted for trading on the TSX as soon as is reasonably practicable following the effective date in accordance with TSX policies, the approval of the plan of arrangement by the Winstar shareholders and the approval of the name change and share consolidation by KOV shareholders. There is no assurance that the required approvals will be received and all of the conditions to the completion satisfied and there is therefore no assurance that the Acquisition completed in the time frame anticipated or at all. Many factors could cause the performance or achievement by KOV to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors include the failure to obtain the required approvals, including requisite Winstar and KOV shareholder approvals and the approval of the TSX of the listing of the shares of KOV, risks relating to the integration of KOV and Winstar, the failure to realize anticipated synergies and incorrect assessments of the value of Winstar. Readers are cautioned that the foregoing list of factors is not exhaustive. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described can be profitably produced in the future.
The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. KOV is not under any duty to update any of the forward-looking statements after the date of this press release or to conform such statements to actual results or to changes in KOV's expectations and KOV disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.
|Suite 1170, 700-4th Avenue S.W., Calgary, Alberta, Canada|
|Al Shafar Investment Building, Suite 123, Shaikh Zayed Road,|
|Box 37174, Dubai, United Arab Emirates|
|00-511 Warsaw, Poland|
|Telephone: +48 (22) 414 21 00|
For further information, please refer to the KOV website (www.kulczykoil.com).