International Petroleum Corp (IPC) has entered into an agreement to acquire Granite Oil Corp for total equity and debt consideration of approx. USD 59 million (CAD 77.2 million). The Acquisition includes total proved plus probable ('2P') reserves of 14.0 million barrels of oil equivalent (MMboe) and 6.2 MMboe of unrisked contingent resources (best estimate) as at December 31, 2019. The current production is approx. 1,500 barrels of oil per day (bopd) with further potential for light oil production and development upside, close to IPC’s current area of operations in southern Alberta.
The Acquisition is comprised of high netback, light oil producing assets in the Milk River area of Alberta, located southwest of IPC’s existing operations in the Suffield area, just north of the US border. The Assets are currently producing approx. 1,500 bopd of 29° API oil, from an oil pool which extends over a 50 kilometre fairway. The Assets include existing infrastructure to enable the current gas injection enhanced oil recovery (EOR) scheme, with capacity to allow for potential further field development opportunities. The Assets also include associated oil and gas processing and injection facilities located in proximity to key sales points. Granite reported combined average wellhead prices of CAD 68.50 per boe and operating netbacks of CAD 34.73 per boe for the third quarter of 2019.
On completion of the Acquisition, almost all of the current production and infrastructure will be 100% owned and operated by IPC. The Acquisition will complement IPC’s current southeast Alberta operations. The Assets will be managed by IPC’s existing Canadian management team, with support from the operational teams currently working with the Assets.
Total 2P reserves attributed to the Assets as at December 31, 2019 are 14.0 MMboe, of which close to 100% are light oil. The Assets also include 6.2 MMboe of unrisked contingent resources (best estimate) as at December 31, 2019. IPC has identified a number of drill-ready opportunities that it believes could add further near-term production of high netback, light oil barrels.
The Acquisition aligns with IPC’s strategy to target low risk production assets with further development potential. IPC expects to provide further information at its Capital Markets Day on February 11, 2020 regarding the Assets and IPC’s plans to optimise production and pursue further development activities.
Mike Nicholson, CEO of IPC, comments:
'‘We are very excited to announce our third acquisition of high quality operated assets in less than three years since IPC was created. The acquisition of Granite provides access to a new resource play fairway that adds additional reserves, resources and production of long life, high margin light oil with significant growth potential. We believe that we can more than double current production levels within the next three years, more than fully funding this growth with the cash flows generated from these assets.'
The Acquisition is structured as a plan of arrangement under Canadian law. Under the terms of the Arrangement, IPC has agreed to acquire the issued and outstanding common shares in the capital of Granite, including Granite Shares issuable under existing employee stock options, for aggregate cash consideration of approx. USD 29 million (CAD 37.4 million). The consideration for the Granite Shares will be funded from IPC’s operating cash flows and existing credit facilities. Under the Arrangement, IPC will also assume approx. USD 30 million (CAD 39.8 million) in bank debt currently outstanding in relation to the Assets.
The Arrangement has been unanimously approved by the Board of Directors of IPC. The Board of Directors of Granite has also unanimously approved the Arrangement, and recommends that Granite shareholders vote in favour of the Arrangement at the meeting of Granite shareholders expected to be held in early March 2020. All of the directors and officers of Granite as well as entities related to GMT Capital Corp., Granite’s largest shareholder, together representing approximately 25% of the total Granite Shares, have entered into agreements with IPC pursuant to which they have agreed to vote their Granite Shares in favour of the Acquisition.
The Arrangement remains subject to customary closing conditions, including the receipt of approvals from the Granite shareholders, the Court of Queen’s Bench of Alberta and applicable stock exchange and regulatory authorities. The Acquisition is expected to close in early March 2020.