Razor Energy Corp. has entered into a definitive agreement to acquire certain non-operated working interest assets in its Swan Hills, Alberta core region (the “Assets”) for a total purchase price of $5 million cash, subject to certain closing adjustments (the “Acquisition”). The Assets consist of Swan Hills Unit No. 1 (the “Unit”), Judy Creek Gas Plant (the “Plant”) and South Swan Hills Unit Gas Gathering System (the “Gathering System”) at 32.5%, 8.6% and 22.8% working interest, respectively. Closing is anticipated to occur in due course within August 2021.
The Acquisition will be funded by Arena Investors, LP (“Arena”) by way of an amended term loan agreement in the TOTAL principal amount of US$18,158,182 (the “Amended Term Loan”). Arena Investors is an institutional asset manager with US$2.2 billion of committed assets under management that specializes in providing innovative capital solutions for middle market companies.
The Amended Term Loan will be amortized and repaid over a total of 37 months, where payments began in April 2021 and will conclude in April 2024. The increase in principal will fund the purchase of the Assets, associated joint account liability, and interim purchase price adjustments. These price adjustments are capital expenditures and expenses from the effective date until the anticipated closing date. In that time there has been significant expenditures and expenses including well reactivations, pipeline repairs, and infrastructure projects. The funded principal amount, after the original issuer discount, is US$8.035 million, less related fees and expenses. Other terms of the Amended Term Loan are materially unchanged from the initial term loan as further described in the Company’s press release dated February 18, 2021. This includes a fixed annual interest rate of 7.875%, with security provided by a first lien on all assets within Razor Royalties Limited Partnership and Razor Holdings GP Corp.
Razor and the Oil & Gas Operations
Razor has intimate knowledge of the Assets through its existing working interest positions and is excited with the opportunity to consolidate assets in our core region. On closing this Acquisition, Razor will enjoy a 49.7 percent non-operated working interest in the Unit while the Operator, Canadian Natural Resources Ltd., maintains its 41.9 percent working interest. The Company will also benefit from increasing its working interest in critical area infrastructure, including the Plant and Gathering System to 38.1 and 43.9 percent, respectively.
The Acquisition enables the Company to cost-effectively add long-life, industry-leading ten percent annual base decline, low-risk, light oil reserves (41o API), production and cash flow underpinned by an improving commodity price environment as crude oil supply/demand returns to balance in the post-COVID era.
FutEra and the Renewable Power Operations
Strategically, Futera Power Corp. (“FutEra”), a subsidiary of Razor, has identified the potential for additional geothermal and/or natural gas power generation projects in the Unit. The volume and temperature of the produced fluids processed through two of the Unit’s main facilities are highly analogous to FutEra’s current South Swan Hills Unit Co-Produced Geothermal Power Generation Plant (the “Geothermal Project”). Construction has begun on this first-of-its-kind Geothermal Project, and the learnings, and cash flow outcomes, can be directly applied to the Unit.
As well, Razor is excited about increasing its working interest in the Plant as we envision the potential to advance Alberta’s hydrogen initiative and the opportunity to implement Carbon Capture, Utilization and Storage (“CCUS”) in the greater Swan Hills area. Design and planning have begun on both small-scale hydrogen production and a CCUS facility.
Razor continues to identify opportunities to liberate alternative sources of energy while measurably improving the environmental and social impacts of our business.
FutEra has commenced project execution on its Geothermal Project in Swan Hills. Stage Gate 1 is fully funded and FutEra is securing additional financing to complete Stage Gate 2. Construction of the power plant has commenced with estimated completion within the first quarter of 2022. Provincially, Alberta Innovates and Emissions Reduction Alberta, and federally, Natural Resources Canada have provided funding grants, of which Razor has received $8.6 million to date.
FutEra has identified, and is in process of reviewing and capturing, additional projects including solar, wind and well-head geothermal. FutEra recently commissioned its wholly owned 10 petahash bitcoin mining operation which includes supplying self-generated power and the mining installation.
Razor has commenced construction to repurpose certain facilities in Virginia Hills to become a Waste Management Component employing bioremediation to treat hydrocarbon-impacted soils. This soil treatment facility will be integral to Razor’s Virginia Hills Area Based Closure operations and is anticipated to be operational in the third quarter of 2021. FutEra is developing a pure green power supply solution for the waste management facility.