Rubellite Energy (RBY.TO and RUBLF) Update - Sept 17

[dan_s]

I was not aware of this merger before we published our profile on Rubellite Energy. I will update my forecast on Saturday. My initial reaction is that the increased scale is a good thing.
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CALGARY, AB, Sept. 17, 2024 /CNW/ - Rubellite Energy Inc. (TSX:RBY) ("Rubellite") and Perpetual Energy Inc. (TSX:PMT) ("Perpetual") are pleased to jointly announce that they have entered into a definitive arrangement agreement (the "Arrangement Agreement") whereby Rubellite and Perpetual will recombine in an all-share transaction (the "Transaction") to create a stronger company that will be managed by the existing executive team and will operate as Rubellite Energy Corp. The Transaction, which will be completed by way of a plan of arrangement, will have significant benefits for both Rubellite and Perpetual shareholders and all other stakeholders.

"The Transaction will provide shareholders of both Rubellite and Perpetual with valuable synergies, both quantitative and qualitative" said Sue Riddell Rose, President and CEO of both Rubellite and Perpetual. "Shareholders will benefit from owning a larger, financially stronger company with increased free funds flow, enhanced liquidity and a well-defined organic growth profile. The recombined company will continue to execute on the business plan focused on exploration, development and consolidation in the Clearwater and Mannville Stack heavy oil plays where multi-lateral horizontal drilling technology is being applied to unlock significant resource while generating attractive returns for shareholders while the non-operated natural gas asset in the Deep Basin at Edson provides diversification of funds flow and optionality to enhance the execution of the business plan."

Pursuant to the Transaction, holders of Rubellite common shares ("Rubellite Shares") will receive one (1) common share of the recombined company ("New Shares") for each Rubellite Share held, holders of Perpetual common shares ("Perpetual Shares") will receive one (1) New Share for every five (5) Perpetual Shares held, and Perpetual's outstanding senior notes ($26.2 million in face value) will be converted into 11.6 million New Shares based on the five-day volume weighted average price ("VWAP") for the Rubellite Shares prior to the announcement of $2.25 per share. Upon completion of the Transaction, the recombined company will have an estimated 93.0 million shares outstanding and holders of Rubellite Shares will own 72.7%, holders of Perpetual Shares will own 14.8%, and holders of Perpetual senior notes will own 12.5% of the recombined company.

Rubellite's syndicate of four banks have confirmed that the credit facility for the recombined company will have a borrowing limit of $140 million which, in combination with Rubellite's outstanding $20 million five year term loan (the "Rubellite Term Loan"), will provide enhanced liquidity.

HIGHLIGHTS OF THE RECOMBINED COMPANY

The recombined company is forecast to realize material administrative, operating and financial synergies in the order of $40 to $50 million over the next four years. With increased size and scale, greater financial liquidity, and enhanced flexibility to the recombined enterprise with operations carried on by its subsidiaries, the recombined company will be well positioned to execute on the development of its high quality drilling inventory with significant optionality to efficiently realize the value of the combined assets through its growth-focused business plan.

Highlights of the recombined company (estimated at closing) include:

Large scale exposure to operated heavy oil assets in the Clearwater and Mannville Stack plays

Over 7,000 boe/d (100% oil) of conventional heavy oil production

Access to over 580 net sections of prospective lands

Multiple exploration prospects captured with material upside location inventory potential if successful

Significant heavy oil resource captured beyond primary recovery in core development assets representing future enhanced recovery potential

Strategic exposure to high quality natural gas assets in the Deep Basin

Approximately 4,000 boe/d (~90% natural gas) of conventional natural gas and liquids production

Predictable base production profile, attractive half cycle economics, operated by JV partner Tourmaline Oil Corp.

Infrastructure in place to restore sales production to >6,500 boe/d when natural gas prices improve

Significant drilling inventory supports long-term growth

Defined development drilling inventory of over 355 net development / step-out locations(1) (115.6 net booked(2)/ 239.4 net unbooked) to organically grow production by 10% to 15% per year through 2028 and beyond

Reserve recognition of Total Proved Plus Probable ("TPP") volumes of 48 MMboe, TPP RLI of ~10 years, with ~$710 million TPP NPV(10%) before tax(2)

Strong financial position

Approximately $100 million drawn at closing on an expanded $140 million syndicated first lien credit facility and continuation of the existing $20 million Rubellite Term Loan due in 2029

Fully-funded growth focused 2025 drilling program supported by both Rubellite and Perpetual's hedging risk management programs

Meaningful synergies to enhance free funds flow through lower combined G&A and interest costs, along with over $550 million in combined resource tax pools and non-capital losses

Portfolio of high impact new venture opportunities

Land capture strategy advancing on several new exploration plays

Substantial bitumen resource potential

Helium exploration joint venture

Experienced and aligned management team and board of directors

Existing Rubellite and Perpetual management team

Board of directors will be eight (8) members comprised of the existing Rubellite and Perpetual directors

Directors and officers of the recombined company will own 44.3% of the total New Shares