Mr. Anthony Marino reports

TENAZ ENERGY CORP. ANNOUNCES AGREEMENT TO ACQUIRE NAM OFFSHORE B.V.

Tenaz Energy Corp. has entered into an agreement with Nederlandse Aardolie Maatschappij BV (NAM), a 50/50 joint venture between Shell PLC and ExxonMobil Corp., to acquire all of the issued and outstanding shares of NAM Offshore BV (NOBV) for base consideration of 165 million euros ($246-million), prior to closing adjustments and contingent payments. The transaction has an effective date of Jan. 1, 2024, and is expected to close mid-2025 following statutory merger clearances and operational transition activities.

NOBV is expected to produce nearly 11,000 barrels of oil equivalent per day (99 per cent TTF (Dutch title transfer facility) natural gas) and generate approximately 90 million euros ($134-million) of free cash flow based on current strip prices in 2024. NOBV's cash flow profile is underpinned by a combination of physical fixed-price and collar hedges for 2024 through 2026. Closing of the acquisition will be financed through a combination of interim free cash flow between the effective date and closing, a 23-million-euro ($34-million) deposit paid to NAM, cash on hand, and available capacity under a new credit and delayed-draw term loan facility with National Bank of Canada (NBC). The company's current estimate of required cash to close is approximately 30 million euros ($45-million), assuming a midyear closing date.

Transaction attributes:

• Delivers on M&A (merger and acquisition) strategy: Tenaz acquires a high-margin, low-decline asset base with high-capacity infrastructure, low-risk development opportunities and future exploration upside. The acquisition's financing structure avoids dilution and maximizes value for existing shareholders.
• Transformational scale: On a pro forma basis, the transaction adds approximately 11,000 barrels of oil equivalent per day (99 per cent gas) of production and 53.6 million barrels of oil equivalent of total proved and probable (2P) reserves. The acquisition results in a 3.9 times increase in corporate production, a 3.7 times increase in 2P reserves and a 6.2 times increase in 2P reserve value.
• Significant North Sea operating position: Upon closing, Tenaz will become the second-largest operator in the Dutch North Sea (DNS). NOBV production accounts for approximately 20 per cent of gas production in the DNS and is 87 per cent operated by NOBV.
• Robust free funds flow profile: The acquired assets are expected to generate over 90 million euros of free cash flow in 2024. Cash flows are significantly protected by fixed-price hedging contracts on 46 per cent of production from 2024 through 2026 at an average fixed price of 38.79 euros per megawatt-hour ($16.94 per million British thermal units). The cash flow profile creates significant go-forward capital allocation flexibility with respect to return of capital, low-risk development opportunities, and high-impact exploration prospects.
• Appropriate transaction structure and financing: The combination of high interim period cash flow and contingent payment structure drives down cash consideration at close and reduces risk to Tenaz. The transaction structure aligns potential contingent payments with realization of further value for Tenaz shareholders. Tenaz expects to finance the cash purchase price from existing liquidity and new non-dilutive capital to maximize value for existing shareholders. The acquisition is expected to generate significant accretion in all key metrics, including production, reserves, cash flow, free cash flow and net asset value per share.

Anthony Marino, president and chief executive officer 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 work force 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 kilometres (approximately 600,000 net acres). The licences are located in shallow water at an average water depth of 34 metres, approximately 60 kilometres offshore.

Current production is approximately 11,000 barrels of oil equivalent per day (99 per cent gas and 87 per cent 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 metres. The base production decline rate is approximately 10 per cent.

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 well have been drilled on NOBV licence 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. The company's evaluation of NOBV has determined that there are several years of workover and optimization projects, at least 30 potential development drilling locations, and more than 80 exploration leads and prospects on this extensive offshore licence base. Exploration and development potential is enhanced by the presence of 3-D 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, the company intends to phase in a development drilling program and also expects 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, the company's capital and production plan should also generate significant free cash flow.

Mid-stream

Gas produced from the JDA and L02/L09 areas is transported to and processed at the Den Helder gas plant. Den Helder processes roughly 50 per cent of all gas produced in the DNS, which is then delivered into the national gas grid, while condensate is transported to customers by inland vessels.

JDA high-calorific-content (HiCal) gas is transported through the West Gas Transport (WGT) system, and low-calorific-content (LoCal) gas is transferred through the LoCal pipeline. The L02/L09 area production is transported through 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 mid-stream assets will be 45.6 per cent in the JDA LoCal system as well as 31.1 per cent and 23.0 per cent 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-per-cent 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: The base consideration of 165 million euros ($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 euros ($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 euros ($34-million) deposit provided to NAM at signing. The company's current estimate of required cash to close is approximately 30 million euros ($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 earnout: For the period from Jan. 1, 2025, through Dec. 31, 2027, NAM will be entitled to contingent payments equal to: (i) 50 per cent of 2025 free cash flow from the NOBV assets (NOBV FCF); (ii) 50 per cent of 2026 NOBV FCF; and (iii) 25 per cent of 2027 NOBV FCF, up to a maximum of 120 million euros in aggregate payments. If the aggregate earnout payments do not reach 120 million euros, no further payments related to the earnout are required.

Exploration-volume-contingent consideration: In the event that a future new field exploration discovery on the current NOBV licences exceeds certain cumulative production thresholds, NAM is entitled to receive volume-contingent royalty payments as shown in an attached table.

Price-contingent consideration: If the average realized TTF price for a given calendar year between Jan. 1, 2028, and Dec. 31, 2031, exceeds 50 euros per megawatt-hour, NAM is entitled to receive a gas-price-contingent payment based on incremental after-tax cash flow as shown in an attached table.

Price-contingent payments will be calculated based on actual realized prices whereby volumes sold under the fixed-price offtake arrangements, detailed in an attached table, 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 an attached table.

Acquisition financing

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 finance the closing of the acquisition. If drawn, the term loan will be repayable within 12 months of drawdown. 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 has completed an independent assessment of the reserves associated with the assets and have assigned 53.6 million barrels of oil equivalent (99 per cent natural gas) of total proved plus probable (2P) reserves as at Jan. 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 per cent (NPV10) of the 2P reserves using the July 1, 2024, consultant average price forecast, after taking into account estimated decommissioning costs, are shown in an attached table. The after-tax NPV10 includes decommissioning costs associated with the acquired assets, which are estimated to have an NPV10 of approximately 144 million euros ($216-million).

Adviser

National Bank Financial Inc. acted as exclusive financial adviser 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.

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