Crescent Point Energy (CPG) Acquires Legacy Oil + Gas Inc

Prior market opened on Wednesday, Legacy Oil + Gas Inc (TSE:LEG) disclosed a proposed acquisition by CPG. We are restricted on Crescent Point Energy Corp. As per share deal, the $1.53 billion proposed transaction contemplates 0.095 CPG shares for each LEG share outstanding and shows a value of $2.85 per LEG share.

Under the terms of the Legacy Acquisition, shareholders of Legacy exchanged each of their common shares for 0.095 of a common share of Crescent Point. Former shareholders of Legacy will be eligible to receive the CDN$0.23 dividend to be paid on July 15, 2015, to shareholders of record on June 30, 2015.

With the Legacy Acquisition, Crescent Point has acquired high-netback, low-decline second half 2015 average production of approximately 20,000 boe/d, and approximately 1,000 net sections of land, of which approximately 525 net sections are in southeast Saskatchewan (the “Legacy Assets”). The southeast Saskatchewan lands include approximately 200 net sections in the emerging and highly economic Midale light oil resource play.

Key benefits of the Legacy Acquisition to Crescent Point include:

  • Entrance into the emerging Midale light oil resource play: The unconventional Midale light oil resource play is a large oil-in-place pool with a low recovery factor to date and is currently in the early stages of horizontal well development. Crescent Point believes that the economics of the unconventional Midale play compete favorably with other top-quartile shallow resource plays such as the Bakken, Flat Lake Torquay and Viking plays. Over 400 net drilling locations have been internally identified in the play, of which 105 net locations are booked as proved plus probable (“2P”) and 67 net locations are booked as proved (“1P”);
  • Financial accretion and increased dividend sustainability: The Legacy Acquisition is expected to generate production per share accretion of approximately five to nine percent in 2016, on a debt-adjusted basis, based upon expected production of 20,000 to 25,000 boe/d. This is based on expected 2016 capital expenditures for the Legacy Assets of between $150 million and $250 million, but excludes any additional improvements Crescent Point may achieve through cost reductions. The Company expects cash flow per share accretion of a similar magnitude in 2016, and a greater amount in future years, due to production growth and the significant tax pools acquired. Crescent Point expects its total payout ratio to improve in 2016 due to anticipated synergies, tax benefits and increased free cash flow associated with the Legacy Acquisition;
  • Increased capital flexibility: The Legacy Acquisition increases Crescent Point’s drilling inventory by
    approximately 940 net internally identified locations, of which 386 are booked as 2P and 126 net locations are booked as 1P. The addition of this highly economic inventory with attractive capital efficiencies provides Crescent Point with increased capital flexibility, especially during periods of low commodity prices; and
  • Synergies: The Company expects to achieve cost and operational synergies with the Legacy Acquisition given that the Legacy Assets are overlapping with, and are highly complementary to, Crescent Point’s asset base in southeast Saskatchewan. Crescent Point will also look to reduce overall costs and improve efficiencies while transferring its horizontal drilling, completions and waterflood expertise to the Legacy Assets. The Legacy Assets have a high working interest of approximately 75 percent, which provides Crescent Point with greater control in all areas of development.

The Legacy Acquisition provides Legacy shareholders an enhanced ability to unlock significant value from Legacy’s assets due to Crescent Point’s financial strength and technical advantage, combined with the overlap of Legacy’s and Crescent Point’s asset bases in southeast Saskatchewan. Legacy shareholders will also receive increased diversification and the opportunity for attractive yield-plus-growth potential from Crescent Point’s high quality assets.

Total consideration for the Legacy Acquisition was approximately $1.53 billion, comprised of approximately 18.2 million Crescent Point common shares valued at a five-day volume weighted average trading price at the time of announcement of $29.55 per Crescent Point common share, the assumption of net debt, anticipated adjustments for dissenting shareholders and transaction costs. The net debt assumed was significantly reduced through Crescent Point’s recently completed bought deal financing, which raised aggregate gross proceeds of approximately $660 million and maintains the Company’s financial flexibility on a pro-forma basis.



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