Current MEI:CA Stock Info

Canadian producer purchases processing plant for $4.75 million; looking at further acquisitions

Manitok Energy (ticker: MEI, announced Wednesday that it has purchased a 14 MMcf/d natural gas processing plant in the Carseland area from a private company for $4.75 million. The acquisition included approximately 450 Mcf/d of natural gas production, the related gathering systems, 5,760 acres of undeveloped land at 100% working interest and an 11 kilometer (6.8 miles) sales gas line tied into the ATCO south sales system.

The company’s oil and gas production in the area has been restricted until now due to the high natural gas liquids (NGL) content of Manitok’s Lithic Glauc (LG) wells relative to the processing plant’s ability to adequately handle the liquid-rich gas.

“We were having some issues with the plant, so we bought it,” Manitok CEO Mass Geremia told Oil & Gas 360®.


Source: Manitok, star added as an approximation of new gas plant.

Manitok plans to make modifications to the plants that will reduce the restrictions on its processing capabilities for approximately $1 million, according to Geremia. Including the added producing assets, Manitok’s CEO believes the acquisition and modifications will help to increase Manitok’s production by 500-1,000 BOEPD.

Cleaning up the balance sheet paves the way for growth

Manitok also announced that the company has unwound its hedges for 2017, giving the company greater financial flexibility. According to a press release, the company received approximately $12.3 million from its counterparty for the following hedges:

  • 500 bbls/d swap transaction at $79.75 CAD WTI for the 2016 and 2017 calendar years;
  • 500 bbls/d collar transaction from $70.50 to $85.50 CAD WTI net of the deferred premium for the 2017 calendar year; and
  • 500 bbls/d collar transaction from $66.85 to $86.85 CAD WTI net of the deferred premium for the 2017 calendar year.

“We decided to monetize the 2017 hedges now while seasonal demand is low,” said Geremia. “We’ll rehedge for 2017, and possibly 2018, when we hit seasonal highs later this year.”

The company’s 2016 oil production, net of royalties, remains fully hedged with a swap of 500 bbls/d of crude oil at $80.15 CAD WTI and collar transactions for 1,000 bbls/d of crude oil from an average price of $68.68 to $86.18 CAD WTI, net of the deferred premium. The mark-to-market value of the remaining hedges is approximately $12 million, according to Manitok.

On February 16, Manitok also announced that it closed the final tranche of its private placement, raising roughly $10.6 million, which the company used to pay down debt. The equity raise allowed the company to negotiate more favorable terms with the bank, said Geremia.

“With the equity raise, we no longer need to make $30 million in one-time payments, and the bank has agreed to give us $20 million non-conforming with our June redetermination,” Geremia explained. In conjunction with the hedge monetization, the company’s credit facility has been revised to $50 million from $60 million.

The equity raise allowed the company to pay down its debt by 9.8%, which, combined with the monetization of the company’s hedges, will allow Manitok to focus on growth even at the current oil price. Manitok estimates its net bank debt to be approximately $39 million as of February 29, 2016.

“Cleaning up the balance sheet lets us get on track for growth,” said Geremia. “We have the flexibility to grow while our competitors are worried about survival.” Manitok expects free cash flow for 2016 of $17 million to $18 million.

Manitok will use its dry powder to look for opportunistic acquisitions, now that the company has more financial flexibility, said Geremia. “Deals are being done for PDP or less, so we may start looking for assets in a third core area, if the price is right.”

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