Lycos Energy Inc. (LCX) (“Lycos”) is pleased to announce that it has entered into a definitive agreement (the “Acquisition Agreement”) to acquire Wyatt Resources Ltd. (“Wyatt”), a privately-held, heavy oil producer and that the Company will be proceeding with the consolidation (the “Consolidation”) of its common shares (the “Lycos Shares”) on the basis of eight (8) pre-Consolidation Lycos Shares for each one (1) post-Consolidation Lycos Share. In addition, the Company’s unaudited interim financial statements and related management’s discussion and analysis (“MD&A”) for the three and six months ended June 30, 2023 and 2022 have been filed on SEDAR+ at www.sedarplus.ca and are available on the Company’s website.
Q2 2023 Financial and Operating Highlights
Lycos is pleased to report its financial and operating results for Q2 2023, including the following highlights:
Generated average Q2 2023 production of 2,908 boe/d (99% crude oil), representing a 222% increase from Q2 2022 of 903 boe/d (99% crude oil) and a 50% increase from the Q1 2023 of 1,940 boe/d (99% crude oil). The increase is the result of a full quarter of production results from the Company’s Q1 2023 acquisition as well as the successful drilling in Q4 2022 and Q1 2023. The Company expects the production contributions from the Q2 capital expenditures to be reflected in its Q3 2023 results.Adjusted funds flow from operations(1) was $7.0 million representing a 199% increase from $2.3 million in the second quarter of 2022 and a 167% increase from $2.6 million in Q1 2023.Achieved net operating expenses(1) per boeof $24.49 representing a 57% decrease from $56.40 in the Q2 2022 and a 17% decrease from $29.55 in the Q1 2023. The reduction in net operating costs is the result of operational efficiencies from the Q1 2023 Acquisition and capital investment in infrastructure.Executed an $11.9 million capital expenditure program bringing onstream 2 multi-lateral wells at the end of the quarter and commenced 4 drills (one multi-lateral and three multi-leg fishbone wells) that were completed and brought onstream in Q3 2023. The Company added approximately 23,000 net acres of crown and freehold lands to the Company’s undeveloped land base and continued its investment in injection and disposal infrastructure to reduce operating costs.On May 24, 2023, Lycos’ revolving credit facility was increased from $20.0 million to $35.0 million.
Operations Update
The Company continues to drill both multi-lateral and fishbone heavy oil wells with initial results exceeding type curves. With the refinement of pad drilling sites for stacked Mannville zones, significant efficiency improvements have resulted. Lycos has achieved its fastest fishbone drilling time to date, drilling a combined lateral length of 9,850 meters in nine (9) days (1,094 meters/day). This is a 20% improvement from the average 905 meters/day achieved in previous wells.
Lycos has brought one 8 leg well and three fishbone wells on stream in Q3 2023, all of which are in Alberta. The wells are currently producing at an aggregate rate of over 800 boe/d (99% crude oil).
Lycos continues to observe better performance on fishbone wells. Lycos brought on two wells directly beside each other in Q4 2022, one fishbone and one 8 leg well. The fishbone well has produced over 25,000 bbls to date, which exceeds the 8 leg well by more than 9,000 bbls over the same period.
Strategic Acquisition
Pursuant to the terms of the Acquisition Agreement, the Company will be acquiring Wyatt for total consideration of $8.8 million, consisting of $6.5 million in cash and $2.3 million of equity comprised of 5.1 million pre-Consolidation Lycos Shares at a deemed price of $0.4523 per Lycos Share (the “Acquisition”). The Acquisition will be funded by the Company’s credit facilities and cash on hand.
Summary of the Acquisition
Total consideration$8.8 millionCurrent production400 boe/dLand12,335 net acresNet drilling locations> 20 net locationsReserves Proved reserves757 MboeProved plus probable reserves1,030 MboeBefore tax, net present value (discounted at 15%) Proved reserves12,469 M$Proved plus probable reserves17,005 M$.
Acquisition Highlights
Provides an entry point into a new core area in Frog Lake Alberta, as well as adding numerous locations within Lycos’ current operations in the Lloydminster area of Alberta.Current production of approximately 400 boe/d (99% crude oil). Lycos forecasts its’ corporate production at closing to be 3,700 boe/d (99% crude oil).12,335 net acres of land predominantly at Wildmere and Frog Lake.More than 20 net identified Mannville heavy oil multilateral drilling locations.
Transaction Details
Concurrent with the execution of the Acquisition Agreement, shareholders of Wyatt representing 100% of the outstanding common shares of Wyatt executed letters of transmittal irrevocably accepting Lycos’s offer and tendering their shares in connection with the Acquisition. The Acquisition Agreement provides for, among other things, a non-solicitation covenant on the part of Wyatt.
The Acquisition is expected to close on September 1, 2023, subject to certain customary conditions and approvals, including the approval of the TSX Venture Exchange (the “TSXV”).
All of the Lycos Shares issued to the shareholders of Wyatt will be subject to a four-month escrow period.
2023 Guidance
The Company is increasing its 2023 acquisition expenditures(2) to $59.0 million and its 2023 exploration, development and other capital expenditures to $47.0 million from $50.0 million and $37.0 million, respectively. The additional capital expenditures will fund a two (2) well drilling program on the newly acquired properties as well as the acquisition of additional undeveloped acreage. As a result, we are increasing our anticipated 2023 annual average production to be 3,150 boe/d (99% crude oil) from 3,000 boe/d (99% crude oil), respectively. Lycos expects to fund these additional capital expenditures through its existing working capital and revolving credit facility which will result in a revised estimated Exit Adjusted Working Capital (Net Debt)(1) of ($10.0) million.
(1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
(2) Revised acquisition expenditures is comprised of $56.7 million of cash and $2.3 million of equity.
Share Consolidation
The board of directors of the Company intends to effect the Consolidation on the basis of eight (8) pre-consolidation Lycos Shares for each post-consolidation Lycos Share to promote increased liquidity and reduce volatility in the trading of the Lycos Shares.
The Consolidation will be effective upon the filing of the Articles of Amendment for the Company and remains subject to the approval of the TSXV. Trading of the Lycos Shares on a post-Consolidation basis on the TSXV is expected to commence at market open on September 1, 2023 under the following new ISIN and CUSIP codes:
ISIN: CA55082H2063
CUSIP: 55082H206
The 318,147,806 Lycos Shares currently issued and outstanding will be reduced to approximately 39,768,476 Lycos Shares on a post-Consolidation basis. Following the completion of the Acquisition, the number of post-Consolidation Lycos Shares issued and outstanding will be 40,404,116. The record date for the Consolidation will take place on the close of business of the last trading day immediately prior to the date on which the post-Consolidation Lycos Shares commence trading on the facilities of the TSXV. No fractional shares will be issued. Any fractional interest in Lycos Shares that is less than 0.5 of a Lycos Share resulting from the Consolidation will be rounded down to the nearest whole post-Consolidation Lycos Share and any fractional interest in Lycos Shares that is equal to or greater than 0.5 of a Lycos Share resulting from the Consolidation will be rounded up to the nearest whole post-Consolidation Lycos Share. As a result of the Consolidation, there will be proportional adjustments to outstanding options and warrants to acquire Lycos Shares to preserve the rights of the holders of such securities to the relevant proportion of the Company’s Lycos Shares post-Consolidation.
Letters of transmittal will be mailed to registered shareholders and registered shareholders will be required to deposit their share certificate(s), together with the duly completed letter of transmittal, with Odyssey Trust Company, the Company’s registrar and transfer agent. Non-registered shareholders holding Lycos Shares through an intermediary (a securities broker, dealer, bank or financial institution) should be aware that the intermediary may have different procedures for processing the Consolidation than those that will be put in place by the Company for registered shareholders. If shareholders hold their Lycos Shares through an intermediary and they have questions in this regard, they are encouraged to contact their intermediaries.
Option Grant
The Company’s board of directors also granted 300,000 options to purchase pre-Consolidation Lycos Shares to a newly appointed director. The stock options are exercisable at a price of $0.45 per Lycos Share, expire five years from the date hereof, and vest as to one-third on each of the first, second and third anniversary date of the grant.
