The total transaction value is approximately $116 million, including Titan's net debt of approximately $17.5 million. It is expected that approximately 6.5 million Canetic Units will be issued to effect the acquisition.
The Board of Directors of Titan has unanimously agreed to support the offer and has unanimously resolved to recommend that all Titan shareholders tender their shares in acceptance of Canetic's offer.
FirstEnergy Capital Corp. acted as exclusive financial advisor to Titan with respect to the transaction and has provided Titan's Board of Directors with its verbal fairness opinion that the consideration to be received by Titan's shareholders pursuant to the offer is fair, from a financial point of view, to Titan shareholders.
In connection with the offer, directors and shareholders of Titan holding approximately 11% of the Class A Shares of Titan and 9% of the Class B Shares of Titan (each on a fully diluted basis) will enter into lock-up agreements with Canetic pursuant to which they will agree to tender their Titan shares to the offer.
Full details of the offer will be included in a take-over bid circular and related documents that are expected to be filed with securities regulators and mailed to all Titan shareholders on or before November 15, 2007. Under the terms of the Agreement, Canetic's obligation to take-up and pay for the Titan Class A shares and Titan Class B shares is subject to a number of customary conditions, including the deposit of at least 66 2/3% of outstanding Titan Class A shares and Titan Class B shares (on a fully diluted basis) to the offer and the receipt of all required regulatory approvals.
Importantly, Canetic will also acquire more than 49,000 gross (23,700 net) acres, in the Leitchville area of Southwest Saskatchewan, in close proximity to Canetic's existing 45,100 gross (41,200 net) acres, to create a dominant position in the emerging and strategically significant Lower Shaunavon trend.
Current Titan production in Southwest Saskatchewan exceeds 900 boe/d. Canetic continues to execute on its multi-pronged strategy to develop and exploit its high quality asset base while continuing to expand its opportunity portfolio through the selective acquisition and consolidation of holdings in strategic core areas and emerging plays.
The Titan acquisition provides an opportunity for Canetic to acquire and consolidate a significant and controlling land position in the Leitchville area of Southwest Saskatchewan, an area identified as an emerging play with significant potential for ongoing development and long-term reserve addition. Over the course of 2007, including a significant land sale on October 1, 2007, Canetic has been actively acquiring acreage on the Lower Shaunavon trend accumulating 19,760 acres to date at a cost of approximately $24 million.
The Titan acquisition, in addition to the acreage acquired in October, expands Canetic's identified drilling inventory in the Lower Shaunavon trend by more than one third to approximately 300 gross (243 net) drilling locations. The Titan lands serve to extend Canetic's existing position to the south and strongly complement Canetic's existing holdings in the area adding additional flexibility and control of development with an average interest of approximately 70% on lands held.
The Lower Shaunavon trend contains large oil-in-place reservoirs characterized by pay zones ranging from four to 16 meters in thickness with lower permeability and 22 degree API crude. While development has taken place in the region for several years, it has been largely focused in the Upper Shaunavon due to difficulty in producing from the Lower Shaunavon trend.
However, over this past year significant improvements have been made to drilling and completions techniques with further improvements and refinements expected as additional drilling and completions activity takes place. These recent break-throughs in drilling and completions techniques, similar to those being applied in the emerging Bakken play, have proved key to the potential "unlocking" of significant reserves and production in the Lower Shaunavon trend. The Upper Shaunavon continues to offer significant potential for enhanced recovery moving forward.
Recent competitor drilling to seven wells per section on parts of the play directly offsetting Canetic has seen good initial success supporting Canetic's view that increased well density, thicker pay and the potential for enhanced recovery could also lead to substantial recoverable reserve additions over time.
In addition to the production and lands in Southwest Saskatchewan, Canetic will also acquire approximately 900 boe/d of production located in the northern regions of Alberta and British Columbia. Approximately two-thirds of this production is located in the highly sought after Peace River Arch region in close proximity to Canetic's existing lands.
The acquisition of Titan is expected to be accretive to Canetic's production, reserves and cash flow on a per unit basis, based on Canetic's current development plans and internal long-term view of reserves, cash flow and production profile of the Titan assets. Canetic anticipates it can significantly increase production and reserves associated with the existing Titan assets and has planned a comprehensive, multi-year development program, with particular focus in the Lower Shaunavon trend.
The total value of the transaction is estimated at approximately $116 million, exclusion of Titan's estimated land value of $25 million results in the addition of over 1,800 boe/d at an average cost of $49,200 per boe/d and 7.3 million of proved plus probable reserves at an estimated $12.50 per boe, based on Canetic's internal reserve estimates. No value has been ascribed to the estimated $60 million of existing tax pools in the determination of related acquisition metrics.
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