CALGARY, ALBERTA--(Marketwired - April 25, 2013) - Kulczyk Oil Ventures Inc. (WARSAW:KOV) ("KOV"),
an international upstream oil and gas exploration and production
company, is pleased to announce that it has entered into an agreement
(the "Arrangement Agreement") with Winstar Resources Ltd. ("Winstar") pursuant to which KOV will acquire all of the issued and outstanding shares of Winstar (the "Acquisition").
The combination of Warsaw-listed KOV with Winstar will have 4,760 barrels of oil equivalent per day(1) ("boe/d") of production in Tunisia and Ukraine and an attractive exploration portfolio in Brunei and Romania.
Acquisition Highlights and Rationale
- Under the terms of the Acquisition, Winstar shareholders
will be entitled to receive 7.555 shares of KOV or C$2.50 in cash,
subject to a maximum of C$35 million in cash;
- The Acquisition values the entire issued and to be issued share capital of Winstar at approximately C$112 million2;
- As a condition of the Acquisition, KOV will apply to list its shares on the Toronto Stock Exchange ("TSX"), undertake a 10:1 share consolidation and be renamed Serinus Energy Inc.;
- The Company will continue to be listed on the Warsaw Stock Exchange ("WSE");
- Upon closing, Bruce Libin and Evgenij Iorich, current directors of Winstar, will join the KOV board as non-executive directors;
- The Acquisition represents a material increase in
KOV's reserves and production, acquiring 11.2 million barrels of oil
equivalent ("MMboe") of working interest 2P reserves and approximately 1,660 boe/d of current net production1;
- The Acquisition provides the ability for KOV to
leverage its proven operational expertise to materially increase
production, reserves and cash flow from Winstar's assets;
- The Acquisition is anticipated to result in a company with:
- 13 licences across five countries, with operatorship on all licences;
- 20.6 MMboe of working interest 2P reserves and approximately 4,760 boe/d of current net production1;
- Continuous development drilling in Ukraine and Tunisia targeting substantial increases in production; and
- High-impact exploration drilling in Brunei and Romania;
- The Winstar Board is recommending that Winstar
shareholders vote in favour of the Acquisition and KOV has received
support agreements from 54.2% of Winstar shareholders, including all of
the directors and officers of Winstar, to vote in favour of the
Acquisition at the Winstar shareholder meeting.
(1) First half April production of 1,660 boe/d from Winstar and approximately 3,100 boe/d from KOV
(2) Share Consideration (as defined below), based on the
closing price of KOV of PLN1.28 on 24 April 2013 (approximately C$0.41
based on the Bank of Canada noon spot rate on the same date) and 36.0
million diluted Winstar shares
Analyst Conference Call and Presentation
An invitation only analyst conference call and presentation
have been scheduled for Thursday, 25 April 2013 at 5:00pm (Warsaw) /
11:00am (Toronto), and the presentation will be made available on KOV's
website at
www.kulczykoil.com. Details for this call will be sent individually to analysts.
Non-analysts wishing to access the call may do so in a 'listen only' format via the telephone numbers below:
Those wishing to dial in from outside these jurisdictions should call the UK number.
Commenting on the Acquisition, Tim Elliott, President and Chief Executive Officer of KOV said:
"The combination of Winstar's and KOV's assets will
result in a company with 2P reserves in excess of 20 MMboe and
production of 4,760 boe/d with a clear path to materially increasing
production in the near term. The acquisition will also allow KOV to
leverage its proven operational expertise to rapidly, and materially,
increase production, reserves and cash flow from Winstar's Tunisian
assets for the benefit of both companies' shareholders. We thank
everyone involved in this transaction and are looking forward to working
with Winstar's staff going forward."
Commenting on the Acquisition, Bruce Libin, Chairman of Winstar said:
"After evaluating Winstar's strategic alternatives over
the last months, including thorough consideration of our ability to
create shareholder value as an independent entity, the Board concluded
the proposed transaction with KOV is in the best interests of
shareholders. We believe that KOV's business plan, highly experienced
management team, proven track record of identifying and delivering value
in upstream oil and gas assets and the combination of KOV's and
Winstar's assets provides an attractive diversified portfolio with
significant potential to enhance shareholder value. I look forward to
being a shareholder and director of the new KOV."
Information With Respect to Winstar
Winstar is an independent oil and gas exploration,
development and production company listed on the TSX. Winstar's
principal area of operations is in Tunisia, where it holds operated
interests in four onshore producing oil and gas fields and one
re-development concession. In addition, Winstar has farmed in on the
Satu Mare exploration block in Romania with an option to earn up to a
60% working interest.
In Tunisia, Winstar holds a 100% operated interest in the
Chouech Essaida, Ech Chouech, Zinnia and Sanrhar concessions, and a 45%
operated interest in the Sabria concession. As at 31 December 2012,
Winstar reported working interest 2P reserves of 11.2 MMboe. Winstar's
net production for the first half of April from its Tunisian assets was
approximately 1,660 boe/d.
Winstar's asset base is detailed in the accompanying table:
Acquisition Structure
The Acquisition will take place through a Plan of Arrangement under the provisions of the Business Corporations Act (Alberta).
KOV and the Consortium (as defined below) will offer Winstar shareholders, in exchange for each Winstar share held, either:
- 7.555 shares of KOV (the "Share Consideration"); or
- C$2.50 in cash (the "Cash Consideration").
The Cash Consideration will be subject to a maximum of C$35
million in cash being paid to Winstar shareholders in aggregate and will
be funded by a consortium of investors (the "Consortium") led by Kulczyk Investments S.A. ("KI"), the major shareholder of KOV.
The Plan of Arrangement will include a sequence of transactions in the following order:
- The Consortium will purchase shares from those Winstar shareholders who wish to tender their shares for the Cash Consideration;
- KOV will purchase shares from those Winstar shareholders who wish to tender their shares for the Share Consideration; and
- The Consortium will then tender their shares to KOV for the Share Consideration.
(3) Winstar may earn up to a 60% working interest upon funding 100% of 180 km2 of 3D seismic and two exploration wells by May 2015, with the gross cost estimated at US$8 million
Pursuant to the terms of the Acquisition, Winstar shares
acquired by the Consortium for the Cash Consideration will be
subsequently tendered for the Share Consideration which will be subject
to a hold period of 180 days following closing of the Acquisition.
KOV will issue 272 million shares to Winstar shareholders and the Consortium4.
In addition, it is a condition of the Arrangement Agreement that KI
exercises its option to convert the existing US$12 million loan amount
plus accrued interest into common shares of KOV on or prior to the
effective date of the Acquisition in accordance with the provisions of
the loan agreement. KOV has been informed by KI that it is KI's current
intention to serve the conversion election notice on or about 8 May
2013. The loan amount will be converted into KOV shares at a price per
share equal to the five day volume weighted average price of KOV shares
on the WSE during the five trading days immediately prior to but
excluding the date of the conversion election notice, therefore the
exact number of KOV shares issuable to KI upon conversion of the
convertible debenture is uncertain, as the final conversion price will
only be determined in the future. The conversion election notice will
state that the conversion of the loan amount into KOV shares is
conditional upon the successful closing of the Acquisition.
Upon completion of the Acquisition, Winstar shareholders and
optionholders will hold approximately 21%, and KOV shareholders will
hold approximately 79%, of KOV's enlarged resultant issued share capital5.
TSX Listing, Share Consolidation and Name Change
Subsequent to the closing of the Acquisition, the shares of
Winstar will cease trading and will be de-listed from the TSX. KOV will
thereafter make an original listing application to the TSX to list the
ordinary shares of KOV (including those issued in connection with the
Acquisition) on the TSX. It is a condition to the completion of the
Acquisition that the ordinary shares of KOV shall have been approved for
listing on the TSX, subject only to the filing of documentation that
cannot be filed prior to the effective date, such that the ordinary
shares of KOV shall be listed and posted for trading on the TSX as soon
as is reasonably practicable following the effective date in accordance
with TSX policies.
Prior to the proposed listing on the TSX, KOV will seek to
undertake a 10:1 share consolidation of the post-Acquisition shares
outstanding and be renamed Serinus Energy Inc. KOV will call a meeting
of its shareholders to consider and approve the share consolidation and
name change, with such meeting expected to be held in mid-June 2013.
(4) Based on 36.0 million diluted Winstar shares
(5) Based on full take-up of the Cash Consideration. KOV
shareholders include the Consortium. Includes approximately 32 million
KOV shares, as an indicative number only, issuable upon the conversion
of the KI convertible debenture
Acquisition Rationale
The Acquisition provides the following benefits for KOV and Winstar shareholders:
- KOV has a proven ability to apply modern technology to
under-funded, legacy assets, leading to material increases in
production, reserves and cash flow:
- Following the acquisition of a 70% interest in
KUB-Gas LLC, KOV increased gross production in Ukraine from 5.0 million
cubic feet equivalent per day ("MMcfe/d") in June 2010
to current production of 26.6 MMcfe/d, for net production to the 70% KOV
interest of 18.6 MMcfe/d or approximately 3,100 boe/d, with additional
future gas production behind pipe;
- KOV believes that Winstar's Tunisian assets
provide similar low-risk development opportunities, and that similar
technology and operational expertise can be used to materially increase
production, reserves and cash flow from the assets;
- The Acquisition represents a significant increase in KOV's reserves and production:
- KOV is acquiring 11.2 MMboe of working interest 2P reserves and current net production of 1,660 boe/d1;
- The combined company will have working interest
2P reserves of 20.6 MMboe and current net production of approximately
4,760 boe/d1;
- The combined company has significant potential
for production growth through the application of operational expertise
and technology;
- The Acquisition provides low-risk development opportunities:
- KOV proposes to undertake a near-term development
program in Tunisia of drilling new wells, work-overs, dual completions,
frac stimulation and horizontal wells to drive production increases,
similar to the development program undertaken following its acquisition
of KUB-Gas LLC;
- Operatorship on all assets allows KOV to control the work program and timetable;
- Winstar's assets have attractive fiscal terms resulting in high per barrel netbacks:
- Tunisia has attractive fiscal terms, allowing Winstar to generate after tax field operating netbacks of ~US$75 per barrel;
- Adds oil production priced at Brent and exposure to Tunisian natural gas prices of ~US$15 per thousand cubic feet ("Mcf") compared to KOV's current Ukrainian natural gas which is priced at ~US$12/Mcf;
- The Acquisition is accretive on per barrel metrics:
- Acquiring high-netback barrels at US$9.4/boe of 2P reserves;
- Goal is to access 23.6 MMboe of working interest 3P reserves following near-term development program;
- The combined company is well funded to undertake an
aggressive development program to unlock value in historically
under-funded assets.
Winstar Support
The strategic alternatives process announced by Winstar in
July 2012 has concluded and the Winstar Board is recommending that
Winstar shareholders vote in favour of the Acquisition.
All directors and senior officers of Winstar, certain investment funds administered by Yorktown Partners Group ("Yorktown"), the principals of Yorktown and Pala Assets Holdings Limited ("Pala"),
collectively representing approximately 54.2% of the issued and
outstanding shares of Winstar, have committed to vote all Winstar shares
beneficially owned or controlled by them in favour of the Acquisition,
subject to the terms and conditions of the support agreements entered
into with KOV in support of the Acquisition.
All directors and senior officers of Winstar, Pala and the
Yorktown principals, who collectively hold 27.9% of the issued and
outstanding shares of Winstar, will elect to receive the Share
Consideration.
The investment funds administered by Yorktown, which
collectively hold approximately 26.3% of the issued and outstanding
shares of Winstar, will elect to receive the Cash Consideration.
Additional Terms of the Arrangement Agreement
Timing
Pursuant to the Arrangement Agreement, Winstar will call a
meeting of its shareholders to consider and approve the plan of
arrangement implementing the Acquisition, such meeting is expected to be
held in mid-June 2013. It is expected that the information circular
relating to the Acquisition will be mailed to Winstar shareholders in
May 2013 and that, subject to the satisfaction, or where relevant
waiver, of all relevant conditions, the Arrangement will become
effective and the Acquisition completed by the end of June 2013.
Conditions
The Acquisition is subject to a number of customary
conditions, including the receipt of approval by 66 2/3% of the votes
cast by Winstar shareholders in person or by proxy at a special meeting
of Winstar shareholders, receipt of approval by the Court of Queen's
Bench of Alberta and receipt of stock exchange approvals.
Non-Solicitation Agreement and Termination Fees
The Arrangement Agreement includes customary non-solicitation
covenants by Winstar and provides Winstar with the ability to respond
to unsolicited proposals considered superior to the Acquisition in
accordance with the terms of the Arrangement Agreement. In the event a
superior proposal is accepted, Winstar will be required to pay a
termination fee of C$4.5 million to KOV. KOV has the right to match a
superior proposal. In the event KOV fails to satisfy its obligations
under the Arrangement Agreement and complete the Acquisition, KOV will
be required to pay a reverse termination fee of C$4.5 million to
Winstar.
Advisor
Macquarie Capital (Europe) Limited is acting as exclusive financial advisor to KOV in connection with the Acquisition.
About KOV
KOV is an international upstream oil and gas exploration
and production company with a diversified portfolio of projects in
Ukraine, Brunei and Syria and with a risk profile ranging from
exploration in Brunei and Syria to production and development in
Ukraine. The common shares of the Company trade on the Warsaw Stock
Exchange under trading symbol "KOV".
In Ukraine, KOV owns an effective 70% interest in KUB-Gas LLC. The assets of KUB-Gas LLC consist of
100% interests in five licences near to the City of Lugansk in the
northeast part of Ukraine. Four of the licences are gas producing.
In Brunei, KOV owns a 90% working interest in a
production sharing agreement which gives the Company the right to
explore for and produce oil and natural gas from Block L, a 1,123 square
kilometre area covering onshore and offshore areas in northern Brunei.
In Syria, KOV holds a participating interest of 50% in
the Syria Block 9 production sharing contract which provides the right
to explore for and, upon the satisfaction of certain conditions, to
produce oil and gas from Block 9, a 10,032 square kilometre area in
northwest Syria. The Company has an agreement to assign a 5% ownership
interest to a third party which is subject to the approval of Syrian
authorities, and which, if approved, would leave the Company with a
remaining effective interest of 45% in Syria Block 9. KOV declared force
majeure, with respect to its operations in Syria, in July 2012.
The main shareholder of the Company is Kulczyk
Investments S.A., an international investment house founded by Polish
businessman Dr. Jan Kulczyk.
Translation: This news release has been translated into Polish from the English original.
Reserve Disclosure
The reserves data for KOV and Winstar set forth
in this press release is based upon the following reports which have
been prepared by RPS Energy Canada Ltd. ("RPS"), an "independent
qualified reserves evaluator" (as such term is defined in National
Instrument 51-101 Standards of Disclosure for Oil and Gas Activities
("NI 51-101")) in accordance with NI 51-101 and the COGE Handbook:
(i) the reserve report dated March 11, 2013 with
an effective date of December 31, 2012 prepared by RPS for Winstar,
which evaluates the crude oil, natural gas and natural gas liquids
reserves of Winstar and its subsidiaries; and
(ii) the reserve report dated March 20, 2013 with
an effective date of December 31, 2012 prepared by RPS for KOV, which
evaluates the crude oil, natural gas and natural gas liquids reserves
and resources of KOV and its subsidiaries.
There are numerous uncertainties inherent in
estimating quantities of reserves. The reserve information set out in
this press release are estimates only and there is no guarantee that the
estimated reserves will be recovered. Actual reserves may be greater
than or less than the estimates provided herein.
Proved reserves are those reserves that can be
estimated with a high degree of certainty to be recoverable. There is a
90% probability that the quantities actually recovered will equal or
exceed the estimated proved reserves. Probable reserves are those
additional reserves that are less certain to be recovered than proved
reserves. There is a 50% probability that the quantities actually
recovered will equal or exceed the estimated proved plus probable
reserves. Possible reserves are those additional reserves that are less
certain to be recovered than probable reserves. There is a 10%
probability that the quantities actually recovered will equal or exceed
the sum of proved plus probable plus possible reserves. Each of the
reserve categories may be divided into developed and undeveloped. All
reserves disclosed in this press release have been classified as
developed.
Production information is commonly reported in
units of barrel of oil equivalent ("boe" or "BOE") or in units of
natural gas equivalent ("Mcfe"). However, BOEs or Mcfes may be
misleading, particularly if used in isolation. A boe conversion ratio of
6 Mcf:1 bbl, or an Mcfe conversion ratio of 1 bbl:6 Mcf, is based on an
energy equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead.
Forward-looking Statements Regarding Acquisition
This press release contains certain statements
relating to KOV that are based on the expectations of KOV, as well as
assumptions made by, and information currently available to, KOV, which
may constitute forward-looking information under applicable securities
laws. All such statements and disclosures, other than those of
historical fact, which address activities, events, outcomes, results or
developments that KOV anticipates or expects may, or will occur in the
future (in whole or in part) should be considered forward-looking
information. In some cases, forward-looking information can be
identified by terms such as "forecast", "future", "may", "will",
"expect", "anticipate", "believe", "potential", "enable", "plan",
"continue", "contemplate", "pro-forma", or other comparable terminology.
In particular, this press release makes reference to the timing and
completion of the Acquisition, the issuance of common shares of KOV on
the completion of the Acquisition, the expected completion of the
Acquisition, including the ability of the Company to satisfy all
necessary conditions to the closing of the Acquisition, the anticipated
benefits of the Acquisition, reserve volumes associated with the
properties to be acquired by KOV, expected production from the
properties to be acquired pursuant to the Acquisition, timing of
exploration and production activities, the number of shares held by the
former shareholders of Winstar upon completion of the Acquisition and
the timing of the Winstar and KOV shareholder meetings. Readers are
cautioned that there is no assurance that the transactions referenced
herein will proceed. Certain conditions must be met before the
Acquisition can be completed.
Such conditions include the receipt of all
necessary regulatory approvals, including the Tunisian Approval (as such
term is defined in the Arrangement Agreement), the approval of the
listing of the shares of KOV on the TSX (subject only to the filing of
documentation that cannot be filed prior to the effective date), such
that the shares of KOV shall be listed and posted for trading on the TSX
as soon as is reasonably practicable following the effective date in
accordance with TSX policies, the approval of the plan of arrangement by
the Winstar shareholders and the approval of the name change and share
consolidation by KOV shareholders. There is no assurance that the
required approvals will be received and all of the conditions to the
completion satisfied and there is therefore no assurance that the
Acquisition completed in the time frame anticipated or at all. Many
factors could cause the performance or achievement by KOV to be
materially different from any future results, performance or
achievements that may be expressed or implied by such forward-looking
statements. These factors include the failure to obtain the required
approvals, including requisite Winstar and KOV shareholder approvals and
the approval of the TSX of the listing of the shares of KOV, risks
relating to the integration of KOV and Winstar, the failure to realize
anticipated synergies and incorrect assessments of the value of Winstar.
Readers are cautioned that the foregoing list of factors is not
exhaustive. Statements relating to "reserves" or "resources" are deemed
to be forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions, that the
reserves and resources described can be profitably produced in the
future.
The forward-looking statements contained in this
press release are expressly qualified by this cautionary statement. KOV
is not under any duty to update any of the forward-looking statements
after the date of this press release or to conform such statements to
actual results or to changes in KOV's expectations and KOV disclaims any
intent or obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or results or
otherwise, other than as required by applicable securities laws.
Zygmunt Grajkowski – Managing Partner
Marek Borzestowski - Partner
Shmuel Chafets – Managing Director / Business Development
Yuval Avni – Venture Partner
Wojciech Olszenka – Investing Manager 
Marcin Zając - Financial Controller 
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