Anthony Marino, President & CEO of Tenaz, stated "This acquisition is an important step in our strategy of securing value-enhancing acquisitions that have substantial organic investment opportunities. We welcome NOBV's workforce of highly skilled and experienced professionals who will be critical to the continued success of Tenaz. We are delighted to invest in the revitalization and sustainability of the Netherlands energy industry, and we look forward to establishing our Dutch headquarters near the existing NOBV office in the Netherlands."

Overview of the Acquisition

The acquired assets include substantially all of NAM's offshore exploration and production business, including associated pipeline infrastructure and onshore processing in the Netherlands. The Acquisition does not include NAM's assets in the Ameland area.

Upstream

The upstream assets consist of a portfolio of production and exploration licenses in the DNS comprising 2,415 net square kilometers (approximately 600,000 net acres). The licenses are located in shallow water at an average water depth of 34 meters, approximately 60 km offshore.

Current production is approximately 11,000 boe/d (99% gas and 87% operated) from six hubs and two main production areas, the Joint Development Area ("JDA") and the L02/L09 fields. Production is predominantly from the Permian-aged Rotliegend Sandstone at an average depth of 3,500 meters. Base production decline rate is approximately 10%.

In addition to existing low-decline production, the acquired asset base is replete with identified workover and optimization projects, infill drilling opportunities and exploration prospects. Capital reinvestment into the assets has been at a low level for more than a decade. As examples of limited reinvestment, only 0.5 net wells have been drilled on NOBV license interests over the past five years, and no capital investment is planned for 2024.

As a result of this historic undercapitalization of the asset base, Tenaz believes there is significant opportunity for reinvestment. Our evaluation of NOBV has determined that there are several years of workover and optimization projects, at least thirty potential development drilling locations, and more than eighty exploration leads and prospects on this extensive offshore license base. Exploration and development potential is enhanced by the presence of 3D seismic surveys over substantially all of the asset base, including a high-effort Ocean Bottom Node survey acquired on the JDA in 2022 which is still undergoing processing.

Upon closing, Tenaz plans to initiate a high-return workover program on the existing well stock. Over time, we intend to phase-in a development drilling program, and also expect to drill the most prospective of the identified exploration prospects. Tenaz expects that this capital plan will offset base production decline and generate moderate production growth. High-integrity infrastructure is largely already in place to accommodate this growth. In the current commodity environment, our capital and production plan should also generate significant free cash flow.

Midstream

Gas produced from the JDA and L02/L09 areas is transported to and processed at the Den Helder Gas Plant ("Den Helder"). Den Helder processes roughly 50% of all gas produced in the DNS, which is then delivered into the national gas grid, while condensate is transported to customers via inland vessels.

JDA high calorific content ("HiCal") gas is transported via the West Gas Transport ("WGT") system, and low calorific content ("LoCal") gas is transferred via the LoCal pipeline. The L02/L09 area production is transported via the Northern Offshore Gas Transport ("NOGAT") pipeline with some of the non-operated assets produced through the Noordgastransport ("NGT") system. At close, Tenaz will become the operator of all three gas processing trains at Den Helder as well as the LoCal pipeline feeding into it.

Tenaz's ownership in the midstream assets will be 45.6% in the JDA LoCal system as well as 31.1% and 23.0% in the K13 and K13 Extension portions of the WGT HiCal system respectively. Tenaz will also become contract operator of the NOGAT portion of Den Helder, but will not have an ownership position in or operate the pipeline feeding it. Tenaz will not be acquiring additional interest in the NGT system as a result of the Acquisition, maintaining its current 21.3% equity interest in NGT.

Consideration

Consideration consists of a base payment at closing and three forms of potential contingent payments triggered by future financial performance, exploration discoveries and realized gas pricing:

Base Purchase Price - Base consideration of €165 million ($246 million) payable at close will be reduced by the interim free cash flows generated from the Effective Date to closing of the Acquisition, estimated to be €125 million ($186 million) assuming a July 1, 2025 closing date and reflecting existing hedge positions and current commodity strip prices for unhedged production. Cash-to-close will further be offset by the €23 million ($34 million) deposit provided to NAM at signing. Our current estimate of required cash-to-close is approximately €30 million ($45 million). Cash-to-close may differ from this estimate due to variations in a number of factors during the interim period, including, but not limited to, realized gas prices on unhedged volumes, production levels, costs, working capital balances, and other closing adjustments under the Acquisition agreement.

Contingent Earn-Out – For the period from January 1, 2025 through December 31, 2027, NAM will be entitled to contingent payments equal to i) 50% of 2025 free cash flow from the NOBV assets ("NOBV FCF"), ii) 50% of 2026 NOBV FCF, and iii) 25% of 2027 NOBV FCF, up to a maximum of €120 million in aggregate payments. If the aggregate earn-out payments do not reach €120 million, no further payments related to the earn-out are required.

Exploration Volume Contingent Consideration - In the event that a future new field exploration discovery on the current NOBV licenses exceeds certain cumulative production thresholds, NAM is entitled to receive volume contingent royalty payments as follows:

Price Contingent Consideration – If the average realized TTF price for a given calendar year between January 1, 2028 and December 31, 2031 exceeds €50/MWh, NAM is entitled to receive a gas price contingent payment based on incremental after-tax cash flow as follows:

Price contingent payments will be calculated based on actual realized prices whereby volumes sold under the fixed price offtake arrangements, detailed below, are included at the fixed offtake price. Tenaz may hedge future volumes throughout the contingent payment periods, with such hedges to be included in the realized price calculation. Price contingent payments do not apply to large exploration discoveries that are subject to contingent royalties.

Gas Offtake Arrangements

NOBV is a counterparty to physical commodity offtake and sales arrangements, including the hedging provisions which are summarized in the table below.

Acquisition Funding

Tenaz has entered into a new lending relationship with NBC to replace and upsize its existing $10 million revolving credit facility and add $100 million of debt capacity under a new delayed draw term loan, which can be drawn to fund the closing of the Acquisition. If drawn, the term loan will be repayable within twelve months of draw down. Both financing arrangements are subject to customary conditions associated with secured lending arrangements. In time, Tenaz intends to replace the delayed draw term loan with other debt financing sources aligned with its long-term target capital structure.

Reserves Volumes and Net Present Value

McDaniel and Associates ("McDaniel") has completed an independent assessment of the reserves associated with the assets and have assigned 53.6 million boe (99% natural gas) of Total Proved + Probable "2P" reserves as at January 1, 2024. McDaniel's Total Proved ("1P") and 2P reserves assessments respectively include 1.7 and 3.6 net development wells with risked production profiles, and no exploration wells. McDaniel's evaluation projects that the existing upstream assets will have a remaining economic production life of 22 years.

McDaniel's assessment of 2P reserves and after-tax net present value discounted at 10 percent ("NPV₁₀") of the 2P reserves using the July 1, 2024 Consultant Average Price Forecast⁴, after taking into account estimated decommissioning costs, are shown in the table below. The after-tax NPV₁₀ includes decommissioning costs associated with the acquired assets, which are estimated to have a NPV₁₀ of approximately €144 million ($216 million).

Advisor

National Bank Financial Inc. acted as exclusive financial advisor to Tenaz with respect to the Acquisition.

About Tenaz Energy Corp.

Tenaz is an energy company focused on the acquisition and sustainable development of international oil and gas assets. Tenaz has domestic operations in Canada along with offshore natural gas assets in the Netherlands. The domestic operations consist of a semi-conventional oil project in the Rex member of the Upper Mannville group at Leduc-Woodbend in central Alberta. The Netherlands natural gas assets are located in the Dutch sector of the North Sea.

For further information on Tenaz please go to the Tenaz website at www.tenazenergy.com. Further information on NGT can be found at https://noordgastransport.nl. Further information on NAM can be found at www.nam.nl. Further information on NOGAT can be found at https://nogat.nl. Further information on WGT can be found at https://wgt.wintershall.nl/about.

ADVISORIES

Non‐GAAP and Other Financial Measures

This press release contains references to measures used in the oil and natural gas industry such as "funds flow from operations", "funds flow from operations per share", "funds flow from operations per boe", "adjusted working capital (net debt)", "free cash flow", "midstream income" and "operating netback". The data presented in this press release is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board and sometimes referred to in this press release as Generally Accepted Accounting Principles ("GAAP"). These reported non-GAAP measures and their underlying calculations are not necessarily comparable or calculated in an identical manner to a similarly titled measure of other companies where similar terminology is used. Where these measures are used, they should be given careful consideration by the reader.

Free Cash Flow ("FCF")

Tenaz considers free cash flow to be a key measure of performance as it demonstrates the Company's excess funds generated after capital expenditures for potential shareholder returns, acquisitions, or growth in available liquidity. FCF is a non-GAAP financial measure most directly comparable to cash flows used in investing activities and is comprised of funds flow from operations less capital expenditures.

Free cash flow per share is calculated using basic and diluted weighted average number of shares outstanding in the period.

Funds flow from operations ("FFO")

Tenaz considers funds flow from operations to be a key measure of performance as it demonstrates the Company's ability to generate the necessary funds for sustaining capital, future growth through capital investment, and settling liabilities. Funds flow from operations is calculated as cash flow from operating activities plus income from associate and before changes in non-cash operating working capital and decommissioning liabilities settled. Funds flow from operations is not intended to represent cash flows from operating activities calculated in accordance with IFRS.

Funds flow from operations per share is calculated using basic and diluted weighted average number of shares outstanding in the period.

Per share accretion metrics

Management uses key per share numbers, including production, reserves, cash flow and free cash flow as acquisition metrics to determine the increase of consolidated pro forma production, reserves, cash flow and free cash flow attributable to Tenaz shareholders following the proposed Acquisition.

Production per share is calculated as the production guidance for 2024 attributable to Tenaz shareholders.

Reserves per share is calculated as the Company's 2P reserves attributable to Tenaz shareholders.

FCF per share is calculated as FFO attributable to Tenaz shareholders.

Capital Expenditures ("CAPEX")

Tenaz considers capital expenditures to be a useful measure of the Company's investment in its existing asset base calculated as the sum of exploration and evaluation asset expenditures and property, plant and equipment expenditures from the consolidated statements of cash flows that is most directly comparable to cash flows used in investing activities.

Working capital and Adjusted working capital (net debt)

Working capital is calculated as current assets less current liabilities. Management views adjusted working capital (net debt) as a key industry benchmark and measure to assess the Company's financial position and liquidity. Adjusted working capital (net debt) is calculated as current assets less current liabilities, excluding the fair value of derivative instruments.

Consultant Average Price Forecast

The forecast prices used are based on an average of the price decks of three independent engineering firms, GLJ Ltd., Sproule Associates Limited and McDaniel & Associates Consultants Ltd. McDaniel employed pricing, exchange rate and inflation rate assumptions as of July 1, 2024 in the estimating of reserves data for the purposes of this report. Consultant Average Pricing assumed TTF gas pricing of €31.85/MWh for 2024, €34.72/MWh for 2025, €34.08/MWh for 2026, €34.23/MWh for 2027, and €35.28/MWh for 2028.

Foreign Exchange

Canadian Dollar values converted at a rate of 1.4902 CAD/EUR where applicable

Barrels of Oil Equivalent

The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. Per boe amounts have been calculated by using the conversion ratio of six thousand cubic feet (6 Mcf) of natural gas to one barrel (1 bbl) of crude oil. The boe conversion ratio of 6 Mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Forward‐looking Information and Statements

This press release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "budget", "forecast", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "strategy" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements and assumptions pertaining to the Acquisition including, without limitation: the timing of closing; expected production, cash flow and free cash flow; expectations regarding estimated cash to close (and factors that may cause actual cash-to-close to differ from the estimate), and sources of funding thereof including future financing (and the nature thereof); transaction metrics; exploration and development potential including workover and optimization projects, potential development drilling locations, and exploration leads and prospects; plans, intentions and expectations regarding capital plans including regarding workovers and development drilling and expected outcomes thereof; reserves associated with, and net present value and remaining economic productive life of, the upstream assets, and estimated decommissioning liabilities. The Company believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable, but no assurance can be given that these factors, expectations, and assumptions will prove to be correct.

The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: the ability to execute business plan or realize anticipated benefits from the Acquisition; changes in commodity prices and, or, changes in the demand for, or supply of, hydrocarbons; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans; increased debt levels or debt service requirements; inaccurate estimation of oil and gas reserve volumes; limited, unfavorable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time to time in the Company's public documents.

The forward-looking information and statements contained in this press release speak only as of the date of this press release, and the Company does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.

For further information, contact:

Tenaz Energy Corp.

[email protected]

Anthony Marino, President and Chief Executive Officer, Direct: 587 330 1983

Bradley Bennett, Chief Financial Officer, Direct: 587 330 1714

 

SOURCE Tenaz Energy Corp.

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