FOR IMMEDIATE RELEASE NOT FOR DISTRIBUTION TO UNITED

January 30, 2015
MEDIA RELEASE
FOR IMMEDIATE RELEASE
NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR DISSEMINATION TO UNITED
STATES
Connacher Oil and Gas Announces Proposed Recapitalization Transaction and Provides Q4 2014
Operational Update
Calgary, Alberta – Connacher Oil and Gas Limited (CLL – TSX; “Connacher” or the “Company”) announced
today a proposed recapitalization transaction (the "Recapitalization") aimed at significantly reducing the
Company's debt and annual interest expense, and providing additional liquidity to fund ongoing operations.
The Recapitalization provides for, among other things:
•
Exchange of approximately C$1.0 billion of Connacher’s debt for common shares of Connacher,
including accrued and unpaid interest;
•
The issuance by Connacher of US$35 million principal amount of new second lien convertible notes
due August 31, 2018 (the "New Convertible Notes");
•
The Company will have the option to accrue and compound interest payments due on the New
Convertible Notes;
•
At the option of Connacher, the funding of a new C$30 million first lien term loan facility ("New Term
Loan Facility") to replace Connacher's existing C$30 million revolving credit facility;
•
Reduction of annual interest expense by approximately C$80 million; and
•
The Existing First Lien Term Loan will be unaffected.
Additional details regarding the Recapitalization, including the terms of the New Convertible Notes and New
Term Loan Facility are contained in the summary term sheets attached to this news release (the "Term
Sheets").
The Recapitalization is the result of the Company's initiative, announced December 1, 2014, to devise and
implement a strategy to address its liquidity and capital structure. The recent extraordinary shift in
commodity prices has severely constrained Connacher’s ability to generate cash flow in a context where the
Company has a significant debt burden. A reduction in outstanding indebtedness and corresponding interest
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expense and infusion of new capital is necessary in order to preserve substantial value in the resources, assets
and operations of the Company and positions Connacher to regain access to growth capital when commodity
markets improve.
The Recapitalization has the support of an ad hoc committee (the "Committee") of holders of existing second
lien secured notes (the “Existing Notes”) (the "Consenting Noteholders") holding, on a combined basis,
approximately 70% of the Existing Notes and approximately 13% of the outstanding common shares. With the
support of the Committee any interest coming due and payable under the Existing Notes until the completion
of the Recapitalization shall not be paid in cash and any unpaid interest will form part of the principal amount
of the Existing Notes that is exchanged for common shares of the Company under the terms of the
Recapitalization.
In addition, the directors and officers of Connacher holding, on a combined basis, approximately 0.76% of the
common shares have agreed to vote all of their common shares in favour of the approval and adoption of the
Recapitalization.
BMO Capital Markets, Connacher's financial advisor, has provided an opinion to Connacher's Board of
Directors that the terms of the Recapitalization are fair, from a financial point of view, to the Company. Based
on a range of factors, including the fairness opinion and advice of outside legal counsel, Connacher's Board of
Directors is unanimously recommending that all holders of Existing Notes and common shares support the
Recapitalization, which will significantly reduce the Company's debt and provide liquidity for ongoing
operations.
Connacher expects to hold separate meetings of holders of Existing Notes and common shares in late March
2015 in Calgary, Alberta to obtain the required approvals for the steps necessary to implement the
Recapitalization transaction, including approval by the holders of Existing Notes and common shares of a Plan
of Arrangement. Details of the Recapitalization will be provided in an information circular expected to be
distributed to holders of Existing Notes and common shares before the end of February. In addition to
approval by holders of Existing Notes and common shares, implementation of the Plan of Arrangement is
subject to final approval of the Court and receipt of all necessary regulatory and stock exchange approvals.
The Company anticipates the Recapitalization to be completed by early April 2015.
Operational Update
Connacher’s Great Divide production for Q4 2014 averaged 15,250 bbl/d. December 2014 production was
15,500 bbl/d. All production numbers are based on field estimates. Production has increased in each quarter
of 2014 and Q4 2014 was 34 per cent higher than the prior year’s fourth quarter (Q4 2013 - 11,375 bbl/d).
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Great Divide also achieved record production for the year ended 2014. The Company’s 2014 bitumen
production averaged 14,140 bbl/d, 20 per cent higher than the prior year (2013 – 11,783 bbl/d). The Company
has been able to achieve record production by capitalizing on its 2013 and 2014 drilling programs which
added 5 well pairs and 13 infill wells. Nine of the 13 infill wells are currently on production. Asset reliability is
also a large contributor to these results. The Company has achieved industry leading operating uptime of 97
per cent for the year ended 2014.
Capital spending in Q4 2014 was focused on the mini-steam expansion project at Pod One and the SAGD+®
process commercial project at Algar. The Company has decided to delay completion and tie-in of these
projects and reduced growth capital spending by 70%. As a result, 2015 growth capital expenditures are
currently budgeted at approximately C$15 million, down from C$49 million as originally budgeted.
The Company’s cash balance as at December 31, 2014 was $94.2 million.
The Company has entered into an amendment and waiver agreement with the lenders under its existing
revolving credit facility. Among other things, the maximum commitment amount has been reduced to C$20.1
million and will be reduced as existing letters of credit are replaced. No new advances will be permitted under
the facility and a waiver of default has been granted to facilitate the Recapitalization.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there by
any sale of the securities in the United States or in any other jurisdiction in which such offer, solicitation or
sale would be unlawful. The securities have not been registered under the United States Securities Act of
1933, as amended, and may not be offered or sold in the United States absent registration or an applicable
exemption from the registration requirements thereunder.
Additional Information and Conference Call
Connacher will host an investor conference call on February 2, 2015 at 8:00 a.m. MST. Participants can call in
to (888) 231-8191. Please use the Conference ID# 78991722. Participants are encouraged to call in five
minutes prior to commencement. An audio webcast of the conference call will also be available through the
Company’s website, or through the following link:
http://event.on24.com/r.htm?e=935243&s=1&k=ABBD0EE8765D0A89109721FA6D255D67
Further information regarding the Recapitalization will be available on SEDAR (www.sedar.com) and the
Company's website (www.connacheroil.com).
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About Connacher
Connacher is a Calgary-based in-situ oil sands developer, producer and marketer of bitumen. The Company
holds a 100 per cent interest in approximately 450 million barrels of proved and probable bitumen reserves
and operates two steam assisted gravity drainage facilities located on the Company's Great Divide oil sands
leases near Fort McMurray, Alberta.
Forward-Looking Information
Certain information regarding the Company contained herein constitutes forward-looking information and
forward-looking statements (collectively, "forward-looking statements") under the meaning of applicable
securities laws. Forward-looking statements include estimates, plans, expectations, opinions, forecasts,
projections, guidance, or other statements that are not statements of fact, including statements regarding [(i)
the anticipated benefits of the Recapitalization, including the reduction in debt and interest expense, (ii) the
financial position of the Company after giving effect to the Recapitalization, (iii) anticipated timing for
completion of the Recapitalization, and (v) other risks and uncertainties described from time to time in the
reports and filings made by Connacher with securities regulatory authorities. Although Connacher believes
that the assumptions underlying, and expectations reflected in, such forward-looking statements are
reasonable, it can give no assurance that such assumptions and expectations will prove to have been correct.
There are many factors that could cause forward-looking statements not to be correct, including, but not
limited to, risks and uncertainties inherent in the Company's business and risks and uncertainties associated
with securing the necessary approvals to implement the Recapitalization. These risks include, but are not
limited to: crude oil, dilbit and diluent price volatility, exchange rate fluctuations, availability of services and
supplies, operating hazards, access difficulties and mechanical failures, weather related issues, uncertainties in
the estimates of reserves and in projection of future rates of production and timing of development
expenditures, general economic conditions, and the availability of qualified personnel or management, and
other risks and uncertainties described from time to time in the reports and filings made with securities
regulatory authorities by Connacher.
The forward-looking statements contained herein are made as of the date of this news release solely for the
purpose of generally disclosing Connacher's Recapitalization transaction, and prospective activities. Connacher
may, as considered necessary in the circumstances, update or revise the forward-looking statements, whether
as a result of new information, future events, or otherwise, but Connacher does not undertake to update this
information at any particular time, except as required by law. Connacher cautions readers that the forwardlooking statements may not be appropriate for purposes other than their intended purposes and that undue
reliance should not be placed on any forward-looking statement. The Company's forward-looking statements
are expressly qualified in their entirety by this cautionary statement.
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Contact
Chris Bloomer
Chief Executive Officer
Greg Pollard
Chief Financial Officer
Connacher Oil and Gas Limited
Phone: (403) 538-6201
Fax: (403) 538-6225
Suite 900, 332 - 6th Avenue SW
Calgary, Alberta T2P 0B2
inquiries@connacheroil.com
www.connacheroil.com
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Key Terms of the Recapitalization
Treatment of Existing Notes
•
•
The Existing Notes listed below will be affected by the Recapitalization:
-
C$350 million aggregate principal amount of 8.75% Notes due August 1, 2018
-
US$550 million aggregate principal amount of 8.50% Notes due August 1, 2019
Holders of Existing Notes (“Noteholders”) will receive 98% of the recapitalized equity of
Connacher as follows:
(i)
Noteholders will surrender their Existing Notes in exchange for their pro rata share,
based on the face amount of Existing Notes held plus all obligations owed to
Noteholders, of 98% of the recapitalized equity of Connacher;
(ii)
Existing Note Claims shall consist of all outstanding obligations owed to noteholders,
including the February 1, 2015 interest payment;
(iii)
In addition, all existing Noteholders meeting the eligibility requirements outlined
below will have an opportunity to participate (the “Convertible Note Participation
Process”) in amounts up to their pro rata share, based on the face amount of Existing
Notes held, in the issuance of New Convertible Notes in an aggregate principal
amount of up to US$35 million.
In effect, depending upon the exchange rate at the funding of the transaction, it is
estimated that for every C$1,000,000 of face value of Existing Notes held by an
existing Noteholder, such Noteholder may participate in up to US$33,351 (utilizing an
exchange rate of $1.2717 CAD/USD as of January 30, 2015) of the New Convertible
Notes.
The deadline for making a commitment to participate in the New Convertible Notes
will be set out in the information circular which is expected to be available before the
end of February 2015.
To qualify to participate in the New Convertible Notes, Noteholders must meet the
following criteria:
a) be a holder of Existing Notes on the record date for the Recapitalization;
and
b) if such person is in the United States, be an institution that is an “accredited
investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the United States Securities Act of 1933, as amended.
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Specific instructions on how to participate in the New Convertible Notes will be
provided in an information circular which is expected to be available before the end
of February 2015.
Support Agreements
An ad hoc committee of Noteholders (the “Committee”) has executed support agreements with Connacher
whereby they have agreed to vote in favour of and support the Recapitalization. The Committee holds
approximately 70% of the outstanding principal amount of the Company’s Existing Notes. Connacher will
continue to solicit and obtain additional Noteholder support for the Recapitalization. In addition, certain
members of the Committee (“Backstoppers”) have entered into commitment agreements with Connacher to
the effect that any amount of the New Convertible Notes that is not provided by Noteholders shall be provided
by the Backstoppers. Additional details with respect to the backstop arrangements are described below.
Treatment of Existing First Lien Term Loan and Revolving Credit Facility Obligations
•
Members of the Committee have entered into commitment agreements with Connacher to
provide a C$30 million New Term Loan in replacement of the Revolving Credit Facility at the
option of Connacher.
•
First Lien Term Loan obligations will be unaffected by the Recapitalization. The Recapitalization
will be implemented in accordance with the existing “Permitted Second Lien Notes
Restructuring” provision of the First Lien Term Loan.
Treatment of Existing Shares
•
Existing holders of common shares of Connacher (“Shareholders”) will retain their existing
common shares (adjusted for the Share Consolidation described below) and such shares will
represent approximately 2% of the outstanding common shares of Connacher after giving
effect to the Recapitalization and prior to the conversion of any New Convertible Notes.
Share Consolidation
In conjunction with the Recapitalization, the Company's issued and outstanding common shares will be subject
to a share consolidation, the terms of which will be determined prior to the distribution of the information
circular.
Terms of the New Term Loan
The following is a summary of selected terms of the New Term Loan:
Issuer:
Connacher Oil and Gas Limited (“Connacher” or the
“Company”)
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Principal Amount:
C$30 million
Maturity:
August 31, 2018
Interest:
LIBOR plus 9.75% cash payable quarterly in arrears
Backstop Commitment:
Certain members
(“Backstoppers”)
Backstop Consideration:
5% payable on closing in common shares or cash
consideration payable, at the election of each
Backstopper
Guarantors:
Substantially the same as the Revolving Credit Facility
Ranking :
Secured on a senior basis to the existing First Lien Term
Loan and the New Convertible Notes
Use Of Proceeds:
Maintain letters of credit and provide incremental
liquidity to the Company, subject to the covenant
package to be agreed upon between the Company and
the Backstoppers
of
the
Ad
Hoc
Committee
Terms of the New Convertible Notes
The following is a summary of selected terms of the New Convertible Notes:
Issuer:
Connacher Oil and Gas Limited (“Connacher” or the
“Company”)
Principal Amount:
US$35 million
Maturity:
August 31, 2018
Interest:
12% cash payable quarterly in arrears, or, at
Connacher’s option with respect to any interest
payment, 14% PIK (interest will not be paid in cash, but
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will continue to accrue and be dealt with pursuant to
the Plan)
Backstop Commitment:
Certain members
(“Backstoppers”)
of
the
Ad
Hoc
Committee
Backstop Consideration:
5% cash consideration, payable on closing to the
Backstoppers and any consenting noteholders who
executed the support agreement as of January 30th to
subscribe to their pro rata portion of the New
Convertible Notes (“Committed Subscribing Initial
Consenting Noteholders”)
Allocation:
Available to all existing eligible holders of the Existing
Notes on a pro rata basis (based on their Notes Claims
as of the Record Date divided by the Notes Claims of all
Noteholders as of the record date)
Guarantors / Security:
Substantially same as existing indenture for the Existing
Notes
Ranking:
Secured subordinate to the New Term Loan and First
Lien Term Loan
Conversion:
Convertible at the option of (i) any individual holder of
the New Notes and (ii) in full at the option of holders of
66-2/3% of the New Notes outstanding, with the
consent of each Backstopper and any Committed
Subscribing Initial Consenting Noteholders (provided
that the consent of a Backstopper or a Committed
Subscribing Initial Consenting Noteholder shall only be
required if that party still retains 75% of the original
principal amount of the New Notes issued to that party
on the effective date of the Recapitalization)
Prior to February 17, 2015, the Company and the
Backstoppers and any Committed Subscribing Initial
Consenting Noteholders may elect to structure the form
of consideration for the New Notes in a tax efficient
manner, including without limitation, by exchanging the
New Notes for (i) new second lien notes and warrants
or (ii) new second lien notes and common shares to be
issued on the effective date of the Recapitalization
Use Of Proceeds:
Incremental liquidity needs of the Company, subject to
the covenant package to be agreed upon between the
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Company and the Backstoppers
Mandatory and
Voluntary Prepayments:
Substantially the same as the existing indenture for the
Existing Notes
Backstop Arrangements
The Backstoppers have entered into an agreement (the “Backstop”) with Connacher whereby they have,
subject to certain conditions, committed to fund any portion of the New Convertible Notes that is not
funded by the Convertible Notes Participation Process.
The Backstop may be terminated upon (among other event) the termination of the Support Agreement,
the occurrence of a material adverse change (as defined in the agreement) or April 30, 2015.
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