• Material underperformance underscores why Iron Bridge shareholders should tender to Velvet’s all-cash offer
  • Several independent analyst reports note that Iron Bridge’s common shares would trade well below $0.75 per share, absent Velvet Energy’s offer
  • Our premium, all-cash offer, provides shareholders with certainty of avoiding the dilutive impact of any financing alternative Iron Bridge might pursue absent Velvet’s Offer
  • Shareholders are reminded that Velvet Energy’s offer is the only one available
  • Shareholders are urged to tender today by contacting Kingsdale Advisors at 1-866-879-7650 or by e-mail at contactus@kingsdaleadvisors.com

CALGARY, Alberta, Aug. 21, 2018 (GLOBE NEWSWIRE) -- Following the release of Iron Bridge Resources Inc.’s (TSX:IBR) ("Iron Bridge" or the “Company”) second quarter results on August 14, 2018, Velvet Energy Ltd. (“Velvet”, “we”, “us” or “our”) today commented on Iron Bridge’s material underperformance and deteriorating financial condition.  

Ken Woolner, President & CEO of Velvet, stated, “Iron Bridge’s operational and financial results have been, across the board, significantly worse than we expected when we made our $0.75 per share all-cash offer.  Second quarter results and public information paint a disturbing picture of the deterioration in the Company’s operations and finances over what was available prior to us making the offer.  Without a viable stand-alone plan, and in a weak capital market environment, Velvet’s all-cash offer for Iron Bridge’s shares is increasingly out of line with the underlying value of Iron Bridge’s struggling business.  While such deterioration of the business could justify us not following through, we remain committed to the offer we have made to Iron Bridge shareholders.  Shareholders should be concerned about the future of their investment, and the trading price of their shares, if Velvet’s offer isn’t accepted.”


As Velvet has previously stated, its all-cash offer for Iron Bridge shares, at a significant premium to market and underlying business fundamentals, provides Iron Bridge shareholders with immediate liquidity and certainty of value.

As we approach the expiration date of the offer on September 12, 2018, Velvet’s offer has become even more compelling, particularly in light of the material deterioration of the business since we made our offer, for a number of reasons:

  • Iron Bridge continues to speak in generalities about running a sale process and seeking “white knights”.  At 85 days into the bid period, if anyone other than Velvet was interested in acquiring Iron Bridge at a premium to $0.75 per share, evidence of that interest would be clearly stated;
  • Iron Bridge has not identified any credible financing alternative to compete with Velvet’s offer.  Given Iron Bridge’s material underperformance, any standalone capital raise would, if at all, only be achieved at a share price which is significantly below our offer price.  Shareholders should fully expect that such a financing  will be either highly-dilutive (if equity or equity-linked) or very expensive and covenant-heavy (if debt).  Furthermore, debt financing of any form would represent a significant transfer of economic value (and likely control) from shareholders to creditors;
  • Iron Bridge’s continued underperformance and deteriorating liquidity has limited its ability to continue, status quo, as a going concern without passing significant control to a financial partner; and
  • Iron Bridge’s board has exhausted its options.  As fiduciaries, they need to act in the best interests of the Company and its stakeholders and encourage acceptance of Velvet’s offer.

Velvet believes that its minimum tender condition will be met by the time the offer expires. However, if the condition is not met, Iron Bridge’s shareholders should not assume that Velvet will extend the offer on current bid terms. 


Iron Bridge’s well results, when normalized for periodic downtime, are materially below their own type curve and create an ominous outlook for the solvency of Iron Bridge.  At current strip commodity pricing, using actual production data, and incorporating actual capital costs to drill, complete, equip and tie-in wells, plus the additional water disposal costs to handle excessive water volumes, Iron Bridge generates a negative rate of return on its wells.  Iron Bridge’s wells are all below their own production type curve, and are now destroying borrowed capital.


With its poor financial results, Iron Bridge disclosed that, at the end of the second quarter, it breached the only financial covenant in its lending agreement.  To put the borrowing arrangements back onside, Iron Bridge’s banker increased its borrowing base from $5 million to $10 million and granted a covenant waiver. 

Iron Bridge is currently spending its limited undrawn bank debt to clean out sand blockages in the Company’s two new wells.  With the prospect of diminished revenue, combined with high fixed operating, transportation and G&A costs, a further breach by Iron Bridge of its financial covenant is likely in the immediate term.


In reporting on its second quarter results, Iron Bridge stated that one of its five Montney producers was converted to a water injector to facilitate handling high volumes of water.  Based on regulatory filings, the converted Montney producer appears to be the 3-22 well, which recovered 28,800 barrels of oil over its 12 month productive life (41 bbl/d in June). 

We estimate that the 3-22 well generated only $2.6 million of operating income over its short productive life.  This means that Iron Bridge recovered only 75% of the $4.3 million of the disclosed cost to drill and complete the well, not including the significant additional capital investment required to equip and tie-in the well for production.  This well will see a negative reserve revision at year-end, and we remind investors that it was one of five wells that supported Iron Bridge’s borrowing base. 

Going forward, the cash generation of Iron Bridge’s four remaining wells is impaired by:

  • Consistent underperformance relative to its light oil type curve – Iron Bridge’s wells are producing at 30-50% of type curve, and oil revenue is substantially below that inferred in its type curve economics, as illustrated in the Company’s April 2018 investor presentation.  The Company’s higher rate natural gas wells are further challenged by low and volatile AECO natural gas prices.  The Company has no commodities hedges in place to support pricing;
  • High costs over a limited number of wells – Capital upgrades to its 2-23 facility and additional water injection infrastructure are sunk costs, and the economies of scale management seeks to achieve are unattainable as the plant will be significantly underutilized, and costs will be spread over fewer, underperforming wells;
  • Transportation commitments growing in 2019 – Iron Bridge has alluded to transportation income in prior periods through its efforts to mitigate its unutilized pipeline take-or-pay obligations, by selling capacity to third parties.  With the over-supply of natural gas in the basin, offloading excess firm service is no longer an option.  This will be a growing problem as Iron Bridge’s firm service commitments are set to double to $2.2 million in 2019; 
  • High G&A expense – Management’s overhead burn rate of $1.3 million per quarter translates into over $6.00/boe, which is excessive, even after adjusting for one-time expenses of $300,000.  This level of overhead is excessive to manage 4 wells and a very limited capital program; and
  • Borrowing costs rising as debt builds – Iron Bridge’s aggressive spending and operational underperformance are steering the Company to fully draw its $10 million bank line, with interest expense set to be a further drag on marginal field cash flows.

Based on current production volumes, we foresee minimal funds flow at strip pricing.  In effect, Iron Bridge’s precarious financial state has the Company constrained to produce out its existing four wells.


Despite the lack of cash generation and liquidity, management has licenced six new Montney locations which will require at least $50 million of new funding, prior to considering facilities expansion to accommodate their high fluid handling requirements.  

Given the operational and financial underperformance of the Company, no equity financing is available to Iron Bridge’s management team.  If the Company really did have financing offers “in hand” to fund this activity, why have these not been disclosed, particularly in light of the Company’s precarious financial state?


Rejecting Velvet's fully-funded all-cash offer exposes shareholders to real risk and we would note that since the release of their second quarter results, there is a consistent theme amongst independent analyst reports stressing the degree to which Iron Bridge shares would trade sharply lower, absent our premium offer.  To receive certainty in the form of a fully-funded, all-cash, 58% premium offer, take the simple steps needed to tender your Iron Bridge common shares now.

The offer expires at 5:00 p.m. (Toronto time) on September 12, 2018.  If you have any questions or require assistance, please contact Kingsdale Advisors, our Depositary and Information Agent, by telephone toll-free at 1-866-879-7650 with North America and at 1-416-867-2272 outside of North America or by e-mail at contactus@kingsdaleadvisors.com.  We hope you will accept our significant premium all-cash offer.


Velvet has retained BMO Capital Markets as its exclusive financial advisor.  Kingsdale Advisors is acting as strategic communications advisor and its Information Agent and Depositary.

Information Agent

For additional information, including assistance in depositing Iron Bridge shares to the offer, Iron Bridge shareholders should contact Kingsdale, toll-free in North America at 1-866-879-7650 or call collect outside North America at 1-416-867-2272 or by email at contactus@kingsdaleadvisors.com.

About Velvet

Velvet Energy Ltd. is a privately-held, full-cycle exploration and production company. Focused in the liquids-rich gas and light oil window of the Deep Basin of Alberta, the company executes an organic growth business plan, including early land capture, technical evaluation, exploration and development of internally generated prospects. Headquartered in Calgary, Velvet has current production of approximately 25,000 boe per day and a focused land position consisting of over one million net undeveloped acres spanning from its core liquids-rich Ellerslie development in the greater Edson area to early phase Montney light oil exploration at Gold Creek.

Important Notice

Certain statements contained in this news release constitute forward-looking information within the meaning of applicable securities laws. Forward-looking information can be generally identified by the use of words such as “anticipate”, “continue”, “estimate”, “expect”, “expected”, “intend”, “may”, “will”, “project”, “plan”, “should”, “believe” and similar expressions. Specifically, forward-looking information in this news release includes statements respecting the offer, including the benefits, results, effects and timing of any such transaction and the completion thereof, if at all. Forward-looking statements in this news release describe the expectations of Velvet as of the date hereof. These statements are based on assumptions and 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 statements for a variety of reasons, including without limitation, the ability to obtain regulatory approvals and meet the other conditions to any possible transaction. Although Velvet believes the expectations reflected in these forward-looking statements and the assumptions upon which they are based are reasonable, no assurance can be given that actual results will be consistent with such forward-looking statements, and they should not be unduly relied upon.

For further information:

Ken Woolner
President and Chief Executive Officer
(403) 781-9134

Chris Theal
Chief Financial Officer
(403) 781-9162

Peter Henry
Vice President, Finance 
(403) 781-9133

Media Contact:

Kingsdale Advisors
Ian Robertson, 416-867-2333
Executive Vice President, Communication Strategy
Cell: 647-621-2646