DBRS Comments on Change in Common Share Ownership and Control of Northern Blizzard Resources Inc.

DBRS Limited (DBRS) notes that, on April 10, 2017, Waterous Energy Fund (WEF) affiliates announced an agreement to acquire approximately 67% of the issued and outstanding common shares of Northern Blizzard Resources Inc. (Northern Blizzard or the Company) from Riverstone Holding, LLC (Riverstone) and NGP Energy Capital Management, LLC (NGP Energy) affiliates. WEF is acquiring the shares at a purchase price of $3.60/share for a total of $244 million. The transaction closings are conditional on receiving certain regulatory approvals, including those governed by the Investment Canada Act and the Competition Act.

WEF is acquiring the shares for investment purposes and it may seek representation on the board of directors commensurate with its shareholding interests. In the future, WEF may increase or decrease its beneficial ownership, control or direction over securities of the Company. WEF is acquiring the Northern Blizzard shares pursuant to an exemption from the formal take-over bid requirements of securities regulation. In accordance with the exemption, (1) the purchase is made from only two persons (no offer is made generally to shareholders) and (2) the purchase price is less than 115% of the market price of the common shares.

DBRS notes that the acquisition of approximately 67% of the outstanding common shares gives WEF’s affiliates control over the board of directors and ownership of the Company. With a change of control triggered, the holders of the 7.25% Senior Unsecured Notes (the Notes) can require the Northern Blizzard to repurchase their Notes at a price equal to 101% of the aggregate principal amount of the Notes, together with accrued and unpaid interest, by notifying the Company within 30 days of the transaction closing. Currently, the Notes trade above 101% of par value. Should the Noteholders exercise their option, Northern Blizzard has undrawn credit facilities of $285 million and cash on hand of approximately $36 million available to repurchase the Notes. At year end, the principal amount of Notes outstanding was USD 276.3 million or CAD $371 million. In DBRS’s opinion, the likelihood that a significant percentage of the Noteholders exercise the option for the Company to repurchase their Notes is low; however, if this occurs, Northern Blizzard may not have sufficient liquidity to repurchase all the Notes outstanding.

In WEF’s announcement regarding the purchase, its managing partner and Chief Executive Officer, Mr. Adam Warterous, acknowledges Northern Blizzard’s management success in using innovative development processes and techniques to transform the Company’s core Cactus Lake asset into one of North America’s largest vertical well polymer floods. Mr. Waterous also noted that Cactus Lake’s low decline, long reserve life and high free cash flow makes it a top quartile North American oil asset and will serve as a platform for the Company’s future growth. WEF is supportive of the Company’s management team and intends to work together to identify opportunities to further enhance shareholder value and to develop an optimal business strategy going forward. At this time, DBRS believes that the change in ownership has no impact on Northern Blizzard’s business or financial risk profiles and, as a result, no impact on the Company’s Issuer Rating and Senior Unsecured Notes Rating of B (low) all with Stable trends. Furthermore, there is no impact on Northern Blizzard’s recovery rating of RR4; however, should a significant percentage of the noteholders elect for the Company to repurchase their Notes or the Company does not have a satisfactory refinancing plan in place to manage such an event DBRS may take a negative rating action.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Oil and Gas Industry (September 2016) and DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers (February 2017), which can be found on dbrs.com under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.