REG - Southern Energy Corp - Closing Gwinville Acquisition and RSA Grant

Southern EnergyAnnouncement

06/06/2023 07:00

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RNS Number : 7249B  Southern Energy Corp.  06 June 2023

 

SOUTHERN ENERGY CORP. ANNOUNCES CLOSING OF SYNERGISTIC ASSET ACQUISITION TO
CONSOLIDATE THE GWINVILLE FIELD AND RESTRICTED SHARE AWARD GRANT

 

Calgary, Alberta - June 6, 2023 - Southern Energy Corp. ("Southern" or the
"Company") (TSXV:SOU) (AIM:SOUC)(OTCQX:SOUTF) announces the closing of its
acquisition of the remaining producing acreage in the Gwinville Field (the
"Assets") in Jefferson Davis County, Mississippi from PetroTX Energy, LLC for
a cash purchase price of $3.2 million (the "Transaction") that was previously
announced May 23, 2023.

 

Ian Atkinson, President and CEO of Southern, commented:

 

"We are very pleased to close this highly accretive acquisition. Our team has
already begun optimizing the newly consolidated assets including through
marketing opportunities, with additional volumes and access to the Florida Gas
Transmission sales point, which is currently receiving a strong premium to
NYMEX Henry Hub, and the rationalisation of operating costs. We will continue
to achieve synergies through the further reduction of operating costs and
through additional marketing opportunities. This Transaction demonstrates our
ability to execute high value growth opportunities at all stages in the
commodity cycle and we will look to build on this through organic development
of the Gwinville area in the future."

 

Details of the Transaction

 

The Assets are currently producing approximately 400 boe/d (99% natural gas)
of high working interest production at less than 8% projected annual decline
from over 8,500 acres of held-by-production acreage and include significant
redevelopment opportunities in the Selma Chalk formation.

 

The Company anticipates that the Asset's operating cost savings of more than
30% will be realized almost immediately, primarily driven by the consolidation
of infrastructure, staff, and services in the Gwinville Field. The Transaction
is consistent with the Company's strategy to consolidate stable, low decline,
cash flowing assets that have been historically under-capitalized at highly
attractive and accretive metrics.

 

Transaction Highlights  1  (#_ftn1) :

·    PDP PV10 value of $7.7 million, including operations synergies,
representing a PDP PV34 valuation or a nearly 60% discount to PDP PV10

o  This includes expected operational synergies with a PV10 value of more
than $5 million

·    Next twelve months cash flow of $0.9 million, representing a 3.6x
cash flow multiple; 2022 cash flow of $3.7 million, representing a 0.9x cash
flow multiple

·    Flowing Production (WI) addition per boe/d acquired of $7,800
($1,300/Mcfe/d), on an annual basis

·    1.8 MMboe PDP Reserves (WI) addition at implied price of $1.76/boe

·    Potential 2P Reserves (WI) addition of 14.5 MMboe; 20+ net Selma
Chalk drilling locations identified

·    Projected 7% increase to sales gas volumes through fuel gas reduction

·    Estimated operating cost savings of more than 30% expected to be
achieved through synergies with our current Gwinville acreage

·    239 total / 204 producing (net) wells with low future plugging
liability associated with the assets

 

PDP reserves, 2P reserves and PV10 in respect of the Assets have been
internally estimated by the Company's Internal Qualified Reserves Evaluator
("QRE") and prepared in accordance with National Instrument 51-101 - Standards
of Disclosure for Oil and Gas Activities ("NI 51-101") and the most recent
publication of the Canadian Oil and Gas Evaluation Handbook ("COGEH").
"Internally estimated" means an estimate that is derived by the Company's
internal QRE and prepared in accordance with NI 51-101. All internal estimates
contained in this press release have been prepared effective as of June 1,
2023. Reserves values are based on working interest reserves of the Assets
before deduction of royalties and without including any of royalty interest
reserves.

 

The consideration of $3.2 million was funded through existing capacity from
the senior secured term loan (the "Credit Facility") with Southern's current
lender, who is highly supportive of the Transaction. Southern still has
approximately $14.5 million of capacity remaining on the Credit Facility after
closing the Transaction, which provides ample funds to complete the four
drilled but uncompleted wells from the Gwinville drilling program when natural
gas prices are supportive.

 

Restricted Share Award Grant

 

Southern has granted restricted share awards ("RSAs") to certain employees,
officers and directors of the Company as part of Southern's overall
compensation and employee retention program, in accordance with the terms of
the Company's share award incentive plan. For more information regarding the
Company's compensation philosophy and practices, please see Southern's
management information circular dated May 1, 2023, which is available on the
Company's SEDAR profile at www.sedar.com
(https://url.avanan.click/v2/___http:/www.sedar.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86Y2ZkMWI4NzRmZDgwY2UyODFiNzY1MGVlMzRjMzYyZWM6Njo2MzdkOjQ0NmMxOGZjYTVkNmY5YzdlMDExZTJmNDdlMTNlOWFiOTRjYmE4ZmQ3OTQwM2QzMmJjOTIwMTA4ZTBiMzZjMWY6cDpU)
.

Southern has granted an aggregate of 1,255,800 RSAs, of which 837,500 were
issued to directors and persons discharging managerial responsibilities
("PDMR") of the Company, as set out below. The RSAs vest as to one third on
each of the first, second and third anniversary date of the grant date. On the
vesting dates of such RSAs, the holder is entitled to receive a cash payment
or its equivalent in fully paid common shares of the Company ("Common
Shares"), at the Company's discretion, equal to the closing market value per
Common Share on the TSX Venture Exchange on the business day prior to such
payment.

 PDMR           Position                      RSAs Awarded
 Ian Atkinson   President and CEO (Director)  312,500
 Calvin Yau     CFO                           262,500
 Gary McMurren  COO                           262,500

 

 

 

 

 

 

Qualified Person's Statement

 

Gary McMurren, COO, who has over 22 years of relevant experience in the oil
industry and has approved the technical information contained in this
announcement. Mr. McMurren is registered as a Professional Engineer with the
Association of Professional Engineers and Geoscientists of Alberta and
received a Bachelor of Science degree in Chemical Engineering (with
distinction) from the University of Alberta.

 

For further information about Southern, please visit our website at
www.southernenergycorp.com
(https://url.avanan.click/v2/___http:/www.southernenergycorp.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86MzA2NjE2OWIxMDBjM2FjM2I3ZjZhZDA1OGM0NTUwODU6NjpkYzc5OmExY2U1YzQxYTI4YWQ0NjQ0MWZhZThlYTdkZDdlNzlkNDI1NDQ5MjllNjk0M2QyOGFmNWQzZWIxZTRkMTJkNTQ6cDpU)
or contact:

 Southern Energy Corp.

 Ian Atkinson (President and CEO)                           +1 587 287 5401

 Calvin Yau (CFO)                                           +1 587 287 5402

 Strand Hanson Limited - Nominated & Financial Adviser      +44 (0) 20 7409 3494

 James Spinney / James Bellman

 Canaccord Genuity - Joint Broker                           +44 (0) 20 7523 8000

 Henry Fitzgerald-O'Connor / James Asensio
 Stifel Nicolaus Europe Limited - Joint Broker              +44 (0) 20 7710 7600

 Callum Stewart / Ashton Clanfield

 Tennyson Securities - Joint Broker                         +44 (0) 20 7186 9033

 Peter Krens / Pav Sanghera

 Camarco                                                    +44 (0) 20 3757 4980

 Owen Roberts / Billy Clegg / Hugo Liddy

 

 

About Southern Energy Corp.

Southern Energy Corp. is a natural gas exploration and production company
characterized by a stable, low-decline production base, a significant low-risk
drilling inventory and strategic access to premium commodity pricing in North
America. Southern has a primary focus on acquiring and developing conventional
natural gas and light oil resources in the southeast Gulf States of
Mississippi, Louisiana, and East Texas. Our management team has a long and
successful history working together and have created significant shareholder
value through accretive acquisitions, optimization of existing oil and natural
gas fields and the utilization of re-development strategies utilizing
horizontal drilling and multi-staged fracture completion techniques.

READER ADVISORY

Currency. All currency amounts in this press release are in United States
dollars (unless otherwise stated).

Disclosure of Oil and Gas Information

 

Unit Cost Calculation. Natural gas liquids volumes are recorded in barrels of
oil (bbl) and are converted to a thousand cubic feet equivalent (Mcfe) using a
ratio of six (6) thousand cubic feet to one (1) barrel of oil (bbl). Natural
gas volumes recorded in thousand cubic feet (Mcf) are converted to barrels of
oil equivalent (boe) using the ratio of six (6) thousand cubic feet to one (1)
barrel of oil (bbl). Mcfe and boe may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 mcf:1 bbl or a Mcfe conversion ratio of
1 bbl:6 Mcf is based in an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead. In addition, given that the value ratio based on the current price
of oil as compared with natural gas is significantly different from the energy
equivalent of six to one, utilizing a boe conversion ratio of 6 Mcf:1 bbl or a
Mcfe conversion ratio of 1 bbl:6 Mcf may be misleading as an indication of
value.

Product Types. References to "natural gas" throughout this press release refer
to conventional natural gas as defined by NI 51-101.

Reserves Disclosure. All reserves values and ancillary information contained
in this press release are derived from the QRE's evaluation of the Assets
unless otherwise noted. All reserve references in this press release are
"company gross reserves". Company gross reserves are the seller's total
working interest reserves before the deduction of any royalties payable by the
seller in respect of the Assets. Estimates of reserves for individual
properties may not reflect the same level of confidence as estimates of
reserves for all properties, due to the effect of aggregation. There is no
assurance that the forecast price and cost assumptions applied by the QRE in
evaluating the Assets will be attained and variances could be material. All
reserves assigned to the Assets are located in the State of Mississippi and
presented on a consolidated basis.

Drilling Locations. This press release discloses drilling inventory in respect
of the Assets as unbooked/potential locations. Unbooked locations are internal
estimates based on the 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 or
resources.

All of the net drilling locations identified herein are currently unbooked
locations in the Company's inventory.

Unbooked locations have been identified by management as an estimation of
multi-year drilling activities in respect of the Assets based on evaluation of
applicable geologic, seismic, engineering, production and reserves
information. There is no certainty that the Company will drill all unbooked
drilling locations and if drilled there is no certainty that such locations
will result in additional oil and gas reserves, resources or production. The
drilling locations considered for future development 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 de-risked by drilling existing wells in
relative close proximity to such unbooked drilling locations, 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, resources or production.

Proved reserves are those reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves. Probable reserves are
those additional reserves that are less certain to be recovered than proved
reserves. It is equally likely that the actual remaining quantities recovered
will be greater or less than the sum of the estimated proved plus probable
reserves. Proved developed producing reserves are those reserves that are
expected to be recovered from completion intervals open at the time of the
estimate. These reserves may be currently producing or, if shut-in, they must
have previously been on production, and the date of resumption of production
must be known with reasonable certainty. Undeveloped reserves are those
reserves expected to be recovered from known accumulations where a significant
expenditure (e.g., when compared to the cost of drilling a well) is required
to render them capable of production. They must fully meet the requirements of
the reserves category (proved, probable, possible) to which they are assigned.
Certain terms used in this press release but not defined are defined in NI
51-101, CSA Staff Notice 51-324 - Revised Glossary to NI 51-101, Revised
Glossary to NI 51-101, Standards of Disclosure for Oil and Gas Activities
("CSA Staff Notice 51-324") and/or the COGEH and, unless the context otherwise
requires, shall have the same meanings herein as in NI 51-101, CSA Staff
Notice 51-324 and the COGEH, as the case may be.

Abbreviations

 

 2P      proved plus probable reserves
 bbl     barrels
 Mbbls   thousand barrels
 bbls/d  barrels per day
 $M      thousands of US dollars
 boe     barrels of oil equivalent
 Mboe    thousand barrels of oil equivalent
 MMboe   million barrels of oil equivalent
 boe/d   barrels of oil equivalent per day
 Bcfe    billion cubic feet equivalent
 Mcfe    million cubic feet equivalent
 Mcfe/d  million cubic feet equivalent per day
 Mcf     thousand cubic feet
 Mcf/d   thousand cubic feet per day
 MMcf/d  million cubic feet per day
 MMBtu   million British Thermal Units
 PDP     proved developed producing reserves
 PV      net present value, all references to PV in this press release are before-tax
 PV10    net present value (before-tax), using a 10% discount rate
 PV34    net present value (before-tax), using a 34% discount rate

 

Forward Looking Information

This press release contains certain forward-looking information (collectively
referred to herein as "forward-looking statements") within the meaning of
applicable Canadian securities laws. Forward-looking statements are often, but
not always, identified by the use of words such as "guidance", "outlook",
"anticipate", "target", "plan", "continue", "intend", "consider", "estimate",
"expect", "may", "will", "should", "could" or similar words suggesting future
outcomes. More particularly, this press release contains statements
concerning: Southern's business strategy, objectives, strengths and focus;
anticipated benefits of the Transaction, including anticipated natural gas
production levels, decline rates and cash flow in respect of the Assets;
anticipated operational results; capital expenditures and drilling plans and
locations; anticipated operational synergies and cost savings resulting from
the Transaction; the performance characteristics of the Company's oil and
natural gas properties, including the Assets; and the ability of the Company
to achieve drilling success consistent with management's expectations.
Statements relating to production, reserves, recovery, replacement, costs and
valuation are also deemed to be forward-looking statements, as they involve
the implied assessment, based on certain estimates and assumptions, that the
reserves described exist in the quantities predicted or estimated and that the
reserves can be profitably produced in the future.

The forward-looking statements contained in this document are based on certain
key expectations and assumptions made by Southern, including those relating
to: the business plan of Southern, including in respect of the Assets acquired
pursuant to the Transaction; the timing of and success of future drilling,
development and completion activities; the geological characteristics of
Southern's properties, including the Assets; the successful integration of the
Assets into Southern's operations; prevailing commodity prices, price
volatility, price differentials and the actual prices received for the
Company's products; the availability and performance of drilling rigs,
facilities, pipelines and other oilfield services; the timing of past
operations and activities in the planned areas of focus; the drilling,
completion and tie-in of wells being completed as planned; the performance of
new and existing wells; the application of existing drilling and fracturing
techniques; prevailing weather and break-up conditions; royalty regimes and
exchange rates; the application of regulatory and licensing requirements; the
continued availability of capital and skilled personnel; the ability to
maintain or grow the banking facilities; the accuracy of Southern's geological
interpretation of its drilling and land opportunities, including the ability
of seismic activity to enhance such interpretation; and Southern's ability to
execute its plans and strategies.

Although management considers these assumptions to be reasonable based on
information currently available, undue reliance should not be placed on the
forward-looking statements because Southern can give no assurances that they
may prove to be correct. By their very nature, forward-looking statements are
subject to certain risks and uncertainties (both general and specific) that
could cause actual events or outcomes to differ materially from those
anticipated or implied by such forward-looking statements. These risks and
uncertainties include, but are not limited to: incorrect assessments of the
value of benefits to be obtained from exploration and development programs;
changes in the financial landscape both domestically and abroad, including
volatility in the stock market and financial system; wars (including Russia's
war in Ukraine); risks associated with the oil and gas industry in general
(e.g. operational risks in development, exploration and production; and delays
or changes in plans with respect to exploration or development projects or
capital expenditures); unforeseen difficulties in integrating the Assets into
Southern's operations; commodity prices; increased operating and capital costs
due to inflationary pressures; the uncertainty of estimates and projections
relating to production, cash generation, costs and expenses; health, safety,
litigation and environmental risks; inflationary risks; access to capital; and
the COVID-19 pandemic. Due to the nature of the oil and natural gas industry,
drilling plans and operational activities may be delayed or modified to react
to market conditions, results of past operations, regulatory approvals or
availability of services causing results to be delayed. Please refer to the
annual information form for the year ended December 31, 2022 and management's
discussion and analysis for the period ended March 31, 2023, and other
continuous disclosure documents for additional risk factors relating to
Southern, which can be accessed either on Southern's website at
www.southernenergycorp.com or under the Company's profile on www.sedar.com.

The forward-looking statements contained in this press release are made as of
the date hereof and the Company does not undertake any obligation to update
publicly or to revise any of the included forward-looking statements, except
as required by applicable law. The forward-looking statements contained herein
are expressly qualified by this cautionary statement.

This press release contains future-oriented financial information and
financial outlook information (collectively, "FOFI") about Southern's
prospective results of operations, operating costs, cash flow and expectations
regarding continued significant and predictable reserves growth, including pro
forma the completion of the Transaction, all of which are subject to the same
assumptions, risk factors, limitations, and qualifications as set forth in the
above paragraphs. FOFI contained in this document was approved by management
as of the date of this document and was provided for the purpose of providing
further information about Southern's future business operations and the
Transaction. Southern and its management believe that FOFI has been prepared
on a reasonable basis, reflecting management's best estimates and judgments,
and represent, to the best of management's knowledge and opinion, the
Company's expected course of action. However, because this information is
highly subjective, it should not be relied on as necessarily indicative of
future results. Southern disclaims any intention or obligation to update or
revise any FOFI contained in this document, whether as a result of new
information, future events or otherwise, unless required pursuant to
applicable law. Readers are cautioned that the FOFI contained in this document
should not be used for purposes other than for which it is disclosed herein.

 

Neither TSX Venture Exchange nor its Regulation Services Provider (as that
term is defined in the policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.

 

PDMR NOTIFICATION FORMS

 

 1   Details of the person discharging managerial responsibilities / person closely
     associated
 a)  Name                                                         1.    Ian Atkinson

                                                                  2.    Calvin Yau

                                                                  3.    Gary McMurren
 2   Reason for the notification
 a)  Position/status                                              1.    President and CEO (Director)

                                                                  2.    CFO

                                                                  3.    COO
 b)  Initial notification/Amendment                               Initial notification
 3   Details of the issuer, emission allowance market participant, auction
     platform, auctioneer or auction monitor
 a)  Name                                                         Southern Energy Corp.
 b)  LEI                                                          213800R25GL7J3EBJ698
 4   Details of the transaction(s): section to be repeated for (i) each type of
     instrument; (ii) each type of transaction; (iii) each date; and (iv) each
     place where transactions have been conducted
 a)  Description of the financial instrument, type of instrument  Restricted Share Awards to receive common shares in Southern Energy Corp. or
                                                                  equivalent cash payment, at Company's sole discretion on vesting dates

     Identification code                                          CA8428133059
 b)  Nature of the transaction                                    Grant of restricted share awards
 c)  Price(s) and volume(s)

  Effective price  Volumes
                                                                  1.  CAD$0.385        312,500
                                                                  2.  CAD$0.385        262,500
                                                                  3.  CAD$0.385        262,500

 
 d)  Aggregated information                                       N/A (single transaction for each individual)
 e)  Date of the transaction                                      6 June 2023
 f)  Place of the transaction                                     Outside of a trading venue

 

d)

Aggregated information

N/A (single transaction for each individual)

e)

Date of the transaction

6 June 2023

f)

Place of the transaction

Outside of a trading venue

 

 

(#_ftnref1) (1)      Cash flow and economic calculations based on Strip
Pricing effective May 1, 2023

 

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