Galleon Energy Inc. has agreed to acquire, subject to certain conditions, by plan of arrangement, all of the issued and outstanding shares of ExAlta Energy Inc., for total consideration of approximately $110 million including the assumption of approximately $47.9 million of net debt (including associated deal costs).
Under the terms of the Transaction, Galleon will issue, in aggregate, approximately 4.33 million Class A common shares to shareholders of ExAlta based on an exchange ratio of 0.118 Galleon Class A common shares for each ExAlta share.
The Transaction is accretive to Galleon on the following economic benchmarks: production per share +8%; cash flow per share +8%; and reserves per share +5%. This acquisition has a strong operational fit for Galleon as over 60% of the ExAlta assets are imbedded in Galleon's major core areas in the Peace River Arch area of Alberta. Upon completion of the Transaction, Galleon's inventory of drillable locations will increase to over 725 locations and its land holdings will increase by approximately 132,000 net acres.
Pursuant to the Transaction, Galleon will acquire approximately 2,620 Boe/d (60% gas, 40% oil) with 5.9 Mmboe of proven plus probable reserves (based on Galleon's internal estimates). The production is 80% operated and largely comprised of light oil and natural gas proximal to Galleon's current operations in the Peace River Arch area of Alberta.
At Eaglesham, Galleon's drillable locations targeting light oil will increase to 72 net locations from 40 net locations. Based on existing opportunities, Galleon believes there is potential for growth in this core area to over 6,000 Boe/d from current production of 2,000 Boe/d. Upon completion of the Transaction, Gallon's land access will increase to approximately 170 gross sections (107 net sections) in Eaglesham. Galleon has extensive technical expertise and experience in this area.
Excluding ExAlta's undeveloped land value of approximately $12 million, the Transaction metrics are:
- Production - $37,400 per Boe based on ExAlta's 2007 third quarter production of approximately 2,620 Boe/d;
- Reserves - $16.61 per proved plus probable barrel oil equivalent;
- Property operating cash flow multiple - 3.5 times annualized estimated 2008 property operating cash flow based on $75 US WTI and $6.00/Mcf Cdn.
Galleon will have the following corporate characteristics upon closing of the Transaction:
- High quality assets: 90% operated light oil and natural gas reserves and production in four core operating areas;
- High quality production: average estimated 2008 daily production of approximately 20,000 Boe/d and a forecasted 2008 exit rate of between 22,000 and 24,000 Boe/d;
- Shares outstanding: 67.6 million basic, 73.6 million diluted;
- Significant upside: greater than 725 drilling locations with land access over 1 million gross acres.
In support of the Transaction, Galleon intends to hedge approximately 1,000 barrels per day of oil production in 2008.
The Transaction will provide ExAlta's shareholders with enhanced liquidity and ownership in a larger, financially stronger company with excellent growth prospects and the ability to accelerate the exploitation of ExAlta's substantial prospect inventory. In addition, based on the closing share prices on the Toronto Stock Exchange on November 23, 2007, the Transaction represents a significant premium to ExAlta's share price.
The Boards of Directors of both Galleon and ExAlta have unanimously approved the Transaction. ExAlta's Board of Directors has concluded that the Transaction is in the best interests of its shareholders, and has resolved to recommend that ExAlta shareholders vote their shares in favor of the Transaction. Closing is expected to occur in February 2008, subject to regulatory approval, approval of ExAlta's shareholders, court approval and certain other conditions. An information circular outlining the Transaction will be mailed to ExAlta shareholders in connection with a meeting of shareholders to be held in early 2008.
Certain ExAlta shareholders, including the Board of Directors and all officers of ExAlta, representing approximately 9.3 percent of the shares outstanding, have entered into lock-up agreements to vote their shares in favor of the Transaction, subject to certain exceptions. ExAlta has agreed that it will not solicit or initiate discussions regarding any other business combination or sale of material assets. ExAlta has also granted Galleon a right to match competing unsolicited proposals. The agreement provides for a $3.5 million termination fee payable to Galleon in certain circumstances if the Transaction is not completed.
FirstEnergy Capital Corp. is acting as exclusive financial advisor to ExAlta with respect to the Transaction and has advised the Board of Directors of ExAlta that it is of the opinion, as of the date hereof, and subject to review of the final documentation, that the consideration to be received by the ExAlta shareholders pursuant to the Transaction is fair, from a financial point of view, to the ExAlta shareholders.
GMP Capital LP is acting as a special advisor to Galleon with respect to this Transaction.
Prior to this Transaction, Galleon has approximately 63.2 million Class A shares and 922,500 Class B shares issued and outstanding which trade on the TSX under the symbols "GO.A" and "GO.B". -- www.cnxmarketlink.com
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