logo-loader

Calima Energy to transform into high margin oil & gas producer through merger with Blackspur Oil Corp

Published: 11:23 26 Feb 2021 AEDT

Calima Energy Ltd - Calima Energy to transform into a high margin oil & gas producer with acquisition of Blackspur Oil Corp
Blackspur has two core production areas in Southern Alberta; Thorsby and Brooks.

Calima Energy Ltd (ASX:CE1) (OTCMKTS:RLTOF) (FRA:R1Y) has entered into a binding agreement to acquire 100% of the issued share capital of Blackspur Oil Corp, a privately held Canadian company with producing oil and natural gas assets in two core areas within Alberta - at Brooks and Thorsby.

The successful merger with Blackspur will transform Calima to a high margin oil & gas producer leveraged to West Texas Intermediate (WTI) pricing targeting more than 5,500 barrels of oil equivalent/day by December 2022 plus exposure to rising natural gas prices via its strategic holdings in the Montney Formation.

Consideration for the deal is C$17 million, comprising C$12.1 million in Calima shares and a cash payment of up to C$4.9 million plus contingent consideration tied to net debt adjustments at closing (A$1:C$1).

This arrangement includes all assets, reserves, production and the management team of Blackspur.

“Upside exposure to rising gas prices”

The acquisition of the low-cost oil-producing assets will give the larger company a recurring cash flow stream and exposure to improving oil prices, while the large resource base of the Calima Lands in the Montney gives upside to both improving oil & gas prices and LNG development in Canada.

Calima chairman Glenn Whiddon said: “The merger with Blackspur creates an emerging oil and gas producer with production and current operating cashflow of around C$1.8million/month in addition to a substantial reserve and resource base for future growth.

“At US$50 WTI the growth model is self-funding (including debt repayments) on the path to 5,500 barrels of oil equivalent/day and operating cashflow of around C$3.5 million/month.

“The Montney acreage offers material upside exposure to rising gas prices from the growth of the LNG industry in Canada and North American demand.

“We look forward to combining with the Blackspur team and growing the company for all shareholders going forward.”

The consolidated assets.

Quality management team

Calima and Blackspur will combine management teams in Canada and Jordan Kevol will become CEO and president of Calima.

Kevol said: “Blackspur is excited to be merging with Calima as it provides all shareholders an opportunity to unlock value in the Blackspur assets, as well as future growth within the Western Canadian Sedimentary Basin.

“The growth opportunity from a cashflow perspective enables Blackspur to leverage its position to grow production organically and through acquisitions within a top tier country.

“Post-merger, Blackspur’s strong balance sheet and asset base, along with a low environment liability (ARO), will be an ideal combination to take advantage of current market conditions.”

Production forecast

Blackspur’s operations include the Brooks and Thorsby assets with 2P reserves of 22.5 million barrels of oil equivalent, 1P reserves of 16.7 million barrels of oil equivalent and PDP reserves of 5.4 million barrels of oil equivalent.

In quarter four of 2020, the Brooks asset produced around 1,860 barrels of oil equivalent/day and Thorsby around 740 barrels of oil equivalent/day for a total of around 2,600 barrels of oil equivalent/day (70%).

Over the past seven years, Blackspur has invested over C$200 million acquiring and developing its assets while creating inventory and infrastructure to accommodate growth to over 10,000 barrels of oil equivalent/day.

The company plans to grow organically to over 5,500 barrels of oil equivalent/day by drilling 24 low risk proven undeveloped (PUD) wells by year-end 2022 and access to a large drilling inventory with more than 60 booked PUD locations.

Average 2021 forecast production is around 3,000 barrels of oil equivalent/day (65% oil), with the estimated December 2021 production at around 3,400 barrels of oil equivalent/day (65% oil).

Notably, this is low-cost production at US$26/barrel WTI break-even cost.

The company also invested in regenerative, proprietary H2S removal technology which is expected to give Calima the ability to lower its CO2 emission rates versus peers and offers a number of positive economic and environmental benefits compared to traditional technology.

The development program during the 12-month period following completion of the acquisition.

Key acquisition terms

The base consideration payable to Blackspur shareholders is C$17 million, comprised of no less than C$12.1 million in Calima equity and up to C$4.9 million in cash.

The agreement also includes contingent consideration component of up to C$4.5 million in Calima shares based on the net debt position of Blackspur upon closing (this adjustment is estimated to be ~C$3.2 million following reduced net debt due to improved Blackspur cashflows).

In addition to paying the cash consideration to Blackspur shareholders, the funds raised will be used to reduce Blackspur's credit facilities with National Bank of Canada from C$43 million to approximately C$13 million on a C$20 million revolving credit facility; providing an undrawn bank capacity of C$7 million to achieve strategic goals.

Closing expected in late April

The company has signed binding agreements with Blackspur and has received support agreements from 70% of Blackspur shareholders to date, which is sufficient to meet regulatory hurdles for completion.

Calima has placed C$1 million in escrow to secure the transaction and has undertaken extensive due diligence on the Blackspur assets.

Closing is expected late-April 2021, pending both the company and Blackspur shareholder and regulatory approvals and satisfaction of the other conditions of the acquisition.

Indicative timetable.

Capital raising

Calima will undertake a capital raising of no less than A$34 million and a maximum of A$38 million to fund the acquisition, reduce Blackspur indebtedness, provide working capital and cover transaction costs.

The company has engaged Evolution Capital Advisors Pty Ltd as part of its capital raising efforts with Evolution to be paid a 6% fee on the capital raised.

Additionally, to ensure the company has sufficient working capital to fund operations until closing of the capital raising and acquisition, Calima has executed a 12-month working capital facility for the $500,000 with 6466 Investments Pty Ltd (a related party to Whiddon for the purposes of the Corporations Act, however, Whiddon does not control this entity).

The terms of the facility are a 6% facility fee and a fixed interest amount of 10% on the amounts drawn down, with the company intending that any amount drawn under this facility will be repaid at closing of the capital raising and acquisition.

The capital raising is subject to shareholder approval.

OzAurum to start drilling at Boca Rica Lithium Project

OzAurum Resources Ltd (ASX:OZM) CEO and managing director Andrew Pumphrey sits down with Proactive’s Jonathan Jackson to discuss an upcoming drilling program at Boca Rica Lithium Project in Brazil, following the identification of a spodumene zone. The company plans to start drilling in the next...

3 hours, 37 minutes ago