Greenfire Resources Inc. and M3-Brigade Acquisition III Corp. announce US$950 million business combination

The closing of the Business Combination is expected to occur in Q2 2023 and upon closing Greenfire Resources Ltd. ("GRL" or the "Combined Company") will become the parent of both Greenfire and MSBC

Greenfire Resources Inc. and M3-Brigade Acquisition III Corp. announce US$950 million business combination. (Credit: John R Perry from Pixabay)

Greenfire Resources Inc. (“Greenfire”), a Calgary-based energy company focused on the sustainable production and development of thermal energy resources from the Athabasca region of Alberta, Canada, and M3-Brigade Acquisition III Corp. (NYSE: MBSC), a New York Stock Exchange listed special purpose acquisition company (“MBSC”), announced today that they have entered into a definitive agreement for a business combination (the “Business Combination”) that values Greenfire at US$950 million. The closing of the Business Combination is expected to occur in Q2 2023 and upon closing Greenfire Resources Ltd. (“GRL” or the “Combined Company”) will become the parent of both Greenfire and MSBC. GRL is a newly created corporation incorporated under the laws of the province of Alberta to participate in the Business Combination. Following completion of the Business Combination, GRL is expected to continue to be managed by Greenfire’s current executive team. The Combined Company will remain focused on optimizing Greenfire’s existing production and facilities, with the objective of further enhancing its cash operating netbacks and free cash flow per barrel, with the intention to return capital to its stakeholders over time.

Greenfire’s Assets and Strategy

Greenfire currently has two producing oil sands assets, Hangingstone Expansion and Hangingstone Demo, with current net consolidated production of approximately 22,000 barrels per day (bbls/d) of bitumen. Greenfire owns a 75% working interest in Hangingstone Expansion, which is a Steam Assisted Gravity Drainage (“SAGD”) bitumen production facility with current gross production of approximately 24,000 bbls/d, located 50 kilometers to the southwest of Fort McMurray, Alberta, Canada. Greenfire also owns a 100% working interest in Hangingstone Demo, which is a SAGD bitumen production facility with current production of approximately 4,000 bbls/d, located five kilometers to the northwest of Hangingstone Expansion. The Hangingstone Expansion and Hangingstone Demo facilities both produce from the same tier one SAGD reservoir in the McMurray Formation.

Greenfire plans to sustainably increase production at Hangingstone Expansion and Hangingstone Demo by optimizing each site’s existing surface infrastructure and operating conditions, while employing a safe, efficient, and capital-disciplined operating approach. Greenfire’s current capital plans include projects designed to debottleneck the Hangingstone Expansion facility to a gross capacity of 35,000 bbls/d and the Hangingstone Demo facility to a capacity of 7,500 bbls/d. Greenfire expects that these surface facility debottlenecking plans, combined with the implementation of industry proven well optimization techniques to maximize production per well from its tier one reservoir, could lead to a material increase in production and profitability, as well as a step change reduction in the carbon intensity per produced barrel of bitumen across both facilities.

Concurrent with Greenfire’s near-term production growth plans via surface facility debottlenecking, the Combined Company expects to continue to prioritize the deleveraging of its balance sheet.  The Combined Company intends to return capital to its stakeholders over time, subject to the prevailing commodity price environment. GRL also intends to continue to evaluate additional opportunities for further production growth, including external acquisitions where GRL believes it can generate operational value in a transaction that is accretive to its shareholders.

“Greenfire has successfully assembled some of the highest quality oil sands assets in the industry and solidified our position as a leading intermediate oil sands developer. Supporting the safe, responsible, and efficient development of our world-class assets is an incredible team of dedicated and talented people,” said Robert Logan, President and Chief Executive Officer of Greenfire. “The investment by MBSC is a strong vote of confidence in our plan to deliver profitable growth as we focus on maximizing shareholder and stakeholder value.”

“We are excited to partner with the Greenfire team to support their growth and success,” said Mohsin Y. Meghji, the Executive Chairman of MBSC.  “The Greenfire team has meaningful experience managing Canadian oil sands assets and we are excited to be able to provide MBSC investors with the opportunity to invest in Greenfire at this valuation.”

Matthew Perkal, Chief Executive Officer of MBSC added: “Greenfire’s producing fields have strong growth prospects as the Company is debottlenecking its operations and increasing production by a meaningful amount.  The need for continued oil production in the United States and Canada is clear and we expect that Greenfire’s proven reserves and track record for success will create long-term growth opportunities for the Company.”

Business Combination Details

The Business Combination, which was unanimously recommended and approved by the boards of directors of both Greenfire and MBSC, values Greenfire at a US$950 million total enterprise value. This includes Greenfire’s debt, net of cash, of US$170 million. The post-money equity value of the Combined Company is expected to be US$780 million, assuming approximately 67% redemptions of MBSC common stock, and US$730 million, assuming 100% redemptions of MBSC common stock. “Total enterprise value” and “post-money equity value” are described in the tables below.

The definitive agreement entered into with respect to the Business Combination contemplates that both a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Alberta) and a merger under the laws of the State of Delaware will be required to complete the Business Combination transactions. The Business Combination will be subject to the approval of both Greenfire’s and MBSC’s securityholders and the satisfaction or waiver of other customary conditions. In addition to other closing conditions, the Arrangement will require the approval of the Alberta Court of King’s Bench.

Financing commitments comprised of approximately US$50 million of common equity and US$50 million of convertible notes (the “Transaction Financing”) are being provided as part of the Business Combination. The Transaction Financing will only be drawn if redemptions exceed US$203 million, and then only to extent it is required to generate net minimum cash of US$100 million. The US$100 million of cash raised will be used to fund US$75 million of Greenfire shareholder distributions pursuant to the Business Combination with the balance of US$25 million being used for transaction expenses.

The common shares to be issued pursuant to the Transaction Financing will be issued at a price of US$10.10 per share. The convertible notes to be issued pursuant to the Transaction Financing will bear interest at a rate of 9.0% per annum to be paid quarterly and will have a maturity date of five years from the issue date. The convertible notes will be convertible into common shares of GRL at a price of US$13.00 per share (subject to adjustment in certain circumstances). The convertible notes will be redeemable at the option of the Company at any time upon payment of the principal and accrued and unpaid interest owing on the convertible notes; provided that if the Combined Company exercises its option to redeem the convertible notes at any time prior to the date that is 18 months from the maturity date there will be a premium payable by the Company in addition to the principal and accrued and unpaid interest on the convertible notes to be redeemed. The premium payable on redemption will depend on the date of redemption. The trustee under the trust indenture for Greenfire’s existing 12.0% senior secured notes due August 2025 (the “Senior Secured Notes”), with the support of a simple majority of existing Senior Secured Note holders, has agreed to amendments to the existing indenture pursuant to a supplemental indenture. These amendments provide for the Business Combination and Transaction Financing to proceed and substantially maintains the existing terms for Senior Secured Notes due August 2025 for the Combined Company. There is presently approximately US$218 million of principal outstanding under the Senior Secured Notes.

The current shareholders of Greenfire will become the majority owners of the Combined Company. Existing shareholders of Greenfire will own approximately 81% of the common shares of the Combined Company that are expected to be outstanding on closing of the Business Combination, assuming a share price of US$10.10 for the Combined Company, if approximately 33% or 9.9 million shares of MBSC common stock are not redeemed in connection with the consummation of the Business Combination. The percentage ownership of Greenfire’s existing shareholders of the common shares of the Combined Company expected to be outstanding on closing of the Business Combination, assuming a share price of US$10.10 for the Combined Company, will be approximately 87% if 100% of MBSC’s shareholders redeem their common stock holdings of MBSC in connection with the consummation of the Business Combination.

No portion of the Transaction Financing is anticipated to be used to fund Greenfire’s operations. Greenfire anticipates that future operating costs and capital expenditures of the Combined Company will be internally funded from its cash flow from operations.

The tables below provide an overview of the sources and uses of the proceeds from the Business Combination and the pro forma capitalization of GRL assuming 100% redemptions by MBSC shareholders:

GRL – Business Combination Sources and Uses; Pro Forma Capitalization Assuming 100% Redemptions by MBSC Shareholders

($ in millions and USD, share counts in millions)
Sources			Uses
Existing Greenfire Shareholders	$637		Existing Greenfire Shareholders		$637
Rollover Net Debt (1)	170		Rollover Net Debt		170
PIPE – New Convertible Notes	50		Cash to Existing Shareholders		75
PIPE – Common Equity	50		Transaction Fees & Expenses		25
Cash-in-Trust	–		Founder Shares		43
Founder Shares	43
Total Sources	$950		Total Uses		$950
Pro Forma Capitalization (2)			Pro Forma Ownership	Shares	%
Total Common Shares Outstanding	72.3		Existing Greenfire Shareholders	63.1	87 %
Share Price	$10.10		Common Equity PIPE	5.0	7 %
Post-Money Equity Value	$730		Founder Shares	4.3	6 %
(+) Existing Net Debt (1)	$170		Non-Redeeming Shareholders	–	–
(+) New Convertible Notes	50
Total Enterprise Value	$950		Total Common Shares	72.3	100 %
(1) Assumes net debt at closing of $170 million as agreed upon by the parties.
(2) Capitalization table assumes a $10.10 share price and therefore excludes all out-of-the-money warrants which have a strike price of $11.50 per share. New $50 million notes are convertible at $13.00 per share.

 

The tables below provide an overview of the sources and uses of the Business Combination and the pro forma capitalization of GRL assuming approximately 67% redemptions (approximately 33% of shares not redeemed) by MBSC shareholders:

GRL – Business Combination Sources and Uses; Pro Forma Capitalization Assuming 67% Redemptions by MBSC shareholders

Source: Company Press Release