Corridor Resources Inc. of Halifax announced on Monday it has entered into a definitive investment agreement with Neil Roszell, Jason Jaskela, Ali Horvath, Jonathan Grimwood and Terry Danku, which will lead to a major shakeup at the junior oil and gas company.
The agreement includes the appointment of a new management team, a name change, and the reconstitution of the board of directors of Corridor.
The new management team will be led by Roszell as chairman and chief executive officer, Jaskela as president and chief operating officer, Horvath as vice-president finance and chief financial officer, Grimwood as vice-president exploration and Danku as vice-president engineering.
Corridor shareholders will be asked to approve a change of Corridor’s name to Headwater Exploration Inc. and a consolidation of the common shares on the basis of one post-consolidation common share for every three pre-consolidation common shares.
The transaction includes a non-brokered private placement of Corridor units for gross proceeds of $20 million and a brokered private placement of common shares of Corridor for gross proceeds of up to $30 million. Both private placements are being completed at 92 cents per unit and 92 cents per common share representing about an eight per cent premium to the volume weighted average trading price for the five trading days prior to the date of the transaction and about a 20 per cent premium to the volume weighted average trading price for the 20 trading days prior to the date of the transaction, according to a Corridor news release on Monday.
Neil Roszell was unavailable for comment on Monday but stated in the news release: “This is an exceptional opportunity to invest in a company with a material cash position and strategic assets that provide significant free cash flow at current commodity prices. The Headwater management team is energized and truly believes that the Corridor platform can lead us into becoming a leading Canadian energy producer.”
Upon completion of the transaction, the new investors and Corridor have agreed that the Corridor board will consist of Neil Roszell and Jason Jaskela, two members of the existing Corridor board, Phillip Knoll and Martin Fräss-Ehrfeld, and four new independent directors, Chandra Henry, Kevin Olson, Stephen Larke and Dave Pearce. Calgary lawyer Ted Brown, a partner with Burnet, Duckworth and Palmer LLP will act as corporate secretary.
Roszell and his management team have a “track record of creating value across several commodity cycles in growth-oriented oil and gas companies through a disciplined financial and operational strategy of exploitation and acquisition,” it was stated in the news release.
Most recently, Roszell led Raging River Exploration Inc., a light oil producer focused in the Viking formation in Southwest Saskatchewan and Southeast Alberta, prior to selling that company to Baytex Energy Corp. in August of 2018.
“During a period of unprecedented volatility and change in the Canadian energy industry, the Raging River management team was able to deliver returns that significantly outpaced the S&P/TSX Capped Energy Index,” it was stated in the news release Monday.
Prior to Raging River, Roszell’s management team built Wild Stream Exploration Inc., a light oil focused producer in Southwest Saskatchewan prior to its sale in 2012. And prior to Wild Stream Roszell built up Wild River Resources Inc., a private company focused in the Lower Shaunavon formation of Southwest Saskatchewan, prior to its sale in 2009, according to the Corridor news release.
The new management indicated its belief that current market conditions in the Canadian energy sector “provide an ideal entry point for a well capitalized company. The under-appreciated assets of Corridor, including its positive estimated adjusted working capital balance of about $64.7 million as at Dec. 31, 2019, stable field-based cash flow of $7 million to $9 million per year and strong tax-pool balance of about $160 million as at Sept. 30, 2019, which “provide an ideal platform to build a leading Canadian energy producer.”
In the news release, it said: “Corridor’s adjusted working capital balance, anticipated to be $110 million at close, will allow the company to first, take advantage of mispriced assets and second, unlock the value of the assets through disciplined capital allocation and greenfield development. The new management team intends to take a unique approach to oil and gas development, which will include giving full-cycle consideration to profitably reducing emissions and water-use while appropriately stewarding all abandonment obligations. This will be combined with an approach consistent with their historical successes of generating strong earnings, return on capital employed and free cash flow. The new management team believes this will allow Corridor to flourish through the entire business cycle.”
Corridor currently has strategic natural gas production and reserves in the McCully Field near Sussex, N.B. that supply a portion of Atlantic Canada’s natural gas needs. The McCully Field has strategically produced primarily in the winter months but remains shut in for the balance of the year. The winter production cycle allows revenue maximization during peak demand months when Corridor typically receives a premium to Nymex Henry Hub gas pricing.
“Atlantic Canada remains undersupplied by regional gas by approximately 140-million-cubic-feet per day. The new management team believes this allows for unabated growth in McCully Field gas supply. In June 2019, the New Brunswick government issued an order-in-council that permits the Minister of Energy & Resource Development to exempt Corridor’s McCully Field from the province-wide fracking moratorium. The new management team intends to engage in First Nations consultation and pursue such exemption, allowing Corridor to continue the development of the McCully Field,” it was stated in the news release.
“The new management team has identified numerous drilling and recompletion projects that can significantly increase production from the McCully Field to the benefit of Atlantic Canadians,” it said in the release.
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