2013 Canadian Public Oil and Gas M&A Year in Review
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Transcript of 2013 Canadian Public Oil and Gas M&A Year in Review
2013 Canadian Public Oil and Gas M&A Year in Review
STIKEMAN ELLIOTT LLP
STIKEMAN ELLIOTT LLP
CONTENTS
TERMS OF REFERENCE ...............................2
2013 TRENDS & KEY METRICS ..................... 3
NOTABLE FEATURES ..................................... 4
OVERVIEW ................................................................................6
TRANSACTION PROCESS ........................................................8
VOTING/SUPPORT AGREEMENTS ..........................................9
TRANSACTION TIMING .........................................................10
MEETING MECHANICS ..........................................................11
DIVIDENDS & DISTRIBUTIONS ...............................................12
MATERIAL ADVERSE EFFECT .................................................13
KNOWLEDGE .........................................................................14
INTERIM PERIOD COVENANTS .............................................15
CONDITIONS ..........................................................................16
COVENANTS ..........................................................................19
REPRESENTATIONS & WARRANTIES .....................................20
TOPPING OFFERS ..................................................................22
MATCHING PERIOD ...............................................................23
TERMINATION ........................................................................24
OTHER REMEDIES ..................................................................29
DEALS SURVEYED .....................................30
ABOUT STIKEMAN ELLIOTT ......................31
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW2
TERMS OF REFERENCE
Stikeman Elliott prepared this study based on a review of public M&A transactions that were announced between January 1, 2013 and December 31, 2013. Only M&A transactions involving a target which was a “reporting issuer” in Canada and the primary assets of which were involved in upstream, midstream, downstream or oil�eld service were included in the study. Reverse takeover transactions involving a going public process were not included in the survey. A total of nineteen transactions were surveyed (please see ‘Deals Surveyed’ on page 30 for a complete list). When we use the term “deal value” we refer to the total number of outstanding common shares of the target multiplied by the cash value per share of the buyer’s offer. These numbers have been rounded.
In compiling the study, Stikeman Elliott reviewed acquisition agreements, management proxy circulars, take-over bid circulars, press releases and related publicly available documents on DisclosureNet and the System for Electronic Document Analysis and Retrieval (SEDAR).
The agreements and other disclosure documents surveyed for the purpose of this study contain complex legal language and terms. Most terms and provisions are not identical. Accordingly, Stikeman Elliott has relied on its judgment and exercised its discretion in categorizing and summarizing the information comprising this study. Additionally, this study is based only on publicly available information; non-public information, such as that included in disclosure schedules or letters to the agreements surveyed, may be relevant to the analysis but is not re�ected in the study.
This document is a general overview created for informational purposes only and does not constitute legal advice. If you or your business have questions about speci�c legal issues, legal counsel quali�ed in the appropriate jurisdiction(s) and familiar with your speci�c circumstances should always be consulted. The distribution of this document to any person does not create, continue or revive a lawyer-client relationship between Stikeman Elliott LLP and that person or any associated person or entity. We welcome your comments and suggestions.
Please forward any comments, suggestions or questions regarding this publication to: Andrew Wong at [email protected].
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW3
2013 TRENDS & KEY METRICS
The year started slowly with nine deals announced in H1. The market announced 10 deals in H2, trailing the equity uptick that occurred in the last half of the year by some distance. This made for a long 12 months for public equity holders, management, employees and advisors. The landscape in 2013 was dominated by privatizations, �nancial buyers, service deals and very small transactions. Domestic and international strategic buyers were absent from the market and were responsible for the dramatic decline in activity. The highlights were colourful, but somewhat downbeat.
• There was a steep decline in M&A activity involving public targets. In 2012, 30 deals were completed or announced. In 2013, only 19 made the cut.
• Largedealshavecompletelyvanishedandtransactionvalueshaveplummeted.In2013,thelargestdealinoursurveywasworth $935 million, while in 2012 the largest deal tipped the scales at over $18 billion.
• Thetotalvalueofdealsin2013was$2.4billion-only6.3%ofthetotalvalueofdealsannouncedin2012.Halfofallofthedeals of 2013 were worth less than $50 million.
• In2013,12dealswerecompletedbystrategics,andsevenwerecompletedbyfinancials.Financialsdidonlytwodealsin2012.
• 73%ofdeals(bynumber)in2013involvedE&Ptargetsand17%involvedservicecompanies.Therewerenomidstreamtransactions.
• In2013thereweresevendeals(or36%ofthetotal)thatinvolvedacquisitionsoftargetsbylargeshareholdersormanagement,an unusually large proportion of the total number of deals. In 2012, only one deal was initiated by management or a large shareholder.
• PolandenteredtheCanadianindustrythroughtwodeals,withKulczykOil’sacquisitionofWinstarResourcesandORLEN Upstream’s acquisition of TriOil Resources. Asia Paci�c was quiet on the corporate front, with only one deal – Yanchang Petroleum acquired Novus Energy.
• NovelstructureswereusedintheacquisitionsofWinstarResources(byKulczykOil),RIAResources(byQwestContrarianFund) and Wenzel Downhole (by Basin Tools). Both the acquisitions of Bonnetts Energy (by Mill City Capital) and Zedi (by1779958AlbertaLtd.)involvedmanagementrollingoveritsequity.Buyersdidnotshyfromcreativity.
• Therewasnotoppingorcontestedactivityin2013thatreachedthelevelofpublicdisclosure.
• Twocomplexcorporatestories–ComptonandWenzelDownhole–cametoanendaspublicentities.
This survey does not cover private M&A activity (both corporate and asset), or joint ventures and asset sales by public companies, which remained fairly strong, fueled by big company rationalization and new equity funding. Public shareholders are not at the party, but the good times continue to roll for some players.
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW4
NOTABLE FEATURES
Buyer Target Structure Features of Note Equity ValueServiceWestern Energy Services Corp.
IROC Energy Services Corp.
� Discussions took three years - Western moved from an offer of $1.10 to $3.10
� Western is Canadian-managedC$157M
Mill City Capital L.P. Bonnetts Energy Corp.
� Theinitiatingbuy-outfundwassupportedbymanagersholdingapproximately27%oftheshares
� Thebuyerobtainedlock-upsfrom37%ofthesharesheldbyothershareholders
� Discussions to complete the transaction began a year before a formal agreement was completed - the buyer had a 45-day exclusivity period at the letter of intent phase
C$94M
1779958AlbertaLtd. Zedi Inc.
� This management buy-out was funded by existing shareholders, RBC and ATB
� Thebuy-outgroupheld17%ofthesharesandincluded29differentshareholders
� Managementobtainedlock-upsfrom13%ofthesharesheldbyothershareholders
C$87M
Basin ToolsWenzel Downhole Tools Ltd.
� Wenzel was �nally acquired after a long and lawyer-�lled history of disputes with government, industry participants and amongst shareholders – the acquisition was preceeded by a $14 million judgment against the target
� Thebuyerheld37%ofthetarget’sshares
� The meeting was adjourned after the target’s �nancial advisor amended the valuation
C$83M
PHX Energy Services Corp. RMS Systems Inc.
� Thebuyerheld40%ofthesharesofthetarget–managementheld17%andsupportedthetransaction
� The buyer and the target were engaged in a joint venture to sell the target’s products before the transaction was completed
C$19M
Domestic Mid Cap
Bellatrix Exploration Ltd. Angle Energy Inc. � Both the buyer and the target held meetings
� The target’s debenture holders were arrangedC$325M
Yanchang Petroleum International Limited
Novus Energy Inc.
� Negotiations to finalize a definitive agreement took approximately 18 weeks after signing a let-ter of intent – the stock was halted on rumors just before announcement
� The buyer owed the target a termination fee if the buyer’s home government did not approve the transaction or if the buyer could not obtain financing
� The target owed the buyer a termination fee if the target’s shareholders failed to approve the transaction
C$223M
ORLEN Upstream S.P. Z O.O.
TriOil Resources Ltd.
� Thetransactionwascompletedinthefaceofa17%interestheldbyanotherstrategicanda5%interest held by an activist fund
� The activist fund succeeded in getting a director appointed to the board during the sale process
� The target obtained three fairness opinions
C$182M
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW5
Domestic Mid Cap Brook�eld Capital Partners Ltd.
Insignia Energy Ltd. � Thebuyeralreadyheld67%ofthesharesofthetarget
� Holdersofthetargetreceiveda95%premiumC$78M
Whitecap Resources Inc. Invicta Energy Corp. � The only domestic acquisition by a strategic in H1 C$40M
Domestic Small Cap
Tamarak Valley Energy Ltd. Sure Energy Inc. � The target completed a $25M placement of subscription receipts exchangeable for shares of
the buyer on closing
� Managementheld38%ofthetarget’ssharesC$17M
Montana Exploration Corp.
Waldron Energy Corporation
� Both the buyer and the target held meetings
� The buyer completed a $25M placement subject to completion of the acquisition of the target
� The purchase price adjusted depending on net debt of the targetC$16M
Tuscany Energy Ltd. Diaz Resources Ltd. � Tuscany and Diaz were under majority control by the same shareholder C$16M
LNG Energy Ltd.Enterprise Energy Resources Ltd.
� The buyer and the target both had interests in one of the target’s major properties C$4M
QwestContrarianFund RIA Resources Corp. � The buyer was formed to acquire under-performing juniors
� The target’s shareholders received an unlisted non-voting preferred share which will share in a distribution of the assets of the target in �ve years
C$2.4M
MFC Industrial Ltd. 0915988 B.C. Ltd. � Squeeze-out of the former minority shareholders of Compton
� Thebuyerheld40%ofthetarget’ssharesC$0.8M
International
Paci�c Rubiales Energy Corp.
Petrominerales Ltd.
� The target’s marketing process took 18 months – the buyer’s offer was made after that process terminated
� The target created a TSXV-listed spinco with cash and assets worth $100M at closing
� Management received $8M in 2013 bonus and change of control payments
C$935M
Kulczyk Oil Ventures Inc. Winstar Resources Ltd. � The largest shareholder of the buyer backstopped the cash component of the offer in exchange
for shares of the buyer
� The buyer used the transaction to effect its listing on the TSXC$112M
Cub Energy Inc. Anatolia Energy Corp. � CEO and CFO received part of the approximately $0.5M in severance payments made by the
target – which triggered a majority of the minority vote C$3.3M
NOTABLE FEATURES
Buyer Target Structure Features of Note Equity Value
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW6
Sector Deal size
�■ Exploration and production: 68%
�■ Energy services: 26%
■ Other: 6%
Sector
■ Less than $10M: 4 deals
■ $10M to $50M: 5 deals
■ $50 to $100M: 4 deals
■ $100M to $150M: 1 deal
■ $150M to $1B: 5 deals
Deal size
OVERVIEW
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW7
Transaction structure Consideration
■ Cash: 26%
■ Stock: 32%
■ Cash + Stock: 42%
Cash/share/mixed
OVERVIEW
All of the surveyed transactions were structured using a plan of arrangement
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW8
TRANSACTION PROCESS
Time to completion(measured from the time the parties enter into de�nitive agreement until closing)
Number of fairness opinions obtained in respect of the transaction
WHAT PERCENTAGE OF
■ Less than sixty days: 64%
■ Sixty to seventy days: 18%
■ More than seventy days: 18%
0
20
40
60
80
100
■ None: 5%
■ One: 89%
■ Two or more: 6% �
FAIRNESS OPINIONS OBTAINED
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW9
WHAT PERCENTAGE OF
■ Zero to 10: 33%
■ 10 to 20: 17%
■ 20 to 30: 11%
■ 30 plus: 39%
VOTING/SUPPORT AGREEMENTS
Percentage of common shares locked up by the buyer Where a lock-up is present, how often were the following parties locked up?
0
20
40
60
80
100
■ Directors: 95% of the time
■ Officers: 63% of the time
■ Other shareholders: 53% of the time
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW10
■ "As prompt as possible": 89%
■ Within 30 days: 11%
TIME TO PREPARE AND MAIL CIRCULAR
■ Not speci�ed: 21%
■ Within one month: 21%
■ Within two months: 42%
■ Within three months: 16%
TIME BETWEEN DATE OF TRANSACTION AGREEMENT
AND OUTSIDE MEETING DATE
TRANSACTION TIMING
Time allowed to prepare and mail the target’s circular to approve the plan of arrangement
Time between the date of the transaction agreement and the outside meeting date regarding the plan of arrangement
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW11
■ Yes: 26%
�■ No: 74%
CAN BUYER REQUIRE TARGET TO ADJOURN
■ Yes: 11%
■ No: 89%
MEETING MECHANICS
Can the buyer require the target to adjourn the meeting in respect of an arrangement?
Can the buyer force a vote of the target securityholders whether or not a superior proposal has been made?
None of the surveyed agreements provided the buyer with the option of forcing a vote of the target security
holders if a superior proposal is made
Optionholders entitled to vote at the arrangement meeting?
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW12
■ Yes: 5%
■ No: 95%
CAN BUYER REQUIRE TARGET TO ADJOURN
DIVIDENDS & DISTRIBUTIONS
Does the transaction agreement expressly provide that declarations of dividends or other distributions trigger a
reduction in purchase price?
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW13
0
20
40
60
80
100
�■ Conditions affecting oil & gas industry generally in any of the jurisdictions in which assets are held: 89%
�■ Changes in global economic or political conditions: 84%
�■ Change in law: 68%
�■ Change in IFRS: 47%
�■ Natural disasters: 32%
�■ Change in trading price of buyer or target shares resulting from the announcement of the agreement: 32%
�■ Failure to meet internal or published projections: 21%
BREAKDOWN OF THE DISPROPORTIONAL
EFFECT LIMITATION EXCEPTIONS
■ Yes: 42%
■ No: 58%
DOES MAE DEFINITION INCLUDE EFFECT ON TARGET'S ABILITY
TO PERFORM OBLIGATIONS UNDER TRANSACTION AGREEMENT?
MATERIAL ADVERSE EFFECT
Does the “Material Adverse Effect” de�nition speci�cally include adverse effects on the target’s ability to perform its obligations
under the transaction agreement?
0
20
40
60
80
100
�■ Conditions affecting oil & gas industry generally in any of the jurisdictions in which assets are held: 89%
�■ Changes in global economic or political conditions: 84%
�■ Change in law: 68%
�■ Change in IFRS: 47%
�■ Natural disasters: 32%
�■ Change in trading price of buyer or target shares resulting from the announcement of the agreement: 32%
�■ Failure to meet internal or published projections: 21%
BREAKDOWN OF THE DISPROPORTIONAL
EFFECT LIMITATION EXCEPTIONS
Events included in the list of disproportionate effect exceptions
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW14
�■ Yes: 11%
�■ No: 89%
KNOWLEDGE
Does the de�nition of the “knowledge” quali�er (used in representations and warranties) include the knowledge of directors?
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW15
STANDARD FOR PARTIES OBTAIN REGULATORY APPROVALS
■ Not speci�ed: 5%
■ Reasonable commercial efforts (or commercially reasonable efforts): 85%
■ Reasonable efforts: 5%
■ Reasonable best efforts: 5%
INTERIM PERIOD COVENANTS
Can the buyer withhold consent unreasonably for exceptions from interim period restrictions on the target business?
Standard for efforts of the parties to obtain regulatory approvals
None of the surveyed agreements provided the buyer with the ability to, at its sole discretion, prevent the target from engaging in conduct that would not otherwise fall under an exemption on
interim period business conduct
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW16
Mutual conditionsStandard(atleast75%ofsurveyedagreementsincludethefollowingconditions)
- Interim order granted in substance that is consistent with terms of agreement
- Arrangement resolution approved/adopted by target shareholders
- Final order granted in substance and form that is satisfactory to parties, on terms consistent with agreement
- Articles of arrangement in form satisfactory to both parties and on terms consistent with agreement
- Consummation of agreement not illegal/prohibited by law
- Listing approval (conditional approval to list shares to be issued pursuant to agreement)
- Agreement has not been terminated pursuant to the terms of the agreement
- Mailing Date and Effective Date have occurred on/before dates speci�ed in agreement
- All required regulatory, governmental and third party approvals, waivers and consents have been obtained on terms satisfactory to the parties
Uncommon(10-30%ofsurveyedagreementsincludethefollowingconditions)
- Competition Act approval obtained, or waiting period has expired, terminated, or been waived
Rare(lessthan10%ofsurveyedagreementsincludethefollowingconditions)
- No consents, orders or approvals contemplated by the arrangement contain terms or conditions deemed unsatisfactory or unacceptable to either of the parties
- Parties must be satis�ed that the shares of the company resulting from amalgamation pursuant to the agreement qualify as an investment for RRSP
- All necessary actions taken so that any shares to be issued in the United States will be exempt from certain registration requirements of the United States Securities Act
CONDITIONS TO THE OBLIGATION TO CLOSE
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW17
CONDITIONS TO THE OBLIGATION TO CLOSE
Conditions to obligations of buyerStandard(atleast75%ofsurveyedagreementsincludethefollowingconditions)
- Target’s representations are true/correct in material respects as of Effective Date
- Target has complied with all covenants, except where failure not expected to have material adverse effect or impede arrangement
- No material adverse change has occurred
- No material adverse action taken by domestic/foreign governmental authority
- No proceedings against target expected to have material adverse effect on target or to impede consummation
- Target has provided copies of all documents required by agreement
- Target’s board approves the transaction
- Arrangement resolution passed by target shareholders
- Holders of no more than a speci�ed percentage of issued/outstanding target shares have exercised dissent rights
Uncommon(15-30%ofsurveyedagreementsincludethefollowingconditions)
- Buyer satis�ed all options have been exercised/terminated
- Target’s of�cers/directors have submitted resignations
- Voting agreements have been entered into, not terminated
- Area of exclusion or non-competition agreements entered into, not terminated
- Target maintains a speci�ed minimum working capital level
- Target obtains required third party consents
- No right of �rst refusal exercised on target properties
- Target board has not withdrawn or amended recommendation
- Number of outstanding target shares capped
- Target employment or severance-related obligations do not exceed speci�ed amount
- Outstanding loans or interest due under credit agreements dealt with in manner speci�ed by agreement
- Target duly executes or delivers closing loan promissory note
- Outstanding target warrants exercised or terminated
Rare(lessthan10%ofsurveyedagreementsincludethefollowingconditions)
- Target’s expenses in relation to arrangement (e.g. �nancial advisor or legal fees) cannot exceed speci�ed threshold
- Buyer will have received from target a statement that it is not and has not been a United States real property holding corporation
- Target’s production as of a speci�ed date will not be less than a speci�ed level
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW18
CONDITIONS TO THE OBLIGATION TO CLOSE
Conditions to obligations of targetStandard(atleast75%ofsurveyedagreementsincludethefollowingconditions)
- Buyer’s representations are true/correct in all material respects as of Effective Date
- Buyer has complied with all covenants, except where failure not expected to have material adverse effect or impede arrangement
- No material adverse change has occurred
- No material adverse action taken by domestic/foreign governmental authority
- No proceedings against target expected to have material adverse effect on target or to impede consummation
- Buyer has provided copies of all documents required by agreement
- Buyer’s board approves transaction
- Target furnishes certi�ed copies of board resolution approving agreement and contemplated transactions
- Buyer has paid/deposited consideration
Uncommon(10-30%ofsurveyedagreementsincludethefollowingconditions)
- Shares issued by buyer free of encumbrances, fully paid, are non-assessable, no restrictions on trading
- Releases are provided to the directors or of�cers of target
- Buyer maintains minimum working capital
Rare(lessthan10%ofsurveyedagreementsincludethefollowingconditions)
- Particular debt or liability of buyer cannot exceed speci�ed threshold
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW19
COVENANTS
Mutual covenantsStandard(atleast75%ofsurveyedagreementsincludethefollowingcovenants)
- Use efforts to complete arrangement on or before speci�ed date and satisfy conditions precedent
- Obtain all necessary consents, approvals from parties to contracts, credit agreements, etc.
- Obtain all other consents, waivers, approvals required by law
- Obtain all regulatory approvals
- Provide other party reasonable access to information required and maintain ongoing communications with other party
- Information provided relating to regulatory approval only to be given to external legal counsel of other party
Uncommon(10-30%ofsurveyedagreementsincludethefollowingcovenants)
- Where competitively sensitive information required, parties must provide information only to external legal counsel or other experts hired by a party
- Provide notice of any known misrepresentations in relation to regulatory �lings
- Provide notice of any communication with governmental entities
- Provide notice of any material adverse change
- Will not take or permit action, will refrain from acting in manner, that is inconsistent with agreement or would be expected to signi�cantly impede consummation of the transaction
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW20
�■ Zero to 50: 5%
�■ 51 to 100: 53%
�■ 101 to 150: 42%
�■ Yes: 32%
�■ No: 68%
�■ Yes: 84%
�■ No: 16%
REPRESENTATIONS & WARRANTIES
Approximate number of representation/warranty paragraphs
Representations made regarding working capital or net debt?
Does agreement permit amendments to representations at closing?
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW21
�■ Yes: 5%
�■ No: 95%
REPRESENTATIONS & WARRANTIES
Parties represent that the representations and warranties themselves contain no misrepresentations
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW22
TOPPING OFFERS: Restriction on Non-Solicitation
What are requirements for a Topping Proposal to qualify as a Superior Proposal?
When is target permitted to change recommendation?*
The de�nition of ‘Superior Proposal’ in all agreements included:a) must be written bona �de proposal
b) necessary funds are likely available
c) �nancially more favorable proposal (after consultation with �nancial advisor)
d) after consulting with legal advisors, accepting proposal is consistent with �duciary duties of the board
Over 90% of agreements required that the target must provide:a) prompt notice that it is entering discussions
b) copy of proposal and all related written documents
c) copies of all information provided to third party
d) notice of any inquiries, offers, proposals with respect to Superior Proposal
e) third party identity
f) status updates
Items b) to f) were all required by the purchaser within 24 hours
0
20
40
60
80
100
■ Third party will not require access to books/records of target longer than time specified in agreement: 47%
�■ Specified amount of outstanding securities or assets are to be acquired: 5 %
�■ Likely to be completed without undue delay: 83%
�■ Complies with all applicable laws: 26%
�■ Did not result from breach of the agreement: 16%
0
20
40
60
80
100
■ Third party will not require access to books/records of target longer than time specified in agreement: 47%
�■ Specified amount of outstanding securities or assets are to be acquired: 5 %
�■ Likely to be completed without undue delay: 83%
�■ Complies with all applicable laws: 26%
�■ Did not result from breach of the agreement: 16%
Other requirements
*subject to a matching period
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW23
MATCHING PERIOD
Is there a right to match?
�■ Yes: 84%
�■ No: 16%
Period in which right to match is open to the buyer
■ Three days: 61%
■ Four plus days: 39%
PERIOD LENGTH
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW24
TERMINATION
Are there termination rights for failure to meet prescribed working capital or net debt levels?
■ Yes: 21%
■ No: 79%
Termination right for failure to meet
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW25
TERMINATION
Is a break fee provided for? Buyer break fee triggers
Over 90% of the deals surveyed contained the following triggers to the payment of a break fee by the target:1) Target board of directors fails to publicly reaf�rm recommendations and
approvals, or withdraws, changes, or proposes publicly to withdraw, amend, or change any recommendations or approvals in a manner adverse to the buyer
2) A superior proposal is publicly announced and target board fails to reaf�rm its recommendation
3) Target accepts or moves to implement a superior proposal
4) Target is in breach of any of its covenants or obligations in any material respect
5) Target breaches any representations, warranties, or covenants, which, individually or in the aggregate, would reasonably be expected to result in a material adverse change and where target fails to cure the breach�■ Yes: 84%
�■ No: 16%
�■ Yes: 95%
�■ No: 5%
Does the break fee constitute liquidated damages?
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW26
■ Equal to: 83%
■ Less than: 17%
TERMINATION
Target break fee triggers
Over 90% of the deals surveyed contained the following reverse break fee triggers:1) Buyer breaches any covenants where the breach is reasonably expected to
result in material adverse change, where buyer fails to cure the breach within time period granted
2) Buyer breaches any representations or warranties where the breach is reasonably expected to result in material adverse change, where buyer fails to cure the breach within time period granted
Only 33% of deals surveyed contained the following as a reverse break fee trigger:1) Buyer board fails to make any recommendations or determinations, in a manner
adverse to target; or withdraws, modi�es, or changes any recommendations in manner adverse to target
Is a reverse break fee provided for?
■ Yes: 79%
■ No: 21%
Is the reverse break fee less than the break fee?
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW27
■ Not speci�ed 63%
■ Six months: 16%
■ Nine months: 5%
■ Twelve months: 16%
PERIOD FOR 3RD PARTY ACQUISITION CONSUMMATION POST TERMINATION?
�■ One business day : 41%�■ Two business days : 53% ■ Three or more business days : 6%
PERIOD FOR 3RD PARTY ACQUISITION CONSUMMATION POST TERMINATION?
�■ One business day of termination event: 29%�■ Two business days of termination event: 65% ■ Three or more business days of termination event: 6%�
PERIOD FOR 3RD PARTY ACQUISITION CONSUMMATION POST TERMINATION?
TERMINATION
Reverse break fee payment must be paid within
Period in which consummation of any third party acquisition must occur post termination to trigger the
payment of a break fee by the target
Break fee payment must be paid within
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW28
�■ Yes: 58%
�■ No: 42%
TERMINATION
Expense reimbursement in addition to break fee and reverse break fee contemplated?
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW29
OTHER REMEDIES
Speci�c performance available as a remedy?
■ Yes: 95%
■ No: 5%
SPECIFIC PERFORMANCE AVAILABLE?
STIKEMAN ELLIOTT LLP: 2013 CANADIAN PUBLIC OIL AND GAS M&A YEAR IN REVIEW30
DEALS SURVEYED
Buyer Target Equity Value Announced Completed
Western Energy Services Corp. IROC Energy Services Corp. $157M February 22, 2013 April 22, 2013
MFC Industrial Ltd. 0915988 B.C. Ltd. $0.8M March 11, 2013 April 19, 2013
Whitecap Resources Inc. Invicta Energy Corp. $40M March 18, 2013 April 30, 2013
QwestContrarianFund RIA Resources Corp. $2.4M April 4, 2013 June 5, 2013
Kulczyk Oil Ventures Inc. Winstar Resources Ltd. $112M April 25, 2013 June 24, 2013
Cub Energy Inc. Anatolia Energy Corp. $3.3M April 26, 2013 June 26, 2013
Basin Tools Wenzel Downhole Tools Ltd. $83M May 13, 2013 July 31, 2013
Tuscany Energy Ltd. Diaz Resources Ltd. $16M May17,2013 July 16, 2013
Brook�eld Capital Partners Ltd. Insignia Energy Ltd. $78M May 28, 2013 July 19, 2013
LNG Energy Ltd. Enterprise Energy Resources Ltd. $4M June 25, 2013 August 20, 2013
Montana Exploration Corp. Waldron Energy Corporation $16M July 31, 2013 Has not closed
Tamarack Valley Energy Ltd. Sure Energy Inc. $17M August 20, 2013 October 9, 2013
Yanchang Petroleum International Limited Novus Energy Inc. $223M September 3, 2013 January 20, 2014
ORLEN Upstream S.P. Z O.O. TriOil Resources Ltd. $182M September 16, 2013 November 13, 2013
Mill City Capital L.P Bonnetts Energy Corp. $94M September 24, 2013 November 5, 2013
PHX Energy Services Corp. RMS Systems Inc. $19M September 25, 2013 November 28, 2013
Paci�c Rubiales Energy Corp. Petrominerales Ltd. $935M September 29, 2013 November 28, 2013
Bellatrix Exploration Ltd. Angle Energy Inc. $325M October 15, 2013 December 11, 2013
1779958AlbertaLtd. Zedi Inc. $87M December 19, 2013 Has not closed
ABOUT STIKEMAN ELLIOTT
Stikeman Elliott is one of Canada’s leading business law firms with offices in Calgary, Toronto, Montréal, Ottawa and Vancouver as well as in London, New York and Sydney. The firm is recognized as a Canadian leader in each of our core practice areas – corporate finance, M&A, corporate-commercial law, banking, structured finance, real estate, tax, insolvency, competition/antitrust, employment and business litigation – and we are regularly retained by domestic and international companies in a wide range of industries.
Our firm has an extensive domestic and international oil and gas practice. We have a leading team of energy lawyers in our Calgary office, with seamless access to national and international coverage through our offices across Canada and abroad.
Our services include mergers, acquisitions, dispositions, corporate finance and securities, the structuring of joint ventures and other commercial arrangements, energy trading and energy derivative products, midstream facility contracts and transactions, infrastructure projects, regulatory matters and litigation. Our Energy Group works regularly with other lawyers in our firm to advise on the tax, environmental, corporate governance, employment and competition and foreign investment aspects of transactions involving participants in the oil and gas sector.
We have acted as trusted advisors on many of the energy sector’s most complex undertakings, from the financing and development of major projects to ongoing operations. Businesses turn to us for expert counsel relating to the exploration, production and refining of conventional oil and gas, oil sands and shale gas as well as the extraction, transportation, processing, storage and marketing of crude oil, bitumen, natural gas, natural gas liquids and liquefied natural gas (LNG) on a worldwide basis.
For more information, please contact our Calgary office at (403) 266-9000 or visit www.stikeman.com
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