Spartan Delta Corp. has entered into a definitive agreement to acquire Velvet Energy Ltd., a privately held light-oil Montney producer, positioning Spartan as the largest producer and acreage holder in the oil window of Canada's Montney fairway, the company announced July 28.
The Velvet acquisition will be funded by a combination of cash on hand, a CA$150 million bought deal equity financing led by National Bank Financial Inc., as sole bookrunner, together with CIBC World Markets Inc. as co-lead underwriters, a five-year CA$150 million 7.7% senior unsecured term facility and the company's revolving credit facility for total consideration of approximately CA$743.3 million.
Velvet's operations include about 281,700 net acres of high working interest (98%) Montney Crown land across four development areas in Gold Creek, Karr, Pouce Coupe and Flatrock. In addition, award-winning integrated water recycling infrastructure at Gold Creek minimizes freshwater usage in completion operations, providing a solid foundation for long-term sustainable development.
Average production from Velvet's assets is expected to be about 20,600 boe/d at close, consisting of 8,600 bbl/d of oil (42%), 3,000 bbl/d of NGL (14%) and 54.0 MMcf/d of natural gas (44%). Significant growth opportunities have been identified on the acreage associated with the Velvet Assets, including 732 net identified Montney drilling locations. Upon completion of the acquisition, Spartan expects 2022 production to average between 66,000 to 71,000 boe/d.
The Velvet acquisition includes an estimated $1.2 billion of available tax pools, including CA$600 million of non-capital losses, which are expected to further enhance Spartan's future tax position by extending the Company's tax horizon.
Fotis Kalantzis, president and CEO of Spartan, said: "The Acquisition will be a major milestone in Spartan's Montney consolidation strategy and brings the company closer to achieving its previously stated objective of growing production to 100,000 boe/d. Velvet has been the dominant player in the Montney oil fairway and their team has built a tremendous portfolio of assets concentrated in large contiguous blocks. The Acquisition further consolidates and adds material scale to the company's Montney focused core development area in northwest Alberta, building on the position acquired during the first half of 2021. Spartan will benefit from Velvet's Montney technical expertise. The Oil weighted production and development of the Velvet Assets will provide further commodity diversification to the Spartan portfolio, complimenting the company's liquids-rich natural gas properties in the central Alberta Deep Basin."
Ken Woolner, president and CEO of Velvet, added: "I'm extremely excited to be merging Velvet's top-tier Montney oil assets with such a high quality business. Spartan has the management, balance sheet and business plan to fully realize the value we have built our company towards capturing."
Spartan has also received conditional approval from the Toronto Stock Exchange ("TSX") to list its common shares on the TSX, the company announced. The common shares will delist from the TSX Venture Exchange ("TSXV") upon commencement of trading on the TSX. Final approval for TSX listing is subject to Spartan fulfilling certain standard and customary conditions. The trading symbol for the common shares on the TSX will remain unchanged as "SDE".
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