Headwater Exploration Acquires Cenovus Energy’s Marten Hill Assets in Alberta
TSX-listed Headwater Exploration Inc. has entered into a definitive agreement with Cenovus Energy Inc. to acquire 100% of its Marten Hills area assets in Alberta for a total consideration of approximately C$100 million in cash and stock.
Under the terms of the deal, the total consideration comprises a cash payment of C$35 million, plus a stock consideration of C$65 million via issuance of 50 million common shares of Headwater, and 15 million purchase warrants. The warrants will be exercisable at a price of C$2.00 per share for a three-year term. An initial cash deposit of C$10 million has already been made to Cenovus, which will be credited against the consideration upon closing. Headwater has also agreed to a Gross Overriding Royalty (GORR) agreement that gives Cenovus the opportunity to benefit from future development of the Clearwater formation at Marten Hills.
Upon completion, Cenovus will own approximately 26% of the basic common shares of Headwater, and will be entitled to appoint two nominees to the Board of Directors of the company.
The assets acquired include approximately 189,000 acres, with 172,800 acres (270 net sections) of Clearwater formation rights in the Martin Hills area of Alberta. The assets include six historical exploration wells with four potential development areas, which Headwater intends to follow up on using a methodical delineation approach. Headwater also intends to continue Cenovus’s efforts to de-risk the exploration acreage. Proven plus Probable (2P) Reserves associated with the assets are 8.3 million barrels of oil (MMbbls) as of December 31st, 2019, and the estimated January 2021 production is 2,800 barrels of oil per day (bbls/d).
“The transaction establishes Headwater as the only pure-play public company with material interests in the Clearwater play, a unique high return play with compelling economics,” Headwater said in a statement.
“This is a unique opportunity for us to partner with a well-capitalized and highly respected management team to accelerate development at Marten Hills. These are high-quality assets that were unlikely to receive near-term funding from Cenovus, and we believe this transaction will provide compelling value for Cenovus shareholders over the long term,” said Alex Pourbaix, Cenovus’s President & CEO.
The transaction is subject to customary closing conditions, including the receipt of shareholder and regulatory approvals, and is expected to close on or about December 22nd, 2020.
Peters & Co. is acting as exclusive financial advisor to Headwater.