CALGARY, ALBERTA–(Marketwired – July 6, 2016)

  • 7G launches concurrent $650 million bought deal common share offering of subscription receipts to partially fund acquisition
  • Bolt-on acquisition to expand 7G’s prolific Nest lands and proved reserves by 47 percent
  • Transaction adds 155 net sections of Montney land, about 30,000 boe/d of production
  • 7G’s second quarter 2016 production estimated at more than 115,000 boe/d
  • Nest consolidation to boost 2016 production guidance to 120,000 – 125,000 boe/d

Seven Generations Energy Ltd. (TSX:VII) has reached an agreement that will significantly expand its ownership in the prolific and low-supply-cost Montney Nest liquids-rich natural gas play with the acquisition of about 30,000 barrels of oil equivalent (boe) of daily production, 155 net sections of Montney land and 199 million boe in proved reserves from Paramount Resources Ltd. (Paramount) for approximately $1.9 billion in total consideration consisting of cash, 7G shares and the assumption of a portion of Paramount’s debt.

“This asset merger of neighbouring and early-life development lands will open the door to new operational and investment synergies in our Kakwa River Project. Our drilling, completions and production innovations are delivering liquids-rich natural gas that ranks among the lowest supply cost in North America. When we assemble these lands, we will be in an even better position to anchor market expansion initiatives,” said Pat Carlson, 7G’s Chief Executive Officer.

“This counter-cyclical acquisition is a natural consolidation of our high-growth Nest resource play, where our highest value Nest 2 acreage will increase by more than 40 percent, from 101 to 144 sections. Upon deal completion, we will have assembled more than half a million net acres of concentrated Montney lands – one of North America’s most prolific resource plays,” said Marty Proctor, 7G’s President & Chief Operating Officer.

“This transaction merges the two industry leading positions in the world-class Kakwa Montney play. We believe this transaction provides a compelling opportunity to realize premium value on our Musreau/Kakwa acreage for Paramount shareholders while retaining ongoing upside exposure to the play through our significant shareholding in Seven Generations. We have worked with, and invested in, members of Seven Generations management in the past and we believe this team will continue to bring the operational and innovative expertise that the Paramount team has brought to bear in the past to ensure the asset competes at the leading edge of North America’s natural gas industry,” said Jim Riddell, President and Chief Executive Officer of Paramount.

Optimized development across the entire Montney Nest

“This Montney Nest consolidation will enable greater optimized development of a substantially expanded Kakwa River Project. With seamless continuity of the offsetting and overlapping mineral rights across current borders, we now plan to drill longer wells in the Upper and Middle Montney Formation. In addition, we expect to add significant potential resource in shallower and deeper formations across our expanded lands,” Proctor said.

7G’s second quarter 2016 production is estimated at more than 115,000 boe/d, which puts 7G on track to surpass its original 2016 production guidance of 100,000 to 110,000 boe/d. Subject to the closing of the transaction, Seven Generations is revising 2016 production guidance to between 120,000 and 125,000 boe/d, and 2016 capital investment is planned at $1.05 billion to $1.1 billion, up from the original range of $900 million to $950 million.

“With our continuously advancing well designs and operating practices, including many new techniques now under testing and development, we expect to further improve recoveries and capital efficiencies in this larger resource base. By employing our Super Pad development methods, we’ll look to drill more and longer wells from fewer surface locations, recover more resource at a lower per-unit cost, and more efficiently unlock the tremendous potential of this Montney Nest resource,” said Glen Nevokshonoff, 7G’s Vice President, Development.

Maintaining financial strength and flexibility

“We have entered into this transaction with a commitment to maintaining our financial strength while adding complementary reserves and resources that we believe will add substantial value and full-cycle returns for shareholders. We expect it to be accretive within the first year of ownership on a cash flow, production and reserves per share basis. We expect the net debt to cash flow ratio to be approximately neutral at the end of 2016 and we expect to have sufficient cash and funds from operations to finance anticipated 2017 capital investments. Financial strength and prudent use of debt and equity continue to be at the core of 7G’s financial strategy,” said Chris Law, 7G’s Chief Financial Officer.

Seven Generations will fund the approximately $1.9 billion acquisition with a combination of $475 million of cash, 33.5 million 7G common shares issued from treasury to Paramount and the assumption of Paramount’s US$450 million (approximately C$584 million) 6.875% notes maturing in 2023. The transaction has an effective date of June 1, 2016 and is subject to Paramount shareholder approval, approval under the Competition Act and other normal closing conditions. It is expected to close in August 2016.

Concurrent with the transaction, 7G has entered into a $650 million bought deal financing whereby a syndicate of underwriters have agreed to purchase up to 26.7 million subscription receipts at a price of $24.35 per share. Proceeds from the financing will be used to fund the cash portion of the acquisition as well as provide funding for the company’s ongoing capital investment program.

The Board of Directors of Paramount has unanimously approved the transaction and has also resolved to recommend that Paramount shareholders vote their common shares in favour of the transaction. Clayton Riddell, Executive Chairman of Paramount, has entered into a support agreement pursuant to which he has agreed to vote his Paramount common shares, representing 37 percent of the issued and outstanding shares of Paramount, in favour of the transaction.

Paramount has agreed not to solicit or initiate any discussion regarding any other transaction or business combination. Paramount has also granted 7G a right to match any acquisition proposal and has agreed to pay a termination fee of $80 million to 7G in certain events, including if Paramount recommends, approves or enters into an agreement with respect to an acquisition proposal.

Kakwa River Project Expansion
Production, Reserves, Processing, Transportation in 2016
7G Acquisition Pro forma % change
Production – Q2 (boe/d)(Second quarter preliminary field estimates) 115,000 30,000 145,000 26
Gross Proved Reserves (MMboe as of Dec. 31, 2015)(1) 424 199 623 47
Gross Proved + Probable Reserves (MMboe as of Dec. 31, 2015) (1) 859 293 1,152 34
Proved undeveloped drilling locations (1) 305 205 510 67
Land (net Montney acres) 418,100 99,200 517,300 24
Land (net Montney sections) 653 155 808 24
Current natural gas processing capacity (MMcf/d) 510 245 755 48
Long-term natural gas marketing and takeaway capacity (MMcf/d) 607 240 847 40

Transaction Financial Consideration
Cash ($MM) 475
33.5 million shares (based on price of $25 per share and subject to four month statutory hold period) ($MM) 838
Assumption of Paramount US$450 MM 6.875% Notes due 2023 (2) ($MM) 584
Total ($MM) 1,897

Seven Generations Financial Strength
7G(3) Pro forma
Debt outstanding ($MM) (2) 1,461 2,045
Net debt ($MM) (2) (4) 1,013 1,442
Available funding (5) ($MM) 1,260 1,416
Outstanding shares as of March 31, 2016 (MM) (6) 278 338
(1) McDaniel & Associates Consultants Limited independent reserves evaluation effective December 31, 2015,
(2) Assumes a $US/$C 0.77
(3) As at March 31, 2016
(4) Debt outstanding minus $448 MM of adjusted net working capital as of March 31, 2016, plus $475 MM cash payment to Paramount, minus net equity proceeds of $630 MM
(5) Adjusted net working capital of $448 MM as of March 31, 2016, plus $813 of available credit facility minus $475 MM cash payment to Paramount, plus net equity proceeds of $630 MM
(6) Assumes 33.5 MM shares issued to Paramount plus 26 MM shares issued in equity financing

Map of Expanded Kakwa River Project

To view the map, please visit the following link:

Expanded processing opens new market infrastructure partnerships and growth

Upon closing of the transaction, 7G will have access to newly constructed natural gas and liquids processing and pipeline capacity that provide for additional production growth. 7G will now have access to a combined 555 MMcf/d of sweet gas processing, 200 MMcf/d of sour gas processing at the Musreau Complex, owned by Pembina Pipeline Corporation.

“This incremental capacity creates additional flexibility for product processing and further strengthens 7G’s marketing portfolio,” said Merle Spence, Senior Vice President, Marketing.

“While our practice to date has been to own and operate our own processing capacity, we look forward to working with Pembina to expand 7G’s market access and pursue a strategic partnership to develop some of the lowest supply cost production in North America,” Carlson said.

Expansive development efficiencies spring from consolidated Montney Nest

The addition of undeveloped lands between 7G’s Nest 2 and Deep South West areas provides contiguous lands to optimize future development as drilling steps out from Nest 2 and gathering systems form a continuous infrastructure network.

A larger Kakwa River Project is expected to deliver improved capital efficiencies in managing and contracting services and employing common infrastructure such as larger well pads, roads, pipelines, natural gas processing and water sourcing and management. 7G expects to achieve additional optimization by capitalizing on the well-honed operating experience of its Kakwa team.

Montney Nest consolidation builds capacity to anchor market integration initiatives

“Our low-cost supply is highly competitive and we have the transportation in place to significantly increase our production over the next several years, however Western Canada needs to expand markets in the long term. This acquisition will substantially add to and fortify the capacity of our large and high-quality resource, which is sufficient to underpin new, integrated market access infrastructure. Our core business is relentless pursuit of technical innovation to stay at the toe of the supply cost boot of liquids-rich natural gas production. We are continually evaluating opportunities to optimize the value of our resource and are engaged in discussions with new customers and potential developers of natural gas-fired electricity plants, liquefied natural gas export facilities, gas-to-diesel refining and petrochemicals. This complementary Montney acquisition adds significant resource scale as we look for ways to anchor major infrastructure development and build our business for many years ahead,” Carlson said.

Bought Deal Financing

Concurrent with the transaction, 7G has entered into an agreement with a syndicate of underwriters led by RBC Capital Markets, Peters & Co. Limited, and Credit Suisse Securities (Canada), Inc. under which they have agreed to purchase from 7G and sell to the public 26.7 million subscription receipts at a price of $24.35 per subscription receipt for total gross proceeds of $650 million (the offering). 7G has also granted the underwriters an over-allotment option to purchase, on the same terms as the offering, up to an additional 4,005,000 subscription receipts. This option is exercisable by the underwriters, in whole or in part, at any time for a period of 30 days following closing.

Each subscription receipt represents the right of the holder to receive, upon closing of the acquisition, without payment of additional consideration or further action, one common share of 7G.

The gross proceeds from the offering will be held in escrow, pending closing of the acquisition. Assuming the acquisition closes on or before October 31, 2016, the escrowed proceeds from the offering of subscription receipts will be released to 7G and used by 7G to fund the cash portion of the acquisition as well as provide funding for the company’s ongoing capital investment program. If the acquisition fails to close by October 31, 2016, or the acquisition is terminated at an earlier time, the gross proceeds and pro rata entitlement to interest earned on the escrowed proceeds thereon will be paid to holders of the subscription receipts.

The subscription receipts will be offered to the public in Canada by way of short form prospectus filed with the securities regulatory authorities in each of the provinces of Canada. The offering is subject to the receipt of all necessary regulatory and stock exchange approvals. The closing date of the offering is expected to be in August 2016.

None of the subscription receipts not the common shares have been and will not be registered under the United States Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration in the United States or the availability of an exemption from such registration. This press release shall not constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction.


Peters & Co. Limited and RBC Capital Markets are acting as financial advisors to Seven Generations in connection with the acquisition. Credit Suisse is acting as a strategic advisor.

Seven Generations Energy

Seven Generations is a low-supply-cost, high-growth Canadian natural gas developer generating long-life value from its liquids-rich Kakwa River Project, located about 100 kilometres south of its operations headquarters in Grande Prairie, Alberta. 7G’s corporate headquarters are in Calgary and its shares trade on the TSX under the symbol VII.

Further information about Seven Generations is available on the Company’s


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