Southern Energy Corp. Announces Proposed Equity Fundraising

2023-11-01

TSXV - TSX Venture Exchange · Natural Gas · Natural Gas Liquids · Oil · Canada

THIS ANNOUNCEMENT (THE "ANNOUNCEMENT"), INCLUDING THE APPENDIX TO THIS ANNOUNCEMENT (THE "APPENDIX"), AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES (ITS TERRITORIES OR POSSESSIONS), AUSTRALIA, JAPAN, NEW ZEALAND, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT, INCLUDING THE APPENDIX, IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE: (A) A PROSPECTUS OR OFFERING MEMORANDUM; (B) AN ADMISSION DOCUMENT PREPARED IN ACCORDANCE WITH THE AIM RULES; OR (C) AN OFFER FOR SALE OR SUBSCRIPTION OF ANY SECURITIES IN THE COMPANY. THIS ANNOUNCEMENT AND THE APPENDIX DOES NOT CONSTITUTE OR CONTAIN, AND SHOULD NOT BE CONSTRUED AS, ANY INVITATION, SOLICITATION, RECOMMENDATION, OFFER OR ADVICE TO ANY PERSON TO SUBSCRIBE FOR, OTHERWISE ACQUIRE OR DISPOSE OF ANY SECURITIES OF SOUTHERN ENERGY CORP. IN ANY JURISDICTION IN WHICH ANY SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (REGULATION 596/2014/EU) AS IT FORMS PART OF UK DOMESTIC LAW PURSUANT TO THE EUROPEAN UNION (WITHDRAWAL) ACT 2018, AS AMENDED. UPON PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

CALGARY, AB / ACCESSWIRE / November 1, 2023 / Southern Energy Corp. ("Southern"or the "Company") (TSXV:SOU)(AIM:SOUC)(OTCQX:SOUTF) is pleased to announce its intention to conduct an equity fundraise to raise aggregate gross proceeds of at least US$5 million (approximately £4.1 million / C$6.9 million), at a price of 15.5 pence (the "Placing Price") or C$0.26 per Common Share (the "Prospectus Price").

The fundraising consists of a placing of new Common Shares to new and existing institutional investors (the "Placing"), a concurrent public offering of new Common Shares in Canada (the "Prospectus Offering"), and a Subscription by certain Directors and members of the Company's senior management (together with the Placing and Prospectus Offering, the "Fundraising").

The Fundraising will launch immediately following the release of this Announcement. Stifel Nicolaus Europe Limited ("Stifel Europe") and Tennyson Securities, a trading name of Shard Capital Partners LLP ("Tennyson Securities") are acting as joint bookrunners (the "Joint Bookrunners") in connection with the Placing. Stifel Nicolaus Canada Inc. ("Stifel Canada") is acting as lead agent and sole bookrunner in connection with the Prospectus Offering.

Overview of the Fundraising

Southern intends to conduct a US$5 million equity fundraise to accelerate the completion of its four drilled and uncompleted ("DUC") wells, drilled as part of its Q1 2023 drilling campaign on its Gwinville acreage; The accelerated completion of the DUCs is anticipated to be accretive to Southern through the addition of approximately US$20.5 million(1)in proved developed producing ("PDP") NPV10 value; The Company expects the DUCs, once completed, to have initial production (IP30) rates of approximately 5.6 MMcf/d per well, with expected ultimate recovery per well of approximately 4.3 Bcf; The DUCs are forecast to have a per-well payback period of approximately 12 months, with an associated IRR of 108% and NPV10 of US$4.4 million per well(2); Subject to the successful completion of the DUCs and achieving production rates as set out above (and assuming one completion a quarter* and strip commodity pricing as at 5 October 2023), Southern would expect to generate next 12 months total operating cash flow(3)of approximately US$20 million, resulting in an annualised net debt to EBITDA ratio(3)of approximately 1.0x in Q4 2024(1), with next 12 months corporate free cash flow(3)expected to increase to approximately US$13 million, an increase of approximately 114% on a per share basis following the planned Fundraising(1);

_* It is noted that timing of the completions is subject to final confirmation following appointment of contractors and may differ from this illustrative schedule._

Completion of the DUCs provides Southern with a significant platform for organic growth, with production expected to reach up to 4,700 boepd in 2024, an increase of 39% per share, including the Fundraising, and with PDP reserves expected to increase by 12% per share; The Company has identified over 100 additional horizontal drilling targets at Gwinville which it will target for development in appropriate gas price environments. Based on the expected drilling and completion costs for new wells of US$5.5 million, future wells are expected to achieve a ~30% IRR at a natural gas price of US$3.78 / MMBtu; The net proceeds from the Fundraising will be used alongside existing cash, cash flows and undrawn debt facilities to fund the completion of the DUCs at a cost of approximately US$3 million per well; The Fundraising consists of: A Placing of new Common Shares (the "Placing Shares") to new and existing institutional investors at the Placing Price. The Placing will be conducted through an accelerated bookbuild process (the "Bookbuild") which will launch immediately following the release of this Announcement. The Placing is subject to the terms and conditions set out in the Appendix to this Announcement (which forms part of this announcement); A concurrent Prospectus Offering of new Common Shares (the "Prospectus Shares") on a best efforts agency basis at the Prospectus Price. The Prospectus Offering will be conducted pursuant to the terms and conditions of an agency agreement to be entered into between the Company, Stifel Canada as sole bookrunner and lead agent, Canaccord Genuity Corp, Eight Capital, and Haywood Securities Inc (the "Agents"). The size of the Prospectus Offering will be determined in the context of the market at the time of entering into a definitive agency agreement between the Company and the Agents; and A subscription for new Common Shares (the "Subscription Shares") at the Placing Price by certain Directors and members of the Company's senior management.

The Prospectus Offering will be conducted pursuant to the Company's Canadian base shelf prospectus dated 18 November 2022 (the "Base Shelf Prospectus"). A prospectus supplement (the "Prospectus Supplement") relating to the Prospectus Offering will be filed in each of the provinces of Canada, other than Quebec. Copies of the Prospectus Supplement and accompanying Base Shelf Prospectus will be available under the Company's profile on SEDAR+ at www.sedarplus.ca. The Prospectus Offering is expected to close on or around 9 November 2023. The number of Placing Shares and Prospectus Shares to be issued will be determined by the Company following completion of the Bookbuild in consultation with the Joint Bookrunners and Stifel Canada. The Bookbuild is currently expected to close no later than 8.00 a.m. (GMT) on 2 November 2023, but the Joint Bookrunners and the Company reserve the right to close the Bookbuild earlier or later, without further notice.

Ian Atkinson, President and CEO of Southern, commented:

"I am pleased to announce our proposed Fundraising today, which will facilitate the acceleration of Southern's work program, specifically the completion of our four drilled and uncompleted wells in our Gwinville acreage in Mississippi. After pausing our previous capital program at the end of Q1 2023 due to the drop in natural gas prices, we are excited to soon be back in the field at Gwinville to take advantage of the recent increase in Henry Hub natural gas pricing and bring these four uncompleted wells into production. We have made a significant capital investment in the four DUC wells and will now be in a position to realize the material cashflow generation from these wells as we rapidly increase production in a short timescale. Our current cost estimates to complete these wells suggests at least a 10-15% drop from the cost levels seen in Q1 2023, due to lower industry activity levels which will help drive superior returns.

"We continue to see an increasingly positive macro environment for the US natural gas market, and we believe that Southern is firmly positioned to capitalize on the opportunity presented to us through this structural imbalance. Today's capital raise will enable us to increase our exposure to the opportunity, as we see gas prices react to increasing export capacity through the U.S. Gulf Coast region and increasing natural gas fired power in the US. I look forward to allocating the raised capital to our portfolio of highly productive and profitable assets, and increasing shareholder value as we enter a resurgent US natural gas market."

For further information about Southern, please visit our website at www.southernenergycorp.comor contact:

Details of the Fundraising

The Placing is being conducted through an accelerated bookbuild process to eligible institutional investors and will launch immediately following the release of this Announcement. The Company expects to close the Bookbuild no later than 8.00 a.m. (GMT) on 2 November 2023, but the Joint Bookrunners and the Company reserve the right to close the Bookbuild earlier or later, without further notice.

Details of the results of the Placing will be announced as soon as practicable after the close of the Bookbuild. The Placing is not being underwritten. The Placing is conditional on Minimum Gross Proceeds of US$5 million being raised pursuant to the Fundraising. The Placing Shares, when issued, will be fully paid and will rank _pari passu_in all respects with the Company's existing Common Shares.

This Announcement should be read in its entirety. Investors' attention is drawn to the detailed Terms and Conditions of the Placing. By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares, investors will be deemed to have read and understood this announcement in its entirety (including the Appendix) and to be making such offer on the terms and subject to the conditions of the Placing contained here, and to be providing the representations, warranties and acknowledgements contained in the Terms and Conditions.

The Prospectus Offering is expected to close on or about 9 November 2023, subject to customary closing conditions, including the approval of the TSX Venture Exchange (the "TSXV").

The Company intends that the Placing will be conducted in conjunction with the Prospectus Offering.

Certain of the Directors and members of the Company's senior management team have indicated their intention to participate in the Fundraising.

Application will be made to: (a) the London Stock Exchange plc for admission of the Placing Shares and the Prospectus Shares to trading on AIM; and (b) the TSXV for listing of the Placing Shares and the Prospectus Shares for trading on the facilities of the TSXV. Expected timing for admission of the Placing Shares to trading on AIM and the Prospectus Shares to trading on the TSXV is as set out in the ‘Expected Timetable of Principal Events' below. Final confirmation of the expected timing for admission of the Placing Shares and Prospectus Shares will be confirmed in due course and is subject to a number of conditions, including, without limitation, the entering into of a definitive agency agreement and receipt of all regulatory approvals, including the approval of the TSXV.

Without prior written approval of the TSXV and compliance with all applicable Canadian securities laws, the Placing Shares may not be sold, transferred, hypothecated or otherwise traded on or through the facilities of TSXV or otherwise in Canada or to or for the benefit of a Canadian resident until the date that is four months and a day after the date of issuance.

The relevant clearances have not been, nor will they be, obtained from the securities commission of any province or territory of Canada; no prospectus has been lodged with or registered by, the Australian Securities and Investments Commission or the Japanese Ministry of Finance or the South African Reserve Bank; and the Placing Shares have not been, nor will they be, registered or qualified for distribution, as applicable under or offered in compliance with the securities laws of any state, province or territory of United States, Australia, New Zealand, Canada, Japan or South Africa. Accordingly, the Placing Shares may not (unless an exemption under the relevant securities laws is applicable) be offered, sold, resold or delivered, directly or indirectly, in or into the United States, Australia, New Zealand, Canada, Japan or South Africa or any other jurisdiction in which such offer, sale, resale or delivery would be unlawful.

The securities described herein have not been, and will not be, registered under the U.S. Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States, and accordingly, may not be offered or sold within the United States other than to "qualified institutional buyers" ("QIBs") as defined in and pursuant to Rule 144A under the U.S. Securities Act, except in compliance with the registration requirements of the U.S. Securities Act and applicable state or local securities laws or pursuant to exemptions therefrom. This Announcement shall not constitute or form part of, and should not be construed as, an offer or invitation to sell or issue, or any solicitation to purchase or subscribe for, or otherwise invest in, any of the Company's securities in any jurisdiction, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. There has been and will be no public offer of the Company's securities in Australia, New Zealand, Japan, South Africa, the United States or elsewhere, other than the Prospectus Offering in each of the provinces of Canada, except Québec.

Expected Timetable of Principal Events

| Bookbuild | | Following publication of this Announcement on 1 November 2023 | | Completion of Bookbuild | | No later than 8.00 a.m. (GMT) on 2 November 2023 | | Admission effective and dealings in the Placing Shares and the Prospectus Shares on AIM | | 8.00 a.m. (GMT) on 9 November 2023 | | Admission effective and dealings in the Placing Shares and Prospectus Shares on TSX-V | | 9:30 a.m. (ET) on 9 November 2023 |

Qualified Person's Statement

Gary McMurren, COO, who has over 23 years of relevant experience in the oil industry and has reviewed and approved the technical information contained in this Announcement. Mr. McMurren is registered as a Professional Engineer with the Association of Professional Engineers and Geoscientists of Alberta and received a Bachelor of Science degree in Chemical Engineering (with distinction) from the University of Alberta.

Footnotes

1. Figures based on 5 October 2023 strip pricing. 2. Figures based on flat commodity pricing of US$3.50 / MMBtu for natural gas and US$80/bbl for WTI. 3. See "Specified Financial Measures" under "Reader Advisory" below.

TERMS AND CONDITIONS OF THE PLACING

THIS ANNOUNCEMENT, INCLUDING THE TERMS AND CONDITIONS SET OUT IN THIS APPENDIX (THE "TERMS AND CONDITIONS"), IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

MEMBERS OF THE PUBLICARE NOT ELIGIBLE TO TAKE PART IN THE PLACING.THESE TERMS AND CONDITIONS ARE FOR INFORMATION PURPOSES ONLY AND ARE DIRECTED ONLY AT: (A) PERSONSWHO ARE IN A MEMBERSTATE OF THE EUROPEAN ECONOMICAREA AND ARE, UNLESS OTHERWISE AGREED BY THE JOINT BOOKRUNNERS, ("QUALIFIED INVESTORS") AS DEFINED IN ARTICLE 2(E) OF THE EU PROSPECTUS REGULATION (WHICH MEANS REGULATION (EU) 2017/1129 AND INCLUDES ANY RELEVANT IMPLEMENTING MEASURES IN ANY MEMBER STATE) (THE "PROSPECTUS REGULATION"); AND/OR(B) IN THE UNITED KINGDOM,PERSONS WHO ARE (I) QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 2(E) OF THE PROSPECTUS REGULATION (AS IT FORMS PART OF DOMESTIC UK LAW PURSUANT TO THE EUWA); AND (II) "INVESTMENT PROFESSIONALS" WITHIN THE MEANING OF ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (AS AMENDED) (THE "ORDER"); (II) PERSONS FALLING WITHIN ARTICLE 49(2)(A)TO (D) ("HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS, ETC") OF THE ORDER; OR (III) PERSONSTO WHOM IT MAY OTHERWISE BE LAWFULLY COMMUNICATED (ALL SUCH PERSONS TOGETHERBEING REFERRED TO AS "RELEVANT PERSONS"). THESE TERMS AND CONDITIONS ARE A FINANCIAL PROMOTION, WHICH IS EXEMPT FROM THE GENERAL RESTRICTION IN SECTION 21 OF FSMA ON THE COMMUNICATION OF INVITATIONS OR INDUCEMENTS TO ENGAGE IN INVESTMENT ACTIVITY, ON THE GROUNDS THAT IT IS ONLY BEING DISTRIBUTED TO RELEVANT PERSONS. ACCORDINGLY, THESE TERMS AND CONDITIONS MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. DISTRIBUTION OF THIS ANNOUNCEMENT IN CERTAIN JURISDICTIONS MAY BE RESTRICTED OR PROHIBITED BY LAW. PERSONS DISTRIBUTING THIS ANNOUNCEMENT MUST SATISFY THEMSELVES THAT IT IS LAWFUL TO DO SO. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THESE TERMS AND CONDITIONS RELATE IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS.

THIS ANNOUNCEMENT IS NOT AN OFFER FOR SALE OR SUBSCRIPTION IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL UNDER THE SECURITIES LAWS OF ANY JURISDICTION. THIS ANNOUNCEMENT DOES NOT CONSTITUTE AN OFFER FOR SALE OR SUBSCRIPTION OF ANY SECURITIES IN THE COMPANY.THIS ANNOUNCEMENT IS NOT AN OFFER OF OR SOLICITATION OF AN OFFER TO PURCHASE OR SUBSCRIBE FOR SECURITIES IN THE UNITED STATES. THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "U.S.SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES, EXCEPT PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT. NO PUBLIC OFFERING OF SECURITIES IS BEING MADE IN THE UNITED STATES.

EACH PLACEESHOULD CONSULT WITH ITS OWN ADVISERS AS TO THE LEGAL, TAX, BUSINESS AND RELATED IMPLICATIONS OF AN INVESTMENT IN PLACING SHARES. THE PRICE OF SHARES AND THE INCOME FROM THEM (IF ANY) MAY GO DOWN AS WELL AS UP AND INVESTORS MAY NOT GET BACK THE FULL AMOUNT INVESTED ON A DISPOSAL OF THEIR SHARES.

The relevant clearances have not been, nor will they be, obtained from the securities commission of any province or territory of Canada in respect of the issuance of the Placing Shares; no prospectus has been lodged with or registered by, the Australian Securities and Investments Commission or the Japanese Ministry of Finance, the South African Reserve Bank or, in respect of the Placing Shares, any securities commission in Canada; and the Placing Shares have not been, nor will they be, registered or qualified for distribution, as applicable under or offered in compliance with the securities laws of any state, province or territory of Australia, Canada, Japan or South Africa. Accordingly, the Placing Shares may not (unless an exemption under the relevant securities laws is applicable) be offered, sold, resold or delivered, directly or indirectly, in or into Australia, Canada, Japan or South Africa or any other jurisdiction in which such offer,sale, resale or delivery would be unlawful.