Connacher Oil And Gas Limited Signs Definitive Agreement To Acquire Montana Refining Assets

abarrelfullabarrelfull wrote on 15 Aug 2012 08:17

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CONNACHER OIL AND GAS LIMITED (“Connacher”) - (CLL – TSX) is pleased to announce that today its wholly-owned subsidiary, Montana Refining Company, Inc. (“MRC” or the “Buyer”), has signed a definitive and binding Asset Purchase Agreement whereby MRC will acquire and Montana Refining Company, a Partnership (“Seller”) will sell to MRC all right, title and interest in an 8,300 bbl/d refinery, together with related structures and specified tangible assets located in Great Falls, Montana, U.S.A. The Seller is an affiliate of Holly Corporation (NYSE – HOC) of Dallas, Texas.

Additionally, MRC will acquire certain inventory comprised of both petroleum products and equipment. There is also a provision for adjustments related to a planned refinery turnaround, scheduled to commence in April 2006 and for certain capital investments related to the planned installation of a NaHs Unit upgrade to meet emerging air quality standards.

At closing, which is expected to occur on or before April 1, 2006, Connacher’s subsidiary intends to offer employment to the valued individuals associated with the refinery. Closing of the acquisition by MRC is subject to a number of conditions, customary for a transaction of this nature.

The consideration for the purchase is approximately US$55 million, comprised of cash and one million (1,000,000) Connacher common shares from treasury. Mustang Capital Partners Inc. of Calgary, Alberta acted as Connacher’s advisors in the transaction.

Connacher anticipates financing the transaction and related costs substantially with a new
US$51 million bridge financing to be provided by BNP Paribas (Canada). Connacher also anticipates it will refinance this indebtedness from a proposed US$148 million term debt facility, which Connacher also anticipates will be arranged for it by BNP Paribas after the scheduled closing of the refinery purchase, pursuant to a previously-executed Mandate Letter. If as anticipated the term debt facility is completed on satisfactory terms, forecast surplus proceeds after repayment of the bridge facility would be utilized to supplement Connacher’s available cash flow and cash balances to finance capital expenditures at the Company’s Great Divide SAGD oil sands project, situated approximately fifty miles southwest of Fort McMurray in northeastern Alberta, Canada.

The proposed refinery purchase is anticipated to complement the previously-announced acquisition by Connacher of Luke Energy Ltd. (“Luke”), an Alberta natural gas producer.

This transaction is scheduled to close on March 16, 2006 and will provide Connacher with new natural gas production and thereby hedge its anticipated initial requirements for natural gas to create steam for its proposed SAGD operation at Great Divide. Based on current Luke production volumes, the Luke purchase will also provide surplus volumes for sale in the marketplace.

At closing, it is anticipated the refinery purchase by MRC will provide Connacher with protection against the wider and more volatile crude oil price differential swings which have become increasingly frequent in a higher oil price environment for heavy oil such as would be produced at Great Divide. Furthermore, MRC is anticipated to be a profitable and strong business unit which, based on recent experience, has the potential to contribute to Connacher’s anticipated cash flow growth in 2006 and beyond.

Connacher recently completed a $100 million equity financing, increasing its cash balances before the refinery and Luke purchases to approximately $165 million.

Accordingly, in the opinion of its management, Connacher has also significantly mitigated the balance sheet risk normally associated with financing a major capital program such as that anticipated for its Great Divide project.

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