Painted Pony confident in shareholder approval for takeover

Painted Pony Petroleum Ltd. says it remains confident it will secure shareholder approval for its proposed takeover of a privately held natural gas producer, despite the objections of a major shareholder.

Patrick Ward, Painted Pony’s chief executive, said the criticisms levied by a dissident shareholder over the Calgary company’s proposed acquisition of UGR Blair Creek Ltd. have become a “non-issue.”

“We had one guy that got ticked off,” Ward told reporters Wednesday at an oil and gas investor conference in Toronto. “He’s calmed down. He’s sold most of his shares anyway.”

Ward did not name the dissident shareholder, but Invesco portfolio manager Norman MacDonald has so far been the only person to publicly sound alarms about the all-share deal, valued at $229.6 million plus debt when it was announced mid-March.

Invesco, which manages $30 billion worth of assets in Canada, controls a five per cent stake in Painted Pony. Reached Wednesday, the investor declined to comment.

Sources close to the matter said while Invesco reduced its holdings in late 2016 and early 2017, it remains a significant shareholder in Painted Pony and objects to the deal.

The UGR deal would expand Painted Pony’s holdings in the Montney resource play in northeastern British Columbia, expanding its acreage by 52 per cent.

The transaction comes with 51 million cubic feet of gas per day in current production, the equivalent of 8,400 barrels, along with two trillion cubic feet per day in potential future development.

Painted Pony last week said it raised $111 million by issuing shares — $11 million more than it originally planned — to finance increased production on existing and acquired plays, pay down debt and cover general expenses.

Days after the deal was announced, Invesco’s MacDonald said the equity offering would dilute Painted Pony shares by 60 per cent, arguing he had never seen the same level of dilution in the 22 years he’s been in the business.

He said UGR’s non-producing reserves appeared to be a significant share of the deal, but he said Painted Pony has plenty of those already.

MacDonald wondered at the time whether he could muster enough shareholder votes to block the deal, though he didn’t say for sure he would take that step.

Painted Pony’s top executive said Wednesday the company has been talking to UGR about a potential transaction for years. He said the deal is a good fit because Painted Pony is familiar with UGR assets, having been its partner in drilling several wells.

Ward said the deal also comes with unused natural gas processing capacity and access to Enbridge’s pipeline system.

“It’s just a real sweet spot — upper Montney wells that are the best within 100 miles in any direction,” he said during a presentation at the Toronto conference.

In an email to Postmedia, Ward said he is on a road trip informing shareholders about the deal, and everyone he has met with appears to support the transaction.

“It does result in very shortterm dilution but builds longterm value,” he said in the note.

Ward said Invesco has turned down Painted Pony’s offer to meet.