The Acquisition generates the following advantages for Tenaz:
- Expands upstream and midstream free cash flow(1) by consolidating ownership in existing Netherlands assets;
- Significantly increases positive adjusted working capital(1);
- Accretive on key per share measures(1), including production, reserves, cash flow and free cash flow(1);
- Increases exposure to high-margin Dutch Title Transfer Facility (“TTF”) gas; and
- Demonstrates ability to transact with an international major in a geographic region of focus.
Upstream Assets
The Acquisition increases Tenaz’s working interest in each of the L10/L11a, K9, K12 and N7b license blocks. Upon completion, our interest in the producing licenses will increase as follows:
- L10/L11a: from 11.35% to 21.43%
- K9a and K9b: from 8.44% to 15.94%
- K9c: from 6.49% to 12.26%
- K12: from 5.67% to 10.71%
- N7b: from 9.45% to 17.86%
Tenaz’s interest in the undeveloped F10, F11a, F17, and F18 licenses remains unchanged as a result of the Acquisition, as does our interest in the producing L10-O field, which XTO elected not to participate in when drilled.
Midstream Assets
Tenaz will also acquire an additional 10.1% ownership interest in Noordgastransport B.V. (“NGT”), bringing our total interest to 21.4% and making us the second largest shareholder of NGT. Tenaz expects to receive distributions from its ownership in NGT through annual dividends. The most recent dividend declared to the NGT shareholder group attributable to 2022 results was $27.0 million (€18.4 million), continuing a history of paying dividends to shareholders for over twenty consecutive years. Decommissioning costs for NGT are provisioned and held within NGT’s working capital.
Carbon Reduction Project
The entity to be acquired does not hold rights to the L10 Carbon Capture & Storage (“CCS”) Project, which is currently being evaluated by the L10 Partner Group. Tenaz holds an 11.35% interest in the CCS project, which remains unchanged as a result of the Acquisition.
McDaniel and Associates (“McDaniel”) has completed an independent assessment of the reserves associated with the assets and have assigned 664 mboe (99% natural gas) of Total Proved + Probable (“2P”) reserves as at July 1, 2023. McDaniel’s evaluation projects that the upstream assets will have a remaining productive life of 13 years. McDaniel’s assessment of after-tax net present value, discounted at ten percent (“NPV10”), of the 2P reserves on the most recent Consultant Average Price Forecast(2) equates to $7.4 million (€5.1 million), after taking into account estimated decommissioning costs.
In addition to the license interests and NGT equity held by XTO, XH will leave approximately $46.5 million (€32.0 million) of positive adjusted working capital(1), which includes a cash balance of approximately $61.8 million (€42.8 million)(3), in the acquired entity at closing. These amounts reflect an economic effective date for the Acquisition of January 1, 2023 and include expected cash flows for the first half of 2023.
The acquired assets are expected to produce approximately 450 to 500 boe/d during 2023, which would represent an increase of 20% to production per share(1) relative to the midpoint of Tenaz’s 2023 production guidance. Based upon year-to-date results plus forecasted cash flows at strip pricing(4) for the remainder of 2023 as at June 23, 2023, funds flow from operations(1) (“FFO”) for full-year 2023 would be $7.4 million (€5.1 million). The portion of the projected production and FFO which will be recognized in our 2023 results will depend on the timing of closing of the Acquisition.
Present value of decommissioning liability associated with the acquired assets is estimated to be approximately $29.2 million(5) (€20.1 million). At close, $15.3 million (€10.5 million) of the acquired cash within XTO will be pledged as decommissioning security(3), in accordance with the decommissioning security agreements applicable to the acquired interests.
CAPEX(1) for the acquired assets is estimated to be $1 to $2 million during the second half of 2023. As capital requirements for Tenaz’s existing Netherlands assets are currently running below the low end of the guidance range, Tenaz is not adjusting its consolidated CAPEX guidance at this time.
The production increase from the Acquisition will depend on the timing of closing. Assuming that the closing occurs during Q3 2023, the anticipated calendar 2023 production increase would be approximately 100 to 200 boe/d.
Consequently, Tenaz is updating its previously announced 2023 capital and production guidance as follows:
|
Pro Forma 2023 |
Previous 2023 Guidance |
Updated 2023 Guidance |
|
Production (boe/d) |
2,200 – 2,300 |
2,300 – 2,500 |
|
Capital expenditure(1) ($ million) |
$20 – $24 |
$20 – $24 |
Tenaz engaged with ATB Financial, Ernst & Young, Torys LLP, Lawson Lundell LLP, HEUSSEN Advocaten & Notarissen, McDaniel and Associates Consultants Ltd. and Gallagher Energy Risk Services on the Acquisition.
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1 |
This is a non-GAAP and other financial measure. Refer to “Non-GAAP and Other Financial Measures” included in the “Advisories” section of this press release. |
|
2 |
Consultant Average Pricing assumed TTF gas pricing of €48.26/MWh for the second half of 2023, €56.91/MWh for 2024, and €50.44/MWh for 2025. |
|
3 |
Cash balance of approximately $61.8 million (€42.8 million) includes restricted cash of $15.3 million (€10.5 million) which will be pledged as decommissioning security. |
|
4 |
TTF strip pricing for the second half of 2023 of €42.82/MWh, €54.24/MWh for 2024, and €45.73/MWh for 2025, as at June 23, 2023. |
|
5 |
Discounted liability based on assumptions that would have been applicable if the acquisition had occurred at the end of the first quarter of 2023. Using the Q1 2023 assumptions, the inflation rate would have been 2.5% and the credit-adjusted risk-free rate would have been 13.8%. |
Tenaz is an energy company focused on the acquisition and sustainable development of international oil and gas assets capable of returning free cash flow to shareholders. Tenaz has domestic operations in Canada along with offshore natural gas assets in the Netherlands. The domestic operations consist of a semi-conventional oil project in the Rex member of the Upper Mannville group at Leduc-Woodbend in central Alberta. The Netherlands natural gas assets are located in the Dutch sector of the North Sea.
For further information on Tenaz, the Acquisition and the acquired assets please go to the Tenaz website at www.tenazenergy.com. Further information on NGT can be found at https://noordgastransport.nl.
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