Leucrotta Exploration Inc. (LXE:TSX.V; LCRTF:OTCMKTS) announced it is selling the company to Vermillion Energy for CA$1.73 per share in cash and will create a new Montney Formation-focused mining entity, reported Haywood Securities analyst Christopher Jones in a March 29 research note.
"Relative to completed transactions in neighboring properties in northeast British Columbia, we view the transaction metrics [as] attractive," Jones wrote.
In light of both pieces of news, Haywood changed its rating on Leucrotta to Tender from Buy and lowered its target price on the company to CA$2 per share from CA$2.10. (The oil and gas company's current share price is CA$1.95.)
The value to Leucrotta shareholders of the sale is a 41% cash premium to the company's 10-day volume-weighted average price (VWAP), and for the sale and the newco, it is a 63% premium to the 10-day VWAP, or CA$2 per share.
With respect to the newco, Leucrotta shareholders will receive one common share of it, valued at CA$0.27. They also will get 0.1917 of a common share purchase warrant, with which they may acquire one newco common share for CA$0.27.
Not included in the sale, and thus Leucrotta will retain and own in the newco, are about 140 net contiguous sections (out of its existing 240) of the Montney Formation. This acreage at Two Rivers that it will hold onto produces about 400 barrels of oil equivalent per day (400 boe/d).
The new entity, to be headed by Leucrotta's current management team, will be well funded. After closing of the company sale, expected by the end of July 2022, Vermillion will buy a roughly 12.5% interest in the newco for about CA$14 million (CA$14M) and representation on its board.
Further, certain officers and directors will purchase, as already agreed to, 27.8M units of the newco for CA$7.5M.
"Assuming ExploreCo receives maximum value from all the above financings, the new entity will have about CA$80M in cash and no debt," wrote Jones. It will be "well-positioned to capitalize on increased gas demand with LNG Canada in coming years."
This capital will allow the newco to advance to the development phase. Leucrotta's management estimates it will expand the new entity's production to 30,000 boe/d within five years.
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Disclosures For Haywood Securities Inc., Leucrotta Exploration Inc., March 29, 2022
This report is intended for institutional investors and may only be distributed to non-institutional US clients in the following states: nil. Otherwise, this report may only be distributed into those states with an institutional buyer state securities registration exemption.
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Of the companies included in the report the following Important Disclosures apply:
- As of the end of the month immediately preceding this publication either Haywood Securities, Inc., one of its subsidiaries, its officers or directors beneficially owned 1% or more of Pine Cliff Energy Ltd. (PNE-T).
- Haywood Securities, Inc. has reviewed lead projects of Pieridae Energy Ltd. (PEA-V) and a portion of the expenses for this travel may have been reimbursed by the issuer.
- Haywood Securities Inc. or one of its subsidiaries has managed or co-managed or participated as selling group in a public offering of securities for Spartan Delta Corp. (SDE-V) in the last 12 months.
- Haywood Securities, Inc. pro group holdings exceed 10% of the issued and outstanding shares of Leucrotta Exploration Inc. (LXE-V). Distribution of Ratings (as of March 29, 2022)
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