Compton Petrol (CMZ) Announces $150.2M Divestiture of Nat Gas Assets in Niton and Gilby Areas
Compton Petroleum Corporation (NYSE: CMZ) is pleased to announce that it has entered into purchase and sale agreements relating to the disposition of a portion of its natural gas assets located in the Niton and Gilby areas in Central Alberta. Gross proceeds from the transactions are expected to be $150.2 million, which will be used to reduce outstanding indebtedness and provide additional capital for Compton's 2010 development program.
The properties to be sold produced approximately 3,100 boe/d on a combined basis at the effective date of the transactions and were assigned net proved and net proved plus probable reserves of 9.4 MMboe and 14.1 MMboe, respectively, at December 31, 2009. This results in overall sale metrics of $48,500 per equivalent flowing barrel of production and $15.90 and $10.64 per BOE of reserves, for proved and proved plus probable, respectively.
Upon completion of the transactions, Compton will retain a dominant position in the Niton area, providing significant upside potential through its multiple zone development opportunities and contiguous land blocks. The Corporation plans to drill 11 gross wells in this area in 2010, targeting a number of prospective formations. Compton will continue to hold a significant overall land position, totaling 165,019 gross (124,425 net) acres in the area, of which 93,105 gross (77,545 net) acres are undeveloped.
These property sales represent another step in Compton's continuing initiatives to reduce debt, streamline operations and better position itself for growth opportunities.
"These transactions highlight the value of our assets, which is not currently being reflected in our share price," said Tim Granger, President and Chief Executive Officer. "The overall deal metrics are excellent, resulting in high per flowing barrel and reserve values as compared to other recent natural gas transactions. They are also consistent with our objective to improve financial flexibility while preserving significant upside potential for shareholders. We continue to believe that Compton's asset base can generate solid returns and production growth in a conservative natural gas price environment."
The transactions are expected to be accretive to Compton and its shareholders as the Corporation's forward looking cash flow per share is expected to improve with reduced costs offsetting lower production levels. Furthermore, future cash flow should be sufficient to maintain or modestly increase production, assuming natural gas prices in the $5/GJ AECO range.
Upon the successful completion of the transactions, Compton's capital structure will improve with a projected 2011 debt to cash flow ratio of approximately 5 to 6 times. This assumes a $5.50/GJ AECO natural gas price and is dependent on investment levels and resulting production rates. Every $0.25/GJ change in the natural gas price would impact the projected 2011 debt to cash flow ratio by approximately 0.5 times.
Under these assumptions, Management anticipates that it can maintain or modestly grow production in 2011 from 2010 levels with a capital development budget that does not exceed projected cash flow. With conservative gas prices, Compton's asset base offers solid returns and production growth.
"Though not complete, the improvements to our capital structure and ensuing accretion in our netbacks will result in a stable position from which to grow," Mr. Granger continued. "Looking forward, we anticipate generating sufficient cash flow to maintain or grow our production base. Our overall debt levels are manageable today and, as such, the majority of our focus can now shift to developing our excellent asset base as we continue to work towards further opportunities to improve our debt ratios."
The sale transactions have been approved by Compton's Board of Directors, which has concluded that the transactions are in the best interest of shareholders. The transactions are expected to close at the end of June and in mid-July and are subject to conditions typical of transactions of this nature (including, in the case of one of the sales, the completion of an underwritten financing transaction).
Capital expenditures for 2010 will be funded through cash flow generated from operations and other sources such as the sale transactions. During the third and fourth quarters of 2010, Compton anticipates drilling four gross Cardium wells in the Niton area and two to three Basal Quartz wells at High
River. The Corporation also plans to drill three wells in the Foothills area prior to year-end: one well at Todd Creek and two at Callum/Cowley. Compton's corporate strategy is to focus on asset development, maintain financial flexibility and optimize cost structures as well as operating efficiencies to deliver economic growth. The Corporation will pursue future development plans to maximize the upside potential of its assets, accelerating its program as commodity prices allow. Management will continue to employ a disciplined approach to development to create long-term growth in shareholder value.
The properties to be sold produced approximately 3,100 boe/d on a combined basis at the effective date of the transactions and were assigned net proved and net proved plus probable reserves of 9.4 MMboe and 14.1 MMboe, respectively, at December 31, 2009. This results in overall sale metrics of $48,500 per equivalent flowing barrel of production and $15.90 and $10.64 per BOE of reserves, for proved and proved plus probable, respectively.
Upon completion of the transactions, Compton will retain a dominant position in the Niton area, providing significant upside potential through its multiple zone development opportunities and contiguous land blocks. The Corporation plans to drill 11 gross wells in this area in 2010, targeting a number of prospective formations. Compton will continue to hold a significant overall land position, totaling 165,019 gross (124,425 net) acres in the area, of which 93,105 gross (77,545 net) acres are undeveloped.
These property sales represent another step in Compton's continuing initiatives to reduce debt, streamline operations and better position itself for growth opportunities.
"These transactions highlight the value of our assets, which is not currently being reflected in our share price," said Tim Granger, President and Chief Executive Officer. "The overall deal metrics are excellent, resulting in high per flowing barrel and reserve values as compared to other recent natural gas transactions. They are also consistent with our objective to improve financial flexibility while preserving significant upside potential for shareholders. We continue to believe that Compton's asset base can generate solid returns and production growth in a conservative natural gas price environment."
The transactions are expected to be accretive to Compton and its shareholders as the Corporation's forward looking cash flow per share is expected to improve with reduced costs offsetting lower production levels. Furthermore, future cash flow should be sufficient to maintain or modestly increase production, assuming natural gas prices in the $5/GJ AECO range.
Upon the successful completion of the transactions, Compton's capital structure will improve with a projected 2011 debt to cash flow ratio of approximately 5 to 6 times. This assumes a $5.50/GJ AECO natural gas price and is dependent on investment levels and resulting production rates. Every $0.25/GJ change in the natural gas price would impact the projected 2011 debt to cash flow ratio by approximately 0.5 times.
Under these assumptions, Management anticipates that it can maintain or modestly grow production in 2011 from 2010 levels with a capital development budget that does not exceed projected cash flow. With conservative gas prices, Compton's asset base offers solid returns and production growth.
"Though not complete, the improvements to our capital structure and ensuing accretion in our netbacks will result in a stable position from which to grow," Mr. Granger continued. "Looking forward, we anticipate generating sufficient cash flow to maintain or grow our production base. Our overall debt levels are manageable today and, as such, the majority of our focus can now shift to developing our excellent asset base as we continue to work towards further opportunities to improve our debt ratios."
The sale transactions have been approved by Compton's Board of Directors, which has concluded that the transactions are in the best interest of shareholders. The transactions are expected to close at the end of June and in mid-July and are subject to conditions typical of transactions of this nature (including, in the case of one of the sales, the completion of an underwritten financing transaction).
Capital expenditures for 2010 will be funded through cash flow generated from operations and other sources such as the sale transactions. During the third and fourth quarters of 2010, Compton anticipates drilling four gross Cardium wells in the Niton area and two to three Basal Quartz wells at High
River. The Corporation also plans to drill three wells in the Foothills area prior to year-end: one well at Todd Creek and two at Callum/Cowley. Compton's corporate strategy is to focus on asset development, maintain financial flexibility and optimize cost structures as well as operating efficiencies to deliver economic growth. The Corporation will pursue future development plans to maximize the upside potential of its assets, accelerating its program as commodity prices allow. Management will continue to employ a disciplined approach to development to create long-term growth in shareholder value.
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