Eagle Energy Inc. Announces Increased Borrowing Capacity under a Four Year Secured Term Loan, 2017 Growth Capital Budget and Suspension of Dividend
Eagle Energy Inc. ("Eagle") (TSX:EGL) is announcing an increase to its borrowing capacity by way of a new four year secured term loan and its 2017 capital budget, production and operating cost guidance. In addition, as Eagle embarks on a more growth-oriented strategy, it is announcing a suspension of its dividend following the payment of its February dividend. The February dividend of $0.005 per common share that was previously declared on February 15, 2017 for shareholders of record on February 28, 2017 will still be paid on March 23, 2017.
Figures within this news release are presented in Canadian dollars unless otherwise indicated.
$CA 87 million ($US 65 million) Term Loan Financing - Overview
Richard Clark, Chief Executive Officer, commented, "Eagle functions efficiently on both sides of the Canada-United States border. Moving from a Canadian-based to a U.S.-based lender marks just one example of Eagle's ongoing allocation of capital and optimization of opportunities between these two jurisdictions. Nearly a year ago, when we saw declining support for lending to the junior energy space in Canada, we looked at a segment of U.S.-based private lenders which had the ability to grow with us as financial partners and could provide more transparency and predictability around their lending parameters. The White Oak financing meets this objective since the borrowing base is determined using defined market parameters set out in our loan agreement, in contrast to the subjective approach of the Canadian banks."
Mr. Clark continued, "White Oak affords Eagle a partner that has the capacity to provide additional financing to fund future acquisitions. This establishes a foundation for Eagle to execute its new growth strategy over the next four years and accelerate the development of its low risk drilling inventory. When considered alongside the rates of return Eagle expects to achieve when executing its growth strategy, borrowing costs under the White Oak financing are reasonable."
Darius Mozaffarian, Co-President and Head of Originations of White Oak, added, "We are excited to be Eagle's financing partner. We have a strong conviction in the management team as well as Eagle's strategic growth in Canada and the United States."
KLR Group, LLC served as the exclusive financial advisor to Eagle for this loan agreement.
2017 Budget Highlights
Commenting on the 2017 budget and beyond, Mr. Clark said, "We are excited about our growth prospects over the next four years. If we assume an average 2017 to 2021 WTI price of $US 55.00 per barrel, an exchange rate of $US 1.00 equal to $CA 1.28, and our annual drilling programs performing as expected, we could see Eagle's debt to trailing cash flow ratio reduce to below 1:1 at the time our term loan matures. We are pleased to find a financial partner like White Oak who supports our vision and believes in the capabilities of our team to execute this plan."
Wayne Wisniewski, President and Chief Operating Officer, added, "Our investment and focus on geological and geophysical work over the past two years has put us in the enviable position of being opportunity rich. In addition to de-risking our asset portfolio, we have added potential drilling locations both north and south of the border. All our projects have significant positive torque to oil price increases in addition to having low drill, complete and equip costs. Our drill, complete and equip cost for horizontal wells in our portfolio ranges from $CA 1.3 million to $CA 4.0 million and have strong capital efficiency and finding and development cost metrics. We currently project drilling and completion cost increases in the 15% range when compared to 2016; however, even with those cost assumptions, our "quality through choice" drilling portfolio is expected to achieve a rate of return in excess of 30% at $US 50.00 per barrel WTI flat oil pricing. Our robust drilling inventory, coupled with high quality, low decline base assets and new access to capital, should allow us to double production and reserves within the next 24 to 36 months."
Updated Dividend Strategy
Concurrent with embarking on a more growth oriented strategy, Eagle is announcing a suspension of its dividend following the payment of its February dividend. The February dividend of $0.005 per common share of Eagle that was previously declared on February 15, 2017 for shareholders of record on February 28, 2017 will still be paid on March 23, 2017.
Commenting on the updated dividend strategy, Mr. Clark said, "Previously, Eagle focused on a sustainable business model using less than 100% of our annual cash flow to deliver total returns to our shareholders through both dividends and modest production growth. However, our capital budget for 2017, a year in which we build the platform for future reserves and production growth, requires 145% of Eagle's 2017 expected cash flow. This decision makes the payment of a dividend neither sustainable nor sensible. When Eagle has successfully implemented this capital intensive phase of its growth, the Board may consider reinstating an appropriate dividend."
SOURCE: Eagle Energy Inc.
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