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Lycos Energy Inc. Secures Durham Creek Exploration Ltd. & $25M Equity Financing
10/04/2023
Lycos Energy Inc. has solidified a conclusive agreement to procure Durham Creek Exploration Ltd., a prominent heavy oil producer, for a total of CA$22.5 million.
Lycos Energy Inc. is delighted to disclose the conclusion of a definitive agreement to acquire Durham Creek Exploration Ltd., an independent, private heavy oil producer. This acquisition, by way of a plan of arrangement, is valued at $22.5 million, comprising $12.5 million in cash and 2.8 million Lycos common shares, each valued at $3.55.
The Acquisition will be financed through a $25 million bought deal equity financing.
Highlights of the Acquisition
- Land Expansion: The acquisition covers 35,382 net acres (55.93 net sections) apt for multi-lateral development, closely aligned with Lycos' latest acquisition of Wyatt Resources Ltd.
- Enhanced Holdings: Combined with DCEL and the recent Wyatt procurement, Lycos has augmented its corporate land holdings by 31% to 147,956 net acres.
- Drilling Locations: Over 70 net Mannville heavy oil multi-lateral drilling locations have been identified on DCEL lands, expanding the development portfolio to 210 locations.
- Tier 1 & 2 Inventory Increase: There’s a 77% increase in Tier 1 Mannville inventory and a 49% increase in Tier 2 Mannville inventory.
Production Insights
The acquired production is foreseen to average around 180 boe/d (99% crude oil) upon closure from a multi-lateral well at Lindbergh. DCEL’s initial well has shown promising results with an IP30 of 183 boe/d, aligning with Lycos’ anticipation to deploy its innovative multi-lateral/fishbone drilling technique to intensively develop the procured lands.
Drilling and Development
Lycos intends to employ its fishbone well designs to develop the acquired land base. The company has realized significant successes with an IP30 of 235 boe/d and an IP26 of 355 boe/d on its latest two Swimming Rex wells, employing a refined half fishbone design and a substantially revamped drilling fluid system. This method is perceived to substantially uplift deliverability and is planned to be utilized to develop DCEL's inventory.
Economic Considerations
- Payout and NPV-10% assumptions are founded on pricing presumptions of US$75/bbl WTI;
- (US$15) WCS differential;
- $0.741 CAD/USD, incorporating operating expenses of $15.48/boe, an 11.4% royalty rate, and capital expenditures of $1.6 million.
Deal Summary
Under the Acquisition Agreement, Lycos will acquire DCEL for a total, pre-adjustments, consideration of $22.5 million, which will include $12.5 million in cash and 2.8 million Lycos Shares valued at $3.55 each.
In tandem with the formalization of the Acquisition Agreement, DCEL shareholders, representing around 83% of DCEL’s outstanding common shares, have irrevocably approved the Acquisition through written resolutions. The agreement stipulates, among other things, a non-solicitation covenant from DCEL.
The anticipated closure of the Acquisition is on or before October 16, 2023, subject to the fulfillment of the Offering and the receipt of standard approvals and conditions, including approvals from the Court of King's Bench of Alberta and the TSX Venture Exchange (TSXV).
Lycos Shares allotted to DCEL insiders, which represent approximately 81% of DCEL’s outstanding shares, will be subject to staged release—one-third every three, six, and nine months post-Acquisition closure.
Pro Forma Guidance for 2023
Post-Acquisition, Lycos anticipates augmenting its 2023 capital expenditure to $57 million, with plans to drill an additional 2 to 3 wells on DCEL's acreage in Q4/23. However, the 2023 production guidance remains intact as the supplementary drilling is not foreseen to substantially affect Lycos's average production for 2023.
Even with the increased expenditure, Lycos aims to uphold a robust balance sheet and considerable liquidity. The company foresees no forecasted net debt at the conclusion of 2023 and expects to have $35 million available under its current credit facilities.
About Lycos Energy
Lycos Energy Inc., stationed in Calgary, Alberta, is a pioneering exploration, development, and production firm with a concentrated focus on oil. The company manages premier heavy-oil development assets situated in the Gull Lake region of southwest Saskatchewan, along with additional heavy-oil assets in the Lloydminster area.
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