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QIS Update #6 2014 - February 19th 2014



Included in this update:

  • Blackbird Energy and Pennant Energy announce arrangement agreement and proposed business combination
  • Quinsam Capital (QCA:TSX-V) Financing at $0.10

 


 

Please feel free to email us anytime at info@smallcaps.ca or call us at (250) 377-1182. We look forward to your comments, questions, and feedback.

 


As many of our investors may be aware, we’re working closely with Quinsam Capital, a newly formed public merchant bank that is actively investing in fundamental small-cap companies - an investment platform we have always adhered to and been successful with. This financing is a ground floor opportunity to invest in Quinsam Capital alongside Roger Dent, CEO, one of the best small cap investors on the street.


The Company's goal is to create long term shareholder value by investing its capital in assets, companies or projects which it believes are undervalued, and to institute a dividend when prudent. Roger has cultivated a vast network of investment professionals (including our own management team) that provide high quality investment ideas across many business sectors which has already led to significant early performance.


To enhance profitability, the fund operates on a low cost structure on the Canadian Securities Exchange. Additionally, management, directors and employees who own more than 60 % of the Company's shares are providing their services and expertise without cash compensation until the Company achieves certain financial milestones. Since recapitalization by insiders in November 2013, the Company's investment portfolio has increased by more than 20%.

Quinsam is currently offering shares to accredited investors at $0.10 per share. After closing this financing, Quinsam will selectively raise further capital if and when needed and only when conditions are advantageous to its shareholders. The Company’s focus on micro cap investments naturally caps the maximum amount of capital needed to grow and so is truly an opportunity for the few, not the many!


If you are an accredited investor and would like more information, we can forward you a powerpoint presentation and press release outlining the Company and the private placement. We invite like minded investors to share in our vision and take advantage of this unique investment opportunity today.

 


 

Blackbird Energy Inc. (BBI:TSX-V)
Website: www.blackbirdenergyinc(dot)com
Current Price: $0.06 (coverage commenced Aug 19/11 - $0.18)


Pennant Energy Inc. (PEN:TSX-V)
Website: www.pennantenergy.com
Current Price: $0.03 (coverage commenced Dec 7/12 - $0.075)


Blackbird Energy Inc. and Pennant Energy Inc. have announced that they have entered into an arrangement agreement dated February 17, 2014, whereby Blackbird will acquire all of the outstanding shares of Pennant from the shareholders of Pennant in exchange for shares of Blackbird on the basis of one Pennant share for 0.42857 corresponding shares of Blackbird. The Transaction is structured as a plan of arrangement pursuant to the Business Corporations Act (British Columbia), and is expected to result in Pennant becoming a wholly-owned subsidiary of Blackbird and Blackbird continuing to trade on the TSX Venture Exchange under the trading symbol "BBI". The consolidated entity is expected to carry on business as an oil and liquids focused emerging producer.


The Transaction is intended to provide Pennant Shareholders with the synergies and increased value of combining the Bigstone Montney and Mantario interests and the opportunity to participate in a growth-oriented emerging oil and liquids producer. In addition, the Transaction is intended to advance Blackbird's stated business plan of growth through acquisitions, with a management team that has had success growing and selling emerging producers. Upon closing of the Transaction, Blackbird is expected to have assets in both Alberta and Saskatchewan which management believes will provide opportunities for drilling and leveraging capital efficiencies including, on a consolidated basis, a 50% working interest in the Bigstone Montney Project in Alberta, a 100% interest in the Mantario Project in the Mantario area of West Central Saskatchewan, a 100% interest in 21 sections in Greater Karr, Alberta and over 33 sections at Flaxcombe and Alsask, Saskatchewan. Completion of the Transaction is also expected to add approximately 60 BOE/D of liquids-rich gas and oil production for Blackbird. Blackbird intends to continue to grow through appropriate acquisitions that are accretive on a per share basis.


Following the Closing, Blackbird will continue to be led by its existing management team and board of directors. The Blackbird management team is led by Garth Braun as President and Chief Executive Officer, Darrell Denney as Chief Operating Officer, Ron Schmitz as Chief Financial Officer, Joshua Mann as Vice President, Business Development, and Ralph Allen as Vice President, Exploration.


Transaction Summary


Pursuant to the Arrangement Agreement, Blackbird has agreed to acquire all of the issued and outstanding shares of Pennant from the Pennant Shareholders in exchange for corresponding shares of Blackbird in accordance with the exchange ratio of 0.42857 common shares of Blackbird for each common share of Pennant. In other words, Pennant Shareholders will receive three Blackbird Shares for every seven Pennant Shares. The outstanding stock options, warrants and convertible debentures of Pennant will be adjusted, all according to their respective terms.


This high quality acquisition will be a stepping stone as Blackbird begins the transition into a junior producer. We believe that the assets of the combined company will garner increased attention and will allow it to begin to unlock hidden value said Garth Braun, President and Chief Executive Officer of Blackbird.


The Closing is subject to a number of conditions, including the receipt of requisite shareholder, court and regulatory approvals, and satisfaction of certain other closing conditions that are customary for a transaction of this nature. The Arrangement will need to be approved by not less than 66 2/3% of the votes cast by Pennant Shareholders, voting in person or by proxy, at a special meeting expected to be held on or about April 4, 2014. Registered shareholders of Pennant may exercise rights of dissent in connection with the Transaction in accordance with the Arrangement Agreement and Sections 237 to 247 of the Act. It is a condition to Closing that dissent rights shall not have been exercised with respect to more than 5% of the issued and outstanding Pennant Shares. The Arrangement also requires the approval of the Supreme Court of British Columbia and the TSX Venture Exchange.


Upon Closing, the former shareholders of Pennant are expected to hold approximately 15.66% of the issued and outstanding common shares of Blackbird on an undiluted basis, and approximately 14.65% of the issued and outstanding common shares of Blackbird on a fully-diluted basis assuming all of the outstanding Pennant stock options, warrants and convertible debentures are exercised for corresponding securities of Blackbird and that all of the outstanding stock options and warrants of Blackbird are also exercised.


Under the terms of the Arrangement Agreement, Pennant has agreed that it will not solicit or initiate any inquiries or discussions regarding any other business combination or sale of assets. Pennant has granted Blackbird the right to match any superior proposals. The Arrangement Agreement also provides for a reciprocal non-completion fee of $250,000. For more information on the Arrangement and the Arrangement Agreement, please refer to the full text of the Arrangement Agreement, a copy of which will be filed by each of Blackbird and Pennant on SEDAR and will be available for viewing under their respective profiles on www.sedar.com.


The Pennant Board has unanimously approved the Arrangement Agreement and, based on a number of factors, determined that the Arrangement is in the best interests of Pennant, and unanimously resolved to recommend that Pennant Shareholders vote in favour of the Arrangement.


The Blackbird board of directors has also unanimously approved the Arrangement Agreement and, based on a number of factors, determined that the Arrangement is in the best interests of Blackbird.


The mailing of an information circular to the Pennant Shareholders regarding the Pennant Meeting is expected to occur in mid-March, 2014, and the Pennant Meeting is expected to occur on or about April 4, 2014. The Closing is expected to occur within ten days after the Pennant Meeting, provided that all shareholder, court and regulatory approvals are obtained and that all other conditions to Closing have been satisfied.


Transaction Metrics


Pursuant to the Transaction, Blackbird will acquire non-operated oil and liquid rich gas assets located in northwest and central Alberta which management of Blackbird believes are of merit. The Transaction has the following characteristics:


Total Transaction Price (including net debt)(1): $2.64 million
Production: 60 BOE/D
Proved plus probable reserves (2): 805 MBOE
Assumed net debt: $513,497


Notes:
(1) Assuming that 68,259,456 Pennant Shares will be acquired at a deemed price of $0.03 per Pennant Share and that net Pennant debt of $513,497 will be assumed by Blackbird, and inclusive of estimated Transaction costs of $75,000.
(2) Company gross reserves being Pennant's working interest share before deduction of royalties and without including any royalty interests of Pennant. The proved reserves are 151 MBOE and the probable reserves are 653 MBOE. Based on the independent reserve report dated effective June 30, 2013, prepared by GLJ Petroleum Consultants (the Report) in accordance with NI 51-101 and the COGE Handbook.


The Transaction is accretive to Blackbird on a per share basis on all key metrics. Using the $0.03 implied price per Pennant Share, the Transaction metrics are as follows (net of undeveloped land value):


Production: $42,436 per BOE/D
Proved plus probable reserves: $3.16 per barrel


Strategic Rationale for the Transaction


The Transaction is intended to advance Blackbird's business plan of growth through carefully targeted acquisitions, and to provide Pennant Shareholders with the synergies of and increased value of combining the Bigstone Montney and Mantario interests and an opportunity to participate in a growth oriented emerging producer with a management team that has had success growing and selling emerging producers.


Management and the Board of Directors of each of Blackbird and Pennant believe that the Transaction will provide significant benefits to both sets of shareholders and will have the following key characteristics:

 

  • the pro forma company will be geared to increase production through further acquisitions and drilling opportunities;
  • Pennant's assets are complimentary to Blackbird's existing portfolio - the pro forma company will control a 100% working interest at Mantario and 50% at Bigstone;
  • Blackbird believes that there is significant unrealized value in the assets of the pro forma company;
  • the pro forma company is expected to benefit from an experienced board of directors and technically focused management team with a proven track record of value creation in both public and private companies;
  • the combined company will have significantly more cash flow per share and production per share than each of Blackbird and Pennant alone; and
  • the integration of the operations of Blackbird and Pennant are intended to allow the combined company to realize improvements in operating costs and corporate overhead costs which are expected to result in improved netbacks and cash flow.

 

Key Attributes of Pro Forma Blackbird


Management and the Board of Directors of each of Blackbird and Pennant believe that the pro forma Blackbird will have the following key attributes following completion of the Transaction:

 

  • a high quality, west central Saskatchewan and northwest Alberta focused asset base with strong netbacks and lower decline rates, providing the pro forma company with a sturdy platform of predictable cash flow as it makes its transition to a junior producer;
  • high working interest properties which management believes have unrealized value;
  • over 25 net sections of Montney land with current production of greater than 60 BOE/D;
  • current corporate production of over 160 BOE/D;
  • low decline assets;
  • low general and administrative expenses allowing for funds to be deployed into value drivers such as drilling and accretive acquisitions; and
  • 1.683 MMBOE of Proved plus Probable reserves with significant upside.(1)

 

Notes:
(1) Company gross reserves being the pro forma company's working interest share before deduction of royalties and without including any royalty interests of Pennant. Based on the Report, in accordance with NI 51-101 and the COGE Handbook.


QIS Capital: An updated powerpoint presentation for Blackbird Energy can be found on the company’s website at: www.blackbirdenergyinc.com/s/Presentations.asp

 


 

Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The company profiled assumes no liability for the information presented. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. The author(s) owns directly or indirectly 466,500 shares and 650,000 options of Blackbird Energy Inc. and 207,000 shares and 200,000 options of Pennant Energy Inc. QIS Capital may have a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2014 QIS Capital Corporation.

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