REG - Southern Energy Corp - GWINVILLE FIELD ACQUISITION

Southern EnergyAnnouncement

23/05/2023 07:00

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RNS Number : 2700A  Southern Energy Corp.  23 May 2023

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO
CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION
(REGULATION 596/2014/EU) AS IT FORMS PART OF UK DOMESTIC LAW PURSUANT TO THE
EUROPEAN UNION (WITHDRAWAL) ACT 2018, AS AMENDED. UPON PUBLICATION OF THIS
ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE THIS INSIDE INFORMATION IS
NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

 

SOUTHERN ENERGY CORP. ANNOUNCES EXECUTION OF A PURCHASE AND SALE AGREEMENT IN
RESPECT OF A SYNERGISTIC ~ 400 BOE/D ASSET ACQUISITION TO CONSOLIDATE THE
GWINVILLE FIELD

Calgary, Alberta - May 23, 2023 - Southern Energy Corp. ("Southern" or the
"Company") (TSXV:SOU) (AIM:SOUC)(OTCQX:SOUTF) is pleased to announce that it
has entered into a definitive agreement with PetroTX Energy, LLC ("PetroTX")
to acquire the remaining producing acreage in the Gwinville Field not already
owned by the Company (the "Assets"), in Jefferson Davis County, Mississippi
for a cash purchase price of $3.2 million (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 recently
initiated a field redevelopment program in Gwinville by employing modern
horizontal drilling and multi-stage stimulation techniques on 10 operated
wells drilled to date. The Assets are expected to increase well inventory in
Gwinville by as much as 20%. The Transaction will allow Southern to design the
surface and bottomhole field development plan more efficiently and
cost-effectively.

The operational synergies that are expected to be realized by integrating the
Assets with the Company's existing operations are alone significant enough for
the Company to achieve strong financial returns on the Transaction, before any
incremental cash flow from the Assets. The Company anticipates that the
Asset's operating cost savings of more than 30% are expected to be realized
almost immediately after completing the Transaction, 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)):

·    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 Reserve 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 cash consideration payable under the Transaction of $3.2 million will be
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. The effective date and proposed closing date of the
Transaction is June 1, 2023. The Transaction is highly accretive to Southern
from an operating and financial perspective as it will be funded through the
current Credit Facility while still maintaining healthy debt to cash flow
levels. Southern expects to have 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.

 

Pursuant to the terms of the Agreement, the Company has also agreed to grant
PetroTX minor overriding royalties over two of the Asset's wells, which
currently are not producing and would require remedial work to re-commence
production, but were each previously producing approximately 400 Mcf/d.

 

Hannam & Partners acting as financial advisor to the Company in relation
to the Transaction.

Ian Atkinson, President and CEO of Southern, commented:

"We are very excited to consolidate the Gwinville Field under one operator at
an accretive price for our shareholders. This will be the first time this has
been done in over 30 years since Selma Chalk and City Bank early exploration
and development started in the 1990s. Our team will seek to incorporate these
operations with our own, achieving substantial synergies and cost savings that
will help drive a very quick return of capital even at current natural gas
pricing. The Finding, Development and Acquisition (FD&A) metrics of the
Assets are outstanding and will add over 20 Selma Chalk drilling locations to
our already deep inventory in the Gwinville Field. The Transaction
demonstrates our ability to execute our high value inorganic growth strategy
at low cost during periods of weaker natural gas pricing to add accretive,
high quality assets to the portfolio that we will eventually grow organically
when commodity prices are more supportive."

 

 

 

Corporate Presentation

 

A new corporate presentation dated May 2023 is now available on the Company
website at www.southernenergycorp.com
(https://url.avanan.click/v2/___http:/www.southernenergycorp.com___.YXAzOnNvdXRoZXJuZW5lcmd5Y29ycDphOm86MzA2NjE2OWIxMDBjM2FjM2I3ZjZhZDA1OGM0NTUwODU6NjpkYzc5OmExY2U1YzQxYTI4YWQ0NjQ0MWZhZThlYTdkZDdlNzlkNDI1NDQ5MjllNjk0M2QyOGFmNWQzZWIxZTRkMTJkNTQ6cDpU)
.

 

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

 

 

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of
the European Union (Withdrawal) Act 2018, as amended.

 

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
 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

 

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, strength and focus; the
completion of the Transaction and the timing thereof; 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 and the
Assets; the ability of the Company to achieve drilling success consistent with
management's expectations; and the source of funding for the Company's
activities including development costs. 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 to be
acquired pursuant to the Transaction; the receipt of all approvals and
satisfaction of all conditions to the completion of 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 and management's discussion and analysis for the year
ended December 31, 2022, 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.

 

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