Madalena Announces Closing of Transformational and Strategic Acquisition in
Argentina and Proa-3 Well Results on Surubi Block
/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE
TSXV Trading Symbol: MVN
OTC Trading Symbol: MDLNF
CALGARY, June 25, 2014 /CNW/ - Madalena Energy Inc. ("Madalena" or the
"Company") (TSXV: MVN and OTC: MDLNF), is pleased to announce that it has
closed the acquisition (the "Acquisition") of the Argentinean business unit of
Gran Tierra Energy Inc. ("Gran Tierra").
The Acquisition is highly accretive and includes Proved and Probable ("2P")
reserves of 6,513 Mboe at December 31, 2013, estimated current production of
approximately 3,300 Boe/d (~78% oil), 11 exploration and production blocks
comprising approximately 890,000 net acres and a fully functional independent
business unit in Argentina, with an experienced technical and operational
team. The purchase price was US$63 million, payable in US$49 million cash and
29,831,537 common shares of Madalena ("Common Shares") at a deemed issue price
of CDN$0.51 (US$0.469).
The Acquisition provides Madalena with a solid platform for growth which more
than triples the Company's production base and significantly increases cash
flow from its Argentinean assets. Madalena's current corporate production is
estimated to be approximately 4,900 Boe/d (~72% oil and NGLs), ~80% of which
is from Argentina. Associated cash flow is expected to be reinvested into both
high impact conventional opportunities in Argentina and to accelerate the
delineation of the Company's unconventional shale and tight sand resources
within the Neuquén basin. Madalena now has a strong portfolio of assets with
exposure to a low decline stable production base, an extensive inventory of
low risk development drilling opportunities, a seismically and technically
defined conventional portfolio of assets, and significant unconventional shale
(Vaca Muerta, Lower Agrio and Los Monos shales) and tight sand resources.
Madalena estimates annual cash flow from operations of US$35 - US$45 million
over the next twelve months which is expected to provide the Company with the
ability, when combined with cash on hand and available credit, to execute a
US$50 - US$60 million capital program over the next 12 to 18 months while
maintaining a strong balance sheet. Madalena will provide additional
go-forward guidance in due course following consideration of a consolidated
budget by the Madalena board of directors.
-- Acquisition cost per flowing boe of approximately US$19,091,
based on current estimated production of 3,300 Boe/d;
-- Reserve life index of 5.41 years, based on current estimated
production and adjusted 2P reserves;
-- Recycle ratio of approximately 2.1x,based on Q1-2014 operating
property netbacks of US$33.93/Boe and acquisition costs of
-- Key producing infrastructure, including batteries and
-- Approximately 890,000 net acres of developed and undeveloped
-- Lands have an average working interest of approximately 83%,
and the net production acquired is more than 94% operated.
The following is a summary of production, land and reserves information that
is relevant to Madalena, prior to, and following, the Acquisition:
Madalena(1) Acquisition(2) Adjustments(3) Pro Forma
Oil and NGLs
(Bbl/d) 960 2,610 - 3,570
Gas (Mcf/d) 3,840 4,150 - 7,990
Boe (Boe/d) 1,600 3,300 - 4,900
Oil and NGLs (%) 60 79 - 72
Land (net acres) 239,000 890,000 - 1,129,000
Oil and NGL (Mbbl) 1,350 4,248 (612) 4,986
Gas (MMcf) 8,032 5,599 (510) 13,121
MBOE (6:1) 2,689 5,181 (697) 7,173
Oil and NGLs (Mbbl) 2,373 6,295 (900) 7,768
Gas (MMcf) 13,651 7,615 (900) 20,366
MBOE (6:1) 4,648 7,563 (1,050) 11,161
(US$MM) 20 46 (21) 45
(US$MM) 33 77 (35) 75
Accretion Analysis Madalena Acquisition Pro Forma Accretion
Diluted Shares (MM) 413.5 127.9 541.4 -
(Boe per MM Common
Shares) 6.5 40.5 13.3 104%
(Boe per MM Common
Shares) 11.2 59.1 20.6 83%
(Boe/d per MM
Common Shares) 3.9 25.8 9.1 134%
1. Based on the independent reserve reports of Madalena evaluating
the crude oil, natural gas liquids and natural gas reserves of
the Company as at December 31, 2013 prepared by an independent
reserves evaluator in accordance with National Instrument
51‐101 ‐ Standards of Disclosure for Oil and Gas
Activities ("NI 51-101") and the COGE Handbook.
2. Based on the independent reserve reports of Gran Tierra
evaluating the crude oil, natural gas liquids and natural gas
reserves of Gran Tierra as at December 31, 2013 prepared by an
independent reserves evaluator in accordance with NI 51-101 and
the COGE Handbook.
3. Adjustments to the acquisition reserves were made pursuant to
internal management estimates conducted by a qualified reserves
engineer. Adjustments consisted of reduced PUD locations due to
rescheduling or removal of proven undeveloped and probable
locations on the subject assets and acreage consolidations.
4. Reserves are "gross reserves", being working interest share of
reserves before the deduction of royalties owned by others.
5. "FDC" means future development costs. Madalena converted to US$
6. Based on field estimates.
Rationale for the Acquisition
-- Highly accretive on all metrics and more than triples the
Company's production base.
-- Strong cash flow from the conventional asset bases that can be
directed towards accelerating development of Madalena's
unconventional shale oil and gas plays in Argentina.
-- Strengthens Madalena's Argentinean operations by adding a fully
integrated professional and operating team "on the ground" in
-- Enhances and improves the Company's flexibility regarding the
future delineation of, or transactions associated with,
Madalena's current unconventional shale assets in Argentina.
-- Strategically positions Madalena as a strengthened and emerging
oil and gas producer.
-- Improves Madalena's access to exploration and production
services in Argentina.
Dundee Securities Ltd. has acted as financial advisor to Madalena with respect
to the Acquisition. RBC Capital Markets has acted as strategic advisor to
Madalena with respect to the Acquisition.
Proa-3 Well Results on the Surubi Block in Formosa Province, Argentina
The Surubi Block is located within the Noroeste Basin of Argentina. Madalena
Energy has an 85% working interest and is the operator. Recursos y Energia de
Formosa S.A. retains the remaining 15% working interest.
Gran Tierra recently drilled, completed, tested and placed on-stream the
Proa-3 development well. The well was drilled to a depth of approximately
3,920 metres and encountered oil in the Palmar Largo formation, as targeted.
The well was perforated in the Palmar Largo formation between the depths of
3,858.5 metres and 3,866.5 metres and was subsequently tested.
Following the perforating and initial clean-up flow, bottomhole pressure
gauges were set and the well was flow tested on three increasing choke sizes
of 10, 12 and 16mm for 8 hours each. Oil rates and flow pressures stabilized
for each choke setting at the following levels: 1,100 bbls/d oil at 505 psi,
1,240 bbls/d oil at 410 psi and 1,540 bbls/d at 300 psi, respectively. The
water cut was stable throughout the flow test at approximately 3%. The well
was then shut-in to record pressure build-up. Pressure gauges were
subsequently recovered and the well was placed on production on June 16, 2014.
The Proa-3 well is currently producing at gross rates of between 600 to 700
bbls/d of oil.
Oil production from the Proa-3 well has been included in the total corporate
production rates estimated above at rates less than the test and initial
production rates disclosed to account for expected declines. The Company plans
to manage production from this well to maximize oil recovery from the Proa
Palmar Largo oil pool.
About Madalena - International and Domestic Assets (Pre-Acquisition)
Madalena is an independent, Canadian-based, international and domestic
upstream oil and gas company whose main business activities include
exploration, development and production of crude oil, natural gas liquids and
Internationally, Madalena holds 14 large land blocks within five provinces in
Argentina where it is focused on the delineation of large petroleum in-place
shale and unconventional resources in the Vaca Muerta and Lower Agrio shales,
in addition to multiple tight sand plays. The Company is also implementing
horizontal drilling and completions technology to high impact conventional and
Domestically, Madalena's core area of operations is located in the Greater
Paddle River area of west-central Alberta where the Company holds
approximately 195 gross (153 net) sections of land (approximately 78% average
W.I.) encompassing light oil and liquids-rich gas resource plays. Madalena's
primary domestic focus is to exploit its large inventory of horizontal
drilling locations on its Ostracod oil and emerging oil & liquids-rich gas
Madalena trades on the TSX Venture Exchange under the symbol MVN. Basic
corporate information, recent news releases and regularly updated corporate
presentations are available on the Company's website at www.madalenaenergy.com
Forward Looking Information
The information in this news release contains certain forward-looking
statements. These statements relate to future events or our future
performance, in particular, but not limited to, with respect to the
Acquisition, including the characteristics of the Argentinean business unit
being acquired and other expectations related thereto, including pro forma
cash flow and current and future production levels, the strategic value and
opportunities available to Madalena and the ability of Madalena to execute
its business plan following the completion of the Acquisition. Statements
relating to "reserves" are also deemed to be forward looking statements, as
they involve the implied assessment, based on certain estimates and
assumptions, that the reserves described exist in the quantities predicted or
estimated and that the reserves can be profitably produced in the future. All
statements other than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always, identified
by the use of words such as "seek", "anticipate", "plan", "continue",
"estimate", "approximate", "expect", "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should", "believe",
"would" and similar expressions. In particular, this news release contains
forward-looking statements pertaining to operational activities to be
conducted by the Company. These statements involve substantial known and
unknown risks and uncertainties, certain of which are beyond the Company's
control, including: the impact of general economic conditions; industry
conditions; changes in laws and regulations including the adoption of new
environmental laws and regulations and changes in how they are interpreted and
enforced; fluctuations in commodity prices and foreign exchange and interest
rates; stock market volatility and market valuations; volatility in market
prices for oil and natural gas; liabilities inherent in oil and natural gas
operations; uncertainties associated with estimating oil and natural gas
reserves; competition for, among other things, capital, acquisitions, of
reserves, undeveloped lands and skilled personnel; incorrect assessments of
the value of acquisitions; changes in income tax laws or changes in tax laws
and incentive programs relating to the oil and gas industry; geological,
technical, drilling and processing problems and other difficulties in
producing petroleum reserves; and obtaining required approvals of regulatory
authorities. The Company's actual results, performance or achievement could
differ materially from those expressed in, or implied by, such forward-looking
statements and, accordingly, no assurances can be given that any of the events
anticipated by the forward-looking statements will transpire or occur or, if
any of them do, what benefits the Company will derive from them. These
statements are subject to certain risks and uncertainties and may be based on
assumptions that could cause actual results to differ materially from those
anticipated or implied in the forward-looking statements. The forward-looking
statements in this news release are expressly qualified in their entirety by
this cautionary statement. Except as required by law, the Company undertakes
no obligation to publicly update or revise any forward-looking statements.
Investors are encouraged to review and consider the additional risk factors
set forth in the Company's Annual Information Form, which is available on
SEDAR at www.sedar.com.
This document contains the term "cash flow" and "net backs", which do not have
a standardized meaning prescribed by Canadian generally accepted accounting
principles ("GAAP") and therefore may not be comparable with the calculation
of similar measures by other companies. Madalena uses cash flow and net backs
to analyze financial and operating performance. Madalena feels this benchmark
is a key measure of profitability for Madalena. This term is commonly used in
the oil and gas industry. Cash flow is not intended to represent operating
profits nor should it be viewed as an alternative to cash flow provided by
operating activities, net earnings or other measures of financial performance
calculated in accordance with GAAP. Cash flows are calculated as cash flows
from operating activities less changes in non‐cash working capital.
Information Regarding Disclosure on Reserves
The reserve estimates contained herein are estimates only and there is no
guarantee that the estimated reserves will be recovered. In relation to the
disclosure of estimates for individual properties, companies or business
units, as adjusted, such estimates may not reflect the same confidence level
as estimates of reserves and future net revenue for all properties, due to the
effects of aggregation.
Meaning of Boe
The term "boe" or barrels of oil equivalent may be misleading, particularly if
used in isolation. A boe conversion ratio of six thousand cubic feet of
natural gas to one barrel of oil equivalent (6 Mcf: 1 bbl) is based on an
energy equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead. Additionally,
given that the value ratio based on the current price of crude oil, as
compared to natural gas, is significantly different from the energy
equivalency of 6:1; utilizing a conversion ratio of 6:1 may be misleading as
an indication of value.
Initial Production Rates
Any references in this document to test rates, flow rates, initial and/or
final raw test or production rates, early production, test volumes and/or
"flush" production rates are useful in confirming the presence of
hydrocarbons, however, such rates are not necessarily indicative of long-term
performance or of ultimate recovery. Such rates may also include recovered
"load" fluids used in well completion stimulation. Readers are cautioned not
to place reliance on such rates in calculating the aggregate production for
Madalena. In addition, the rates referred to herein may be subject to high
initial decline rates. Such rates may be estimated based on other third party
estimates or limited data available at this time and are not determinative of
the rates at which such wells will continue production and decline thereafter.
Particular reference is made to the Proa-3 results referred to herein. While
Madalena is very encouraged by the initial results from this well, the testing
information and the initial production information disclosed herein should be
considered preliminary and may not be indicative of the well's long term
Neither the TSX Venture Exchange nor its Regulation Service Provider (as that
term is defined in the policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
THE SECURITIES OFFERED HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES
ABSENT REGISTRATION OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS. THIS
PRESS RELEASE SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL.
SOURCE Madalena Energy Inc.
Kevin Shaw, P.Eng, MBA President and Chief Executive Officer Madalena
Energy Inc. Phone: (403) 262-1901 (Ext. 230) firstname.lastname@example.org
Thomas Love, CA VP, Finance and Chief Financial Officer, Madalena Energy Inc.
Phone: (403) 262-1901 (Ext. 227) email@example.com
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